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SECURITIES EXCHANGE AND COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1997
ZITEL CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction of incorporation)
0-12194 94-2566313
(Commission File No.) (IRS Employer Identification No.)
47211 BAYSIDE PARKWAY,
FREMONT, CALIFORNIA 94538-6517
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 440-9600
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1997, Zitel Corporation ("Zitel" or the "Company") acquired the
businesses of three companies.
(a) DATAMETRICS SYSTEMS CORPORATION. A wholly-owned subsidiary of the
Company acquired the assets and certain liabilities of Datametrics Systems
Corporation ("Datametrics") for cash consideration of approximately
$9,200,000. There were no material relationships between Datametrics and its
affiliates, on the one hand, and the Company and its affiliates, on the other
hand. The purchase price and terms of the purchase were determined by
arm's-length negotiation between the parties. The purchase price was paid
out of the Company's working capital.
Datametrics, headquartered in Fairfax, Virginia, is engaged in the
development, marketing and sales of single-system and multi-system measurement
and modeling software used to optimize performance in client server
environments. The Company plans to continue the operations of Datametrics. The
assets of Datametrics were used in the described business and the Company plans
to continue such use.
(b) PALMER & WEBB SYSTEMS LIMITED AND PALMER & WEBB SYSTEMS B.V. Two
different wholly-owned subsidiaries of the Company acquired (i) the assets and
certain liabilities of Palmer & Webb Systems Limited (and a related company,
Moebius Business Training Limited) (collectively, "Limited") for cash
consideration of $800,000 and (ii) the outstanding stock of Palmer & Webb
Systems B.V. ("B.V.") for cash consideration of $1,000,000 and 61,401 shares of
the Company's common stock ("Common Stock"). There were no material
relationships between Limited and B.V. and their affiliates, on the one hand,
and the Company and its affiliates, on the other hand. The purchase prices and
terms of the purchases were determined by arm's-length negotiations between the
parties. The cash portions of the purchase prices were paid out of the
Company's working capital. Limited, headquartered in England, is engaged in the
distribution of Datametrics software in the United Kingdom. B.V., headquartered
in the Netherlands, markets Datametrics software in the Netherlands and provides
contract facilities maintenance in the Netherlands for the users of the
mainframe computer systems of a leading computer company. The assets of Limited
and B.V. were used in the described businesses and the Company intends to
continue such use.
The Company plans to combine the operations of the three acquired companies
with its existing performance and modeling software business in a division that
will operate under the Datametrics name. In conjunction with the acquisitions,
the Company expects to sustain a one-time, non-recurring, after-tax charge to
earnings for the write-off of acquired in-process research and development of
approximately $4.8 million, or $.31 per share, for the quarter ended June 30,
1997.
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ITEM 5. OTHER EVENTS - RISK FACTORS
RECENT LEVELS OF NET SALES; DEPENDENCE ON ROYALTY REVENUE
In recent years the Company has not generated net sales sufficient to
produce an operating profit and has relied on a stream of royalty payments under
an agreement with IBM to support its activities. These royalties amounted to
$15,421,000 in fiscal 1995 and $14,473,000 in fiscal 1996. In late 1996 IBM
introduced a new version of the royalty bearing device with substantially
greater capacity and royalty revenue declined to $2,318,000 in the first quarter
of fiscal 1997 and $1,196,000 in the quarter ended March 31, 1997. The Company
believes that IBM is transitioning to a device which does not require royalty
payments to the Company, and that as a result royalty revenue will continue to
decline. The Company has sustained operating losses and net losses in the
quarters ended December 31, 1996 and March 31, 1997. In the most recent quarter
the Company realized a negative net margin on net sales. The Company must
generate substantial additional net sales of its hardware products in order to
restore gross margins on those products, must generate profitable revenue from
its recently acquired software businesses and must generate revenue from its new
systems solutions division in order to remain a viable operating entity. There
is no assurance that the Company can achieve those objectives.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including:
the level of competition, the size, timing, cancellation or rescheduling of
significant orders; product configuration and mix; market acceptance of new
products and product enhancements; new product announcements or introductions by
the Company's competitors; deferrals of customer orders in anticipation of new
products or product enhancements; changes in pricing by the Company or its
competitors; the impact of price protection measures and return privileges
granted by the Company to its distributors and value added resellers (VARs); the
ability of the Company to develop, introduce and market new products and product
enhancements on a timely basis; hardware component costs and availability,
particularly with respect to hardware components obtained from sole source
suppliers; hardware supply constraints; the Company's success in expanding its
sales and marketing programs; technological changes in the market for the
Company's products, product mix and the mix of sales among the Company's sales
channels; levels of expenditures on research and development; changes in the
Company's strategy; personnel changes; general economic trends and other
factors.
Sales for any quarter are not predictable with any significant degree of
certainty. The Company generally operates with limited order backlog because
its products typically are shipped shortly after orders are received. Sales
to a single customer in a quarter have affected and may affect net sales and
operating margins. As a result, sales in any quarter are generally dependent
on orders booked and shipped in that quarter. Sales are also difficult to
forecast because the Company has not as yet generated significant sales of
its products incorporating cache activated storage device (CASD) technology.
Due to the typical timing of customer orders, the Company often ships
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products representing a significant portion of its net sales for a quarter
during the last month of that quarter. Any significant deferral of these sales
could have a material adverse effect on the Company's results of operations in
any particular quarter. To the extent that the Company completes significant
sales earlier than expected, operating results for subsequent quarters may be
adversely affected. The Company's expense levels are based, in part, on its
expectations as to future sales. As a result, if sales levels are below
expectations, net income may be disproportionately affected.
The mix of the products marketed by the Company has been evolving over the
last three years, and the Company's net sales have declined over that period.
Due to all of the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as an indicator of future performance. It is possible
that in some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially and adversely affected.
INVESTMENT IN MATRIDIGM
The Company has invested $5,588,000 to acquire an approximate 30% interest
in MatriDigm Corporation ("MatriDigm"), a private company organized to provide
software maintenance and re-engineering services for users of IBM mainframe
computer systems. MatriDigm has initially focused on development of a set of
automated tools to identify and specifically modify dates within IBM COBOL
programs to bring them into compliance with the Year 2000 requirements and to
test the modified programs. MatriDigm in February 1997 announced commercial
availability of an automated tool set for a pac-binary solution for programs
written in ANSI COBOL 85 and, to respond to market demand, has recently
announced commercial availability of a windowing solution. MatriDigm intends to
continue to refine its current tool set and to extend its tool set to modify
other COBOL languages as well as other computer languages widely used to write
programs for IBM mainframe computers. Industry sources report a multi-billion
dollar demand for services such as those being developed by MatriDigm and an
automated tool set should provide greater profit margins than can be realized
using other available methods. However, MatriDigm has not realized revenue as
yet, and there is no assurance that it can successfully market its automated
tool set, develop extensions for other computer languages or generate
substantial revenue and profits. During the course of development, the Company
has made additional investments in MatriDigm and may be required to make
additional investments in the future.
VOLATILITY OF STOCK PRICE
The price of the Company's Common Stock has been subject to extreme
volatility over the past nine months, as the closing bid price has ranged
between a low of 5-1/8 and a high of 61-1/4, with a recent price of 19. The
Company believes that the principal reasons for this volatility are rumored
progress of and rumored problems in the product development program of
MatriDigm. MatriDigm, which expects to provide an automated solution to the
Year 2000 problem, is a private company and the principal vehicle for public
participation in ownership of
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MatriDigm is indirectly through ownership of Common Stock of the Company.
MatriDigm has been unable or unwilling to provide public information on a
regular basis about the status of its development effort, and as a result an
opportunity is presented for third parties to initiate rumors which result in
significant swings in the price of the Company's Common Stock. Until MatriDigm
successfully develops a solution and generates significant sustained revenue, it
will remain difficult for investors to apply standard methods of analysis to the
value of the Company's investment in MatriDigm and the pattern of volatility
should be expected to continue.
COMPETITION
The data storage market is intensely competitive, with technological
advances fueling continuous erosion of prices for data storage capacity. The
Company competes with much larger independent companies such as EMC Corp and
Data General Corporation as well as manufacturers of computer systems such as
Unisys Corporation, Sun Microsystems, Inc. and Hewlett-Packard Corporation.
Many of its competitors have substantially greater financial resources and
installed bases than the Company and, on account of their substantially higher
level of purchases, are able to achieve significantly lower prices from
suppliers of component parts. While the Company believes that its CASD products
are currently superior to competitive products, unless it can significantly
increase the level of net sales and additional cost savings on component
purchases, it will be unable to generate adequate gross margins on its CASD
products. There can be no assurance that the Company will be able to generate
the level of net sales to achieve adequate gross margins.
The market for Year 2000 services is intensely competitive, with services
being provided by a number of national, regional and local firms, many of which
have existing relationships and contractual arrangements with customers. Many
of these competitors have substantially greater financial, technical and
marketing resources than the Company and MatriDigm. The ability of the Company
and MatriDigm to compete in this market will depend on the ability of MatriDigm
to develop a successful automated solution and as yet there can be no assurance
that MatriDigm will be successful in this effort. In addition, the Company must
attract and retain qualified personnel in which are also highly sought by its
competition and must successfully leverage its own resources with contract and
partnering relationships with other companies, including companies which are
also competitors.
The market for system management tools in which the Company's software
products division competes is intensely competitive. Many of the companies with
which the Company competes, such as Hewlett-Packard Corporation, Computer
Associates and BGS, Inc. have substantially larger installed bases and greater
financial resources than the Company.
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The markets in which the Company operates are characterized by rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards. The introduction of products
embodying new technologies, increased storage capacities by the Company's
competitors and the emergence of new industry standards could
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render the Company's existing hardware products obsolete and unmarketable. The
Company's future success will depend upon its ability to develop and to
introduce new products on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. The Company has not as yet realized
significant sales of its CASD products. There can be no assurance that the
Company will be successful in generating significant sales of these products.
The failure of the Company to achieve significant net sales from these products
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be successful in developing and marketing any other products that respond
to technological changes or evolving industry standards, that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products, or that its new
products will adequately meet the requirements of the marketplace and achieve
market acceptance. If the Company is unable, for technological or other
reasons, to develop and introduce new products in a timely manner in response to
changing market conditions or customer requirements, the Company's business,
operating results and financial condition will be materially and adversely
affected.
PRODUCT LIABILITY
The Company's standard warranty provides that, if the Company's product
does not function to published specifications, the Company will repair or
replace the defective component without charge. Although to date the Company's
suppliers of hardware components have generally covered the warranty costs
associated with such components, there can be no assurance that such
manufacturers will continue to be willing or able to cover such costs, and their
failure to do so would result in such costs being borne by the Company. There
can be no assurance that the Company's warranty costs will not be significant in
the future. Significant warranty costs could have a material adverse effect on
the Company's business, operating results or financial condition.
The Company's agreements with its customers typically contain provisions
intended to limit the Company's exposure to potential product liability claims.
It is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective. Although the Company has not
received any product liability claims to date, the sale and support of products
by the Company and the incorporation of products from other companies may entail
the risk of such claims. A successful product liability claim against the
Company could have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success depends significantly upon its proprietary
technology. The Company currently relies on a combination of patent, copyright
and trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has
registered its Zitel, CASD, VAM and Datametrics trademarks and will continue to
evaluate the
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registration of additional trademarks as appropriate. The Company generally
enters into confidentiality agreements with its employees and with key vendors
and suppliers. The Company currently has eight United States patents associated
with its CASD technology. There can be no assurance that these patents will
provide the Company with any competitive advantages or will not be challenged by
third parties, or that the patents of others will not have a material adverse
effect on the Company's ability to do business. The Company believes that the
rapidly changing technology in the computer storage industry makes the Company's
success depend more on the technical competence and creative skills of its
personnel than on patents.
There has also been substantial litigation in the computer industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has not received
significant claims that it is infringing third parties' intellectual property
rights, but there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that companies in
the storage systems market will increasingly be subject to infringement claims
as the number of products and competitors in the Company's target markets
grows. Any such claims or litigation may be time-consuming and costly, cause
product shipment delays, require the Company to redesign its products or
require the Company to enter into royalty or licensing agreements, any of
which could have a material adverse effect on the Company's business,
operating results or financial condition. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the Company's
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not independently develop similar technology,
duplicate the Company's products or design around patents issued to the
Company or other intellectual property rights of the Company.
INTERNATIONAL SALES AND OPERATIONS
Sales to customers outside the United States have accounted for significant
portions of the Company's net sales, and the Company expects that the recent
acquisition of companies headquartered and operating in the United Kingdom and
the Netherlands, respectively, will result in international sales representing
an increasingly significant portion of the Company's net sales. International
sales pose certain risks not faced by companies that limit themselves to
domestic sales. Fluctuations in the value of foreign currencies relative to the
U.S. dollar, for example, could make the Company's products less price
competitive and, if the Company in the future denominates any of its sales in
foreign currencies, could result in losses from foreign currency transactions.
International sales also could be adversely affected by factors beyond the
Company's control, including the imposition of government controls, export
license requirements, restrictions on technology exports, changes in tariffs and
taxes and general economic and political conditions. The laws of some countries
do not protect the Company's intellectual property rights to the same extent as
the laws of the United States.
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RECENT ACQUISITIONS
The Company, on June 30, 1997, concluded the acquisition of the assets or
stock of three companies: Datametrics Systems Corporation, headquartered in
Fairfax, Virginia; Palmer & Webb Systems, Limited, headquartered in England and
Palmer & Webb Systems, B.V., headquartered in the Netherlands. The operations
of these acquired companies are substantial in relation to the previous
operations of the Company and there are significant risks involved in
integrating the operations and financial systems of these companies, in part
because of the relative size of the acquired operations and the distance of the
headquarters of these companies from the headquarters of the Company.
Acquisitions involve a number of special risks, including diversion of
management's attention, failure to retain key acquired personnel, unanticipated
events or circumstances, legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's results of operations and financial condition. Client
satisfaction or performance problems at a single acquired firm could have a
material adverse impact on the reputation of the Company as a whole.
While the Company has had experience developing and marketing software, a
substantial majority of the Company's efforts and experience have been
devoted to the development, manufacturing and marketing of computer memory
systems and embedded software and firmware. The new focus on developing and
marketing software will involve new and different skills and there can be no
assurance that the Company will be successful in that effort.
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company provides incentives such as salary, benefits and option grants (which
are typically subject to vesting over four years) to attract and retain
qualified employees. The loss of the services of one or more of the Company's
officers or other key employees could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical and management employees or that it can attract, assimilate
and retain other highly qualified technical and management personnel in the
future.
The future success of the Company's systems solutions division will depend
to a significant extent on its ability to attract, train, motivate and retain
highly skilled software development professionals, particularly project
managers, software engineers and other senior technical personnel. The Company
believes that in the United States and elsewhere there is a shortage of, and
significant competition for, software development professionals with the
advanced technological skills necessary to perform the services offered by the
systems solutions division. The increasing recognition of the scope and
significance of the year 2000 problem has
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materially increased the competition for personnel with appropriate skills and
salary requirements have increased as availability of such personnel has
declined precipitously. The Company's ability to maintain and renew existing
relationships and obtain new business depends, in large part, on its ability to
hire and retain technical personnel with the information technology skills who
keep pace with continuing changes in information processing technology, evolving
industry standards and changing client preferences. An inability to hire such
additional qualified personnel could impair the ability of the systems solutions
division to manage and complete its existing projects and to bid for or obtain
new projects. Further, the Company must train and manage its growing employee
base, requiring an increase in the level of responsibility for both existing and
new management personnel. There can be no assurance that the management skills
and systems currently in place will be adequate or that the Company will be able
to assimilate new employees successfully. Accordingly, there can be no
assurance that the Company will be successful in retaining current or future
employees.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, as
amended and restated, and Bylaws, as amended, California law and the Company's
indemnification agreements with certain officers and directors of the Company
may be deemed to have an anti-takeover effect. Such provisions may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
to be in that stockholder's best interests, including attempts that might result
in a premium over the market price for the shares held by stockholders.
The Company's Board of Directors may issue additional shares of Common
Stock or establish one or more classes or series of Preferred Stock, having the
number of shares designations, relative voting rights, dividend rates,
liquidation and other rights, preferences and limitations as determined by the
Board of Directors without stockholder approval.
The Board of Directors of the Company has approved the adoption of a
Preferred Share Purchase Rights Plan (the "Rights Plan"). Terms of the Rights
Plan provide for a dividend distribution of one preferred share purchase right
(a "Right") for each outstanding share of common stock, no par value per share
(the "Common Shares"), of the Company. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, no par value (the "Preferred Stock"), at
an exercise price of $69.50 per one one-hundredth of a Preferred Share (the
"Purchase Price"), subject to adjustment, and a redemption price of $.01 per
Right. Each one one-hundredth of a share of Preferred Stock has designations
and the powers, preferences and rights, and the qualifications, limitations and
restrictions which make its value approximately equal to the value of a Common
Share.
The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that a person, entity or group of affiliated or
associated persons (an "Acquiring Person") have acquired beneficial ownership of
15% or more of the outstanding Common Shares or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or entity becomes an Acquiring Person) following the
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commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding Common Shares.
The Rights have certain anti-takeover effects as they would cause
substantial dilution to a person or group that attempted to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors, since the Rights may be redeemed by the Company at $.01 per
Right prior to the earliest of (i) the twentieth day following the time that a
person or group has acquired beneficial ownership of 15% or more of the Common
Shares (unless extended for one or more 10 day periods by the Board of
Directors), (ii) a change of control, or (iii) the final expiration date of the
rights.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Attached hereto and filed as a part of this report are the following
financial statements:
(I) The Financial statements and report thereof, for
Datametrics Systems Corporation for the years ended
December 31, 1996 and 1995.
(II) The Financial statements and report thereof, for
Palmer & Webb Systems Limited for the years ended
December 31, 1996 and 1995.
(III) The Financial statements and report thereof, for
Palmer & Webb Systems B.V. for the years ended December 31,
1996 and 1995.
(B) UNAUDITED PRO FORMA FINANCIAL INFORMATION.
The following listed unaudited pro forma financial information for
the acquisitions if attached hereto and filed as a part of this report:
(I) Introductory Paragraph
(II) Notes to Unaudited Pro Forma Combined Financial Statements
(III) Unaudited Pro Forma Combined Balance Sheet as of
March 31, 1997
(IV) Unaudited Pro Forma Combined Statement of Operations
for the Year Ended September 30, 1996
(V) Unaudited Pro Forma Combined Statement of Operations
for the Six Months Ended March 31, 1997
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(C) EXHIBITS.
The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
Exhibit Number Exhibit
2.1 Asset Purchase Agreement dated as of June 25, 1997, by
and among Zitel World Trade, Datametrics System
Corporation and John C. Kelly.
2.2 Asset Purchase Agreement dated as of 30 June 1997, by
and among Zitel Corporation, Zitel Limited, Palmer &
Webb Systems Limited, Reginald Webb and Julian Palmer
and Moebius Business Training Limited.
2.3 Stock Purchase Agreement dated as of June 30, 1997, by
and among Zitel Corporation, Zitel World Trade, Hell
Sails B.V. and Palmer & Webb Systems B.V.
10.1 Lease Office Building for One Monument Place between
Upland Industrities Corporation and Collin Equities,
Inc. and Datametrics Systems Corporation dated July 31,
1992.
10.2 First Amendment to Lease between CMD Realty Investment
Fund, L.P. and Datametrics Systems Corporation dated
October 16, 1996.
10.3 Form of Palmer & Webb Lease.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZITEL CORPORATION
Dated: July 14, 1997 By:/s/ Jack H. King
----------------
Jack H. King
President and Director
Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
2.1 Asset Purchase Agreement dated as of June 25, 1997, by and among
Zitel World Trade, Datametrics Systems Corporation and John C. Kelly.
2.2 Asset Purchase Agreement dated as of 30 June 1997, by and among
Zitel Corporation, Zitel Limited, Palmer & Webb Systems Limited,
Reginald Webb and Julian Palmer and Moebius Business Training
Limited.
2.3 Stock Purchase Agreement dated as of June 30, 1997, by and among
Zitel Corporation, Zitel World Trade, Hell Sails B.V. and Palmer
& Webb Systems B.V.
10.1 Lease Office Building for One Monument Place between Upland
Industrities Corporation and Collin Equities, Inc. and Datametric
Systems Corporation dated July 31, 1992.
10.2 First Amendment to Lease between CMD Realty Investment Fund, L.P. and
Datametrics Systems Corporation dated October 16, 1996.
10.3 Form of Palmer & Webb Lease.
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FINANCIAL STATEMENTS
DATAMETRICS SYSTEMS CORPORATION
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
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Datametrics Systems Corporation
Financial Statements
Years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Stockholder's Equity . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . 6-9
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[LETTERHEAD]
Report of Independent Auditors
Board of Directors
Datametrics Systems Corporation
We have audited the accompanying balance sheets of Datametrics Systems
Corporation as of December 31, 1996 and 1995 and the related statements of
income, stockholder's equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Datametrics Systems Corporation
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
February 21, 1997
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Datametrics Systems Corporation
Balance Sheets
DECEMBER 31
1996 1995
-------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 106,667 $ 801,041
Accounts receivable 2,476,526 3,015,281
Prepaid expenses and other assets 17,785 13,915
----------- -----------
Total current assets 2,600,978 3,830,237
Property and equipment:
Computer equipment and software 604,078 494,941
Office furniture and equipment 173,719 158,357
----------- -----------
777,797 653,298
Less accumulated depreciation and amortization (578,496) (463,290)
----------- -----------
199,301 190,008
Capitalized software costs, net 1,559,430 620,884
----------- -----------
Total assets $ 4,359,709 $ 4,641,129
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 36,585 $ 55,870
Accrued liabilities 762,166 549,504
Note payable 27,778 61,111
Deferred revenue 1,961,062 1,910,523
----------- -----------
Total current liabilities 2,787,591 2,577,008
Commitments (Note 5) - -
Stockholder's equity:
Common stock, no par value; 1,000 shares
authorized, 100 shares issued and outstanding 5,943 5,943
Retained earnings 1,566,175 2,058,178
----------- -----------
Total stockholder's equity 1,572,118 2,064,121
----------- -----------
Total liabilities and stockholder's equity $ 4,359,709 $ 4,641,129
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
2
<PAGE>
Datametrics Systems Corporation
Statements of Income
YEARS ENDED DECEMBER 31,
1996 1995
---------------------------
Revenues:
Software and maintenance $ 6,676,963 $ 6,649,045
Contract 1,528,220 1,406,050
----------- -----------
8,205,183 8,055,095
Costs of revenues:
Software and maintenance 3,839,180 2,792,255
Contract 707,786 696,923
----------- -----------
4,546,966 3,489,178
Gross profit 3,658,217 4,565,917
Operating expenses:
Research and development 291,064 259,918
Sales and marketing 1,503,962 1,174,786
General and administrative 1,768,219 1,484,332
----------- -----------
Total operating expenses 3,563,245 2,919,036
----------- -----------
Income from operations 94,972 1,646,881
Other income (expense):
Interest and other income 47,593 14,446
Interest expense (4,568) (8,380)
----------- -----------
Net income $ 137,997 $ 1,652,947
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
3
<PAGE>
Datametrics Systems Corporation
Statements of Stockholder's Equity
COMMON STOCK
------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------------------------------------------
Balance at December 31, 1994 100 $ 5,943 $ 440,231 $ 446,174
Net income - - 1,652,947 1,652,947
Distributions to stockholder - - (35,000) (35,000)
------- -------- ----------- -----------
Balance at December 31, 1995 100 5,943 2,058,178 2,064,121
Net income - - 137,997 137,997
Distributions to stockholder - - (630,000) (630,000)
------- -------- ----------- -----------
Balance at December 31, 1996 100 $ 5,943 $ 1,566,175 $ 1,572,118
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES
4
<PAGE>
Datametrics Systems Corporation
Statements of Cash Flows
YEARS ENDED DECEMBER 31,
1996 1995
-------------------------
OPERATING ACTIVITIES
Net income $ 137,997 $ 1,652,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 227,209 108,494
Changes in operating assets and liabilities:
Accounts receivable 538,755 (1,786,016)
Prepaid expenses and other assets (3,870) 22,518
Accounts payable and accrued liabilities 193,377 220,660
Deferred revenue 50,539 835,850
----------- -----------
Net cash provided by operating activities 1,144,007 1,054,453
INVESTING ACTIVITIES
Purchase of property and equipment (124,499) (107,146)
Capitalized software costs (1,050,549) (620,884)
----------- -----------
Net cash used in investing activities (1,175,048) (728,030)
FINANCING ACTIVITIES
Repayments of note payable (33,333) (33,333)
Distributions to stockholder (630,000) (35,000)
----------- -----------
Net cash used in financing activities (663,333) (68,333)
Net (decrease) increase in cash and cash equivalents (694,374) 258,090
Cash and cash equivalents at beginning of year 801,041 542,951
----------- -----------
Cash and cash equivalents at end of year $ 106,667 $ 801,041
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES
5
<PAGE>
Datametrics Systems Corporation
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND NATURE OF OPERATIONS
Datametrics Systems Corporation (the "Company") was incorporated in 1980 under
the laws of the State of Delaware. The Company develops and sells computer
performance management and capacity planning software, contracting/consulting
services, and educational programs for certain users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, cash equivalents are defined as
highly liquid investments with original maturities of three months or less.
REVENUE RECOGNITION
Net revenues include contract revenue, software license revenue and
maintenance fees. Contract revenue is recognized ratably over the contract
term as services are performed pursuant to contractual terms. The Company
recognizes software license revenue upon shipment of related software
products. The portion of new software revenue attributed to post-contract
customer support ("PCS") as well as continuing maintenance fees are
recognized ratably over the contractual period as the services are provided.
DEFERRED REVENUE
The Company records deferred revenue for PCS and other maintenance arrangements
while complying with the aforementioned revenue recognition policies.
6
<PAGE>
Datametrics Systems Corporation
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization on
property and equipment and purchased computer software are calculated on the
straight-line method over the estimated useful lives of the assets of three to
five years.
CAPITALIZED SOFTWARE COSTS
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technologies.
The Company's policy is to amortize capitalized software costs by the greater
of (a) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life of the
product (three year period) including the period being reported on. During
1996, amortization expense of $112,003 was recorded for the capitalized
software products that were released. During 1995, amortization expense for
such costs was not recorded since the products in development did not become
available for general market release. It is reasonably possible that those
estimates of anticipated future gross revenues, the remaining estimated
economic life of the product, or both may change significantly in the near
term. As a result, the carrying amount of the capitalized software costs may
be adjusted materially in the near term.
During the years ended December 31, 1996 and 1995, the Company capitalized
approximately $1,051,000 and $621,000, respectively, of software development
costs. All research and development costs, until technological feasibility is
attained, are charged to expense as incurred.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $4,500 and $8,000 during the years
ended December 31, 1996 and 1995, respectively.
7
<PAGE>
Datametrics Systems Corporation
Notes to Financial Statements (continued)
3. INCOME TAXES
The Company has elected by unanimous consent of its stockholder to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay corporate income taxes on its taxable
income. Instead, the stockholder includes the Company's net income in his
individual income tax return.
4. NOTE PAYABLE
The Company executed a term note payable agreement for $100,000 with a bank
whereby the principal amount is payable in equal monthly installments over the
thirty-six month period ending February 1997. Interest is payable monthly at an
annual rate of the bank's interest rate plus 1.5%. As of December 31, 1996, the
balance on the note payable was $27,778. The note payable is secured by the
Company's assets and is also guaranteed by the Company's stockholder.
5. COMMITMENTS
The Company leases its facilities and various equipment under operating leases.
The leases provide for various renewal options. Rental expense for these
operating leases for the years ending December 31, 1996 and 1995 amounted to
approximately $255,000 and $223,000, respectively.
The aggregate liabilities for future rentals as of December 31, 1996 are as
follows:
1997 $ 318,146
1998 31,089
1999 8,288
----------
$ 357,523
----------
----------
The Company also has two agreements under which it is required to make royalty
payments based on sales of specific products. These royalty payments represent
10% - 35% of total sales of specific products and amounted to approximately
$560,000 and $420,000 during 1996 and 1995, respectively.
8
<PAGE>
Datametrics Systems Corporation
Notes to Financial Statements (continued)
6. MAJOR CUSTOMERS
During 1996, one customer accounted for approximately 18% of the Company's
revenues. During 1995, two customers accounted for approximately 34% of the
Company's revenues.
7. RETIREMENT PLAN
The Company has adopted a 401(k) Plan (the "Plan"). The Plan, which covers all
employees who have completed six months of service, stipulates that employees
may elect an amount between 1% and 15% of their total compensation to contribute
to the Plan. Additionally, the Company's Board of Director's approves Company
contributions to match employee contributions. Contributions were made by the
Company in the amount of $84,608 and $59,515 during the years ended December 31,
1996 and 1995, respectively.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the company has entered into a letter of intent
to sell 100% of its outstanding common stock to another party.
9
<PAGE>
[COMPANY LETTERHEAD]
PALMER & WEBB SYSTEMS LIMITED
-----------------------------
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1996
Company Number: 1648965
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 1
- -----------------------------
Directors
J.C.C. Palmer
R.H.W. Webb
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
The directors submit their report together with the audited financial statements
of the company for the year ended 31 December 1996.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit of the company for that period. In preparing those
financial statements, the directors are required to:
- - Select suitable accounting policies and then apply them consistently.
- - Make judgements and estimates that are reasonable and prudent.
- - Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Company Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of computer programming
services and the supply of computer equipment.
REVIEW OF THE BUSINESS
The company's results are satisfactory and the directors remain confident that
continued profitability will occur in the coming years.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to 13,588 Pound Sterling.
Dividends were paid during the year as set out in note 9. The directors
recommend that the balance be deducted from reserves.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 2
- -----------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- --------------------------------------------------------------------------------
DIRECTORS AND THEIR INTERESTS
The directors during the year together with their beneficial interest in the
Company's issued ordinary share capital were as follows:
Ordinary shares Ordinary shares
of 5p each of 5p each
31.12.96 1.1.96
J.C.C. Palmer 1,000,000 1,000,000
R.H.W. Webb l,000,000 1,000,000
PALMER & WEBB SYSTEMS LIMITED EXECUTIVE SHARE OPTION SCHEME
At 31 December 1996, there were outstanding options over 33,850 shares which had
been granted to 7 employees.
The directors had no interests in the executive share option scheme.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution proposing
that M.P. Saunders & Company be re-appointed as auditors of the Company will
be put to the Annual General Meeting.
The Directors have taken advantage in preparation of their report of the special
exemptions applicable to small companies.
This report was approved by the Board on 21 February 1997.
/s/ R.H.W. Webb
R.H.W. Webb
Director
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 3
- -----------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS LIMITED
We have audited the financial statements on pages 4 to 11 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 1 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1996 and of its profit for the year then
ended and have been properly prepared in accordance with the provisions of the
Companies Act 1985 applicable to small companies.
/s/ signature illegible
M P Saunders & Company
Chartered Accountants and Registered Auditor
183-191 Ballards Lane
Finchley Central
London
N3 ILP Dated 21 February 1997
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 4
- -----------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
NOTES
TURNOVER 2 2,133,002 2,217,151
Cost of sales (994,397) (1,023,483)
------- ---------
GROSS PROFIT 1,138,605 1,193,668
Distribution Costs (149,324) (144,709)
Administrative expenses (1,041,523) (1,044,242)
---------- ---------
(1,190,847) (1,188,951)
--------- ---------
OPERATING (LOSS)/PROFIT 4 (52,242) 4717
Other income 6 86,966 76,512
------ ------
34,724 81,229
Interest payable 7 (9,249) (16,434)
----- ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 25,475 64,795
Tax charge on
ordinary activities 8 (11,887) (22,841)
------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 13,588 41,954
Dividends 9 (17,000) -
------ --------
(LOSS)/PROFIT FOR THE YEAR (3,412) 41,954
----------- ------------
----------- ------------
STATEMENT OF RETAINED PROFITS
Retained profits brought forward 303,415 261,461
Retained (loss)/profit for the year (3,412) 41,954
----- ------
Retained profits carried forward 300,003 303,415
------------- -------------
------------- -------------
There were no recognised gains and losses for 1995 or 1996 other than those
included in the profit and loss account.
The notes on pages 6 to 11 form part of these financial statements.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 5
- -----------------------------
BALANCE SHEET
as at 31 December 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
Notes
FIXED ASSETS
Tangible assets 10 314,114 310,616
Investments 11 50 50
------- -------
314,164 310,666
CURRENT ASSETS
Stocks 12 116,970 102,900
Debtors 13 1,002,759 764,946
Cash at bank and in hand 88 8
--------- -------
1,119,817 867,854
CREDITORS: Amounts falling
due within one year 14 (958,978) (700,105)
------- -------
NET CURRENT ASSETS 160,839 167,749
------- -------
TOTAL ASSETS LESS CURRENT
LIABILITIES 475,003 478,415
CREDITORS: Amounts
falling due after more
than one year 15 (62,500) (62,500)
------ ------
TOTAL NET ASSETS 412,503 415,915
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Capital reserve 12,500 12,500
Profit and loss account 300,003 303,415
------- -------
SHAREHOLDERS FUNDS 17 412,503 415,915
------- -------
------- -------
The Directors have taken advantage, in the preparation of these financial
statements, of special exemptions applicable to small Companies on the grounds
that the Company qualifies as a small Company by virtue of Section 247 of the
Companies Act 1985.
The financial statements on pages 4 to 11 were approved by the Board on 21
February, 1997.
/s/ R.H.W. Webb
R.H.W. Webb
Director
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 6
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and include the results of the company's operations which are
described in the Directors' Report and all of which are continuing.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from producing a cashflow statements on the grounds that it
is a small company.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:-
Leasehold premises over term of lease
Equipment 15% p.a.
Fixtures and fittings 15% p.a.
Motor vehicles 20% p.a.
(c) STOCKS
Stocks and work in progress are valued at the lower of cost and net
relisable value.
(d) DEFERRED TAXATION
Provision for deferred taxation is made only where a liability for the
payment of such taxation is anticipated to arise in the foreseeable future.
(e) FOREIGN CURRENCIES
Foreign currency balances are converted into sterling at the rates ruling
at the end of the accounting year.
(f) LEASING
Rental costs of operating leases are charged against profit on a straight
line basis over the term of the lease.
(g) PENSION COSTS
The company makes payments to a defined contribution scheme and these are
charged to the profit and loss account as they become payable.
(h) INVESTMENT
The accounts of Moebius Business Training Ltd have not been consolidated
because of the exemptions available under S248(3) of the Companies Act
1985. Because of the significance of the company's share in this associate
and because of its long term nature, the associate has been accounted for
on a cost basis.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 7
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
2. TURNOVER
Turnover represents the total amount receivable by the company in respect
of goods sold and services rendered to customers, excluding sales taxes and
is attributable to the principal activities of the company.
Turnover by geographical market supplied is split as follows:
1996 1995
% %
United Kingdom 78 89
Rest of the world 22 11
---- ----
100 100
---- ----
---- ----
3. STAFF COSTS
Wages and salaries 642,339 674,004
Social security costs 65,594 66,521
Other pension costs 17,218 16,702
-------- --------
725,151 757,227
-------- --------
-------- --------
The average number of employees was as follows:
Number Number
Sales 18 20
Administration 4 5
------ ------
22 25
------ ------
------ ------
4. OPERATING (LOSS)/PROFIT
The operating (loss)/profit is stated after charging:
Motor vehicle leasing 48,167 46,108
Equipment hire & leasing 9,915 8,338
Auditors' remuneration 3,500 3,750
Directors' emoluments as executives (note 5) 163,335 143,149
Depreciation of tangible fixed assets 54,194 53,506
Amortisation of tangible fixed assets 595 588
(Profit) on disposal of tangible fixed assets - (1,218)
------- -------
------- -------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 8
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
5. DIRECTORS' EMOLUMENTS (EXCLUDING PENSION CONTRIBUTIONS)
1996 1995
Chairman 77,740 58,305
------- -------
------- -------
The remuneration of the other directors were in
the following ranges:
Number Number
15,001 - 20,000 - 1
65,001 - 70,000 - 1
85,001 - 90,000 1 -
------ ------
------ ------
6. OTHER INCOME
Interest Receivable 402 -
Management Fees 86,564 76,512
------- -------
86,966 76,512
------- -------
------- -------
The management fees are received from Palmer & Webb Systems B.V. a company
in The Netherlands. The fees are for technical, administration, as well as
management services and there is no legal relationship between the two
companies.
7. INTEREST PAYABLE
On bank overdraft 3,582 12,179
On other loans wholly repayable within five years 5,667 4,255
------ -------
9,249 16,434
------ -------
------ -------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 9
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1996 1995
Tax charge for the year 11,887 22,841
------- -------
------- -------
9. DIVIDENDS
Interim dividends were paid as follows:
28 February 1996 0.006p per share 12,000 -
9 April 1996 0.0025p per share 5,000 -
------- -------
17,000 -
------- -------
------- -------
10. TANGIBLE FIXED ASSETS
Leasehold Fixtures Motor
premises Equipment and fittings vehicles Total
COST:
1 January 1996 12,500 772,630 93,903 7,558 886,591
Additions - 54,194 4,093 - 58,287
------ ------- ------ ----- -------
31 December 1996 12,500 826,824 97,996 7,558 944,878
------ ------- ------ ----- -------
------ ------- ------ ----- -------
ACCUMULATED DEPRECIATION:
1 January 1996 4,108 506,198 60,460 5,209 575,975
Charge for the year 595 48,094 5,630 470 54,789
------ ------- ------ ----- -------
31 December 1996 4,703 554,292 66,090 5,679 630,764
------ ------- ------ ----- -------
------ ------- ------ ----- -------
NET BOOK VALUE:
31 DECEMBER 1996 7,797 272,532 31,906 1,879 314,114
------ -------- ------- ------ -------
------ -------- ------- ------ -------
31 DECEMBER 1995 8,392 266,432 33,443 2,349 310,616
------ -------- ------- ------ --------
------ -------- ------- ------ --------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 10
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
11. FIXED ASSET INVESTMENT
1996 1995
Shares in associated company - Stated at cost 50 50
----- -----
----- -----
The company holds 50% of the ordinary share capital of Moebius Business
Training Ltd., a company registered in England and Wales.
12. STOCKS
Work in progress 110,000 94,300
Finished goods 6,970 8,600
-------- --------
116,970 102,900
-------- --------
-------- --------
13. DEBTORS: amounts falling due within one year
Trade debtors 891,612 714,959
Other debtors 1,309 11,472
Prepayments and accrued income 109,838 38,515
---------- --------
1,002,759 764,946
---------- --------
---------- --------
14. CREDITORS: amounts falling due within one year
Bank overdraft (secured) 147,563 103,639
Trade creditors 675,459 378,609
Corporation tax 6,110 20,281
Other taxes and social security costs 83,573 137,202
Accruals 16,273 51,886
Other creditors 30,000 8,488
-------- --------
958,978 700,105
-------- --------
-------- --------
The bank overdraft is secured by a mortgage debenture over the assets of the
company, including a first legal charge over the leasehold premises at
Fountain House, Cleeve Road, Leatherhead, Surrey.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 11
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
15. CREDITORS: amounts falling due after more than one year
1996 1995
Pension fund loan 62,500 62,500
------- -------
------- -------
The pension fund loan is secured against the directors' pension policies.
16. SHARE CAPITAL
Authorised Allotted, issued
and fully paid
1996 1995 1996 1995
Ordinary shares of
5p each 150,000 150,000 100,000 100,000
-------- -------- -------- --------
-------- -------- -------- --------
17. MOVEMENT ON SHAREHOLDERS FUNDS
1996 1995
Profit for the year 13,588 41,954
Less: Dividends (17,000) -
------- ------
(3,412) 41,954
Opening Shareholders funds 415,915 373,961
------- -------
CLOSING SHAREHOLDERS FUNDS 412,503 415,915
-------- --------
-------- --------
18. COMMITMENTS UNDER LEASING CONTRACTS
The company is committed to make the following payments under operating
leases in existence at 31 December 1996:
Commitment expires within one year 26,963 -
in the second to fifth years 293 49,519
----------- -------
27,256 49,519
----------- -------
----------- -------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 12
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
TURNOVER 2,133,002 2,217,151
COST OF SALES
Opening stock 102,900 93,212
Purchases 1,008,467 1,033,171
--------- ---------
1,111,367 1,126,383
Less closing stock (116,970) (102,900)
--------- ---------
(994,397) (1,023,483)
--------- -----------
GROSS PROFIT 1,138,605 1,193,668
DISTRIBUTION COSTS
Travel and subsistence 46,848 48,319
Motor expenses 19,246 25,046
Motor leasing 48,167 46,108
Advertising and promotion 30,702 20,324
Depreciation of motor vehicles 470 587
Freight and packing 3,891 4,325
------- --------- ------- -----------
CARRIED FORWARD 149,324 1,138,605 144,709 1,193,668
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 13
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
1996 1995
BROUGHT FORWARD 149,324 1,138,605 144,709 1,193,668
------- -------
ADMINISTRATIVE EXPENSES
Wages and salaries 642,339 674,004
Social security costs 65,594 66,521
Pension costs 17,218 16,702
Welfare premiums 16,026 14,893
Rent and rates 98,596 94,410
Light and heat 3,967 8,206
Telephone . 30,005 27,730
Printing, postage & stationery 22,978 12,137
Legal and professional 4,363 7,991
Audit and accountancy 3,500 3,750
Recruitment costs 19,898 7,021
Insurance 16,521 14,169
Repairs and maintenance 6,876 18,422
Training 6,798 5,913
Depreciation of equipment 48,094 47,017
Depreciation of fixtures and fittings 5,630 5,902
Amortization of lease 595 588
Entertaining 4,848 11,031
Subscriptions and donation 2,176 2,043
Bank charges 3,408 3,951
Sundry, expenses 4,630 1,932
Loss/(Profit) on exchange 4,503 (10,256)
Equipment hire and leasing 9,915 8,338
(Profit) on disposal of equipment - (1,218)
Bad debts 3,045 3,045
------- -------
1,041,523 1,044,242
--------- ---------
(1,190,847) (1,188,951)
---------- ----------
OPERATING (LOSS)/PROFIT (52,242) 4,717
CARRIED FORWARD
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 14
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
1996 1995
OPERATING (LOSS)/PROFIT
BROUGHT FORWARD (52,242) 4,717
OTHER INCOME
Management Fees 86,564 76,512
Interest Receivable 402 86,966 - 76,512
------ ------
INTEREST PAYABLE
On bank overdraft 3,582 12,179
On other loans wholly repayable
within five years 5,667 (9,249) 4,255 (16,434)
------ ------ ------ --------
PROFIT ON ORDINARY 25,475 64,795
ACTIVITIES BEFORE ------- -------
TAXATION ------- -------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED
-----------------------------
(formerly Palmer & Webb Limited)
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31 DECEMBER 1995
Company Number 1648965
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 1
- -----------------------------
Directors
J.C.C. Palmer
R.H.W. Webb
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995
- -------------------------------------------------------------------------------
The directors submit their report together with the audited financial statements
of the company for the year ended 31 December 1995.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit of the company for that period. In preparing those
financial statements, the directors are required to:
- - Select suitable accounting policies and then apply them consistently.
- - Make judgements and estimates that are reasonable and prudent.
- - Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Company Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of computer programming
services and the supply of computer equipment.
REVIEW OF THE BUSINESS
The company's results are satisfactory and the directors remain confident that
continued profitability will occur in the coming years.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to 41,954 Pound Sterling.
The directors recommend that this be transferred to reserves. No dividends
were paid during the year.
CHANGE OF NAME
On 6 March 1995 the company changed its name from Palmer & Webb Limited to
Palmer & Webb Systems Limited.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 2
- -----------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- -------------------------------------------------------------------------------
DIRECTORS AND THEIR INTERESTS
The directors during the year together with their beneficial interests in the
Company's issued ordinary share capital were as follows:
Ordinary shares Ordinary shares
of 5p each of 5p each
31.12.95 1.1.95
J.C.C. Palmer 1,000,000 1,000,000
R.H.W. Webb 1,000,000 1,000,000
C.P. McGhie (resigned 11/1/95) - -
PALMER & WEBB SYSTEMS LIMITED EXECUTIVE SHARE OPTION SCHEME
At 31 December 1995, there were outstanding options over 44,600 shares which
had been granted to 10 employees.
The directors had no interests in the executive share option scheme.
AUDITORS
In accordance with Section 385 of the Companies Act 1985, a resolution
proposing that M.P. Saunders & Company be re-appointed as auditors of the
company will be put to the Annual General Meeting.
The Directors have taken advantage in preparation of their Report, of the
special exemptions applicable to small Companies.
This report was approved by the Board on 18 March 1996.
/s/ R.H.W. Webb
R.H.W. Webb
Director
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 3
- -----------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS LIMITED
We have audited the financial statements on pages 4 to 11 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 1 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of the company's affairs at 31 December 1995 and of its profit for the year
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985 applicable to small companies.
M P Saunders & Company
Chartered Accountants and Registered Auditor
183-191 Ballards Lane
Finchley Central
London
N3 ILP Dated 18 March 1996
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 4
- -----------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ------------------------------------------------------------------------------
<TABLE>
1995 1994
NOTES
<S> <C> <C> <C> <C> <C>
TURNOVER 2 2,217,151 2,767,645
Cost of sales (1,023,483) (1,404,963)
--------- ---------
GROSS PROFIT 1,193,668 1,362,682
Distribution Cost (151,730) (214,919)
Administrative expenses (1,037,221) (1,155,841)
--------- ---------
(1,188,951) (1,370,760)
------- ---------
OPERATING PROFIT/(LOSS) 4 4717 (8,078)
Other income 6 76,512 43,787
---------- --------
81,229 35,709
Interest payable 7 (16,434) (13,608)
------ ------
PROFIT ON ORDINARY
ACTIVITIES BEFORE
TAXATION 64,795 22,101
Tax charge on ordinary
activities 8 (22,841) (11,338)
------ ------
PROFIT ON ORDINARY 41,954 10,763
ACTIVITIES AFTER
TAXATION
Dividends - (6,000)
----------- ------------
PROFIT FOR THE YEAR 41,954 4,763
----------- ------------
----------- ------------
STATEMENT OF RETAINED PROFITS
Retained profits brought forward 261,461 256,698
Retained profit for the year 41,954 4,763
------ -----
Retained profits. carried forward 303,415 261,461
------------ ------------
------------ ------------
</TABLE>
There were no recognised gains and losses for 1995 or 1994 other than those
included in the profit and loss account.
The notes on pages 6 to 11 form part of these financial statements.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 5
- -----------------------------
BALANCE SHEET
as at 31 December 1995
(FIGURES IN POUND STERLING)
- -----------------------------------------------------------------------------
<TABLE>
1995 1994
NOTES
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 310,616 349,343
Investments 10 50 50
------- --------
310,666 349,393
CURRENT ASSETS
Stocks 11 102,900 93,212
Debtors 12 764,946 814,639
Cash at bank and in hand 8 90
------- -------
867,854 907,941
CREDITORS: Amounts
falling due within
one year 13 (700,105) (820,873)
------- -------
NET CURRENT ASSETS 167,749 87,068
------- ------
TOTAL ASSETS LESS
CURRENT LIABILITIES 478,415 436,461
CREDITORS: Amounts
falling due after
more than one year 14 (62,500) (62,500)
------ -------
TOTAL NET ASSETS 415,915 373,961
------------ ------------
------------ ------------
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Capital reserve 12,500 12,500
Profit and loss account 303,415 261,461
------- -------
SHARE HOLDERS FUNDS 17 415,915 373,961
------------ ------------
------------ ------------
</TABLE>
The Directors have taken advantage, in the preparation of these financial
statements, of special exemptions applicable to small Companies on the
grounds that the Company qualifies as a small Company by virtue of section
247 of the Companies Act 1985.
The financial statements on pages 4 to 11 were approved by the Board on 18 March
1996.
/s/ R.H.W. Webb
R.H.W. Webb
Director
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 6
- -----------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and include the results of the company's operations which are
described in the Directors' Report and all of which are continuing.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from producing a cashflow statement on the grounds that it
is a small company.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:-
Leasehold premises over term of lease
Equipment 15% p.a.
Fixtures and fittings 15% p.a.
Motor vehicles 20% p.a.
(c) STOCKS
Stocks and work in progress are valued at the lower of cost and net
realisable value.
(d) DEFERRED TAXATION
Provision for deferred taxation is made only where a liability for the
payment of such taxation is anticipated to arise in the foreseeable future.
(e) FOREIGN CURRENCIES
Foreign currency balances are converted into sterling at the rates ruling
at the end of the accounting year.
(f) LEASING
Rental costs of operating leases are charged against profit on a straight
line basis over the term of the lease.
(g) PENSION COSTS
The company makes payments to a defined contribution scheme and these are
charged to the profit and loss account as they become payable.
(h) INVESTMENT
The accounts of Moebius Business Training Ltd have not been consolidated
because of the exemptions available under S248(3) of the Companies Act
1985. Because of the significance of the company's share in this associate
and because of its long term nature, the associate has been accounted
for on a cost basis.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED
7
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
2. TURNOVER
Turnover represents the total amount receivable by the company in
respect of goods sold and services rendered to customers, excluding
sales taxes and is attributable to the principal activities of the
company.
Turnover by geographical market supplied is split as follows:
1995 1994
% %
United Kingdom 89 91
Rest of the world 11 9
-------- --------
100 100
-------- --------
-------- --------
3. STAFF COSTS 1995 1994
Wages and salaries 674,004 760,105
Social security costs 66,521 75,778
Other pension costs 16,702 16,094
-------- --------
757,227 851,977
-------- --------
-------- --------
The average number of employees was as follows:
Number Number
Sales 20 24
Administration 5 6
-------- --------
25 30
-------- --------
-------- --------
4. OPERATING PROFIT/(LOSS)
The operating profit/(loss) is stated after charging:
1995 1994
Motor vehicle leasing 46,108 27,539
Equipment hire & leasing 8,338 6,040
Auditors' remuneration 3,750 3,600
Directors' emoluments as executives (note 5) 143,149 180,225
Depreciation of tangible fixed assets 53,506 66,309
Amortisation of tangible fixed assets 588 588
(Profit)/Loss on disposal of tangible fixed assets (1,218) 20,139
-------- --------
-------- --------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED
8
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
5. DIRECTORS' EMOLUMENTS (excluding pension contributions)
1995 1994
Chairman 58,305 57,547
-------- --------
-------- --------
The remuneration of the other directors were
in the following ranges:
Number Number
15,001 - 20,000 1 --
55,001 - 60,000 -- 1
65,001 - 70,000 1 1
-------- --------
-------- --------
6. OTHER INCOME 1995 1994
Management Fees 76,512 43,787
-------- --------
-------- --------
The management fees are received from Palmer & Webb Systems B.V. a
company in The Netherlands, The fees are for technical, administration,
as well as management services and there is no legal relationship
between the two companies.
7. INTEREST PAYABLE 1995 1994
On finance lease and hire purchase agreements -- 911
On bank overdraft l2,179 8,175
On other loans wholly repayable within five years 4,255 4,522
-------- --------
16,434 13,608
-------- --------
-------- --------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED
9
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1995 1994
Tax charge for the year 22,841 11,338
-------- --------
-------- --------
9. TANGIBLE FIXED ASSETS
Leasehold Fixtures Motor
premises Equipment and fittings vehicles Total
COST:
1 January 1995 12,500 758,163 93,903 7,558 872,124
Additions -- 20,471 -- -- 20,471
Disposals -- (6,004) -- -- (6,004)
-------- -------- -------- -------- --------
31 December 1995 12,500 772,630 93,903 7,558 886,591
-------- -------- -------- -------- --------
ACCUMULATED DEPRECIATION:
1 January 1995 3,520 460,081 54,558 4,622 522,781
Charge for the year 588 47,017 5,902 587 54,094
Disposals -- (900) -- -- (900)
-------- -------- -------- -------- --------
31 December 1995 4,108 506,198 60,460 5,209 575,975
-------- -------- -------- -------- --------
NET BOOK VALUE:
31 DECEMBER 1995
8,392 266,432 33,443 2,349 310,616
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
31 DECEMBER 1994 8,980 298,082 39,345 2,936 349,343
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<PAGE>
PALMER & WEBB SYSTEMS LIMITED
10
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- --------------------------------------------------------------------------------
10. FIXED ASSETS INVESTMENT
1995 1994
Shares in associated company
- Stated at cost 50 50
-------- --------
-------- --------
The company holds 50% of the ordinary share capital of Moebius Business
Training Ltd, a company registered in England and Wales.
11. STOCKS 1995 1994
Work in progress 94,300 78,300
Finished goods 8,600 14,912
-------- --------
102,900 93,212
-------- --------
-------- --------
12. DEBTORS: amounts falling due within one year 1995 1994
Trade debtors 714,959 771,464
Other debtors 11,472 11,479
Prepayments and accrued income 38,515 31,696
-------- --------
764,946 814,639
-------- --------
-------- --------
13. CREDITORS: amounts falling due within one year
1995 1994
Bank overdraft (secured) 103,639 176,640
Trade creditors 378,609 458,757
Corporation tax 20,281 9,596
Other taxes and social security costs 137,202 96,988
Accruals 51,886 55,799
Other creditors 8,488 23,093
-------- --------
700,105 820,873
-------- --------
-------- --------
The bank overdraft is secured by a mortgage debenture over the assets of
the company, including a first legal charge over the leasehold premises
at Fountain House, Cleeve Road, Leatherhead, Surrey.
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 11
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
14. CREDITORS: amounts falling due after more 1995 1994
than one year
Pension fund loan 62,500 62,500
------- -------
------- -------
</TABLE>
The pension fund loan is secured against the directors' pension policies.
15. COMMITMENTS UNDER LEASING CONTRACTS
The company is committed to make the following payments during the year
ending 31 December 1995 under operating leases in existence at 31 December
1995:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commitment expires
within one year - 2,925
in the second to fifth years 49,519 45,438
------ ------
49,519 48,363
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
16. SHARE CAPITAL Authorised Allotted, issued
and fully paid
<S> <C> <C> <C> <C>
1995 1994 1995 1994
Ordinary shares of 5p each 150,000 150,000 100,000 100,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
17. MOVEMENT ON SHAREHOLDERS FUNDS
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Profit for the year 41,954 4,763
Opening shareholders funds 373,961 369,198
------- -------
Closing shareholders funds 4l5,915 373,961
-------- --------
-------- --------
</TABLE>
<PAGE>
PALMER & WEBB SYSTEMS LIMITED 12
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
TURNOVER 2,217,151 2,767,645
COST OF SALES
Opening stock 93,212 92,543
Purchases 1,033,171 1,405,632
--------- ---------
1,126,383 1,498,175
Less closing stock (102,900) (93,212)
--------- ----------
(1,023,483) (1,404,963)
--------- ---------
GROSS PROFIT 1,193,668 1,362,682
DISTRIBUTION COSTS
Travel and subsistence 48,319 62,466
Motor expenses 25,046 39,526
Motor leasing 46,108 27,539
Advertising and promotion 27,345 55,140
Depreciation of motor
vehicles 587 6,175
Freight and packing 4,325 3,934
Loss on disposal of motor
vehicles - 20,139
------- --------- ------- ---------
CARRIED FORWARD 151,730 1,193,668 214,919 1,362,682
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PALMER & WEBB SYSTEMS LIMITED 13
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C> <C> <C> <C>
BROUGHT FORWARD 151,730 1,193,668 214,919 1,362,682
------- -------
ADMINISTRATIVE EXPENSES
Wages and salaries 674,004 760,105
Social security costs 66,521 75,778
Pension costs 16,702 16,094
Welfare premiums 14,893 8,148
Rent and rates 94,410 79,490
Light and heat 8,206 11,525
Telephone 27,730 31,288
Printing, postage &
stationery 12,137 20,583
Legal and professional 7,991 2,597
Audit and accountancy 3,750 3,600
Insurance 14,169 12,877
Repairs and maintenance 18,422 45,945
Training 5,913 11,320
Depreciation of equipment 47,017 52,603
Depreciation of fixtures
and fittings 5,902 6,943
Amortisation of lease 588 588
Entertaining 11,031 13,696
Subscriptions and donations 2,043 1,107
Bank charges 3,951 3,933
Sundry expenses 1,932 2,837
Profit on exchange (10,256) (11,256)
Equipment hire and leasing 8,338 6,040
Profit on disposal of
equipment (1,218) -
Bad debts 3,045 -
--------- ---------
1,037,221 1,155,841
--------- ---------
(1,188,951) (1,370,760)
----------- -----------
OPERATING PROFIT/(LOSS) 4,717 (8,078)
CARRIED FORWARD
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PALMER & WEBB SYSTEMS LIMITED 14
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
(FIGURES IN POUND STERLING)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
<S> <C> <C> <C> <C>
OPERATING PROFIT/(LOSS) 4,717 (8,078)
Brought forward
OTHER INCOME
Management Fees 76,512 43,787
INTEREST PAYABLE
On finance lease and hire
purchase agreements - 911
On bank overdraft 12,179 8,175
On other loans wholly
repayable within 4,255 4,522
five years ------ -----
(16,434) (13,608)
------- -------
PROFIT ON ORDINARY 64,795 22,101
ACTIVITIES BEFORE ------- --------
TAXATION ------- --------
</TABLE>
<PAGE>
[LETTERHEAD]
R E G S T E R A C C 0 U N T A N T S
Scheepmakersstraat 15 Burg. de Zeeuwstraat 296
3011 VH Rotterdam 2981 AJ Ridderkerk
telefoon : 010 - 4149891 telefoon : 0180 - 425011
telefax : 010 - 4143023 telefax : 03-80 - 426142
PALMER & WEBB SYSTEMS B.V.
--------------------------
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
Company Number 194.245
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 1
- --------------------------
Directors
R.H.W. Webb
M.L. Schuurkes
T. Fortgens
Supervisory Directors
J.C.C. Palmer
F.W.J.J. Kaalen
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
The directors submit their report together with the audited financial
statements of the company for the year ended 31 December 1996.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of the sale of automation
products and related services.
REVIEW OF THE BUSINESS
The company has achieved results in line with expectation during the year and
the directors remain confident that continued growth will occur in the years
to come.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to FL. 56.001.
In accordance with the articles of association, the profit after taxation was
added to the retained earnings.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 2
- --------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- -------------------------------------------------------------------------------
DIRECTORS
Them were no changes in the year and none of the directors have any interest
in the share capital of the company.
AUDITORS
In accordance with Chapter 9 of Book 2 of the Dutch Civil Code, a resolution
proposing that Van Doesburg & Partners be re-appointed as auditors of the
company will be put to the Annual General Meeting.
THIS REPORT WAS APPROVED BY THE BOARD ON 7 FEBRUARY 1997.
/s/ signature illegible /s/ signature illegible
- ----------------------- -----------------------
M.L. Schuurkes T. Fortgens
Director Director
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 3
- --------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS B.V.
We have audited the 1996 financial statements of Palmer & Webb Systems B.V.
at Rotterdam. These financial statements are the responsibility of the
entire management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the Netherlands. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of 31 December 1996 and of the result
for the year then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Rotterdam, 7 February 1997
/s/ signature illegible
- ------------------------
Van Doesburg & Partners
J.C.J. van Doesburg, RA
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 4
- --------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
1996 1995
Notes FL FL
Turnover 1 4.336.216 5.683.216
Cost of sales (2.195.830) (3.337.982)
----------- -----------
Gross profit 2.140.386 2.345.234
Administrative expenses (1.800.774) (1.976.275)
Distribution costs (196.186) (189.259)
----------- -----------
Operating profit 3 143.426 179.700
Other income 5 8.811 9.713
Interest payable 6 0 0
----------- -----------
Profit on ordinary activities 152.237 189.413
before taxation
Tax charge on ordinary 7 (38.897) (61.451)
activities
----------- -----------
Profit on ordinary activities after 113.340 127.962
taxation
Extraordinary item 8 (57.339) (37.882)
----------- -----------
Profit for the year 56.001 90.080
----------- -----------
----------- -----------
STATEMENT OF RETAINED PROFITS
Retained profit brought forward 210.092 120.012
Profit for the year 56.001 90.080
----------- -----------
Retained profit carried
forward 266.093 210.092
----------- ------------
----------- ------------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 5
- --------------------------
BALANCE SHEET
as at 31 December 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
Notes FL FL FL FL
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets 9 13.347 26.761
CURRENT ASSETS
Stocks 10 9.057 367
Debtors 11 1.688.632 2.194.359
Cash at bank and in hand 786.335 403.101
--------- ---------
2.484.024 3.187.907
CREDITORS: Amounts falling
due within one year 12 (2.191.678) (2.964.576)
--------- ---------
Net current assets 292.346 223.331
------- -------
Total assets less current
liabilities 306.093 250.092
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 13 40.000 40.000
Retained earnings 266.093 210.092
------- -------
306.093 250.092
------- -------
------- -------
</TABLE>
The financial statements on pages 4 to 10 were approved by the Board on 7
February 1997.
/s/ M.L. Schuurkes /s/ T. Fortgens
- ------------------------- -------------------------
M.L. Schuurkes T. Fortgens
Director Director
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 6
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost
convention and in accordance with applicable accounting standards.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual
values over their estimated useful lives.
The estimated useful lives are as follows:
Fixtures and fittings 20% straight line
office equipment - 33 1/3% straight line
Computer equipment - 33 1/3% straight line
(c) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(d) FOREIGN CURRENCIES
Foreign currency balances are converted into guilders at the rates
ruling at the end of the accounting year.
(e) TURNOVER
Turnover represents the total amount receivable by the company in
respect of goods sold and services rendered to customers, excluding
sales taxes and is attributable to the principal activities of the
company. All turnover was supplied by customers in The Netherlands
(f) PENSION COSTS
Pension Costs are charged to the profit and loss account in the year to
which they relate, and any commitments are provided for.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 7
- -------------------------
NOTES To THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996(continued)
- --------------------------------------------------------------------------------
1996 1995
FL. FL.
2. STAFF COSTS
Wages and salaries 878.401 1.042.031
Social security costs 39.048 24.174
Other pension costs 60.031 33.572
Third party costs 186.763 248.095
------- -------
1.164.243 1.347.872
--------- ---------
--------- ---------
The average number of employees
was as follows during the year
Sales 8 9
Administration 3 2
--- ----
11 11
---- ----
---- ----
3. OPERATING PROFIT 1996 1995
FL. FL.
The operating profits, stated
after charging:
Hire of plant and machinery 51.537 51.384
Auditors' remuneration 7.500 10.500
Directors, emoluments as executives
(note 4) 217.497 146.010
Depreciation of tangible fixed
assets 31.172 29.098
4. DIRECTORS' REMUNERATION (EXCLUDING PENSION CONTRIBUTIONS)
Highest paid director 217.497 146.010
------- -------
------- -------
No other director received any
remuneration
5. OTHER INCOME
Interest receivable 8.811 9.713
----- -----
----- -----
6. INTEREST PAYABLE
On bank loans and overdrafts 0 0
On tax liabilities 0 0
- -
0 0
- -
- -
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 8
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- -------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
1996 1995
FL. FL.
Dutch Corporation tax 38.897 61.451
------ ------
------ ------
8. EXTRAORDINARY ITEM
The company has purchased her client base from Unisys Nederland NV at
Amsterdam. In exchange of this transfer Palmer & Webb Systems bv have
agreed upon the following payments to Unisys Nederland NV..
- 20% of the pretax profit for a period of 5 years, over the years 1992
up to and including 1996 up to a maximum amount of Dfl. 1.250.000 in total.
- a payment of 16% of shareholders equity as stated on the statutory balance
of Palmer & Webb Systems BV ending book-year 1996
9. TANGIBLE FIXED ASSETS
Fixtures and Office Computer
Fittings Equipment Equipment Total
FL. FL. FL. FL.
COST:
1 January 1996 60.959 69.026 126.220 256.205
Additions 0 0 118.159 18.159
Disposals 0 0 0 0
------ ------- ------- -------
31 December 1996 60.959 69.026 144.379 274.364
------ ------- ------- -------
ACCUMULATED DEPRECIATION
1 January 1996 48.768 68.119 112.557 229.444
Charge for the year 12.191 454 18.528 31.173
Disposals 0 0 0 0
------ ------- ------- -------
31 December 1996 60.959 68.573 131.085 260.617
------ ------- ------- -------
Net book value
31 December 1996 0 453 13.294 13.747
------ ---- ------ ------
------ ---- ------ ------
Net book value: 12.191 907 13.663 26.761
31 December 1995 ------ --- ------ ------
------ --- ------ ------
10. STOCKS 1996 1995
FL FL
Finished goods 9.057 367
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 9
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996 (continued)
- ---------------------------------------------------------------------
1996 1995
FL. FL.
11. DEBTORS
Trade debtors 1.636.853 2.646.372
Other debtors 8.996 5.412
Prepayments 42.783 42.575
--------- ---------
1.688.632 2.694.359
--------- ---------
--------- ---------
12. CREDITORS:
amounts falling due within one year
Trade creditors 1.284.615 2.051.093
Other taxes and social costs 200.176 316.138
Accrued income 126.700 0
Inter company account 112.097 102.028
Corporation tax 66.640 41.451
Other creditors 3.750 7.789
Accruals 397.300 446.077
-------- ---------
2.191.678 2.694.576
--------- ---------
--------- ---------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 10
- ------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1996(continued)
- --------------------------------------------------------------------------------
13. SHARE CAPITAL
AUTHORISED ALOTTED, ISSUED
AND FULLY PAID
1 January 31 December 1 January 31 December
1996 1996 1996 1996
FL. FL. FL. FL.
Ordinary shares of FL.
10000 each 200.000 200.000 40.000 40.000
------- ------- ------ ------
------- ------- ------ ------
14 CONTINGENT LIABILITIES
The company has purchased her client base from Unisys Nederland N.V. at
Amsterdam. In exchange of this transfer Palmer & Webb Systems BV have
agreed upon the following payments to Unisys Nederland NV:
- 20% of the pretax profit for a period of 5 years, over the years 1992 up
to and including 1996 up to a maximum amount of Dfl. 1.250.000 in total.
- a payment of 16% of shareholders equity as stated on the statutory
balance of Palmer & Webb Systems BV ending book-year 1996.
- Palmer & Webb Systems B.V. and Unisys Nederland NV at Amsterdam have
decided to continue their VAR relationship on the Dutch market as per 1
April 1997 ("Effective Date) The present agreement will be in effect
until 31 March 1997 on the same conditions as mentioned above.
15 UTLTIMATE HOLDING COMPANY
The directors of the company regard is Palmer & Webb Systems International
N.V., a company incorporated in Curacao (N.A.) as the holding company.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 11
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
FL. FL. FL FL
<S> <C> <C> <C> <C>
TURNOVER 4.336.216 5.683.216
COST OF SALES (2.195.830) (3.337.982)
----------- -----------
GROSS PROFIT 2.140.386 2.345.234
ADMINISTRATIVE EXPENSES
Wages and salaries, 876.801 1.042.031
Social security cost 39.048 24.174
Third party costs 188.363 248.095
Rent and rates 91.640 90.044
Pension costs 60.031 33.572
Telephone 30.786 34.248
Printing, postage and stationery 32.576 13.979
Auditors remuneration 7.500 10.500
Legal and professional 22.859 76.299
Insurance 9.685 7.214
Repairs and maintenance 17.714 22.281
Training 19.475 5.464
Depreciation of office equipment 453 454
Depreciation of fixtures & fittings 12.191 12.192
Depreciation of computer equipment 18.528 16.452
Hire of equipment 51.537 51.384
Entertaining 2.430 6.773
Subscriptions and donations 4.527 4.834
Books and publications 1.988 707
Bank charges 6.495 7.702
Sundry expenses 15.879 12.952
Loss/(Profit) on exchange (11.732) (24.987)
Management fee U.K 226.000 176.000
Management fee Holding company 76.000 74.000
Profit on disposal of fixed assets 0 0
Bad Debts 0 29.911
-------- --------
(1.80074) (1.976.275)
DISTRIBUTION COSTS
Travel and subsistence 23.147 25.577
Motor expenses 160.928 140.384
Advertising and promotion 12.111 23.298
Freight and packing 0 0
------- -------
(196.186) (189.259)
------- -------
OPERATING PROFIT carried forward 143.426 179.700
</TABLE>
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 12
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1996
- --------------------------------------------------------------------------------
1996 1995
FL. FL.
OPERATING PROFIT 143.426 179.700
brought forward
OTHER INCOME
Bank interest receivable 8.811 9.713
INTEREST PAYABLE
Bank interest payable ( 0) 0
On tax liabilities ( 0) 0
---- -
0 0
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 152.237 189.413
------- -------
------- -------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V.
DIRECTORS' REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
Company Number 194.245
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 1
- --------------------------
Directors
R.H.W. Webb
M.L. Schuurkes
T. Fortgens
Commissarissen:
J.C.C. Palmer
F.W.J.J. Kaalen
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
The directors submit their report together with the audited financial
statements of the company for the year ended 31 December 1995.
PRINCIPAL ACTIVITIES
The principal activities of the company are that of the sale of automation
products and services.
REVIEW OF THE BUSINESS
The company has achieved results more in line with expectation during the year
and the directors remain confident that continued growth with occur in the years
to come.
RESULTS AND DIVIDENDS
The profit for the year after taxation amounted to FL. 90.080 In accordance with
the articles of association, the profit after taxation was added to the retained
earnings.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 2
- --------------------------
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- --------------------------------------------------------------------------------
DIRECTORS
There were no changes in the year and none of the directors have any interest in
the share capital of the company.
AUDITORS
In accordance with Chapter 9 of Book 2 of the Dutch Civil Code, a resolution
proposing that Van Doesburg & Partners be re-appointed as auditors of the
company will be put to the Annual General Meeting.
This report was approved by the Board on 2 April 1996.
/s/ ILLEGIBLE /s/ ILLEGIBLE
- ------------------------- -------------------------
M.L. Schuurkes T. Fortgens
Director Director
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 3
- --------------------------
AUDITORS' REPORT
TO THE MEMBERS OF PALMER & WEBB SYSTEMS B.V.
We have audited the 1995 financial statements of Palmer & Webb Systems B.V.
at Rotterdam. These financial statements are the responsibility of the
entitiy's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auding standards generally accepted in
the Netherlands. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements give a true and fair view of the
financial position of the company as of 31 December 1995 and of the result for
the year then ended in accordance with accounting principles generally accepted
in the Netherlands and comply with the financial reporting requirements included
in Part 9, Book 2 of the Netherlands Civil Code.
Rotterdam, 2 April 1996
/s/ ILLEGIBLE
- ------------------------
Van Doesburg & Partners
J.C.J. van Doesburg, RA
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 4
- --------------------------
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1995 1994
Notes FL FL
Turnover 1 5.683.216 6.039.768
Cost of sales (3.337.982) (3.613.265)
----------- -----------
Gross profit 2.345.234 2.426.503
Administrative expenses (1.976.275) (2.177.388)
Distribution costs (189.259) (228.248)
----------- -----------
Operating profit 3 179.700 20.867
Other income 5 9.713 4.554
Interest Payable 6 0 (4.245)
---------- -----------
Profit on ordinary activities 189.413 21.176
before taxation
Tax charge on ordinary 7 (61.451) (9.640)
activities
---------- -----------
Profit on ordinary activities 127.962 11.536
after taxation
Extraordinary item 8 (37.882) (4.235)
---------- -----------
Profit for the year 90.080 7.301
---------- -----------
---------- -----------
STATEMENT OF RETAINED PROFITS
Retained profit brought 120.012 112.711
forward
Profit for the year 90.080 7.301
---------- -----------
Retained profit carried
forward 210.092 120.012
---------- -----------
---------- -----------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 5
- --------------------------
BALANCE SHEET
as at 31 December 1995
- --------------------------------------------------------------------------------
1995 1994
Notes FL FL FL FL
FIXED ASSETS
Tangible assets 9 26.761 50.937
CURRENT ASSETS
Stocks 10 367 4.612
Debtors 11 2.694.359 1.724.969
Cash at bank and in hand 493.181 398.777
--------- ---------
3.187.907 2.128.358
CREDITORS: Amounts falling
due within one year 12 (2.964.576) (2.019.283)
----------- -----------
Net current assets 223.331 109.075
------- -------
Total assets less current
liabilities 250.092 160.012
------- -------
------- -------
CAPITAL AND RESERVES
Called up share capital 13 40.000 40.000
Retained earnings 210.092 120.012
------- -------
250.092 160.012
------- -------
------- -------
The financial statements on pages 4 to 10 were approved by the Board on 2 April
1996.
/s/ M.L. Shuurkes /s/ T. Fortgens
- ----------------- ---------------
M.L. Shuurkes T. Fortgens
Director Director
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 6
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The following are the more important accounting policies adopted by the
company:
(a) BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost convention
and in accordance with applicable accounting standards.
(b) DEPRECIATION OF TANGIBLE FIXED ASSETS
Fixed assets are stated at cost and all repairs are written off as
incurred. Fixed assets are written down to their estimated residual values
over their estimated useful lives.
The estimated useful lives are as follows:
Fixtures and fittings - 20% straight line
Office equipment - 33 1/3% straight line
Computer equipment - 33 1/3% straight line
(c) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(d) FOREIGN CURRENCIES
Foreign currency balances are converted into gilders at the rates ruling at
the end of the accounting year.
(e) TURNOVER
Turnover represents the total amount receivable by the company in respect
of goods sold and services rendered to customers, excluding sales taxes and
is attributable to the principal activities of the company. All turnover
was supplied to customers in The Netherlands
(f) PENSION COSTS
Pension Costs are charged to the profit and loss account in the year in
which they relate, and any commitments are provided for.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 7
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- --------------------------------------------------------------------------------
1995 1994
FL. FL.
2. STAFF COSTS
Wages and salaries 1.042.031 1.202.605
Social security costs 24.174 20.727
Other pension costs 33.572 59.174
Third party costs 248.095 210.138
--------- ---------
1.347.872 1.492.644
--------- ---------
--------- ---------
The average number of employees was as
follows during the year
Sales 9 10
Administration 2 3
--- ---
11 13
--- ---
--- ---
3. OPERATING PROFIT 1995 1994
FL. FL.
The operating profit is stated after charging:
Hire of plant and machinery 51.384 51.384
Auditors' remuneration 10.500 10.000
Directors' emoluments as executives (note 4) 146.010 122.872
Depreciation of tangible fixed assets 29.098 75.634
4. DIRECTORS' REMUNERATION (excluding pension contributions)
Highest paid director 146.010 122.872
------- -------
------- -------
No other director received any remuneration
5. OTHER INCOME
Interest receivable 9.713 4.554
----- -----
----- -----
6. INTEREST PAYABLE
On bank loans and overdrafts 0 399
On tax liabilities 0 3.846
- -----
0 4.245
- -----
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 8
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995(continued)
- -------------------------------------------------------------------------------
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
1995 1994
FL. FL.
Dutch Corporation tax 61.451 9.640
------ -----
------ -----
8. EXTRAORDINARY ITEM
The company is liable to pay for the first five years of its existence 20%
of its pre-tax profits to Unisys Nederland N.V. as consideration to that
company for the customers that it transferred to Palmer & Webb Systems B.V.
at its incorporation..
9. TANGIBLE FIXED ASSETS
Fixtures and Office Computer
Fittings Equipment Equipment Total
FL. FL. FL. FL.
Cost:
1 January 1995 60.959 67.665 122.659 251.283
Additions 0 1.361 3.561 4.922
Disposals 0 0 0 0
31 December 1995 ------ ------ ------- -------
60.959 69.026 126.220 256.205
------ ------ ------- -------
Accumulated depreciation
1 January 1995 36.576 67.665 96.105 200.346
Charge for the year 12.192 454 16.452 29.098
Disposals 0 0 0 0
------ ------ ------- -------
31 December 1995 48.768 68.119 112.557 229.444
------ ------ ------- -------
Net book value
31 December 1995 12.191 907 13.663 26.761
------ ------ ------- ------
------ ------ ------- ------
Net book value: 24.383 0 26.554 50.937
31 December 1994 ------ ------ ------ ------
------ ------ ------ ------
10. STOCKS
1995 1994
FL. FL.
Finished goods 367 4.612
--------- ---------
--------- ---------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 9
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995 (continued)
- -------------------------------------------------------------------------------
1995 1994
FL. FL.
11. DEBTORS
Trade debtors 2.646.372 1.613.423
Other debtors 5.412 42.280
Prepayments 42.575 69.266
--------- ---------
2.694.359 1.724.969
--------- ---------
--------- ---------
12. CREDITORS:
amounts falling due within one year
Trade creditors 2.051093 1.407.292
Other taxes and social security 316.138 168.570
costs
Inter company account 102.028 67.000
Corporation tax 41.451 9.640
Other creditors 7.789 476
Accruals 446.077 366.305
--------- ---------
2.964.576 2.019.283
--------- ---------
--------- ---------
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 10
- --------------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1995(continued)
- ---------------------------------------------------------------------------
13. SHARE CAPITAL
<TABLE>
<CAPTION>
AUTHORISED ALOTTED, ISSUED
AND FULLY PAID
1 January 31 December 1 January 31 December
1995 1995 1995 1995
FL. FL. FL. FL.
<S> <C> <C> <C> <C>
Ordinary shares of FL. 1000
each 200.000 200.000 40.000 40.000
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
14 CONTINGENT LIABILITIES
The company has purchased her client base from Unisys Nederland N.V.
at Amsterdam. In exchange of this transfer Palmer & Webb Systems BV
have agreed upon the following payments to Unisys Nederland NV:
- 20% of the pretax profit for a period of 5 years, over the years 1992
up to and including 1996 up to a maximum amount of Dfl. 1.250.000 in
total.
- a payment of 16% of shareholders equity as stated on the statutory
balance of Palmer & Webb Systems BV ending book-year 1996.
15 ULTIMATE HOLDING COMPANY
The directors of the company regard is Palmer & Webb Systems
International N.V., a company incorporated in Curacao (N.A.) as the
holding company.
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 11
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
FL. FL. FL FL
<S> <C> <C> <C> <C>
TURNOVER 5.683.216 6.039.768
COST OF SALES (3.337.982) (3.613.265)
---------- ----------
GROSS PROFIT 2.345.234 2.426.503
ADMINISTRATIVE EXPENSES
Wages and salaries 1.042.031 1.202.605
Social security costs 24.174 20.727
Third party costs 248.095 210.138
Rent and rates 90.044 110.586
Pension costs 33.572 59.174
Telephone 34.248 33.701
Printing, postage and stationery 13.979 10.547
Auditor's remuneration 10.500 8.500
Legal and professional 76.299 121.584
Insurance 7.214 7.168
Repairs and maintenance 22.281 43.181
Training 5.464 6.832
Depreciation of office equipment 454 22.555
Depreciation of fixtures & fittings 12.192 12.192
Depreciation of computer equipment 16.452 40.887
Hire of equipment 51.384 51.384
Entertaining 6.773 1.756
Subscriptions and donations 4.834 604
Books and publications 707 663
Bank charges 7.702 5.775
Sundry expenses 12.952 7.325
Loss/(Profit) on exchange (24.987) (9.193)
Management fee U.K 176.000 126.000
Management fee Holding company 74.000 84.000
Profit on disposal of fixed assets 0 (1.303)
Bad Debts 29.911 0
-------- -------
(1.976.275) (2.177.388)
DISTRIBUTION COSTS
Travel and subsistence 25.577 40.224
Motor expenses 140.384 159.705
Advertising and promotion 23.298 28.081
Freight and packing 0 238
-------- -------
(189.259) (228.248)
--------- ---------
OPERATING PROFIT carried forward 179.700 20.867
</TABLE>
<PAGE>
[LETTERHEAD]
PALMER & WEBB SYSTEMS B.V. 12
- --------------------------
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
FL. FL.
<S> <C> <C> <C> <C>
OPERATING PROFIT 179.700 20.867
brought forward
OTHER INCOME
Bank interest receivable 9.713 4.554
INTEREST PAYABLE
Bank interest payable ( 0) ( 399)
On tax liabilities ( 0) (3.846)
---- -------
(0) (4.245)
------- -------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 189.413 21.176
------- ------
------- ------
</TABLE>
<PAGE>
ZITEL CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma unaudited balance sheet as of March 31, 1997 gives effect to
the acquisition of Datametrics, Palmer & Webb Ltd. and Palmer & Webb B.V.
(the Palmer & Webb companies), by Zitel Corporation ("Zitel"), as if the
acquisition had occurred on March 31, 1997. The pro forma unaudited combined
balance sheet is based on the balance sheet of Zitel, as of March 31, 1997
and on the balance sheet of Datametrics, and the Palmer & Webb companies as
of that date.
The Palmer & Webb companies and Datametrics were acquired by Zitel, as part
of one simultaneous transaction. While the Palmer & Webb companies have
common ownership, there is no common ownership between Datametrics and the
Palmer & Webb companies. There are, however, agreements between the
companies for the sale of the Datametric's product by the Palmer & Webb
companies.
The pro forma unaudited combined statements of operations for the year ended
September 30, 1996 and the six months ended March 31, 1997 give effect to the
transaction as though it had occurred on October 1, 1995 and on October 1,
1996, respectively. The pro forma unaudited combined statements of
operations, for the year ended September 30, 1996, are based on historical
audited financial statements of operations of Zitel, for its year ended
September 30, 1996 and Datametrics, Palmer & Webb companies, for their year's
ended December 31, 1996. The pro forma unaudited results for the six month
period ended March 31, 1997, are based on the historical financial statements
of operations of Zitel, and Datametrics, Palmer & Webb Ltd. and Palmer & Webb
B.V. for the six months ended March 31, 1997.
The pro forma combined financial statements give effect to the acquisition
transaction using the purchase method of accounting and the assumptions and
adjustments described in the accompanying notes to the pro forma combined
financial statements.
The pro forma statements may not be indicative of the results that would have
occurred if the combination had been in effect on the dates indicated or
which may be obtained in the future. The pro forma statements should be read
in conjunction with the consolidated financial statements of Zitel, and the
financial statements of the acquired companies.
Page 2
<PAGE>
NOTE 1 - PURCHASE PRICE
The purchase price of the acquisition of Datametrics and the Palmer &
Webb Companies is computed as follows:
Palmer & Webb
Datametrics Companies Total
----------- --------- -----
Common stock to be issued - $1,200,000 $ 1,200,000
Cash $9,262,000 1,800,000 11,062,000
Direct transaction costs 228,000 272,000 500,000
---------- ---------- -----------
Total $9,490,000 $3,272,000 $12,762,000
---------- ---------- -----------
---------- ---------- -----------
The purchase price is expected to be allocated as follows:
Palmer & Webb
Datametrics Companies Total
----------- --------- -----
Current assets $1,918,000 $2,228,000 $ 4,146,000
Liabilities assumed (1,733,000) (2,095,000) (3,828,000)
Equipment and other 214,000 529,000 743,000
In-process technology 5,016,000 1,584,000 6,600,000
Existing technology 1,424,000 450,000 1,874,000
Other intangibles 752,000 237,000 989,000
Goodwill 1,830,000 408,000 2,238,000
---------- ---------- -----------
Total $9,421,000 $3,341,000 $12,762,000
---------- ---------- -----------
---------- ---------- -----------
The allocation of the purchase price among identifiable intangible
assets was based on a preliminary independent appraisal of the fair value of
those assets. Such appraisal allocated $6.6 million to purchased in-process
research and development. The $6.6 million will be expensed in the second
calendar quarter upon closing, net of the $1.8 million tax effect, as the
technology has not yet reached technological feasibility and does not have
alternative future uses. The unaudited pro forma combined statements of
operations do not include this one-time charge for purchased in-process
technology as it represents a material nonrecurring charge which is in
accordance with the rules for the preparation of pro forma financial
statements.
In order to finance the acquisitions, Zitel, raised $25 million of
convertible debentures through a private placement. For purposes of the
unaudited pro forma financial statements, only $11.8 million is being
reflected as a pro forma
Page 3
<PAGE>
adjustment, and only a pro rata portion of the financing costs are being
capitalized. The additional funds raised were not used for the purposes of
this acquisition and are therefore not reflected on the pro forma financial
statements.
The acquisition of Datametrics involved the purchase of assets and the
assumption of liabilities and the acquisition of the Palmer & Webb companies
involved the acquisition of stock for the B.V. entity and the purchase of
assets and assumption of liabilities for the Limited entity. Accordingly,
for tax purposes, Datametrics' and the Palmer & Webb Ltd.'s tax and book
bases in the acquisition are the same and the Palmer & Webb B.V.'s tax and
book bases are different as no effect is given for the acquisition costs
other than for deferred taxes on the acquired tangible and intangible
products. Prior to the acquisition, Datametrics was a Subchapter S company,
therefore, this tax status was taken into consideration for pro forma tax
adjustment purposes.
NOTE 2 - PRO FORMA ADJUSTMENTS
The following adjustments are incorporated in the pro forma combined balance
sheet as of March 31, 1997:
1. Reflects the allocation of purchase price to existing technology
2. Reflects the allocation of goodwill
3. Reflects the elimination of the common stock and retained earnings of
Datametrics and the Palmer & Webb companies
4. Reflects a one-time charge for purchased in-process technology
5. Reflects the issuance of Zitel shares and debentures to effect the
transaction, as well as the capitalization of the related financing costs
6. Reflects the accrual of deferred income taxes on purchased intangible
products
7. Reflects the write-off of the capitalized software costs to purchased
technology and other intangibles
8. Reflects the accrual of the direct transaction costs
Page 4
<PAGE>
9. Reflects the adjustment of deferred revenue and the accrual for future
warranty and maintenance costs associated with the acquired customer base
10. Reflect the elimination of intercompany receivables and payables between
Datametrics and the Palmer & Webb companies
The following adjustments are incorporated in the pro forma combined income
statements:
Six Months Ended Year Ended
March 31, 1997 September 30, 1996
---------------- ------------------
A. Elimination of
intercompany sales $ 981,000 $1,251,000
A1. Elimination of
intercompany cost
of sales $ 981,000 $1,251,000
A2. Elimination of
intercompany
administrative expenses $ 16,000 ----
B. Reflects the interest
expense related to the
debentures $ 300,000 $ 600,000
C. Reflects the amortization
of the capitalized
financing costs $ 140,000 $ 280,000
D. Reflects the amortization
of the goodwill $ 78,000 $ 156,000
E. Reflects the amortization
of the purchased
technology $ 313,000 $ 625,000
F. Reflects the amortization
of the other intangibles $ 49,000 $ 99,000
G. Reflects the amortization
of the legal and
accounting fees $ 50,000 $ 100,000
Page 5
<PAGE>
H. Reflects the effect of
the adjustments on income
tax expense $ 199,000 $ 555,000
I. Reflects the issuance of
Zitel shares of common
stock to effect the
transaction 60,000 60,000
Page 6
<PAGE>
Zitel Corporation Pro Forma Combined Balance Sheet
(in thousands - unaudited)
March 31, 1997
<TABLE>
<CAPTION>
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 7,410 533 (70) 250 8,123
Short-term investments
Accounts receivable 3,331 1,384 1,585 436 (414) (10) 6,322
Inventories 3,532 192 5 3,729
Deferred and refundable taxes 3,619 (170) (6) 5,305
1856 (4)
Other current assets 739 1 740
------- ------ ------ ---- ------ -------
Total current assets 18,631 1,918 1,707 691 1,272 24,219
Fixed assets 2,556 214 525 4 3,299
Other assets 7,242 1,619 700 (5) 7,942
(1,619) (7)
Purchased technology 1,874 (1) 1,874
Goodwill and other intangibles 3,228 (2) 3,228
------- ------ ------ ---- ------ -------
Total assets $28,429 $3,751 $2,232 $695 $5,455 $40,562
======= ====== ====== ==== ====== =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 1,334 146 1,409 584 500 (8) 3,559
(414) (10)
Accrued liabilities 1,607 368 1,975
Note payable 0
Deferred revenue 1,830 (1,830) (9) 0
Warranty and maintenance 1,200 (9) 1,200
------- ------ ------ ---- ------ -------
Total current liabilities 2,941 2,344 1,409 584 (544) 6,734
Other long-term liabilities 19 103 122
Debentures 11,762 (5) 11,762
------- ------ ------ ---- ------ -------
Total liabilities 2,941 2,363 1,512 584 11,218 18,618
Shareholders' equity:
Common stock 21,604 6 185 21 1,200 (5) 22,804
(212) (3)
Retained earnings 3,884 1,382 535 90 (2,007) (3) (860)
(4,744) (4)
------- ------ ------ ---- ------ -------
Total shareholders' equity 25,488 1,388 720 111 (5,763) 21,944
------- ------ ------ ---- ------ -------
Total liabilities and
shareholders' equity $28,429 $3,751 $2,232 $695 $5,455 $40,562
======= ====== ====== ==== ====== =======
</TABLE>
Page 7
<PAGE>
Zitel Corporation
Pro Forma Combined Statement of Operations
Year Ended September 30, 1996
(in thousands - unaudited)
<TABLE>
<CAPTION>
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $8,593 $8,205 $3,473 $2,602 ($1,251) (A) $21,622
Royalty revenue 14,473 14,473
------ ----- ------ ------ ------ -------
Total revenue 23,066 8,205 3,473 2,602 (1,251) 36,095
Cost of goods sold 6,630 4,547 1,862 1,417 (1,251) (A1) 13,205
Research & development expenses 6,551 291 6,842
Selling, general & administrative
expenses 8,002 3,272 1,696 1,081 100 (G) 15,031
99 (F)
156 (D)
625 (E)
------ ----- ------ ------ ------ -------
Operating income (loss) 1,883 95 (85) 104 (980) 1,017
Interest & other expense 25 5 15 280 (C) 925
600 (B)
Interest & other income (4,670) (48) (142) (5) (4,865)
------ ----- ------ ------ ------ -------
Income(loss) before income taxes 6,528 138 42 109 (1,860) 4,957
Provision(benefit) for income taxes 2,479 19 23 (555) (H) 1,966
Other & extraordinary item 28 34 62
------ ----- ------ ------ ------ -------
Net income(loss) $4,049 $138 ($5) $52 ($1,305) $2,929
====== ====== ====== ====== ====== =======
Net income per share $0.26 $0.19
====== =======
Weighted average shares outstanding 15,626 (I) 15,686
====== =======
</TABLE>
Page 8
<PAGE>
Zitel Corporation
Pro Forma Combined Statement of Operations
Six Months Ended March 31, 1997
(in thousands - unaudited)
<TABLE>
<CAPTION>
Palmer & Palmer & Pro Forma Pro Forma
Zitel Datametrics Webb Ltd. Webb BV Adjustments Combined
------- ----------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales $4,842 $4,753 $2,127 $1,191 ($981) (A) $11,932
Royalty revenue 3,514 3,514
------ ------ ------ ------ ------ -------
Total revenue 8,356 4,753 2,127 1,191 (981) 15,446
Cost of goods sold 4,536 1,830 880 559 (981) (A1) 6,824
Research & development expenses 3,235 1,017 4,252
Selling, general & administrative expenses 5,498 1,873 1,032 629 50 (G) 9,506
49 (F)
78 (D)
313 (E)
(16) (A2)
------ ------ ------ ------ ------ -------
Operating income (loss) (4,913) 33 215 3 (474) (5,136)
Interest & other expense (6) 140 (C) 434
300 (B)
Interest & other income (1,035) (3) (1,038)
------ ------ ------ ------ ------ -------
Income(loss) before income taxes (3,878) 42 215 3 (914) (4,532)
Provision(benefit) for income taxes (1,396) (199) (H) (1,595)
Other & extraordinary item 38 38
------ ------ ------ ------ ------ -------
Net income(loss) ($2,482) $42 $215 ($35) ($715) ($2,975)
====== ====== ====== ====== ====== =======
Net loss per share ($0.16) ($0.19)
====== =======
Weighted average shares outstanding 15,234 (I) 15,294
====== =======
</TABLE>
Page 9
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
ZITEL WORLD TRADE
(BUYER)
DATAMETRICS SYSTEM CORPORATION
(SELLER)
AND
JOHN C. KELLY, PH.D.
(SHAREHOLDER)
DATED: JUNE 25, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Assets to be Transferred. . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Liabilities to be Assumed . . . . . . . . . . . . . . . . . . . . 4
2.2 Liabilities Not to be Assumed.. . . . . . . . . . . . . . . . . . 5
3. PURCHASE PRICE - PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . 7
3.3 Indemnification Escrow. . . . . . . . . . . . . . . . . . . . . . 7
3.4 Warranty Credit . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . 8
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER. . . . . . . . 8
4.1 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 12
4.7 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . 12
4.8 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . . 13
4.10 Title to and Condition of Properties. . . . . . . . . . . . . . . 14
4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.12 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . 15
4.13 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.14 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . 17
4.15 Employment Compensation . . . . . . . . . . . . . . . . . . . . . 19
4.16 Trade Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.17 Major Customers; Dealers and Distributors . . . . . . . . . . . . 20
4.18 Product Warranty and Product Liability. . . . . . . . . . . . . . 20
4.19 Affiliates' Relationships to Seller . . . . . . . . . . . . . . . 20
4.20 Sole Shareholder. . . . . . . . . . . . . . . . . . . . . . . . . 21
4.21 Assets Necessary to Business. . . . . . . . . . . . . . . . . . . 21
i.
<PAGE>
4.22 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . 21
4.23 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.24 Hart-Scott-Rodino Act . . . . . . . . . . . . . . . . . . . . . . 21
4.25 Design by Employees . . . . . . . . . . . . . . . . . . . . . . . 21
5. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . 22
5.1 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Financial Capacity. . . . . . . . . . . . . . . . . . . . . . . . 22
6. EMPLOYEES - EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . 22
6.1 Seller Employees. . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Buyer's Responsibilities. . . . . . . . . . . . . . . . . . . . . 23
6.3 Payroll Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Noncompetition; Confidentiality . . . . . . . . . . . . . . . . . 23
7.2 Use of Seller's Name. . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Sales Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Bulk Sales Compliance . . . . . . . . . . . . . . . . . . . . . . 24
7.5 Investigations. . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.6 Transition Coverage for Shareholder . . . . . . . . . . . . . . . 25
8. FURTHER COVENANTS OF SELLER AND SHAREHOLDER.. . . . . . . . . . . . . . 25
8.1 Access to Information and Records . . . . . . . . . . . . . . . . 25
8.2 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.3 Conduct of Business Pending the Closing . . . . . . . . . . . . . 25
8.4 Change of Corporate Name. . . . . . . . . . . . . . . . . . . . . 27
8.5 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Other Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.7 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.8 Distributorship and Sales Representative Agreements . . . . . . . 27
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . . 27
9.1 Representations and Warranties True on the Closing Date . . . . . 27
9.2 Compliance With Agreement . . . . . . . . . . . . . . . . . . . . 27
9.3 Absence of Suit . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . 29
9.5 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . 29
9.6 Section 1445 Affidavit. . . . . . . . . . . . . . . . . . . . . . 29
ii.
<PAGE>
10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. . . . . . . . . . . . . . 29
10.1 Representations and Warranties True on the Closing Date . . . . . 29
10.2 Compliance With Agreement . . . . . . . . . . . . . . . . . . . . 30
10.3 Absence of Suit . . . . . . . . . . . . . . . . . . . . . . . . . 30
11. INDEMNIFICATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 By Seller and Shareholder . . . . . . . . . . . . . . . . . . . . 30
11.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.3 Indemnification of Third-Party Claims . . . . . . . . . . . . . . 31
11.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.5 Deductible Amount . . . . . . . . . . . . . . . . . . . . . . . . 32
11.6 Maximum Liability of Seller . . . . . . . . . . . . . . . . . . . 32
11.7 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12. CLOSING.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.1 Documents to be Delivered by Seller and Shareholder . . . . . . . 33
12.2 Documents to be Delivered by Buyer. . . . . . . . . . . . . . . . 34
13. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.1 Right of Termination Without Breach . . . . . . . . . . . . . . . 35
13.2 Termination for Breach. . . . . . . . . . . . . . . . . . . . . . 35
14. Resolution of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . 35
14.1 Adjudication. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.2 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
15. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.1 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.2 Expenses to be Paid by Seller . . . . . . . . . . . . . . . . . . 37
15.3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.4 Costs of Litigation or Arbitration. . . . . . . . . . . . . . . . 37
16. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16.1 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16.2 Further Assurance . . . . . . . . . . . . . . . . . . . . . . . . 38
16.3 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16.4 Assignment; Parties in Interest . . . . . . . . . . . . . . . . . 38
16.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16.6 Amendment and Modification. . . . . . . . . . . . . . . . . . . . 38
iii.
<PAGE>
16.7 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
16.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 40
16.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.11 Further Documents . . . . . . . . . . . . . . . . . . . . . . . . 40
16.12 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
iv.
<PAGE>
EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Balance Sheet
EXHIBIT C Allocation of Purchase Price
EXHIBIT D Opinion of Seller's Counsel
EXHIBIT E Escrow Agreement
EXHIBIT F Opinion of Buyer's Counsel
SCHEDULES
SCHEDULE 1.1.1 Trade Rights
SCHEDULE 1.1.2 Owned Real Property
SCHEDULE 1.1.3 Leased Real Property
SCHEDULE 1.1.4 Personal Property Leases
SCHEDULE 1.1.8 Notes and Accounts Receivable
SCHEDULE 1.1.13.1 Contracts
SCHEDULE 2.1.7 Immigration
SCHEDULE 2.2.1 Excluded Contracts
SCHEDULE 2.2.11 Liabilities to Affiliates
SCHEDULE 4.1.3 Qualification
SCHEDULE 4.1.5 Plan or Dissolution or Liquidation; Predecessors
SCHEDULE 4.3 No Violation
SCHEDULE 4.4 Financial Statements
SCHEDULE 4.5.2 Tax Returns Filed
SCHEDULE 4.5.3 Tax Audits
SCHEDULE 4.5.5 Other Tax Disclosures
SCHEDULE 4.6 Absence of Certain Changes
SCHEDULE 4.7 Absence of Undisclosed Liabilities
SCHEDULE 4.8 No Litigation
SCHEDULE 4.9.1 Compliance With Laws
SCHEDULE 4.9.2 Licenses and Permits
SCHEDULE 4.10.1 Marketable Title
SCHEDULE 4.10.2 Condition
SCHEDULE 4.11 Insurance
SCHEDULE 4.12.5 Contracts With Affiliates
SCHEDULE 4.12.6 Powers of Attorney
SCHEDULE 4.12.7 Collective Bargaining Agreements
SCHEDULE 4.12.8 Loan Agreements
SCHEDULE 4.12.9 Guarantees
SCHEDULE 4.12.10 Burdensome or Restrictive Agreements
SCHEDULE 4.12.11 Sales Representative, Distributorship and License Agreements
SCHEDULE 4.12.12 Other Material Contracts
SCHEDULE 4.12.13 Defaults
SCHEDULE 4.13 Labor Matters
SCHEDULE 4.14.1 Employee Benefit Plans
v.
<PAGE>
SCHEDULE 4.15 Employee Compensation
SCHEDULE 4.16 Trade Rights
SCHEDULE 4.18 Product Warranty
SCHEDULE 4.19.1 Relationships With Affiliates
SCHEDULE 4.19.2 No Adverse Interests
SCHEDULE 4.19.3 Affiliates Obligations
SCHEDULE 4.21 Assets Necessary to Business
SCHEDULE 4.25 Design by Employees
[The schedules listed above have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Upon request, the Company agrees to furnish supplementally
a copy of any of the omitted schedules to the Commission.]
vi.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is dated as of June 25,
1997, by and among ZITEL WORLD TRADE, a California corporation ("BUYER"),
DATAMETRICS SYSTEM CORPORATION, a Delaware corporation (the "SELLER"), and
JOHN C. KELLY (the "SHAREHOLDER"). Certain capitalized terms used in this
Agreement are defined in EXHIBIT A.
RECITALS
A. Seller is engaged and has been engaged in the manufacture and sale of
performance modeling software (the "BUSINESS"). Shareholder owns one hundred
percent (100%) of the issued and outstanding capital stock of Seller.
B. Seller's facilities consist of its offices at 12150 East Monument
Drive, Suite 300, Fairfax, Virginia (the "FACILITIES").
C. Buyer desires to purchase from Seller, Seller desires to sell to
Buyer, and the Shareholder desires to cause Seller to sell to Buyer, the
Business of Seller and substantially all of the property and assets of Seller.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1. PURCHASE AND SALE OF ASSETS.
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of this
Agreement, on the Closing Date (as hereinafter defined) Seller shall, and
Shareholder shall cause Seller to, sell, transfer, convey, assign, and deliver
to Buyer (or upon Buyer's request, to one or more wholly-owned subsidiaries of
Buyer as designated by Buyer), and Buyer shall purchase and accept all of the
business, rights, claims and assets (of every kind, nature, character and
description, whether real, personal or mixed, whether tangible or intangible,
whether accrued, contingent or otherwise, and wherever situated) of Seller,
other than the Excluded Assets (as hereinafter defined) (collectively, the
"PURCHASED ASSETS"). The Purchased Assets shall include, but not be limited to,
the following:
1.1.1 TRADE RIGHTS. All Seller's interest in any Trade Rights.
As used herein, the term "TRADE RIGHTS" shall mean and include: (a) all United
States, state and foreign trademark rights, business identifiers, trade dress,
service marks, trade names, and brand names, including all claims for
infringement, and all registrations thereof and applications therefor and all
goodwill associated with the foregoing accruing from the dates of first use
thereof; (b) all United States and foreign copyrights, copyright registrations
and copyright applications, including all claims for infringement, and all other
rights associated with the foregoing and the underlying works of authorship; (c)
all United States and foreign
1.
<PAGE>
patents and patent applications, including all claims for infringement and all
international proprietary rights associated therewith; (d) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; and (e) all inventions,
know-how, discoveries, improvements, designs, trade secrets, shop and royalty
rights, employee covenants and agreements respecting intellectual property and
non-competition and all other types of intellectual property. The Trade Rights
include the items listed on SCHEDULE 1.1.1 attached hereto.
1.1.2 OWNED REAL PROPERTY. All of the real property, including
fixtures, buildings, improvements, and all appurtenant rights owned by Seller,
including the real property described on SCHEDULE 1.1.2 attached hereto (the
"OWNED REAL PROPERTY") if and to the extent that the lessor consents to the
assignment where such consent is required.
1.1.3 LEASED REAL PROPERTY. All of the leases of real property
with respect to real property leased by Seller, including the leases (the "REAL
PROPERTY LEASES") described on SCHEDULE 1.1.3 attached hereto with respect to
the real property described thereon (the "LEASED REAL PROPERTY") if and to the
extent that the lessor consents to the assignment where such consent is
required.
1.1.4 PERSONAL PROPERTY LEASES. All leases of machinery,
equipment, vehicles, furniture and other personal property leased by Seller,
including all such leases (the "PERSONAL PROPERTY LEASES") described in
SCHEDULE 1.1.4 attached hereto.
1.1.5 MACHINERY AND EQUIPMENT. All machinery, equipment,
vehicles, tools, supplies, spare parts, furniture and all other personal
property not included in inventory (other than personal property leased pursuant
to Personal Property Leases as hereinafter defined or otherwise not owned by
Seller) owned, utilized or held for use by Seller on the Closing Date.
1.1.6 LITERATURE. All sales literature, promotional literature,
instructional materials, catalogs and similar materials of Seller.
1.1.7 RECORDS AND FILES. All records, files, invoices, customer
lists, blueprints, specifications, designs, drawings, accounting records,
business records, operating data and other data of Seller.
1.1.8 NOTES AND ACCOUNTS RECEIVABLE. All notes, drafts and
accounts receivable of Seller, described on SCHEDULE 1.1.8 attached hereto.
1.1.9 LICENSES; PERMITS. All licenses, permits and approvals of
Seller, if and to the extent transferable.
1.1.10 CORPORATE NAME. The name "Datametrics System Corporation,"
and all rights to use or allow others to use such name.
2.
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1.1.11 CASH AND CASH EQUIVALENTS. All cash and cash equivalents,
including but not limited to, the Certificate of Deposit.
1.1.12 SOFTWARE AND SUPPORTING MATERIAL. All Software and
Supporting Material of Seller.
1.1.13 CONTRACTS. All contracts, contractual rights, purchase
orders and sales orders (the "CONTRACTS") of Seller listed below:
1.1.13.1 All Contracts described and set forth in
SCHEDULE 1.1.13.1 attached hereto.
1.1.13.2 Every other Contract to which Seller is a party under
which Buyer obtains the benefits after the Closing Date or which Buyer elects to
assume after the Closing Date if and to the extent such Contract is assumable,
by giving written notice to Seller as set forth herein; provided that such
election by Buyer shall not constitute a waiver of any rights of indemnification
or other rights under this Agreement which Buyer may have by virtue of such
Contract, or any of its provisions.
The Contracts described in subsections 1.1.13.1 and 1.1.13.2 above are
hereinafter collectively described as the "ASSUMED CONTRACTS." To the extent
that any Assumed Contract for which assignment to Buyer is provided herein is
not assignable without the consent of another party, this Agreement shall not
constitute an assignment or an attempted assignment thereof if such assignment
or attempted assignment would constitute a breach thereof. Up to the Closing
Date and for thirty (30) days thereafter, Shareholder, Seller and Buyer agree to
use their reasonable best efforts (without any requirement on the part of Buyer
or Seller to pay any money or agree to any change in the terms of any such
Contract) to obtain the consent of such other party to the assignment of any
such Assumed Contract to Buyer in all cases in which such consent is or may be
required for such assignment. If any such consent shall not be obtained,
without waiving Buyer's rights to require such third party consent as a
condition of Closing, Shareholder and Seller each agrees to cooperate with Buyer
in seeking any reasonable arrangement designed to provide for Buyer the benefits
intended to be assigned to Buyer under the relevant Assumed Contract, including
enforcement at the cost and for the account of Buyer of any and all rights of
Seller against the other party thereto arising out of the breach or cancellation
thereof by such other party or otherwise. If and to the extent that such
arrangement cannot be made, Buyer, upon notice to Seller, shall have no
obligation pursuant to Section 2.1 or otherwise with respect to any such Assumed
Contract and any such Assumed Contract shall not be deemed to be a Purchased
Asset hereunder.
1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
Seller shall not sell, transfer, assign, convey or deliver to Buyer, and Buyer
will not purchase or accept the following assets of Seller (collectively, the
"EXCLUDED ASSETS"):
1.2.1 CERTAIN ASSETS. The following assets personally used by
Shareholder at the Facilities and recently or about to be conveyed from Seller
to Shareholder: three (3)
3.
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Gateway personal computers; a library of technical books and literature; all
rights, title and interest, including intellectual property rights, in
Shareholder's writings, including books, articles and course materials created
before or after the Closing Date, PROVIDED HOWEVER, that these assets shall not
include any Purchased Assets described in Section 1.1 hereof.
1.2.2 CONSIDERATION. The cash portion of the Purchase Price.
1.2.3 TAX CREDITS. Federal, state and local income and franchise
tax credits and tax refund claims.
1.2.4 CORPORATE FRANCHISE. Seller's franchise to be a
corporation, its certificate of incorporation, corporate seal, stock books,
minute books and other corporate records having exclusively to do with the
corporate organization and capitalization of Seller. Buyer and its designated
agents shall have reasonable access to such books and records and may make
excerpts therefrom and copies thereof.
1.2.5 TAX RECORDS. Seller's income and franchise tax returns and
tax records. Buyer and its designated agents shall have reasonable access to
such records and may make excerpts therefrom and copies thereof.
1.2.6 AFFILIATE OBLIGATIONS. Notes, drafts, accounts receivable
or other obligations for the payment of money, made or owed to Seller by any
Affiliate of Seller, except for: (a) obligations reflected on the Balance
Sheet; and (b) as disclosed in SCHEDULE 4.19.3 attached hereto.
2. ASSUMPTION OF LIABILITIES.
2.1 LIABILITIES TO BE ASSUMED. Subject to the terms and conditions of
this Agreement, on the Closing Date, Buyer shall assume and timely perform and
discharge to the extent indicated below the following, and only the following,
specific debts, liabilities and obligations of Seller (collectively, the
"ASSUMED LIABILITIES"):
2.1.1 BALANCE SHEET LIABILITIES. All liabilities reflected or
reserved against on the balance sheet of Seller dated as of April 30, 1997 in
the form of EXHIBIT B attached hereto (the "BALANCE SHEET"), but only in the
amounts so reflected or reserved.
2.1.2 CONTRACTUAL LIABILITIES. Seller's liabilities and
obligations arising under and pursuant to the Assumed Contracts, the Letter of
Credit and any other contracts of which Buyer receives benefits.
2.1.3 LIABILITIES UNDER PERMITS AND LICENSES. Seller's
obligations arising under any permits or licenses listed in SCHEDULE 4.9.2
attached hereto and assigned to Buyer at the Closing.
2.1.4 PRODUCT WARRANTIES. Seller's obligations for repair and
replacement of Products in accordance with the terms of Seller's standard
written warranty as set forth in
4.
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SCHEDULE 4.18 attached hereto, or any customer agreement on products produced by
Seller subject to contribution by Seller as set forth in Section 3.4 hereof.
2.1.5 ORDINARY COURSE OF BUSINESS; BUYER CONDUCT. All liabilities
of Seller which accrue after April 30, 1997 in the ordinary course of business.
2.1.6 PERSONNEL COMMITMENTS. All liabilities of Seller to its
employees (except for the Bonuses provided for in Section 6.1 hereof) as
reflected in employment agreements, offer letters, compensation plans,
compensation reviews, commitments to change compensation, benefit plans, or
personnel files which have been delivered or disclosed to Buyer.
2.1.7 IMMIGRATION. All liabilities of Seller for legal and other
direct costs associated with obtaining U.S. work visas for the employees listed
on SCHEDULE 2.1.7 attached hereto.
2.1.8 401(K) PLAN TERMINATION COSTS. All penalties, termination
charges, administrative charges and other costs associated with the termination
of Seller's current 401(k) Plan, including but not limited to, back-end sales
charges in an amount expected to be approximately $51,445 and market value
adjustment charges for premature termination of investment vehicles in an amount
expected to be approximately $25,965.
2.2 LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 2.1 hereof, Buyer is not assuming any debts,
liabilities, obligations or contracts of Seller and all such debts, liabilities,
obligations and contracts shall be and remain the responsibility of Seller.
Without limiting the generality of the foregoing and except as specifically set
forth in Section 2.1, Buyer is not assuming and Seller shall not be deemed to
have transferred to Buyer the following debts, liabilities, obligations and
contracts of Seller:
2.2.1 CERTAIN CONTRACTS. The obligations of Seller under and
pursuant to the Loan Agreements and any other contracts listed in SCHEDULE 2.2.1
attached hereto.
2.2.2 TAXES ARISING FROM TRANSACTION. Except as disclosed in the
Balance Sheet, any United States, foreign, state or other taxes legally imposed
upon Seller arising out of the sale or transfer of the Purchased Assets to Buyer
and the other transactions contemplated by this Agreement, including but not
limited to any income, transfer, sales, use, gross receipts or documentary stamp
taxes.
2.2.3 INCOME AND FRANCHISE TAXES. Except as disclosed in the
Balance Sheet, any liability or obligation of Seller for Federal income taxes
and any state or local income, profit, sales or franchise taxes (and any
penalties or interest due on account thereof).
2.2.4 INSURED CLAIMS. Any liability of Seller insured against, to
the extent such liability is or will be paid by an insurer.
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2.2.5 PRODUCT LIABILITY. For a period of one (1) year following
the Closing Date, any liability or obligation of Seller for claims made for
injury or damage to any person or property or to the Business, arising out of or
in any way relating to or resulting from any product manufactured, assembled or
sold prior to the Closing Date, whether made in product liability, tort, breach
of warranty or otherwise), except only that to the limited extent set forth in
Section 2.1.4, Buyer has agreed to absorb a portion of Seller's liabilities and
obligations for repair and replacement under and pursuant to Seller's standard
written product warranty or customer agreement on products produced by Seller as
set forth in SCHEDULE 4.18 attached hereto.
2.2.6 LITIGATION MATTERS. Any liability or obligation with
respect to any suits, actions, claims or proceedings filed or asserted against
Seller, whether or not described in SCHEDULE 4.18 attached hereto.
2.2.7 INFRINGEMENTS. Any liability of Seller to a third party
under its intellectual property or other proprietary rights, including, but not
limited to, claims arising out of the actions of Seller in the manufacture, use
or sale of goods or apparatus, the performance of services, or the copying,
modifying, distributing, performing or displaying of any work.
2.2.8 TRANSACTION EXPENSES. All liabilities, costs, obligations
or expenses incurred by Seller in connection with this Agreement and the
transactions contemplated herein. Buyer acknowledges that Seller will pay for
such transaction expenses from Seller's operating accounts and that such
transaction expenses will not, directly or indirectly, cause any adjustment to
the Purchase Price. However, Seller shall pay to Buyer any unused balances of
retainers advanced by Seller for such transaction expenses.
2.2.9 LIABILITY FOR BREACH. Liabilities and obligations of Seller
for any breach or failure to perform any of Seller's covenants and agreements
contained in, or made pursuant to, this Agreement, or, prior to the Closing, any
other contract, whether or not assumed hereunder, including any breach arising
from assignment of contracts hereunder without consent of third parties.
2.2.10 EMPLOYMENT PLANS. Except as provided in Section 6.2
hereof, any liabilities or obligations under any employee benefit plan
maintained or contributed to by Seller.
2.2.11 LIABILITIES TO AFFILIATES. Liabilities and obligations of
Seller to its present or former Affiliates except for: (a) obligations of
Seller reflected or reserved against on the Balance Sheet; (b) Seller's
obligations to pay salaries and accrued vacation pay (excepting the Bonuses
provided for in Section 6.1 hereof) to its employees; and (c) as disclosed in
SCHEDULE 4.19.3 attached hereto.
2.2.12 VIOLATION OF LAW. Liabilities and obligations of Seller for
any violation of or failure to comply with any statute, law, rule, regulation,
order, writ, injunction or decree of any court or governmental authority.
6.
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3. PURCHASE PRICE - PAYMENT.
3.1 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the
Purchased Assets shall be the sum of: (a) Nine Million Five Hundred Thousand
Dollars ($9,500,000) less the amount of the Bonuses (as defined in Section 6.1
hereof), if any; PLUS (b) the assumption of the Assumed Liabilities.
3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by Buyer
as follows:
3.2.1 FIRST DEPOSIT. Prior to the execution of this Agreement and
pursuant to the terms of a Memorandum of Understanding dated June 3, 1997
between Buyer and Seller, Buyer delivered to the Escrow Agent a deposit of Two
Hundred Thousand Dollars ($200,000) (the "FIRST DEPOSIT"). The Memorandum of
Understanding governs the payment terms of the First Deposit.
3.2.2 SECOND DEPOSIT. Upon the execution of this Agreement, Buyer
shall deliver to the Escrow Agent a deposit of Six Hundred Thousand Dollars
($600,000) (the "SECOND DEPOSIT"). The Second Deposit, plus any accrued
interest, shall be delivered to Seller at the earlier of the Closing Date or the
date which is thirty (30) days after the date of this Agreement unless: (a) the
value of the Purchased Assets has declined by more than Two Hundred Thousand
Dollars ($200,000) from the value of the Purchased Assets as reported in the
Balance Sheet; or (b) Buyer shall have terminated, or commenced the process of
terminating, this Agreement pursuant to Section 13.2.1 hereof; in which case the
Second Deposit, plus any accrued interest, shall be returned to Buyer.
3.2.3 ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall
deliver to Seller such documents and instruments as are reasonably required to
evidence the assumption of the Assumed Liabilities.
3.2.4 CASH TO SELLER. At the Closing, Buyer shall deliver to
Seller the amount required to be paid in Section 3.1(a) hereof less the First
Deposit, the Second Deposit and the Indemnification Escrow Amount (as defined
below).
3.2.5 METHOD OF PAYMENT. All payments under this Section 3.2
shall be made in the form of certified or official bank check payable to the
order of the recipient or, at the recipient's option, by wire transfer of
immediately available funds to an account designated by the recipient not less
than forty-eight (48) hours prior to the time for payment specified herein.
3.3 INDEMNIFICATION ESCROW. At the Closing, Buyer shall deliver the
amount of Three Hundred Fifty Thousand Dollars ($350,000) (the "INDEMNIFICATION
ESCROW AMOUNT") to the Escrow Agent to be held in a segregated interest-bearing
account as provided for in this Section 3.3 (the "INDEMNIFICATION ESCROW"). The
Escrow Agent shall hold the Indemnification Escrow Amount until 5:00 p.m.
(Pacific Standard Time) on the first anniversary of the Closing Date (the "FIRST
ANNIVERSARY DATE") for the purpose of paying
7.
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for: (a) any claims for indemnity made by Buyer pursuant to Article 11 hereof;
and (b) any claim for a Warranty Credit made by Buyer pursuant to Section 3.4
hereof. In the event that no such claim(s) are made by Buyer by the First
Anniversary Date, Indemnification Escrow Amount, together with any interest
earned thereon, shall be paid by the Escrow Agent to Seller promptly thereafter.
In the event that Buyer makes one or more such claim(s) by the First Anniversary
Date: (a) the amount of such claim(s) shall continue to be held in the
Indemnification Escrow and the Indemnification Escrow shall be extended after
the First Anniversary Date until such time as such claim(s) is finally resolved;
and (b) on the First Anniversary Date, the Escrow Agent shall pay to Seller the
difference between the Indemnification Escrow Amount, including accrued
interest, and the amount of such claims; (c) as each such claim is resolved, the
Escrow Agent shall pay to Seller the excess, if any, of the amount reserved for
such claim over the amount paid on such claim; and (d) upon the earlier of that
date which is three (3) years after the Closing Date or when all such claims
have been resolved, the Escrow Agent shall pay to Seller the entire remaining
balance of the Indemnification Escrow Amount, including accrued interest. Buyer
shall give Seller written notice of each third-party claim and the terms on
which Buyer intends to resolve such claim. Following receipt of such notice,
Seller shall have the opportunity to promptly resolve such claim on more
favorable terms if it chooses to do so.
3.4 WARRANTY CREDIT. In the event that Buyer's expenses for repair and
replacement warranty work under the terms and conditions of Seller's warranties
from the period from the Closing Date until six (6) months after the Closing
Date exceeds the amount Buyer deems to be appropriate in the ordinary course of
business by more than $100,000, Buyer shall be entitled to a credit against the
Purchase Price (the "WARRANTY CREDIT") equal to the amount of such excess.
3.5 ALLOCATION OF PURCHASE PRICE. The aggregate Purchase Price (including
the assumption by Buyer of the Assumed Liabilities) shall be allocated among the
Purchased Assets for tax purposes in accordance with EXHIBIT C attached hereto.
Seller and Buyer shall follow and use such allocation in all income, sales
registration and other tax returns, filings or other related reports made by
them to any governmental agencies. To the extent that disclosures of this
allocation are required to be made by the parties to the Internal Revenue
Service (the "IRS") under the provisions of Section 1060 of the Internal Revenue
Code of 1986, as amended (the "CODE"), or any regulations thereunder, Buyer and
Seller will disclose such reports to the other prior to filing with the IRS.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.
Seller and Shareholder, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall remain true and correct to and including the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
Buyer, or any knowledge of Buyer other than as specifically disclosed in any
Schedule delivered hereunder or the Side Letter, and shall survive the Closing
of the transactions provided for herein.
8.
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4.1 CORPORATE.
4.1.1 ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
4.1.2 CORPORATE POWER. Seller has all requisite corporate power
and authority to own, operate and lease its properties, to carry on its business
as and where such is now being conducted, to enter into this Agreement and the
other documents and instruments to be executed and delivered by Seller pursuant
hereto and to carry out the transactions contemplated hereby and thereby.
4.1.3 QUALIFICATION. Seller is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in each jurisdiction
wherein the character of the properties owned or leased by it, or the nature of
its business, makes such licensing or qualification necessary. The states in
which Seller is licensed or qualified to do business are listed in
SCHEDULE 4.1.3 attached hereto.
4.1.4 NO SUBSIDIARIES. Seller does not own any interest in any
corporation, partnership or other entity.
4.1.5 NO DISSOLUTION; LIQUIDATION, ETC. Except as provided in
SCHEDULE 4.1.5 attached hereto, neither the Board of Directors nor the holders
of any class of outstanding capital stock of Seller has adopted any resolution
or taken any other action with respect to dissolution, liquidation or winding up
of Seller, no such resolution or other action is proposed, under consideration
or contemplated, and there is no proceeding or other action pending or, to the
knowledge of Seller or Shareholder, threatened, proposed or contemplated by any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body with respect to any dissolution, liquidation or winding
up of Seller, nor is there any basis for any such proceeding or other action.
Attached hereto as SCHEDULE 4.1.5 is a true and correct list showing for
any time period during the last seven years: (a) all names under which Seller or
any predecessor to Seller (a "PREDECESSOR") has conducted business, together
with the type of entity of each Predecessor, (b) the domicile of Seller and each
Predecessor, and the location of the chief executive office of Seller and each
Predecessor, (c) each location (indicating street address, city, county and
state) at which Seller or any Predecessor conducted business or stored property,
and (d) each location where the records of accounts receivable of Seller or any
Predecessor were maintained.
4.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Seller pursuant hereto
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors and shareholders of Seller. No
other or further corporate act or proceeding on the part of Seller, its Board of
Directors or any of its shareholders is necessary to authorize this Agreement or
the other documents and instruments to be executed and delivered by Seller
pursuant hereto or the consummation of the transactions contemplated
9.
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hereby and thereby. This Agreement constitutes, and when executed and
delivered, the other documents and instruments to be executed and delivered by
Seller pursuant hereto will constitute, valid binding agreements of Seller,
enforceable in accordance with their respective terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
4.3 NO VIOLATION. Except as set forth on SCHEDULE 4.3 attached hereto,
the execution and delivery of this Agreement and the other documents and
instruments to be executed and delivered by Seller pursuant hereto, and the
consummation by Seller of the transactions contemplated hereby and thereby:
4.3.1 will not violate any statute or law or any rule, regulation,
order, writ, injunction or decree of any court or governmental authority,
including but not limited to, any laws governing bulk sales;
4.3.2 will not require any authorization, consent, approval,
exemption or other action by or notice to any court, administrative or
governmental agency, instrumentality, commission, authority, board or body
(including, without limitation, under any "plant-closing" or similar law); or
4.3.3 subject to obtaining the consents referred to in
SCHEDULE 4.3 attached hereto, will not violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any Lien (as defined in
Section 4.10.1 hereof) upon any of the assets of Seller under, any term or
provision of the Articles of Incorporation, Bylaws or other constituent
documents of Seller or of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Seller or any
shareholder of Seller is a party or by which Seller, any shareholder of Seller
or any of Seller's assets or properties may be bound or affected;
except for any violation, failure to obtain a consent or authorization or
default which has not and will not have a material adverse effect on the
business, financial condition or results of operations of Seller.
4.4 FINANCIAL STATEMENTS. Included as SCHEDULE 4.4 attached hereto are
true and complete copies of the audited financial statements of Seller
consisting of balance sheets and cash flow and income statements of Seller as of
December 31, 1995, 1996 (including the notes contained therein or annexed
thereto) (collectively, including all notes and schedules contained therein or
annexed thereto, the "FINANCIAL STATEMENTS") and unaudited interim financial
statements through April 30, 1997, consisting of the Balance Sheet, and cash
flow and income statements, and the related statements of income and cash flows
for the years then ended (the "UNAUDITED STATEMENTS"). The Financial Statements
have been reported on, and are accompanied by, the signed, unqualified opinions
of Ernst & Young LLP, independent auditors for Seller for such years. The
Financial Statements are true, complete and accurate, have been prepared by the
accrual method in accordance with GAAP applied on a consistent basis, have been
prepared in accordance with the books and records of Seller,
10.
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and fairly present, in accordance with GAAP, the assets, liabilities and
financial position, the results of operations and the cash flows of Seller as of
the dates and for the years and periods indicated. The Unaudited Statements are
true, complete and accurate, have been prepared in accordance with the books and
records of Seller, and fairly present the assets, liabilities and financial
position, the results of operations and the cash flows of Seller as of the date
and for the period indicated.
4.5 TAX MATTERS.
4.5.1 PROVISION FOR TAXES. The provision made for taxes in the
Balance Sheet is sufficient for the payment of all federal, state, foreign,
county, local and other income, ad valorem, excise, profits, franchise,
occupation, property, payroll, sales, use, gross receipts and other taxes (and
any interest and penalties) and assessments, whether or not disputed at the
Balance Sheet Date, and for all years and periods prior thereto. Since the
Balance Sheet Date, Seller has not incurred any taxes other than taxes incurred
in the ordinary course of business consistent in type and amount with past
practices of Seller.
4.5.2 TAX RETURNS FILED. Except as set forth on SCHEDULE 4.5.2
attached hereto, all federal, state, foreign, county, local and other tax
returns required to be filed by or on behalf of Seller have been timely filed
and when filed were true and correct in all material respects, and the taxes
shown as due thereon were paid or adequately accrued. Seller has duly withheld
and paid all taxes which it is required to withhold and pay relating to
salaries, wages and other compensation, remuneration or benefits paid to the
employees of Seller.
4.5.3 TAX AUDITS. The federal and state income tax returns of
Seller have been audited by the IRS and appropriate state taxing authorities for
the periods and to the extent set forth in SCHEDULE 4.5.3 attached hereto, and
Seller has not received from the IRS or from the tax authorities of any state,
county, local or other jurisdiction any notice of underpayment of taxes or other
deficiency which has not been paid nor any objection to any return or report
filed by Seller. There are outstanding no agreements or waivers extending the
statutory period of limitations applicable to any tax return or report.
4.5.4 CONSOLIDATED GROUP. Seller is not, and has never been, a
member of an affiliated group of corporations that filed a consolidated tax
return.
4.5.5 OTHER. Except as set forth in SCHEDULE 4.5.5 attached
hereto, since December 31, 1996 Seller has not (a) filed any consent or
agreement under Section 341(f) of the Code, (b) applied for any tax ruling, (c)
entered into a closing agreement with any taxing authority, (d) filed an
election under Section 338(g) or Section 338(h)(10) of the Code (nor has a
deemed election under Section 338(e) of the Code occurred), (e) made any
payments, or been a party to an agreement (including this Agreement) that under
any circumstances could obligate it to make payments that will not be deductible
because of Section 280G of the Code, or (f) been a party to any tax allocation
or tax sharing agreement.
11.
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4.6 ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth in
SCHEDULE 4.6 attached hereto, since the Balance Sheet Date there has not been:
4.6.1 NO MATERIAL ADVERSE CHANGE. Any material adverse change in
the financial condition, assets, liabilities, business, prospects or operations
of Seller;
4.6.2 NO COMMITMENTS. Any commitment or transaction by Seller
(including, without limitation, any borrowing or capital expenditure) other than
in the ordinary course of business consistent with past practice;
4.6.3 NO DIVIDENDS. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of Seller's capital stock; any
redemption, purchase or other acquisition by Seller of any capital stock of
Seller, or any security relating thereto; or any other payment to any
shareholder of Seller as such a shareholder;
4.6.4 NO INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by Seller;
4.6.5 NO LIENS. Any mortgage, pledge, lien or encumbrance made on
any of the properties or assets of Seller;
4.6.6 NO AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by Seller of any contract, or any waiver of material rights
thereunder, other than in the ordinary course of business;
4.6.7 LOANS AND ADVANCES. Any loan or advance (other than
advances to employees in the ordinary course of business for travel and
entertainment in accordance with past practice) to any person including, but not
limited to, any officer, director or employee of Seller, or Shareholder or any
Affiliate; or
4.6.8 NO UNUSUAL EVENTS. Any other event or condition not in the
ordinary course of business of Seller.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the Balance Sheet, or in SCHEDULE 4.7 attached hereto,
Seller does not have any known liabilities, commitments or obligations (secured
or unsecured, and whether accrued, absolute, contingent, direct, indirect or
otherwise), other than commercial liabilities and obligations incurred since the
Balance Sheet Date in the ordinary course of business and consistent with past
practice which in the aggregate have not and will not have a material adverse
effect on the business, financial condition or results of operations of Seller.
Except as and to the extent described in the Balance Sheet or in SCHEDULE 4.7
attached hereto, neither Seller nor Shareholder has knowledge of any basis for
the assertion against Seller of any liability and, to the best of Seller's and
Shareholder's knowledge, there are no circumstances, conditions, happenings,
events or arrangements, contractual or otherwise, which may give rise to
liabilities, except commercial liabilities and obligations incurred in the
ordinary course of Seller's business and consistent with past practice.
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4.8 NO LITIGATION. Except as set forth in SCHEDULE 4.8 attached hereto,
there is no known action, suit, arbitration or other proceeding, investigation
or inquiry pending or threatened against Seller, its directors (in such
capacity), Shareholder (in such capacity), its business or any of its assets,
nor does Seller or Shareholder know, or have grounds to know, of any basis for
any such proceedings, investigations or inquiries. SCHEDULE 4.8 attached hereto
also identifies all such actions, suits, proceedings, investigations and
inquiries to which Seller, any of its directors or Shareholder have been parties
since December 31, 1996. Except as set forth in SCHEDULE 4.8 attached hereto,
neither Seller nor its business or assets is subject to any known judgment,
order, writ or injunction of any court, arbitrator or federal, state, foreign,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
4.9 COMPLIANCE WITH LAWS.
4.9.1 COMPLIANCE. Except as set forth in SCHEDULE 4.9.1 attached
hereto, Seller (including each and all of its operations, practices, properties
and assets) is in compliance with all applicable federal, state, local and
foreign laws, ordinances, orders, rules and regulations (collectively, "LAWS"),
including, without limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, competition and pricing,
product warranties, zoning, building and sanitation, employment, retirement and
labor relations, product advertising, except for any violation which would not
have a material adverse effect on the business, financial condition or results
of operations of Seller. Except as set forth in SCHEDULE 4.9.1 attached hereto,
Seller has not received notice of any violation or alleged violation of, and is
subject to no liability (whether accrued, absolute, contingent, direct or
indirect) for past or continuing violation of, any Laws. All reports and
returns required to be filed by Seller with any governmental authority have been
filed, and were accurate and complete when filed. Without limiting the
generality of the foregoing:
4.9.1.1 The operation of Seller's business as it is now
conducted does not, nor does any condition existing at any of the Facilities, in
any manner constitute a nuisance or other tortious interference with the rights
of any person or persons in such a manner as to give rise to or constitute the
grounds for a suit, action, claim or demand by any such person or persons
seeking compensation or damages or seeking to restrain, enjoin or otherwise
prohibit any aspect of the conduct of such business or the manner in which it is
now conducted.
4.9.1.2 Seller has made all required payments to its
unemployment compensation reserve accounts with the appropriate governmental
departments of the states where it is required to maintain such accounts, and
each of such accounts has a positive balance.
4.9.1.3 Seller has delivered to Buyer copies of all reports of
Seller for the past five (5) years required under the federal Occupational
Safety and Health Act of 1970, as amended, and under all other applicable health
and safety laws and regulations. The deficiencies, if any, noted on such
reports have been corrected.
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4.9.2 LICENSES AND PERMITS. Seller has all licenses, permits,
approvals, authorizations and consents of all governmental and regulatory
authorities and all certification organizations required for the conduct of the
business (as presently conducted) and operation of the Facilities. All such
licenses, permits, approvals, authorizations and consents are described in
SCHEDULE 4.9.2 attached hereto, are in full force and effect. Except as set
forth in SCHEDULE 4.9.2 attached hereto, Seller (including its operations,
properties and assets) is and has been in compliance with all such permits and
licenses, approvals, authorizations and consents.
4.10 TITLE TO AND CONDITION OF PROPERTIES.
4.10.1 MARKETABLE TITLE. Seller has good and marketable title to
all the Purchased Assets, free and clear of all mortgages, liens (statutory or
otherwise), security interests, claims, pledges, licenses, equities, options,
conditional sales contracts, lease purchase agreements, financing leases,
assessments, levies, easements, covenants, reservations, restrictions,
rights-of-way, exceptions, limitations, charges or encumbrances of any nature
whatsoever (collectively, "LIENS") except those described in SCHEDULE 4.10.1
attached hereto; and, in the case of real property, Liens for taxes not yet due
or which are being contested in good faith by appropriate proceedings (and which
have been sufficiently accrued or reserved against in the Balance Sheet),
municipal and zoning ordinances and easements for public utilities, none of
which interfere with the continued use of the property as currently utilized
("PERMITTED REAL PROPERTY LIENS"). At the Closing, Buyer will receive good and
marketable title to all the Purchased Assets, free and clear of all Liens of any
nature whatsoever except those described in SCHEDULE 4.10.1 attached hereto and
Permitted Real Property Liens.
4.10.2 CONDITION. To the best of Seller's and Shareholder's
knowledge, except as disclosed in SCHEDULE 4.10.2 attached hereto, all tangible
assets (real and personal) constituting Purchased Assets hereunder are in good
operating condition and repair, free from any defects (except such minor defects
as do not interfere with the continuing and safe use thereof in the conduct of
the normal operations of Seller), have been maintained consistent with the
standards generally followed in the industry and applicable legal standards and
are sufficient to carry on the business of Seller as conducted during the
preceding 12 months. To the best of Seller's and Shareholder's knowledge, all
buildings, plants and other structures owned or otherwise utilized by Seller are
in good condition and repair and have no structural defects or defects affecting
the plumbing, electrical, sewerage, or heating, ventilating or air conditioning
systems.
4.10.3 REAL PROPERTY. SCHEDULES 1.1.2 and 1.1.3 attached hereto
set forth all real property owned, used or occupied by Seller (the "REAL
PROPERTY"). To the best of Seller's and Shareholder's knowledge, no portion of
any of the Real Property has been used as a landfill or for storage or landfill
of hazardous or toxic materials.
4.10.4 NO CONDEMNATION OR EXPROPRIATION. To the best of Seller's
and Shareholder's knowledge, neither the whole nor any portion of the property
or any other assets of Seller is subject to any governmental decree or order to
be sold or is being
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condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor to the best of Seller's and
Shareholder's knowledge, has any such condemnation, expropriation or taking been
proposed.
4.11 INSURANCE. Set forth in SCHEDULE 4.11 attached hereto is a complete
and accurate list of all policies of fire, casualty, general liability, product
liability, workers compensation, health and other forms of insurance presently
in effect with respect to the business and properties of Seller, true and
correct copies of which have heretofore been delivered to Buyer. All such
policies are valid, outstanding and enforceable policies and provide insurance
coverage for the properties, assets and operations of Seller, of the kinds, in
the amounts and against the risks customarily maintained by organizations
similarly situated; and no such policy (nor any previous policy) provides for or
is subject to any currently enforceable retroactive rate or premium adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events arising prior to the date hereof. No notice of
cancellation or termination has been received with respect to any such policy,
and neither Seller nor Shareholder has knowledge of any act or omission of
Seller which could result in cancellation of any such policy prior to its
scheduled expiration date. There is no claim by Seller pending under any such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies, and neither Seller nor Shareholders knows of any
basis for denial of any claim under any such policy.
4.12 CONTRACTS AND COMMITMENTS.
4.12.1 REAL PROPERTY LEASES. Except as set forth in SCHEDULE 1.1.3
attached hereto, Seller has no leases of real property.
4.12.2 PERSONAL PROPERTY LEASES. Except as set forth in
SCHEDULE 1.1.4 attached hereto, Seller has no leases of personal property.
4.12.3 PURCHASE COMMITMENTS. Seller has no purchase commitments
for inventory items or supplies that, together with amounts on hand, constitute
in excess of 3 months normal usage, or which are at an excessive price.
4.12.4 SALES CONTRACTS AND COMMITMENTS. Seller has no sales
contracts or commitments except those made in the ordinary course of business,
at arm's length, and no such contracts or commitments are for a sales price
which would result in a loss to Seller.
4.12.5 CONTRACTS WITH AFFILIATES AND CERTAIN OTHERS. Except as
disclosed in SCHEDULE 4.12.5, Seller has no agreement, understanding, contract
or commitment (written or oral) with any Affiliate, employee or consultant that
by its terms is not cancelable by Seller on notice of not longer than thirty
(30) days without liability, penalty or premium of any nature or kind
whatsoever.
4.12.6 POWERS OF ATTORNEY. Except as disclosed in SCHEDULE 4.12.6,
Seller has not given a power of attorney, which is currently in effect, to any
person, firm or corporation for any purpose whatsoever.
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4.12.7 COLLECTIVE BARGAINING AGREEMENTS. Except as set forth in
SCHEDULE 4.12.7 attached hereto, Seller is not a party to any collective
bargaining agreements with any unions, guilds, shop committees or other
collective bargaining groups. Copies of all such agreements have heretofore
been delivered to Buyer.
4.12.8 LOAN AGREEMENTS. Except as set forth in SCHEDULE 4.12.8
attached hereto, Seller is not obligated under any loan agreement, promissory
note, letter of credit, or other evidence of indebtedness as a signatory,
guarantor or otherwise.
4.12.9 GUARANTEES. Except as disclosed on SCHEDULE 4.12.9 attached
hereto, Seller has not guaranteed the payment or performance of any person, firm
or corporation, agreed to indemnify any person or act as a surety, or otherwise
agreed to be contingently or secondarily liable for the obligations of any
person.
4.12.10 BURDENSOME OR RESTRICTIVE AGREEMENTS. Except as disclosed
on SCHEDULE 4.12.10 attached hereto, Seller is not a party to nor is it bound by
any agreement requiring Seller to assign any interest in any trade secret or
proprietary information, or prohibiting or restricting Seller from competing in
any business or geographical area or soliciting customers or otherwise
restricting it from carrying on its business anywhere in the world.
4.12.11 SALES REPRESENTATIVE, DISTRIBUTORSHIP AND LICENSE
AGREEMENTS. SCHEDULE 4.12.11 attached hereto contains a true and complete list
of all distributorship, sales representative and manufacturing license
agreements. There are no other agreements, oral or written, with any
distributor, sales representative or manufacturing licensee except as set forth
in SCHEDULE 4.12.11 attached hereto.
4.12.12 OTHER MATERIAL CONTRACTS. Seller has no lease, contract or
commitment of any nature involving consideration or other expenditure in excess
of $10,000, or involving performance over a period of more than three months, or
which is otherwise individually material to the operations of Seller, except as
explicitly described in SCHEDULE 4.12.12 attached hereto or in any other
Schedule attached hereto.
4.12.13 NO DEFAULT. Except as set forth in SCHEDULE 4.12.13
attached hereto, Seller is not in default under any lease, contract or
commitment, nor has any event or omission occurred which through the passage of
time or the giving of notice, or both, would constitute a default thereunder or
cause the acceleration of any of Seller's obligations or result in the creation
of any Lien on any of the assets owned, used or occupied by Seller. To the best
of Seller's and Shareholder's knowledge, no third party is in default under any
lease, contract or commitment to which Seller is a party, nor has any event or
omission occurred which, through the passage of time or the giving of notice, or
both, would constitute a default thereunder or give rise to an automatic
termination, or the right of discretionary termination, thereof.
4.13 LABOR MATTERS. Except as set forth in SCHEDULE 4.13 attached hereto,
within the last five years Seller has not experienced any labor disputes, union
organization attempts
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or any work stoppage due to labor disagreements in connection with its business.
Seller is not a party to or bound by, and has never been a party to or bound by,
any union contract, collective bargaining agreement or similar contract.
4.14 EMPLOYEE BENEFIT PLANS.
4.14.1 DISCLOSURE. Seller has no "defined benefit" plan.
SCHEDULE 4.14.1 attached hereto sets forth all pension, thrift, savings, profit
sharing, retirement, incentive bonus or other bonus, medical, dental, life,
accident insurance, benefit, employee welfare, disability, group insurance,
stock purchase, stock option, stock appreciation, stock bonus, executive or
deferred compensation, hospitalization and other similar fringe or employee
benefit plans, programs and arrangements, and any employment or consulting
contracts, "golden parachutes," collective bargaining agreements, severance
agreements or plans, vacation and sick leave plans, programs, arrangements and
policies, including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")). No such employee benefit plan is a "multiemployer plan"
(as defined in Section 4001 of ERISA), and Seller has never contributed nor been
obligated to contribute to any such multiemployer plan. SCHEDULE 4.14.1
attached hereto also lists and contains those provisions of all employee
manuals, and all written or binding oral statements of policies, practices or
understandings relating to employment, which are provided to, for the benefit
of, or relate to, any persons employed by Seller ("SELLER EMPLOYEES") with
respect to intellectual property developed by Seller or Seller Employees, or
with respect to obligations of confidentiality related to Seller's affairs or
property.
4.14.2 TERMINATIONS, PROCEEDINGS, PENALTIES, ETC. With respect to
each employee benefit plan that is subject to the provisions of Title IV of
ERISA and with respect to which Seller or any of its assets may, directly or
indirectly, be subject to any liability, contingent or otherwise, or the
imposition of any lien (whether by reason of the complete or partial termination
of any such plan, the funded status of any such plan, any "complete withdrawal"
(as defined in Section 4203 of ERISA) or "partial withdrawal" (as defined in
Section 4205 of ERISA) by any person from any such plan, or otherwise):
4.14.2.1 no such plan has been terminated so as to subject,
directly or indirectly, any assets of Seller to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of ERISA;
4.14.2.2 no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC")) to
terminate any such plan;
4.14.2.3 no condition or event currently exists or currently is
expected to occur that could subject, directly or indirectly, any assets of
Seller to any liability, contingent or otherwise, or the imposition of any lien
under Title IV of ERISA, whether to the PBGC or to any other person or otherwise
on account of the termination of any such plan;
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4.14.2.4 if any such plan were to be terminated as of the
Closing Date, no assets of Seller would be subject, directly or indirectly, to
any liability, contingent or otherwise, or the imposition of any lien under
Title IV of ERISA;
4.14.2.5 no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any such plan;
4.14.2.6 no such plan which is subject to Section 302 of ERISA
or Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code, respectively),
whether or not waived; and
4.14.2.7 no such plan is a multiemployer plan or a plan
described in Section 4064 of ERISA.
4.14.3 PROHIBITED TRANSACTIONS, ETC. There have been no
"prohibited transactions" within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code for which a statutory or administrative exemption does
not exist with respect to any employee benefit plan, and no event or omission
has occurred in connection with which Seller or any of its assets or any
employee benefit plan, directly or indirectly, could be subject to any liability
under ERISA, the Code or any other law, regulation or governmental order
applicable to any employee benefit plan, including, without limitation,
Section 406, 407, 409, 501, 502, 510, 511, 601, 4062, 4063, 4069, 4071, or 4201
of ERISA, or Section 4971, 4972, 4975, 4976, 4977, 4979 or 4980B of the Code, or
under any agreement, instrument, statute, rule of law or regulation pursuant to
or under which Seller has agreed to indemnify or is required to indemnify any
person against liability incurred under, or for a violation or failure to
satisfy the requirements of, any such statute, regulation or order.
4.14.4 FULL FUNDING. The funds available under each employee
benefit plan which is intended to be a funded plan exceed the amounts required
to be paid, or which would be required to be paid if such Plan were terminated,
on account of rights vested or accrued as of the Closing Date (using the
actuarial methods and assumptions then used by Seller's actuaries in connection
with the funding of such Plan), and there is no unfunded portion of Seller's
401(k) Plan.
4.14.5 CONTROLLED GROUP; AFFILIATED SERVICE GROUP; LEASED
EMPLOYEES. Seller is not and never has been a member of a controlled group of
corporations as defined in Section 414(b) of the Code or in common control with
any unincorporated trade or business as determined under Section 414(c) of the
Code. Seller is not and never has been a member of an "affiliated service
group" within the meaning of Section 414(m) of the Code. There are not and
never have been any leased employees within the meaning of Section 414(n) of the
Code who perform services for Seller, and no individuals are expected to become
leased employees.
4.14.6 PAYMENTS AND COMPLIANCE. With respect to each employee
benefit plan, (a) all payments due from Seller to date have been made and all
amounts properly
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accrued to date as liabilities of Seller which have not been paid have been
properly recorded on the books of Seller and are reflected in the Balance Sheet;
(b) Seller has complied with, and each such employee benefit plan conforms in
form and operation to, all applicable laws and regulations, including but not
limited to ERISA and the Code, in all respects and all reports and information
relating to such employee benefit plan required to be filed with any
governmental entity have been timely filed; (c) all reports and information
relating to each such employee benefit plan required to be disclosed or provided
to participants or their beneficiaries have been timely disclosed or provided;
(d) each such employee benefit plan which is intended to qualify under
Section 401 of the Code has received a favorable determination letter from the
IRS with respect to such qualification, its related trust has been determined to
be exempt from taxation under Section 501(a) of the Code, and nothing has
occurred since the date of such letter that has or is likely to adversely affect
such qualification or exemption; (e) there are no actions, suits or claims
pending (other than routine claims for benefits) or threatened with respect to
such employee benefit plan or against the assets of such employee benefit plan;
and (f) no employee benefit plan is a plan which is established and maintained
outside the United States primarily for the benefit of individuals substantially
all of whom are nonresident aliens.
4.14.7 NO TRIGGERING OF OBLIGATIONS. Except as provided in
Sections 2.1.8, 6.1 and 6.2 hereof, and except for accelerated vesting which
will result from the termination of Seller's 401(k) Plan as a result of the
transactions contemplated by this Agreement, the consummation of the
transactions contemplated by this Agreement will not (a) entitle any current or
former employee of Seller to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement; (b) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such employee or former employee; (c) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available; or (d) result in Buyer being or becoming liable to
any Seller Employee or liable for any amount owed to or under any employee
benefit plan.
4.15 EMPLOYMENT COMPENSATION. SCHEDULE 4.15 attached hereto contains a
true and correct list of all employees to whom Seller is paying compensation,
including bonuses and incentives, at an annual rate in excess of $50,000 for
services rendered or otherwise; and in the case of salaried employees such list
identifies the current annual rate of compensation for each employee and in the
case of hourly or commission employees identifies certain reasonable ranges of
rates and the number of employees falling within each such range.
4.16 TRADE RIGHTS. SCHEDULE 1.1.1 attached hereto lists all Trade Rights
of the type described in clauses (a), (b), (c) or (d) of Section 1.1.1 in which
Seller now has any interest, specifying whether such Trade Rights are owned,
controlled, used or held (under license or otherwise) by Seller, and also
indicating which of such Trade Rights are registered. All Trade Rights shown as
registered in SCHEDULE 1.1.1 attached hereto have been properly registered, all
pending registrations and applications have been properly made and filed and all
annuity, maintenance, renewal and other fees relating to registrations or
applications are current. In order to conduct the business of Seller, as such
is currently being conducted, to the best of Seller's and Shareholder's
knowledge, Seller does not require
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any Trade Rights that it does not already have. To the best of Seller's and
Shareholder's knowledge, Seller is not infringing and has not infringed any
Trade Rights of another in the operation of the business of Seller, nor is any
other person infringing the Trade Rights of Seller. Seller has not granted any
license or made any assignment of any Trade Right listed on SCHEDULE 4.16
attached hereto, nor does Seller pay any royalties or other consideration for
the right to use any Trade Rights of others. To the best of Seller's and
Shareholder's knowledge, except as set forth in SCHEDULE 4.16 attached hereto,
there are no inquiries, investigations or claims or litigation challenging or
threatening to challenge Seller's right, title and interest with respect to its
continued use and right to preclude others from using any Trade Rights of
Seller. Except as set forth in SCHEDULE 4.16 attached hereto, all Trade Rights
of Seller are valid, enforceable and, if registered, in good standing, and there
are no equitable defenses to enforcement based on any act or omission of Seller.
4.17 MAJOR CUSTOMERS; DEALERS AND DISTRIBUTORS. The Side Letter contains a
list of the ten (10) largest customers and all distributors of Seller for each
of the two (2) most recent fiscal years (determined on the basis of the total
dollar amount of net sales) showing the total dollar amount of net sales to each
such customer during each such year.
4.18 PRODUCT WARRANTY AND PRODUCT LIABILITY. SCHEDULE 4.18 attached hereto
contains a true, correct and complete copy of Seller's standard warranty or
warranties for sales of Products (as defined below). There have been no
material variations from such warranties except as set forth in SCHEDULE 4.18
attached hereto. Except as stated in written customer agreements, there are no
warranties, commitments or obligations with respect to the performance, return,
repair or replacement of Products. SCHEDULE 4.18 attached hereto contains a
description of all product liability claims and similar claims, actions,
litigation and other proceedings relating to Products manufactured or sold, or
services rendered, which are presently pending or which to Seller's or
Shareholder's knowledge are threatened, or which have been asserted or commenced
against Seller within the last two (2) years, in which a party thereto either
requests injunctive relief (whether temporary or permanent) or alleges damages
in excess of $30,000 (whether or not covered by insurance). As used in this
Section 4.18, the term "PRODUCTS" means any and all products currently or at any
time previously manufactured, distributed or sold by Seller, or by any
predecessor of Seller under any brand name or mark under which products are or
have been manufactured, distributed or sold by Seller.
4.19 AFFILIATES' RELATIONSHIPS TO SELLER.
4.19.1 RELATIONSHIPS WITH AFFILIATES. All leases, contracts,
agreements or other arrangements between Seller and any Affiliate are described
on SCHEDULE 4.19.1 attached hereto. Except as shown on SCHEDULE 4.19.1 attached
hereto, Seller has no business relationship with any Affiliate (other than the
direct employment of an individual Affiliate as an employee, officer or
director) where such Affiliate is a customer, supplier, vendor, licensor,
lessor, landlord, distributor, sales representative, lender or borrower.
SCHEDULE 4.19.1 attached hereto contains a complete list of all business
relationships of Seller with any Affiliate.
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4.19.2 NO ADVERSE INTERESTS. Except as shown on SCHEDULE 4.19.2
attached hereto, no Affiliate has any direct or indirect interest in (a) any
entity which does business with Seller or is competitive with Seller's business,
or (b) any property, asset or right which is used by Seller in the conduct of
its business.
4.19.3 OBLIGATIONS. All obligations of any Affiliate to Seller,
and all obligations of Seller to any Affiliate, are listed on SCHEDULE 4.19.3
attached hereto.
4.20 SOLE SHAREHOLDER. Shareholder owns one hundred percent (100%) of the
issued and outstanding capital stock of Seller.
4.21 ASSETS NECESSARY TO BUSINESS. To the best of Seller's and
Shareholder's knowledge, except as disclosed in SCHEDULE 4.21 attached hereto,
the Purchased Assets include all property and assets (except for the Excluded
Assets), tangible and intangible, and all leases, licenses and other agreements,
which are necessary to permit Buyer to carry on, or currently used or held for
use in, the business of Seller as presently conducted.
4.22 NO BROKERS OR FINDERS. Neither Seller nor any of its directors,
officers, employees, Shareholder or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
4.23 DISCLOSURE. No representation or warranty by Seller and/or
Shareholder in this Agreement, nor any statement, certificate, schedule or
exhibit hereto furnished or to be furnished by or on behalf of Seller or
Shareholder pursuant to this Agreement, nor any document or certificate
delivered to Buyer pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading. All statements and information contained in
any officer's certificate, Schedule or the Side Letter delivered by or on behalf
of Seller and/or Shareholder shall be deemed representations and warranties by
Seller and Shareholder.
4.24 HART-SCOTT-RODINO ACT. In no year (fiscal or calendar) have the net
sales or assets of Seller been $10,000,000 or more.
4.25 DESIGN BY EMPLOYEES. Except as shown on SCHEDULE 4.25 attached
hereto, the Software and the Supporting Material were specified, designed,
written and produced entirely and solely by persons who were at all material
times employees of Seller and who produced the Software and Supporting Material
as part of their duties of employment or by independent contractors who have
assigned all rights to the Software and the Supporting Material to Seller. No
other persons were or have been involved in the specification, design, writing
or production of the Software or the Supporting Material.
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5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer makes the following representations and warranties to Seller and
Shareholder, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Seller or any notice to Seller,
and shall survive the Closing of the transactions provided for herein.
5.1 CORPORATE.
5.1.1 ORGANIZATION. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
5.1.2 CORPORATE POWER. Buyer has all requisite corporate power to
enter into this Agreement and the other documents and instruments to be executed
and delivered by Buyer and to carry out the transactions contemplated hereby and
thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Buyer pursuant hereto
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of Buyer. No other corporate act
or proceeding on the part of Buyer or its shareholders is necessary to authorize
this Agreement or the other documents and instruments to be executed and
delivered by Buyer pursuant hereto or the consummation of the transactions
contemplated hereby and thereby. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed and delivered
by Buyer pursuant hereto will constitute, valid and binding agreements of Buyer,
enforceable in accordance with their respective terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
5.3 NO BROKERS OR FINDERS. Neither Buyer nor any of its directors,
officers, employees or agents have retained, employed or used any broker or
finder in connection with the transaction provided for herein or in connection
with the negotiation thereof.
5.4 FINANCIAL CAPACITY. Buyer has the financial means necessary to
consummate the transactions contemplated hereunder.
6. EMPLOYEES - EMPLOYEE BENEFITS.
6.1 SELLER EMPLOYEES. Immediately after the Closing, Buyer shall make
offers of employment to all Seller Employees. Such offers of employment shall
be on substantially the same terms and conditions as those in effect prior to
the Closing. Prior to the Closing, Seller may pay bonuses based upon length of
service (collectively, the "BONUSES") to some or all Seller Employees out of its
operating funds and the parties hereto agree that the aggregate amount of such
Bonuses shall be deducted from the Purchase Price paid pursuant to Section 3.1
hereof.
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6.2 BUYER'S RESPONSIBILITIES. Provided that a Seller Employee accepts
Buyer's offer of employment made pursuant to Section 6.1 hereof, Buyer shall
assume all of Seller's liabilities in connection with such Seller Employee, and
Seller acknowledges and agrees that it shall retain any liability in connection
with any Seller Employee who does not accept such offer of employment, PROVIDED,
HOWEVER, that Buyer shall pay to any Seller Employee who does not accept Buyer's
offer of employment two (2) weeks compensation. Buyer further indemnifies and
holds Seller and Shareholder harmless for any losses arising directly or
indirectly from, through or because of any Seller Employee for which it has
assumed liability pursuant to the foregoing sentence, including any losses
incurred from Buyer's failure to perform its covenants contained in Section 6.1
hereof.
6.3 PAYROLL TAX. Seller agrees to make a clean cut-off of payroll and
payroll tax reporting with respect to the Seller Employees paying over to the
federal, state and city governments those amounts respectively withheld or
required to be withheld for periods ending on or prior to the Closing Date.
Seller also agrees to issue, by the date prescribed by IRS Regulations, Forms
W-2 for salaries, wages and other compensation paid through the Closing Date.
Except as set forth in this Agreement, Buyer shall be responsible for all
payroll and payroll tax obligations with respect to employment compensation
accruing after the Closing Date for the Seller Employees.
7. OTHER MATTERS.
7.1 NONCOMPETITION; CONFIDENTIALITY. Subject to the Closing, and as an
inducement to Buyer to execute this Agreement and complete the transactions
contemplated hereby, and in order to preserve the goodwill associated with the
business of Seller being acquired pursuant to this Agreement.
7.1.1 COVENANT NOT TO COMPETE. For a period of two (2) years from
the Closing Date, neither Seller nor Shareholder will directly or indirectly
engage in any Competitive Activities (as hereinafter defined). The term
"COMPETITIVE ACTIVITIES" as used herein shall mean: working for, consulting to,
advising or assisting competitors of Buyer with respect to the development or
marketing of competing products in the business of computer systems performance
and capacity planning software, year 2000 software compliance or disk storage
devices or any business substantially similar thereto ("BUYER'S BUSINESS"),
including owning or controlling any financial interest in any corporation,
partnership, firm or other form of business organization which competes with or
is engaged in or carries on any aspect of Buyer's Business or any business
substantially similar thereto, or soliciting customers or otherwise serving as
an intermediary for any such competitor.
Notwithstanding the foregoing, the term "Competitive Activities" shall not
include: (a) Shareholder's teaching and writing about, and consulting with
respect to, Buyer's Business so long as such activities do not disclose
proprietary information about Buyer's Business and are not knowingly provided to
competitors of Buyer who market or intend to market products in such field; and
(b) the ownership of securities of corporations which are listed on a national
securities exchange or traded in the national over-the-counter market in an
amount which shall not exceed five percent (5%) of the outstanding shares of any
such corporation. The
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parties agree that the geographic scope of this covenant not to compete shall
extend throughout the United States, Europe, Australia, Canada, Japan, Mexico,
Korea, Hong Kong and Malaysia. The parties agree that Buyer may sell, assign or
otherwise transfer this covenant not to compete, in whole or in part, to any
person, corporation, firm or entity that purchases all or part of Buyer's
Business or the Purchased Assets being acquired by Buyer hereunder. In the
event a court of competent jurisdiction determines that the provisions of this
covenant not to compete are excessively broad as to duration, geographical scope
or activity, it is expressly agreed that this covenant not to compete shall be
construed so that the remaining provisions shall not be affected, but shall
remain in full force and effect, and any such over broad provisions shall be
deemed, without further action on the part of any person, to be modified,
amended and/or limited, but only to the extent necessary to render the same
valid and enforceable in such jurisdiction.
7.1.2 COVENANT OF CONFIDENTIALITY. With the exception of
Shareholder's activities expressly permitted pursuant to Section 7.1 hereof,
neither Seller nor Shareholder shall at any time subsequent to the Closing,
except as explicitly requested by Buyer, (a) use for any purpose, (b) disclose
to any person, or (c) keep or make copies of documents, tapes, discs or programs
containing, any confidential information concerning Seller. For purposes
hereof, "confidential information" shall mean and include, without limitation,
all Trade Rights in which Seller has an interest, all customer lists and
customer information, and all other information concerning Seller's processes,
apparatus, equipment, packaging, products, marketing and distribution methods,
not previously disclosed to the public directly by Seller.
7.1.3 EQUITABLE RELIEF FOR VIOLATIONS. Seller and Shareholder
agree that the provisions and restrictions contained in this Section 7.1 are
necessary to protect the legitimate continuing interests of Buyer in acquiring
the business and goodwill of the business through the purchase of the Purchased
Assets and the assumption of the Assumed Liabilities, and that any violation or
breach of these provisions will result in irreparable injury to Buyer for which
a remedy at law would be inadequate and that, in addition to any relief at law
which may be available to Buyer for such violation or breach and regardless of
any other provision contained in this Agreement, Buyer shall be entitled to
injunctive and other equitable relief as a court may grant after considering the
intent of this Section 7.1.
7.2 USE OF SELLER'S NAME. Following the Closing, neither Seller nor any
Affiliate shall, without the prior written consent of Buyer, make any use of the
name "Datametrics System Corporation" or any other name confusingly similar
thereto, except as may be necessary for Seller to pay its liabilities, prepare
tax returns and other reports, and to otherwise wind up and conclude its
business. Seller agrees to change its name to "SpanServe Corporation" on or
before the Closing.
7.3 SALES TAX MATTERS. At or prior to the Closing, Seller shall obtain a
sales tax clearance certificate from the State of Virginia.
7.4 BULK SALES COMPLIANCE. Following the execution of this Agreement,
Seller and Shareholder shall cooperate with Buyer in complying with all
provisions of the bulk sales or bulk transfer statutes of all states having
jurisdiction, including the provisions of the Code
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of Virginia applicable to bulk transfers, in such a way as to provide Buyer the
greatest measure of protection against the creditors of Seller allowable under
all such statutes.
7.5 INVESTIGATIONS. The respective representations and warranties of
Seller, Shareholder and Buyer contained herein or in any certificates or other
documents delivered at or prior to the Closing, shall not be deemed waived or
otherwise affected by any investigation made by any party hereto.
7.6 TRANSITION COVERAGE FOR SHAREHOLDER. For a period of ninety (90) days
after the Closing Date, Buyer agrees to permit Shareholder to have access to an
office telephone and e-mail service, shall take telephone messages and forward
telephone call, shall forward Shareholder's mail to any address directed by
Shareholder and shall provide reasonable technical support to assist Shareholder
in obtaining service from new electronic and internet providers. Buyer shall
provide Seller with reasonable support, including the use of Buyer's employees
to assist Seller in winding down Seller's business after the Closing.
8. FURTHER COVENANTS OF SELLER AND SHAREHOLDER.
Each of Seller and Shareholder covenant and agree as follows:
8.1 ACCESS TO INFORMATION AND RECORDS. The parties understand that Buyer
has completed its due diligence review of the Business. Notwithstanding the
foregoing, during the period prior to the Closing, Seller shall give Buyer, its
counsel, accountants and other representatives (a) reasonable access during
normal business hours to all of the properties, books, records, contracts and
documents of Seller for the purpose of such inspection, investigation and
testing as Buyer deems appropriate (and Seller shall furnish or cause to be
furnished to Buyer and its representatives all information with respect to the
business and affairs of Seller as Buyer may request); (b) access to employees,
agents and representatives for the purposes of such meetings and communications
as Buyer reasonably desires; and (c) with the prior consent of Seller in each
instance (which consent shall not be unreasonably withheld), access to vendors,
customers, manufacturers of its machinery and equipment, and others having
business dealings with Seller.
8.2 BANK ACCOUNTS. Upon the execution of this Agreement, Seller shall
provide to Buyer a list of each bank in which Seller has an account or safe
deposit box, the name and number of each such account or box and the names of
all persons authorized to draw thereon or who have access thereto, with the
amounts they are authorized to draw.
8.3 CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof until
the Closing, except as otherwise approved in writing by Buyer:
8.3.1 NO CHANGES. Seller will carry on its business diligently
and in the same manner as heretofore and will not make or institute any changes
in its methods of purchase, sale, management, accounting or operation.
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8.3.2 MAINTAIN ORGANIZATION. Seller will take such action as may
be necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of Seller and will use its best efforts to
preserve the business organization of Seller intact, to keep available to Buyer
the present officers and employees, and to preserve for Buyer its present
relationships with suppliers and customers and others having business
relationships with Seller.
8.3.3 NO BREACH. Seller and Shareholder will not do or omit any
act, or permit any omission to act, which may cause a breach of any material
contract, commitment or obligation, or any breach of any representation,
warranty, covenant or agreement made by Seller and/or Shareholder herein, or
which would have required disclosure on SCHEDULE 4.6 attached hereto attached
hereto had it occurred after the Balance Sheet Date and prior to the date of
this Agreement.
8.3.4 NO MATERIAL CONTRACTS. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale of assets
(real, personal, or mixed, tangible or intangible) will be made, by or on behalf
of Seller, except contracts, commitments, purchases or sales which (a) are (1)
contracts or commitments for the purchase of, and purchases of, raw materials
and supplies made in the ordinary course of business and consistent with past
practice, (2) contracts or commitments for the sale of, and sales of, product or
inventory in the ordinary course of business and consistent with past practice,
or (3) other contracts, commitments, purchases or sales in the ordinary course
of business and consistent with past practice, AND (b) are not material to
Seller (individually or in the aggregate) and would not have been required to be
disclosed in any Schedule had they been in existence on the date of this
Agreement.
8.3.5 NO CORPORATE CHANGES. Seller shall not amend its Articles
of Incorporation or Bylaws or other constituent documents, make any changes in
authorized or issued capital stock, or take or commence the taking of any action
with respect to the dissolution, liquidation or winding up of Seller.
8.3.6 MAINTENANCE OF INSURANCE. Seller shall maintain all of the
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Buyer.
8.3.7 MAINTENANCE OF PROPERTY. Seller shall use, operate,
maintain and repair all property of Seller in a normal business manner.
8.3.8 NO NEGOTIATIONS. Neither Seller nor Shareholder will
directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct presently
ongoing, negotiations with any other party or enter into any agreement with any
other party concerning the sale of Seller, Seller's assets or business or any
part thereof or any equity securities of Seller (an "ACQUISITION PROPOSAL"), and
Seller and Shareholder shall immediately advise Buyer of the receipt of any
Acquisition Proposal.
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8.4 CHANGE OF CORPORATE NAME. Concurrently with the Closing, Seller shall
change its corporate name as provided in Section 7.2 hereof so as to permit the
use of its present name by Buyer.
8.5 CONSENTS. Seller and Shareholder will use their best efforts prior to
Closing to obtain all consents necessary for the consummation of the
transactions contemplated hereby, including, without limitation, the consent of
each lessor of real or personal property leased by Seller under leases being
assumed by Buyer herein to assignment of the lessee's interest under the lease
of such property to Buyer. All such consents shall be in writing and executed
counterparts thereof shall be delivered to Buyer promptly after Seller's receipt
thereof but in no event later than three (3) days prior to the Closing.
8.6 OTHER ACTION. Seller and Shareholder shall use their best efforts to
cause the fulfillment at the earliest practicable date of all of the conditions
to the parties' obligations to consummate the transactions contemplated in this
Agreement.
8.7 DISCLOSURE. Seller and Shareholder shall have a continuing obligation
to promptly notify Buyer in writing with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Disclosure, but no such
disclosure shall cure any breach of any representation or warranty which is
inaccurate.
8.8 DISTRIBUTORSHIP AND SALES REPRESENTATIVE AGREEMENTS. Prior to the
Closing Date, Seller shall advise its distributors and sales representatives
that Seller is planning to sell the Business. Seller shall cooperate with Buyer
in attempting to persuade each such distributor or sales representative desired
by Seller to execute a new distributorship or sales representative agreement
with Buyer.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Seller and Shareholder in this Agreement,
and the statements contained in any Schedule or in the Side Letter or any
instrument, list, certificate or writing delivered by Seller pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer.
9.2 COMPLIANCE WITH AGREEMENT. Seller and Shareholder shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the
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Closing Date, including the delivery of the closing documents specified in
Section 12.1 hereof.
9.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and, to the
best of Seller's and Shareholder's knowledge, no investigation by any
governmental or regulating authority shall have been commenced, against Buyer,
Seller or any of the affiliates, officers or directors of any of them, seeking
to restrain, prevent or change the transactions contemplated hereby, or
questioning the validity or legality of any such transactions, or seeking
damages in connection with, or imposing any condition on, any such transactions.
9.4 CONSENTS AND APPROVALS. All approvals, consents and waivers that are
required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to Buyer.
Notwithstanding the foregoing, receipt of the consent of any third party to the
assignment of an Assumed Contract which is not (and is not required to be)
disclosed in any Schedule shall not be a condition to Buyer's obligation to
close, provided that the aggregate of all such Contracts does not represent a
material portion of Seller's sales or expenditures. For a period of thirty (30)
days after the Closing, Seller and Shareholder shall continue to use their best
effects to obtain any such consents or approvals, and neither Seller nor
Shareholder shall hereby be relieved of any liability hereunder for failure to
perform any of their respective covenants or for the inaccuracy of any
representation or warranty.
9.5 ESTOPPEL CERTIFICATES. Seller shall have delivered to Buyer on or
prior to the Closing Date an estoppel certificate or status letter from the
landlord under each lease of real property which estoppel certificate or status
letter will certify (a) the lease is valid and in full force and effect; (b) the
amounts payable by Seller under the lease and the date to which the same have
been paid; (c) whether there are, to the knowledge of said landlord, any
defaults thereunder, and, if so, specifying the nature thereof; and (d) a
statement that the transactions contemplated by this Agreement will not
constitute default under the lease and that the landlord consents to the
assignment of the lease to Buyer.
9.6 SECTION 1445 AFFIDAVIT. Seller shall have delivered to Buyer an
affidavit, in form satisfactory to Buyer, to the effect that Seller is not a
"foreign person," "foreign corporation," "foreign partnership," "foreign trust,"
or "foreign estate" under Section 1445 of the Code, and containing all such
other information as is required to comply with the requirements of such
section.
10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
Each and every obligation of Seller and Shareholder to be performed on the
Closing Date shall be subject to the satisfaction prior to or at the Closing of
the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects when made and shall be true and correct in all
material respects at and
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as of the Closing Date as though such representations and warranties were made
or given on and as of the Closing Date.
10.2 COMPLIANCE WITH AGREEMENT. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement which are to be performed or complied with by Buyer prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 12.2 hereof.
10.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Seller or any of the affiliates, officers or directors
of any of them, seeking to restrain, prevent or change the transactions
contemplated hereby, or questioning the validity or legality of any such
transactions, or seeking damages in connection with, or imposing any condition
on, any such transactions.
11. INDEMNIFICATION.
11.1 BY SELLER AND SHAREHOLDER. Subject to the terms and conditions of
this Article 11, Seller and Shareholder, jointly and severally, hereby
indemnify, defend and hold harmless Buyer, and its directors, officers,
employees and controlled and controlling persons ("BUYER'S AFFILIATES"), from
and against all Claims asserted against, resulting to, imposed upon, or incurred
by Buyer, Buyer's Affiliates or the business and assets transferred to Buyer
pursuant to this Agreement, directly or indirectly, by reason of, arising out of
or resulting from (a) the inaccuracy or breach of any representation or warranty
of Seller or Shareholder contained in or made pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the transactions contemplated hereby (regardless of whether
such breach is deemed "material"); (b) the breach of any covenant of Seller or
Shareholder contained in this Agreement or in any agreement, document or
instrument executed and delivered pursuant hereto or in connection with the
transactions contemplated hereby (regardless of whether such breach is deemed
"material"); (c) any Claim of or against Seller, the Purchased Assets or the
business of Seller not specifically assumed by Buyer pursuant hereto and not
covered by clause (d), or (d) any Claim for a Warranty Credit, but only to the
extent that such Claim is not covered by insurance coverage of Buyer. As used
in this Article 11, the term "CLAIM" shall include (a) all debts, liabilities
and obligations; (b) all losses, damages (including, without limitation,
consequential damages), judgments, awards, settlements, costs and expenses
(including, without limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs and attorneys fees and expenses); and
(c) all demands, claims, suits, actions, costs of investigation, causes of
action, proceedings and assessments, whether or not ultimately determined to be
valid.
11.2 BY BUYER. Subject to the terms and conditions of this Article 11,
Buyer hereby agrees to indemnify, defend and hold harmless Seller, its
directors, officers, employees and controlling persons, and Shareholder from and
against all Claims asserted against, resulting to, imposed upon or incurred by
any such person, directly or indirectly, by
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reason of or resulting from (a) the inaccuracy or breach of any representation
or warranty of Buyer contained in or made pursuant to this Agreement (regardless
of whether such breach is deemed "material"); (b) the breach of any covenant of
Buyer contained in this Agreement (regardless of whether such breach is deemed
"material"); or (c) all Claims of or against Seller specifically assumed by
Buyer pursuant hereto.
11.3 INDEMNIFICATION OF THIRD-PARTY CLAIMS. The obligations and
liabilities of any party to indemnify any other under this Article 11 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
11.3.1 NOTICE AND DEFENSE. The party or parties to be indemnified
(whether one or more, the "INDEMNIFIED PARTY") will give the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") written notice of any such
Claim, and the Indemnifying Party will undertake the defense thereof by
representatives chosen by the Indemnified Party. Failure to give such notice
shall not affect the Indemnifying Party's duty or obligations under this
Article 11, except to the extent the Indemnifying Party is prejudiced thereby.
So long as the Indemnifying Party is defending any such Claim actively and in
good faith, the Indemnified Party shall not settle such Claim. The Indemnified
Party shall make available to the Indemnifying Party or its representatives all
records and other materials required by them and in the possession or under the
control of the Indemnified Party, for the use of the Indemnifying Party and its
representatives in defending any such Claim, and shall in other respects give
reasonable cooperation in such defense.
11.3.2 FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party will (upon further notice)
have the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf of
and for the account and risk of the Indemnifying Party, and the Indemnifying
Party shall thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment.
11.3.3 INDEMNIFIED PARTY'S RIGHTS. Anything in this Section 11 to
the contrary notwithstanding, (a) if there is a reasonable probability that a
Claim may materially and adversely affect Buyer other than as a result of money
damages or other money payments for such Claim, or if the amount of the Claim
being asserted exceeds (in Buyer's judgment) by more than $200,000 the insurance
coverage which has been admitted by the applicable insurance carriers, Buyer
shall have the sole right to defend, compromise or settle such Claim and shall
be entitled to recover from Seller for such amounts, (b) the Indemnifying Party
shall not, without the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such Claim, and (c) Buyer shall have the exclusive right to defend and settle
breach of warranty claims for Products.
11.4 PAYMENT. Subject to the terms of Section 3.3 hereof, the Indemnifying
Party shall promptly pay the Indemnified Party any amount due under this
Article 11, which
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payment may be made in whole or in part, to the extent that the Indemnified
Party owes any amount to the Indemnifying Party, at the option of the
Indemnified Party, by the Indemnified Party setting off any amount owed to the
Indemnifying Party by the Indemnified Party. To the extent set-off is made by
an Indemnified Party in satisfaction or partial satisfaction of an indemnity
obligation under this Article 11 that is disputed by the Indemnifying Party,
upon a subsequent determination by final judgment not subject to appeal that all
or a portion of such indemnity obligation was not owed to the Indemnified Party,
the Indemnified Party shall pay the Indemnifying Party the amount which was set
off and not owed together with interest from the date of set-off until the date
of such payment at the Prime Rate set by Comerica Bank - California at its San
Francisco, California office. Upon judgment, determination, settlement or
compromise of any third party Claim, the Indemnifying Party shall pay promptly
on behalf of the Indemnified Party, and/or to the Indemnified Party in
reimbursement of any amount theretofore required to be paid by it, the amount so
determined by judgment, determination, settlement or compromise and all other
Claims of the Indemnified Party with respect thereto, unless in the case of a
judgment an appeal is made from the judgment. If the Indemnifying Party desires
to appeal from an adverse judgment, then the Indemnifying Party shall post and
pay the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party, to the
extent not waived in settlement, against the third party who made such third
party Claim.
11.5 DEDUCTIBLE AMOUNT. Without limiting the effect of any of the other
limitations set forth herein, Seller shall not be required to make any
indemnification payment hereunder with respect to any breach of any of its
representations and warranties, except to the extent that the cumulative amount
of the Damages actually incurred by Buyer as a direct result of all such
breaches of such representations and warranties actually exceeds the Deductible
Amount; and Seller shall only be required to pay, and shall only be liable for,
the amount by which the cumulative amount of the Damages actually incurred by
Buyer as a direct result of all such breaches of such representations and
warranties actually exceeds the Deductible Amount. The "DEDUCTIBLE AMOUNT"
shall be $350,000.
11.6 MAXIMUM LIABILITY OF SELLER. The total amount of the payments that
Seller can be required to make under or in connection with this Agreement
(including all indemnification payments required to be made to Buyer and all
amounts payable to any counsel retained by Seller in accordance with
Section 11.3) shall be limited in the aggregate (excluding the Indemnification
Escrow Amount) to a maximum of: (a) Six Million Dollars ($6,000,000) until the
First Anniversary Date; (b) Three Million Dollars ($3,000,000) from the first
day following the First Anniversary Date until the second anniversary of the
Closing Date; and (c) Zero Dollars ($0) thereafter, PROVIDED, HOWEVER, that any
amount paid by Seller during the period described in Section 11.6(a) shall be
deducted from any amount to be paid by Seller during the period described in
Section 11.6(b).
11.7 NO WAIVER. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach,
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violation or failure of condition constituting the basis of the Claim at or
before the Closing, and regardless of whether such breach, violation or failure
is deemed to be "material".
12. CLOSING.
The closing of this transaction (the "CLOSING") shall take place at the
offices of Seller, 12150 East Monument Drive, Suite 300, Fairfax, Virginia at
2:00 p.m. (Eastern Standard Time) on June 30, 1997, or at such other time and
place as the parties hereto shall agree upon (the "CLOSING DATE").
12.1 DOCUMENTS TO BE DELIVERED BY SELLER AND SHAREHOLDER. At the Closing,
Seller and Shareholder shall deliver to Buyer the following documents, in each
case duly executed or otherwise in proper form:
12.1.1 DEEDS, BILLS OF SALE. General warranty bills of sale and
such other instruments of assignment, transfer, conveyance and endorsement as
will be sufficient in the opinion of Buyer and its counsel to transfer, assign,
convey and deliver to Buyer the Purchased Assets as contemplated hereby,
including but not limited to, any required third-party consents to the
assignment of the Designated Agreements.
12.1.2 COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of Seller that each of the representations and warranties made
by Seller and Shareholder in this Agreement is true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date (except for any changes permitted by the terms of this Agreement or
consented to in writing by Buyer), and that Seller and Shareholder have
performed and complied with all of Seller's and Shareholder's obligations under
this Agreement which are to be performed or complied with on or prior to the
Closing Date.
12.1.3 OPINION OF COUNSEL. A written opinion of Tener & Callahan,
P.C., counsel to Seller and Shareholder, dated as of the Closing Date, addressed
to Buyer, substantially in the form of EXHIBIT D hereto.
12.1.4 CERTIFIED RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors and Shareholder of Seller authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
12.1.5 ARTICLES; BYLAWS. A copy of the Bylaws of Seller certified
by the secretary of Seller, and a copy of the Articles of Incorporation of
Seller certified by the Secretary of State of the state of incorporation of
Seller.
12.1.6 INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered to Buyer pursuant to
the terms hereof.
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12.1.7 ESCROW AGREEMENT. The Escrow Agreement duly executed by
Seller and the Escrow Agent in the form of EXHIBIT E hereto.
12.1.8 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
12.2 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall
deliver to Seller the following documents, in each case duly executed or
otherwise in proper form:
12.2.1 CASH PURCHASE PRICE. To Seller a certified or bank
cashier's check (or wire transfer) as required by Section 3.2.5 hereof, and to
the Escrow Agent, a certified or bank cashier's check (or wire transfer) as
required by Sections 3.2.1 and 3.3 hereof.
12.2.2 ASSUMPTION OF LIABILITIES. Such undertakings and
instruments of assumption as will be reasonably sufficient in the opinion of
Seller and its counsel to evidence the assumption of Seller debts, liabilities
and obligations as provided for in Article 2.
12.2.3 COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of Buyer that the representations and warranties made by Buyer
in this Agreement are true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date (except for any changes permitted by the terms of
this Agreement or consented to in writing by Seller), and that Buyer has
performed and complied with all of Buyer's obligations under this Agreement
which are to be performed or complied with on or prior to the Closing Date.
12.2.4 OPINION OF COUNSEL. A written opinion of Cooley Godward
LLP, counsel to Buyer, dated as of the Closing Date, addressed to Seller, in
substantially the form of EXHIBIT F hereto.
12.2.5 CERTIFIED RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors of Buyer authorizing and approving this Agreement and
the consummation of the transactions contemplated by this Agreement.
12.2.6 INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered to Seller by Buyer
pursuant to the terms hereof.
12.2.7 ESCROW AGREEMENT. The Escrow Agreement duly executed by
Buyer and the Escrow Agent in the form of EXHIBIT E hereto.
12.2.8 PURCHASE PRICE ALLOCATION. The allocation of the Purchase
Price in accordance with EXHIBIT C attached hereto.
33.
<PAGE>
12.2.9 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Seller at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Seller may reasonably request.
13. TERMINATION.
13.1 RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be terminated
without further liability of any party at any time prior to the Closing:
13.1.1 by mutual written agreement of Buyer and Seller; or
13.1.2 by either Buyer or Seller if the Closing shall not have
occurred on or before that date which is thirty (30) days after the date of this
Agreement, or if such date is not a business day, the first business day
thereafter, provided the terminating party has not, through breach of a
representation, warranty or covenant, prevented the Closing from occurring on or
before such date.
13.2 TERMINATION FOR BREACH.
13.2.1 TERMINATION BY BUYER. If there has been a material
violation or breach by Seller of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
Buyer, then Buyer may, by written notice to Seller at any time prior to the
Closing that such violation or breach is continuing, terminate this Agreement
with the effect set forth in Section 13.2.3 hereof.
13.2.2 TERMINATION BY SELLER. If there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
Seller, then Seller may, by written notice to Buyer at any time prior to the
Closing that such violation or breach is continuing, terminate this Agreement
with the effect set forth in Section 13.2.3 hereof.
13.2.3 EFFECT OF TERMINATION. Termination of this Agreement
pursuant to this Section 13.2 shall not in any way terminate, limit or restrict
the rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof. Subject to the foregoing, the parties' obligations under
Article 15 of this Agreement shall survive termination.
14. RESOLUTION OF DISPUTES.
14.1 ADJUDICATION. Any dispute, controversy or claim which appears at the
time of demand to exceed $500,000 arising out of or relating to this Agreement
or any contract or agreement entered into pursuant hereto or the performance by
the parties of its or their terms, or any claim that the execution and delivery
of such agreements constituted a violation of the securities laws of any state
or the United States or any claim for damages or rescission of this Agreement
for fraud, misrepresentation or violation of any such securities laws, shall
34.
<PAGE>
be brought in a legal proceeding or other legal action in Fairfax County,
Virginia, which shall be deemed to be a convenient forum. Buyer and Seller
hereby expressly and irrevocably consent and submit to the jurisdiction of the
courts in Fairfax County, Virginia.
14.2 ARBITRATION. Any dispute, controversy or claim which appears at the
time of demand to be less than $500,000 arising out of or relating to this
Agreement or any contract or agreement entered into pursuant hereto or the
performance by the parties of its or their terms, or any claim that the
execution and delivery of such agreements constituted a violation of the
securities laws of any state or the United States or any claim for damages or
rescission of this Agreement for fraud, misrepresentation or violation of any
such securities laws, shall be settled by binding arbitration held in Fairfax
County, Virginia, accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 14. Notwithstanding the foregoing, Buyer
may, in its discretion, apply to a court of competent jurisdiction for equitable
relief from any violation or threatened violation of the covenants of Seller
and/or Shareholder under Section 7.1 hereof.
14.2.1 ARBITRATORS. The panel to be appointed shall consist of one
neutral arbitrator.
14.2.2 PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances and
shall resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within one hundred twenty (120) days after the selection of the
arbitrator(s). The arbitrator(s) shall give the parties written notice of the
decision, with the reasons therefor set out, and shall have thirty (30) days
thereafter to reconsider and modify such decision if any party so requests
within ten (10) days after the decision. Thereafter, the decision of the
arbitrator(s) shall be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused to
participate in the arbitration process.
14.2.3 AUTHORITY. The arbitrator(s) shall have authority to award
relief under legal or equitable principles, including interim or preliminary
relief, and to allocate responsibility for the costs of the arbitration and to
award recovery of attorneys fees and expenses in such manner as is determined to
be appropriate by the arbitrator(s).
14.2.4 ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Seller, Buyer and Shareholder hereby submit to the in personam
jurisdiction of the Federal and State courts in California, for the purpose of
confirming any such award and entering judgment thereon.
14.2.5 CONFIDENTIALITY. All proceedings under this Article 14, and
all evidence given or discovered pursuant hereto, shall be maintained in
confidence by all parties.
35.
<PAGE>
14.2.6 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 14 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party and to the right of setoff
provided in Section 11.4 hereof.
14.2.7 TOLLING. All applicable statues of limitation shall be
tolled while the procedures specified in this Article 14 are pending. The
parties will take such action, if any, required to effectuate such tolling.
15. EXPENSES.
Regardless of whether or not the transactions contemplated hereby are
consummated:
15.1 BROKERAGE. Seller, Shareholder and Buyer each represent and warrant
to each other that there is no broker involved or in any way connected with the
transfer provided for herein. Buyer agrees to hold Seller and Shareholder
harmless from and against all claims for brokerage commissions or finder's fees
incurred through any act of Buyer in connection with the execution of this
Agreement or the transactions provided for herein. Seller and Shareholder,
jointly and severally, agree to hold Buyer harmless from and against all claims
for brokerage commissions or finder's fees incurred through any act of either
Seller or Shareholder in connection with the execution of this Agreement or the
transactions provided for herein.
15.2 EXPENSES TO BE PAID BY SELLER. Seller shall pay, and shall indemnify,
defend and hold Buyer harmless from and against, each of the following:
15.2.1 TRANSFER TAXES. Any sales, use, excise, transfer, income or
other similar tax imposed with respect to the transactions provided for in this
Agreement, and any interest or penalties related thereto.
15.2.2 PROFESSIONAL FEES. All fees and expenses of Seller's legal,
accounting, investment banking and other professional counsel in connection with
the transactions contemplated hereby. Buyer acknowledges that Seller will pay
for such transaction expenses from Seller's operating accounts and that such
transaction expenses will not, directly or indirectly, cause any adjustment to
the Purchase Price. Any unused balances of retainers advanced by Seller for
such professional fees, however, shall be promptly remitted to Buyer.
15.3 OTHER. Except as otherwise provided herein, each of the parties shall
bear its own expenses and the expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
15.4 COSTS OF LITIGATION OR ARBITRATION. The parties agree that (subject
to the discretion, in an arbitration proceeding, of the arbitrator as set forth
in Section 14.4 hereof) the prevailing party in any action brought with respect
to or to enforce any right or remedy
36.
<PAGE>
under this Agreement shall be entitled to recover from the other party or
parties all reasonable costs and expenses of any nature whatsoever incurred by
the prevailing party in connection with such action, including without
limitation attorneys' fees and prejudgment interest.
16. MISCELLANEOUS.
16.1 MATERIALITY. For purposes of Sections 4, 8, 9 and 11.1 of this
Agreement and for purposes of EXHIBIT A to this Agreement, a contract,
obligation, liability, transaction, change, breach, encumbrance, proceeding or
other matter or event shall not be deemed to be "material" unless the existence
or occurrence of such matter or event would, by itself, (a) cause a reasonable
purchaser to reverse its decision to enter into a transaction of the type
contemplated by this Agreement, and (b) reduce the value of the Purchased Assets
by more than Two Hundred Thousand Dollars ($200,000).
16.2 FURTHER ASSURANCE. From time to time, at Buyer's request and without
further consideration, Seller and Shareholder will execute and deliver to Buyer
such documents and take such other action as Buyer may reasonably request in
order to consummate more effectively the transactions contemplated hereby and to
vest in Buyer good, valid and marketable title to the business and assets being
transferred hereunder.
16.3 ANNOUNCEMENTS. Announcements concerning the transactions provided for
in this Agreement by either Seller or Buyer shall be subject to the approval of
the other in all essential respects, except that Seller's approval shall not be
required as to any statements and other information which Buyer may submit to
the Securities and Exchange Commission, the California Securities Commission or
be required to make pursuant to any rule or regulation of the Securities and
Exchange Commission or any state or local securities regulatory board, or
otherwise required by law.
16.4 ASSIGNMENT; PARTIES IN INTEREST. Except as expressly provided herein,
the rights and obligations of a party hereunder may not be assigned, transferred
or encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Seller hereunder. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall be deemed to
confer upon any other person any right or remedy under or by reason of this
Agreement.
16.5 GOVERNING LAW. This Agreement shall be construed and interpreted
according to the internal laws of the State of California, excluding any choice
of law rules that may direct the application of the laws of another
jurisdiction.
37.
<PAGE>
16.6 AMENDMENT AND MODIFICATION. Buyer, Seller and Shareholder may amend,
modify and supplement this Agreement in such manner as may be agreed upon by
them in writing.
16.7 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
(a) If to Buyer, to:
Zitel Corporation
47211 Bayside Parkway
Fremont, CA 94538
Attention: Mr. Henry C. Harris
Telephone: (510) 440-9600
Telecopier: (510) 440-9696
(with a copy to)
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: John L. Cardoza, Esq.
Telephone: (415) 693-2000
Telecopier: (415) 951-3699
or to such other person or address as Buyer shall furnish to Seller in writing.
(b) If to Seller or Shareholder, to:
Datametrics Systems Corporation
12150 East Monument Drive, Suite 300
Fairfax, VA 22033
Attention: John C. Kelly, Ph.D.
Telephone: (703) 385-7700
Telecopier: (703) 278-9383
38.
<PAGE>
(with a copy to)
Tener & Callahan, P.C.
8330 Boone Boulevard, Suite 401
Vienna, VA 22182-2624
Attention: Ralph M. Tener, Esq.
Telephone: (703) 790-8100
Telecopier: (703) 790-8105
or to such other person or address as Seller shall furnish to Buyer in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this Section.
16.8 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
16.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10 HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
16.11 FURTHER DOCUMENTS. Buyer, Seller and Shareholder each agree to
execute all other documents and to take such other action or corporate
proceedings as may be necessary or desirable to carry out the terms hereof.
16.12 SURVIVAL. All provisions of this Agreement shall survive the
Closing.
39.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
"BUYER"
ZITEL WORLD TRADE,
a California corporation
By: /s/ Henry C. Harris
--------------------------------------------
Henry C. Harris
--------------------------------------------
[Print Name and Title]
"SELLER"
DATAMETRICS SYSTEM CORPORATION,
a Delaware corporation
By: /s/ John C. Kelly
--------------------------------------------
John C. Kelly, President
--------------------------------------------
[Print Name and Title]
"SHAREHOLDER"
/s/ John C. Kelly
--------------------------------------------------
JOHN C. KELLY, PH.D.
40.
<PAGE>
EXHIBIT A
DEFINITIONS
As used in the Agreement the following terms shall have the following
respective meanings:
"ACQUISITION PROPOSAL" shall have the meaning specified in Section 8.3.8 of
the Agreement.
"AFFILIATE" shall mean and include: (a) any current or former shareholder,
director or officer of Seller; (b) any sibling, uncle, aunt, niece or nephew of
any person described in clause (a); (c) any ancestor or lineal descendant of any
person described in clauses (a) or (b); (d) any current or former spouse of any
person described in clauses (a), (b) or (c) or any person who is a member of the
same household of the person described in clauses (a), (b) or (c) or who has
resided with such person for more than ten (10) days in any calendar year; (v)
any ancestor or lineal descendant of any person described in clauses (a), (b),
(c) or (d); and (e) any entity or person in which any of the foregoing have a
direct or indirect interest (except through ownership of less than five percent
(5%) of the outstanding shares of any entity whose securities are listed on a
national securities exchange or traded in the national over-the-counter market).
"AGREEMENT" shall have the meaning specified in the preamble to the
Agreement.
"ASSUMED CONTRACTS" shall have the meaning specified in Section 1.1.13 of
the Agreement.
"ASSUMED LIABILITIES" shall have the meaning specified in Section 2.1 of
the Agreement.
"BALANCE SHEET" shall have the meaning specified in Section 2.1.1 of the
Agreement.
"BALANCE SHEET DATE" shall mean April 30, 1997.
"BONUSES" shall have the meaning specified in Section 6.1 of the Agreement.
"BUSINESS" shall have the meaning specified in the recitals to the
Agreement.
"BUYER" shall have the meaning specified in the preamble to the Agreement.
"BUYER'S AFFILIATES" shall have the meaning specified in Section 11.1 of
the Agreement.
"BUYER'S BUSINESS" shall have the meaning specified in Section 7.1.1.1 of
the Agreement.
1.
<PAGE>
"CERTIFICATE OF DEPOSIT" shall mean that certificate of deposit in the
amount of $6,800 which Seller has deposited with George Mason Bank to secure the
Letter of Credit.
"CLAIM" shall have the meaning specified in Section 11.1 of the Agreement.
"CLOSING" and "CLOSING DATE" shall have the meanings specified in
Section 12 of the Agreement.
"CODE" shall have the meaning specified in Section 3.5 of the Agreement.
"COMPETITIVE ACTIVITIES" shall have the meaning specified in Section 7.1.1
of the Agreement.
"CONTRACTS" shall have the meaning specified in Section 1.1.13 of the
Agreement.
"DEDUCTIBLE AMOUNT" shall have the meaning specified in Section 11.5 of the
Agreement.
"DESIGNATED AGREEMENTS" shall mean the following agreements: (a) Office
Building Lease dated July 31,1992 between Upland Industries Corporation and
Collin Equities, Inc., as tenants in common (Landlord), and Seller, as tenant,
as amended by that First Amendment to Lease, dated October 16, 1996; (b) the
Letter of Credit; (c) Royalty Agreement dated March 29, 1989 between MGS, Inc.
and Seller and Amendment No. 1 to Software Marketing and Support Agreement
between MGS, Inc. and Seller dated January 3, 1991, as amended on January 2,
1993; (d) Subcontract between Seller and Electronic Data Systems Corp. dated
March 19, 1990, relating to that Firm Fixed Price Prime Contract (#SBA
5022-IRM-90) between the U.S. Small Business Administration and Electronic Data
Systems Corp.; (e) Software License and Distribution Agreement dated as of
November 1, 1996 between Seller and Digital Equipment Corporation; and (f)
Subcontract No. GSACZ-007 between Seller and Dyntel Corporation.
"ERISA" shall have the meaning specified in Section 4.14.1 of the
Agreement.
"ESCROW AGENT" shall mean Comerica Bank - California
"ESCROW AGREEMENT" shall mean that certain agreement between the parties to
the Agreement and the Escrow Agent in the form of EXHIBIT E to the Agreement.
"EXCLUDED ASSETS" shall have the meaning specified in Section 1.2 of the
Agreement.
"FACILITIES" shall have the meaning specified in the recitals to the
Agreement.
"FINANCIAL STATEMENTS" shall have the meaning specified in Section 4.4 of
the Agreement.
2.
<PAGE>
"FIRST ANNIVERSARY DATE" shall have the meaning specified in Section 3.3 of
the Agreement.
"FIRST DEPOSIT" shall have the meaning specified in Section 3.2.1 of the
Agreement.
"GAAP" shall mean generally accepted accounting principles.
"INDEMNIFICATION ESCROW" shall have the meaning specified in Section 3.3 of
the Agreement.
"INDEMNIFICATION ESCROW AMOUNT" shall have the meaning specified in
Section 3.3 of the Agreement.
"INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" shall have the meanings
specified in Section 11.3.1 of the Agreement.
"IRS" shall have the meaning specified in Section 3.5 of the Agreement.
"LAWS" shall have the meaning specified in Section 4.9.1 of the Agreement.
"LETTER OF CREDIT" shall mean that standby letter of credit in the maximum
amount of $6,800 issued by George Mason Bank to secure Seller's performance
under a software license with Hellenic Telecommunications Organization S.A.
"LIENS" shall have the meaning specified in Section 4.10.1 of the
Agreement.
"LOAN AGREEMENTS" shall mean all documents evidencing that (a)
Single-Advance Loan to Seller from George Mason Bank with a term from
October 14, 1994 to October 14, 1997 and (b) Revolving Line of Credit Loan to
Seller from George Mason Bank with a term from October 14, 1994 until all
indebtedness has been paid in full and the parties terminate same in writing.
"OWNED REAL PROPERTY" shall have the meaning specified in Section 1.1.2 of
the Agreement.
"PBGC" shall have the meaning specified in Section 4.14.2.2 of the
Agreement.
"PERMITTED REAL PROPERTY LIENS" shall have the meaning specified in
Section 4.10.1 of the Agreement.
"PERSON" means any individual, corporation, limited liability corporation,
association, general partnership, limited partnership, limited liability
partnership, venture, trust, association, firm, organization, company, business,
entity, union, society, government (or political subdivision thereof) or
governmental agency, authority or instrumentality.
3.
<PAGE>
"PERSONAL PROPERTY LEASES" shall have the meaning specified in
Section 1.1.4 of the Agreement.
"PREDECESSOR" shall have the meaning specified in Section 4.1.5 of the
Agreement.
"PRODUCTS" shall have the meaning specified in Section 4.18 of the
Agreement.
"PURCHASE PRICE" shall have the meaning specified in Section 3.1 of the
Agreement.
"PURCHASED ASSETS" shall have the meaning specified in Section 1.1 of the
Agreement.
"REAL PROPERTY" shall have the meaning specified in Section 4.10.3 of the
Agreement.
"REAL PROPERTY LEASES" shall have the meaning specified in Section 1.1.3 of
the Agreement.
"SECOND DEPOSIT" shall have the meaning specified in Section 3.2.2 of the
Agreement.
"SELLER" shall have the meaning specified in the preamble to the Agreement.
"SELLER EMPLOYEES" shall have the meaning specified in Section 4.14.1 of
the Agreement.
"SHAREHOLDER" shall have the meaning specified in the preamble to the
Agreement.
"SIDE LETTER" shall mean that letter delivered by Seller to Buyer prior to
the execution of the Agreement.
"SOFTWARE" shall mean all computer programs and other material owned or
licensed by Seller.
"SUPPORTING MATERIAL" shall mean: (a) the User Manuals, any training
manuals, upgrade information documents, marketing and product brochures; (b) all
programmer's documentation, documents prepared for the design of any data models
used both in memory and on disk and all other documents (in machine-readable or
hard copy format) relating to the Software; (c) all other software, manuals,
text, documents, designs, artwork, photographs, information and other material
devised or used by the Business in relation to the Software (but not including
the Third Party Software); and (d) all designs, drafts, documents and other
works underlying any of the items listed at (a) to (d) above.
"THIRD PARTY SOFTWARE" shall mean all computer programs used by the
Business in connection with the Software (and including any computer programs
embedded or
4.
<PAGE>
incorporated in any Software or with which any Software is bundled for sale or
marketing by the Business).
"TRADE RIGHTS" shall have the meaning specified in Section 1.1.1 of the
Agreement.
"UNAUDITED STATEMENTS" shall have the meaning specified in Section 4.4 of
the Agreement.
"USER MANUALS" shall mean the user manuals relating to the Software.
"WARRANTY CREDIT" shall have the meaning specified in Section 3.4 of the
Agreement.
5.
<PAGE>
Exhibit B
COMPARATIVE BALANCE SHEET
April 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash 533,046
Equity Securities 261
Prepaid Expenses 840
Accounts Receivables 1,608,411
Loans Receivable 0
TOTAL CURRENT ASSETS 2,142,558
OTHER ASSETS
Deposits 0
Furniture & Equipment 854,526
Capitalized Software Costs - Net 1,754,443
Capacity Q Development 60,000
Accumulated Depreciation (615,578)
TOTAL OTHER ASSETS 2,053,391
TOTAL ASSETS 4,195,949
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts Payable 78,726
Accrued Payables 613,140
Customer Deposits 0
TOTAL CURRENT LIABILITIES 691,866
OTHER LIABILITIES
Notes Payable 16,667
Deferred Revenue 1,908,599
TOTAL OTHER LIABILITIES 1,925,266
TOTAL LIABILITIES 2,617,132
EQUITY
Common Stock 100
Premium on Stock 5,843
Retained Earnings 1,572,874
TOTAL EQUITY 1,578,817
TOTAL LIABILITIES & EQUITY 4,195,949
</TABLE>
<PAGE>
EXHIBIT C
ALLOCATION OF PURCHASE PRICE
Section 1060
Valuation Class
Cash 533,046 I
Other Assets 1,101 III
Accounts Receivable 1,608,411 III
Furniture & Fixtures 238,948 III
Technology & Other Intangibles 7,192,000 IV
Goodwill 2,543,626 V
----------
Total Assets 12,117,132
-----------
-----------
Accounts & Accrued Payables (691,866)
Notes Payable (16,667)
Deferred Revenue (1,908,599)
-----------
Total Liabilities (2,617,132)
-----------
-----------
<PAGE>
Exhibit D
TENER & CALLAHAN, P.C.
Attorneys at Law
8330 Boone Boulevard, Suite 401
Vienna, Virginia 22182-2624
Telephone (703) 790-8100
Facsimile (703) 790-8105
Internet [email protected]
Timothy J. Callahan Writer's Direct Dial
Ralph M. Tener (703) 790-8104
June 30, 1997
Zitel World Trade
47211 Bayside Parkway
Fremont, California 94538
Re: SpanServe Corporation (formerly, Datametrics Systems Corporation)
Gentlemen:
This firm has acted as counsel to SpanServe Corporation (formerly,
Datametrics Systems Corporation), a Delaware corporation (the "Company"), in
connection with the Asset Purchase Agreement dated as of June 25, 1997 (the
"Purchase Agreement") among the Company, Zitel World Trade, a California
corporation ("Zitel"), and John C. Kelly, individually ("Shareholder"), and,
pursuant to the Purchase Agreement, the sale by the Company to Zitel of
substantially all of the assets of the Company as evidenced by the Bill of Sale
(the "Bill of Sale") dated as of June 30, 1997 from the Company to Zitel, and
the Company's entry into an Escrow Agreement dated as of June 30, 1997 (the
"Escrow Agreement") among the Company, Zitel, and Comerica Bank California. The
Purchase Agreement, the Bill of Sale, and tile Escrow Agreement are referred re
collectively as the "Agreements."
This opinion letter is furnished to you at the request of the Company
pursuant to the requirements set forth in Section 12.1.3 of the Purchase
Agreement in connection with the Closing thereunder on the date hereof.
Capitalized terms used herein which are defined in the Purchase Agreement shall
have the meanings set forth in the Purchase Agreement, unless otherwise defined
herein.
For purposes of this opinion letter, we have examined and relied upon
copies of the following documents:
1. An executed copy of the Purchase Agreement.
2. An executed copy of the Escrow Agreement.
3. An executed copy of the Bill of Sale.
4. The Certificate of Incorporation of the Company and two amendments
thereto, executed on June 25, 1987, and February 28, 1991, respectively, as
certified by the Secretary of State of the State
<PAGE>
Zitel World Trade
June 30, 1997
Page 2
of Delaware on June 26, 1997, and an additional amendment executed on June 27,
1997. Such Certificate of Incorporation and amendments are referred to herein
collectively as the Charter.
5. The Bylaws of the Company (the "Bylaws"), as certified by the
Secretary of the Company on June 30, 1997, as being a true and complete copy of
all existing Bylaws of the Company as of said date.
6. A Certificate of Good Standing of the Company issued by the Secretary
of State of the State of Delaware, dated June 25, 1997.
7. Certain resolutions of the Board of Directors of the Company adopted
effective June 27, 1997, by written consent in lieu of a meeting relating to,
among other things, authorization of the Agreements, the sate of assets pursuant
thereto, and a change of the name of the Company.
8. Certain resolutions of the Stockholders of the Company, adopted
effective June 27, 1997, by written consent in lieu of meeting, relating to a
change of the name of the Company.
9. A certificate of John C. Kelly, Ph.D., an officer of the Company,
dated June 30, 1997, as to certain facts relating to the Company (the "Officer's
Certificate").
10. Certain other certificates of Officers of the Company as to, among
other things, authorization to sign the Agreements, the incumbency and signature
of a certain officer of the Company, the correctness of representations and
warranties, and the satisfaction of conditions and performance of covenants
under the Purchase Agreement.
11. The list of creditors (the "List of Creditors") of the Company as of
June 20, 1997, prepared pursuit to Section 8.6-104 of the Code of Virginia (the
"Code") and the form of bulk transfer notice (the "Notice") prepared pursuant to
Sections 8.6-105 and 8.6-107 of the Code ant attached hereto as Exhibit A.
In our examination of the Agreements and the aforesaid certificates,
records, documents, and agreements, we have assumed, without investigation, the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). We also have
assumed, without investigation, the accuracy, completeness and authenticity of
the foregoing certifications of public officials, governmental agencies and
departments, corporate officers, and statements of fact, on which we are
relying, and have made no investigation thereof. In rendering the following
opinions we have relied as to factual matters, without investigation, upon the
representations, warranties, and certifications made by the Company and the
Shareholder in or pursuant to the Agreements and the Officer's Certificate.
This opinion letter is given, and all statements herein are made in the context
of the foregoing.
<PAGE>
Zitel World Trade
June 30, 1997
Page 3
As used in this opinion letter, the phrase "to the best of our knowledge"
or words of similar effect mean the actual knowledge of lawyers in our firm who
have given substantive legal attention to representations of the Company in
connection with the Agreements and the transactions contemplated thereby.
For purposes of this opinion letter, we have assumed, without
investigation, that (i) Zitel has all requisite power and authority under all
applicable laws, regulations, and governing documents to execute, deliver, and
perform its obligations under the Agreements, (ii) Zitel has duly authorized,
executed, and delivered the Agreements, (iii) each of the Agreements constitutes
a valid and binding obligation, enforceable against Zitel and, in the case of
the Escrow Agreement, the Agent named therein, in accordance with its terms, and
(iv) there has been no material mutual mistake of fact or misunderstanding or
fraud, duress, or undue influence, in connection with the negotiation,
execution, or delivery of the Agreements.
This opinion letter is based as to matters of law solely on applicable
provisions of the laws of the Commonwealth of Virginia and the General
Corporation Law of Delaware, except that we express no opinion as to federal or
state securities laws or regulations. Further, we note that the Purchase
Agreement and the Escrow Agreement state that they are to be governed by the
laws of the State of California (excluding the choice oL law provisions
thereof). We render no opinion about such laws. For purposes of our opinion,
we have assumed, with your consent, that the Agreements will be governed by the
laws of the Commonwealth of Virginia notwithstanding their express terms.
Based upon, subject to, and limited by the foregoing, we are of the opinion
that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power and authority to enter
into and perform the Agreements and to consummate the transactions contemplated
thereby, except to the extent disclosed in the Schedules to the Purchase
Agreement. The execution and delivery of the Agreements by the Company and the
consummation of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of the Company and constitute
valid and binding agreements of the Company enforceable against the Company in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
3. The execution and delivery of the Agreements by the Company, and other
documents and instruments to be executed and delivered pursuant thereto by the
Company, do not violate any provision of the Company's Certificate of
Incorporation or Bylaws, and, to the best of our knowledge, do not constitute a
material default under the provisions of any document, agreement or other
instrument known
<PAGE>
Zitel World Trade
June 30, 1997
Page 4
to us to which the Company is a party or by which it is bound, except for any
agreements which require the consent of another party for assignment or other
transfer or change effected by this transaction and except to the extent
disclosed in the Schedules to the Purchase Agreement, and do not violate or
contravene any Virginia statute, rule or regulation, or any provision of the
General Corporation Law of Delaware, applicable to the Company; to the best of
our knowledge, the Company is not subject to any order, writ, judgment,
injunction, decree, determination or award which would prevent or interfere with
the execution or delivery of the Agreements.
4. To the best of our knowledge, there is no action, proceeding or
investigation pending or threatened against the Company before any court or
administrative agency that questions the validity of the Agreements or might
result, either individually or in the aggregate, in any material adverse change
in the assets, financial condition, or operations of the Company, except to the
extent disclosed in the Schedules to the Purchase Agreement.
5. To the best of our knowledge, all consents, approvals, authorizations,
or orders of, and filings, registrations, and qualifications with any Virginia
regulatory authority or governmental body required for the consummation by the
Company of the transactions contemplated by the Agreements have been made or
obtained.
6. Upon consummation of the Closing in accordance with all provisions of
the Agreements, to the best of our knowledge, the Company will have sold,
transferred and conveyed all of its right, title and interest in and to the
Purchased Assets to Buyer, except to the extent disclosed in the Schedules to
the Purchase Agreement or as may be affected by any applicable securities laws.
7. The Notice complies as to form with Section 6-105 of the Code.
Assuming that the List of Creditors was complete and accurate as of June 20,
1997, that the Notice was mailed by certified mail on June 20, 1997 to all the
persons shown on the List of Creditors, that Zitel is unaware of any persons who
held or asserted claims against the Company as of June 20, 1997 other than those
persons listed on the List of Creditors, that Zitel does not take possession of
the Purchased Assets or pay for them, whichever happens first, before the date
of this opinion letter, that Zitel receives the Purchased Assets without notice
of any noncompliance with Title 8.6 of the Code or any other currently-effective
provisions of the Code relating to bulk transfers or bulk sales, and that the
transfer of the Purchased Assets has not been and is not hereafter concealed,
the transfer of the Purchased Assets will be effective against all creditors of
the Company.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the
<PAGE>
Zitel World Trade
June 30, 1997
Page 5
Closing under the Purchase Agreement on the date hereof and should not be quoted
in whole or in part or otherwise be referred to, nor be filed with or furnished
to any governmental agency or other person or entity, without the prior written
consent of this firm.
Sincerely,
TENER & CALLAHAN, P.C.
/s/ Ralph M. Tener
Ralph M. Tener
KMT/mak
<PAGE>
EXHIBIT A
June 20, 1997
(Creditor Name) VIA CERTIFIED MAIL
(Creditor Address)
Re: Datametrics System Corporation - Sale of Assets
NOTICE OF BULK TRANSFER
Dear Creditor:
This correspondence shall serve as notice, pursuant to the "Uniform Commercial
Code Bulk Transfers" (Section 8.6-101 ET. SEQ. of the Code of Virginia) of the
following:
1. That a bulk transfer is about to be made.
2. That the name and address of the transferor is:
Datametrics System Corporation
12150 East Monument Drive
Suite 300
Fairfax, Virginia 22033
3. That there are no other business names and addresses which have been
used by the transferor within three years last past so far is known to the
transferee.
4. That the name and address of the transferee is:
Zitel World Trade Corporation
47211 Bayside Parkway
Fremont, California 94538
5. That all of the debts of the transferor are to be paid in full as they
fall due as a result of this transaction, and creditors should send their bills
to:
12150 East Monument Drive
Suite 300
Fairfax, Virginia 22033
Sincerely,
Zitel World Trade Corporation
<PAGE>
Exhibit E
ESCROW AGREEMENT
INSTITUTIONAL TRUST DEPARTMENT
This Agreement made this 30th day of June 1997 between ZITEL CORPORATION,
a California corporation (herein called the "Depositor"), and DATAMETRICS SYSTEM
CORPORATION (herein called the "Other Party") and COMERICA BANK, a California
banking corporation (herein called the "Agent") whose address is 250 Lytton
Avenue, Palo Alto, CA 94301.
WITNESSETH:
The Agent acknowledges receipt in Escrow from Depositor of the following:
$350,000.00 (herein called "Property").
- -----------
1. The Agent is hereby authorized and instructed to either:
a. Deliver the Property to the Other Party in strict compliance with the
following Condition(s), or
b. Failing strict compliance with the Condition(s), re-deliver the
Property to Depositor, whereupon in either event, Agent's duties and
liabilities in connection with this Escrow shall terminate:
c. The Condition(s) is (are): See Attached Exhibit A
------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
2. The duties and obligations of Agent hereunder shall be determined solely by
the express provision of this Agreement. Agent shall not be liable or
responsible for any act done, or step taken or omitted by it, or any
mistake of fact or law, or for anything which it may do or refrain from
doing, except for its gross negligence, willful default or failure in the
performance of any obligation imposed upon it hereunder.
Agent is authorized to act in reliance upon the sufficiency, correctness,
genuineness or validity of any instrument or document or other writing
submitted to it hereunder, and shall have no liability with respect to said
matters.
3. Any funds held by Agent hereunder shall be held and invested by Agent as
specified in written instructions: Agent may deposit said funds in an
interest-bearing deposit account with other similar funds. Agent is not
obligated to render any statements or notices of non-performance hereunder
to any party hereto but may in its discretion inform any party hereto, or
his authorized representative, of any matters pertaining to this Escrow.
Rule 14(b)-1(c) of the Securities and Exchange Commission enables
corporations to learn the identity of their security holders whose
securities are held by the Bank and registered in "nominee" and "street"
name unless the beneficial owner specifically indicates its objection to
such disclosure. The Depositor hereby indicates its objection to
disclosure by the Bank of Depositor's name, address and security position
to all companies whose securities are held in this Account and are
registered in "nominee" or "street" name.
4. Agent's fee in the amount of 50 basis points shall be automatically
deducted from the Escrow. The Depositor and Other Party agree, jointly and
severally, to indemnify and hold harmless the Agent from any costs,
damages, expenses or claims, including attorneys' fees, which Agent may
incur or sustain as a result or arising out of this Escrow Agreement or
Agent's duties relating thereto, and will apply them on demand; and the
Agent is hereby
1.
<PAGE>
given a lien upon, and security interest in, the Property deposited in this
escrow to secure Agent's right to payment or reimbursement.
Agent shall be reimbursed $25 for all wire or check disbursements and
actual cost for any termination expenses made or incurred hereunder, and if
it shall be required to perform extraordinary services not contemplated
herein, it shall receive reasonable additional compensation therefor.
Agent shall not be required to institute or maintain litigation unless
indemnified to its satisfaction for its counsel fees, costs, disbursements
and all other costs, expenses and liabilities to which it may in its
judgment be subjected in connection with such action.
5. In the event of any disagreement or the presentation of adverse claims or
demands in connection with the Property, Agent shall, at its option, be
entitled to refuse to comply with any such claims or demands during the
continuance of such disagreement and may refrain from delivering any item
affected thereby, and in so doing, Agent shall not become liable to
Depositor or Other Party, or any of them, or to any other person, due to
its failure to comply with any such adverse claim or demand. Agent shall
be entitled to continue, without liability, to refrain and refuse to act:
a. Until all the rights of the adverse claimants have been finally
adjudicated by a court having jurisdiction of the parties and the
items affected thereby, after which time the Agent shall be entitled
to act in conformity with such adjudication; or
b. Until all differences shall have been adjusted by agreement and Agent
shall have been notified thereof and shall have been directed in
writing, signed jointly or in counterpart by Depositor and Other Party
and by all persons making adverse claims or demands, at which time
Agent shall be protected in acting in compliance therewith.
The parties agree that the Agent may seek adjudication of any adverse claim
or demands in an appropriate County Court, or the United States Federal
District Court, agree to the jurisdiction of either of said Courts over
their persons as well as the Property, waive personal services of any
process, and agree that service of process by certified or registered mail,
return receipt requested, to the address set forth below each party's
signature to this Agreement shall constitute adequate service.
6. The entire agreement of the parties is contained herein; any change in
terms or conditions herein may only be made in writing signed by all
parties hereto. Agent shall not be charged with knowledge of any fact,
including but not limited to performance or non-performance of any
Condition, unless it has actually received written notice thereof from one
of the parties by certified or registered mail, return receipt requested,
addressed to Agent's address shown at the top of this Agreement, such
notice clearly referring to this Agreement.
7. This Escrow Agreement shall be deemed to have been made under and shall be
governed by the laws of the State of California in all respects, including
matters of construction, validity and performance.
8. Agent may consult with legal counsel to be selected and employed by it and
shall be fully protected with respect to any action or inaction under this
Agreement taken or suffered in good faith by Agent in accordance with the
opinion of such counsel.
9. Agent may resign as such following the giving of thirty (30) days' prior
written notice to the other parties hereto. Similarly, Agent may be
removed and replaced following the giving of thirty (30) days' prior
written notice to Agent by the other parties hereto. In either event, the
duties of the Agent shall terminate thirty (30) days after the date of such
notice (or at such earlier date as may be mutually agreement); and Agent
shall then deliver the balance of the escrow deposit then in its possession
to a successor escrow agent as shall be appointed by Other
2.
<PAGE>
Party hereto, as evidenced by a written notice filed with Agent; or if no
successor escrow agent has been so appointed, the then acting Agent shall
deliver the balance of the escrow deposit then in its possession to
(indicate disposition of escrow deposit):.
---------------------------------------------
10. It is the intention of the parties hereto that Agent shall never be
required to use or advance its own funds or otherwise incur personal
financial liability in the performance of any of its duties or the exercise
of any of its rights and powers hereunder.
11. No waiver nor any past agreement or condition hereunder by any party
thereto shall operate as a continuing waiver of any X or condition under
this Agreement. Each party shall have the right to waive and/or nullify,
in writing, any condition or term of this Agreement which is for its or his
benefit.
12. If any provision or claim in this Agreement or application thereof to any
person or circumstances is held invalid or unenforceable, such invalidity
or unenforceability shall not affect other provisions or applications of
this Agreement which can be given effect without the invalid or
unenforceable provision or application, and to this end the provision of
this Agreement are declared to be severable.
DEPOSITOR: ZITEL CORPORATION OTHER PARTY: DATAMETRICS SYSTEM CORPORATION
-------------------- -------------------------------
By: Henry C. Harris, CFO By: John C. Kelly, Ph.D., President
-------------------------- -----------------------------------------
(Name & Title) (Name & Title)
/s/ Henry C. Harris /s/ John C. Kelly
-------------------------- -----------------------------------------
(Signature) (Signature)
6-30-97 6-30-97
--------------------------- ---------------------------------------
(Date) (Date)
47211 Bayside Parkway 12150 East Monument Dr., Suite 30
Fremont, CA 94538 Fairfax, VA 22033
-------------------------- -----------------------------------------
(Address) (Address)
COMERICA BANK:
By: /s/ illegible
--------------------------
(Name & Title)
--------------------------
(Signature)
6-30-97
--------------------------
(Date)
3.
<PAGE>
EXHIBIT A
The Agent shall hold the Property until the Indemnification Escrow
Termination Date (as defined in that Asset Purchase Agreement dated as of
June 25, 1997 between Depositor and the Other Party (the "Agreement")) for the
purpose outlined in Section 3.3 of the Agreement. In the event that no claim(s)
are made by Depositor against the Other Party (with copies to the Agent) by the
Indemnification Escrow Termination Date, the Property, together with any
interest earned thereon, shall be paid by the Agent to the Other Party promptly
thereafter. In the event that Depositor makes one or more such claim(s) against
the Other Party (with copies to the Agent) by the Indemnification Escrow
Termination Date: (a) the amount of such claim(s) shall continue to be held in
this Escrow and this Escrow shall be extended after the Indemnification Escrow
Termination Date until such time as such claim(s) is finally resolved; and
(b) the difference between the Property and the amount of such claim(s),
together with any interest earned thereon, shall be paid by the Agent to the
Other Party promptly thereafter.
4.
<PAGE>
Exhibit F
[COOLEY GODWARD LLP LETTERHEAD]
June 30, 1997
Datametrics Systems Corporation
12150 East Monument Drive, Suite 300
Fairfax, VA 22033
Ladies and Gentlemen:
We have acted as counsel for Zitel World Trade, a California corporation (the
"Company"), in connection with the purchase by the Company of substantially
all of the assets of Datametrics Systems Corporation, a Delaware corporation
("Seller"), under that certain Asset Purchase Agreement dated as of June 25,
1997, by and among the Company and you (the "Purchase Agreement") and the
Escrow Agreement (the "Escrow Agreement") (the Purchase Agreement and the
Escrow Agreement are hereinafter collectively referred to as, the
"Agreements"). We are rendering this opinion pursuant to Section 12.2.4 of
the Purchase Agreement. Except as otherwise defined herein, capitalized
terms used but not defined herein have the respective meanings given to them
in the Purchase Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreements by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreements, where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreements; that the Agreements are obligations binding upon
you; that you have filed any required California franchise or income tax returns
and have paid any required California franchise or income taxes; and that there
are no extrinsic agreements or understandings among the parties to the
Agreements that would modify or interpret the terms of the Agreements or the
respective rights or obligations of the parties thereunder.
<PAGE>
Datametrics System Corporation
June 30, 1997
Page 2
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the State of California. We express no
opinion as to whether the laws of any particular jurisdiction apply, and no
opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities, or to the sale or issuance thereof.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of California.
2. The Company has the requisite corporate power and authority to enter
into and perform the Agreements in accordance with the terms thereof. The
Agreements have been duly and validly authorized, executed and delivered by the
Company and constitute valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms, except as rights
to indemnity under Section 11 of the Purchase Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
This opinion is intended solely for your benefit and is not to be made available
to, or be relied upon by any other person, firm, or entity without our prior
written consent.
Very truly yours,
Cooley Godward LLP
By: /s/ John L. Cardoza
---------------------------------
John L. Cardoza
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
ZITEL LIMITED
(BUYER),
ZITEL CORPORATION,
PALMER & WEBB SYSTEMS LIMITED,
MOEBIUS BUSINESS TRAINING LIMITED,
(SELLERS)
AND
REGINALD WEBB, JULIAN PALMER AND
PALMER & WEBB SYSTEMS LIMITED
(SHAREHOLDERS)
DATED: 30 JUNE 1997
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS............................................. 1
1.1 Assets to be Transferred........................................... 1
1.2 Excluded Assets.................................................... 4
2. ASSUMPTION OF LIABILITIES............................................... 5
2.1 Liabilities to be Assumed.......................................... 5
2.2 Liabilities Not to be Assumed...................................... 5
3. PURCHASE PRICE - PAYMENT................................................ 7
3.1 Purchase Price..................................................... 7
3.2 Payment of Purchase Price.......................................... 7
3.3 Warranty Credit.................................................... 7
3.4 VAT................................................................ 7
4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER AND SHAREHOLDER........... 8
4.1 Information........................................................ 8
4.2 Material Facts..................................................... 8
4.3 Business and Purchased Assets...................................... 8
4.4 Liabilities and Accounting Records................................. 8
4.5 Plant and Machinery................................................ 9
4.6 Intellectual Property Rights and Related Matters................... 9
4.7 Software, Contracts and Other Matters.............................. 10
4.8 Business Names..................................................... 11
4.9 Employees and Other Matters........................................ 11
4.10 The Computer System................................................ 14
4.11 Agreements and Commitments......................................... 14
4.12 Restrictive Contracts and Practices................................ 15
4.13 Constitution....................................................... 15
4.14 Business........................................................... 16
4.15 Litigation......................................................... 16
4.16 Insurance.......................................................... 16
4.17 The Products....................................................... 17
4.18 Leased Real Property Warranties.................................... 17
4.19 Tax Warranties..................................................... 23
4.20 Pension Warranties................................................. 26
i.
<PAGE>
5. Representations and Warranties of Buyer................................. 26
5.1 Corporate.......................................................... 26
5.2 Authority.......................................................... 26
5.3 No Brokers or Finders.............................................. 27
5.4 Financial Capacity................................................. 27
6. Employees............................................................... 27
7. OTHER MATTERS........................................................... 28
7.1 Use of Sellers' Name............................................... 28
7.2 Investigations..................................................... 28
8. FURTHER COVENANTS OF EACH SELLER AND SHAREHOLDER........................ 28
8.1 Access to Information and Records.................................. 28
8.2 Bank Accounts...................................................... 28
8.3 Conduct of Business Pending the Closing............................ 28
8.4 Consents........................................................... 29
8.5 Other Action....................................................... 31
8.6 Disclosure......................................................... 31
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS............................. 31
9.1 Representations and Warranties True on the Closing Date............ 31
9.2 Compliance With Agreement.......................................... 31
9.3 Absence of Suit.................................................... 32
9.4 Consents and Approvals............................................. 32
9.5 Datametrics Closing................................................ 32
9.6 Ownership of Moebius............................................... 32
10. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS............................ 32
10.1 Representations and Warranties True on the Closing Date............ 32
10.2 Compliance With Agreement.......................................... 32
10.3 Absence of Suit.................................................... 33
10.4 Datametrics Closing................................................ 33
11. INDEMNIFICATION......................................................... 33
11.1 By Sellers and Shareholders........................................ 33
11.2 By Buyer........................................................... 33
11.3 Indemnification of Third-Party Claims.............................. 34
11.4 Payment............................................................ 35
11.5 Deductible Amount.................................................. 35
ii.
<PAGE>
11.6 Maximum Liability................................................. 36
11.7 Treatment of Indemnification Payments............................. 36
11.8 Survival of Representations and Warranties; Claims for
Indemnification.................................................. 36
11.9 No Waiver......................................................... 36
12. CLOSING................................................................. 37
12.1 Documents to be Delivered by Sellers and Shareholders............. 37
12.2 Documents to be Delivered by Buyer................................ 38
13. TERMINATION............................................................. 38
13.1 Right of Termination Without Breach............................... 38
13.2 Termination for Breach............................................ 39
14. Resolution of Disputes.................................................. 40
14.1 Arbitration....................................................... 40
14.2 Arbitrators....................................................... 40
14.3 Procedures; No Appeal............................................. 40
14.4 Authority......................................................... 40
14.5 Entry of Judgment................................................. 40
14.6 Confidentiality................................................... 40
14.7 Continued Performance............................................. 40
14.8 Tolling........................................................... 41
15. EXPENSES................................................................ 41
15.1 Brokerage......................................................... 41
15.2 Expenses to be Paid by Sellers.................................... 41
15.3 Expenses to be Paid by Buyer...................................... 41
15.4 Other............................................................. 42
15.5 Costs of Litigation or Arbitration................................ 42
16. MISCELLANEOUS........................................................... 42
16.1 Materiality....................................................... 42
16.2 Further Assurance................................................. 42
16.3 Announcements..................................................... 42
16.4 Assignment; Parties in Interest................................... 42
16.5 Governing Law..................................................... 43
16.6 Amendment and Modification........................................ 43
16.7 Notice............................................................ 43
16.8 Entire Agreement.................................................. 44
16.9 Counterparts...................................................... 45
16.10 Headings.......................................................... 45
iii.
<PAGE>
16.11 Further Documents................................................. 45
16.12 Survival.......................................................... 45
iv.
<PAGE>
EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Balance Sheets
EXHIBIT C Purchase Price and Indemnification Escrow Agreement
EXHIBIT D Opinion of MacDonald Oates
EXHIBIT E Escrow Agreement
EXHIBIT F Service Agreement
EXHIBIT G Opinion of Taylor Joynson Garrett
EXHIBIT H Opinion of Cooley Godward LLP
SCHEDULES
SCHEDULE 1.1.1 Intellectual Property Rights
SCHEDULE 1.1.2 Owned Real Property
SCHEDULE 1.1.3 Leased Real Property
SCHEDULE 1.1.4 Personal Property Leases
SCHEDULE 1.1.8 Notes and Accounts Receivable
SCHEDULE 1.1.14 Software and User Manuals
SCHEDULE 1.1.15 Contracts
SCHEDULE 2.2.1 Excluded Contracts
SCHEDULE 4.9.1 Contracts of Employment
SCHEDULE 4.9.4 Rates of Remuneration
[The Schedules listed above have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Upon request, the Company will furnish supplementally, a copy
of any of the ommitted schedules to the Commission.]
v.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") dated 30 June 1997, by and
among ZITEL CORPORATION, a California corporation ("PARENT"), ZITEL LIMITED, a
company incorporated in England and Wales ("BUYER"), PALMER & WEBB SYSTEMS
LIMITED, a company incorporated in England and Wales ("PWUK"), REGINALD WEBB and
JULIAN PALMER, as the sole shareholders of PWUK (individually, a "PWUK
SHAREHOLDER" and collectively, the "PWUK SHAREHOLDERS"), MOEBIUS BUSINESS
TRAINING LIMITED, a company incorporated in England and Wales ("MOEBIUS"), and
PWUK, as a shareholder of Moebius (the "MOEBIUS SHAREHOLDER") (PWUK and Moebius
are sometimes hereinafter individually referred to as a "SELLER" and
collectively as the "SELLERS" and the PWUK Shareholders and the Moebius
Shareholder are sometimes hereinafter individually referred to as a
"SHAREHOLDER" and collectively as the "SHAREHOLDERS"). Certain capitalized
terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. PWUK carries on the business of the sale and distribution of system
performance modelling software and Moebius carries on the business of the
training in the use of the products sold by PWUK (collectively, the "BUSINESS").
The PWUK Shareholders own one hundred percent (100%) of the issued share capital
of PWUK and the Moebius Shareholder owns (or will own, prior to the Closing) one
hundred percent (100%) of the issued share capital of Moebius.
B. PWUK's facilities consist of its offices at Fountain House, Cleave
Road, Leatherhead, Surrey KT22 7LX, United Kingdom and Moebius' facilities
consist of its offices at Unit F4, Business Centre, Aspon Science Centre,
Loveland, Birmingham B7 4BJ (collectively, the "FACILITIES").
C. Buyer desires to purchase from Sellers, Sellers desires to sell to
Buyer, and the Shareholders desire to cause Sellers to sell to Buyer, the
Business of Sellers and substantially all of the property and assets of Sellers
as a going concern and Buyer agrees to assume certain liabilities of the
Business as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1. PURCHASE AND SALE OF ASSETS.
1.1 ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of this
Agreement, on the Closing Date (as hereinafter defined) Sellers hereby, and
Shareholders hereby cause Sellers to, sell (with full title guarantee),
transfer, convey, assign, and deliver to Buyer (or upon Buyer's request, to one
or more wholly-owned subsidiaries of Buyer as designated by Buyer), and Buyer
hereby purchases and accepts all of the business, rights,
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claims and assets (of every kind, nature, character and description, whether
real, personal or mixed, whether tangible or intangible, whether accrued,
contingent or otherwise, and wherever situated) of Sellers, other than the
Excluded Assets (as hereinafter defined) (collectively, the "PURCHASED ASSETS").
The Purchased Assets shall include, but not be limited to, the following:
1.1.1 INTELLECTUAL PROPERTY RIGHTS. All Sellers' interest in any
Intellectual Property Rights. As used herein, the term "INTELLECTUAL PROPERTY
RIGHTS" shall mean all patents, copyrights, rights in relation to databases,
design rights, registered designs, trade and service marks (registered and
unregistered), semi-conductor topography rights, know how, rights in
confidential information and all other intellectual property rights throughout
the world for the full term of the rights concerned (including but not limited
to the rights specifically identified in SCHEDULE 1.1.1) in and relating to the
Software (including the Source Code), the Trade Marks, the Supporting Material
and the Confidential Information or otherwise used by Sellers in relation to the
Business and including: (a) all registrations and pending registrations
relating to any such rights and the benefit of any pending applications for any
such registrations; (b) all reversions, extensions and renewals of any such
rights; and (c) all accrued rights of action in relation to such rights
(including the right to sue for and recover damages for past infringements). As
used herein, the term "KNOW-HOW" shall mean all industrial, manufacturing and
commercial information and techniques relating to the Business including
(without prejudice to the generality thereof) drawings, formulae, test reports,
operating and testing procedures, practices, instruction manuals, tables of
operating conditions, lists and particulars of customers, marketing methods and
procedures and advertising material.
1.1.2 OWNED REAL PROPERTY. All of the real property, including
fixtures, buildings, improvements, and all appurtenant rights owned by Sellers,
including the real property described on SCHEDULE 1.1.2 attached hereto (the
"OWNED REAL PROPERTY").
1.1.3 LEASED REAL PROPERTY. All of the leases of real property with
respect to real property leased by Sellers, including the leases (the "REAL
PROPERTY LEASES") described on SCHEDULE 1.1.3 attached hereto with respect to
the real property described thereon (the "LEASED REAL PROPERTY").
1.1.4 PERSONAL PROPERTY LEASES. All leases of machinery, equipment,
vehicles, furniture and other personal property leased by Sellers, including all
such leases (the "PERSONAL PROPERTY LEASES") described in SCHEDULE 1.1.4
attached hereto.
1.1.5 MACHINERY AND EQUIPMENT. All machinery, equipment, vehicles,
tools, supplies, spare parts, furniture and all other personal property not
included in inventory (other than personal property leased pursuant to Personal
Property Leases as hereinabove defined) owned by Sellers on the Closing Date.
1.1.6 LITERATURE. All sales literature, promotional literature,
instructional materials for customers, catalogs and similar materials of
Sellers.
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1.7 RECORDS AND FILES. All records, VAT records, files, invoices,
customer lists, blueprints, specifications, designs, drawings, accounting
records, business records, operating data and other data of Sellers. Sellers
and their designated agents shall have reasonable access to such accounting, tax
and business records and may make excerpts therefrom and copies thereof.
1.1.8 NOTES AND ACCOUNTS RECEIVABLE. All notes, drafts and accounts
receivable of Sellers, described on SCHEDULE 1.1.8 attached hereto.
1.1.9 LICENCES; PERMITS. All licences, permits and approvals of
Sellers.
1.1.10 CORPORATE NAME. All rights of Sellers to use or allow others
to use the names "Palmer & Webb Systems" and "Moebius Business Training."
1.1.11 CASH AND CASH EQUIVALENTS. All cash and cash equivalents of
Sellers.
1.1.12 GOODWILL. All goodwill of Sellers.
1.1.13 RIGHTS OF ACTION. All rights and claims of Sellers under any
contracts, warranties, promises, conditions, guarantees or indemnitees
subsisting at the Closing Date, whether express or implied, in relation to any
property, rights or assets included in the Purchased Assets (but excluding all
rights of Sellers granted by or arising out of this Agreement).
1.1.14 SOFTWARE AND USER MANUALS. All Software and User Manuals of
Sellers, described on SCHEDULE 1.1.14 attached hereto.
1.1.15 CONTRACTS. All current contracts, contractual rights, purchase
orders and sales orders (the "CONTRACTS") of Sellers described and set forth in
SCHEDULE 1.1.15 attached hereto (copies of which have been delivered to Buyer).
The Contracts described above are hereinafter collectively described as the
"ASSUMED CONTRACTS." To the extent that any Assumed Contract for which
assignment to Buyer is provided herein is not assignable without the consent of
another party, this Agreement shall not constitute an assignment or an attempted
assignment thereof if such assignment or attempted assignment would constitute a
breach thereof. Shareholders, Sellers and Buyer agree to use their reasonable
best efforts (without any requirement on the part of Buyer, Sellers or
Shareholders to pay any money or agree to any change in the terms of any such
Assumed Contract) to obtain the consent of such other party to the assignment of
any such Assumed Contract to Buyer in all cases in which such consent is or may
be required for such assignment. Insofar as any consents or licences to the
transfer or assignment of the benefit and burden of any portion of the Purchased
Assets have not been obtained by the Closing Date, or if such benefit and burden
cannot effectively be so transferred or assigned to Buyer except with the
consent of or by an agreement with the other party or parties thereto, then:
(a) Sellers shall use all reasonable endeavours to procure that such other party
or parties shall consent to the Purchased Assets so affected being novated or
assigned in terms reasonably acceptable to Buyer; and (b) unless and until all
of the Purchased Assets shall have been so novated or assigned, Sellers shall
(so
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far as they are able) give or procure the giving to Buyer with effect from the
Closing Date of the benefit and burden of the same as if the same had been
effectively novated or assigned to Buyer. And Sellers shall hold the same on
trust for Buyer and do everything in relation thereto as Buyer may reasonably
require until such agreement or consent has been obtained but on condition that
Buyer indemnifies Sellers in respect of all obligations and liabilities in
respect thereof. In connection with the obtaining of such licences and consents
Buyer will endeavour to assist Sellers in connection therewith and for such
purpose Buyer shall supply to Sellers such information and references regarding
the financial position of Buyer and such other information concerning Buyer as
may reasonably be requested by Sellers. To the extent that Contracts are
non-assignable, or the other party thereto is unwilling to consent to the
assignment (E.G., automobile leases) and Seller is willing and able to continue
such Contract in force after the Closing and to provide the benefits thereof to
Buyer, then, upon the request of Buyer, Seller may (but shall not be required
to) do so, and Buyer shall pay to Seller, from time to time, an amount equal to
the actual cost incurred by Seller (without any administrative or other overhead
costs of Seller charged) to maintain such Contract in force and to provide the
benefits thereof to Buyer. Any such agreement by Seller to provide the benefits
of any such Contract shall not require it to continue to do so in any future
period.
1.2 EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
Sellers are not selling, transferring, assigning, conveying or delivering to
Buyer, and Buyer is not purchasing or accepting the following assets of Sellers
(collectively, the "EXCLUDED ASSETS"):
1.2.1 STOCK OF MOEBIUS. All of the outstanding shares of stock of
Moebius held by PWUK.
1.2.2 CONSIDERATION. The cash portion of the Purchase Price.
1.2.3 TAX CREDITS. Income and franchise tax credits, and tax refund
claims.
1.2.4 CORPORATE FRANCHISE. Each Seller's Memorandum and Articles of
Association, certificate of incorporation, corporate seal, statutory books,
minute books and other corporate records having exclusively to do with the
corporate organization and capitalization of such Seller. Buyer and its
designated agents shall have reasonable access to such books and records and may
make excerpts therefrom and copies thereof.
1.2.5 TAX RECORDS. Sellers' income, corporation and VAT tax returns
and tax records. Buyer and its designated agents shall have reasonable access
to such records for all periods prior to the Closing Date and may make excerpts
therefrom and copies thereof.
1.2.6 AFFILIATE OBLIGATIONS. Notes, drafts, accounts receivable or
other obligations for the payment of money, made or owed to Sellers by any
Affiliate of Sellers.
1.2.7 INSURANCE POLICIES. All insurance policies of Sellers.
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2. ASSUMPTION OF LIABILITIES.
2.1 LIABILITIES TO BE ASSUMED. Subject to the terms and conditions of
this Agreement, on the Closing Date, Buyer hereby assumes and agrees to perform
and discharge to the extent indicated below the following, and only the
following, specific debts, liabilities and obligations of Sellers (collectively,
the "ASSUMED LIABILITIES"):
2.1.1 BALANCE SHEET LIABILITIES. All accounts payable, accrued
payables and pension fund of Sellers as of the date of this Agreement. Buyer
acknowledges and understands that in the event that Buyer's acquisition of RMS
is not consummated by the Closing Date, PWUK's liabilities at the Closing will
include a royalty payment due to RMS in an amount not exceeding USD $65,000,
which Buyer shall assume and agree to perform and discharge.
2.1.2 CONTRACTUAL LIABILITIES. Sellers' liabilities and obligations
arising from and after the Closing Date under and pursuant to the Assumed
Contracts.
2.1.3 LIABILITIES UNDER PERMITS AND LICENCES. Sellers' obligations
arising from and after the Closing Date under any permits or licences listed in
the Disclosure Letters attached hereto and assigned to Buyer at the Closing.
2.1.4 PRODUCT WARRANTIES. Sellers' obligations for repair and
replacement of the Software in accordance with the terms of the warranty
provisions of the applicable Assumed Contracts subject to contribution by
Sellers as set forth in Section 3.3 hereof.
2.1.5 REAL AND PERSONAL PROPERTY LEASES. All of Seller's obligations
arising from and after the Closing Date under the Real Property Leases and the
Personal Property Leases.
2.2 LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 2.1 hereof, Buyer is not assuming any debts,
liabilities, obligations or contracts of Sellers and all such debts,
liabilities, obligations and contracts remain the responsibility of Sellers.
Notwithstanding the provisions of Section 2.1 hereof and without limiting the
generality of the foregoing, Buyer is not assuming, and Sellers are not
transferring to Buyer, the following debts, liabilities, obligations and
contracts of Sellers:
2.2.1 CERTAIN CONTRACTS. The obligations of Sellers under and
pursuant to the loan agreements with National Westminster Bank and any other
contracts listed in SCHEDULE 2.2.1 attached hereto.
2.2.2 INSURANCE POLICIES. All insurance policies of Sellers.
2.2.3 TAXES ARISING FROM TRANSACTION. Any United States, United
Kingdom, foreign, state or other taxes imposed upon or arising out of the sale
or transfer of the Purchased Assets to Buyer, including but not limited to any
income taxes or Corporation Tax payable by Sellers, PROVIDED, HOWEVER, that
Buyer agrees to pay all documentary stamp
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taxes payable in respect of the sale of the Purchased Assets and the assumption
of the Assumed Liabilities.
2.2.4 INCOME AND FRANCHISE TAXES. Any liability or obligation of
Sellers in respect of taxation.
2.2.5 INSURED CLAIMS. Any liability of Sellers insured against, to
the extent such liability is or will be paid by an insurer.
2.2.6 PRODUCT LIABILITY. Any liability or obligation of Sellers
arising out of or in any way relating to or resulting from any product
manufactured, assembled or sold prior to the Closing Date (including any
liability or obligation of Sellers for claims made for injury to person, damage
to property or other damage, whether made in product liability, tort, breach of
warranty or otherwise), except only that to the limited extent set forth in
Section 2.1.4.
2.2.7 LITIGATION MATTERS. Any liability or obligation of Sellers
with respect to any suits, actions, claims or proceedings, whether or not
described in the Disclosure Letters attached hereto.
2.2.8 INFRINGEMENTS. Any liability for third party claims arising
out of the manufacture, use or sale of goods or apparatus, the performance of
services, or the copying, modifying, distributing, performing or displaying of
any work prior to the Closing.
2.2.9 TRANSACTION EXPENSES. All liabilities, costs, obligations or
expenses incurred by Sellers in connection with this Agreement and the
transactions contemplated herein. Buyer acknowledges that Sellers will pay for
such transaction expenses from Sellers' operating accounts.
2.2.10 LIABILITY FOR BREACH. Liabilities and obligations of Sellers
for any breach or failure to perform any of Sellers' covenants and agreements
contained in, or made pursuant to, this Agreement, or, prior to the Closing, any
contract, whether or not assumed hereunder, including any breach arising from
assignment of contracts hereunder without consent of third parties.
2.2.11 LIABILITIES TO AFFILIATES. Liabilities and obligations of
Sellers to its present or former Affiliates except for obligations of Sellers to
their employees as of the Closing Date.
2.2.12 VIOLATION OF LAW. Liabilities and obligations of Sellers for
any violation of or failure to comply with any statute, law, rule, regulation,
order, writ, injunction or decree of any court or governmental authority.
2.2.13 AFFILIATE OBLIGATIONS. Notes, drafts, accounts payable or
other obligations for the payment of money, made or owed by Sellers to any
Affiliate of Sellers.
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3. PURCHASE PRICE - PAYMENT.
3.1 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the
Purchased Assets shall be the sum of: (a) Eight Hundred Thousand Dollars (USD
$800,000); PLUS (b) the assumption of the Assumed Liabilities.
3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by Buyer
as follows:
3.2.1 ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall deliver
to Sellers such documents and instruments as are reasonably required to evidence
the assumption of the Assumed Liabilities.
3.2.2 CASH TO SELLERS. At the Closing, Buyer shall pay to Sellers
Seven Hundred Twenty-Thousand Dollars (USD $720,000) in accordance with
Section 3.2.3 and deliver to the Escrow Agent Eighty Thousand Dollars (USD
$80,000) representing a portion of the Purchase Price Escrow Amount and the
Indemnification Escrow Amount (as such terms are defined in the Purchase Price
and Indemnification Escrow Agreement attached as EXHIBIT C hereto (the "PURCHASE
PRICE AND INDEMNIFICATION ESCROW AGREEMENT")).
3.2.3 METHOD OF PAYMENT. All payments to Sellers under this
Section 3.2 shall be made by wire transfer of immediately available funds to an
account designated by the recipient not less than forty-eight (48) hours prior
to the time for payment specified herein.
3.3 WARRANTY CREDIT. In the event that Buyer's expenses for repair and
replacement warranty work under the terms and conditions of Sellers' warranties
in the Assumed Contracts exceeds the amount Buyer deems to be appropriate in the
ordinary course of business by more than an aggregate of Fifty Thousand Dollars
(USD $50,000) during the period beginning on the Closing Date and ending at 5:00
p.m. (United States Pacific Standard Time) on the first anniversary of the
Closing Date, Buyer shall be entitled to a credit against the Purchase Price
(the "WARRANTY CREDIT") equal to the amount of such excess.
3.4 VAT. All sums referred to in this Section 3 are exclusive of any and
all value added tax which may be payable and the parties to this Agreement
intend that Section 49 of the Value Added Tax Act 1994 and paragraph 5 of the
VAT (Special Provisions) Order 1992 shall apply to the transfer of the Business
and the Purchased Assets and the assumption of the Assumed Liabilities under
this Agreement. If VAT shall be chargeable on the transfer of any of the
Purchased Assets or Assumed Liabilities, then upon receipt by Buyer of a valid
VAT invoice therefor, Buyer shall pay to Sellers, in addition to the Purchase
Price, an amount equal to such VAT charged together with any interest and
penalties required due to late payment.
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4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER AND SHAREHOLDER.
Each Seller and Shareholder, where appropriate (and jointly and severally,
where appropriate), make the following representations and warranties to Buyer
with respect to the Business of such Seller, each of which is true and correct
on the date hereof, shall remain true and correct to and including the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
Buyer, or any knowledge of Buyer other than as specifically disclosed in the
Disclosure Letters or any Schedule delivered hereunder, and shall survive the
Closing of the transactions provided for herein for a period of two (2) years.
4.1 INFORMATION. The Schedules and Disclosure Letters, and the Contracts
referred to therein, are true, complete and accurate in all material respects,
and all such information is not misleading because of any omission or ambiguity
or for any other reason, and every document supplied by or on behalf of Seller
to Buyer prior to the Closing Date or annexed to the Schedules or Disclosure
Letters is a true and complete copy of the original. Reference to a section
only is to a section of the 1988 ICTA and reference to a Schedule with a number
is to a Schedule of the 1988 ICTA.
4.2 MATERIAL FACTS. All the facts and matters relating to the Business
and Purchased Assets material for disclosure to an intending buyer of the
Business and Purchased Assets have been disclosed to Buyer.
4.3 BUSINESS AND PURCHASED ASSETS.
4.3.1 SALE OF ASSETS. Such Seller is entitled to sell and transfer
to Buyer the full legal and beneficial ownership of its Business and the
Purchased Assets owned by it free from all liens, options, charges,
encumbrances, rights of pre-emption or rights of any other party on the terms of
this Agreement.
4.3.2 FULL POWER AND AUTHORITY. Such Seller has full power and
authority to enter into this Agreement (and the other agreements referred to in
this Agreement) and when executed by Seller and each other party legally
required and authorized to be a party thereof, each of this Agreement (and the
other agreements referred to in this Agreement) will constitute binding
obligations on such Seller in accordance with their respective terms.
4.4 LIABILITIES AND ACCOUNTING RECORDS.
4.4.1 LIABILITIES. The amounts shown with respect to accounts
payable, accrued payables and pension fund accruals reflected or reserved
against on such Seller's Balance Sheets were complete and accurate in all
material respects as of the date of the Balance Sheet.
4.4.2 ACCOUNTING RECORDS. All the accounts, books, ledgers and
financial and records of such Seller (including all invoices issued by such
Seller) have been properly kept in accordance with Sections 221 and 222 of the
Companies Act 1985 and are in the possession of such Seller or under its
control, and all material transactions relating to the
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Business have been duly and correctly recorded therein and such accounts, books,
ledgers and financial and other records taken together give and reflect a true
and fair view of the financial, contractual and trading position of such Seller
and the state of the Purchased Assets and the Assumed Liabilities, debtors,
creditors and work-in-progress.
4.5 PLANT AND MACHINERY.
4.5.1 ASSET REGISTERS. The asset register of such Seller comprises a
complete and accurate record of all depreciable plant, machinery, vehicles,
equipment, furniture, and other assets owned by such Seller.
4.5.2 NO RETENTION OF TITLE PROVISIONS. Such Seller has not
purchased any of the Purchased Assets from any person on terms that provide that
title to such property does not pass until full payment is made or all
indebtedness relating to such property is discharged.
4.5.3 HIRE PURCHASE AND LEASED PURCHASED ASSETS, ETC. Other than as
set forth in SCHEDULE 1.1.4 attached hereto, such Seller has not entered into
any hire purchase or credit sale agreement or leased or hired any of the
Purchased Assets from a third party. Such Seller is not in default in the
performance or observance of any of the provisions of any hire purchase or
credit sale or leasing or hiring agreements disclosed in the Disclosure Letters.
4.6 INTELLECTUAL PROPERTY RIGHTS AND RELATED MATTERS.
4.6.1 OWNERSHIP. All of the Intellectual Property Rights are
beneficially and solely owned by and registered in the name of such Seller, are
valid and subsisting and there is no impediment or restriction on their use (in
any way) by Seller. To the Knowledge of Seller, the use and exercise of the
Intellectual Property Rights does not constitute an infringement of any
intellectual property or other rights owned by any third party.
4.6.2 TITLE. The Intellectual Property Rights: (a) are not subject
to any charges, mortgages, liens or encumbrances granted by such Seller; or (b)
are not subject to any licences or other agreements to which such Seller is a
party other than the Assumed Contracts.
4.6.3 NO THIRD PARTY RIGHTS. There are no circumstances which could
entitle a third party: (a) to a licence, permission, consent or assignment of
or in respect of any Intellectual Property Rights; or (b) to call for or
exercise any right to use or work under any Intellectual Property Rights; save
as may be provided for by the Assumed Contracts.
4.6.4 NO ADVERSE AFFECT. The Intellectual Property Rights and the
Third Party Agreements will not automatically terminate or become terminable as
a result of their transfer or assignment to Buyer in accordance with this
Agreement.
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4.6.5 NO ACTIONS OR CLAIMS AGAINST SELLER. There have not been any
actions, claims, counterclaims, applications or allegations against Seller
impugning the validity or enforceability of any of the Intellectual Property
Rights or Seller's ownership thereof and there are no facts, matters or
circumstances known to Seller which could give rise to any such action, claim,
counterclaim, application or allegation.
4.6.6 NO ACTIONS OR CLAIMS AGAINST THIRD PARTIES. There have not
been any actions, claims or allegations by Seller against any third party
alleging infringement of any of the Intellectual Property Rights and there are
not and there have not been any facts, matters or circumstances known to Seller
which could give or have given rise to any such action, claim or allegation.
4.6.7 CONFIDENTIAL INFORMATION. The Confidential Information has
been maintained as confidential by Seller in accordance with its internal
policies; and insofar as the Confidential Information or any part thereof has
been disclosed to any third parties it has been disclosed under the terms of
confidentiality agreement or other agreement which contains provisions intended
to protect the confidentiality of the Confidential Information and maintain
Seller's rights therein.
4.6.8 REQUIRED INTELLECTUAL PROPERTY. Except for the Intellectual
Property Rights, the Business does not require any intellectual property for any
of its normal business operations.
4.6.9 OTHER AGREEMENTS AND LICENCES VALID AND SUBSISTING. All
agreements and licences for the use by the Business of intellectual property not
owned by a Seller are in full force and effect and Seller is not in breach of
any of the material provisions thereof.
4.7 SOFTWARE, CONTRACTS AND OTHER MATTERS.
4.7.1 THIRD PARTY SOFTWARE. Seller has all necessary licences to use
all Third Party Software and to sublicense it to its customers.
4.7.2 RIGHTS OF OTHER PARTIES. Other than the parties to the Assumed
Contracts, there are no other parties to whom the Software is licenced or
supplied by Seller or who are otherwise entitled to possess, use or otherwise
deal with the Software or to whom Seller is liable to perform any maintenance or
other services or provide any goods in relation to or in connection with the
Software.
4.7.3 NO BREACH. There has been no breach of any of the Assumed
Contracts nor any instance of any Customer using, authorizing or purporting to
authorize the use of the Software in a manner which is inconsistent with the
relevant Assumed Contract or not authorized by Seller.
4.7.4 CONTRACTS IN FORCE. The Sellers have delivered to Buyer true,
current and complete copies of the Assumed Contracts. The Assumed Contracts are
in full force and
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effect. Seller is not in material breach or default in relation to any of the
Assumed Contracts and no claims or allegations have been made by any person to
the effect that Seller is in breach of any of the Assumed Contracts and insofar
as Seller is aware there are no facts, matters or circumstances nor has Seller
done or omitted to do any act which could amount to or result in any such
material breach or give rise to any such claim or allegation.
4.7.5 NO THIRD PARTY BREACH OR DEFAULT. To the Knowledge of Seller,
no person other than Seller is in material breach or default in relation to any
Assumed Contract.
4.7.6 NO GROUNDS FOR RESCISSION. There are no grounds for
rescission, breach, avoidance or repudiation of any of the Contracts or of any
other agreement (in whole or in part) or other transaction relating to the
Business to which Seller is a party.
4.7.7 NO OTHER FACTS. There is nothing whereby any of the Contracts
or any other such agreement, instrument or arrangement may be terminated or
rescinded by any other party or whereby the terms may be worsened as against
Seller or whereby the Intellectual Property Rights or their ownership or
exercise may be prejudiced as a result of anything done or omitted or permitted
to be done by Seller.
4.7.8 REGISTRATIONS. Seller has obtained and maintained in force all
registrations under the Data Protection Act 1984 or any other similar
legislation or regulations within the EU which are necessary in order for Seller
(or any officer or employee of Seller, as appropriate) to conduct its business
in a lawful and appropriate manner.
4.7.9 CONSENT TO ASSIGNMENT. Sellers and the Shareholders are not
aware of any reason why consents to the assignment of the Value Added Marketing
Agreement with Intercomputer Communications Corp. (subsequently assigned to
Attachmate Sales UK Limited) and the Marketing Agreement with Pyramid Technology
Limited, dated February 6, 1996 will not be obtained promptly after the Closing.
4.7.10 SIEMENS. Sellers and/or the Shareholders have not signed or
performed any services under the draft License Agreement with Siemens Nixdorf
Informationssysteme AG.
4.8 BUSINESS NAMES. Seller does not own or use any trade name or business
name in connection with the Business other than Palmer & Webb Systems Limited
and Moebius Business Training Limited and do not use on its letterhead, books or
vehicles or otherwise carry on its business under, any name other than such
corporate names.
4.9 EMPLOYEES AND OTHER MATTERS.
4.9.1 CONTRACTS OF EMPLOYMENT. Full particulars of the identity,
dates of commencement of employment, or appointment to office, and terms and
conditions of employment of all employees of Seller are fully and accurately set
out in SCHEDULE 4.9.1.
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4.9.2 EMPLOYEES. The employees described in Section 4.9.1 hereof are
all the employees employed exclusively or mainly in the Business at the date of
this Agreement and are employed by Seller.
4.9.3 TERMINATION OF SERVICE. All service agreements entered into by
Seller with such employees may be terminated by not more than twelve (12) weeks
notice and without payment of compensation or damages (other than any payments
arising under statutes relating to employment law or other than any payment for
unfair and/or wrongful dismissal).
4.9.4 RATES OF REMUNERATION. There are set out in SCHEDULE 4.9.4 the
rates of remuneration and the pension and other benefits paid to or provided for
each of Seller's employees as of the date of this Agreement.
4.9.5 BENEFITS IN KIND. No benefits in kind are payable to or are
provided to any of Seller's employees.
4.9.6 ARREARS OF PAY. There are no outstanding arrears of salary,
wages, holiday pay or other remuneration due to any of Seller's employees and
all statutory contributions have been paid.
4.9.7 PAY INCREASES. Seller is not under any contractual or other
obligation to make any bonus or incentive or other similar payments to any of
Seller's employees at any future date; and no negotiations are currently taking
place with respect to any increase in the rate of remuneration or for the
improvement of any benefits paid or provided for any such employees.
4.9.8 PROFIT SHARING. There are no schemes or agreements in
operation by or in relation to the Business under which any of Seller's
employees is entitled to shares in Seller or a commission or remuneration of any
kind calculated by reference in whole or in part to the turnover, profits or
sales of Seller.
4.9.9 REDUNDANCIES AND TRANSFER OF BUSINESS. Within the period of
one (1) year preceding the date of this Agreement, Seller: (a) has not given
notice of any redundancies to the Secretary of State or started consultations
with any independent trade union under the provisions of the Employment Rights
Act nor has Seller failed to comply with any such obligation; or (b) has not
been a party to any relevant transfer as defined in the Transfer of Undertakings
(Protection of Employment) Regulations 1981, as amended, nor has Seller failed
to comply with any duty to inform and consult any independent trade union under
such Regulations.
4.9.10 TRADE UNIONS.
4.9.10.1 Seller has no agreement or other arrangement (binding or
otherwise) with any trade union or other body representing its employees or any
of them nor has Seller any dispute with any such body, and no such dispute is
anticipated.
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4.9.10.2 Seller is not involved in any industrial or trade
disputes or any dispute or negotiation regarding a claim of material importance
with any trade union or association of trade unions or organizations or any of
its employees, and no such dispute is anticipated.
4.9.11 CLAIMS.
4.9.11.1 No employee of Seller has made any claim against Seller
for termination of employment (including any redundancy payment) or for salary,
wages or other employment benefits alleged to be due to such employee.
4.9.11.2 Seller has no current or future liability for breach of
any contract of employment or for services, for redundancy payments, protective
awards or for compensation for wrongful dismissal or unfair dismissal or for
failure to comply with any order for the reinstatement or re-engagement of any
employee or for any other liability accruing from the termination of any
contract of employment or for services.
4.9.11.3 No gratuitous payment has been made or promised by
Seller in connection with the actual or proposed termination or suspension of
employment or engagement or variation of any contract of employment or
engagement of any present or former director, senior executive, consultant or
employee.
4.9.11.4 No employee of Seller has given or received notice
terminating his or her employment or engagement altering its terms, and no such
person will be entitled to give such notice as a result of the entering into of
this Agreement.
4.9.11.5 All material monies paid or goods or services provided
directly or indirectly or made available (whether by way of the provision of a
credit card or otherwise howsoever) by Seller whether as principal or surety to
any of its directors or employees whether in respect of emoluments of employment
or reimbursement or otherwise howsoever have been expenditure properly incurred
by Seller so as to be deductible in computing its taxable profits and have been
declared to the Inland Revenue.
4.9.11.6 There is no person previously employed by Seller who now
has or may have a right to return to his or her work or a right to be reinstated
by Seller under the provisions of the Employment Rights Act 1996.
4.9.11.7 To Seller's Knowledge, there are no facts or matters
affecting any of its employees which might reasonably be considered grounds for
dismissing any such employee fairly or for warning such employee that the
continuation of any conduct or behavior would lead to dismissal and no warning
has been given to any employee and no notice of termination of employment has
been given to or received from any such employee.
4.9.11.8 Seller is not under any present, future or contingent
liability to provide any goods services accommodation or benefit whatsoever
(whether by way of
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remuneration or otherwise) to any employee or former employee or in each case
any Related Party to any such employee or former employee.
4.9.11.9 There are no outstanding loans or quasi loans (as
defined in the Employment Rights Act 1996) from Seller to any of its employees.
4.10 THE COMPUTER SYSTEM.
4.10.1 OWNERSHIP. Seller is the owner of all the items of equipment
relating to the Computer System and no other person has any claims or rights in
respect thereof.
4.10.2 COMPUTER RECORDS. The Business has none of its records,
systems, controls, data or information, recorded, stored, maintained, operated
or otherwise wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of Seller.
4.11 AGREEMENTS AND COMMITMENTS.
4.11.1 OTHER REPRESENTATIONS. There is not outstanding in relation to
the Business any:
4.11.1.1 agreement or arrangement between Seller and any third
party which the signature or performance of this Agreement will contravene or
under which the third party will acquire a right of termination or any option as
a result of the signature or performance of this Agreement or under which as a
result thereof any charge over any of the Purchased Assets will be created,
imposed, crystallized or enforced;
4.11.1.2 agreement or arrangement entered into otherwise than by
way of bargain at arm's length;
4.11.1.3 sale or purchase option or similar agreement or
arrangement affecting any of the Purchased Assets; and
4.11.1.4 joint venture, consortium, partnership or profit sharing
agreement or arrangement to which Seller is a party.
4.11.2 INVALIDITY.
4.11.2.1 Seller has not done or omitted to do any act or thing
which might materially prejudice or affect the Goodwill and the Purchased Assets
have not been materially diminished by Seller or any wrongful act of any person.
4.11.2.2 All documents relating to the Business or the Purchased
Assets in the enforcement of which Seller may be interested have been duly
stamped and Seller has all licences, authorizations or consents which are
required to carry on the Business
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effectively in the places and in the manner in which the Business is now carried
on; all conditions applicable thereto have been fully complied with; and
Shareholders are not aware of any circumstances including the making or
implementation of this Agreement which might lead to the cancellation withdrawal
or suspension of the same or that might in any way prejudice the continuance or
renewal of the same. Seller is not in material breach of any applicable law or
governmental rule or regulation applicable to the Business and has all
governmental licences and permits necessary to carry on the Business as
currently conducted.
4.12 RESTRICTIVE CONTRACTS AND PRACTICES.
4.12.1 RESTRICTIVE CONTRACTS. Seller is not a party to any agreement
or arrangement which infringe or which have been or which are required to be
registered under the Restrictive Trade Practices Acts, the Fair Trading Act
1973, the Competition Act 1980, the Data Protection Act or the Treaty of Rome
(or any regulation or directive made thereunder) or any other anti-trust
legislation.
4.12.2 RESTRICTIVE PRACTICES. To Seller's Knowledge, it is not under
investigation by the Director-General of Fair Trading or the Monopolies and
Mergers Commission or the European Commission.
4.12.3 NO PROCESS RECEIVED. Seller has not received any process,
notice or communication (formal or informal) relating to the Business by or on
behalf of the Office of Fair Trading or the European Commission or any other
authority claiming jurisdiction in anti-trust, monopoly, competition or consumer
protection matters in relation to any aspect of the Business or any agreement or
arrangement to which it is or is alleged to be a party, and, to Seller's
Knowledge, no circumstances exist whereby Seller could receive any such process,
notice or communication.
4.13 CONSTITUTION.
4.13.1 FOREIGN BRANCHES. Seller has none of the Purchased Assets
outside the United Kingdom or a branch, agency or place of business or any
permanent establishment (as that expression is defined in the relevant double
taxation relief orders current at the date of this Agreement) outside the United
Kingdom.
4.13.2 SUBSIDIARIES. Seller has no shares or other securities in any
other company or any interest in any other business organization other than
Moebius.
4.13.3 POWERS OF ATTORNEY. Seller has not in relation to the Business
generally given any power of attorney or any special authority to any person
(and whether express, implied or ostensible) which is still outstanding or
effective.
4.13.4 OWNERSHIP OF PWUK AND MOEBIUS. The PWUK Shareholders together
own one hundred percent (100%) of the issued share capital of PWUK and the
Moebius Shareholder owns (or will own as of the Closing Date) one hundred
percent (100%) of the issued and outstanding share capital of Moebius.
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4.14 BUSINESS.
4.14.1 CLIENTS AND CUSTOMERS. To Seller's Knowledge, no customer or
client of the Business has ceased or has indicated an intention to cease trading
or dealing with Seller or is anticipated to do so or to become bankrupt or go
into liquidation on or after the date of this Agreement or to make any
substantial reduction in its trading or dealing with the Business.
4.14.2 INSOLVENCY. No order has been made or petition presented or
resolution passed for the winding up of Seller or for an administration order in
respect of Seller; no receiver, receiver and manager, administrative receiver or
liquidator has been appointed of the Business or the whole or any part of the
Purchased Assets; Seller has not stopped payment nor is Seller insolvent or
unable to pay its debts for the purposes of section 123 of the Insolvency Act
1986; there are no circumstances likely to give rise to the appointment of any
such receiver, receiver and manager, administrative receiver or liquidator; no
distress, execution or other process has been levied on any of the Purchased
Assets; there are no unfulfilled or unsatisfied judgments or court orders
outstanding against Seller or by which it may be affected; and Seller has not
within the period of two (2) years prior to the date hereof been a party to any
transaction at an undervalue for the purposes of section 238 of the Insolvency
Act 1986, nor has it during that period given or received any preference for the
purposes of section 239 of the Insolvency Act 1986.
4.14.3 CONSUMER CREDIT LICENCE. No licence under the Consumer Credit
Act 1974 is required to carry on the Business.
4.15 LITIGATION. Seller is not a party (whether as plaintiff or defendant)
to any litigation, arbitration, prosecution or other legal or quasi-legal
proceedings relating to the Business or any of the Purchased Assets and has not
been engaged in any such proceedings during the three years prior to today's
date; there are no claims or actions (whether criminal or civil) pending or, to
Seller's Knowledge, threatened relating to the Business or any of the Purchased
Assets or any of its employees and there are no facts known to Seller which are
likely to give rise to any such proceedings, actions or claims.
4.16 INSURANCE.
4.16.1 ALL PURCHASED ASSETS INSURED. All the Purchased Assets of an
insurable nature are, and have at all times been, insured against fire and other
risks normally insured against by persons carrying on the same business as that
of the Business (including, but not limited to, product liability, employer's
liability and public liability insurances).
4.16.2 DETAILS OF INSURANCES. Set forth in the Disclosure Letters is
a complete and accurate list of all policies of fire, casualty, general
liability, product liability, workers compensation, health and other forms of
insurance presently in effect with respect to the business and properties of
Seller, true and correct copies of which have heretofore been delivered to
Buyer.
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4.16.3 PREMIUMS PAID. All premiums due in respect of such insurances
have been fully paid; and the next renewal date for each of such insurances is a
date at least thirty (30) days after the date of the Closing Date.
4.16.4 INSURANCES IN FORCE. All such policies are valid, outstanding
and enforceable policies and provide insurance coverage for the properties,
assets and operations of Seller, of the kinds, in the amounts and against the
risks customarily maintained by organizations similarly situated; and no such
policy (nor any previous policy) provides for or is subject to any currently
enforceable retroactive rate or premium adjustment, loss sharing arrangement or
other actual or contingent liability arising wholly or partially out of events
arising prior to the date hereof.
4.16.5 NO CLAIMS UNDER INSURANCES. To Seller's Knowledge, no claim is
outstanding or is likely to be made under any of such insurances.
4.16.6 ACCIDENTS TO EMPLOYEES OR WORKMEN. To Seller's Knowledge,
there are no claims capable of arising by any of Seller's employees or any other
third party, in respect of any accident or injury, which are not fully covered
by insurance.
4.17 THE PRODUCTS.
4.17.1 CLAIMS IN RESPECT OF THE PRODUCTS. Except for the claims
particulars of which have been disclosed in the Disclosure Letters, Seller has
not received any claims alleging that the Products are defective or that they
have caused or contributed to damage or personal injury, and except as
aforesaid, no dispute exists between Seller and any customer or client of the
Business, nor are there any circumstances which may give rise to any such
dispute.
4.17.2 WARRANTIES IN RESPECT OF THE PRODUCTS. No warranties or
guarantees have been given or any representation made in respect of the Products
save for the standard terms of Seller (a copy of which and material variation
thereof is attached to the Disclosure Letters) and save for any guarantee or
warranty implied by law; and Seller has not (except as aforesaid) accepted any
liability or obligation in respect of the Products which would apply after the
Products have been sold or supplied.
4.17.3 AGENCY AGREEMENTS FOR THE PRODUCTS. Seller has not entered
into any agency, distributorship or management agreement relating to the
Products.
4.18 LEASED REAL PROPERTY WARRANTIES.
4.18.1 TITLE.
4.18.1.1 The Leased Real Property comprise all the properties
owned, occupied or otherwise used in connection with its business by Seller.
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4.18.1.2 Those of the Leased Real Property which are occupied or
otherwise used by Seller in connection with its business are so occupied or used
by right of ownership or under lease or licence, and the terms of any such lease
or licence permit such occupation or use.
4.18.1.3 Seller is the legal and beneficial owner of its Leased
Real Property.
4.18.1.4 The information contained in SCHEDULE 1.1.3 as to the
ownership and tenure of each of the Leased Real Property and the principal terms
of the leases, licences and tenancies subject to or with the benefit of which
each of the Leased Real Property is held is true and accurate in all respects.
4.18.1.5 Seller has a good and marketable title to each of the
Leased Real Property.
4.18.1.6 Seller is the registered proprietor at H.M. Land
Registry with title absolute in respect of the Leased Real Property which is
registered or should properly be registered at H.M. Land Registry.
4.18.1.7 In the case of any leases of the Leased Real Property in
England and Wales granted for more than twenty-one (21) years, and less than
forty (40) years which are not registered, the lease is not registered at H.M.
Land Registry because the reversion to it was not registered at the time of
grant.
4.18.2 ENCUMBRANCES.
4.18.2.1 Each of the Leased Real Property is free from any
mortgage, debenture, charge, rent-charge, lien or other encumbrance securing
repayment of monies or other obligation or liability of Seller or of any other
person.
4.18.2.2 Each of the Leased Real Property is free of any tenancy,
licence or other arrangement entitling a person other than Seller which owns the
same to occupy the whole or any part.
4.18.2.3 None of the Leased Real Property is subject to any
outgoings, other than general rates, water rates and insurance premiums and, in
the case of leasehold properties, rent and service charges.
4.18.2.4 None of the Leased Real Property is subject to any
restrictive covenants, stipulations, easements, profits, a prendre, wayleaves,
licences, grants, restrictions, overriding interests or other rights vested in
third parties.
4.18.2.5 Where any such matters as are referred to in the
warranties have been disclosed in the Disclosure Letters, the obligations and
liabilities imposed and
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arising under them have been fully observed and performed, and any payments in
respect of them due and payable have been duly paid.
4.18.2.6 None of the Leased Real Property is subject to any
option, right of pre-emption or right of first refusal.
4.18.2.7 Each of the Leased Real Property is free from any local
land charge, land charge, caution, inhibition or notice, and no matter exists
which is capable of registration against any of the Leased Real Property.
4.18.2.8 No notice relating to the use and enjoyment of any of
the Leased Real Property has been received or given or is likely to be received
or given in any circumstance.
4.18.3 PLANNING MATTERS.
4.18.3.1 None of the Leased Real Property is being or is intended
or required by Seller to be used other than for the permitted user thereof for
the purposes of the Town and Country Planning Act 1990, the Planning (Listed
Buildings and Conservation Areas) Act 1990, and the Planning (Consequential
Provisions) Act 1990 and legislation of a like nature (collectively, the
"PLANNING ACTS").
4.18.3.2 Planning permission has been obtained, or is deemed to
have been granted, for the purposes of the Planning Acts with respect to all
existing development on each of the Leased Real Property, and no such permission
has been suspended or called in, and no application for planning permission is
awaiting decision.
4.18.3.3 Building regulation consents have been obtained with
respect to all development alterations and improvements to each of the Leased
Real Property.
4.18.3.4 Compliance is being made and has at all times been made
in all respects with all planning permissions, orders, and regulations issued
under the Planning Acts and all building regulation consents and bylaws for the
time being in force with respect to any of the Leased Real Property.
4.18.3.5 Compliance is being made and has at all times been made
with all agreements under section 106 of the Town and Country Planning Act 1990
made with respect to any of the Leased Real Property.
4.18.3.6 Compliance is being and has been made with all
agreements made under section 38 of the Highways Act 1980 with respect to any of
the Leased Real Property.
4.18.3.7 None of the Leased Real Property is listed as being of
special historic or architectural importance or is located in a conservation
area.
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4.18.3.8 All development charges, monetary claims and liabilities
affecting any of the Leased Real Property under the Planning Acts or any other
such legislation have been discharged, and no such liability, contingent or
otherwise, is outstanding.
4.18.4 STATUTORY OBLIGATIONS.
4.18.4.1 To Seller's Knowledge, there are not in force or
required to be in force any licences whether under the Licensing Act 1964 or
otherwise which apply to any of the Leased Real Property.
4.18.4.2 To Seller's Knowledge, no part of any land building or
other structure comprised in the Leased Real Property contains any pollutants,
contaminants, wastes, petroleum, petroleum products, dangerous, hazardous or
toxic substances and materials and in particular (but without limitation)
substances prescribed in Schedules 4, 5 and 6 of the Environmental Protection
Prescribed (Processes and Substances) Regulations 1991 as amended ("HAZARDOUS
MATERIALS").
4.18.5 ADVERSE ORDERS.
4.18.5.1 There are no compulsory purchase notices, orders or
resolutions affecting any of the Leased Real Property, nor, to Seller's
Knowledge, are there any circumstances likely to lead to any being made.
4.18.5.2 There are no closing, demolition or clearance orders,
enforcement notices or stop notices affecting any of the Leased Real Property,
nor, to Seller's Knowledge, are there any circumstances likely to lead to any
being made.
4.18.6 CONDITION OF THE LEASED REAL PROPERTY.
4.18.6.1 To Seller's Knowledge, the buildings and other
structures on the Leased Real Property or of which any of the Leased Real
Property form part are in good and substantial repair and fit for the purposes
for which they are presently used.
4.18.6.2 To Seller's Knowledge, there are no disputes with any
adjoining or neighboring owner with respect to boundary walls and fences, or
with respect to any easement, right or means of access to any of the Leased Real
Property.
4.18.6.3 The principal means of access to each of the Leased Real
Property is over roads which have been taken over by the Local or other Highway
Authority and which are maintainable at the public expense, and no means of
access to any of the Leased Real Property is shared with any other party nor
subject to rights of determination by any other party.
4.18.6.4 Each of the Leased Real Property enjoys the main
services of water, drainage, electricity and gas.
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4.18.6.5 To Seller's Knowledge, none of the Leased Real Property
is located in an area or subject to circumstances particularly susceptible to
flooding.
4.18.6.6 During the period of Seller's occupation, no building or
structure on any of the Leased Real Property has at any time been affected, to
Seller's Knowledge, by structural damage or electrical defects or by timber
infestation or disease.
4.18.7 ENVIRONMENTAL.
4.18.7.1 None of the Leased Real Property has been at any time
used for the purpose of or in any way involving the handling, manufacture,
treatment, storage, use, generation, recycling, release, discharge, refining or
dumping or disposal of any Hazardous Materials.
4.18.7.2 To Seller's Knowledge, no Hazardous Materials have been
transported to from or across any of the Leased Real Property or been deposited,
stored or located on, under, in or at the Property.
4.18.7.3 During the period of Seller's occupation, to Seller's
Knowledge, no Hazardous Materials have migrated from any of the Leased Real
Property onto or beneath other properties.
4.18.7.4 Seller has not illegally managed or allowed to escape
from its control or transferred to an unauthorized person any controlled waste
as defined in the Environmental Protection Act 1990 ("EPA 1990").
4.18.7.5 No notices have been received by Seller concerning the
disposal, storage, deposit, treatment, recycling or transportation of controlled
waste at any time on the Leased Real Property or other properties at any time
owned by Seller or concerning the terms or conditions of any authorization,
licence or permission relating to any such controlled waste and Seller is not
aware of any circumstances that may give rise to the service of any such notice.
4.18.7.6 No disposal licence, site licence or waste management
licence granted or required to be granted under the Control of Pollution Act
1974 or the EPA 1990 is required by Seller in relation to any of the Leased Real
Property and (if granted) no such licence has been revoked or suspended.
4.18.7.7 To Seller's Knowledge, there are no current
investigations or pending prosecutions involving the or any of Seller's
directors, officers or employees, relating to the EPA 1990 or any other
legislation of an environmental nature ("ENVIRONMENTAL LEGISLATION") whether in
relation to the Leased Real Property or otherwise.
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4.18.8 LEASEHOLD PROPERTIES.
4.18.8.1 Seller has paid the rent and observed and performed the
covenants on the part of the tenant and the conditions contained in each of the
leases (which expression includes underleases) under which any of the Leased
Real Property is held and the last demand (or receipt for rent if issued) was
unqualified, and each such lease is valid and in full force.
4.18.8.2 All licences, consents and approvals required from the
landlords and any superior landlords under any leases of any of the Leased Real
Property have been obtained, and the covenants on the part of the tenant
contained in such licences, consents and approvals have been duly performed and
observed.
4.18.8.3 There are no rent reviews currently in progress under
any of the leases of any of the Leased Real Property.
4.18.8.4 There is not outstanding, unobserved or unperformed any
obligation necessary to comply with any notice or other requirement given by or
on behalf of the landlord under any lease of any of the Leased Real Property.
4.18.8.5 There is no obligation to reinstate any of the Leased
Real Property by removing or dismantling any alteration made to it by Seller or
any of its predecessors in title.
4.18.8.6 There have been and are no disputes and, to Seller's
Knowledge, there are not likely to be any disputes with any landlord.
4.18.9 INSURANCE.
4.18.9.1 Each of the Leased Real Property is insured for the
amount and in respect of the risks set out or referred to in the Disclosure
Letters.
4.18.9.2 All premiums due in respect of policies insuring
Seller's interest in the Leased Real Property have been paid in full; and no
such insurances are renewable within thirty (30) days of the Closing.
4.18.9.3 To Seller's Knowledge, there are no circumstances which
entitle the insurers of the Leased Real Property to avoid the insurances
thereon.
4.18.10 GUARANTEES. There is (save in relation to the Leased Real
Property) no actual or contingent liability on the part of the arising directly
or indirectly out of any agreement, lease, underlease, tenancy, conveyance,
transfer, licence or any other deed or document whatsoever relating to real
property or to any estate or interest therein entered into by Seller including
(but not by way of limitation) any actual or contingent liability arising
directly or indirectly out of: (a) any estate or interest held by Seller as
original lessee or
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underlessee; (b) any guarantee given by Seller in relation to a lease or
underlease; or (c) any other covenant made by Seller in favor of any lessor or
head lessor.
4.19 TAX WARRANTIES.
4.19.1 RESERVE FOR TAXATION IN THE BALANCE SHEETS. The Balance Sheets
reserve or provide in full for all taxation for which the was in respect of all
periods up to the Balance Sheets Date liable or able to be made liable in
respect of the Business; the Balance Sheets reserve for or contain a note
regarding any contingent liability or possible deferred liability to taxation.
4.19.2 RETURNS AND PAYMENT OF TAXATION.
4.19.2.1 All returns which should have been made by Seller for
any taxation purpose in respect of any accounting period up to and including the
accounting period ending on the Balance Sheets Date have been made punctually,
are correct and on a proper basis and provided all information required for all
taxation purposes and are not the subject of any dispute with the Inland
Revenue; Seller has made all returns and provided all information required to be
provided under the Taxes Management Act 1970 or pursuant to any notice served
thereunder; and Seller is not involved in any dispute with the Inland Revenue
concerning any matter likely to affect in any way the liability (whether accrued
contingent or future) of the to taxation and is under no liability to pay any
penalty or interest in connection with any claim for taxation.
4.19.2.2 Seller has duly and punctually paid to the Inland
Revenue or other appropriate authority all taxation for which it is liable as a
result of any act or omission prior to Closing and in particular: (a) all
income tax deductible by Seller prior to the date hereof under Schedule E by
virtue of the P.A.Y.E. regulations from time to time in force; (b) all National
Insurance Contributions (both employer's and employees') due from the in respect
of any of Seller's employees who will be hired by Buyer after the Closing; and
(c) all income tax required to be deducted from any interest, annuity or other
annual payment, rent or royalty pursuant to sections 349 and 350; and (d) all
income tax required to be deducted from any other payment directed to be made as
if those payments were payments to which section 349 applied.
4.19.2.3 Seller has duly and punctually withheld, or collected
for payment (as appropriate) all taxation which it has become liable to withhold
or collect for payment and is under no liability to pay any penalty or interest
in connection with any claim for taxation at the date of this Agreement or give
any security for any such matter.
4.19.2.4 Seller has if required by law so to do deducted all
appropriate taxation from all payments made or treated as made to any person and
accounted to the Inland Revenue for all tax so deducted.
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4.19.2.5 Seller has not within the twenty (20) years prior to
Closing paid or become liable to pay any penalty or interest charged by virtue
of the provisions of the Taxes Management Act 1970 or similar provisions in
other countries.
4.19.2.6 Seller has not in the last ten (10) years been the
subject of a discovery by the Inland Revenue and there are no facts which are
likely to cause a discovery to be made.
4.19.2.7 Seller is not liable as lessee or agent for any Schedule
A tax under the provisions of section 23.
4.19.3 DISALLOWANCE OF DEDUCTIONS. Seller has not made any payment
to, or provided any benefit for, any of its employees which would not be
allowable as a deduction in computing the profits of Seller for corporation tax
purposes.
4.19.4 CHARGEABLE GAINS. Seller has not at any time before or since
the Balance Sheets Date made any claim under sections 152 to 156 of TCGA, and no
such claim has been made or is capable of being made by any other company which
affects or could affect the amount or value of the consideration for the
acquisition of any Asset.
4.19.5 VALUE ADDED TAX.
4.19.5.1 Seller is not and has not at any time been treated as a
member of a group of companies for VAT purposes and no application for it to be
so treated has at any time been made.
4.19.5.2 Seller is duly registered for VAT purposes and has
complied in all material respects with part I of the 1972 Act (VAT) and the VATA
and all orders, provisions, directions or conditions made or imposed thereunder,
and has in all material respects kept and maintained full complete correct and
up to date records, invoices and other documents appropriate or requisite for
the purposes of such legislation, and is not liable to any forfeiture or penalty
or to the operation of any penal provisions and has not incurred any penalty,
surcharge or interest as a result of making late VAT returns.
4.19.5.3 No act or transaction has been effected in consequence
whereof Seller is or may be held liable for any VAT chargeable against any other
company; and Seller is not, and has not agreed to become an agent, manager or
factor for the purpose of section 32 of the VATA of any person who is not
resident in the United Kingdom.
4.19.5.4 All supplies made by Seller in respect of the Business
are taxable supplies and Seller is not and will not be denied credit for any
input tax by reason of the operation of any provisions of VATA and the
regulations made thereunder; and all input tax for which Seller has claimed
credit has been paid by Seller in respect of supplies made to it relating to
goods or services used or to be used for the purpose of the Business.
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4.19.5.5 No supplies have been made to Seller to which the
provisions of section 7 to VATA might apply.
4.19.5.6 Seller has not been required to give security for
payment of any VAT.
4.19.5.7 The Disclosure Letters contains full particulars of any
claim for bad debt relief made, or which may be made, by Seller under section 22
of VATA.
4.19.5.8 On all invoices issued and to be issued by Seller prior
to the Closing charge VAT at the percentage rate which at the time of the
relevant supply was or is chargeable has been or will be so charged; all amounts
due to be paid to Customs & Excise prior to the Closing on the date of the
filing of the last VAT return have been paid on the due date; all amounts of VAT
which have been charged on invoices issued by Seller since such last return have
been retained by Seller for the account of Customs & Excise pending the next
return date; there are no disputes between Seller and Customs & Excise and there
are no present circumstances which are likely to give rise to any such dispute.
4.19.5.9 No document has left the possession of Seller which if
improperly used by a third party would lead to any liability on the part of
Seller to pay any amount of VAT under paragraph 6 of schedule 7 to VATA which,
but for such use, would not have been payable by Seller.
4.19.5.10 Seller has not made and does not make exempt supplies
for VAT purposes (except such exempt supplies as may be disregarded in
calculating the amount of input tax for which Seller may claim a credit or a
repayment under section 14 of VATA).
4.19.5.11 Seller is not and has not been or agreed to become an
agent, manager or factor of any person who is not resident in the United
Kingdom.
4.19.6 STAMP DUTY AND STAMP DUTY RESERVE TAX.
4.19.6.1 Seller has duly paid all stamp duty and all stamp duty
reserve tax for which it has at any time been liable, and all documents under
which Seller has any right and which are required to be stamped have been duly
stamped.
4.19.6.2 Within the five (5) years ending on the date of this
Agreement, Seller has not made any claim for relief or exemption under section
42 of the 1930 Act or part III of schedule 19 to the 1973 Act.
4.19.7 GENERAL.
4.19.7.1 Seller has not acquired all or any part of the assets or
undertaking of another company in the course of any reconstruction or
liquidation of that company or any amalgamation of that or any other company.
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4.19.7.2 During the period of three (3) years immediately
preceding the date of this Agreement, there has been no major change in the
nature or conduct of the trade (within the meaning of section 768 ICTA) carried
on by Seller or in the customers or markets supplied by Seller in the scale of
its activities.
4.19.7.3 No act or transaction has been effected in consequence
whereof the Business has, is or may be held liable for any taxation primarily
chargeable against some other person.
4.20 PENSION WARRANTIES. There is and has been no scheme, agreement,
arrangement or practice (whether formal or informal) in relation to which Seller
has incurred or will incur or may be expected to incur any liability or
responsibility (including, without limitation, liability for contributions or
expenses or for shortfall in funding, liability as trustees or responsibility as
to any discretionary power) for or in relation to the provision of any relevant
benefits (as defined in Section 612 ICTA) or any benefits to be given by reason
of disability or sickness for or in respect of any employees of Seller or for or
in respect of any other person by reference to any such employees.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer and Parent make the following representations and warranties to
Sellers and Shareholders, each of which is true and correct on the date hereof,
shall remain true and correct to and including the Closing Date, shall be
unaffected by any investigation heretofore or hereafter made by Sellers or any
notice to Sellers, and shall survive the Closing of the transactions provided
for herein.
5.1 CORPORATE.
5.1.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of England and Wales. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California.
5.1.2 CORPORATE POWER. Buyer and Parent have all requisite corporate
power to enter into this Agreement and the other documents and instruments to be
executed and delivered by Buyer and Parent and to carry out the transactions
contemplated hereby and thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Buyer and Parent
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Buyer and Parent.
No other corporate act or proceeding on the part of Buyer or Parent or each of
its shareholders is necessary to authorize this Agreement or the other documents
and instruments to be executed and delivered by Buyer and Parent pursuant hereto
or the consummation of the transactions contemplated hereby and thereby. This
Agreement constitutes, and when executed and delivered, the other documents and
instruments to be executed and delivered by Buyer and
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Parent pursuant hereto will constitute, valid and binding agreements of Buyer
and Parent, enforceable in accordance with their respective terms, except as
such may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
5.3 NO BROKERS OR FINDERS. Neither Buyer nor Parent nor any of their
directors, officers, employees or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
5.4 FINANCIAL CAPACITY. Buyer and Parent have the financial means
necessary to consummate the transactions contemplated hereunder.
6. EMPLOYEES.
6.1 Sellers and Shareholders jointly and severally shall indemnify Buyer
and keep it indemnified against all claims for redundancy or unfair dismissal,
liabilities and other costs and expenses resulting from any breach of the
undertakings, representations and warranties contained in this Section 6 in
respect of any act taken or omitted by Sellers prior to the Closing Date.
6.2 Sellers shall perform and discharge all its obligations in respect of
each and every employee of the Business for its own account up to and including
the Closing and shall indemnify Buyer against all costs, losses, liabilities,
expenses or demands arising from Sellers' failure to perform and discharge such
obligations on time.
6.3 Sellers shall indemnify Buyer against all costs, claims, losses,
liabilities, expenses and demands which relate to or arise out of any act or
omission by Sellers or any other event or occurrence prior to the Closing and
which Buyer may incur or suffer in relation to any contract of employment
concerning one or more of its employees by virtue of the transfer of the
Business including, but not limited to, anything done or omitted by or in
relation to Sellers in respect of any such contract of employment of any
employee which is deemed by the Regulations to have been done or omitted by or
in relation to Buyer.
6.4 Sellers and Buyer acknowledge and agree that pursuant to the
Regulations, the contracts of employment between Sellers and each of its
employees will have and be deemed to have had effect after the Closing Date as
if originally made between Buyer and the respective employees.
6.5 Sellers and Buyer shall jointly communicate to each of its employees
notices regarding the transfer of such employee's employment relationship to
Buyer in such form as may be agreed by Sellers and Buyer.
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7. OTHER MATTERS.
7.1 USE OF SELLERS' NAME. Following the Closing, neither Sellers nor any
Affiliate shall, without the prior written consent of Buyer, make any use of the
names "Palmer & Webb Systems Limited" and "Moebius Business Training Limited" or
any other names confusingly similar thereto, except as may be necessary for
Sellers to pay their liabilities, prepare tax returns and other reports, and to
otherwise wind up and conclude their business. After the Closing, upon Buyer's
request, each of PWUK and Moebius shall change its name as Buyer shall approve.
7.2 INVESTIGATIONS. The respective representations and warranties of
Sellers, Shareholders and Buyer contained herein or in any other documents
delivered at or prior to the Closing, shall not be deemed waived or otherwise
affected by any investigation made by any party hereto.
8. FURTHER COVENANTS OF EACH SELLER AND SHAREHOLDER.
Each Seller and Shareholder covenants and agrees as follows:
8.1 ACCESS TO INFORMATION AND RECORDS. During the period prior to the
Closing, Seller shall give Buyer, its counsel, accountants and other
representatives (a) reasonable access during normal business hours to all of the
properties, books, records, contracts and documents of Seller for the purpose of
such inspection, investigation and testing as Buyer deems appropriate (and
Seller shall furnish or cause to be furnished to Buyer and its representatives
all information with respect to the business and affairs of Seller as Buyer may
reasonably request); (b) access to employees, agents and representatives for the
purposes of such meetings and communications as Buyer reasonably desires; and
(c) with the prior consent of Seller in each instance (which consent shall not
be unreasonably withheld), access to vendors, customers, manufacturers of its
machinery and equipment, and others having business dealings with Seller.
8.2 BANK ACCOUNTS. Upon the execution of this Agreement, Seller shall
provide to Buyer a list of each bank in which Seller has an account or safe
deposit box, the name and number of each such account or box and the names of
all persons authorized to draw thereon or who have access thereto, with the
amounts they are authorized to draw.
8.3 CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof until
the Closing, except as otherwise approved in writing by Buyer:
8.3.1 NO CHANGES. Seller will carry on its business diligently and
in the same manner as heretofore and will not make or institute any changes in
its methods of purchase, sale, management, accounting or operation.
8.3.2 MAINTAIN ORGANIZATION. Seller will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of Seller and will use its best efforts to
preserve the business organization of Seller
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intact, to keep available to Buyer the present directors and employees, and to
preserve for Buyer its present relationships with suppliers and customers and
others having business relationships with Seller.
8.3.3 NO BREACH. Seller and Shareholders will not do or omit any
act, or permit any omission to act, which may cause a breach of any material
contract, commitment or obligation, or any breach of any representation,
warranty, covenant or agreement made by Seller and/or Shareholders herein, or
which would have required disclosure in the Disclosure Letters or Schedules
attached hereto had it occurred after the Balance Sheets Date and prior to the
date of this Agreement.
8.3.4 NO MATERIAL CONTRACTS. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale of assets
(real, personal, or mixed, tangible or intangible) will be made, by or on behalf
of Seller, except contracts, commitments, purchases or sales which (a) are (1)
contracts or commitments for the purchase of, and purchases of, raw materials,
supplies and services made in the ordinary course of business and consistent
with past practice, (2) contracts or commitments for the sale of, and sales of,
products or inventory or services in the ordinary course of business and
consistent with past practice, or (3) other contracts, commitments, purchases or
sales in the ordinary course of business and consistent with past practice, AND
(b) are not material to Seller (individually or in the aggregate) and would not
have been required to be disclosed in the Disclosure Letters or Schedules had
they been in existence on the date of this Agreement.
8.3.5 NO CORPORATE CHANGES. Seller shall not amend its Memorandum
and Articles of Association or other constituent documents, make any changes in
authorized or issued capital stock, or take or commence the taking of any action
with respect to the dissolution, liquidation or winding up of Seller.
8.3.6 MAINTENANCE OF PROPERTY. Seller shall use, operate, maintain
and repair all property of Seller in a normal business manner.
8.3.7 NO NEGOTIATIONS. Neither Seller nor Shareholder will directly
or indirectly (through a representative or otherwise) solicit or furnish any
information to any prospective buyer, commence, or conduct presently ongoing
negotiations with any other party or enter into any agreement with any other
party concerning the sale of Seller, Seller's assets or business or any part
thereof (other than as provided in Section 8.3.4) or any equity securities of
Seller (an "ACQUISITION PROPOSAL"), and Seller and Shareholder shall promptly
advise Buyer of the receipt of any Acquisition Proposal.
8.4 CONSENTS.
8.4.1 If the Reversioner's Licence has not been obtained in a form
satisfactory to Buyer prior to the Closing Date, Sellers and Buyer shall use all
reasonable endeavors to obtain the Reversioner's Licence and the parties shall
promptly provide all reasonably obtainable information properly required for
this purpose.
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8.4.2 As between Buyer and Sellers, Sellers shall be responsible for
all reasonable and proper costs of the Landlord and all superior landlords and
their respective surveyors and solicitors' fees (plus VAT and disbursements in
both Cases) incurred in connection with the grant of the Reversioner's Licence.
8.4.3 The parties shall promptly execute the Reversioner's Licence
and deliver such executed licence to relevant destinations.
8.4.4 The parties shall after the date hereof use all reasonable
endeavors to agree the form of assignment of the Leased Real Property from
Sellers to Buyer and Sellers and Buyer will each execute such assignment in
duplicate.
8.4.5 From and after the Closing, unless and until the Reversioner's
Licence has been obtained and the assignment completed Sellers shall deal with
the Leased Real Property as Buyer shall reasonably direct and shall not
otherwise deal with the Leased Real Property except in such a way as may have
been previously agreed in writing by Buyer.
8.4.6 With effect from and including the date of this Agreement until
actual completion of the assignment or transfer of the Leased Real Property:
8.4.6.1 Seller shall: (a) hold the Leased Real Property on trust
for Buyer for a period not to exceed ninety (90) days; (b) permit Buyer to
occupy and have use of the Leased Real Property; (c) subject to being put in
funds by Buyer to pay all rents, service charges and other sums reserved by the
Real Property Leases to the Landlord; (d) not enter into any contract affecting
the Leased Real Property without the consent of Buyer, which consent shall not
be unreasonably withheld or delayed where such contract is or shall be a lawful
requirement of the Landlord; (e) supply copies of all orders, notices or
directions received from the Landlord or other competent authority forthwith
upon receipt; and (f) not without the consent of Buyer (which consent shall not
be unreasonably withheld or delayed) make any application to the Landlord other
than for consent to assign the Leased Real Property to Buyer.
8.4.6.2 Buyer shall: (a) put Seller in funds in advance of the
date due so as to enable Seller to pay on demand all rents, service charges,
outgoings and other sums payable in respect of the Leased Real Property for the
period from and including the date of this Agreement until actual completion of
the assignment or transfer of the Leased Real Property to Buyer; and (b) insofar
as the same are consistent with Buyer's right to use the Leased Real Property to
observe and perform the covenants and conditions contained in the Real Property
Leases and any license, consent or approval granted thereunder or any document
supplemental thereto.
8.4.6.3 If a notice pursuant to Section 146 Law of Property Act
1925 or similar notice is served in respect of the Leased Real Property between
the date of this Agreement and actual completion of the assignment or transfer
of the Leased Real Property between the date of this Agreement and actual
completion of such assignment or transfer and such notice alleges unlawful
occupation of the Leased Real Property by Buyer, Seller shall at
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the direction of Buyer take all steps as are necessary to contest such notice
and, if required by Buyer, shall apply for a declaration that the Landlord's
consent is being unreasonable withheld.
8.4.6.4 If upon final determination of any proceedings in
connection with the notice under Section 146 Law of Property Act 1925 the
application for a declaration that the Landlord's consent is being unreasonably
withheld, Buyer is required to vacate the Property Buyer will forthwith comply
with the Order of the Court in that respect.
8.4.6.5 Seller shall upon the request of Buyer (but not earlier
than one calendar month after the date of this Agreement) apply to a competent
Court for a declaration that the Landlord has unreasonably withheld the
Reversioner's License and such application (which Seller shall not be required
to pursue beyond the Court of First Instance unless its counsel shall advise, at
the expense of Buyer, on the balance of probabilities an appeal would succeed)
shall be at the expense of Buyer.
8.5 OTHER ACTION. Seller and Shareholders shall use their reasonable
efforts to cause the fulfillment at the earliest practicable date of all of the
conditions to Sellers' obligations to consummate the transactions contemplated
in this Agreement.
8.6 DISCLOSURE. Seller and Shareholders shall have a continuing
obligation to promptly notify Buyer in writing with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Letters or Schedules, but no such disclosure shall cure any breach of
any representation or warranty which is inaccurate.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Sellers and Shareholders in this
Agreement and the Disclosure Letters, and the statements contained in any
Schedule or in any instrument, list, certificate or writing delivered by Sellers
pursuant to this Agreement, shall have been true and correct in all material
respects when made and shall be true and correct in all material respects at and
as of the Closing Date as though such representations and warranties were made
or given on and as of the Closing Date, except for any changes permitted by the
terms of this Agreement or consented to in writing by Buyer.
9.2 COMPLIANCE WITH AGREEMENT. Sellers and Shareholders shall have in all
material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 12.1 hereof.
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9.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Sellers or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
9.4 CONSENTS AND APPROVALS. All approvals, consents and waivers that are
required to effect the transactions contemplated hereby shall have been
received, and, wherever relevant, executed counterparts thereof shall have been
delivered to Buyer, except such consents, approvals and novations as are
expressly permitted by the terms of this Agreement to be obtained subsequent to
the Closing. Notwithstanding the foregoing, receipt of the consent of any third
party to the assignment of an Assumed Contract which is not (and is not required
to be) disclosed in the Disclosure Letters or any Schedule shall not be a
condition to Buyer's obligation to close, provided that the aggregate of all
such Contracts does not represent a material portion of Sellers' sales or
expenditures. After the Closing, Sellers and Shareholders shall continue to use
their reasonable effects to obtain any such consents or approvals (and Buyer
shall use reasonable efforts to assist Sellers in such efforts), and neither
Sellers nor Shareholders shall hereby be relieved of any liability hereunder for
failure to perform any of their respective covenants or for the inaccuracy of
any representation or warranty.
9.5 DATAMETRICS CLOSING. The transactions between Buyer and Datametrics
System Corporation ("DATAMETRICS") described in that certain Asset Purchase
Agreement between Buyer and Datametrics shall have closed.
9.6 OWNERSHIP OF MOEBIUS. The Moebius Shareholder shall have purchased
any outstanding shares of the issued and outstanding capital stock of Moebius
not held by it so that it shall own one hundred percent (100%) of the issued and
outstanding capital stock of Moebius.
10. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.
Each and every obligation of Sellers and Shareholders to be performed on
the Closing Date shall have been subject to the satisfaction prior to or at the
Closing of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made or given on and as of the Closing Date.
10.2 COMPLIANCE WITH AGREEMENT. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement
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which are to be performed or complied with by Buyer prior to or on the Closing
Date, including the delivery of the closing documents specified in Section 12.2
hereof.
10.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Sellers or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
10.4 DATAMETRICS CLOSING. The transactions between Buyer and Datametrics
described in that certain Asset Purchase Agreement between Buyer and Datametrics
shall have closed.
11. INDEMNIFICATION.
11.1 BY SELLERS AND SHAREHOLDERS. Subject to the terms and conditions of
this Article 11, each Seller and Shareholder, jointly and severally, hereby
indemnify, defend and hold harmless Buyer, and its directors, officers,
employees and controlled and controlling persons ("BUYER'S AFFILIATES"), from
and against all Claims asserted against, resulting to, imposed upon, or incurred
by Buyer, Buyer's Affiliates or the business and assets transferred to Buyer
pursuant to this Agreement, directly or indirectly, by reason of, arising out of
or resulting from (a) the inaccuracy or breach of any representation or warranty
of Seller or Shareholder contained in or made pursuant to this Agreement or in
any officer's certificate, the Disclosure Letters, Schedule or agreement
described in Section 9 herein (regardless of whether such breach is deemed
"material"); (b) the breach of any covenant of Seller or Shareholder contained
in this Agreement or in any officer's certificate, the Disclosure Letters,
Schedule or agreement described in Section 9 herein (regardless of whether such
breach is deemed "material"); (c) any Claim of or against Seller, the Purchased
Assets or the business of Seller not specifically assumed by Buyer pursuant
hereto and not covered by clause (d), or (d) any Claim for a Warranty Credit,
but only to the extent that such Claim is not covered by insurance coverage of
Buyer. As used in this Article 11, the term "CLAIM" shall include (a) all
debts, liabilities and obligations; (b) all losses, damages (including without
limitation consequential damages), judgments, awards, settlements, costs and
expenses (including without limitation interest (including prejudgment interest
in any litigated matter), penalties, court costs and reasonable attorneys fees
and expenses) and shall be net of any insurance or tax recoveries by Buyer of
the amount of any such Claim; and (c) all demands, claims, suits, actions, costs
of investigation, causes of action, proceedings and assessments, whether or not
ultimately determined to be valid.
11.2 BY BUYER. Subject to the terms and conditions of this Article 11,
Buyer hereby agrees to indemnify, defend and hold harmless Sellers, its
directors, officers, employees and controlling persons, and Shareholders from
and against all Claims asserted against, resulting to, imposed upon or incurred
by any such person, directly or indirectly, by reason of or resulting from (a)
the inaccuracy or breach of any representation or warranty of
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Buyer contained in or made pursuant to this Agreement or in any agreement,
document or instrument executed and delivered pursuant hereto or in connection
with the transactions contemplated hereby (regardless of whether such breach is
deemed "material"); (b) the breach of any covenant of Buyer contained in this
Agreement (regardless of whether such breach is deemed "material"); or (c) all
Claims of or against Sellers specifically assumed by Buyer pursuant hereto.
11.3 INDEMNIFICATION OF THIRD-PARTY CLAIMS. The obligations and
liabilities of any party to indemnify any other under this Article 11 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
11.3.1 NOTICE AND DEFENSE. The party or parties to be indemnified
(whether one or more, the "INDEMNIFIED PARTY") will give the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") written notice of any such
Claim, and the Indemnifying Party will undertake the defense thereof by
representatives chosen by the Indemnified Party. Failure to give such notice
shall not affect the Indemnifying Party's duty or obligations under this
Article 11, except to the extent the Indemnifying Party is prejudiced thereby.
So long as the Indemnifying Party is defending any such Claim actively and in
good faith, the Indemnified Party shall not compromise or settle such Claim.
The Indemnified Party shall make available to the Indemnifying Party or its
representatives all records and other materials required by them and in the
possession or under the control of the Indemnified Party, or its representatives
for the use of the Indemnifying Party and its representatives in defending any
such Claim, and shall in other respects give reasonable cooperation in such
defense.
11.3.2 FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party will (upon further notice)
have the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf of
and for the account and risk of the Indemnifying Party, and the Indemnifying
Party shall thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment.
11.3.3 INDEMNIFIED PARTY'S RIGHTS. Anything in this Section 11 to
the contrary notwithstanding, (a) if there is a reasonable probability that a
Claim may materially and adversely affect Buyer other than as a result of money
damages or other money payments for such Claim, or if the amount of the Claim
being asserted exceeds (in Buyer's judgment) by more than USD $200,000 the
insurance coverage which has been admitted by the applicable insurance carriers,
Buyer shall have the sole right to defend, compromise or settle such Claim and
shall be entitled to recover from Sellers for such amounts, (b) the Indemnifying
Party shall not, without the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such Claim, and (c) Buyer shall have the exclusive right to defend and settle
breach of warranty claims for Software.
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11.3.4 WARRANTY CLAIMS. Buyer shall have the right to defend or
settle any warranty Claims relating to the Software, provided that any
Indemnifying Party with respect to such warranty claim shall be allowed to
participate, at its or his own cost, in the defense, settlement or compromise of
any such Claim, and Buyer shall not settle or compromise any such Claim without
the consent of such Indemnifying Party, which shall not be unreasonably
withheld. Buyer agrees that it shall not seek any indemnity from Sellers or
Shareholders with respect to any warranty Claim where (a) such Claim relates to
or results from a claim by a third party that a software program contained in
the Software has caused damage to such third party; (b) such software program is
or was licenced by a Seller from a third party vendor; and (c) (i) the rights of
Sellers to seek indemnification from such third party vendor with respect to
such licenced software program have been transferred to Buyer in accordance with
this Agreement, or (ii) the vendor of such software program has been, or the
rights to the software program itself have been, acquired by Buyer.
11.4 PAYMENT. Subject to the terms of the Purchase Price and
Indemnification Escrow Agreement, the Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article 11, which payment may be
accomplished in whole or in part, to the extent that the Indemnified Party owes
any amount to the Indemnifying Party, at the option of the Indemnified Party, by
the Indemnified Party setting off any amount owed to the Indemnifying Party by
the Indemnified Party. To the extent set-off is made by an Indemnified Party in
satisfaction or partial satisfaction of an indemnity obligation under this
Article 11 that is disputed by the Indemnifying Party, upon a subsequent
determination by final judgment not subject to appeal that all or a portion of
such indemnity obligation was not owed to the Indemnified Party, the Indemnified
Party shall pay the Indemnifying Party the amount which was set off and not owed
together with interest from the date of set-off until the date of such payment
at the Prime Rate set by Comerica Bank - California at its San Francisco,
California office. Upon judgment, determination, settlement or compromise of
any third party Claim, the Indemnifying Party shall pay promptly on behalf of
the Indemnified Party, and/or to the Indemnified Party in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other Claims of the
Indemnified Party with respect thereto, unless in the case of a judgment an
appeal is made from the judgment. If the Indemnifying Party desires to appeal
from an adverse judgment, then the Indemnifying Party shall post and pay the
cost of the security or bond to stay execution of the judgment pending appeal.
Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party, to the
extent not waived in settlement, against the third party who made such third
party Claim.
11.5 DEDUCTIBLE AMOUNT. Without limiting the effect of any of the other
limitations set forth herein, Sellers and Shareholders shall not be required to
make any indemnification payment hereunder with respect to any breach of any of
its representations and warranties, except to the extent that the cumulative
amount of the Damages actually incurred by Buyer as a direct result of all such
breaches of such representations and warranties during the period from (a) the
Closing Date until 5:00 p.m. (Pacific Standard Time) on the first anniversary of
the Closing Date (the "FIRST ANNIVERSARY DATE") (such period being referred to
as the "FIRST PERIOD") actually exceeds the First Period Deductible
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Amount, and (b) the first day following the First Anniversary Date until
5:00 p.m. (Pacific Standard Time) on the second anniversary of the Closing Date
(such period being referred to as the "SECOND PERIOD") actually exceeds the
Second Period Deductible Amount; and Sellers and Shareholders shall only be
required to pay, and shall only be liable for, the amount by which the
cumulative amount of the Damages actually incurred by Buyer as a direct result
of all such breaches of such representations and warranties actually exceeds the
First Period Deductible Amount or the Second Period Deductible Amount, as
appropriate. The "FIRST PERIOD DEDUCTIBLE AMOUNT" shall be USD $112,500 and the
"SECOND PERIOD DEDUCTIBLE AMOUNT" shall be USD $18,750.
11.6 MAXIMUM LIABILITY. The total amount of the payments that Sellers and
Shareholders can be required to make under or in connection with this Agreement
(including all indemnification payments required to be made to Buyer and all
amounts payable to any counsel retained by Sellers and Shareholders in
accordance with Section 11.3), excluding Claims arising solely from software
produced by Datametrics (the determination of which shall be in the sole
discretion of Buyer) where Sellers have acted only as a distributor of such
software, shall be limited in the aggregate (including the Indemnification
Escrow Amount) to a maximum of: (a) USD $1,187,500 during the First Period; (b)
USD $375,000, less any amount paid by Sellers and Shareholders during the First
Period, during the Second Period; and (c) Zero Dollars (USD $0) thereafter.
11.7 TREATMENT OF INDEMNIFICATION PAYMENTS. The parties shall treat all
indemnification payments as either a reimbursement to the party making the
original payment or as a reduction in the Purchase Price paid by Buyer, as
appropriate, to achieve the most beneficial tax and accounting treatment for
both parties. In the event that treating the payment as either reimbursement or
a reduction of the Purchase Price will have a positive tax and accounting effect
for one of the parties and no negative tax or accounting effect for the other
party, the payment shall be so treated. If one party will benefit from one form
of treatment at the expense of the other, the parties shall treat the payment
for tax and accounting purposes to minimize taxes and in a manner which favors
the Indemnified Party.
11.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; CLAIMS FOR
INDEMNIFICATION. All representations and warranties made by Sellers,
Shareholders or by Buyer in this Agreement, or in any officer's certificate, the
Disclosure Letters, any Schedule or agreement described in Sections 9 or 10
herein, shall survive the Closing and any investigation at any time made by or
on behalf of Seller or Buyer, as the case may be. All such representations and
warranties shall expire on the second anniversary of the Closing Date, except
with respect to claims, if any, (a) asserted in writing prior to such second
anniversary identified as a Claim for indemnification pursuant to this
Section 8, or (b) which are based upon the representations and warranties of
Sellers or Shareholders relating to taxes, which shall survive until the
applicable statute of limitations has expired.
11.9 NO WAIVER. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach,
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violation or failure of condition constituting the basis of the Claim at or
before the Closing, and regardless of whether such breach, violation or failure
is deemed to be "material".
12. CLOSING.
The closing of this transaction (the "CLOSING") shall take place at the
offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco,
California, at 7:00 a.m. (Pacific Standard Time) on June 30, 1997, or at such
other time and place as the parties hereto shall agree upon (the "CLOSING
DATE").
12.1 DOCUMENTS TO BE DELIVERED BY SELLERS AND SHAREHOLDERS. At the
Closing, Sellers and Shareholders shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
12.1.1 DEEDS. Originally executed Real Property Leases (apart from
Unit 1 Fountain House), land certificates and a statutory declaration relating
to the contents of the missing lease.
12.1.2 CERTIFIED RESOLUTIONS. A certified copy of the resolutions of
the Board of Directors and shareholders of Sellers authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
12.1.3 MEMORANDUM AND ARTICLES OF ASSOCIATION. A copy of the
Memorandum and Articles of Association of each Seller certified by the Company
Secretary of Sellers.
12.1.4 OPINION OF COUNSEL. A written opinion of MacDonald Oates dated
as of the Closing Date, addressed to Buyer, substantially in the form of
EXHIBIT D hereto.
12.1.5 ESCROW AGREEMENT. The Escrow Agreement duly executed by
Sellers, Shareholders and the Escrow Agent in the form of EXHIBIT E hereto.
12.1.6 PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT. The
Purchase Price and Indemnification Escrow Agreement duly executed by Sellers and
Shareholders.
12.1.7 CONSENTS TO ASSIGNMENT. Executed consents to the assignment of
the Assumed Contracts.
12.1.8 BANK LETTER. A letter from National Westminster Bank
confirming that it will release its lien on Sellers' property and a Certificate
of Non-Crystalisation.
12.1.9 SERVICE AGREEMENT. A Service Agreement duly executed by each
of the PWUK Shareholders in the form of EXHIBIT F hereto.
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12.1.10 OTHER DOCUMENTS. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Buyer may
reasonably request.
12.2 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall
deliver to Sellers the following documents, in each case duly executed or
otherwise in proper form:
12.2.1 CASH PURCHASE PRICE. To Sellers and the Escrow Agent wire
transfers as required by Section 3.2.2 hereof.
12.2.2 LETTER REGARDING ADDITIONAL FUNDS. To Sellers a letter
confirming that Buyer has authorized the release of funds sufficient to pay the
following amounts: (a) L75,001 due to ECTS; (b) L62,500 to repay the pension
plan loans; (c) amounts necessary to fund the closing costs of the transactions
contemplated herein; and (d) the present overdraft due to National Westminster
Bank.
12.2.3 CERTIFIED RESOLUTIONS. A certified copy of the resolutions of
the Board of Directors of Buyer authorizing and approving this Agreement and the
other agreements, documents and instruments herein and the consummation of the
transactions contemplated by this Agreement.
12.2.4 OPINION OF COUNSEL. A written opinion of Taylor Joynson
Garrett, counsel to Buyer, dated as of the Closing Date, addressed to Sellers,
in substantially the form of EXHIBIT G hereto.
12.2.5 OPINION OF COUNSEL. A written opinion of Cooley Godward LLP,
counsel to Parent, dated as of the Closing Date, addressed to Sellers, in
substantially the form of EXHIBIT H hereto.
12.2.6 ESCROW AGREEMENT. The Escrow Agreement duly executed by Buyer
and the Escrow Agent in the form of EXHIBIT E hereto.
12.2.7 PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT. The
Purchase Price and Indemnification Escrow Agreement duly executed by Buyer.
12.2.8 SERVICE AGREEMENT. A Service Agreement duly executed by Buyer,
Parent and Zitel World Trade in the form of EXHIBIT F hereto.
12.2.9 OTHER DOCUMENTS. All other documents, instruments or writings
required to be delivered to Sellers at or prior to the Closing pursuant to this
Agreement and such other certificates of authority and documents as Sellers may
reasonably request.
13. TERMINATION.
13.1 RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be terminated
without further liability of any party at any time prior to the Closing:
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13.1.1 by mutual written agreement of Buyer and Sellers; or
13.1.2 by either Buyer or Sellers if the Closing shall not have
occurred on or before that date which is thirty (30) days after the date of this
Agreement, or if such date is not a business day, the first business day
thereafter, provided the terminating party has not, through breach of a
representation, warranty or covenant, prevented the Closing from occurring on or
before such date.
13.2 TERMINATION FOR BREACH.
13.2.1 TERMINATION BY BUYER. If (a) there has been a material
violation or breach by Sellers or Shareholders of any of the agreements,
representations or warranties contained in this Agreement which has not been
waived in writing by Buyer, or (b) there has been a failure of satisfaction of a
condition to the obligations of Buyer which has not been so waived, or (c)
Sellers or Shareholders shall have attempted to terminate this Agreement under
this Article 13 or otherwise without grounds to do so, then Buyer may, by
written notice to Sellers and Shareholders at any time prior to the Closing that
such violation, breach, failure or wrongful termination attempt is continuing,
terminate this Agreement with the effect set forth in Section 13.2.3 hereof.
13.2.2 TERMINATION BY SELLERS. If (a) there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing by
Sellers, or (b) there has been a failure of satisfaction of a condition to the
obligations of Sellers which has not been so waived, or (c) Buyer shall have
attempted to terminate this Agreement under this Article 13 or otherwise without
grounds to do so, then Sellers may, by written notice to Buyer at any time prior
to the Closing that such violation, breach, failure or wrongful termination
attempt is continuing, terminate this Agreement with the effect set forth in
Section 13.2.3 hereof.
13.2.3 EFFECT OF TERMINATION. Termination of this Agreement pursuant
to this Section 13.2 shall not in any way terminate, limit or restrict the
rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof. In addition to the right of any party under common law to
redress for any such breach or violation, each party whose breach or violation
has occurred prior to termination shall jointly and severally indemnify each
other party for whose benefit such representation, warranty, covenant, agreement
or other provision was made ("indemnified party") from and against all losses,
damages (including, without limitation, consequential damages), costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs, and attorneys fees
and expenses) asserted against, resulting to, imposed upon, or incurred by the
indemnified party, directly or indirectly, by reason of, arising out of or
resulting from such breach or violation. Subject to the foregoing, the parties'
obligations under Article 15 of this Agreement shall survive termination.
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14. RESOLUTION OF DISPUTES.
14.1 ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into pursuant
hereto or the performance by the parties of its or their terms, or any claim
that the execution and delivery of such agreements constituted a violation of
the securities laws of any state or the United States or any claim for damages
or rescission of this Agreement for fraud, misrepresentation or violation of any
such securities laws, shall be settled by binding arbitration held in San
Francisco, California, accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 14. Notwithstanding the foregoing, Buyer
may, in its discretion, apply to a court of competent jurisdiction for equitable
relief from any violation or threatened violation of the covenants of Sellers
and/or Shareholders under Section 7.1 hereof.
14.2 ARBITRATORS. If the matter in controversy (exclusive of attorney fees
and expenses) shall appear, as at the time of the demand for arbitration, to
exceed USD $500,000, then the panel to be appointed shall consist of three
neutral arbitrators; otherwise, one neutral arbitrator.
14.3 PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such discovery
as the arbitrator(s) determine appropriate under the circumstances and shall
resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within one hundred twenty (120) days after the selection of the
arbitrator(s). The arbitrator(s) shall give the parties written notice of the
decision, with the reasons therefor set out, and shall have thirty (30) days
thereafter to reconsider and modify such decision if any party so requests
within ten (10) days after the decision. Thereafter, the decision of the
arbitrator(s) shall be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused to
participate in the arbitration process.
14.4 AUTHORITY. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
14.5 ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Sellers, Buyer and Shareholders hereby submit to the in personam
jurisdiction of the Federal and State courts in California, for the purpose of
confirming any such award and entering judgment thereon.
14.6 CONFIDENTIALITY. All proceedings under this Article 14, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
14.7 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 14 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such
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procedure all parties shall continue to perform their respective obligations in
good faith, subject to any rights to terminate this Agreement that may be
available to any party and to the right of setoff provided in Section 11.4
hereof.
14.8 TOLLING. All applicable statues of limitation shall be tolled while
the procedures specified in this Article 14 are pending. The parties will take
such action, if any, required to effectuate such tolling.
15. EXPENSES.
Regardless of whether or not the transactions contemplated hereby are
consummated:
15.1 BROKERAGE. Sellers, Shareholders and Buyer each represent and warrant
to each other that there is no broker involved or in any way connected with the
transfer provided for herein. Buyer agrees to hold Sellers and Shareholders
harmless from and against all claims for brokerage commissions or finder's fees
incurred through any act of Buyer in connection with the execution of this
Agreement or the transactions provided for herein. Each Seller and Shareholder,
jointly and severally, agree to hold Buyer harmless from and against all claims
for brokerage commissions or finder's fees incurred through any act of any
Seller or Shareholder in connection with the execution of this Agreement or the
transactions provided for herein.
15.2 EXPENSES TO BE PAID BY SELLERS. Sellers shall pay, and shall
indemnify, defend and hold Buyer harmless from and against, each of the
following:
15.2.1 TRANSFER TAXES. Any sales, use, excise, transfer, income or
other similar tax (but excluding stamp duties, all of which shall be paid by
Buyer) imposed on Sellers with respect to the transactions provided for in this
Agreement, and any interest or penalties related thereto.
15.2.2 PROFESSIONAL FEES. All fees and expenses of Sellers' legal,
accounting, investment banking and other professional counsel in connection with
the transactions contemplated hereby. Buyer acknowledges that Sellers will pay
for such transaction expenses from Sellers' operating accounts.
15.3 EXPENSES TO BE PAID BY BUYER. Buyer shall pay, and shall indemnify,
defend and hold Sellers harmless from and against, each of the following:
15.3.1 STAMP DUTY/FILING FEES. Any stamp duty, filing fees, land
registry fees, and windup costs imposed with respect to the transactions
provided for in this Agreement, and any interest or penalties related thereto.
15.3.2 PROFESSIONAL FEES. All fees and expenses of Buyer's legal,
accounting, investment banking and other professional counsel in connection with
the transactions contemplated hereby.
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15.4 OTHER. Except as otherwise provided herein, each of the parties shall
bear its own expenses and the expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
15.5 COSTS OF LITIGATION OR ARBITRATION. The parties agree that (subject
to the discretion, in an arbitration proceeding, of the arbitrator as set forth
in Section 14.4 hereof) the prevailing party in any action brought with respect
to or to enforce any right or remedy under this Agreement shall be entitled to
recover from the other party or parties all reasonable costs and expenses of any
nature whatsoever incurred by the prevailing party in connection with such
action, including without limitation attorneys' fees and prejudgment interest.
16. MISCELLANEOUS.
16.1 MATERIALITY. For purposes of Sections 4, 8, 9 and 11.1 of this
Agreement and for purposes of EXHIBIT A to this Agreement, a contract,
obligation, liability, transaction, change, breach, encumbrance, proceeding or
other matter or event shall not be deemed to be "material" unless the existence
or occurrence of such matter or event would, by itself, (a) cause a reasonable
purchaser to reverse its decision to enter into a transaction of the type
contemplated by this Agreement, and (b) reduce the value of the Purchased Assets
by more than USD $15,000.
16.2 FURTHER ASSURANCE. From time to time, (a) at Buyer's request and
without further consideration, Sellers and Shareholders will execute and deliver
to Buyer such documents and take such other action as Buyer may reasonably
request in order to consummate more effectively the transactions contemplated
hereby and to vest in Buyer good, valid and marketable title to the business and
assets being transferred hereunder, and (b) at Seller's or Shareholders' request
and without consideration, Buyer will execute and deliver to Sellers and/or
Shareholders such documents and take such other actions as Sellers and/or
Shareholders may reasonably request in order to vest in Buyer the Assumed
Liabilities.
16.3 ANNOUNCEMENTS. Announcements concerning the transactions provided for
in this Agreement by either Sellers or Buyer shall be subject to the approval of
the other in all essential respects, except that Sellers' approval shall not be
required as to any statements and other information which Buyer may submit to
the SEC, the California Securities Commission or be required to make pursuant to
any rule or regulation of the SEC or any state or local securities regulatory
board, or otherwise required by law.
16.4 ASSIGNMENT; PARTIES IN INTEREST. Except as expressly provided herein,
the rights and obligations of a party hereunder may not be assigned, transferred
or encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Sellers hereunder. This Agreement shall be binding upon, inure
to the benefit of, and be
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enforceable by the respective successors and permitted assigns of the parties
hereto. Nothing contained herein shall be deemed to confer upon any other
person any right or remedy under or by reason of this Agreement.
16.5 GOVERNING LAW. The parties acknowledge and agree that the Purchased
Assets and the Assumed Liabilities being transferred hereunder are being
transferred under the laws of England. This Agreement shall be construed and
interpreted according to the internal laws of the State of California, excluding
any choice of law rules that may direct the application of the laws of another
jurisdiction.
16.6 AMENDMENT AND MODIFICATION. Buyer, Sellers and Shareholders may
amend, modify and supplement this Agreement in such manner as may be agreed upon
by them in writing.
16.7 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by international courier service. The respective
addresses to be used for all such notices, demands or requests are as follows:
(a) If to Buyer, to:
Zitel Corporation
47211 Bayside Parkway
Fremont, CA 94538
Attention: Mr. Henry C. Harris
Telephone: (510) 440-9600
Telecopier: (510) 440-9696
(with a copy to)
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: John L. Cardoza, Esq.
Telephone: (415) 693-2000
Telecopier: (415) 951-3699
or to such other person or address as Buyer shall furnish to Sellers in writing.
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(b) If to any Seller or Shareholder, to:
Palmer & Webb Systems Limited
Fountain House, Cleave Road
Leatherhead
Surrey KT22 7LX
United Kingdom
Attention: Julian Palmer
Phone: 011-44-137-2378899
Fax: 011-44-137-2378845
(with a copy to)
MacDonald Oates
Solicitors
Square House
The Square
Petersfield
Hampshire GU32 3HT
ATTENTION: Tony Cooper
Telephone: 011-44-1730268211
Telecopier: 011-44-1730261232
and
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
ATTENTION: David Ayres
Telephone: 011-44-1716386688
Telecopier: 011-44-1716385888
or to such other person or address as Sellers shall furnish to Buyer in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt. Any party to this Agreement may change its address for the
purposes of this Agreement by giving notice thereof in accordance with this
Section.
16.8 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been
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and are no agreements, representations or warranties between the parties other
than those set forth or provided for herein.
16.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.10 HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
16.11 FURTHER DOCUMENTS. Buyer, Sellers and Shareholder each agree to
execute all other documents and to take such other action or corporate
proceedings as may be necessary or desirable to carry out the terms hereof.
16.12 SURVIVAL. All provisions of this Agreement shall survive the
Closing.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written and have executed this
Agreement as a deed for English law purposes.
"BUYER"
Executed as a deed ZITEL LIMITED
for and behalf of:
By: /s/ Jack H. King
---------------------------------------
Jack H. King, CEO
---------------------------------------
[Print Name and Title]
By: /s/ David N. Kent, Director for and on
behalf of Huntsman Nominees Ltd.
as Secretary
---------------------------------------
David N. Kent for Secretary
---------------------------------------
[Print Name and Title]
"PARENT"
Executed as a deed ZITEL CORPORATION
for and behalf of:
By: /s/ Jack H. King
---------------------------------------
Jack H. King, CEO
---------------------------------------
[Print Name and Title]
"SELLERS"
Executed as a deed PALMER & WEBB SYSTEMS LIMITED
for and behalf of:
By: /s/ R. H. W. Webb
---------------------------------------
R. H. W. Webb, Director
---------------------------------------
[Print Name and Title]
By: /s/ Julian C. C. Palmer
---------------------------------------
Julian C. C. Palmer, Director
---------------------------------------
[Print Name and Title]
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Executed as a deed MOEBIUS BUSINESS TRAINING LIMITED
for and behalf of:
By: /s/ R. H. W. Webb
---------------------------------------
R. H. W. Webb, Director
---------------------------------------
[Print Name and Title]
By: /s/ Julian C. C. Palmer
---------------------------------------
Julian C. C. Palmer, Director
---------------------------------------
[Print Name and Title]
"SHAREHOLDERS"
Executed as a deed by:
In the presence of:
illegible /s/ Reginald Webb
- --------------------------------- ---------------------------------
Reginald Webb
- ---------------------------------
Solicitor
- ---------------------------------
Name and Address
Executed as a deed by:
In the presence of:
illegible /s/ Julian Palmer
- --------------------------------- ---------------------------------
Julian Palmer
- ---------------------------------
Solicitor
- ---------------------------------
Name and Address
47.
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Executed as a deed PALMER & WEBB SYSTEMS, LIMITED
for and behalf of:
By: /s/ R. H. W. Webb
---------------------------------------
R. H. W. Webb, Director
---------------------------------------
[Print Name and Title]
By: /s/ Julian C. C. Palmer
---------------------------------------
Julian C. C. Palmer, Director
---------------------------------------
[Print Name and Title]
48.
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EXHIBIT A
DEFINITIONS
As used in the Agreement the following terms shall have the following
respective meanings:
"ACQUISITION PROPOSAL" shall have the meaning specified in Section 8.3.7 of
the Agreement.
"AFFILIATE" shall mean and include: (a) any current or former shareholder,
director or officer of Sellers; (b) any sibling, uncle, aunt, niece or nephew of
any person described in clause (a); (c) any ancestor or lineal descendant of any
person described in clauses (a) or (b); (d) any current or former spouse of any
person described in clauses (a), (b) or (c) or any person who is a member of the
same household of the person described in clauses (a), (b) or (c) or who has
resided with such person for more than ten (10) days in any calendar year; (v)
any ancestor or lineal descendant of any person described in clauses (a), (b),
(c) or (d); and (e) any entity or person in which any of the foregoing have a
direct or indirect interest (except through ownership of less than five percent
(5%) of the outstanding shares of any entity whose securities are listed on a
national securities exchange or traded in the national over-the-counter market).
"AGREEMENT" shall have the meaning specified in the preamble to the
Agreement.
"ASSUMED CONTRACTS" shall have the meaning specified in Section 1.1.15 of
the Agreement.
"ASSUMED LIABILITIES" shall have the meaning specified in Section 2.1 of
the Agreement.
"BALANCE SHEETS" shall mean the balance sheets of Sellers dated as of
April 30, 1997 in the form of EXHIBIT B attached hereto.
"BALANCE SHEETS DATE" shall mean April 30, 1997.
"BUSINESS" shall have the meaning specified in the recitals to the
Agreement.
"BUYER" shall have the meaning specified in the preamble to the Agreement.
"BUYER'S AFFILIATES" shall have the meaning specified in Section 11.1 of
the Agreement.
"CAA" shall mean the Capital Allowances Act 1990.
"CLAIM" shall have the meaning specified in Section 11.1 of the Agreement.
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"CLOSING" and "CLOSING DATE" shall have the meanings specified in
Section 12 of the Agreement.
"COMPUTER SYSTEM" shall mean all other computer hardware (including
peripheral devices, cables and other related products) used in the Business at
the Closing.
"CONFIDENTIAL INFORMATION" shall mean the financial or trade secrets of the
Business, including but not limited to, Sellers' list of clients and customers.
"CONTRACTS" shall have the meaning specified in Section 1.1.15 of the
Agreement.
"CUSTOMERS" shall mean the licencees of the Software or any other customers
of the Business including those listed in SCHEDULE 1.1.14 to the Agreement.
"DATAMETRICS" shall have the meaning specified in Section 9.5 of the
Agreement.
"DEDUCTIBLE AMOUNT" shall have the meaning specified in Section 11.5 of the
Agreement.
"DISCLOSURE LETTERS" shall mean the letter of today's date from each Seller
to Buyer.
"ENVIRONMENTAL LEGISLATION" shall have the meaning specified in
Section 4.18.7.7 of the Agreement.
"EPA 1990" shall have the meaning specified in Section 4.18.7.4 of the
Agreement.
"ESCROW AGENT" shall mean Comerica Bank - California
"ESCROW AGREEMENT" shall mean that certain agreement between the parties to
the Agreement and the Escrow Agent in the form of EXHIBIT E to the Agreement.
"EXCLUDED ASSETS" shall have the meaning specified in Section 1.2 of the
Agreement.
"FACILITIES" shall have the meaning specified in the recitals to the
Agreement.
"FIRST ANNIVERSARY DATE" shall have the meaning specified in Section 11.5
of the Agreement.
"FIRST PERIOD" shall have the meaning specified in Section 11.5 of the
Agreement.
"FIRST PERIOD DEDUCTIBLE AMOUNT" shall have the meaning specified in
Section 11.5 of the Agreement.
"GAAP" shall mean generally accepted accounting principles in the relevant
jurisdiction.
2.
<PAGE>
"GOODWILL" shall mean the goodwill of Sellers in connection with the
Business together with the right for Buyer to represent itself as carrying on
the Business in succession to Sellers and the benefit and burden of the Assumed
Contracts.
"HAZARDOUS MATERIALS" shall have the meaning specified in Section 4.18.4.4
of the Agreement.
"ICTA" shall mean the Income and Corporation Taxes Act 1988 and use of a
year followed by the word "ACT" shall mean the Finance Act of that year.
"INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" shall have the meanings
specified in Section 11.3.1 of the Agreement.
"INTELLECTUAL PROPERTY RIGHTS" shall have the meaning specified in
Section 1.1.1 of the Agreement.
"KNOWLEDGE," "KNOWN," "AWARENESS" and "AWARE" in reference to Sellers or
the Shareholders shall mean the combined actual knowledge of any Shareholder and
any director or officer of either Seller and any Shareholder or any director or
officer of any Seller shall be deemed to have such knowledge as he or she would
have after having made all due, diligent and careful inquiries and after having
received full disclosure in response to such inquiries.
"KNOW-HOW" shall have the meaning specified in Section 1.1.1 of the
Agreement.
"LANDLORD" shall mean the respective landlords or other persons for the
time being entitled to the reversion mediately or immediately expectant on the
determination of the Real Property Leases.
"OWNED REAL PROPERTY" shall have the meaning specified in Section 1.1.2 of
the Agreement.
"PERSON" means any individual, corporation, limited liability corporation,
association, general partnership, limited partnership, limited liability
partnership, venture, trust, association, firm, organization, company, business,
entity, union, society, government (or political subdivision thereof) or
governmental agency, authority or instrumentality.
"PERSONAL PROPERTY LEASES" shall have the meaning specified in
Section 1.1.4 of the Agreement.
"PLANNING ACTS" shall have the meaning specified in Section 4.18.3.1 of the
Agreement.
"PURCHASE PRICE" shall have the meaning specified in Section 3.1 of the
Agreement.
3.
<PAGE>
"PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT" shall have the
meaning specified in Section 3.2.2 of the Agreement.
"PURCHASED ASSETS" shall have the meaning specified in Section 1.1 of the
Agreement.
"REAL PROPERTY LEASES" shall have the meaning specified in Section 1.1.3 of
the Agreement.
"REGULATIONS" shall mean the Transfer of Undertakings (Protection of
Employment) Regulations 1981.
"RELATED PARTY" shall mean in relation to an individual person his or her
brother, sister, parent,spouse, child or grandchild or the trustees of any
settlement of which he is the settlor or in which he is a beneficiary (and
whether discretionary or otherwise), and in relation to a company any subsidiary
or other company over which it has control within section 840 1988 ICTA or in
which it holds twenty-five percent (25%) or more of the share capital carrying
voting rights.
"REVERSIONER'S LICENCE" shall mean the licence or licences of the Landlord
and/or all superior landlords required for the assignment of the Real Property
Leases from Seller to Buyer.
"RMS" shall mean Resource Management Systems Ltd., a Bermuda corporation.
"SECOND PERIOD" shall have the meaning specified in Section 11.5 of the
Agreement.
"SECOND PERIOD DEDUCTIBLE AMOUNT" shall have the meaning specified in
Section 11.5 of the Agreement.
"SELLERS" shall have the meaning specified in the preamble to the
Agreement.
"SHAREHOLDER" shall have the meaning specified in the preamble to the
Agreement.
"SOFTWARE" shall mean the computer programs and other material listed in
SCHEDULE 1.1.14 to the Agreement.
"SOURCE CODE" shall mean the source code versions of the Software, together
with all manuals and materials necessary to maintain and update the Software
(all in machine-readable form).
"SUPPORTING MATERIAL" shall mean: (a) the User Manuals, any training
manuals, upgrade information documents, marketing and product brochures; (b) all
programmer's documentation, documents prepared for the design of any data models
used both in memory and on disk and all other documents (in machine-readable or
hard copy format) relating to the Software (including the specific items listed
in SCHEDULE 1.1.14 to the Agreement); (c) all
4.
<PAGE>
other software. manuals, text, documents, designs, artwork, photographs,
information and other material devised or used by the Business in relation to
the Software (but not including the Third Party Software); and (d) all designs,
drafts, documents and other works underlying any of the items listed at (a) to
(d) above.
"TAXATION" shall mean all forms of taxation, charges, duties, imposts,
levies and rates whenever imposed and whether of the United Kingdom or
elsewhere, including without limitation income taxes, withholding taxes,
corporation tax, advance corporation tax, capital gains tax, capital transfer
tax, inheritance tax, rates, uniform business rates, water rates, value added
tax, custom duties, capital duty, excise duties, betterment levy, community
charges, development land tax, stamp duty, stamp duty reserve tax, national
insurance, social security or other similar contributions and generally any tax,
duty, import, levy or rate or other amount and any interest, penalty or fine in
connection therewith.
"TCGA" shall mean Taxation of Chargeable Gains Act 1992.
"THIRD PARTY AGREEMENTS" shall mean the agreements for the use, maintenance
or other dealing by the Business with Third Party Software or any third party
Intellectual Property Rights as listed in SCHEDULE 1.1.14 to the Agreement.
"THIRD PARTY SOFTWARE" shall mean all computer programs used by the
Business in connection with the Software or the Equipment (and including any
computer programs embedded or incorporated in any Software or with which any
Software is bundled for sale or marketing by the Business).
"TRADE MARKS" shall mean any business names, trade marks (whether in
particular script or otherwise), devices, logos and signs owned or used by
Seller in connection with the Business (including those listed in
SCHEDULE 1.1.1) together with all Goodwill associated with or symbolised by any
of the foregoing.
"TUPE" shall mean the Transfer of Undertakings (Protection of Employment)
Regulations 1981.
"USER MANUALS" shall mean the user manuals relating to the Software as
listed in SCHEDULE 1.1.14 to the Agreement.
"VATA" shall mean the Value Added Tax Act 1994.
"WARRANTY CREDIT" shall have the meaning specified in Section 3.3 of the
Agreement.
5.
<PAGE>
EXHIBIT B
BALANCE SHEETS
APRIL 30, 1997
(FIGURES ARE IN POUND STERLING)
PWUK MBT
FIXED ASSETS 316,286 7,811
CURRENT ASSETS:
Trade 897,999 131,806
Stock 116,970 28,650
Prepayments 0 8,830
Other Debtors 0 6,859
Bad Debt Provision 0 -2,653
Cash in Bank -208,253 -64,795
-------- --------
Total Current Assets 806,716 108,697
CURRENT LIABILITIES:
Trade Creditors 649,896 179,658
Sales in Advance 0 13,695
Accruals 0 2,263
Other Creditors 62,500 12,762
VAT Liability 0 5,178
Paye/NIC Creditor 0 3,643
Expense Accounts 0 0
-------- --------
TOTAL CURRENT LIABILITIES 712,396 217,199
NET WORKING CAPITAL 94,320 -108,502
-------- --------
NET ASSETS 410,606 -100,691
-------- --------
-------- --------
CAPITAL & RESERVES:
Ordinary Shares 100,000 2
Share Premium Account 0 98
Reserves 12,500 -74,611
P & L Prior 300,003 -43,052
P & L Current 6,103 16,872
Dividends Paid Current -8,000 0
-------- --------
TOTAL CAPITAL AND RESERVES 410,606 -100,691
-------- --------
-------- --------
1.
<PAGE>
EXHIBIT C
PURCHASE PRICE AND
INDEMNIFICATION ESCROW AGREEMENT
THIS PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT")
is dated as of June 30, 1997, by and among ZITEL LIMITED, a company incorporated
in England and Wales ("ZITEL U.K."), and ZITEL WORLD TRADE, a California
corporation ("ZITEL WORLD TRADE") (Zitel U.K. and Zitel World Trade are
hereinafter collectively referred to as "BUYER"), PALMER & WEBB SYSTEMS LTD., a
company incorporated in England and Wales ("PWUK"), REGINALD WEBB and JULIAN
PALMER, as the sole shareholders of PWUK (individually, a "PWUK SHAREHOLDER" and
collectively, the "PWUK SHAREHOLDERS"), MOEBIUS BUSINESS TRAINING LTD., a
company incorporated in England and Wales ("MOEBIUS"), and PWUK, as the sole
shareholder of Moebius (the "MOEBIUS SHAREHOLDER"), HELL SAILS B.V., a private
limited liability company organized under the laws of the Kingdom of the
Netherlands ("HELL SAILS"), and PALMER & WEBB SYSTEMS B.V., a private limited
liability company organized under the laws of the Kingdom of the Netherlands
("PWBV"), and COMERICA BANK - CALIFORNIA (the "ESCROW AGENT"). (PWUK, Moebius
and Hell Sails are sometimes hereinafter individually referred to as a "SELLER"
and collectively as the "SELLERS") (The PWUK Shareholders and the Moebius
Shareholder are sometimes hereinafter individually referred to as a
"SHAREHOLDER" and collectively as the "SHAREHOLDERS").
RECITALS
A. Pursuant to that certain Asset Purchase Agreement dated the date
hereof (the "ASSET PURCHASE AGREEMENT") between Zitel U.K., PWUK, Moebius, the
PWUK Shareholders and the Moebius Shareholder, Zitel U.K. is purchasing
substantially all of the assets, and assuming certain of the liabilities, of
PWUK and Moebius.
B. Pursuant to that certain Stock Purchase Agreement dated the date
hereof (the "STOCK PURCHASE AGREEMENT") between Zitel World Trade, Hell Sails
and PWBV, Zitel World Trade is purchasing all of the outstanding and issued
stock of PWBV from Hell Sails. The Asset Purchase Agreement and the Stock
Purchase Agreement are hereinafter collectively referred to as the "AGREEMENTS".
C. A condition precedent to the consummation of the Agreements is the
execution and delivery of this Agreement by the parties hereto. Certain
capitalized terms used in this Agreement are defined in the Agreements.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1.
<PAGE>
1. ESTABLISHMENT OF ESCROW ACCOUNTS.
1.1 PURCHASE PRICE ADJUSTMENT ESCROW. At the Closing (as defined in the
Agreements), Buyer shall deliver the amount of One Hundred Fifty Thousand
Dollars ($150,000) (the "PURCHASE PRICE ADJUSTMENT ESCROW AMOUNT") to Comerica
Bank - California (the "ESCROW AGENT") to be held in a segregated
interest-bearing account as provided for in this Section 1.1 (the "PURCHASE
PRICE ADJUSTMENT ESCROW"). On or before the fifth (5th) day following the final
determination of the Second Quarter Balance Sheets (as defined below) (such date
being hereinafter referred to as the "SETTLEMENT DATE"): (a) if the total
assets reflected in the Second Quarter Balance Sheets less the total assets
reflected in the balance sheets of PWUK, Moebius and PWBV, each dated as of
April 30, 1997 (collectively, the "APRIL 30 BALANCE SHEETS") is less than Fifty
Thousand Dollars ($50,000), no adjustment shall be made to the Purchase Price in
both Agreements and the entire Purchase Price Adjustment Escrow Amount shall be
paid to PWUK on behalf of all Sellers promptly thereafter; and (b) if the total
assets reflected in the Second Quarter Balance Sheets less the total assets
reflected in the April 30 Balance Sheets is equal to or greater than Fifty
Thousand Dollars ($50,000), the excess, together with actual interest earned
thereon paid from the Closing Date (as defined in the Agreements) to the
Settlement Date (the "PURCHASE PRICE ADJUSTMENT"), shall be deducted equally
from the Purchase Price paid under both Agreements and paid to Buyer from the
Purchase Price Adjustment Escrow and the remaining Purchase Price Adjustment
Escrow Amount, together with actual interest earned thereon, shall be paid to
PWUK on behalf of all Sellers promptly thereafter.
1.2 INDEMNIFICATION ESCROW. At the Closing, Buyer shall deliver the
amount of One Hundred Fifty Thousand Dollars ($150,000) (the "INDEMNIFICATION
ESCROW AMOUNT") to the Escrow Agent to be held in a segregated interest-bearing
account as provided for in this Section 1.2 (the "INDEMNIFICATION ESCROW"). The
Escrow Agent shall hold the Indemnification Escrow Amount until 5:00 p.m.
(Pacific Standard Time) on the first anniversary of the Closing Date (the "FIRST
ANNIVERSARY DATE") for the purpose of paying for: (a) any claims for indemnity
made by Buyer pursuant to Section 11 of the Asset Purchase Agreement or Section
8 of the Stock Purchase Agreement; and (b) any claim for a Warranty Credit made
by Buyer pursuant to Section 3.3 of the Asset Purchase Agreement. In the event
that no such claim(s) are made by Buyer by the First Anniversary Date, the
Indemnification Escrow Amount, together with any interest earned thereon, shall
be paid by the Escrow Agent to PWUK on behalf of all Sellers promptly
thereafter. In the event that Buyer makes one or more such claim(s) by the
First Anniversary Date: (a) the amount of such claim(s) shall continue to be
held in the Indemnification Escrow and the Indemnification Escrow shall be
extended after the First Anniversary Date until such time as such claim(s) is
finally resolved; and (b) the difference between the Indemnification Escrow
Amount and the amount of such claim(s), together with any interest earned
thereon, shall be paid by the Escrow Agent to PWUK on behalf of all Sellers
promptly thereafter.
1.3 METHOD OF PAYMENT. All payments under this Article 1 shall be made by
wire transfer of immediately available funds to an account designated by the
recipient not less than forty-eight (48) hours prior to the time for payment
specified herein.
2.
<PAGE>
2. SECOND QUARTER BALANCE SHEETS.
2.1 PREPARATION. Within sixty (60) days after the Closing Date, Buyer
shall deliver to PWUK on behalf of all Sellers a balance sheet of each of PWUK,
Moebius and PWBV as of July 31, 1997, prepared in accordance with generally
accepted accounting principles from the books and records of each of PWUK,
Moebius and PWBV, on a basis consistent with generally accepted accounting
principles ("GAAP") theretofore followed by each of PWUK, Moebius and PWBV in
the preparation of the April 30 Balance Sheets and in accordance with this
Section 2.1, and fairly presenting the financial position of each of PWUK,
Moebius and PWBV as of July 31, 1997. Such balance sheets shall be accompanied
by detailed schedules of the Purchased Assets and Assumed Liabilities together
with a report prepared by Buyer stating that such balance sheets have been
prepared in accordance with GAAP, on a basis consistent with the accounting
principles theretofore followed by each of PWUK, Moebius and PWBV, except as
otherwise provided in this Section 2.1 and setting forth the amount of any
adjustment to the Purchase Price under the Agreements.
2.2 RIGHT TO OBJECT. Within thirty (30) days following the delivery of
such balance sheets, only PWUK, or the Sellers' independent accountants (MP
Saunders & Company with respect to PWUK and Moebius and Van Doesburg & Partners
with respect to PWBV ("SELLERS' ACCOUNTANTS")), on behalf of any or all Sellers,
may object to any of the information contained in such balance sheets. Any such
objection shall be made in writing. PWUK and the applicable Sellers'
Accountant, on the one hand, and Buyer and Coopers & Lybrand L.L.P. ("BUYER'S
ACCOUNTANT"), on the other hand, shall use their best efforts to reasonably
resolve such dispute(s) in a timely fashion.
2.3 APPOINTMENT OF THIRD AUDITOR. In the event of a dispute or
disagreement relating to the balance sheets which Buyer and Seller(s) are unable
to resolve, any party may elect to have all such disputes or disagreements
resolved by an accounting firm of nationally recognized standing (the "THIRD
ACCOUNTING FIRM") to be mutually selected by the applicable Seller and Buyer or,
if no agreement is reached, by the applicable Sellers' Accountant and Buyer's
Accountant. The Third Accounting Firm shall make a resolution of the balance
sheet of the applicable Seller as of July 31, 1997, which shall be final and
binding for purposes of this Article 2. The Third Accounting Firm shall be
instructed to use every reasonable effort to perform its services within fifteen
(15) days of its hiring and, in any case, as soon as practicable after such
date. The fees and expenses for the services of the Third Accounting Firm shall
be shared by Buyer and the applicable Seller as follows:
The applicable Seller shall pay a percentage of such fees and expenses
equal to A/(A+B) and Buyer shall pay a percentage of such fees and expenses
equal to B/(A+B), where A is equal to the absolute value of the difference (in
dollars) between assets as finally determined by the Third Accounting Firm and
assets as reflected in the objection prepared and delivered by the applicable
Seller in accordance with Section 2.2 hereof, and B is equal to the absolute
value of the difference (in dollars) between assets as finally determined by the
Third Accounting Firm and assets as reflected in the report prepared and
delivered by Buyer in accordance with Section 2.1 hereof. As used in this
Agreement, the term "SECOND
3.
<PAGE>
QUARTER BALANCE SHEETS" shall mean the balance sheets of each of PWUK, Moebius
and PWBV as of July 31, 1997 as finally determined for purposes of this
Article 2, whether by acquiescence of Sellers in the figures supplied by Buyer
in accordance with Section 2.1 hereof, by negotiation and agreement of the
parties or by the Third Accounting Firm in accordance with this Section 2.3.
2.4 ACCESS. Buyer agrees to permit Sellers, the applicable Sellers'
Accountant, and their respective representatives, during normal business hours,
to have reasonable access to, and to examine and make copies of, all books and
records of Seller, including but not limited to, the books, records, schedules,
work papers and audit programs of Buyer and Buyer's Accountant and access to
representatives of Buyer's Accountant, which documents and access are necessary
to review the balance sheet delivered by Buyer in accordance with Section 2.1
hereof. Sellers similarly agree to permit Buyer's Accountant and their
respective representatives, during normal business hours, to have reasonable
access to any books and records of Sellers which do not constitute Purchased
Assets, in order to enable them to prepare such balance sheet.
3. REPRESENTATIONS AND WARRANTIES.
Each of Zitel U.K., Zitel World Trade, PWUK, Moebius, Hell Sails, PWBV and
Escrow Agent hereby makes the following representations and warranties to every
other party hereto, each of which is true and correct on the date hereof, shall
remain true and correct to and including the Closing Date, shall be unaffected
by any investigation heretofore or hereafter made by any other party hereto, or
any knowledge of any other party and shall survive the Closing.
3.1 CORPORATE. It is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. It has all
requisite corporate power to enter into this Agreement and the other documents
and instruments to be executed and delivered by it and to carry out the
transactions contemplated hereby and thereby.
3.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by it pursuant hereto and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by its board of directors. No other corporate act or proceeding
on the part of it or its shareholders is necessary to authorize this Agreement
or the other documents and instruments to be executed and delivered by it
pursuant hereto or the consummation of the transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and delivered, the other
documents and instruments to be executed and delivered by it pursuant hereto
will constitute, valid and binding agreements of it, enforceable in accordance
with their respective terms, except as such may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
4.
<PAGE>
4. TERMINATION. This Agreement shall terminate upon the earlier of: (a) that
date when the amount in both the Purchase Price Adjustment Escrow and the
Indemnification Escrow is Zero Dollars ($0); or (b) the written agreement of all
parties hereto.
5. RESOLUTION OF DISPUTES.
5.1 ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into pursuant
hereto or the performance by the parties of its or their terms, or any claim
that the execution and delivery of such agreements constituted a violation of
the securities laws of any state or the United States or any claim for damages
or rescission of this Agreement for fraud, misrepresentation or violation of any
such securities laws, shall be settled by binding arbitration held in San
Francisco, California, accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 5. The panel to be appointed shall consist
of one neutral arbitrator.
5.2 PROCEDURES; NO APPEAL. The arbitrator shall allow such discovery as
he or she determines appropriate under the circumstances and shall resolve the
dispute as expeditiously as practicable, and if reasonably practicable, within
one hundred twenty (120) days after the selection of the arbitrator. The
arbitrator shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have thirty (30) days thereafter to
reconsider and modify such decision if any party so requests within ten (10)
days after the decision. Thereafter, the decision of the arbitrator shall be
final, binding, and nonappealable with respect to all persons, including
(without limitation) persons who have failed or refused to participate in the
arbitration process.
5.3 AUTHORITY. The arbitrator shall have authority to award relief under
legal or equitable principles, including interim or preliminary relief, and to
allocate responsibility for the costs of the arbitration and to award recovery
of attorneys fees and expenses in such manner as is determined to be appropriate
by the arbitrator.
5.4 ENTRY OF JUDGMENT. Judgment upon the award rendered by the arbitrator
may be entered in any court having in personam and subject matter jurisdiction.
Sellers, Buyer and Shareholders hereby submit to the in personam jurisdiction of
the Federal and State courts in California, for the purpose of confirming any
such award and entering judgment thereon.
5.5 CONFIDENTIALITY. All proceedings under this Article 5, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
5.6 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 5 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith.
5.
<PAGE>
5.7 TOLLING. All applicable statues of limitation shall be tolled while
the procedures specified in this Article 5 are pending. The parties will take
such action, if any, required to effectuate such tolling.
5.8 EXPENSES. The parties agree that (subject to the discretion, in an
arbitration proceeding, of the arbitrator as set forth in Section 5.3 hereof)
the prevailing party in any action brought with respect to or to enforce any
right or remedy under this Agreement shall be entitled to recover from the other
party or parties all reasonable costs and expenses of any nature whatsoever
incurred by the prevailing party in connection with such action, including
without limitation attorneys' fees and prejudgment interest.
6. MISCELLANEOUS.
6.1 ASSIGNMENT; PARTIES IN INTEREST. Except as expressly provided herein,
the rights and obligations of a party hereunder may not be assigned, transferred
or encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Sellers hereunder. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall be deemed to
confer upon any other person any right or remedy under or by reason of this
Agreement.
6.2 GOVERNING LAW. This Agreement shall be construed and interpreted
according to the internal laws of the State of California, excluding any choice
of law rules that may direct the application of the laws of another
jurisdiction.
6.3 AMENDMENT AND MODIFICATION. This Agreement may not be amended,
modified or supplemented without the prior written consent of all parties
hereto.
6.4 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated in the Agreements (or, with respect to the Escrow Agent, to
the address indicated on the signature page hereto), by registered or certified
international courier service. If personally delivered, such communication
shall be deemed delivered upon actual receipt; if electronically transmitted
pursuant to this Section, such communication shall be deemed delivered the next
business day after transmission (and sender shall bear the burden of proof of
delivery); if sent by overnight courier pursuant to this Section, such
communication shall be deemed delivered upon receipt. Any party to this
Agreement may change its address for the purposes of this Agreement by giving
notice thereof to each other party hereto.
6.
<PAGE>
6.5 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.7 HEADINGS. The headings in this Agreement are inserted for convenience
only and shall not constitute a part hereof.
6.8 FURTHER DOCUMENTS. The parties hereto each agree to execute all other
documents and to take such other action or corporate proceedings as may be
necessary or desirable to carry out the terms hereof.
6.9 SURVIVAL. All provisions of this Agreement shall survive the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
"BUYERS"
ZITEL LIMITED
By: /s/ Jack H. King
---------------------------------------
Jack H. King, CEO
---------------------------------------
[Print Name and Title]
ZITEL WORLD TRADE
By: /s/ Jack H. King
---------------------------------------
Jack H. King, CEO
---------------------------------------
[Print Name and Title]
7.
<PAGE>
"SELLERS"
PALMER & WEBB SYSTEMS LTD.
By: /s/ Julian C. C. Palmer
---------------------------------------
Julian C. C. Palmer, Director
---------------------------------------
[Print Name and Title]
MOEBIUS BUSINESS TRAINING LTD.
By: /s/ R. H. W. Webb
---------------------------------------
R. H. W. Webb, Director
---------------------------------------
[Print Name and Title]
HELL SAILS B.V.
By: /s/ J. H. Van Bergen
---------------------------------------
J. H. Van Bergen
---------------------------------------
[Print Name and Title]
"SHAREHOLDERS"
/s/ Reginald Webb
-------------------------------------------------
REGINALD WEBB
/s/ Julian Palmer
-------------------------------------------------
JULIAN PALMER
8.
<PAGE>
PALMER & WEBB SYSTEMS, LTD.
By: /s/ R. H. W. Webb
---------------------------------------
R. H. W. Webb, Director
---------------------------------------
[Print Name and Title]
"PWBV"
PALMER & WEBB SYSTEMS B.V.
By: /s/ T. Fortgens, Managing Director
---------------------------------------
/s/ M. L. Schuurkes, Managing Director
---------------------------------------
[Print Name and Title]
9.
<PAGE>
Exhibit D
MacDONALD OATES
Solicitors
Square House The Square Petersfield Hampshire GU32 3HT
Tel: 01730 268211 Fax: 01730 261232 DX 100400 Petersfield
Zitel Limited 30 June 1997
Zitel Corporation
OPINION
Dear Sirs,
RE: PALMER AND WEBB SYSTEMS LIMITED ("PWUK")
1. We have been asked to provide a written Opinion in respect of the
incorporation, share issue, corporate authority and good standing of PWUK.
2. We understand that this letter is being delivered pursuant to an asset
purchase agreement ("the agreement") made between PWUK, Zitel Corporation, Zitel
Limited, Reginald Webb and Julian Palmer and Moebius Business Training Limited.
3. Unless otherwise defined, expressions defined in the agreement shall have
the same meanings when used in this Opinion.
4. For the purpose of this Opinion, we have examined:
(a) The Certificate of Incorporation of PWUK.
(b) The Memorandum and Articles of Association of the Company.
(c) The Statutory Books of the Company comprising Registers of:
(i) applications and allotments
(ii) share transfers
(iii) members
(iv) directors
(v) secretaries
(vi) directors' interests
(vii)mortgages and Charges
1.
<PAGE>
5. Assumptions.
For the purpose of this Opinion, we have assumed the following:
(a) The genuineness of all signatures.
(b) The authenticity and completeness of all documents submitted to us as
originals.
(c) The conformity to originals of all documents submitted to us as copies of
originals.
(d) The legal capacity, power and authority of all persons executing
agreements, instruments or documents relied upon by us.
(e) The information disclosed to us by the UK Companies Registry.
This opinion is limited to English law as currently applied by the English
Courts and is given on the basis that it will be governed and be construed and
have the effect in accordance with English law. We have made no investigation
of the laws of any country, state or jurisdiction, other than England and we
have assumed that there is nothing in the law of any other country, state or
jurisdiction which affects the Opinion expressed in this letter. In particular
this Opinion does not extend to cover matters of the laws of the State of
California.
We express no opinion as to matters of fact.
6. Opinion.
To the best of our knowledge, based upon and subject to the foregoing and
subject to the reservations referred to below, we are of the opinion that:
(a) PWUK is duly incorporated and existing as a private Limited Company
registered in England under Company No. 01648965. PWUK changed its name from
Rentonbeech Limited to Palmer and Webb Limited on lst September 1982 and to
Palmer and Webb Systems Limited on 6th March 1995. PWUK is authorised pursuant
to its Memorandum of Association to carry on its current business. PWUK is in
good standing under English law.
(b) The authorised share capital of PWUK is 3,000,000 divided into ordinary
shares of 5p each of which 2,000,000 shares have been validly issued and are
fully paid up. Reginald Webb and Julian Palmer are each the registered holders
of 1,000,000 of the 2,000,000 issued ordinary shares of 5p each in the capital
of PWUK.
(c) PWUK has power under its Memorandum of Association to carry on its business
and to enter into and perform its obligations under the Agreement.
(d) All corporate and other action required by statute or pursuant to PWUK's
Memorandum and Articles of Association to authorize the execution of the
Agreement by PWUK and the performance of its obligations thereunder has been
duly taken.
(e) The choice of Californian law to govern the Agreement is a valid and
effective choice of laws by PWUK.
2.
<PAGE>
7. Reservations and Qualifications.
This Opinion is subject to the following qualifications:
(a) A certificate, documentation, notification, opinion or the like might be
held by the English Courts not to be conclusive if it can be shown to have an
unreasonable or arbitrary basis or in the event of a manifest error.
(b) The English Courts may have discretion as to the enforceability of certain
terms of restrictive covenants.
This Opinion is addressed to and is for the benefit solely of Zitel Limited and
Zitel Corporation in connection with the transactions contemplated by the
agreement. This Opinion may not be relied on by any other person for any other
purpose, nor may it be disclosed to any other person (other than as may be
required by any regulatory authority for the time being having jurisdiction over
Zitel Limited and Zitel Corporation) without our prior written consent.
Yours faithfully,
/s/ Macdonald Oates
MacDonald Oates
3.
<PAGE>
MacDONALD OATES
Solicitors
Square House The Square Petersfield Hampshire GU32 3HT
Tel: 01730 268211 Fax: 01730 261232 DX 100400 Petersfield
Zitel Limited 30 June 1997
Zitel Corporation
OPINION
Dear Sirs,
RE: MOEBIUS BUSINESS TRAINING LIMITED ("MOEBIUS")
1. We have been asked to provide a written Opinion in respect of the
incorporation, share issue, corporate authority and good standing of Moebius.
2. We understand that this letter is being delivered pursuant to an asset
purchase agreement ("the agreement") made between PWUK, Zitel Corporation, Zitel
Limited, Reginald Webb and Julian Palmer and Moebius Business Training Limited.
3. Unless otherwise defined, expressions defined in the agreement shall have
the same meanings when used in this Opinion.
4. For the purpose of this Opinion, we have examined:
(a) The Certificate of Incorporation of Moebius.
(b) The Memorandum and Articles of Association of the Company.
(c) The Statutory Books of the Company comprising Registers of:
(i) applications and allotments
(ii) share transfers
(iii) members
(iv) directors
(v) secretaries
(vi) directors' interests
(vii) mortgages and Charges
1.
<PAGE>
5. Assumptions.
For the purpose of this Opinion, we have assumed the following:
(a) The genuineness of all signatures.
(b) The authenticity and completeness of all documents submitted to us as
originals.
(c) The conformity to originals of all documents submitted to us as copies of
originals.
(d) The legal capacity, power and authority of all persons executing
agreements, instruments or documents relied upon by us.
(e) The information disclosed to us by the UK Companies Registry.
This Opinion is limited to English law as currently applied by the English
Courts and is given on the basis that it will be governed and be construed and
have the effect in accordance with English law. We have made no investigation
of the laws of any country, state or jurisdiction, other than England and we
have assumed that there is nothing in the law of any other country, state or
jurisdiction which affects the Opinion expressed in this letter. In particular
this Opinion does not extend to cover matters of the laws of the State of
California.
We express no opinion as to matters of fact.
6. Opinion.
To the best of our knowledge, based upon and subject to the foregoing and
subject to the reservations referred to below, we are of the opinion that:
(a) Moebius is duly incorporated and existing as a private Limited Company
registered in England under Company No. 2833019. Moebius was originally
incorporated with the name Proofreport Trading Limited but changed its name to
Moebius Business Trading Limited on 19th November 1993. Moebius is authorised
pursuant to its Memorandum of Association to carry on its current business.
Moebius is in good standing under English law.
(b) The authorised share capital of Moebius is 1,000 divided into ordinary
shares of 1 (pound) each of which 2 shares have been validly issued and are
fully paid up. Palmer and Webb Systems Limited are the registered holders of
the 2 issued ordinary shares of 1 (pound) each.
(c) Moebius has power under its Memorandum of Association to carry on its
business and to enter into and perform its obligations under the Agreement.
(d) All corporate and other action required by statute or pursuant to Moebius'
Memorandum and Articles of Association to authorise the execution of the
Agreement by Moebius and the performance of its obligations thereunder has been
duly taken.
(e) The choice of Californian law to govern the Agreement is and effective
choice of laws by Moebius.
2.
<PAGE>
7. Reservations and Qualifications.
This opinion is subject to the following qualifications:
(a) A certificate, documentation, notification, opinion or the like might be
held by the English Courts not to be conclusive if it can be shown to have an
unreasonable or arbitrary basis or in the event of a manifest error.
(b) The English Courts may have discretion as to the enforceability of certain
terms of restrictive covenants.
This Opinion is addressed to and is for the benefit solely of Zitel Limited and
Zitel Corporation in connection with the transactions contemplated by the
agreement. This Opinion may not be relied on by any other person for any other
purpose, nor may it be disclosed to any other person (other than as may be
required by any regulatory authority for the time being having jurisdiction over
Zitel Limited and Zitel Corporation) without our prior written consent.
Yours faithfully,
/s/ MacDonald Oates
MacDonald Oates
3.
<PAGE>
Exhibit E
ESCROW AGREEMENT
INSTITUTIONAL TRUST DEPARTMENT
This Agreement made this 30th day of June 1997 between the parties listed on
Exhibit Attached hereto, a corporation (herein called the "Depositor"), and
parties listed on Exhibit A attached (herein called the "Other Party") and
COMERICA BANK, a California banking corporation (herein called the "Agent")
whose address is 250 Lytton Avenue, Palo Alto, CA 94301.
WITNESSETH
The Agent acknowledges receipt in Escrow from Depositor of the following:
$300,000.00 (herein called "Property").
1. The Agent is hereby authorized and instructed to either:
a. Deliver the Property to the Other Party in strict compliance with the
following Condition(s), or,
b. Failing strict compliance with the Condition(s), re-deliver the
Property to Depositor; whereupon in either event, Agent's duties and
liabilities in connection with this Escrow shall terminate.
c. The Conditions are: See the Purchase Price and Indemnification Escrow
Agreement attached as Exhibit B hereto.
2. The duties and obligations of Agent hereunder shall be determined solely by
the express provision of this Agreement. Agent shall not be liable or
responsible for any act done, or step taken or omitted by it, or any
mistake of fact or law, or for anything which it may do or refrain from
doing, except for its gross negligence, willful default or failure in the
performance of any obligation imposed upon it hereunder.
Agent is authorized to act in reliance upon the sufficiency, correctness,
genuineness or validity of any instrument or document or other writing
submitted to it hereunder, and shall have no liability with respect to said
matters.
3. Any funds held by Agent hereunder shall be held and invested by Agent as
specified in written instructions, Agent may deposit said funds in an
interest bearing deposit account with other similar funds. All proxies
will be voted by the Agent. Agent is not obligated to render any
statements or notices of non-performance hereunder to any party hereto but
may in its discretion inform any party hereto, or his authorized
representative, of any matters pertaining to this Escrow.
Rule 14b-1(c) of the Securities and Exchange Commission enables
corporations to learn the identity of their security holders whose
securities are held by the Bank and registered in "nominee" or "street"
name unless the beneficial owner specifically indicates its objection to
such disclosure. The Depositor hereby indicates its objection to
disclosure by the Bank of Depositor's name, address and security position
to all companies whose securities are held in this Account and are
registered in "nominee" or "street" name.
1.
<PAGE>
4. Agent's fee in the amount of 50 basis points shall be automatically
deducted from the Escrow. The Depositor and Other Party agree, jointly and
severally, to indemnify and hold harmless the Agent from any costs,
damages, expenses or claims, including attorney's fees, which Agent may
incur or sustain as a result of or arising out of this Escrow Agreement or
Agent's duties relating thereto, and will apply them on demand, and the
Agent is hereby given a lien upon, and security interest in, the Property
deposited in this escrow to secure Agent's right to payment or
reimbursement.
Agent shall be reimbursed $25 for all wire or check disbursements and
actual cost for any termination expenses made or incurred hereunder, and if
it shall be required to perform extraordinary services not contemplated
herein, it shall receive reasonable additional compensation therefor.
Agent shall not be required to institute or maintain litigation unless
indemnified to its satisfaction for its counsel fees, costs, disbursements
and all other costs, expenses and liabilities to which it may in its
judgment be subjected in connection with such action.
5. In the event of any disagreement or the presentation of adverse claims or
demands in connection with the Property, Agent shall, at its option, be
entitled to refuse to comply with any claims or demands during the
continuance of such disagreement and may refrain from delivering any item
affected thereby, and in so doing, Agent shall not become liable to
Depositor or Other Party, or any of them, or to any other person, due to
its failure to comply with any such adverse claim or demand. Agent shall
be entitled to continue, without liability, to refrain and refuse to act:
a. Until all the rights of the adverse claimants have been finally
adjudicated by a court having jurisdiction of the parties and the
items affected thereby, after which time the Agent shall be entitled
to act in conformity with such adjudication; or
b. Until all differences shall have been adjusted by agreement and Agent
shall have been notified thereof and shall have been directed in
writing, signed jointly or in counterpart by Depositor and Other Party
and by all persons making adverse claims or demands, at which time
agent shall be protected in acting in compliance therewith.
The parties agree that the Agent may seek adjudication of any adverse claim
or demands in an appropriate County Court, or the United States Federal
District Court, agree to the jurisdiction of either of said Courts over
their persons as well as the Property, waive personal service of any
process, and agree that service of process by certified or registered mail,
return receipt requested, to the address set forth below each party's
signature to this Agreement shall constitute adequate service.
6. The entire agreement of the parties is contained herein; any change in
terms or conditions herein may only be made in writing signed by all
parties hereto. Agent shall not be charged with knowledge of any fact,
including but not limited to performance or non-performance of any
Condition, unless it has actually received written notice hereof from one
of the parties by certified or registered mail, return receipt requested,
addressed to Agent's address shown at the top of this Agreement, such
notice clearly referring to this Agreement.
7. This Escrow Agreement shall be deemed to have been made under and shall be
governed by the laws of the State of California in all respects, including
matters of construction, validity and performances.
2.
<PAGE>
8. Agent may consult with legal counsel to be selected and employed by it and
shall be fully protected with respect to any action or inaction under this
Agreement taken or suffered in good faith by Agent in accordance with the
opinion of such counsel.
9. Agent may resign as such following the giving of thirty (30) days prior
written notice to the other parties hereto. Similarly, Agent may be
removed and replaced following the giving of thirty (30) days prior written
notice to Agent by the other parties hereto. In either event, the duties
of the Agent shall terminate thirty (30) days after the date of such notice
(or at such earlier date as may be manually agreeable); and Agent shall
then delivery the balance of the escrow deposit then in its possession to a
successor escrow agent as shall be appointed by Other Party hereto, as
evidenced by a written notice filed with Agent, or if no successor escrow
agent has been so appointed, the then acting Agent shall deliver the
balance of the escrow deposit then in its possession to (indicate
disposition of escrow deposit) ____________________________________________.
10. It is the intention of the parties hereto that Agent shall never be
required to use or advance its own funds or otherwise incur personal
financial liability in the performance of any of its duties or the exercise
of any of its rights and powers hereunder.
11. No waiver nor any past agreement or condition hereunder by any party hereto
shall operate as a continuing waiver of any agreement or condition under
this Agreement. Each party shall have the right to waive and/or nullify,
in writing, any condition or term of this Agreement which is for its or his
benefit.
12. If any provision or clause in this Agreement or application thereof to any
person or circumstances is held invalid or unenforceable, such invalidity
or unenforceability shall not affect other provisions or applications of
this Agreement which can be given effect without the invalid or
unenforceable provision or application, and to this end the provisions of
this Agreement are declared to be severable.
See the signature page attached as Exhibit C hereto.
DEPOSITOR: OTHER PARTY:
--------------------- -------------------------------
By: By:
---------------------------- ----------------------------------------
(Name & Title) (Name & Title)
- ------------------------------- -------------------------------------------
(Signature) (Signature)
- ------------------------------- -------------------------------------------
(Date) (Date)
- ------------------------------- -------------------------------------------
(Address) (Address)
3.
<PAGE>
COMERICA BANK:
By: /s/ illegible
---------------------------------
(Name & Title)
- -------------------------------
(Signature)
- -------------------------------
(Date)
4.
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
PARTIES TO ESCROW AGREEMENT:
the "Depositor":
ZITEL LIMITED, a company incorporated in England and Wales, and
ZITEL WORLD TRADE, a California corporation
the "Other Party":
PALMER & WEBB SYSTEMS LTD., a company incorporated in England and Wales,
MOEBIUS BUSINESS TRAINING LTD., a company incorporated in England and Wales,
HELL SAIS B.V., a private limited liability company organized under the laws of
the Kingdom of the Netherlands,
PALMER & WEBB SYSTEMS B.V., a private limited liability company organized under
the laws of the Kingdom of the Netherlands, and
REGINALD WEBB AND JULIAN PALMER, individually
1.
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
Purchase Price and Indemnification Escrow Agreement
(attached)
1.
<PAGE>
2 EXHIBIT C TO ESCROW AGREEMENT
SIGNATURE PAGE TO ESCROW AGREEMENT:
THE "DEPOSITOR"
ZITEL LIMITED
By: /s/ Jack H. King
--------------------------------------
Jack H. King, CEO
--------------------------------------
[Print Name and Title]
ZITEL WORLD TRADE
By: /s/ Jack H. King
--------------------------------------
Jack H. King, CEO
--------------------------------------
[Print Name and Title]
THE "OTHER PARTY"
PALMER & WEBB SYSTEMS LTD.
By: /s/ Julian C. C. Palmer
--------------------------------------
Julian C. C. Palmer, Director
--------------------------------------
[Print Name and Title]
MOEBIUS BUSINESS TRAINING LTD.
By: /s/ R. H. W. Webb
--------------------------------------
R. H. W. Webb, Director
--------------------------------------
[Print Name and Title]
HELL SAILS B.V.
1.
<PAGE>
By: /s/ J. H. Van Bergen
--------------------------------------
J. H. Van Bergen
--------------------------------------
[Print Name and Title]
PALMER & WEBB SYSTEMS B.V.
By: /s/ T. Fortgens, Managing Director
--------------------------------------
/s/ M. L.Schuurkes, Managing Director
--------------------------------------
[Print Name and Title]
/s/ Reginald Webb
-------------------------------------------
REGINALD WEBB
/s/ Julian Palmer
-------------------------------------------
JULIAN PALMER
2.
<PAGE>
Exhibit F
DATED June 30, 1997
- --------------------------------------------------------------------------------
ZITEL CORPORATION
- and -
ZITEL WORLD TRADE
- and -
ZITEL LIMITED
- and -
REGINALD HARRY WEBB
- --------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------
TAYLOR JOYNSON GARRETT
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y 0DX
Tel No: 0171-353 1234
Fax No: 0171-936 2666
Ref: AIR
<PAGE>
INDEX
CLAUSE NO. HEADING
1. Definitions and Interpretations
2. Period of Employment
3. Duties
4. Place of Employment
5. Remuneration and Benefits
6. Pension
7. Holidays
8. Sickness or Injury
9. Confidential Information and Trade Secrets
10. Inventions
11. Dismissal
12. Suspension
13. Grievance and Disciplinary Procedure
14. Duties upon Termination
15. Restrictions
16. Restrictive Trade Practices Act 1976
17. Notices
18. Miscellaneous
19. Law and Jurisdiction
Schedule 1 1990 Zitel Corporation Stock Option Plan
Schedule 2 Holiday Rules
<PAGE>
THIS AGREEMENT is made the 30th day of June, 1997
BETWEEN
(1) ZITEL CORPORATION, a California corporation of 47211 Bayside Parkway,
Fremont, California 94538, USA ("Zitel"); and
(2) ZITEL WORLD TRADE, a California corporation of 47211 Bayside Parkway,
Fremont, California 94538 USA ("ZWT"); and
(3) ZITEL LIMITED whose registered office is at Carmelite, 50 Victoria
Embankment, Blackfriars, London EC4Y 0DX (the "Company"); and
(4) REGINALD HARRY WEBB of Horseshoe Hollow, Claremont Lane, Esher, Surrey
KT10 9DP (the "Executive").
AGREED TERMS
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this agreement including the schedule the following expressions shall
have the following meanings:
"ASSOCIATED COMPANY" means any holding or intermediate holding company of
the Company and any other company over which the Company (either alone or
in conjunction with any connected person) has control for the time being
within the meaning of section 840 of the ICTA;
"BOARD" means the board of directors of the Company from time to time;
"BUSINESS DAY" means any day other than a Saturday, Sunday or any other
day which is a public holiday in the place from which the notice in
question was sent;
"EFFECTIVE DATE" means 30 June 1997;
"EMPLOYMENT" means the employment of the Executive by the Company;
"ICTA" means the Income and Corporation Taxes Act 1988;
"TERMINATION DATE" means the date on which the Executive's employment
under this agreement terminates.
1.2 In this agreement and the schedules:
(a) reference to any statute or statutory provision includes a reference
to that statute or statutory provision as amended, extended or
re-enacted and to any regulation, order, instrument or subordinate
legislation under the relevant statute or statutory provision;
<PAGE>
(b) reference to the singular includes a reference to the plural and
vice versa;
(c) reference to any clause, sub-clause or schedule is to a clause,
sub-clause or schedule (as the case may be) of or to this agreement;
(d) reference to any gender includes a reference to all other genders; and
(e) references to persons include bodies corporate, unincorporated
associations and partnerships and any reference to any party who is
an individual is also deemed to include their respective legal
personal representative(s).
2. PERIOD OF EMPLOYMENT
2.1 The Company shall employ the Executive as a Director of the Company and
President of ZWT and of any other Associated Company as may be agreed.
2.2 The Employment shall begin on the Effective Date and shall continue until
terminated in accordance with the terms of this agreement.
2.3 There is no employment with a previous employer other than employment
with Palmer & Webb Systems Limited which counts as part of the
Executive's continuous period of employment for the purposes of the
Employment Rights Act 1996 which began on 1 February 1984.
2.4 In order to terminate the employment under this contract, the Employee is
required to give to the Employer, and the Employer is required to give to
the Employee, the following periods of written notice:
(a) up to 4 years
continuous employment - 1 month's notice
(b) from 5 years continuous - 1 week's notice for every completed year
employment and up to of continuous employment
11 years continuous
employment
(c) more than 12 years
continuous employment - 3 months' notice
2.5 If written notice is given by the Executive or by the Company to
terminate the Employment during the notice period, the Company may
notwithstanding any other terms of this agreement but subject to
sub-clause 2.6:
(a) require the Executive to continue to perform such duties as the
Board or the Chief Executive Officer of Zitel may direct; or
(b) require the Executive to perform no duties,
and in each case the Company will continue to pay the Executive salary
and provide all other benefits arising under this agreement during the
period of notice.
-2-
<PAGE>
2.6 If written notice is given by the Executive or by the Company to
terminate the Employment the Company may require that the Executive shall
accept a payment of salary in lieu of notice and the Employment shall
terminate on the Termination Date but without prejudice to any other
claim the Company or the Executive may have against the other.
2.7 If written notice is given by the Company to terminate the Employment
otherwise than in accordance with clause 11 within 4 years of the
Effective Date, the Executive shall be entitled to receive a severance
payment equivalent to 18 months net basic salary less the basic salary
arising during the period of notice. For the avoidance of doubt, such
payment shall not include any bonus, profit sharing or other benefits
arising under this agreement. All details of which shall be contained in
a compromise agreement to be drafted at that time and restating the
restrictions binding on the Executive. Zitel hereby guarantees to the
Executive that if the Company, for any reason, shall fail to make the
severance payment pursuant to this clause, then Zitel shall promptly make
such severance payment to the Executive.
3. DUTIES
The Executive shall:
(a) exercise the powers and functions and perform the duties resigned to
him from time to time by or under the authority of the Board in such
manner as shall be specified by or under the authority of the Board;
(b) report to the Chief Executive Officer of Zitel as and when required
or to such other person as the Board may direct;
(c) have particular responsibility for ensuring that the Company
achieves in each year the objectives as set out in the Company's
annual budget;
(d) devote the whole of his time attention and abilities to the
performance of his duties during the Company's normal business hours
of 9.00 a.m. to 5.00 p.m. Monday to Friday inclusive and at such
other times as may reasonably be necessary in the interests of the
Company and if requested any Associate Company (unless prevented by
illness or other incapacity and except as may from time to time be
permitted or required by the Board);
(e) well and faithfully serve the Company and if requested any
Associated Company if directed to do so by the Board or the Chief
Executive Officer of Zitel and use his best endeavours to promote
and protect the interests of the Company and any Associated Company;
and undertakes not to harm the reputation of the Company or any
Associated Company; and
(f) when requested to do so, fully and promptly give the Board such
explanations, information and assistance as it may require relating
to the transactions and affairs of the Company and any Associated
Company.
4. PLACE OF EMPLOYMENT
The Executive's place of employment shall be at the offices of the
Company at Fountain House, Cleave Road, Leatherhead, Surrey KT22 7LX or
at such other place within the United Kingdom
-3-
<PAGE>
as the Company may reasonably require. If the Company requires the
Executive to change his residence the Company will reimburse such removal
and other incidental expenses as the Company considers fair and
reasonable in the circumstances. In addition, the Executive shall travel
to such parts of the world as the Board may direct or authorise. If the
Company requires the Executive to work outside the United Kingdom for a
period of more than one month it will provide him with written details of
any terms and conditions which may apply to that work and his return to
the United Kingdom.
5. REMUNERATION AND BENEFIT
5.1 (a) The Executive shall be paid a base salary at the rate of 125,000
(pounds) per annum, or at such other rate as may be agreed in
writing for the proper performance of his duties. This salary
shall accrue from day to day and shall be payable by equal monthly
installments in arrears on the last Wednesday of each month and
shall include any sums receivable as director's fees in respect
of the Company and any Associated Company.
(b) The salary shall be reviewed by the Chief Executive Officer of
Zitel on each anniversary of the date hereof.
5.2 Provided that the Executive remains at each date upon which the options
are to be granted an employee of the Company, the Executive shall be
granted the following options:
(a) At the Effective Date nonstatutory options to purchase 50,000
shares of the common stock ("Zitel Common Stock") of Zitel issued
under, and to be governed by the terms of, the Zitel Corporation
1990 Stock Option Plan set out in schedule 1. The exercise price
of such options shall be the closing price of Zitel Common Stock
on the Effective Date, as reported in the Wall Street Journal
(the "Journal"). Such options shall have a term of not more than
ten years measured from the grant date and twenty-five percent
(25%) of the option shares shall vest on each anniversary of the
grant date. If the Executive is terminated for any reason other
than pursuant to clause 11 herein all options to be offered
pursuant to this sub-clause 5.2(a) shall accelerate and shall
vest immediately upon such termination.
(b) 45 days after 30 September 1998, 30 September 1999, 30 September
2000 and 30 September 2001, in the event that the actual
performance ("Actual Performance") of ZWT reaches benchmark
performance goals to be set during ZWT's annual budget process
(the "Target") as of the preceding fiscal year-end date,
additional non-statutory stock options (the "Performance NSOs")
to purchase 10,000 shares of Zitel Common Stock to be issued
under and governed by the terms of the Zitel Corporation 1990
Stock Option Plan. The shares subject to the Performance NSOs
shall be increased by 300 shares of Zitel Common Stock (up to a
maximum of an additional 10,000 shares of Zitel Common Stock) for
each one percent (1%) by which Actual Performance exceeds the
Target. The Performance NSOs shall be decreased by 300 shares of
Zitel Common Stock (down to a minimum of zero shares of Zitel
Common Stock) for each one percent (1%) by which Actual
Performance is less than the Target. The price of the
Performance NSOs shall be the closing price of Zitel Common Stock
on the grant date of such Performance NSOs, as reported in the
Journal.
-4-
<PAGE>
(c) In the event of an Exit Event (as defined below), the right to
purchase shares of common stock of ZWT ("ZWT Common Stock")
immediately prior to such Exit Event equal to x% of the value of
ZWT on the date of the Exit Event (the "ZWT Common Stock Right"),
where x = 2% of the ZWT Common Stock held by Parent immediately
prior to such Exit Event times 100% of the fair market value, as
reflected in the Exit Event, of ZWT on the date of the Exit Event
minus $12,500,000. Twenty-five percent (25%) of the ZWT Common
Stock Right shall vest on each anniversary of the date hereof.
However, if an Exit Event, as defined in sub-clause (ii) or
(iii), takes place prior to the fourth anniversary of the date
hereof, all the ZWT Common Stock Right shall accelerate and
become immediately vested. The exercise price of the ZWT Common
Stock Right shall be the par value of such ZWT Common Stock,
which shall be $0.01 per share. "Exit Event" shall mean: (i)
the closing of the sale of ZWT Common Stock in a firm commitment,
underwritten public offering registered under the United States
Securities Act of 1933, as amended ("the Act"), (ii) the sale of
substantially all of the share capital of ZWT, or (iii) the sale
of substantially all of the assets of ZWT. Prior to the closing
of an underwritten public offering of ZWT Common Stock, ZWT and
the Executive shall enter into a Registration Rights Agreement
with respect to the ZWT Common Stock, which shall provide for
"piggy-back" registration rights and at least one demand
registration right.
Zitel represents that all of the Zitel Common Stock which are subject to
options under Section 5.2(a) and (b) above are currently, and will be at
the time of grant, registered on Form S-8 with the Securities and
Exchange Commission under the Act.
5.3 The Executive shall also receive the following benefits:
(a) the Executive shall be entitled to be a member of the Company's
WPA Health Insurance medical expenses scheme or such other medical
expenses scheme as the Company may make available from time to
time provided the Executive meets the normal underwriting
requirements of that scheme and is accepted at normal rates of
premium;
(b) the Executive shall be entitled to the benefit of life insurance
cover of a sum insured equal to three times the Executive's
salary provided the Executive meets the normal underwriting
requirements of the scheme and is accepted at normal rates of
premium.
Details of these benefits may be obtained from the Company secretary.
6. PENSION
6.1 A contracting-out certificate is not in force in respect of the
Executive's employment.
6.2 Subject to any applicable Inland Revenue requirements and overriding
legislation, the Company shall contribute to such pension arrangement as
the Executive nominates and the Company approves (such approval not to be
unreasonably withheld) at the rate of 7.2% of the basic salary from time
to time payable to the Executive under sub-clause 5.1(a).
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7. HOLIDAYS
7.1 The Executive shall in addition to normal statutory and bank holidays be
entitled to 5 weeks' (25 working days') paid holiday during each year
commencing on 1 January and pro rata for any shorter period. The Company
shall endeavour to meet the Executive's reasonable requests as to time
and duration of holidays but it reserves the right to arrange holidays in
its interest. The Executive's entitlement to holidays and to holiday pay
shall be subject to the rules of the Company from time to time in force
relating to holiday entitlement and holiday pay.
7.2 The Company's current holiday rules are set out in schedule 2.
8. SICKNESS OR INJURY
PAYMENT
8.1 If, in the opinion of the Board, the Executive is unable to perform his
duties properly for a period, or periods, not exceeding six months
(whether or not any days not worked are normal working days) in the
aggregate in any period of twelve months (the "Aggregate Period") by
reason of illness (including mental illness), accident or any other cause
beyond the control of the Executive, then he shall be entitled during
that time to receive his full remuneration. Thereafter any payment shall
be subject to, and in accordance with, the terms of the Company's
permanent health insurance scheme.
PROCEDURES
8.2 If the Executive is prevented by any of the factors mentioned in
sub-clause 8.1 from performing his duties properly he shall report this
fact promptly to the Company's personnel department by telephone on the
first morning of absence or as soon as reasonably practical thereafter.
If the Executive is absent for more than three consecutive working days
he must complete a self-certification sickness form on his return and
deliver it to the personnel department. If the absence continues for
five or more working days he shall provide an appropriate medical
certificate from his doctor in the manner required by the rules of the
Company. Thereafter the Executive should submit a further appropriate
medical certificate at weekly intervals during the whole period of
absence.
8.3 Payment of any remuneration to the Executive under sub-clause 8.1 is
conditional upon the prompt compliance by the Executive of his
obligations under sub-clauses 8.2 and 8.5 as well as with any other rules
of the Company from time to time in force relating to sickness or injury.
SSP
8.4 Statutory sick pay ("SSP") will be paid by the Company in accordance with
the legislation in force at the time of absence. Any payment of
remuneration under sub-clause 8.1 for a day of absence will discharge its
obligation to pay SSP for that day.
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MEDICAL EXAMINATION
8.5 The Company may at any time require the Executive to be medically
examined at its expense by a medical practitioner nominated by it and for
a report of that examination to be provided to the Board.
TERMINATION
8.6 If, in the opinion of the Board, the Executive is or has been unable to
perform his duties properly for a period or periods exceeding the
Aggregate Period or if the Board at any time has reason to believe that
because of any such cause the Executive may be unable properly to perform
his duties for a continuous period of six months or more, the Company
shall be entitled at any time to give to the Executive not fewer than six
months' notice of termination of the Employment less the aggregate of any
periods during which he has been paid salary under sub-clause 8.1 during
the twelve months prior to the giving of such notice provided always that
notwithstanding that the Executive is entitled to benefit under the terms
of the Company's permanent health insurance scheme, the Company may
terminate the Employment by giving of not fewer than six months' notice
of termination of the Employment less the aggregate of any periods during
which he has been paid salary under sub-clause 8.1 during the twelve
months prior to the giving of such notice.
9. CONFIDENTIAL INFORMATION AND TRADE SECRETS
9.1 The Executive acknowledges that in the ordinary course of the Employment
he will be exposed to information about the Company's business and that
of any Associated Company and that of its or their suppliers and
customers which amounts to a trade secret, is confidential or is
commercially sensitive and which may not be readily available to others
engaged in a similar business to that of the Company or any Associated
Company or to the general public and which if disclosed may cause harm to
the Company's business or that of any Associated Company.
9.2 The Executive shall keep secret and shall not at any time either during
the Employment, or after its termination, for whatever reason, use
communicate or reveal to any person for the Executive's own or another's
benefit, any secret or confidential information concerning the business,
finances or organization of the Company or any Associated Company, its or
their systems, techniques or know-how or its or their suppliers or
customers which shall have come to his knowledge during the course of the
Employment. The Executive shall also use his best endeavors to prevent
the publication, disclosure or use of any such information.
9.3 For the purposes of this clause and by way of illustration and not
limitation information will prima facie be secret and confidential if it
is not in the public domain and relates to:
(a) raw materials;
(b) research and developments;
(c) formulae, formulations;
(d) methods of treatment, processing, manufacture or production, process
and production controls including quality controls;
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(e) suppliers and their production and delivery capabilities;
(f) customers and details of their particular requirements;
(g) costings, profit margins, discounts, rebates and other financial
information;
(h) marketing strategies and tactics;
(i) current activities and current and future plans relating to all or
any of development, production or sales including the timing of all
or any such matters;
(j) the development of new products;
(k) production or design secrets; or
(l) technical design or specifications of the Company's or any
Associated Company's products;
(m) pricing, credit policies, credit procedures, payment policies,
payment procedures and systems for the same whether of the Company
or, any Associated Company or of any client customer supplier of the
Company or any Associated Company.
9.4 The restriction contained in this clause shall not apply to:
(a) any disclosure or use authorised by the Board or required in the
ordinary and proper course of the Employment or as required by a
court of competent jurisdiction or tribunal or as required by an
appropriate regulatory authority; or
(b) any information which the Executive can demonstrate was known to the
Executive prior to the commencement of his employment by the Company
or is in the public domain otherwise than as a result of a breach of
this clause or breach of an equivalent provision by any other
employee of the Company.
9.5 The Executive hereby covenants with the Company, which for the purposes
of this clause shall act as trustee for each Associated Company in
relation to each Associated Company, in terms of clauses 9.1, 9.2, 9.3
and 9.4 as if every reference therein to the Company was a reference to
an Associated Company.
9.6 If a court of competent jurisdiction should declare any provision
contained in clauses 9.1, 9.2, 9.3, 9.4 and 9.5 unenforceable or void
as unreasonable with respect to time or geographical area as for any
other reason the provisions of clauses 9.1, 9.2, 9.3, 9.4 and 9.5
shall remain in effect for whatever reduced time period and whatever
reduced geographical area or whatever other change as may be necessary
to make such provisions valid and effective.
10. INVENTIONS
10.1 If the Executive shall alone or jointly make or conceive an invention,
discovery, design, improvement, trade mark or copyright work (together
called "the invention") relating to or suitable for or capable of
being used in the business of the Company or any Associated Company
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during his employment he shall promptly disclose to the Company full
details of the invention to enable the Company to assess the invention
and to determine whether under the applicable law the invention is the
property of the Company.
10.2 If the invention is the property of the Company then either (i) the
Company shall hold it on trust for Zitel and shall assign the same to
Zitel, on request, or (ii) where vested in the Executive the Executive
shall hold it on trust for the Company and the Company shall hold it
on trust for Zitel and the Executive shall at the request and expense
of the Company assign the same to Zitel and do all things necessary to
enable Zitel to obtain the worldwide benefit of the invention and to
secure patent or other appropriate forms of protection for the
invention.
10.3 If the invention is not the property of the Company, Zitel shall have
the right to acquire the Executive's rights therein within 3 months
after disclosure pursuant to sub-clause 10.1 on fair and reasonable
terms to be agreed or settled by a single arbitrator and the Employee
shall hold the invention in trust for Zitel on such terms.
10.4 The Executive shall not except as provided in this clause or as may be
necessary in the course of his employment disclose or make use of any
invention which is the property of or is held on trust for the Company
or Zitel or (unless and until Zitel's right under sub-clause 10.3
shall have expired) any other invention subject to this clause.
10.5 The Executive hereby irrevocably appoints the Company and Zitel as his
attorney with full power in his name to execute or sign any document
and do any other thing which the Company or Zitel may consider
desirable for the purpose of giving effect to the provisions of this
clause 10 and agrees to notify and confirm whatever the Company may
lawfully do as his attorney.
10.6 The Employee undertakes that neither he nor his successors in title
will at any time object to the exploitation of any invention (with or
without modification) by the Company or Zitel in any part of the world
or any omission by the Company or Zitel to indicate in any part of the
world the author of the invention.
11. DISMISSAL
Notwithstanding the provisions of clause 2, the Company shall be entitled
to terminate the Employment summarily by oral or written notice and
without any payment in lieu of notice (but without prejudice to the
rights and remedies of the Company for any breach of this agreement and
to the Executive's continuing obligations under this agreement) in any of
the following events:
(a) if the Executive shall commit any serious or wilful or persistent
breach or breaches of any express or implied term of his
employment;
(b) if the Board shall have reason to believe that the Executive has
committed any criminal offence (other than minor motoring
offenses) or been guilty of any dishonesty or serious misconduct
in each case whether during the performance of his duties or
otherwise which in the opinion of the Board renders the Executive
unfit to continue as an executive of the Company or which would be
likely adversely to prejudice the reputation or interests of the
Company;
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(c) if the Executive shall petition for a bankruptcy order or have a
bankrupt order made against him or take the benefit of any
legislation for the relief of insolvent debtors or make amy
composition with his creditors or shall become prohibited by law
from being a director or taking part in the management of the
Company whether under the Company Directors Disqualification Act
1986 or otherwise;
(d) if, and without prejudice to the generality of the terms of this
clause 11, the Executive shall wilfully abuse or misuse the
Company's computer system, or any password relating to that
computer system or shall gain access to any file or load any
information or program contrary to the Company's interests or
procedures.
12. SUSPENSION
If the Board has reason to suspect that any one or more of the events set
out in sub-clauses 11(a) to 11(d) (inclusive) has or have occurred (or if
the circumstances in sub-clause 8.6 appear to exist) the Board may
suspend the Executive on such terms as to payment of salary and other
benefits or otherwise as the Board may think fit pending further
investigations PROVIDED THAT in the even of any such suspension being
made the Executive shall have the right to terminate his employment
forthwith by notice in writing to the Company but without any claim for
compensation.
13. GRIEVANCE AND DISCIPLINARY PROCEDURE
13.1 If the Executive has any grievance relating to the Employment he
should raise the matter with the Chief Executive Officer of Zitel
orally or in writing and the matter will be discussed with the
Executive. If the matter is not then settled the Executive may
submit his grievance to the Board which shall as soon as possible
consider such grievance at a meeting of the Board and will give the
Executive a written response as soon as practicable thereafter.
13.2 The Company accepts that it is in the interests of good relations
with its staff to ensure that there is a fair and proper
disciplinary procedure.
Any Executive who departs from normally expected standards or who
violates the Company's rules will be liable to disciplinary action.
(a) In the following circumstances, which are intended by way of
example only and not by way of a complete list, the Executive will
be dismissed summarily by written notice to operate from the date
of such notice and the Executive will not be entitled to any
further payment under his terms of employment except such sum as
has accrued and is due at the date of termination:
(i) refusing to carry out any proper direction given in the course
of the employment
(ii) improperly divulging to any third party any information
regarding the Company, its employees or any person with whom
the Company deals
(iii) committing any act or divulging any information which is
contrary to or damages the interests or objectives of the
Company
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(iv) commit may criminal offence which in the opinion of the
Company makes the Executive unsuitable for the type of work
that the Executive is employed to do or may reasonably be
expected to do or which makes him/her unacceptable to other
employees
(v) dishonest conduct
(vi) violent, obscene or abusive behavior towards other employees
or officers of the Company
(vii) serious or wilful breach of the Executive's duties.
(b) With the exception of acts of the nature referred to in (a) above,
the following disciplinary procedure will be adopted. The stages
will normally be implemented in order but action may start at any
stage in the event of serious misconduct or an aspect of poor
performance that creates a risk to other employees.
(i) On the first occasion that an Executive fails to reach the
standards required, the Executive will receive a formal verbal
warning.
(ii) If the required improvement is not made, or if the first
offence is considered too serious for a formal verbal warning,
the Executive will receive a formal written warning.
(iii) Continued failure to achieve the required improvement, or
further transgressions, will result in a formal written
warning being issued.
(iv) Failure to comply with the conditions of a final written
warning will result in dismissal after the requisite period of
notice or payment of salary in lieu thereof.
The following, which are intended by way of example only and not by
way of a complete list, are examples of conduct warranting
disciplinary action;
(i) poor timekeeping
(ii) poor attendance
(iii) inadequate or incompetent performance of the Executive's job
(iv) failure to comply with the Company's established procedures, as
notified from time to time
(v) attending the Company's premises or engaging in the Company's
business whilst under the influence of alcohol or unlawful drugs
(vi) rudeness or discourtesy to people with whom the Company deals
or to other employees.
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(c) The Company reserves the right to suspend the Executive on full
pay pending investigation where the Company has reasonable grounds
to believe that the Executive's continued employment might be
prejudicial to the Company's business or other employees.
(d) The Company reserves the right to exclude the Executive from the
premises during his period of notice and shall be under no
obligation to provide any work for the Executive or to assign him
any duties.
(e) If the Executive has outside interests which in the opinion of the
Company conflict with its interests, the Executive may be asked to
leave the service of the Company.
(f) The Company reserves the right to suspend the Executive without
pay as a disciplinary measure.
(g) The Executive may appeal in accordance with the provisions of the
grievance procedure set out in clause 13 above against any
disciplinary action taken.
13.3 Subject to the provisions of sub-clause 8.6 and clause 11 the policy
of the Company is that an employee is not normally dismissed for a
breach of his contract of employment which is capable of being
remedied until after he has been warned that he will be dismissed in
the event that such breach is not remedied or is repeated. However
the Executive accepts that in the case of a senior executive of the
Company it may not always be appropriate to give any warning.
14. DUTIES UPON TERMINATION
Upon termination of the Employment for whatever reason the Executive
shall immediately:
(a) hand over to the Company all source codes, documents, books,
materials, records, correspondence, papers and information (on
whatever media and wherever located) relating to the business of
the Company or any Associated Company, any magnetic discs on which
information relating to the business is stored and any keys,
credit cards and other property of the Company or any Associated
Company (including in particular any car provided to the
Executive) which may be in his possession, custody, care or
control and shall provide a signed statement that he has complied
fully with the terms of this clause;
(b) irretrievably delete any information relating to the business of
the Company or any Associated Company stored on any magnetic or
optical disc or memory and all matter derived therefrom which is
in his possession, custody, care or control outside the premises
of the Company and shall produce such evidence of compliance with
this sub-clause as the Company may require;
(c) resign any office or appointment held by him in the Company or in
any Associated Company without any claim for compensation or
damages for loss of such office or appointment and the Executive
hereby irrevocably appoints the Company as his agent to execute
letters of resignation of such offices or appointments on his
behalf.
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15. RESTRICTIONS
DEFINITIONS
15.1 For the purposes of this clause the following words have the following
meanings:
"CUSTOMER" means any customer or client of the Company in connection with
the Restricted Business or any other person, firm or company to whom the
Company has presented to or approached or with whom the Company has
negotiated with a view to that person becoming a customer or client of
the Company in connection with the Restricted Business and who became a
customer within six months following the Termination Date and in each
case provided that during the twelve month period immediately prior to
the Termination Date the Executive has dealt or sought to deal on behalf
of the Company with that customer, client or person or the Executive has
been responsible during such period for that customer, client or person;
"DESIGNATED AREA" means the United Kingdom;
"RESTRICTED BUSINESS" means the business of the Company or any Associate
Company in the business of which the Executive was materially involved at
the date of Termination or in the six months prior thereto but limited to
goods, products or services of a kind with which the Executive was
concerned or involved in the course of this employment during the twelve
month period immediately prior to the Executive ceasing to be employed or
for which the Executive has been responsible during such period;
"RESTRICTED PERSON" means any person who has at any time in the period of
twelve months prior to the Termination Date been employed by the Company
or who is a consultant to the Company and in either case works in an
executive or a technical or advisory or sales capacity (excluding
clerical and administrative staff) in the Restricted Business and who was
known to or worked with the Executive during that period;
EXECUTIVE'S DUTIES AND OBLIGATIONS
15.2 The Executive acknowledges that:
(a) his primary duty under this agreement is to ensure that the Company
achieves in each year the objectives as set out in the Company's
annual budget;
(b) the information gained by him in the performance of his duties is
not or may not be known by the general public or by the majority of
those engaged in the Restricted Business;
(c) by virtue of his previous employment by Palmer & Webb Systems
Limited and Palmer & Webb Systems B.V. and of his employment under
this agreement he has obtained and will obtain confidential
information as to the business, operations and organization of the
Company including names of customers and their operations which
belong exclusively to, and is of substantial value to the Company;
and
(d) the services to be provided by him under this agreement are expected
to be of a special and unusual character;
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and that accordingly he agrees to be bound by this clause 15 in order to
protect the legitimate interests of the Company.
NON-SOLICITATION OF CUSTOMERS
15.3 The Executive shall not for a period of twelve months after the
Termination Date either personally or by an agent and either on his
own account or for or in association with any other person directly
or indirectly canvass, solicit, approach or seek out or cause to be
canvassed, solicited, approached or sought out any Customer for
orders or instructions in respect of any goods or services provided
or supplied by the Company in connection with the Restricted
Business.
NON-DEALING WITH CUSTOMERS
15.4 The Executive shall not for a period of twelve months after the
Termination Date either personally or by an agent and either on his
own account or by or in association with any other person or
otherwise directly or indirectly engage in the Restricted Business
with any Customer.
NON-SOLICITATION OF EMPLOYEES
15.5 The Executive shall not during his employment or for a period of
twelve months after the Termination Date either personally or by an
agent and either on his own account or for or in association with
any other person directly or indirectly solicit, endeavor to entice
away, induce to break their contract of employment or offer
employment to any Restricted Person.
NON-INTERFERENCE WITH SUPPLIES
15.6 The Executive shall not for a period of twelve months after the
Termination Date either personally or by an agent and either on his
own account or for or in association with any other person directly
or indirectly interfere or seek to interfere or take such steps as
may be likely to interfere with the continuance of supplies to the
Company in respect of the Restricted Business (or the terms relating
to such supplies) from any supplier or seek to damage the
relationship between any supplier and the Company who has supplied
goods or services to the Company in the twelve month period
immediately prior to the Executive ceasing to be employed by the
Company.
NON-COMPETITION WITH A DESIGNATED AREA
15.7 The Executive shall not for the period of twelve months after the
Termination Date whether directly or indirectly:
(a) take up or hold any office in or with any business which is engaged
or is intended to be engaged in the Restricted Business within the
Designated Area;
(b) take up or hold any post or position which enables or permits the
Executive to exercise whether personally or by an agent and whether
on his own account or in association with or for the benefit of any
other person either a controlling influence over any business which
is engaged or is intended to be engaged in the Restricted Business
within the Designated Area; or
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(c) take up or hold any employment or consultancy with any person which
is engaged or is intended to be engaged in the Restricted Business
within the Designated Area,
which would have the necessary or probable result of the Executive
being engaged within Designated Area in business activities which
are the same or similar to the Restricted Business.
APPLICATION OF COVENANTS TO ASSOCIATED COMPANIES
15.8 (a) The provisions of sub-clauses 15.2 to 15.7 inclusive shall
apply equally where, during the period of twelve (12) months
prior to the Termination Date, the Executive was engaged in or
responsible for the business of any Associated Company (each of
which Associated Company is hereinafter called "Relevant
Company").
(b) The Executive hereby covenants with the Company (which for the
purposes of this paragraph shall act as Trustee for each
Relevant Company) in relation to each of the sub-clauses 15.2
to 15.7 inclusive as if every reference therein to the Company
was a reference to the Relevant Company and the definitions of
"Customer", "Designated Area", "Restricted Business",
"Restricted Person" and "Specified Business" in sub-clause 15.1
apply with the substitution of "the Relevant Company" for the
Company.
15.9 The Executive undertakes with the Company that he will observe any
substitute restrictions (in place of those set out in clause 9 and
sub-clauses 15.2 to 15.8 above) as the Company may from time to time
specify in writing which are in all respects less restrictive in
extent than those specified in clause 9 and sub-clauses 15.3 to 15.8
above.
15.10 If any breach or violation of any of the terms of sub-clauses 15.3 to
15.8 occurs, the Executive and the Company agree that damage alone
may not compensate for such breach or violation and that injunctive
relief is reasonable and essential to safeguard the interests of the
Company or any Associated Company and that an injunction in addition
to any other remedy may accordingly be obtained by the Company or
any Associated Company. No waiver of any such breach or violation
shall be implied from the forbearance or failure by the Company to
take action in respect of such breach or violation.
15.11 The Executive hereby agrees that he will at the request and cost of
the Company enter into a direct agreement or undertaking with any
Associated Company whereby he will accept restrictions and
provisions corresponding to the restrictions and provisions above
(or such of them as may be appropriate in the circumstances) in
relation to such activities and such areas and/or such periods not
including those set out above as any such Associated Company may
require for the protection of its legitimate interest.
15.12 The Executive fully understands the meaning and effect of the
covenants given by him in this agreement and confirms that on taking
separate and independent legal advice on the terms of this agreement
he acknowledges and accepts that the clauses in his clause 18 are
fair and reasonable in all the circumstances at the time this
agreement was made.
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16. RESTRICTIVE TRADE PRACTICES ACT 1976
No restriction contained in this agreement by virtue of which this
agreement or any arrangement of which it forms part is registrable under
the Restrictive Trade Practices Act 1976 shall come into effect or be
enforced until the day after particulars of this agreement and any
arrangement of which it forms part shall have been delivered to the
Director General of Fair Trading in accordance with the Act provided that
such suspension shall not extend or increase the periods during which the
provisions of clause 15 are in force.
17. NOTICES
17.1 Any notice or other written communication given under or in
connection with this agreement may be delivered personally or sent
by first class post (airmail if overseas) or by telex or facsimile.
17.2 The address for service of the Company shall be its registered
office marked for the attention of the managing director and in the
case of the Executive shall be his address stated in this agreement
or if any other permanent address has previously been notified to
the Company to the address so notified.
17.3 Any notice or other written communication shall be deemed to have been
served:
(a) if delivered personally, at the time of delivery;
(b) if posted, at the expiry of two Business Days or in the case of
airmail four Business Days after it was posted;
(c) if sent by telex or facsimile message, at the time of transmission
(if sent during normal business hours, that is 9.30 to 17.30 local
time) in the place from which it was sent or (if not sent during
such normal business hours) at the beginning of the next Business
Day in the place from which it was sent.
17.4 In proving service it shall be sufficient to prove that personal
delivery was made, or that such notice or other written
communication was properly addressed stamped and posted or in the
case of a telex that the intended recipient's answerback code is
shown on the copy retained by the sender at the beginning and end of
the message or in the case of a facsimile message that an activity
or other report from the sender's facsimile machine can be produced
in respect of the notice or other written communication showing
recipient's facsimile number and the number of pages transmitted.
18. MISCELLANEOUS
18.1 The Executive consents to the deduction from any sum otherwise
payable to the Executive by reason of the Employment (or its
termination) the value of any claim of whatever nature and in
whatever capacity that the Company may bona fide have against the
Executive, including but not limited to:
(a) overpayment of wages;
(b) overpayment in respect of expenses incurred by the Executive in
carrying out his duties;
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(c) loans which the Company or any Associated Company may from time to
time make to the Executive;
(d) advances on wages which the Company or any Associated Company may
from time to time make to the Executive.
18.2 Save as expressly provided in this agreement no term or provision of
this agreement shall be varied or modified by any prior or
subsequent statement, conduct or act of any party. The Company and
the Executive may amend this agreement only by letter or written
instrument signed by both the Company and the Executive.
18.3 The headings to the clauses and any underlining in this agreement
and in the schedules are for ease of reference only and shall not
form any part of this agreement for the purposes of construction.
18.4 This agreement sets out the entire agreement and understanding
between the parties in connection with the Employment save only for
any terms implied by law. There are no collective agreements which
directly affect the terms and conditions of the Employment. This
agreement supersedes all previous agreements and arrangements
relating to the Employment (except for those relating to stock
options).
18.5 If at any time any term or provision in this agreement shall be held
to be illegal, invalid or unenforceable, in whole or in part, under
any rule of law or enactment, such term or provision or part shall
to that extent be deemed not to form part of this agreement, but the
enforceability of the remainder of this agreement shall not be
affected.
18.6 The Executive shall not at any time make any untrue statement in
relation to the Company or any Associated Company, and in particular
shall not after the termination of his employment under this
agreement wrongly represent himself as being employed by or
connected in any respect with the Company or any Associated Company.
19. LAW AND JURISDICTION
19.1 This agreement shall be governed by and construed in accordance with
English law and each party to this agreement submits to the
non-exclusive jurisdiction of the English courts.
19.2 The Executive irrevocably agrees that the courts and tribunals of
England shall have jurisdiction to settle any dispute which may
arise out of or in connection with this agreement and that
accordingly any suit, action or proceedings arising out of this
agreement (together in this clause referred to as "Proceedings") may
be brought in such courts and tribunals.
19.3 The Executive irrevocably waives any objection which he may have now
or hereafter to the laying of the venue of any Proceedings in any
such court and tribunals as are referred to in sub-clause 19.2 and
any claim that any such Proceedings have been brought in an
inconvenient forum and further irrevocably agree that a judgment in
any Proceedings brought in the English courts shall be conclusive
and binding upon the Executive and may be enforced in the courts of
any other jurisdiction. The Executive hereby expressly waives all
rights of jurisdiction in any Proceedings which he may have now or
hereafter by reason of his present domicile or by reason of any
subsequent or other domicile.
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19.4 Nothing contained in this clause shall limit the right of the
parties to take Proceedings against any of the parties in any other
court of competent jurisdiction, nor shall the taking of Proceedings
in one or more jurisdictions preclude the taking of Proceedings in
any other jurisdiction, whether concurrently or not.
19.5 The Executive hereby consents generally in respect of any
Proceedings arising out of or in connection with this agreement to
the giving of any relief or the issue of any process in connection
with such execution against any property or assets whatsoever or any
order or judgment which may be made or given in such proceedings.
19.6 The Executive irrevocably agrees that any writ, judgment or other
notice of process shall be sufficiently and effectively served on
him if delivered, in connection with Proceedings in England, to the
address referred to in paragraph 17.2 above.
-18-
<PAGE>
Exhibit G
[TAYLOR JOHNSON GARRETT LETTERHEAD]
DNK/AIR
Palmer & Webb Systems Limited
Fountain House
Cleave Road
Leatherhead
Surrey KT22 7LX
30 June 1997
Dear Sirs
ZITEL LIMITED ("THE COMPANY")
1. We have been asked to provide a written opinion in respect of the
incorporation, share issue, corporate authority and good standing of the
Company, a subsidiary, of Zitel World Trade ("ZWT").
2. We understand that this letter is being delivered pursuant to an asset
purchase agreement the purchase price and indemnification escrow agreement
and the escrow agreement and other agreements involved in the transactions
(collectively the "Agreement") made between the Company, Palmer & Webb
Systems Limited, Reginald Webb and Julian Palmer and Moebius Business
Training Limited.
3. Unless otherwise defined, expressions defined in the Agreement shall have
the same meanings when used in this opinion.
<PAGE>
-2-
4. For the purpose of this opinion, we have examined:
(a) the certificate of incorporation of the Company;
(b) the Memorandum and Articles of Association of the Company;
(c) the statutory books of tim Company comprising registers of:
(i) applications and allotments;
(ii) share transfers;
(iii) members;
(iv) directors;
(v) secretaries;
(vi) directors' interests;
(vii) mortgages and charges;
(d) the entries shown on a microfiche (obtained by us from the UK
Companies Registry) on 27 June 1997 of the files of Zitel Limited (the
"Microfiche");
<PAGE>
-3-
(e) a Certificate of Good Standing (a copy of which is attached to this
opinion) given by the Registrar of Companies on 27 June 1997 in
relation to Zitel Limited.
and we have made:
(f) oral enquiries of the Central Registry of Winding-up Petitions on 27
June 1997 which confirmed that as at that date no petition has been
lodged for tho winding up of Zitel Limited.
5. ASSUMPTIONS.
For the purpose of this opinion, we have assumed the following:
(a) the genuineness of all signatures and copy signatures;
(b) the authenticity and completeness of all documents submitted to us as
originals;
(c) the conformity to originals of all documents submitted to us as copies
of originals;
<PAGE>
-4-
(d) the legal capacity, power and authority of all persons executing
agreements, instruments or documents relied upon by us;
(e) that the information disclosed by the Microfiche as at 27 June 1997
and by our telephone enquiry of 27 June 1997 of the Central Registry
of Winding-up Petitions was then accurate and has not been altered
since then; and that the Microfiche was complete as regards all
matters requiring to be registered at the UK Companies Registry and
that our said telephone enquiry did not fail to disclose any
information relevant for the purpose of this opinion.
This opinion is limited to English law as currently applied by the English
courts and is given on the basis that it will be governed and be construed and
have the effect in accordance with English law. We have made no investigation
of the laws of any country, state or jurisdiction, other than England and we
have assumed that there is nothing in the law of any other country, state or
jurisdiction which affects the opinion expressed in this letter. In particular
this opinion does not extend to cover matters of the laws of the State of
California.
We express no opinion as to matters of fact.
<PAGE>
-5-
6. OPINION.
To the best of our knowledge, based upon and subject to the foregoing and
subject to the reservations referred to below, we are of the opinion that:
(a) the Company is duly incorporated and existing as a private limited
company registered in England under company number 3382824. The
Company changed its name from Westchurch Services Limited to Zitel
Limited on 24 June 1997. The Company is authorised pursuant to its
Memorandum of Association to carry on its current business. The
Company is in good standing under English law.
(b) the authorised share capital of the Company is 1,000 (pounds) divided
into 1,000 shares of 1 (pound) each all of which have been validly
issued and are paid up in full. ZWT is the registered holder of all
1,000 issued ordinary shares of 1 (pound) each in the capital of the
Company free and clear of all liens, encumbrances, equities or claims.
(c) the Company has power under its Memorandum of Association to carry on
its business and to enter into and perform its obligations under the
Agreement.
<PAGE>
-6-
(d) all corporate and other action required by statute or pursuant to the
Company's Memorandum and Articles of Association to authorise the
execution of the Agreement by the Company and the performance of its
obligations thereunder has been duly taken.
(e) the choice of Californian law to govern the Agreement is a valid and
effective choice of law by the Company.
7. RESERVATIONS AND QUALIFICATIONS.
This opinion is subject to the following qualifications:
(a) a certificate, documentation, notification, opinion or the like might
be held by the English courts not to be conclusive if it can be shown
to have an unreasonable or arbitrary basis or in the event of a
manifest error.
(b) the English Courts may have discretion as to the enforceability of
certain terms of restrictive covenants.
This opinion is addressed to and is for the benefit solely of Palmer & Webb
Systems Limited in connection with the transactions contemplated by the
Agreement. This opinion may not
<PAGE>
-7-
be relied on by any other person for any other purpose, nor may it be disclosed
to any other person, (other than as may be required by any regulatory authority
for the time being having jurisdiction overPalmer & Webb Systems Limited)
without our prior written consent.
Yours faithfully,
/s/ David N. Kent /s/ illegible
TAYLOR JOHNSON GARRETT
- ----------------------
<PAGE>
THE COMPANIES ACT 1985
Company No. 3382824
The Registrar of Companies for England and Wales hereby certifies that
ZITEL LIMITED (ORIGINALLY CALLED WESTCHURCH SERVICES LIMITED WHICH NAME WAS
CHANGED BY SPECIAL RESOLUTION ON 24TH JUNE 1997 TO ZITEL LIMITED) WAS
INCORPORATED UNDER THE COMPANIES ACT 1985 AS A LIMITED COMPANY ON 6TH JUNE 1997.
ACCORDING TO THE DOCUMENTS ON THE FILE OF THE COMPANY IN THE CUSTODY OF THE
REGISTRAR OF COMPANIES, THE COMPANY HAS BEEN IN CONTINUOUS AND UNBROKEN
EXISTENCE SINCE THE DATE OF ITS INCORPORATION.
NO ACTION IS CURRENTLY BEING TAKEN BY THE REGISTRAR OF COMPANIES FOR STRIKING
THE COMPANY OFF THE REGISTER AND DISSOLVING IT AS DEFUNCT, AND AS FAR AS THE
REGISTRAR IS AWARE:-
A) THE COMPANY IS NOT M LIQUIDATION OR SUBJECT TO AN ADMINISTRATION ORDER, AND
B) NO RECEIVER OR MANAGER OF THE COMPANY'S PROPERTY HAS BEEN
APPOINTED.*****************************************
Given at Companies House, Cardiff, the 27th June 1997
/s/ J. M. Mayor
MRS. J.M. MAYOR
for the Registrar of Companies
21337157
<PAGE>
Exhibit H
[COOLEY GODWARD LLP LETTERHEAD]
June 30, 1997
Palmer & Webb Systems Ltd.
Moebius Business Training Ltd. JOHN L. CARDOZA
Fountain House, Cleave Road 415 693-2045
Surrey KT22 7LX [email protected]
United Kingdom
Ladies and Gentlemen:
We have acted as counsel for Zitel Corporation, a California corporation (the
"Company"), in connection with that certain Asset Purchase Agreement (the
"Purchase Agreement") dated June 30, 1997, by and among the Company, Zitel
Limited, a company incorporated in England and Wales ("Buyer"), Palmer & Webb
Systems Ltd., a company incorporated in England and Wales ("PWUK"), Reginald
Webb and Julian Palmer, as the sole shareholders of PWUK, Moebius Business
Training Ltd., a company incorporated in England and Wales ("Moebius"), and
PWUK, as a shareholder of Moebius, and the Escrow Agreement (the "Escrow
Agreement") and the Purchase Price and Indemnification Agreement (the "Purchase
Price and Indemnification Agreement") (the Purchase Agreement, the Escrow
Agreement and the Purchase Price and Indemnification Agreement are hereinafter
collectively referred to as, the "Agreements"). We are rendering this opinion
pursuant to Section 12.2.6 of the Purchase Agreement. Except as otherwise
defined herein, capitalized terms used but not defined herein have the
respective meanings given to them in the Purchase Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreements by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreements), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreements; that the Agreements are obligations binding upon
you; that you have filed any required California franchise or income tax returns
and have paid any required California franchise or income taxes; and that there
are no extrinsic agreements or understandings among the parties to the
Agreements that would modify or
<PAGE>
Palmer & Webb Systems Ltd.
June 30, 1997
Page 2
interpret the terms of the Agreements or the respective rights or obligations of
the parties thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the State of California. We express no
opinion as to whether the laws of any particular jurisdiction apply, and no
opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities, or to the sale or issuance thereof.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of California.
2. The Company has the requisite corporate power and authority to enter
into and perform the Agreements in accordance with the terms thereof. The
Agreements have been duly and validly authorized, executed and delivered by the
Company and constitute valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms, except as rights
to indemnity under Section 11 of the Purchase Agreement may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity principles and
to limitations on availability of equitable relief, including specific
performance.
This opinion is intended solely for your benefit and is not to be made available
to, or be relied upon by any other person, firm, or entity without our prior
written consent.
Very truly yours,
Cooley Godward LLP
By: /s/ John L. Cardoza
------------------------------
John L. Cardoza
<PAGE>
STOCK PURCHASE AGREEMENT
among:
ZITEL WORLD TRADE
ZITEL CORPORATION
HELL SAILS B.V.;
and
PALMER & WEBB SYSTEMS B.V.
Dated as of June 30, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS . . . . . . . 1
1.1 Sale and Purchase of Shares . . . . . . . . . . . . . . . . . . 1
SECTION 2. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . . . 1
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . . 2
3.1 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 4
3.5 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6 Articles of Association; Records. . . . . . . . . . . . . . . . 5
3.7 Capitalization, Etc.. . . . . . . . . . . . . . . . . . . . . . 5
3.8 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . 6
3.9 Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . 7
3.10 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . 8
3.12 Title to and Condition of Properties. . . . . . . . . . . . . . 8
3.13 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.15 Contracts and Commitments . . . . . . . . . . . . . . . . . . . 10
3.16 Employees and Labor Matters . . . . . . . . . . . . . . . . . . 11
3.17 Sole Shareholder. . . . . . . . . . . . . . . . . . . . . . . . 12
3.18 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . 12
3.19 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.20 Investment Representations. . . . . . . . . . . . . . . . . . . 12
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.. . . . . . . . . . . . 14
4.1 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Issuance and Registration of Shares . . . . . . . . . . . . . . 14
4.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . 14
4.5 Financial Capacity. . . . . . . . . . . . . . . . . . . . . . . 14
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5. FURTHER COVENANTS OF SELLER AND PWBV.. . . . . . . . . . . . . . . . . 15
5.1 Access to Information and Records . . . . . . . . . . . . . . . 15
5.2 Conduct of Business Pending the Closing . . . . . . . . . . . . 15
5.3 Other Action. . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. . . . . . . . . . . . . . 16
6.1 Representations and Warranties True on the Closing Date . . . . 16
6.2 Compliance With Agreement . . . . . . . . . . . . . . . . . . . 16
6.3 Absence of Suit . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Datametrics Transaction.. . . . . . . . . . . . . . . . . . . . 17
7. CONDITIONS PRECEDENT TO SELLER'S AND PWBV'S OBLIGATIONS. . . . . . . . 17
7.1 Representations and Warranties True on the Closing Date . . . . 17
7.2 Compliance With Agreement . . . . . . . . . . . . . . . . . . . 17
7.3 Absence of Suit . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Datametrics Transaction.. . . . . . . . . . . . . . . . . . . . 17
7.5 UK Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 Indemnification of Third-Party Claims . . . . . . . . . . . . . 18
8.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.5 Deductible Amount . . . . . . . . . . . . . . . . . . . . . . . 20
8.6 Maximum Liability . . . . . . . . . . . . . . . . . . . . . . . 20
8.7 Treatment of Indemnification Payments . . . . . . . . . . . . . 20
8.8 Survival of Representations and Warranties; Claims for
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1 Documents to be Delivered by Seller and PWBV. . . . . . . . . . 21
9.2 Documents to be Delivered by Buyer. . . . . . . . . . . . . . . 22
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
10. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1 Right of Termination Without Breach . . . . . . . . . . . . . . 23
10.2 Termination for Breach. . . . . . . . . . . . . . . . . . . . . 23
11. RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . 24
11.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.2 Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.3 Procedures; No Appeal . . . . . . . . . . . . . . . . . . . . . 24
11.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.5 Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . 25
11.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 25
11.7 Continued Performance . . . . . . . . . . . . . . . . . . . . . 25
11.8 Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.1 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.2 Expenses to be Paid by Seller . . . . . . . . . . . . . . . . . 25
12.3 Expenses to be Paid by Buyer. . . . . . . . . . . . . . . . . . 26
12.4 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12.5 Costs of Litigation or Arbitration. . . . . . . . . . . . . . . 26
13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.1 Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.2 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.3 Assignment; Parties in Interest . . . . . . . . . . . . . . . . 26
13.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.5 Amendment and Modification. . . . . . . . . . . . . . . . . . . 27
13.6 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 28
13.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.9 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.10 Further Documents . . . . . . . . . . . . . . . . . . . . . . . 28
13.11 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
iii.
<PAGE>
EXHIBITS
EXHIBIT A Definitions
EXHIBIT B Purchase Price and Indemnification Escrow Agreement
EXHIBIT C Balance Sheet
EXHIBIT D Certificate of Buruma Maris
EXHIBIT E Escrow Agreement
EXHIBIT F Opinion of Cooley Godward LLP
DISCLOSURE LETTER
Schedule 3.1.2 Corporate Existence
Schedule 3.1.4 Qualification
Schedule 3.1.6 No Dissolution
Schedule 3.3 No Violation
Schedule 3.4 Financial Statements
Schedule 3.5.2 Tax Returns Filed
Schedule 3.5.3 Tax Audits
Schedule 3.5.4 Consolidated Group
Schedule 3.5.5 Other Tax Disclosures
Schedule 3.7.1 Capitalization
Schedule 3.8 Absence of Certain Changes
Schedule 3.9 Absence of Undisclosed Liabilities
Schedule 3.10 No Litigation
Schedule 3.11.1 Compliance With Laws
Schedule 3.11.2 Licenses and Permits
Schedule 3.12.1 Marketable Title
Schedule 3.12.2 Condition
Schedule 3.12.3 Real Property
Schedule 3.13 Bank Accounts
Schedule 3.14 Insurance
Schedule 3.15.1 Real Property Leases
Schedule 3.15.2 Personal Property Leases
Schedule 3.15.4 Contracts With Affiliates
Schedule 3.15.6 Loan Agreements
Schedule 3.15.7 Guarantees
Schedule 3.15.8 Other Material Contracts
Schedule 3.16.1 Employment Compensation
Schedule 3.16.2 Employee Benefit Plans
[The schedules listed above have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. Upon request, the Company agrees to furnish
supplementally, a copy of any of the omitted schedules to the Commission.]
iv.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of
June 30, 1997, by and among ZITEL CORPORATION, a California corporation
("PARENT"), ZITEL WORLD TRADE, a California corporation and wholly-owned
subsidiary of Parent ("BUYER"), HELL SAILS B.V., a private limited liability
company organized under the laws of the Kingdom of the Netherlands
("SELLER"), and PALMER & WEBB SYSTEMS B.V., a private limited liability
company organized under the laws of the Kingdom of the Netherlands and a
wholly-owned direct subsidiary of Seller ("PWBV"). Certain capitalized terms
used in this Agreement are defined on EXHIBIT A.
RECITALS
A. Seller owns 40 shares in the share capital of PWBV (the "SHARES"),
which constitute all of the issued and outstanding capital stock of PWBV.
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the Shares according to the terms set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
SECTION 1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS
1.1 SALE AND PURCHASE OF SHARES. At the Closing, Seller shall sell,
assign, transfer and deliver the Shares to Buyer, and Buyer shall purchase and
accept the delivery of the Shares from Seller, on the terms and subject to the
conditions set forth in this Agreement.
SECTION 2. PURCHASE PRICE
2.1 PURCHASE PRICE. The aggregate purchase price payable by Buyer for
the Shares (the "PURCHASE PRICE") shall be Two Million Two Hundred Thousand
Dollars (USD $2,200,000) which shall consist of (i) One Million Dollars (USD
$1,000,000) in cash, and (ii) One Million Two Hundred Thousand Dollars (USD
$1,200,000) in common stock of Parent as determined in Section 2.2.2 below.
2.2 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by
Buyer as follows:
2.2.1 CASH TO SELLER. At the Closing, Buyer shall pay to Seller
Seven Hundred Eighty-Thousand Dollars (USD $780,000) and shall deliver to the
Escrow Agent USD $220,000 of the Indemnification Escrow Amount and the Purchase
Price Escrow Amount (as such terms
1.
<PAGE>
are defined in the Purchase Price and Indemnification Escrow Agreement attached
as EXHIBIT B hereto (the "PURCHASE PRICE AND INDEMNIFICATION ESCROW
AGREEMENT")).
2.2.2 STOCK TO SELLER. At the Closing, Buyer shall deliver to
Seller the number of shares of common stock of Buyer equal to the quotient of
One Million Two Hundred Thousand Dollars (USD $1,200,000) DIVIDED by the average
closing price of Parent's common stock, as reported in the Wall Street Journal
(West Coast Edition), on June 12, 1997 through and including June 25, 1997 (the
"ZITEL STOCK CONSIDERATION").
2.2.3 METHOD OF PAYMENT. All payments to Seller under this
Section 2.2 shall be made by wire transfer of immediately available funds to an
account designated by the recipient not less than forty-eight (48) hours prior
to the time for payment specified herein.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller makes the following representations and warranties to Buyer, each of
which is true and correct on the date hereof, shall remain true and correct to
and including the Closing Date, shall be unaffected by any investigation
heretofore or hereafter made by Buyer, or any knowledge of Buyer other than as
specifically disclosed in a Schedule to the Disclosure Letter delivered
hereunder or in any document referenced in the Disclosure Letter, and shall
survive the Closing for a period of two (2) years, except with respect to those
warranties set forth in Section 3.5 relating to tax matters which shall survive
the Closing until the expiration of the applicable statute of limitations.
3.1 CORPORATE.
3.1.1 OWNERSHIP OF PWBV. Seller owns and has good and valid title
to all of the outstanding shares of the capital stock of PWBV, free of any liens
or encumbrances.
3.1.2 CORPORATE EXISTENCE. Each of Seller and PWBV is a
corporation duly incorporated, validly existing and duly registered under the
laws of its incorporation. Attached as SCHEDULE 3.1.2 of the Disclosure Letter
is a copy of the excerpt from the Commercial Register dated June 18, 1997, which
is true and complete in all respects.
3.1.3 CORPORATE POWER. Each of Seller and PWBV has all necessary
corporate power to enter into this Agreement and the other documents and
instruments to be executed and delivered pursuant hereto and to carry out the
transactions contemplated hereby and thereby. Each of Seller and PWBV has all
necessary corporate power to carry on its business substantially as it is being
conducted as of the date of this Agreement.
3.1.4 QUALIFICATION. Each of Seller and PWBV is duly licensed or
qualified to do business as a foreign corporation, and is in good standing, in
each jurisdiction wherein the character of the properties owned or leased by it,
or the nature of its business, makes such licensing or qualification necessary.
The countries and territories in which Seller and PWBV are licensed or qualified
to do business are listed in SCHEDULE 3.1.4 of the Disclosure Letter
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attached hereto. PWBV has not applied for a declaration of bankruptcy or a
moratorium of payments, nor has PWBV been declared bankrupt or been granted a
moratorium.
3.1.5 NO SUBSIDIARIES. PWBV does not own any interest in any
corporation, partnership or other entity.
3.1.6 NO DISSOLUTION; LIQUIDATION, ETC. Neither the Board of
Directors nor the holders of any class of outstanding capital stock of PWBV or
Seller has adopted any resolution or taken any other action with respect to
dissolution, liquidation or winding up of PWBV or Seller, no such resolution or
other action is proposed, under consideration or contemplated, and there is no
proceeding or other action pending or, to the knowledge of PWBV or Seller,
threatened, proposed or contemplated by any court, administrative or
governmental agency, instrumentality, commission, authority, board or body with
respect to any dissolution, liquidation or winding up of PWBV or Seller, nor, to
the Knowledge of Seller, is there any basis for any such proceeding or other
action. Except as set forth on SCHEDULE 3.1.6 of the Disclosure Letter attached
hereto, PWBV has never conducted any business under or otherwise used, for any
purpose or in any jurisdiction, any fictitious name, assumed name, trade name or
other name other than "PALMER & WEBB SYSTEMS B.V."
3.2 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered pursuant hereto and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors and shareholders of Seller. No other
or further corporate act or proceeding on the part of Seller, its Board of
Directors or any of its shareholders is necessary to authorize this Agreement or
the other documents and instruments to be executed and delivered by Seller
pursuant hereto or the consummation of the transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and delivered, the other
documents and instruments to be executed and delivered by Seller pursuant hereto
will constitute, valid binding agreements of Seller, enforceable in accordance
with their respective terms, except as such may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
3.3 NO VIOLATION. Except as set forth on SCHEDULE 3.3 of the Disclosure
Letter attached hereto, to the Knowledge of Seller, the execution and delivery
of this Agreement and the other documents and instruments to be executed and
delivered by Seller pursuant hereto, and the consummation by Seller of the
transactions contemplated hereby and thereby (a) will not violate any statute or
law or any rule, regulation, order, writ, injunction or decree of any court or
governmental authority, (b) will not require any authorization, consent,
approval, exemption or other action by or notice to any court, administrative or
governmental agency, instrumentality, commission, authority, board or body, and
(c) subject to obtaining the consents referred to in SCHEDULE 3.3 of the
Disclosure Letter attached hereto, will not violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default under, or result in the termination of, or accelerate
the performance required by, or result in the creation of any Lien (as defined
in Section 3.12.1 hereof) upon any of the assets of PWBV under, any term or
provision of the Articles of Association of PWBV or of any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or
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character to which PWBV or any shareholder of PWBV is a party or by which PWBV,
any shareholder of PWBV or any of PWBV's assets or properties may be bound or
affected.
3.4 FINANCIAL STATEMENTS. Included as SCHEDULE 3.4 of the Disclosure
Letter attached hereto are true and complete copies of the audited financial
statements of PWBV consisting of balance sheets of PWBV as of December 31, 1996,
1995, and unaudited interim financial statements through April 30, 1997,
consisting of the balance sheets, and cash flow and income statements, and the
related statements of income and cash flows for the periods then ended
(including the notes contained therein or annexed thereto) (collectively,
including all notes and schedules contained therein or annexed thereto, the
"FINANCIAL STATEMENTS"). The balance sheet of PWBV dated as of April 30, 1997
in the form of EXHIBIT C attached hereto is referred to herein as the "BALANCE
SHEET". The Financial Statements have been reported on, and are accompanied by,
the signed, unqualified opinions of Van Doesburg & Partners, independent
auditors for PWBV for such years. The Financial Statements are true, complete
and accurate, have been prepared by the accrual method in accordance with GAAP
(except, in the case of unaudited statements, for the absence of footnote
disclosure) applied on a consistent basis, have been prepared in accordance with
the books and records of PWBV. The annual accounts of PWBV have always been
timely determined by its shareholders and timely filed with the Commercial
Register.
3.5 TAX MATTERS.
3.5.1 PROVISION FOR TAXES. The provision made for Taxes in the
Balance Sheet is sufficient for the payment of all social security contributions
on corporate income and wages and other income, ad valorem, excise, profits,
franchise, occupation, property, payroll, sales, use, gross receipts and other
taxes (and any interest and penalties) and assessments, whether or not disputed
at the Balance Sheet Date, and for all years and periods prior thereto. Since
the Balance Sheet Date, PWBV has not incurred any taxes other than taxes
incurred in the Ordinary Course of Business consistent in type and amount with
past practices of PWBV.
3.5.2 TAX RETURNS FILED. Except as set forth on SCHEDULE 3.5.2 of
the Disclosure Letter attached hereto, all tax returns required to be filed by
or on behalf of PWBV have been timely filed and when filed were true and correct
in all material respects, and the taxes shown as due thereon were paid or
adequately accrued. PWBV has duly withheld and paid all taxes which it is
required to withhold and pay relating to salaries, wages and other compensation,
remuneration or benefits paid to the employees of PWBV.
3.5.3 TAX AUDITS. The income tax returns of PWBV have been
audited by the appropriate authorities with regard to corporate income tax,
value added tax and wage tax for the periods and to the extent set forth in
SCHEDULE 3.5.3 of the Disclosure Letter attached hereto, and PWBV has not
received from the authorities of any jurisdiction any notice of underpayment of
taxes or other deficiency which has not been paid nor any objection to any
return or report filed by PWBV. There are outstanding no agreements or waivers
extending the statutory period of limitations applicable to any tax return or
report.
4.
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3.5.4 CONSOLIDATED GROUP. SCHEDULE 3.5.4 of the Disclosure Letter
attached hereto lists every year PWBV was a member of an affiliated group of
corporations that filed a consolidated tax return on which the statute of
limitations does not bar a tax assessment, and each corporation that has been
part of such group.
3.5.5 OTHER. Except as set forth in SCHEDULE 3.5.5 of the
Disclosure Letter attached hereto, since December 31, 1996 PWBV has not applied
for any tax ruling.
3.6 ARTICLES OF ASSOCIATION; RECORDS.
3.6.1 Seller has delivered to Buyer with regard to PWBV accurate
and complete copies of:
(i) of its Articles of Association, including all
amendments thereof, and the deed of its incorporation;
(ii) its shareholders register and all deeds of transfer
relating to shares of its stock; and
(iii) the minutes and other records of the meetings and
other proceedings (including any actions taken by written consent or otherwise
without a meeting) of its shareholders, the board of directors and all
committees of its board of directors.
There have been no meetings or other proceedings of the shareholders of either,
the board of directors of or any committee of the board of directors of PWBV
that are not fully reflected in such minutes or other records.
3.6.2 There has not been any violation of any of the provisions of
PWBV's Articles of Association or of any resolution adopted by its shareholders,
board of directors or any committee of the board of directors; and no event has
occurred, and no condition or circumstance exists, that might (with or without
notice or lapse of time) constitute or result directly or indirectly in such a
violation.
3.6.3 The books of account, shareholders register, minute books
and other records of PWBV are accurate, up-to-date and complete, and have been
maintained in accordance with sound and prudent business practices. All of its
records are in its actual possession and direct control. PWBV has and at all
times had in place, an adequate and appropriate system of internal controls
which is at least as comprehensive and effective as the systems of internal
controls customarily maintained by Comparable Entities.
3.7 CAPITALIZATION, ETC.
3.7.1 The authorized capital stock of PWBV consists of 200 shares
of common stock and the issued and paid-up capital stock of PWBV consist of 40
shares of common stock (constituting all of the Shares). Seller has, and Buyer
will acquire at the Closing, good and valid title to the Shares free and clear
of any encumbrances. Seller owns all of the issued and
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outstanding capital stock of PWBV. All of the Shares: (i) have been duly
authorized and validly issued, (ii) are fully paid and non-assessable, and
(iii) have been issued in full compliance with all applicable laws. Except as
set forth on SCHEDULE 3.7.1 of the Disclosure Letter attached hereto, there are
no: (a) outstanding subscription, option, call, warrant or right (whether or
not currently exercisable) to acquire any shares of the authorized and/or issued
capital stock or other securities of PWBV; (b) outstanding security, instrument
or obligation that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of PWBV; (c) contract under
which PWBV is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities. There have not been issued any
depositary receipts with respect to any shares of PWBV nor is there any
agreement, commitment or resolution to that effect.
3.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 3.8 of
the Disclosure Letter attached hereto, since the Balance Sheet Date there has
not been:
3.8.1 NO ADVERSE CHANGE. Any material adverse change in the
financial condition, assets, liabilities, business or operations of PWBV.
3.8.2 NO DAMAGE. Any loss, damage or destruction, whether covered
by insurance or not, affecting PWBV's business or properties in excess of USD
$5,000.
3.8.3 NO INCREASE IN COMPENSATION. Any increase in the salaries,
wages or other remuneration or compensation, or in any benefits payable or to
become payable to any employee or agent of PWBV (including without limitation
any increase or change pursuant to any bonus, pension, profit sharing,
retirement or other plan or commitment), or any bonus or other employee benefit
granted, made or accrued.
3.8.4 NO LABOR DISPUTES. Any labor dispute or disturbance between
PWBV and any of PWBV's Employees (as hereinafter defined).
3.8.5 NO COMMITMENTS. Any commitment or transaction by PWBV in
excess of USD $5,000 (including without limitation any borrowing or capital
expenditure) other than in the Ordinary Course of Business.
3.8.6 NO DIVIDENDS. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of PWBV's capital stock, any
redemption, purchase or other acquisition by Seller of any capital stock of
PWBV, or any security relating thereto, or any other payment to any shareholder
of PWBV as such a shareholder.
3.8.7 NO ISSUANCE. Sold or otherwise issued any shares of capital
stock or any other securities of PWBV.
3.8.8 AMENDMENT. Any amendment to PWBV's Articles of Association
or any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction to which PWBV has been a
party.
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3.8.9 NO DISPOSITION OF PROPERTY. Any sale, lease or other
transfer or disposition of any properties or assets of PWBV worth in excess of
USD $5,000 in the aggregate, except for the sale of inventory items in the
Ordinary Course of Business.
3.8.10 NO INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by PWBV involving more than USD $5,000 in the
aggregate.
3.8.11 NO LIENS. Any mortgage, pledge, lien or encumbrance made on
any of the properties or assets of PWBV.
3.8.12 NO AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by PWBV of any contract, or any waiver of material rights
thereunder, other than in the Ordinary Course of Business.
3.8.13 LOANS AND ADVANCES. Any loan or advance (other than
advances to employees in the Ordinary Course of Business for travel and
entertainment in accordance with past practice) to any person including, but not
limited to, any officer, director or employee of Seller, or PWBV or any
Affiliate. For purposes of this Agreement, the term "AFFILIATE" shall mean and
include: (a) any current or former shareholder, director or officer of Seller
or PWBV; (b) any sibling, uncle, aunt, niece or nephew of any person described
in clause (a); (c) any ancestor or lineal descendant of any person described in
clauses (a) or (b); (d) any current or former spouse of any person described in
clauses (a), (b) or (c) or any person who is a member of the same household of
the person described in clauses (a), (b) or (c) or who has resided with such
person for more than ten (10) days in any calendar year; (v) any ancestor or
lineal descendant of any person described in clauses (a), (b), (c) or (d); and
(e) any entity or person in which any of the foregoing have a direct or indirect
interest (except through ownership of less than five percent (5%) of the
outstanding shares of any entity whose securities are listed on a national
securities exchange or traded in the national over-the-counter market).
3.8.14 OFFICERS, DIRECTORS, EMPLOYEES. Any Employee Benefit Plan
established or any bonus, profit-sharing or similar payment, or increase in
wages, salary, commission, fringe benefits or other compensation or remuneration
paid or accrued to any of PWBV's directors, officers or employees.
3.8.15 CREDIT. Other than in the Ordinary Course of Business, any
grant of credit by PWBV to any customer or distributor, any other change in the
terms of any credit heretofore extended, or any other change of PWBV's policies
or practices with respect to the granting of credit.
3.8.16 NO UNUSUAL EVENTS. Any other event or condition not in the
Ordinary Course of Business of PWBV.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
specifically disclosed in the Balance Sheet, or in SCHEDULE 3.9 of the
Disclosure Letter attached hereto, PWBV does not have any liabilities,
commitments or obligations (secured or unsecured, and whether accrued, absolute,
contingent, direct, indirect or otherwise), other than commercial
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liabilities and obligations incurred since the Balance Sheet Date in the
Ordinary Course of Business which in the aggregate have not and will not have a
material adverse effect on the business, financial condition or results of
operations of PWBV. Except as and to the extent described in the Balance Sheet
or in SCHEDULE 3.9 of the Disclosure Letter attached hereto, neither PWBV nor
Seller has Knowledge of any basis for the assertion against PWBV of any
liability and there are no circumstances, conditions, happenings, events or
arrangements, contractual or otherwise, which may give rise to liabilities,
except commercial liabilities and obligations incurred in the Ordinary Course of
Business.
3.10 NO LITIGATION. Except as set forth in SCHEDULE 3.10 of the
Disclosure Letter attached hereto, there is no action, suit, arbitration or
other proceeding, investigation or inquiry pending or threatened against PWBV,
its directors (in such capacity), shareholders (in such capacity), its business
or any of its assets, nor does Seller or PWBV know, of any basis for any such
proceedings, investigations or inquiries. SCHEDULE 3.10 of the Disclosure
Letter attached hereto also identifies all such actions, suits, proceedings,
investigations and inquiries to which PWBV, any of its directors or shareholders
have been parties since December 31, 1996. Except as set forth in SCHEDULE 3.10
of the Disclosure Letter attached hereto, neither PWBV nor its business or
assets is subject to any judgment, order, writ or injunction of any court,
arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.11 COMPLIANCE WITH LAWS.
3.11.1 COMPLIANCE. Except as set forth in SCHEDULE 3.11.1 of the
Disclosure Letter attached hereto, to the Knowledge of Seller, PWBV (including
each and all of its operations, practices, properties and assets) is in
compliance with all applicable local and foreign laws, ordinances, orders, rules
and regulations (collectively, "LAWS"), including without limitation, those
applicable to discrimination in employment, occupational safety and health,
trade practices, competition and pricing, product warranties, zoning, building
and sanitation, employment, retirement and labor relations, product advertising.
Except as set forth in SCHEDULE 3.11.1 of the Disclosure Letter attached hereto,
PWBV has not received notice of any violation or alleged violation of, and is
subject to no liability (whether accrued, absolute, contingent, direct or
indirect) for past or continuing violation of, any Laws. All reports and
returns required to be filed by PWBV with any governmental authority have been
filed, and were accurate and complete when filed.
3.11.2 LICENSES AND PERMITS. PWBV has all licenses, permits,
approvals, authorizations and consents of all governmental and regulatory
authorities and all certification organizations required for the conduct of the
business (as presently conducted and as proposed to be conducted) and operation
of the facilities located at Marten Meesweg, 97 3068 AV Rotterdam. All such
licenses, permits, approvals, authorizations and consents are described in
SCHEDULE 3.11.2 of the Disclosure Letter attached hereto and are in full force
and effect. Except as set forth in SCHEDULE 3.11.2 of the Disclosure Letter
attached hereto, PWBV (including its operations, properties and assets) is and
has been in compliance with all such permits and licenses, approvals,
authorizations and consents.
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3.12 TITLE TO AND CONDITION OF PROPERTIES.
3.12.1 MARKETABLE TITLE. PWBV has good and marketable title to all
assets purported to be owned by it, free and clear of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges, licenses,
equities, options, conditional sales contracts, lease purchase agreements,
financing leases, assessments, levies, easements, covenants, reservations,
restrictions, rights-of-way, exceptions, limitations, charges or encumbrances of
any nature whatsoever (collectively, "LIENS") except those described in
SCHEDULE 3.12.1 of the Disclosure Letter attached hereto.
3.12.2 CONDITION. Except as set forth on SCHEDULE 3.12.2 of the
Disclosure Letter attached hereto, all tangible assets (real and personal)
constituting the assets of PWBV are in good operating condition and repair, free
from any defects (except such minor defects as do not interfere with the
continuing and safe use thereof in the conduct of the normal operations of
PWBV), have been maintained consistent with the standards generally followed in
the industry and applicable legal standards and are sufficient to carry on the
business of PWBV as conducted during the preceding twelve (12) months.
3.12.3 REAL PROPERTY. SCHEDULE 3.12.3 of the Disclosure Letter
attached hereto set forth all real property owned by, leased by or subleased to
PWBV (the "REAL PROPERTY"). Seller has delivered to Buyer correct and complete
copies of the leases and subleases listed on SCHEDULE 3.12.3 of the Disclosure
Letter attached hereto. To Seller's Knowledge, no portion of any of the Real
Property has been used as a landfill or for storage or landfill of hazardous or
toxic materials. Neither PWBV nor Seller has notice or Knowledge of any (a)
planned or proposed increase in assessed valuations of any Real Property, (b)
governmental agency or court order requiring repair, alteration, or correction
of any existing condition affecting any Real Property or the systems or
improvements thereat, (c) condition or defect which could give rise to an order
of the sort referred to in (b) above, or (d) underground storage tanks, or any
structural, mechanical, or other defects of material significance affecting any
Real Property or the systems or improvements thereat (including, but not limited
to, inadequacy for normal use of mechanical systems or disposal or water systems
at or serving the Real Property).
3.13 BANK ACCOUNTS. SCHEDULE 3.13 of the Disclosure Letter attached
hereto accurately sets forth (i) the names and locations of all banks and other
financial institutions at which PWBV maintains an account as of the date of this
Agreement, and (ii) the names of all individuals authorized to draw on or make
withdrawals from such account.
3.14 INSURANCE. Set forth in SCHEDULE 3.14 of the Disclosure Letter
attached hereto is a complete and accurate list and description of all policies
of fire, casualty, general liability, product liability, workers compensation,
health and other forms of insurance presently in effect with respect to the
business and properties of PWBV, true and correct copies of which have
heretofore been delivered to Buyer. SCHEDULE 3.14 of the Disclosure Letter
attached hereto includes any pending claims in excess of USD $5,000. All such
policies are valid, outstanding and enforceable policies and provide insurance
coverage for the properties, assets and operations of PWBV, of the kinds, in the
amounts and against the risks customarily maintained by organizations similarly
situated. No notice of cancellation or termination has been received with
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respect to any such policy, and neither PWBV nor Seller has knowledge of any act
or omission of PWBV which could result in cancellation of any such policy prior
to its scheduled expiration date. PWBV has not been refused any insurance with
respect to any aspect of the operations of the business nor has its coverage
been limited by any insurance carrier to which it has applied for insurance or
with which it has carried insurance during the last three years. PWBV has duly
and timely made all claims it has been entitled to make under each policy of
insurance. There is no claim by PWBV pending under any such policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies, and neither PWBV nor Seller knows of any basis for denial of any
claim under any such policy. PWBV has not received any written notice from or on
behalf of any insurance carrier issuing any such policy that insurance rates
therefor will hereafter be substantially increased (except to the extent that
insurance rates may be increased for all similarly situated risks) or that there
will hereafter be a cancellation or an increase in a deductible (or an increase
in premiums in order to maintain an existing deductible) or nonrenewal of any
such policy. Such policies are sufficient in all material respects for
compliance by PWBV with all requirements of law and with the requirements of all
contracts to which PWBV is a party.
3.15 CONTRACTS AND COMMITMENTS.
3.15.1 REAL PROPERTY LEASES. Except as set forth in
SCHEDULE 3.15.1 of the Disclosure Letter attached hereto, PWBV has no leases of
real property.
3.15.2 PERSONAL PROPERTY LEASES. Except as set forth in
SCHEDULE 3.15.2 of the Disclosure Letter attached hereto, PWBV has no leases of
personal property providing for lease payments in excess of USD $5,000 per
annum.
3.15.3 MAINTENANCE COMMITMENTS. Other than that General Terms of
Agreement effective from April 1, 1997 between Unisys Nederland N.V. and PWBV
(the "UNISYS AGREEMENT"), PWBV has no maintenance contracts or commitments to
customers or distributors which in the aggregate are in excess of USD $37,000.
3.15.4 CONTRACTS WITH AFFILIATES AND CERTAIN OTHERS. Except as
disclosed in SCHEDULE 3.15.4 of the Disclosure Letter attached hereto, PWBV has
no agreement, understanding, contract or commitment (written or oral) with any
Affiliate or any employee, agent, consultant, distributor, dealer or franchisee
that is not cancelable by PWBV on notice of not longer than thirty (30) days
without liability, penalty or premium of any nature or kind whatsoever. No
Affiliate has any direct or indirect interest in (a) any entity which does
business with PWBV or is competitive with PWBV's business, or (b) any property,
asset or right which is used by PWBV in the conduct of its business.
3.15.5 POWERS OF ATTORNEY. PWBV has not given a power of attorney,
which is currently in effect, to any person, firm or corporation for any purpose
whatsoever.
3.15.6 LOAN AGREEMENTS. Except as set forth in SCHEDULE 3.15.6 of
the Disclosure Letter attached hereto, PWBV is not obligated under any loan
agreement, promissory note, letter of credit, or other evidence of indebtedness
as a signatory, guarantor or otherwise.
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3.15.7 GUARANTEES. Except as disclosed on SCHEDULE 3.15.7 of the
Disclosure Letter attached hereto, PWBV has not guaranteed the payment or
performance of any person, firm or corporation, agreed to indemnify any person
or act as a surety, or otherwise agreed to be contingently or secondarily liable
for the obligations of any person.
3.15.8 OTHER MATERIAL CONTRACTS. PWBV has no lease, contract or
commitment of any nature involving consideration or other expenditure in excess
of USD $10,000, or involving performance over a period of more than three
months, or which is otherwise individually material to the operations of PWBV,
except as listed in SCHEDULE 3.15.8 of the Disclosure Letter attached hereto or
in any other Schedule of the Disclosure Letter attached hereto.
3.15.9 NO DEFAULT. PWBV is not in default under the Unisys
Agreement, or, to the Knowledge of Seller, under any other contract or
commitment, nor has any event or omission occurred which through the passage of
time or the giving of notice, or both, would constitute a default thereunder or
cause the acceleration of any of PWBV's obligations or result in the creation of
any Lien on any of the assets owned, used or occupied by PWBV. To the Knowledge
of Seller, no third party is in default under any lease, contract or commitment
to which PWBV is a party, nor has any event or omission occurred which, through
the passage of time or the giving of notice, or both, would constitute a default
thereunder or give rise to an automatic termination, or the right of
discretionary termination, thereof.
3.16 EMPLOYEES AND LABOR MATTERS.
3.16.1 EMPLOYMENT COMPENSATION. SCHEDULE 3.16.1 of the Disclosure
Letter attached hereto contains a true and correct list of all employees to whom
PWBV is paying compensation, including bonuses and incentives, at an annual rate
in excess of NLG 50,000 for services rendered or otherwise; and in the case of
salaried employees such list identifies the current annual rate of compensation
for each employee and in the case of hourly or commission employees identifies
certain reasonable ranges of rates and the number of employees falling within
each such range.
3.16.2 EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE. PWBV has no "defined benefit" plan.
SCHEDULE 3.16.2 of the Disclosure Letter attached hereto sets forth all pension,
thrift, savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock appreciation,
stock bonus, executive or deferred compensation, hospitalization and other
similar fringe or employee benefit plans, programs and arrangements, and any
employment or consulting contracts, "golden parachutes," collective bargaining
agreements, severance agreements or plans, vacation and sick leave plans,
programs, arrangements and policies. SCHEDULE 3.16.2 of the Disclosure Letter
attached hereto also lists and contains those provisions of all employee
manuals, and all written or binding oral statements of policies, practices or
understandings relating to employment, which are provided to, for the benefit
of, or relate to, any persons employed by PWBV ("PWBV'S EMPLOYEES") with respect
to intellectual property
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developed by PWBV or PWBV's Employees, or with respect to obligations of
confidentiality related to PWBV's affairs or property.
(b) PREMIUMS ADEQUATELY FUNDED. All pension premiums due
have been paid and all pension obligations have been adequately insured and
fully funded, including for the increase in pension obligations relating to the
period prior to the Closing resulting from indexation or subsequent salary
increase ("COMING BACK SERVICE").
(c) PAYMENTS AND COMPLIANCE. With respect to each
employee benefit plan, (i) all payments due from PWBV to date have been made and
all amounts properly accrued to date as liabilities of PWBV which have not been
paid have been properly recorded on the books of PWBV and are reflected in the
Balance Sheet; (ii) PWBV has complied with, and each such employee benefit plan
conforms in form and operation to, all applicable laws and regulations, in all
respects and all reports and if required information relating to such employee
benefit plan required to be filed, and (iii) all untaken holidays have been
adequately accrued and provided for in the Balance Sheet.
(d) NO TRIGGERING OF OBLIGATIONS. The consummation of
the transactions contemplated by this Agreement will not (i) entitle any current
or former employee of PWBV to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such employee or former employee or (iii) result in Buyer being or becoming
liable to any PWBV's Employee or liable for any amount owed to any employee
benefit plan.
3.17 SOLE SHAREHOLDER. Seller owns one hundred percent (100%) of the
issued and outstanding capital stock of PWBV.
3.18 NO BROKERS OR FINDERS. Neither Seller or PWBV nor any of their
directors, officers, employees, shareholders or agents have retained, employed
or used any broker or finder in connection with the transaction provided for
herein or in connection with the negotiation thereof.
3.19 DISCLOSURE. No representation or warranty by Seller in this
Agreement, nor any statement, certificate, schedule or exhibit hereto furnished
or to be furnished by or on behalf of Seller pursuant to this Agreement, nor any
document or certificate delivered to Buyer pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading. All
statements and information contained in any officer's certificate, the
Disclosure Letter or agreement described in Section 6 herein delivered by or on
behalf of Seller and/or PWBV shall be deemed representations and warranties by
Seller.
3.20 INVESTMENT REPRESENTATIONS. Seller understands that following the
Closing, Parent will file a registration on Form S-3, or any successor to Form
S-3 ("FORM S-3") or any similar short-form registration statement as would
permit or facilitate the sale and distribution by Seller
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of the Zitel Stock Consideration. Seller understands and acknowledges that
until the effectiveness of the Form S-3, the Zitel Stock Consideration has not
been registered under the United States Securities Act of 1933, as amended (the
"SECURITIES ACT"). Seller also understands and acknowledges that the Zitel
Stock Consideration is being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Seller's
representations contained in this Agreement. Seller hereby represents and
warrants as follows:
3.20.1 SELLER BEARS ECONOMIC RISK. Seller has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to Parent so that it is capable of evaluating
the merits and risks of its investment in Parent and has the capacity to protect
its own interests. Seller must bear the economic risk of this investment
indefinitely unless the Zitel Stock Consideration is registered pursuant to the
Securities Act, or an exemption from registration is available. Seller also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow Seller to transfer all or any portion of the Zitel Stock
Consideration under the circumstances, in the amounts or at the times Seller
might propose.
3.20.2 ACQUISITION FOR OWN ACCOUNT. Seller is acquiring the Zitel
Stock Consideration for Seller's own account for investment only, and not with a
view towards their distribution.
3.20.3 SELLER CAN PROTECT ITS INTEREST. Seller represents that by
reason of its, or of its management's, business or financial experience, Seller
has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, Seller is aware of no
publication of any advertisement in connection with the transactions
contemplated in this Agreement.
3.20.4 ACCREDITED INVESTOR. Seller represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
3.20.5 PARENT INFORMATION. Seller has received and read Parent's
Form 10-K for the fiscal year ended December 31, 1996 and Form 10-Q for the
quarter ended March 31, 1997 and has had an opportunity to discuss Parent's
business, management and financial affairs with directors, officers and
management of Parent and has had the opportunity to review Parent's operations
and facilities. Seller has also had the opportunity to ask questions of and
receive answers from, Parent and its management regarding the terms and
conditions of this investment.
3.20.6 RULE 144. Seller acknowledges and agrees that the Zitel
Stock Consideration must be held indefinitely unless it is subsequently
registered under the Securities Act or an exemption from such registration is
available. Seller has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, as in effect from time to time, which
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about Parent, the resale
occurring following the required holding period under Rule
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144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Each of Parent and Buyer, where appropriate, make the following
representations and warranties to Seller and PWBV, each of which is true and
correct on the date hereof, shall remain true and correct to and including the
Closing Date, shall be unaffected by any investigation heretofore or hereafter
made by Seller or any notice to Seller, and shall survive the Closing of the
transactions provided for herein.
4.1 CORPORATE.
4.1.1 ORGANIZATION. It is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
4.1.2 CORPORATE POWER. It has all requisite corporate power to
enter into this Agreement and the other documents and instruments to be executed
and delivered by Buyer and Parent to carry out the transactions contemplated
hereby and thereby.
4.2 AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by it pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by its Board of Directors. No other corporate act or
proceeding on the part of Buyer or Parent or its shareholders is necessary to
authorize this Agreement or the other documents and instruments to be executed
and delivered by it pursuant hereto or the consummation of the transactions
contemplated hereby and thereby. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed and delivered
by Buyer and Parent pursuant hereto will constitute, valid and binding
agreements of Buyer and Parent, enforceable in accordance with their respective
terms, except as such may be limited by bankruptcy, insolvency, reorganization
or other laws affecting creditors' rights generally, and by general equitable
principles.
4.3 ISSUANCE AND REGISTRATION OF SHARES. The Zitel Stock Consideration
will be duly authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable. Within sixty
(60) days from the Closing Date, Parent shall file a Form S-3 covering the Zitel
Stock Consideration with the SEC.
4.4 NO BROKERS OR FINDERS. Neither Buyer nor Parent nor any of its
directors, officers, employees or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
4.5 FINANCIAL CAPACITY. Buyer has the financial means necessary to
consummate the transactions contemplated hereunder.
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5. FURTHER COVENANTS OF SELLER AND PWBV.
Each of Seller and PWBV covenant and agree as follows:
5.1 ACCESS TO INFORMATION AND RECORDS. During the period prior to the
Closing, PWBV shall give Buyer, its counsel, accountants and other
representatives (a) reasonable access during normal business hours to all of the
properties, books, records, contracts and documents of PWBV for the purpose of
such inspection, investigation and testing as Buyer deems appropriate (and PWBV
shall furnish or cause to be furnished to Buyer and its representatives all
information with respect to the business and affairs of PWBV as Buyer may
reasonably request); (b) access to employees, agents and representatives for the
purposes of such meetings and communications as Buyer reasonably desires; and
(c) with the prior consent of PWBV in each instance (which consent shall not be
unreasonably withheld), access to vendors, customers, manufacturers of its
machinery and equipment, and others having business dealings with PWBV.
5.2 CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof until
the Closing, except as otherwise approved in writing by Buyer, such approval not
to be unreasonably withheld:
5.2.1 NO CHANGES. PWBV will use its best efforts to carry on its
business diligently and in the same manner as heretofore and will not make or
institute any changes in its methods of purchase, sale, management, accounting
or operation.
5.2.2 MAINTAIN ORGANIZATION. PWBV will use its best efforts to
take such action as may be necessary to maintain, preserve, renew and keep in
favor and effect the existence, rights and franchises of PWBV and will use its
best efforts to preserve the business organization of PWBV intact, to keep
available to Buyer the present officers and employees, and to preserve for Buyer
its present relationships with suppliers and customers and others having
business relationships with PWBV.
5.2.3 NO BREACH. PWBV will not do or omit any act, or permit any
omission to act, which may cause a breach of any material contract, commitment
or obligation, or any breach of any representation, warranty, covenant or
agreement made by Seller herein, or which would have required disclosure on
SCHEDULE 3.8 of the Disclosure Letter attached hereto had it occurred after the
Balance Sheet Date and prior to the date of this Agreement.
5.2.4 NO MATERIAL CONTRACTS. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale of assets
(real, personal, or mixed, tangible or intangible) will be made, by or on behalf
of PWBV, except contracts, commitments, purchases or sales which (a) are (1)
contracts or commitments for the purchase of, and purchases of, raw materials
and supplies made in the Ordinary Course of Business, (2) contracts or
commitments for the sale of, and sales of, product or inventory in the Ordinary
Course of Business, or (3) other contracts, commitments, purchases or sales in
the Ordinary Course of Business, AND (b) are not material to PWBV (individually
or in the aggregate) and would not have been required to be disclosed in the
Disclosure Letter had they been in existence on the date of this Agreement.
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5.2.5 NO CORPORATE CHANGES. Seller shall not amend the Articles
of Association of PWBV, make any changes in authorized or issued capital stock,
or take or commence the taking of any action with respect to the dissolution,
liquidation or winding up of PWBV or Seller.
5.2.6 MAINTENANCE OF INSURANCE. PWBV shall maintain all of the
insurance in effect as of the date hereof.
5.2.7 MAINTENANCE OF PROPERTY. PWBV shall use, operate, maintain
and repair all property of PWBV in a normal business manner.
5.2.8 NO NEGOTIATIONS. Neither Seller nor PWBV will directly or
indirectly (through a representative or otherwise) solicit or furnish any
information to any prospective buyer, commence, or conduct presently ongoing,
negotiations with any other party or enter into any agreement with any other
party concerning the sale of PWBV or Seller, the assets of PWBV or Seller or
business or any part thereof or any equity securities of PWBV or Seller (an
"ACQUISITION PROPOSAL"), and Seller and PWBV shall immediately advise Buyer of
the receipt of any Acquisition Proposal.
5.3 OTHER ACTION. Seller and PWBV shall use their best efforts to cause
the fulfillment at the earliest practicable date of all of the conditions to the
parties' obligations to consummate the transactions contemplated in this
Agreement.
DISCLOSURE. Seller and PWBV shall have a continuing obligation to
promptly notify Buyer in writing with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Disclosure Letter, but no such
update shall be deemed to supplement or amend any Schedule for the purpose of
determining whether any of the conditions set forth in Section 6 have been
satisfied.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of
the representations and warranties made by Seller in this Agreement, and the
statements contained in the Disclosure Letter or in any instrument, list,
certificate or writing delivered by Seller pursuant to this Agreement, shall be
true and correct in all material respects when made and shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made or given on and as of the Closing Date
without giving effect to any update of the Disclosure Letter, except for any
changes permitted by the terms of this Agreement or consented to in writing by
Buyer.
6.2 COMPLIANCE WITH AGREEMENT. Seller and PWBV shall have in all
material respects performed and complied with all of their agreements and
obligations under this
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Agreement which are to be performed or complied with by them prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 9.1 hereof.
6.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Seller or PWBV or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
6.4 DATAMETRICS TRANSACTION. All conditions to Buyer's obligation to
consummate the transactions between Buyer and Datametrics System Corporation
("DATAMETRICS") described in that certain Asset Purchase Agreement between Buyer
and Datametrics shall have been satisfied or waived by Buyer.
7. CONDITIONS PRECEDENT TO SELLER'S AND PWBV'S OBLIGATIONS.
Each and every obligation of Seller and PWBV to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of
the respective representations and warranties made by Buyer and Parent in this
Agreement shall be true and correct in all material respects when made and shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date.
7.2 COMPLIANCE WITH AGREEMENT. Buyer and Parent shall have in all
material respects performed and complied with all agreements and obligations
under this Agreement which are to be performed or complied with by Buyer and/or
Parent prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 9.2 hereof.
7.3 ABSENCE OF SUIT. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Seller or PWBV or any of the affiliates, officers or
directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby, or questioning the validity or legality of any
such transactions, or seeking damages in connection with, or imposing any
condition on, any such transactions.
7.4 DATAMETRICS TRANSACTION. All conditions to Buyer's obligation to
consummate the transactions between Buyer and Datametrics described in that
certain Asset Purchase Agreement between Buyer and Datametrics shall have been
satisfied or waived by Buyer.
7.5 UK CLOSING. All conditions to the obligation of the parties to
consummate the transactions between Zitel Limited, Palmer & Webb Systems Ltd.
and Moebius Business
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Training Ltd. described in that certain Asset Purchase Agreement between Buyer
and such parties (the "UK ASSET PURCHASE AGREEMENT") shall have been satisfied
or waived by such parties.
8. INDEMNIFICATION.
8.1 BY SELLER. Subject to the terms and conditions of this Article 8,
Seller hereby indemnifies, defends and holds harmless Buyer, and its directors,
officers, employees and controlled and controlling persons ("BUYER'S
AFFILIATES"), from and against all Claims asserted against, resulting to,
imposed upon, or incurred by Buyer or Buyer's Affiliates, directly or
indirectly, by reason of, arising out of or resulting from (a) the inaccuracy or
breach of any representation or warranty of Seller contained in or made pursuant
to this Agreement or in any officer's certificate, the Disclosure Letter or
agreement described in Section 6 herein (regardless of whether such breach is
deemed "material"); (b) the breach of any covenant of Seller or PWBV contained
in this Agreement or in any officer's certificate, the Disclosure Letter or
agreement described in Section 6 herein (regardless of whether such breach is
deemed "material"); (c) any Claim of or against Seller or PWBV. As used in this
Article 8, the term "CLAIM" shall include (a) all debts, liabilities and
obligations; (b) all losses, damages (including without limitation consequential
damages), judgments, awards, settlements, costs and expenses (including without
limitation interest (including prejudgment interest in any litigated matter),
penalties, court costs and reasonable attorneys fees and expenses) and shall be
net of any insurance or tax recoveries by Buyer of the amount of any such Claim;
and (c) all demands, claims, suits, actions, costs of investigation, causes of
action, proceedings and assessments, whether or not ultimately determined to be
valid. Seller acknowledges and agrees that, if there is any Claim relating to
PWBV's business, condition, assets, liabilities, operations, financial
performance, net income (or any aspect or portion thereof), then Buyer shall be
deemed, by virtue of its ownership of the Shares, to have incurred damages as a
result of such Claim.
8.2 BY BUYER. Subject to the terms and conditions of this Article 8,
Buyer hereby agrees to indemnify, defend and hold harmless Seller, its
directors, officers, employees and controlling persons, and shareholders from
and against all Claims asserted against, resulting to, imposed upon or incurred
by any such person, directly or indirectly, by reason of or resulting from (a)
the inaccuracy or breach of any representation or warranty of Buyer contained in
or made pursuant to this Agreement (regardless of whether such breach is deemed
"material"); or (b) the breach of any covenant of Buyer contained in this
Agreement or in any agreement, document or instrument executed and delivered
pursuant hereto or in connection with the transactions contemplated hereby
(regardless of whether such breach is deemed "material").
8.3 INDEMNIFICATION OF THIRD-PARTY CLAIMS. The obligations and
liabilities of any party to indemnify any other under this Article 8 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
8.3.1 NOTICE AND DEFENSE. The party or parties to be indemnified
(whether one or more, the "INDEMNIFIED PARTY") will give the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") written notice of any such
Claim, and the Indemnifying Party will undertake the defense thereof by
representatives chosen by the Indemnified Party. Failure to
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give such notice shall not affect the Indemnifying Party's duty or obligations
under this Article 8, except to the extent the Indemnifying Party is prejudiced
thereby. So long as the Indemnifying Party is defending any such Claim actively
and in good faith, the Indemnified Party shall not compromise or settle such
Claim. The Indemnified Party shall make available to the Indemnifying Party or
its representatives all records and other materials required by them and in the
possession or under the control of the Indemnified Party, or its representatives
for the use of the Indemnifying Party and its representatives in defending any
such Claim, and shall in other respects give reasonable cooperation in such
defense.
8.3.2 FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party will (upon further notice)
have the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf of
and for the account and risk of the Indemnifying Party, and the Indemnifying
Party shall thereafter have no right to challenge the Indemnified Party's
defense, compromise, settlement or consent to judgment.
8.3.3 INDEMNIFIED PARTY'S RIGHTS. Anything in this Section 8 to
the contrary notwithstanding, (a) if there is a reasonable probability that a
Claim may materially and adversely affect Buyer other than as a result of money
damages or other money payments for such Claim, or if the amount of the Claim
being asserted exceeds (in Buyer's judgment) by more than USD $200,000 the
insurance coverage which has been admitted by the applicable insurance carriers,
Buyer shall have the sole right to defend, compromise or settle such Claim and
shall be entitled to recover from Seller for such amounts, (b) the Indemnifying
Party shall not, without the written consent of the Indemnified Party, settle or
compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such Claim, and (c) Buyer shall have the exclusive right to defend and settle
breach of warranty claims for products.
8.4 PAYMENT. Subject to the terms of the Purchase Price and
Indemnification Escrow Agreement, the Indemnifying Party shall promptly pay the
Indemnified Party any amount due under this Article 8, which payment may be
accomplished in whole or in part, to the extent that the Indemnified Party owes
any amount to the Indemnifying Party, at the option of the Indemnified Party, by
the Indemnified Party setting off any amount owed to the Indemnifying Party by
the Indemnified Party. To the extent set-off is made by an Indemnified Party in
satisfaction or partial satisfaction of an indemnity obligation under this
Article 8 that is disputed by the Indemnifying Party, upon a subsequent
determination by final judgment not subject to appeal that all or a portion of
such indemnity obligation was not owed to the Indemnified Party, the Indemnified
Party shall pay the Indemnifying Party the amount which was set off and not owed
together with interest from the date of set-off until the date of such payment
at the Prime Rate set by Comerica Bank - California at its San Francisco,
California office. Upon judgment, determination, settlement or compromise of
any third party Claim, the Indemnifying Party shall pay promptly on behalf of
the Indemnified Party, and/or to the Indemnified Party in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other Claims of the
Indemnified
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Party with respect thereto, unless in the case of a judgment an appeal is made
from the judgment. If the Indemnifying Party desires to appeal from an adverse
judgment, then the Indemnifying Party shall post and pay the cost of the
security or bond to stay execution of the judgment pending appeal. Upon the
payment in full by the Indemnifying Party of such amounts, the Indemnifying
Party shall succeed to the rights of such Indemnified Party, to the extent not
waived in settlement, against the third party who made such third party Claim.
8.5 DEDUCTIBLE AMOUNT. Without limiting the effect of any of the other
limitations set forth herein, Seller shall not be required to make any
indemnification payment hereunder with respect to any breach of any of its
representations and warranties, except to the extent that the cumulative amount
of the Damages actually incurred by Buyer as a direct result of all such
breaches of such representations and warranties during the period from (a) the
Closing Date until 5:00 p.m. (Pacific Standard Time) on the first anniversary of
the Closing Date (the "FIRST ANNIVERSARY DATE") (such period being referred to
as the "FIRST PERIOD") actually exceeds the First Period Deductible Amount, and
(b) the first day following the First Anniversary Date until 5:00 p.m. (Pacific
Standard Time) on the second anniversary of the Closing Date (such period being
referred to as the "SECOND PERIOD") actually exceeds the Second Period
Deductible Amount; and Seller shall only be required to pay, and shall only be
liable for, the amount by which the cumulative amount of the Damages actually
incurred by Buyer as a direct result of all such breaches of such
representations and warranties actually exceeds the First Period Deductible
Amount or the Second Period Deductible Amount, as appropriate. The "FIRST
PERIOD DEDUCTIBLE AMOUNT" shall be USD $37,500 and the "SECOND PERIOD
DEDUCTIBLE AMOUNT" shall be USD $6,250.
8.6 MAXIMUM LIABILITY. The total amount of the payments that Seller can
be required to make under or in connection with this Agreement (including all
indemnification payments required to be made to Buyer and all amounts payable to
any counsel retained by Seller in accordance with Section 8.3), excluding Claims
arising solely from software produced by Datametrics (the determination of which
shall be in the sole discretion of Buyer) where Seller has acted only as a
distributor of such software, shall be limited in the aggregate (including the
Indemnification Escrow Amount) to a maximum of: (a) USD $312,500 during the
First Period; (b) USD $125,000, less any amount paid by Seller during the First
Period, during the Second Period; and (c) Zero Dollars (USD $0) thereafter.
8.7 TREATMENT OF INDEMNIFICATION PAYMENTS. The parties shall treat all
indemnification payments as either a reimbursement to the party making the
original payment or as a reduction in the Purchase Price paid by Buyer, as
appropriate, to achieve the most beneficial tax and accounting treatment for
both parties. In the event that treating the payment as either reimbursement or
a reduction of the Purchase Price will have a positive tax and accounting effect
for one of the parties and no negative tax or accounting effect for the other
party, the payment shall be so treated. If one party will benefit from one form
of treatment at the expense of the other, the parties shall treat the payment
for tax and accounting purposes to minimize taxes and in a manner which favors
the Indemnified Party.
8.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; CLAIMS FOR
INDEMNIFICATION. All representations and warranties made by Seller or by Buyer
in this Agreement, or in any officer's
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certificate, the Disclosure Letter or agreement described in Sections 6 or 7
herein, shall survive the Closing and any investigation at any time made by or
on behalf of Seller or Buyer, as the case may be. All such representations and
warranties shall expire on the second anniversary of the Closing Date, except
with respect to claims, if any, (a) asserted in writing prior to such second
anniversary identified as a Claim for indemnification pursuant to this
Section 8, or (b) which are based upon the representations and warranties of
Seller relating to taxes, which shall survive until the applicable statute of
limitations has expired.
8.9 NO WAIVER. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing, and regardless of
whether such breach, violation or failure is deemed to be "material".
9. CLOSING.
The closing of this transaction (the "CLOSING") shall take place at the
offices of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco,
California, at 7:00 a.m. (Pacific Standard Time) on June 30, 1997, or at such
other time and place as the parties hereto shall agree upon (the "CLOSING
DATE").
9.1 DOCUMENTS TO BE DELIVERED BY SELLER AND PWBV. At the Closing,
Seller and PWBV shall deliver to Buyer the following documents, in each case
duly executed or otherwise in proper form:
9.1.1 POWERS OF ATTORNEY. Irrevocable powers of attorney, duly
executed, authorizing any employer of Ekelmans Den Hollander to execute the deed
of transfer relating to the Shares.
9.1.2 COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of Seller that each of the representations and warranties made
by Seller in this Agreement is true and correct in all material respects on and
as of the Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date (except for any
changes permitted by the terms of this Agreement or consented to in writing by
Buyer), and that Seller has performed and complied with all of its obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date. A certificate signed by the managing director of PWBV that
PWBV has performed and complied with all of its obligations under this Agreement
which are to be performed and complied with on or prior to the Closing Date.
9.1.3 CERTIFIED RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors and shareholders of Seller authorizing and approving
this Agreement and the consummation of the transactions contemplated by this
Agreement.
9.1.4 ARTICLES. A copy of the certified Articles of Association
of Seller and PWBV.
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9.1.5 INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered by Seller or PWBV
hereunder.
9.1.6 SELLER CERTIFICATE. A written certificate prepared by
Buruma Maris, addressed to Buyer and dated as of the Closing Date relating to
Seller, substantially in the form of EXHIBIT D hereto.
9.1.7 PWBV CERTIFICATE. A written certificate prepared by
Ekelmans Den Hollander, addressed to Buyer and dated as of the Closing Date
relating to the sale of the Shares.
9.1.8 ESCROW AGREEMENT. The Escrow Agreement duly executed by
Seller and PWBV and the Escrow Agent in the form of EXHIBIT E hereto.
9.1.9 PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT. The
Purchase Price and Indemnification Escrow Agreement duly executed by Seller and
PWBV.
9.1.10 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
9.2 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall
deliver to Seller and PWBV the following documents, in each case duly executed
or otherwise in proper form:
9.2.1 CASH PURCHASE PRICE. To Seller and Escrow Agent wire
transfers as required by Section 2.2.3 hereof.
9.2.2 POWERS OF ATTORNEY. Irrevocable powers of attorney, duly
executed, authorizing any employer of Ekelmans Den Hollander to execute the deed
of transfer relating to the Shares.
9.2.3 COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of Buyer and Parent that the representations and warranties
made by Buyer and Parent in this Agreement are true and correct on and as of the
Closing Date with the same effect as though such representations and warranties
had been made or given on and as of the Closing Date (except for any changes
permitted by the terms of this Agreement or consented to in writing by Seller),
and that Buyer and Parent have performed and complied with all of Buyer's
obligations under this Agreement which are to be performed or complied with on
or prior to the Closing Date.
9.2.4 CERTIFIED RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors of Parent and Buyer authorizing and approving this
Agreement and the other agreements, documents and instruments described herein
and the consummation of the transactions contemplated by this Agreement.
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9.2.5 INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered by Buyer hereunder.
9.2.6 OPINION OF COUNSEL. A written opinion of Cooley Godward
LLP, counsel to Buyer and Parent, dated as of the Closing Date, addressed to
Seller, in substantially the form of EXHIBIT F hereto.
9.2.7 ESCROW AGREEMENT. The Escrow Agreement duly executed by
Buyer and the Escrow Agent in the form of EXHIBIT E hereto.
9.2.8 OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Seller at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Seller may reasonably request.
10. TERMINATION.
10.1 RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
10.1.1 by the mutual written agreement of Buyer and Seller; or
10.1.2 by either Buyer or Seller if the Closing shall not have
occurred on or before that date which is thirty (30) days after the date of this
Agreement, or if such date is not a Business Day, the first Business Day
thereafter, provided the terminating party has not, through breach of a
representation, warranty or covenant, prevented the Closing from occurring on or
before such date.
10.2 TERMINATION FOR BREACH.
10.2.1 TERMINATION BY BUYER. If (a) there has been a material
violation or breach by Seller or PWBV of any of the agreements, representations
or warranties contained in this Agreement which has not been waived in writing
by Buyer, or (b) there has been a failure of satisfaction of a condition to the
obligations of Buyer which has not been so waived, or (c) Seller shall have
attempted to terminate this Agreement under this Article 10 or otherwise without
grounds to do so, then Buyer may, by written notice to Seller at any time prior
to the Closing that such violation, breach, failure or wrongful termination
attempt is continuing, terminate this Agreement with the effect set forth in
Section 10.2.3 hereof.
10.2.2 TERMINATION BY SELLER. If (a) there has been a material
violation or breach by Buyer or Parent of any of the agreements, representations
or warranties contained in this Agreement which has not been waived in writing
by Seller, or (b) there has been a failure of satisfaction of a condition to the
obligations of Seller which has not been so waived, or (c) Buyer shall have
attempted to terminate this Agreement under this Article 10 or otherwise without
grounds to do so, then Seller may, by written notice to Buyer at any time prior
to the Closing that such violation, breach, failure or wrongful termination
attempt is continuing, terminate this Agreement with the effect set forth in
Section 10.2.3 hereof.
23.
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10.2.3 EFFECT OF TERMINATION. Termination of this Agreement
pursuant to this Section 10.2 shall not in any way terminate, limit or restrict
the rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof. In addition to the right of any party under common law to
redress for any such breach or violation, each party whose breach or violation
has occurred prior to termination shall jointly and severally indemnify each
other party for whose benefit such representation, warranty, covenant, agreement
or other provision was made ("indemnified party") from and against all losses,
damages (including without limitation consequential damages), costs and expenses
(including without limitation interest (including prejudgment interest in any
litigated matter), penalties, court costs, and attorneys fees and expenses)
asserted against, resulting to, imposed upon, or incurred by the indemnified
party, directly or indirectly, by reason of, arising out of or resulting from
such breach or violation. Subject to the foregoing, the parties' obligations
under Article 12 of this Agreement shall survive termination.
11. RESOLUTION OF DISPUTES.
11.1 ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into pursuant
hereto or the performance by the parties of its or their terms, or any claim
that the execution and delivery of such agreements constituted a violation of
the securities laws of any state or the United States or any claim for damages
or rescission of this Agreement for fraud, misrepresentation or violation of any
such securities laws, shall be settled by binding arbitration held in San
Francisco, California, accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 11.
11.2 ARBITRATORS. If the matter in controversy (exclusive of attorney
fees and expenses) shall appear, as at the time of the demand for arbitration,
to exceed USD $250,000, then the panel to be appointed shall consist of three
neutral arbitrators; otherwise, one neutral arbitrator.
11.3 PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such discovery
as the arbitrator(s) determine appropriate under the circumstances and shall
resolve the dispute as expeditiously as practicable, and if reasonably
practicable, within one hundred twenty (120) days after the selection of the
arbitrator(s). The arbitrator(s) shall give the parties written notice of the
decision, with the reasons therefor set out, and shall have thirty (30) days
thereafter to reconsider and modify such decision if any party so requests
within ten (10) days after the decision. Thereafter, the decision of the
arbitrator(s) shall be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused to
participate in the arbitration process.
11.4 AUTHORITY. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
24.
<PAGE>
11.5 ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Seller, Buyer, PWBV, Parent and the shareholders of each entity
hereby submit to the in personam jurisdiction of the Federal and State courts in
California, for the purpose of confirming any such award and entering judgment
thereon.
11.6 CONFIDENTIALITY. All proceedings under this Article 11, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
11.7 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 11 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party and to the right of setoff
provided in Section 8.4 hereof.
11.8 TOLLING. All applicable statues of limitation shall be tolled while
the procedures specified in this Article 11 are pending. The parties will take
such action, if any, required to effectuate such tolling.
12. EXPENSES.
Regardless of whether or not the transactions contemplated hereby are
consummated:
12.1 BROKERAGE. Seller, PWBV, Buyer and Parent each represent and
warrant to each other that there is no broker involved or in any way connected
with the transfer provided for herein. Buyer agrees to hold Seller and PWBV
harmless from and against all claims for brokerage commissions or finder's fees
incurred through any act of Buyer in connection with the execution of this
Agreement or the transactions provided for herein. Seller and PWBV jointly and
severally, agree to hold Buyer harmless from and against all claims for
brokerage commissions or finder's fees incurred through any act of any Seller or
PWBV in connection with the execution of this Agreement or the transactions
provided for herein.
12.2 EXPENSES TO BE PAID BY SELLER. Seller shall pay, and shall
indemnify, defend and hold Buyer harmless from and against, each of the
following:
12.2.1 TRANSFER TAXES. Any sales, use, excise, transfer, income or
other similar tax imposed upon Seller with respect to the transactions provided
for in this Agreement, and any interest or penalties related thereto.
12.2.2 PROFESSIONAL FEES. All fees and expenses of Seller's legal,
accounting, investment banking and other professional counsel in connection with
the transactions contemplated hereby. Buyer acknowledges that Seller will pay
for such transaction expenses from Seller's operating accounts.
25.
<PAGE>
12.3 EXPENSES TO BE PAID BY BUYER. Buyer shall pay, and shall indemnify,
defend and hold Seller harmless from and against, each of the following:
12.3.1 STAMP DUTY/FILING FEES. Any stamp duty, filing fees and
windup costs imposed with respect to the transactions provided for in this
Agreement, and any interest or penalties related thereto.
12.3.2 PROFESSIONAL FEES. All fees and expenses of Buyer's legal,
accounting, investment banking and other professional counsel in connection with
the transactions contemplated hereby.
12.4 OTHER. Except as otherwise provided herein, each of the parties
shall bear its own expenses and the expenses of its counsel and other agents in
connection with the transactions contemplated hereby.
12.5 COSTS OF LITIGATION OR ARBITRATION. The parties agree that (subject
to the discretion, in an arbitration proceeding, of the arbitrator as set forth
in Section 11.4 hereof) the prevailing party in any action brought with respect
to or to enforce any right or remedy under this Agreement shall be entitled to
recover from the other party or parties all reasonable costs and expenses of any
nature whatsoever incurred by the prevailing party in connection with such
action, including without limitation attorneys' fees and prejudgment interest.
13. MISCELLANEOUS.
13.1 MATERIALITY. For purposes of Sections 3, 5, 6, and 8.1 of this
Agreement and for purposes of EXHIBIT A to this Agreement, a contract,
obligation, liability, transaction, change, breach, encumbrance, proceeding or
other matter or event shall not be deemed to be "material" unless the existence
or occurrence of such matter or event would, by itself, (a) cause a reasonable
purchaser to reverse its decision to enter into a transaction of the type
contemplated by this Agreement.
13.2 ANNOUNCEMENTS. Announcements concerning the transactions provided
for in this Agreement by either Seller or Buyer shall be subject to the approval
of the other in all essential respects, except that Seller's approval shall not
be required as to any statements and other information which Buyer may submit to
the SEC, the California Securities Commission or be required to make pursuant to
any rule or regulation of the SEC or any state or local securities regulatory
board, or otherwise required by law.
13.3 ASSIGNMENT; PARTIES IN INTEREST. Except as expressly provided
herein, the rights and obligations of a party hereunder may not be assigned,
transferred or encumbered without the prior written consent of the other
parties. Notwithstanding the foregoing, Buyer may, without consent of any other
party, cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Seller hereunder. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall
26.
<PAGE>
be deemed to confer upon any other person any right or remedy under or by reason
of this Agreement.
13.4 GOVERNING LAW. This Agreement shall be construed and interpreted
according to the internal laws of the State of California, excluding any choice
of law rules that may direct the application of the laws of another
jurisdiction.
13.5 AMENDMENT AND MODIFICATION. Buyer, Parent, Seller and PWBV may
amend, modify and supplement this Agreement in such manner as may be agreed upon
by them in writing.
13.6 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified international courier
service. The respective addresses to be used for all such notices, demands or
requests are as follows:
(a) If to Buyer or PWBV, to:
Zitel Corporation
47211 Bayside Parkway
Fremont, CA 94538
Attention: Mr. Henry C. Harris
Telephone: (510) 440-9600
Telecopier: (510) 440-9696
(with a copy to)
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: John L. Cardoza, Esq.
Telephone: (415) 693-2000
Telecopier: (415) 951-3699
or to such other person or address as Buyer shall furnish to Seller in writing.
27.
<PAGE>
(b) If to Seller, to:
Palmer & Webb Systems Ltd.
Fountain House, Cleave Road
Leatherhead
Surrey KT22 7LX
United Kingdom
Attention: Julian Palmer
Phone: 011-44-137-2378899
Fax: 011-44-137-2378845
(with a copy to)
Brobeck Hale and Dorr
Hasilwood House
60 Bishopsgate
London EC2N 4AJ
Attention: David Ayres
Telephone: 011-44-1716386688
Telecopier: 011-44-1716385888
or to such other person or address as Seller shall furnish to Buyer in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next Business Day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt. Any party to this Agreement may change its address for the
purposes of this Agreement by giving notice thereof in accordance with this
Section.
13.7 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
13.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.9 HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
13.10 FURTHER DOCUMENTS. Buyer, Seller and PWBV each agree to execute all
other documents and to take such other action or corporate proceedings as may be
necessary or desirable to carry out the terms hereof.
28.
<PAGE>
13.11 SURVIVAL. All provisions of this Agreement shall survive the
Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
"BUYER"
ZITEL WORLD TRADE
By: /s/ Jack H. King
----------------------------------------
Jack H. King, CEO
----------------------------------------
[Print Name and Title]
"PARENT"
ZITEL CORPORATION
By: /s/ Jack H. King
----------------------------------------
Jack H. King, CEO
----------------------------------------
[Print Name and Title]
"SELLER"
HELL SAILS B.V.
By: /s/ J. H. Van Bergen
----------------------------------------
J. H. Van Bergen
----------------------------------------
[Print Name and Title]
"PWBV"
PALMER & WEBB SYSTEMS B.V.
By: /s/ J. Fortgens, Managing Director
----------------------------------------
/s/ M. L. Schuurkes, Managing Director
----------------------------------------
[Print Name and Title]
29.
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EXHIBIT A
DEFINITIONS
As used in the Agreement the following terms shall have the following
respective meanings:
"ACQUISITION PROPOSAL" shall have the meaning specified in Section 5.2.8 of
the Agreement.
"AFFILIATE" shall have the meaning specified in Section 3.8.13 of the
Agreement.
"AGREEMENT" shall have the meaning specified in the preamble to the
Agreement.
"BALANCE SHEET" shall have the meaning specified in Section 3.4 of the
Agreement.
"BALANCE SHEET DATE" shall mean April 30, 1997.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or any
weekday on which Comerica Bank - California in San Francisco, California is not
open for business.
"BUYER" shall have the meaning specified in the preamble to the Agreement.
"BUYER'S AFFILIATES" shall have the meaning specified in Section 8.1 of the
Agreement.
"CLAIM" shall have the meaning specified in Section 8.1 of the Agreement.
"CLOSING" and "CLOSING DATE" shall have the meanings specified in Section 9
of the Agreement.
"COMING BACK SERVICE" shall have the meaning specified in Section 3.16.2(b)
of the Agreement.
"DATAMETRICS" shall have the meaning specified in Section 6.4 of the
Agreement.
"DISCLOSURE LETTER" shall mean that disclosure letter, together with the
Schedules contained therein, attached and forming a part of the Agreement.
"ESCROW AGENT" shall mean Comerica Bank - California.
"ESCROW AGREEMENT" shall mean that certain agreement between the parties to
the Agreement and the Escrow Agent in the form of EXHIBIT E to the Agreement.
"FINANCIAL STATEMENTS" shall have the meaning specified in Section 3.4 of
the Agreement.
1.
<PAGE>
"FIRST ANNIVERSARY DATE" shall have the meaning specified in Section 8.5 of
the Agreement.
"FIRST PERIOD" shall have the meaning specified in Section 8.5 of the
Agreement.
"FIRST PERIOD DEDUCTIBLE AMOUNT" shall have the meaning specified in
Section 8.5 of the Agreement.
"FORM S-3" shall have the meaning specified in Section 3.21 of the
Agreement.
"GAAP" shall mean generally accepted accounting principles in the relevant
jurisdiction.
"INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" shall have the meanings
specified in Section 8.3.1 of the Agreement.
"KNOWLEDGE," "KNOWN," "AWARENESS" and "AWARE" shall mean the combined
actual knowledge of any director or officer of Seller and any director or
officer of Seller shall be deemed to have such knowledge as he or she would have
after having made all due, diligent and careful inquiries and after having
received full disclosure in response to such inquiries.
"LAWS" shall have the meaning specified in Section 3.11.1 of the Agreement.
"LIENS" shall have the meaning specified in Section 3.12.1 of the
Agreement.
"ORDINARY COURSE OF BUSINESS" shall mean the ordinary course of PWBV's
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PARENT" shall have the meaning specified in the preamble to the Agreement.
"PERSON" means any individual, corporation, limited liability corporation,
association, general partnership, limited partnership, limited liability
partnership, venture, trust, association, firm, organization, company, business,
entity, union, society, government (or political subdivision thereof) or
governmental agency, authority or instrumentality.
"PURCHASE PRICE" shall have the meaning specified in Section 2.1 of the
Agreement.
"PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT" shall have the
meaning specified in Section 2.2.1 of the Agreement.
"PWBV" shall have the meaning specified in the preamble to the Agreement.
"REAL PROPERTY" shall have the meaning specified in Section 3.12.3 of the
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall have the meaning specified in Section 3.21 of the
Agreement.
2.
<PAGE>
"PWBV'S EMPLOYEES" shall have the meaning specified in Section 3.16.2(a) of
the Agreement.
"SECOND PERIOD" shall have the meaning specified in Section 8.5 of the
Agreement.
"SECOND PERIOD DEDUCTIBLE AMOUNT" shall have the meaning specified in
Section 8.5 of the Agreement.
"SELLER" shall have the meaning specified in the preamble to the Agreement.
"TAXES" shall mean any and all forms of direct and indirect taxation levied
from or imposed on or to be withheld by the MeesPierson Group under any tax laws
or regulations, whether national or foreign, including without limiting the
generality of the foregoing, corporate income tax, capital tax, wage tax, real
estate property tax, transfer taxes, registration tax, sales tax, value added
tax, withholding tax, divestment payments (such as repayment or recapture of
investment premiums, subsidies, investment credits, allowances or deductions),
custom duties, stock exchange tax, excise tax or gift tax and all social
security contributions and any interest and penalties due in respect thereof or
in connection therewith.
"UNISYS AGREEMENT" shall have the meaning specified in Section 3.15.3 of
the Agreement.
"UK ASSET PURCHASE AGREEMENT" shall have the meaning specified in
Section 7.5 of the Agreement.
"ZITEL STOCK CONSIDERATION" shall have the meaning specified in
Section 2.2.2 of the Agreement.
3.
<PAGE>
Exhibit B
PURCHASE PRICE AND
INDEMNIFICATION ESCROW AGREEMENT
THIS PURCHASE PRICE AND INDEMNIFICATION ESCROW AGREEMENT (this "AGREEMENT")
is dated as of June 30, 1997, by and among ZITEL LIMITED, a company incorporated
in England and Wales ("ZITEL U.K."), and ZITEL WORLD TRADE, a California
corporation ("ZITEL WORLD TRADE") (Zitel U.K. and Zitel World Trade are
hereinafter collectively referred to as "BUYER"), PALMER & WEBB SYSTEMS LTD., a
company incorporated in England and Wales ("PWUK"), REGINALD WEBB and JULIAN
PALMER, as the sole shareholders of PWUK (individually, a "PWUK SHAREHOLDER" and
collectively, the "PWUK SHAREHOLDERS"), MOEBIUS BUSINESS TRAINING LTD., a
company incorporated in England and Wales ("MOEBIUS"), and PWUK, as the sole
shareholder of Moebius (the "MOEBIUS SHAREHOLDER"), HELL SAILS B.V., a private
limited liability company organized under the laws of the Kingdom of the
Netherlands ("HELL SAILS"), and PALMER & WEBB SYSTEMS B.V., a private limited
liability company organized under the laws of the Kingdom of the Netherlands
("PWBV"), and COMERICA BANK - CALIFORNIA (the "ESCROW AGENT"). (PWUK, Moebius
and Hell Sails are sometimes hereinafter individually referred to as a "SELLER"
and collectively as the "SELLERS") (The PWUK Shareholders and the Moebius
Shareholder are sometimes hereinafter individually referred to as a
"SHAREHOLDER" and collectively as the "SHAREHOLDERS").
RECITALS
A. Pursuant to that certain Asset Purchase Agreement dated the date
hereof (the "ASSET PURCHASE AGREEMENT") between Zitel U.K., PWUK, Moebius, the
PWUK Shareholders and the Moebius Shareholder, Zitel U.K. is purchasing
substantially all of the assets, and assuming certain of the liabilities, of
PWUK and Moebius.
B. Pursuant to that certain Stock Purchase Agreement dated the date
hereof (the "STOCK PURCHASE AGREEMENT") between Zitel World Trade, Hell Sails
and PWBV, Zitel World Trade is purchasing all of the outstanding and issued
stock of PWBV from Hell Sails. The Asset Purchase Agreement and the Stock
Purchase Agreement are hereinafter collectively referred to as the "AGREEMENTS".
C. A condition precedent to the consummation of the Agreements is the
execution and delivery of this Agreement by the parties hereto. Certain
capitalized terms used in this Agreement are defined in the Agreements.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1.
<PAGE>
1. ESTABLISHMENT OF ESCROW ACCOUNTS.
1.1 PURCHASE PRICE ADJUSTMENT ESCROW. At the Closing (as defined in the
Agreements), Buyer shall deliver the amount of One Hundred Fifty Thousand
Dollars ($150,000) (the "PURCHASE PRICE ADJUSTMENT ESCROW AMOUNT") to Comerica
Bank - California (the "ESCROW AGENT") to be held in a segregated interest-
bearing account as provided for in this Section 1.1 (the "PURCHASE PRICE
ADJUSTMENT ESCROW"). On or before the fifth (5th) day following the final
determination of the Second Quarter Balance Sheets (as defined below) (such date
being hereinafter referred to as the "SETTLEMENT DATE"): (a) if the total
assets reflected in the Second Quarter Balance Sheets less the total assets
reflected in the balance sheets of PWUK, Moebius and PWBV, each dated as of
April 30, 1997 (collectively, the "APRIL 30 BALANCE SHEETS") is less than Fifty
Thousand Dollars ($50,000), no adjustment shall be made to the Purchase Price in
both Agreements and the entire Purchase Price Adjustment Escrow Amount shall be
paid to PWUK on behalf of all Sellers promptly thereafter; and (b) if the total
assets reflected in the Second Quarter Balance Sheets less the total assets
reflected in the April 30 Balance Sheets is equal to or greater than Fifty
Thousand Dollars ($50,000), the excess, together with actual interest earned
thereon paid from the Closing Date (as defined in the Agreements) to the
Settlement Date (the "PURCHASE PRICE ADJUSTMENT"), shall be deducted equally
from the Purchase Price paid under both Agreements and paid to Buyer from the
Purchase Price Adjustment Escrow and the remaining Purchase Price Adjustment
Escrow Amount, together with actual interest earned thereon, shall be paid to
PWUK on behalf of all Sellers promptly thereafter.
1.2 INDEMNIFICATION ESCROW. At the Closing, Buyer shall deliver the
amount of One Hundred Fifty Thousand Dollars ($150,000) (the "INDEMNIFICATION
ESCROW AMOUNT") to the Escrow Agent to be held in a segregated interest-bearing
account as provided for in this Section 1.2 (the "INDEMNIFICATION ESCROW"). The
Escrow Agent shall hold the Indemnification Escrow Amount until 5:00 p.m.
(Pacific Standard Time) on the first anniversary of the Closing Date (the "FIRST
ANNIVERSARY DATE") for the purpose of paying for: (a) any claims for indemnity
made by Buyer pursuant to Section 11 of the Asset Purchase Agreement or Section
8 of the Stock Purchase Agreement; and (b) any claim for a Warranty Credit made
by Buyer pursuant to Section 3.3 of the Asset Purchase Agreement. In the event
that no such claim(s) are made by Buyer by the First Anniversary Date, the
Indemnification Escrow Amount, together with any interest earned thereon, shall
be paid by the Escrow Agent to PWUK on behalf of all Sellers promptly
thereafter. In the event that Buyer makes one or more such claim(s) by the
First Anniversary Date: (a) the amount of such claim(s) shall continue to be
held in the Indemnification Escrow and the Indemnification Escrow shall be
extended after the First Anniversary Date until such time as such claim(s) is
finally resolved; and (b) the difference between the Indemnification Escrow
Amount and the amount of such claim(s), together with any interest earned
thereon, shall be paid by the Escrow Agent to PWUK on behalf of all Sellers
promptly thereafter.
1.3 METHOD OF PAYMENT. All payments under this Article 1 shall be made by
wire transfer of immediately available funds to an account designated by the
recipient not less than forty-eight (48) hours prior to the time for payment
specified herein.
2.
<PAGE>
2. SECOND QUARTER BALANCE SHEETS.
2.1 PREPARATION. Within sixty (60) days after the Closing Date, Buyer
shall deliver to PWUK on behalf of all Sellers a balance sheet of each of PWUK,
Moebius and PWBV as of July 31, 1997, prepared in accordance with generally
accepted accounting principles from the books and records of each of PWUK,
Moebius and PWBV, on a basis consistent with generally accepted accounting
principles ("GAAP") theretofore followed by each of PWUK, Moebius and PWBV in
the preparation of the April 30 Balance Sheets and in accordance with this
Section 2.1, and fairly presenting the financial position of each of PWUK,
Moebius and PWBV as of July 31, 1997. Such balance sheets shall be accompanied
by detailed schedules of the Purchased Assets and Assumed Liabilities together
with a report prepared by Buyer stating that such balance sheets have been
prepared in accordance with GAAP, on a basis consistent with the accounting
principles theretofore followed by each of PWUK, Moebius and PWBV, except as
otherwise provided in this Section 2.1 and setting forth the amount of any
adjustment to the Purchase Price under the Agreements.
2.2 RIGHT TO OBJECT. Within thirty (30) days following the delivery of
such balance sheets, only PWUK, or the Sellers' independent accountants (MP
Saunders & Company with respect to PWUK and Moebius and Van Doesburg & Partners
with respect to PWBV ("SELLERS' ACCOUNTANTS")), on behalf of any or all Sellers,
may object to any of the information contained in such balance sheets. Any such
objection shall be made in writing. PWUK and the applicable Sellers'
Accountant, on the one hand, and Buyer and Coopers & Lybrand L.L.P. ("BUYER'S
ACCOUNTANT"), on the other hand, shall use their best efforts to reasonably
resolve such dispute(s) in a timely fashion.
2.3 APPOINTMENT OF THIRD AUDITOR. In the event of a dispute or
disagreement relating to the balance sheets which Buyer and Seller(s) are unable
to resolve, any party may elect to have all such disputes or disagreements
resolved by an accounting firm of nationally recognized standing (the "THIRD
ACCOUNTING FIRM") to be mutually selected by the applicable Seller and Buyer or,
if no agreement is reached, by the applicable Sellers' Accountant and Buyer's
Accountant. The Third Accounting Firm shall make a resolution of the balance
sheet of the applicable Seller as of July 31, 1997, which shall be final and
binding for purposes of this Article 2. The Third Accounting Firm shall be
instructed to use every reasonable effort to perform its services within fifteen
(15) days of its hiring and, in any case, as soon as practicable after such
date. The fees and expenses for the services of the Third Accounting Firm shall
be shared by Buyer and the applicable Seller as follows:
The applicable Seller shall pay a percentage of such fees and expenses
equal to A/(A+B) and Buyer shall pay a percentage of such fees and expenses
equal to B/(A+B), where A is equal to the absolute value of the difference (in
dollars) between assets as finally determined by the Third Accounting Firm and
assets as reflected in the objection prepared and delivered by the applicable
Seller in accordance with Section 2.2 hereof, and B is equal to the absolute
value of the difference (in dollars) between assets as finally determined by the
Third Accounting Firm and assets as reflected in the report prepared and
delivered by Buyer in accordance with Section 2.1 hereof. As used in this
Agreement, the term "SECOND
3.
<PAGE>
QUARTER BALANCE SHEETS" shall mean the balance sheets of each of PWUK, Moebius
and PWBV as of July 31, 1997 as finally determined for purposes of this
Article 2, whether by acquiescence of Sellers in the figures supplied by Buyer
in accordance with Section 2.1 hereof, by negotiation and agreement of the
parties or by the Third Accounting Firm in accordance with this Section 2.3.
2.4 ACCESS. Buyer agrees to permit Sellers, the applicable Sellers'
Accountant, and their respective representatives, during normal business hours,
to have reasonable access to, and to examine and make copies of, all books and
records of Seller, including but not limited to, the books, records, schedules,
work papers and audit programs of Buyer and Buyer's Accountant and access to
representatives of Buyer's Accountant, which documents and access are necessary
to review the balance sheet delivered by Buyer in accordance with Section 2.1
hereof. Sellers similarly agree to permit Buyer's Accountant and their
respective representatives, during normal business hours, to have reasonable
access to any books and records of Sellers which do not constitute Purchased
Assets, in order to enable them to prepare such balance sheet.
3. REPRESENTATIONS AND WARRANTIES.
Each of Zitel U.K., Zitel World Trade, PWUK, Moebius, Hell Sails, PWBV and
Escrow Agent hereby makes the following representations and warranties to every
other party hereto, each of which is true and correct on the date hereof, shall
remain true and correct to and including the Closing Date, shall be unaffected
by any investigation heretofore or hereafter made by any other party hereto, or
any knowledge of any other party and shall survive the Closing.
3.1 CORPORATE. It is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. It has all
requisite corporate power to enter into this Agreement and the other documents
and instruments to be executed and delivered by it and to carry out the
transactions contemplated hereby and thereby.
3.2 AUTHORITY. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by it pursuant hereto and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by its board of directors. No other corporate act or proceeding
on the part of it or its shareholders is necessary to authorize this Agreement
or the other documents and instruments to be executed and delivered by it
pursuant hereto or the consummation of the transactions contemplated hereby and
thereby. This Agreement constitutes, and when executed and delivered, the other
documents and instruments to be executed and delivered by it pursuant hereto
will constitute, valid and binding agreements of it, enforceable in accordance
with their respective terms, except as such may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
4.
<PAGE>
4. TERMINATION. This Agreement shall terminate upon the earlier of: (a) that
date when the amount in both the Purchase Price Adjustment Escrow and the
Indemnification Escrow is Zero Dollars ($0); or (b) the written agreement of all
parties hereto.
5. RESOLUTION OF DISPUTES.
5.1 ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or any contract or agreement entered into pursuant
hereto or the performance by the parties of its or their terms, or any claim
that the execution and delivery of such agreements constituted a violation of
the securities laws of any state or the United States or any claim for damages
or rescission of this Agreement for fraud, misrepresentation or violation of any
such securities laws, shall be settled by binding arbitration held in San
Francisco, California, accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 5. The panel to be appointed shall consist
of one neutral arbitrator.
5.2 PROCEDURES; NO APPEAL. The arbitrator shall allow such discovery as
he or she determines appropriate under the circumstances and shall resolve the
dispute as expeditiously as practicable, and if reasonably practicable, within
one hundred twenty (120) days after the selection of the arbitrator. The
arbitrator shall give the parties written notice of the decision, with the
reasons therefor set out, and shall have thirty (30) days thereafter to
reconsider and modify such decision if any party so requests within ten (10)
days after the decision. Thereafter, the decision of the arbitrator shall be
final, binding, and nonappealable with respect to all persons, including
(without limitation) persons who have failed or refused to participate in the
arbitration process.
5.3 AUTHORITY. The arbitrator shall have authority to award relief under
legal or equitable principles, including interim or preliminary relief, and to
allocate responsibility for the costs of the arbitration and to award recovery
of attorneys fees and expenses in such manner as is determined to be appropriate
by the arbitrator.
5.4 ENTRY OF JUDGMENT. Judgment upon the award rendered by the arbitrator
may be entered in any court having in personam and subject matter jurisdiction.
Sellers, Buyer and Shareholders hereby submit to the in personam jurisdiction of
the Federal and State courts in California, for the purpose of confirming any
such award and entering judgment thereon.
5.5 CONFIDENTIALITY. All proceedings under this Article 5, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties.
5.6 CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 5 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith.
5.
<PAGE>
5.7 TOLLING. All applicable statues of limitation shall be tolled while
the procedures specified in this Article 5 are pending. The parties will take
such action, if any, required to effectuate such tolling.
5.8 EXPENSES. The parties agree that (subject to the discretion, in an
arbitration proceeding, of the arbitrator as set forth in Section 5.3 hereof)
the prevailing party in any action brought with respect to or to enforce any
right or remedy under this Agreement shall be entitled to recover from the other
party or parties all reasonable costs and expenses of any nature whatsoever
incurred by the prevailing party in connection with such action, including
without limitation attorneys' fees and prejudgment interest.
6. MISCELLANEOUS.
6.1 ASSIGNMENT; PARTIES IN INTEREST. Except as expressly provided herein,
the rights and obligations of a party hereunder may not be assigned, transferred
or encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other party,
cause one or more subsidiaries of Buyer to carry out all or part of the
transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any such
subsidiary, to Sellers hereunder. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and permitted
assigns of the parties hereto. Nothing contained herein shall be deemed to
confer upon any other person any right or remedy under or by reason of this
Agreement.
6.2 GOVERNING LAW. This Agreement shall be construed and interpreted
according to the internal laws of the State of California, excluding any choice
of law rules that may direct the application of the laws of another
jurisdiction.
6.3 AMENDMENT AND MODIFICATION. This Agreement may not be amended,
modified or supplemented without the prior written consent of all parties
hereto.
6.4 NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated in the Agreements (or, with respect to the Escrow Agent, to
the address indicated on the signature page hereto), by registered or certified
international courier service. If personally delivered, such communication
shall be deemed delivered upon actual receipt; if electronically transmitted
pursuant to this Section, such communication shall be deemed delivered the next
business day after transmission (and sender shall bear the burden of proof of
delivery); if sent by overnight courier pursuant to this Section, such
communication shall be deemed delivered upon receipt. Any party to this
Agreement may change its address for the purposes of this Agreement by giving
notice thereof to each other party hereto.
6.
<PAGE>
6.5 ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.7 HEADINGS. The headings in this Agreement are inserted for convenience
only and shall not constitute a part hereof.
6.8 FURTHER DOCUMENTS. The parties hereto each agree to execute all other
documents and to take such other action or corporate proceedings as may be
necessary or desirable to carry out the terms hereof.
6.9 SURVIVAL. All provisions of this Agreement shall survive the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
"BUYERS"
ZITEL LIMITED
By: /s/ Jack H. King
------------------------------------
Jack H. King, CEO
------------------------------------
[Print Name and Title]
ZITEL WORLD TRADE
By: /s/ Jack H. King
------------------------------------
Jack H. King, CEO
------------------------------------
[Print Name and Title]
7.
<PAGE>
"SELLERS"
PALMER & WEBB SYSTEMS LTD.
By: /s/ Julian C. C. Palmer
-----------------------------------
Julian C. C. Palmer, Director
-----------------------------------
[Print Name and Title]
MOEBIUS BUSINESS TRAINING LTD.
By: /s/ R. H. W. Webb
-----------------------------------
R. H. W. Webb, Director
-----------------------------------
[Print Name and Title]
HELL SAILS B.V.
By: /s/ J. H. Van Bergen
-----------------------------------
J. H. Van Bergen
-----------------------------------
[Print Name and Title]
"SHAREHOLDERS"
/s/ Reginald Webb
----------------------------------------
REGINALD WEBB
/s/ Julian Palmer
----------------------------------------
JULIAN PALMER
8.
<PAGE>
PALMER & WEBB SYSTEMS, LTD.
By: /s/ R. H. W. Webb
-----------------------------------
R. H. W. Webb, Director
-----------------------------------
[Print Name and Title]
"PWBV"
PALMER & WEBB SYSTEMS B.V.
By: /s/ T. Fortgens, Managing Director
-----------------------------------
/s/ M. L. Schuurkes, Managing Director
-----------------------------------
[Print Name and Title]
9.
<PAGE>
EXHIBIT C
PALMER & WEBB SYSTEMS INTERNATIONAL B.V.
BALANCE SHEET
APRIL 30, 1997
(FIGURES ARE IN DUTCH GUILDERS) PWBV
FIXED ASSETS 6,547
CURRENT ASSETS:
Trade 394,882
Stock 8,708
Prepayments 0
Other Debtors 0
Bad Debt Provision 0
Cash in Bank 703,228
----------
TOTAL CURRENT ASSETS 1,106,818
----------
----------
CURRENT LIABILITIES:
Trade Creditors 1,000,079
Sales in Advance 0
Accruals 0
Other Creditors 0
VAT Liability 0
Paye/NIC Creditor 0
Expense Accounts 0
----------
TOTAL CURRENT LIABILITIES 1,000,079
NET WORKING CAPITAL 106,739
----------
NET ASSETS 113,286
----------
----------
CAPITAL & RESERVES:
Ordinary Shares 40,000
Share Premium Account 0
Reserves 0
P & L Prior 266,094
P & L Current -192,808
Dividends Paid Current 0
TOTAL CAPITAL AND RESERVES 113,286
----------
----------
<PAGE>
Buruma Maris
EXHIBIT D
CERTIFICATE
THE UNDERSIGNED:
Mr. Onno Berend Okkinga, civil-law notary, practising at Rotterdam;
herewith certifies:
THAT Hell Salls B.V., a limited liability company established in the
Netherlands, hereinafter also referred to as the "Company", has been
incorporated on 20th August 1984;
THAT the Company has been duly incorporated, is legally existing under the laws
of the Netherlands and that as per the date hereof the Company is not declared
bankrupt or liquidated;
THAT the Company is registered with the Trade Registry of the Chamber of
Commerce and industry at Middelburg (The Netherlands) under file number
22026154;
THAT as per 27th June 1997 the sole managing director of the Company is Mr.
Johannes Henricus van Bergen, born at Dordrecht 5th October 1960, residing
Vrouwesteeg 7, 2801 EK Goude, The Netherlands, who has individual power to
represent the Company and to bind the Company towards third parties;
THAT the Company's objects' clause includes the authority for the Company to
acquire and to dispose of subsidiaries and in general shares in other companies
and that the intended sale and transfer of shares in the capital of Palmer &
Webb Systems B.V. is within the scope of the Company's objectives;
Duly signed this 27th day of June, 1997.
/s/ O. B. Okkinga
O.B. Okkinga, notary and partner of Buruma Maris.
2.
<PAGE>
Exhibit E
ESCROW AGREEMENT
INSTITUTIONAL TRUST DEPARTMENT
This Agreement made this 30th day of June 1997 between the parties listed on
Exhibit Attached hereto, a corporation (herein called the "Depositor"), and
parties listed on Exhibit A attached (herein called the "Other Party") and
COMERICA BANK, a California banking corporation (herein called the "Agent")
whose address is 250 Lytton Avenue, Palo Alto, CA 94301.
WITNESSETH
The Agent acknowledges receipt in Escrow from Depositor of the following:
$300,000.00 (herein called "Property").
1. The Agent is hereby authorized and instructed to either:
a. Deliver the Property to the Other Party in strict compliance with the
following Condition(s), or,
b. Failing strict compliance with the Condition(s), re-deliver the
Property to Depositor; whereupon in either event, Agent's duties and
liabilities in connection with this Escrow shall terminate.
c. The Conditions are: See the Purchase Price and Indemnification Escrow
Agreement attached as Exhibit B hereto.
2. The duties and obligations of Agent hereunder shall be determined solely by
the express provision of this Agreement. Agent shall not be liable or
responsible for any act done, or step taken or omitted by it, or any
mistake of fact or law, or for anything which it may do or refrain from
doing, except for its gross negligence, willful default or failure in the
performance of any obligation imposed upon it hereunder.
Agent is authorized to act in reliance upon the sufficiency, correctness,
genuineness or validity of any instrument or document or other writing
submitted to it hereunder, and shall have no liability with respect to said
matters.
3. Any funds held by Agent hereunder shall be held and invested by Agent as
specified in written instructions, Agent may deposit said funds in an
interest bearing deposit account with other similar funds. All proxies
will be voted by the Agent. Agent is not obligated to render any
statements or notices of non-performance hereunder to any party hereto but
may in its discretion inform any party hereto, or his authorized
representative, of any matters pertaining to this Escrow.
Rule 14b-1(c) of the Securities and Exchange Commission enables
corporations to learn the identity of their security holders whose
securities are held by the Bank and registered in "nominee" or "street"
name unless the beneficial owner specifically indicates its objection to
such disclosure. The Depositor hereby indicates its objection to
disclosure by the Bank of Depositor's name, address and security position
to all companies whose securities are held in this Account and are
registered in "nominee" or "street" name.
1.
<PAGE>
4. Agent's fee in the amount of 50 basis points shall be automatically
deducted from the Escrow. The Depositor and Other Party agree, jointly and
severally, to indemnify and hold harmless the Agent from any costs,
damages, expenses or claims, including attorney's fees, which Agent may
incur or sustain as a result of or arising out of this Escrow Agreement or
Agent's duties relating thereto, and will apply them on demand, and the
Agent is hereby given a lien upon, and security interest in, the Property
deposited in this escrow to secure Agent's right to payment or
reimbursement.
Agent shall be reimbursed $25 for all wire or check disbursements and
actual cost for any termination expenses made or incurred hereunder, and if
it shall be required to perform extraordinary services not contemplated
herein, it shall receive reasonable additional compensation therefor.
Agent shall not be required to institute or maintain litigation unless
indemnified to its satisfaction for its counsel fees, costs, disbursements
and all other costs, expenses and liabilities to which it may in its
judgment be subjected in connection with such action.
5. In the event of any disagreement or the presentation of adverse claims or
demands in connection with the Property, Agent shall, at its option, be
entitled to refuse to comply with any claims or demands during the
continuance of such disagreement and may refrain from delivering any item
affected thereby, and in so doing, Agent shall not become liable to
Depositor or Other Party, or any of them, or to any other person, due to
its failure to comply with any such adverse claim or demand. Agent shall
be entitled to continue, without liability, to refrain and refuse to act:
a. Until all the rights of the adverse claimants have been finally
adjudicated by a court having jurisdiction of the parties and the
items affected thereby, after which time the Agent shall be entitled
to act in conformity with such adjudication; or
b. Until all differences shall have been adjusted by agreement and Agent
shall have been notified thereof and shall have been directed in
writing, signed jointly or in counterpart by Depositor and Other Party
and by all persons making adverse claims or demands, at which time
agent shall be protected in acting in compliance therewith.
The parties agree that the Agent may seek adjudication of any adverse claim
or demands in an appropriate County Court, or the United States Federal
District Court, agree to the jurisdiction of either of said Courts over
their persons as well as the Property, waive personal service of any
process, and agree that service of process by certified or registered mail,
return receipt requested, to the address set forth below each party's
signature to this Agreement shall constitute adequate service.
6. The entire agreement of the parties is contained herein; any change in
terms or conditions herein may only be made in writing signed by all
parties hereto. Agent shall not be charged with knowledge of any fact,
including but not limited to performance or non-performance of any
Condition, unless it has actually received written notice hereof from one
of the parties by certified or registered mail, return receipt requested,
addressed to Agent's address shown at the top of this Agreement, such
notice clearly referring to this Agreement.
7. This Escrow Agreement shall be deemed to have been made under and shall be
governed by the laws of the State of California in all respects, including
matters of construction, validity and performances.
2.
<PAGE>
8. Agent may consult with legal counsel to be selected and employed by it and
shall be fully protected with respect to any action or inaction under this
Agreement taken or suffered in good faith by Agent in accordance with the
opinion of such counsel.
9. Agent may resign as such following the giving of thirty (30) days prior
written notice to the other parties hereto. Similarly, Agent may be
removed and replaced following the giving of thirty (30) days prior written
notice to Agent by the other parties hereto. In either event, the duties
of the Agent shall terminate thirty (30) days after the date of such notice
(or at such earlier date as may be manually agreeable); and Agent shall
then delivery the balance of the escrow deposit then in its possession to a
successor escrow agent as shall be appointed by Other Party hereto, as
evidenced by a written notice filed with Agent, or if no successor escrow
agent has been so appointed, the then acting Agent shall deliver the
balance of the escrow deposit then in its possession to (indicate
disposition of escrow deposit) ____________________________________________.
10. It is the intention of the parties hereto that Agent shall never be
required to use or advance its own funds or otherwise incur personal
financial liability in the performance of any of its duties or the exercise
of any of its rights and powers hereunder.
11. No waiver nor any past agreement or condition hereunder by any party hereto
shall operate as a continuing waiver of any agreement or condition under
this Agreement. Each party shall have the right to waive and/or nullify,
in writing, any condition or term of this Agreement which is for its or his
benefit.
12. If any provision or clause in this Agreement or application thereof to any
person or circumstances is held invalid or unenforceable, such invalidity
or unenforceability shall not affect other provisions or applications of
this Agreement which can be given effect without the invalid or
unenforceable provision or application, and to this end the provisions of
this Agreement are declared to be severable.
See the signature page attached as Exhibit C hereto.
DEPOSITOR: OTHER PARTY:
--------------------- -------------------------------
By: By:
---------------------------- ----------------------------------------
(Name & Title) (Name & Title)
- ------------------------------- -------------------------------------------
(Signature) (Signature)
- ------------------------------- -------------------------------------------
(Date) (Date)
- ------------------------------- -------------------------------------------
(Address) (Address)
3.
<PAGE>
COMERICA BANK:
By: /s/ illegible
---------------------------------
(Name & Title)
- -------------------------------
(Signature)
- -------------------------------
(Date)
4.
<PAGE>
EXHIBIT A TO ESCROW AGREEMENT
PARTIES TO ESCROW AGREEMENT:
the "Depositor":
ZITEL LIMITED, a company incorporated in England and Wales, and
ZITEL WORLD TRADE, a California corporation
the "Other Party":
PALMER & WEBB SYSTEMS LTD., a company incorporated in England and Wales,
MOEBIUS BUSINESS TRAINING LTD., a company incorporated in England and Wales,
HELL SAIS B.V., a private limited liability company organized under the laws of
the Kingdom of the Netherlands,
PALMER & WEBB SYSTEMS B.V., a private limited liability company organized under
the laws of the Kingdom of the Netherlands, and
REGINALD WEBB AND JULIAN PALMER, individually
1.
<PAGE>
EXHIBIT B TO ESCROW AGREEMENT
Purchase Price and Indemnification Escrow Agreement
(attached)
1.
<PAGE>
EXHIBIT C TO ESCROW AGREEMENT
SIGNATURE PAGE TO ESCROW AGREEMENT:
THE "DEPOSITOR"
ZITEL LIMITED
By: /s/ Jack H. King
--------------------------------------
Jack H. King, CEO
--------------------------------------
[Print Name and Title]
ZITEL WORLD TRADE
By: /s/ Jack H. King
--------------------------------------
Jack H. King, CEO
--------------------------------------
[Print Name and Title]
THE "OTHER PARTY"
PALMER & WEBB SYSTEMS LTD.
By: /s/ Julian C. C. Palmer
--------------------------------------
Julian C. C. Palmer, Director
--------------------------------------
[Print Name and Title]
MOEBIUS BUSINESS TRAINING LTD.
By: /s/ R. H. W. Webb
--------------------------------------
R. H. W. Webb, Director
--------------------------------------
[Print Name and Title]
HELL SAILS B.V.
1.
<PAGE>
By: /s/ J. H. Van Bergen
--------------------------------------
J. H. Van Bergen
--------------------------------------
[Print Name and Title]
PALMER & WEBB SYSTEMS B.V.
By: /s/ T. Fortgens, Managing Director
--------------------------------------
/s/ M. L.Schuurkes, Managing Director
--------------------------------------
[Print Name and Title]
/s/ Reginald Webb
-------------------------------------------
REGINALD WEBB
/s/ Julian Palmer
-------------------------------------------
JULIAN PALMER
2.
<PAGE>
Exhibit F
[COOLEY GODWARD LLP LETTERHEAD]
June 30, 1997
Hell Sails B.V.
Fountain House, Cleave Road
Leatherhead
Surrey KT22 7LX
United Kingdom
Ladies & Gentlemen:
We have acted as counsel for Zitel Corporation, a California corporation
("Zitel"), and Zitel World Trade, a California corporation ("Zitel Subcorp"), in
connection with the purchase of all of the issued and outstanding shares of
capital stock of Palmer & Webb Systems B.V., a private limited liability company
organized under the laws of the Kingdom of the Netherlands ("PWBV"), from Hell
Sails B.V., a private limited liability company organized under the laws of the
Kingdom of the Netherlands ("Seller"), pursuant to that Stock Purchase Agreement
dated June 30, 1997, by and among Zitel, Zitel Subcorp, PWBV and you (the
"Purchase Agreement"), the Escrow Agreement (the "Escrow Agreement") and the
Purchase Price Adjustment and Indemnification Escrow Agreement (the "Purchase
Price Escrow Agreement") (the Purchase Agreement, the Escrow Agreement and the
Purchase Price Escrow Agreement are hereinafter collectively referred to as the
"Agreements"). We are rendering this opinion pursuant to Section 9.2.6 of the
Purchase Agreement. Except as otherwise defined herein, capitalized terms used
but not defined herein have the respective meanings given to them in the
Purchase Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreements by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by Zitel and Zitel Subcorp of the Agreements), where authorization, execution
and delivery are prerequisites to the effectiveness of such documents. We have
also assumed: that all individuals executing and delivering documents had the
legal capacity to so execute and deliver; that you have received
<PAGE>
Hell Sails B.V.
June 30, 1997
Page 2
all documents you were to receive under the Agreements; that the Agreements are
obligations binding upon each of the parties thereto other than Zitel and Zitel
Subcorp; that each of the parties thereto other than Zitel and Zitel Subcorp
have filed any required California franchise or income tax returns and have paid
any required California franchise or income taxes; and that there are no
extrinsic agreements or understandings among the parties to the Agreements that
would modify or interpret the terms of the Agreements or the respective rights
or obligations of the parties thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the State of California. We express no
opinion as to whether the laws of any particular jurisdiction apply, and no
opinion to the extent that the laws of any jurisdiction other than those
identified above are applicable to the subject matter hereof. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities, or to the sale or issuance thereof.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. Each of Zitel and Zitel Subcorp has been duly incorporated and is a
validly existing corporation in good standing under the laws of the State of
California.
2. The shares of Zitel Stock Consideration (as defined in the Purchase
Agreement) to be issued and delivered to Seller pursuant to Section 2.2.2 of the
Purchase Agreement, will, when issued in accordance with the terms of the
Purchase Agreement, be validly issued, fully paid and nonassessable.
3. Each of Zitel and Zitel Subcorp has all requisite corporate power and
authority to enter into the Agreements, and to issue the Zitel Stock
Consideration, in accordance with the terms thereof. The Agreements have been
duly and validly authorized, executed and delivered by Zitel and Zitel Subcorp
and constitute valid and binding agreements of Zitel and Zitel Subcorp
enforceable against Zitel and Zitel Subcorp in accordance with their respective
terms, except as rights to indemnity under Section 8 of the Purchase Agreement
may be limited by applicable laws and except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
<PAGE>
Hell Sails B.V.
June 30, 1997
Page 3
This opinion is intended solely for your benefit and is not to be made available
to, or be relied upon by, any other person, firm, or entity without our prior
written consent.
Very truly yours,
Cooley Godward LLP
By: /s/ John L. Cardoza
-------------------------------
John L. Cardoza
<PAGE>
OFFICE BUILDING LEASE
FOR
ONE MONUMENT PLACE
BY AND BETWEEN
UPLAND INDUSTRIES CORPORATION AND
COLLIN EQUITIES, INC., as tenants in common
(LANDLORD)
AND
DATAMETRICS SYSTEMS CORPORATION
(TENANT)
DATED: July 31, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I: DEFINITIONS..................................................... 1
ARTICLE II: DEMISE AND LEASE................................................ 2
2.1 Demise and Lease................................................. 2
2.2 Rentable Area.................................................... 2
2.3 Representations and Warranties; Taking of Possession............. 2
2.4 Common Areas..................................................... 3
ARTICLE III: IMPROVEMENTS.................................................. 3
3.1 Tenant Improvements.............................................. 3
3.2 Failure to Complete Construction................................. 3
3.3 Completion and Delivery.......................................... 3
ARTICLE IV: TERM........................................................... 3
4.1 Term............................................................. 3
4.2 Notice of Commencement Date...................................... 3
ARTICLE V: RENT............................................................ 4
5.1 Base Rent........................................................ 4
5.2 Additional Rent.................................................. 4
5.3 Base Rent Adjustment............................................. 4
5.4 Late Payment..................................................... 4
5.5 Security Deposit. INTENTIONALLY DELETED......................... 4
ARTICLE VI: ADDITIONAL RENT AND CHARGES.................................... 4
6.1 Personal Property Taxes.......................................... 4
6.2 Tenant's Share of Operating Expenses............................. 5
6.3 Installment Election............................................. 7
6.4 Additional Services.............................................. 7
ARTICLE VII: INSURANCE..................................................... 8
7.1 Landlord's Insurance............................................. 8
7.2 Public Liability................................................. 8
7.3 Tenant's Property and Other Insurance............................ 8
7.4 Form of Insurance/Certificate.................................... 9
7.5 Tenant's Failure................................................. 9
7.6 Waiver of Subrogation............................................ 9
7.7 Tenant's Property and Fixtures................................... 9
7.8 Indemnification of Landlord...................................... 9
7.9 Damage to Tenant's Property...................................... 9
ARTICLE VIII: REPAIRS AND MAINTENANCE...................................... 10
8.1 Tenant Repairs and Maintenance................................... 10
8.2 Landlord Repairs and Maintenance................................. 10
8.3 Non-liability of Landlord........................................ 10
8.4 Inspection of Premises........................................... 10
ARTICLE IX: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS.................... 10
9.1 Fixtures and Personal Property................................... 10
9.2 Alterations...................................................... 11
9.3 Liens............................................................ 11
ARTICLE X: USE AND COMPLIANCE WITH LAWS.................................... 11
10.1 General Use and Compliance with Laws............................. 11
10.2 Hazardous Materials.............................................. 12
10.3 Signs............................................................ 12
ARTICLE XI: DAMAGE AND DESTRUCTION......................................... 13
11.2 Rent Abatement................................................... 13
11.3 Excessive Damage or Destruction.................................. 13
11.4 Uninsured Casualty............................................... 13
22.
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TABLE OF CONTENTS (continued)
Page
11.5 Waiver........................................................... 13
11.6 Mortgagee's Right................................................ 14
11.7 Damages Near End of Term......................................... 14
ARTICLE XII: EMINENT DOMAIN................................................ 14
12.1 Eminent Domain................................................... 14
13.1 Events of Default................................................ 14
13.2 Remedies......................................................... 14
ARTICLE XIV: ASSIGNMENT AND SUBLETTING..................................... 15
14.1 Prohibition...................................................... 15
14.2 Excess Rental.................................................... 16
14.3 Scope............................................................ 16
14.4 Waiver........................................................... 16
14.5 Change in Control................................................ 17
15.1 Offset Statement................................................. 17
15.2 Attornment....................................................... 17
15.3 Subordination and Nondisturbance................................. 17
15.4 Recording........................................................ 17
ARTICLE XVI: MISCELLANEOUS................................................. 18
16.1 Notices.......................................................... 18
16.2 Successors Bound................................................. 18
16.3 Waiver........................................................... 18
16.4 Subdivision and Easements........................................ 18
16.6 Relocation....................................................... 18
16.7 Accord and Satisfaction.......................................... 19
16.8 Limitation of Landlord's Liability............................... 19
16.9 Time............................................................. 19
16.10 Attorneys' Fees.................................................. 19
16.11 Captions and Article Numbers..................................... 19
16.12 Severability..................................................... 19
16.13 Applicable Law................................................... 19
16.14 Submission of Lease.............................................. 19
16.15 Surrender of Premises and Holding Over........................... 19
16.16 Rules and Regulations............................................ 20
16.17 Parking.......................................................... 20
16.18 No Nuisance...................................................... 20
16.19 Broker........................................................... 20
16.20 Landlord's Right to Perform...................................... 20
16.21 Entire Agreement................................................. 20
16.22 Quiet Enjoyment.................................................. 21
16.24 Joint and Several Liability...................................... 21
16.25 Exhibits......................................................... 21
16.26 Addendum Provisions.............................................. 21
23.
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This Lease ("Lease") dated as of the 31st day of July, 1992, is made by and
between UPLAND INDUSTRIES CORPORATION, a Nebraska corporation, and COLLIN
EQUITIES, INC., a Texas corporation, as tenants in common (collectively,
"Landlord"), and DATAMETRICS SYSTEMS CORPORATION, a Delaware corporation
("Tenant").
ARTICLE I: DEFINITIONS
1.1 DEFINED TERMS. The following terms shall have the meanings specified
in this Section, unless otherwise specifically provided. Other terms may be
defined in other parts of this Lease.
Landlord: Upland Industries Corporation, a
Nebraska corporation, and Collin
Equities, Inc., a Texas corporation, as
tenants in common
Landlord's Address: Upland Industries Corporation
Room 1200
1416 Dodge Street
Omaha, Nebraska 68179
Attn: R. David Uhrich, Sr. V.P.
and
Collin Equities, Inc.
c/o Wells Fargo Real Estate Group
1960 East Grand Avenue
Segundo, California 90245
Attn: Manager, Legal Administration
with copies to:
Upland Industries Corporation
12150 East Monument Drive
Suite 201
Fairfax, Virginia 22033
Attn: C. Hunter Barrier
and
Wells Fargo Real Estate Group
4643 South Ulster Street
Suite 1400
Denver Colorado 80327
Attn: George N. Bishop, Vice President
Tenant: Datametrics Systems Corporation
Tenant's Address: 5270 Lyngate Court
(prior to occupancy) Burke, Virginia 22015
Broker(s): CB Commercial Real Estate Group and The
Fred Ezra Company
Project: The land and the improvements located
thereon commonly known as Monument Place
at Fairfax Center
Building: One Monument Place
Floor(s) upon which Premises
are Located: Third Floor
Suite Number(s): 300
Building Address:
Street Address: 12150 East Monument Drive
City and State: Fairfax, Virginia 22033
County: Fairfax County
Term: Five (5) years
Scheduled Commencement Date: October 15, 1992
1.
<PAGE>
Initial Base Rent Rate: 14.50 per square foot of Rentable Area
of the Premises
Base Rent: Determined pursuant to Section 5.1
hereof, and subject to adjustment
pursuant to Section 5.3 hereof
Prepaid Rent (pursuant to
Section 5.3 hereof): $16,493.75
Rentable Area of the
Premises: 13,650 square feet
Rentable Area of the
Building: 219,837 square feet
Tenant's Shares: 6.021%
Security Deposit: None
Operating Expense Allowance: Tenant's Share of Operating Expenses for
the first lease year of the Term, but in
no event shall such amount be less than
the product of $6.50 and the number of
square feet of Rentable Area of the
Premises. The term "lease year" as used
in this Lease means the first twelve
(12) months of the Term and every twelve
(12) months thereafter until the
expiration of the Term.
Parking: During the initial Term of this Lease,
Tenant, its officers, employees and
visitors shall be entitled to the
non-exclusive use of vehicle parking
spaces in the Building's parking garage
at a rate of 3.3 spaces per 1,000 square
feet of Rentable Area of the Premises,
such spaces to be provided at no charge
to Tenant. Of such spaces, five (5)
shall be reserved for Tenant's exclusive
use and shall be designated by Landlord
on the first level of the Building's
parking garage. Tenant's right to such
reserved spaces shall continue so long
as Tenant consistently uses on a daily
basis such reserved spaces. "Consistent
use" as provided herein shall mean use
during normal business hours for at
least 50% of the time as reasonably
determined by Landlord. If Landlord
determines that the reserved spaces are
not so consistently used, the number of
reserved spaces shall be reduced
accordingly.
ARTICLE II: DEMISE AND LEASE
2.1 DEMISE AND LEASE. Landlord hereby leases to Tenant, subject to
the provisions of this Lease, certain premise. ("Premises") consisting of the
suite(s) specified in Section l.1 hereof located within that certain office
building ("Building"), the address of which is set forth in Section l.1 hereof,
which Building is a portion of the Project Identified in Section 1.1. The
"Project" consists of that certain parcel or tract (or parcels or tracts) of
land and the improvements located thereon in the County of Fairfax, Commonwealth
of Virginia, commonly known as Monument Place at Fairfax Center. The Project
and the Building are more particularly shown on Exhibit A attached hereto and
the Premises are shown by cross-hatching on the Building floor plan(s) attached
hereto as Exhibit B, and contain approximately the respective amounts of
Rentable Area specified in Section l.l hereof.
2.2 RENTABLE AREA. The calculation of "Rentable Area" as used in this
Lease has been agreed upon by Landlord and Tenant. For purposes of establishing
the initial Tenant's Share, the Operating Expense Allowance, and initial Base
Rent as set forth In Section 1.1 hereof, the actual Rentable Area of the
Premises and the Building is deemed to be as set forth in Section 1.1 hereof.
2.3 REPRESENTATIONS AND WARRANTIES; TAKING OF POSSESSION. Tenant
acknowledges that neither LandLord nor any agent of Landlord has made any
representation or warranty with respect to the Premises, the Building, the
Common Areas or the Project or their suitability for the conduct of Tenant's
business except as may be expressly provided herein. By taking possession of
the Premises, Tenant accepts the Premises, the Improvements (as defined in
Section 3.1 below) and the Building as completed or substantially complete, and
in the latter case, Tenant shall, within ten (10) days after entering into
possession of the Premises, provide Landlord with a list of incomplete and/or
corrective items, which items Landlord shall diligently complete and/or correct
promptly thereafter. Tenant's acceptance of the
2.
<PAGE>
Premises, the Improvements and the Building as provided herein shall be
exclusive of any latent defects hereafter discovered by Tenant.
2.4 COMMON AREAS. In addition to the Premises, Tenant shall have the
non-exclusive right to use, without separate charge therefor, in common with
other tenants and/or occupants of the building and the Project, subject to the
Rules and Regulations referred to in Section 16.16 hereof and all covenants,
conditions and restrictions now or hereafter affecting or encumbering the
Project, the following areas appurtenant to the Premises, the Building's common
entrances, lobbies, restrooms, elevators, stairways and accessways, loading and
unloading areas, trash areas, parking areas and facilities, roadways, sidewalks,
walkways, parkways, plazas, driveways, landscaped areas, the fitness center and
similar areas and facilities situated within the Building and the exterior areas
of the Project (collectively, " Common Areas"). Tenant acknowledges that
Landlord shall have no obligation to construct or complete any additional
buildings or improvements to the Common Areas. Tenant's right to utilize the
Common Areas shall at all times subject to Landlord's reserved rights therein as
described in Section 16.4 hereof.
ARTICLE III: IMPROVEMENTS
3.1 TENANT IMPROVEMENTS. The Premises are or shall be improved by
Landlord with the tenant improvements ("Improvements") more particularly
described in the Work Letter Agreement set forth In Exhibit C attached hereto
("Work Letter Agreement"). Landlord shall exercise reasonable efforts to make
the Premises Ready for Occupancy (as defined in Section 3.3 below) not later
than the Scheduled Commencement Date set forth In Section 1.1 hereof; provided,
however, that the Scheduled Commencement Date shall be extended for a period
equal to the period of any delays encountered by Landlord affecting said work or
construction because of fire, earthquake, inclement weather, acts of God, acts
of the public enemy, riot, insurrection, governmental regulations of the sale of
materials or supplies or the transportation thereof, strikes or boycotts,
shortages of material or labor, review and issuance of construction permits,
changes requested by Tenant in the Tenant Preliminary Plans or the Tenant
Improvement Plans (as those terms are defined in Exhibit C attached hereto)
after approval thereof by Landlord or other acts or omissions of Tenant,
including but not limited to the delays set forth in Section 5 of Exhibit C
attached hereto, or any other causes beyond the reasonable control of Landlord.
3.2 FAILURE TO COMPLETE CONSTRUCTION. If the Premises are not Ready
for Occupancy (as defined in Section 3.3 below) on or before the Scheduled
Commencement Date, this Lease shall not be void or voidable nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom; provided that in
the event the Premises are not Ready for Occupancy on or before the date which
is ninety (90) days following the Scheduled Commencement Date, as may be
extended pursuant to Section 3.1 hereinabove, the sole remedy of either party
shall be to terminate this Lease by the delivery to the other party of written
notice within ten (10) days after the expiration of the 90-day period following
the Scheduled Commencement Date, as may be extended. In such event, Landlord
shall have no liability for any damages, costs or claims (including
consequential damages) which arise in connection with this Lease or termination
hereof provided Landlord has complied with Section 3.1 above.
3.3 COMPLETION AND DELIVERY. The Premises shall be deemed ready for
occupancy ("Ready for Occupancy") when the Improvements have been completed or
substantially completed by Landlord and delivered or tendered to Tenant. The
term "substantial completion" as used in this Lease shall mean the date of
substantial completion of the Improvements specified in Exhibit C. The issuance
of a Nonresidential Use Permit for the Premises shall be conclusive and binding
upon Landlord and Tenant as to the substantial completion of the Premises.
ARTICLE IV: TERM
4.1 TERM. The Term shall commence upon the earliest of the following
dates ("Commencement Date"): (a) the date on which the Improvements are Ready
for Occupancy, but in no event prior to October 15, 1992; or (b) the date upon
which Tenant takes possession or beneficial occupancy of the Premises with
Landlord's written consent; provided, however, that in the event Tenant and
Landlord have executed a Work Letter Agreement as a precondition to this Lease,
the Commencement Date shall be subject to adjustment for delays in completion of
the Improvements attributable to Tenant, as more particularly set forth therein.
The Term shall expire (a) five (5) years from the Commencement Date if the
Commencement Date is the first day of a month or (b) five (5) years from the
last day of the month in which the Commencement Date occurs, if the Commencement
Date is other than the first day of a month, unless, in both cases, the Lease is
terminated earlier as hereinafter provided.
4.2 NOTICE OF COMMENCEMENT DATE. Upon ascertaining the Commencement
Date, Landlord shall deliver to Tenant a written confirmation in the form
attached hereto as Exhibit D ("Notice of
3.
<PAGE>
Commencement") of said Commencement Date, which notice shall also set forth the
actual Rentable Area of the Premises and the Building and Tenant's Share. The
Notice of Commencement shall be binding upon Tenant unless Tenant objects to the
Notice in a writing delivered to Landlord within five (5) days of Tenant's
receipt of said Notice of Commencement.
ARTICLE V: RENT
5.1 BASE RENT. The Base Rent shall be the product of the Initial Base
Rent Rate set forth in Section 1.1 and the Rentable Area of the Premises. The
Base Rent shall be adjusted at the times and in the manner set forth in Section
5.3 below and one-twelfth (l/12th) of the Base Rent shall be paid in advance on
the first day of each and every month during the Term to Landlord at the address
set forth in Section 1.1 hereof or at such other place as Landlord may direct in
writing without any prior demand therefore and without any abatement deduction
or setoff whatsoever except as may be explicitly provided elsewhere in this
Lease. If the Term commences on any day other than the first day of a calendar
month and/or ends on any day other than the last day of a calendar month, Base
Rent for the fraction(s) of a month at the commencement and/or upon the
expiration of the Term shall be prorated based upon the actual number of days in
such fractional month. Upon executing this Lease, Tenant shall pay the first
full calendar month's Base Rent owing hereunder.
5.2 ADDITIONAL RENT. In addition to Base Rent, Tenant shall pay to
Landlord all sums of money or other charges required to be paid by the Tenant
under this Lease (except Base Rent and the Security Deposit), including, but not
limited to, Operating Expenses (as defined in Article VI hereof) (all each sums
being herein deemed "Additional Rent") and whether or not same are designated
"Additional Rent" and whether or not same are payable to Landlord or any other
entity. All such sums are payable in lawful money of the United States of
America without deduction, set-off or abatement whatsoever. Any Additional Rent
provided for in this Lease shall become due with the next monthly installment of
Base Rent unless otherwise provided. The term "Rent" as used in this Lease
shall refer collectively to "Base Rent" and "Additional Rent".
5.3 BASE RENT ADJUSTMENT. During the first (1st) year of the Term of
this Lease, the annual Base Rent (the "Annual Rase Rent") shall be the product
of the Initial Base Rent Rate and the Rentable Area of the Premises, both as set
forth in Section 1.1. Thereafter the "Annual Base Rent Rate" (Annual Base Rent
per square foot of Rentable Area of the Premises) for each succeeding year of
the Lease Term shall be increased by three percent (3%) of the difference
between (i) the previous year's Annual Base Rent Rate and (ii) the Operating
Expense Allowance as set forth in Section 1.1 divided by the Rentable Area of
the Premises, which rates shall be cumulative and compounded for each year of
the Term.
5.4 LATE PAYMENT. If any payment of Rent is not paid within five (5)
days of the due date thereof, Tenant shall pay to Landlord a late payment charge
equal to five percent (5%) of the amount of such delinquent payment of Rent in
addition to the installment of Rent then owing regardless of whether or not a
notice of default has been given by Landlord. In addition, Tenant shall pay
interest on such late payment and late charge from and after the due date of the
late payment and the late charge, respectively, at an interest rate equal to the
lesser of (a) the prevailing prime rate as published by Wells Fargo Bank N.A.
(or any successor bank) at its San Francisco office or any successor rate of
interest plus three (3) percentage points, or (b) the maximum rate permitted by
applicable law (hereafter the "Default Rate"), until such amounts are paid.
Landlord and Tenant recognize that the damages which Landlord will suffer as a
result of Tenant's failure to timely pay Rent are difficult or impracticable to
ascertain and agree that said interest and late charge is a reasonable estimate
of the damages which Landlord will suffer in the event of Tenant's late payment.
This provision shall not relieve Tenant from payment of Rent at the time and in
the manner herein specified. Acceptance by Landlord of full payment of said
delinquent Rent and any such interest and late charge shall constitute a cure of
Tenant's default with respect to said overdue amount, so long as Tenant's
default was the first such occurrence during any lease year. If Tenant's
default hereunder was the second or subsequent occurrence during any lease year,
acceptance by Landlord of full payment of said delinquent Rent and any such
interest and late charge shall not constitute a waiver by Landlord of Tenant's
default with respect to said overdue amount, nor shall it prevent Landlord from
exercising any other rights or remedies available to Landlord.
5.5 SECURITY DEPOSIT. INTENTIONALLY DELETED.
ARTICLE VI: ADDITIONAL RENT AND CHARGES
6.1 PERSONAL PROPERTY TAXES. Tenant shall pay or cause to be paid,
prior to delinquency, any and all taxes and assessments levied upon all trade
fixtures, inventories and other personal property placed in and upon the
Premises by Tenant. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of
4.
<PAGE>
Tenant, and if Landlord pays the taxes based upon such increased assessment,
Tenant shall, upon demand repay to Landlord the taxes so levied or the portion
of such taxes resulting from such increase in the assessment. If the tenant
improvements in the Premises are assessed for real property tax purposes at a
valuation higher than the valuation which tenant improvements conforming to
Landlord's "building standard" for other space in the Building are assessed,
then the real property taxes and assessments levied against the Building by
reason of such excessive assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
this Section. The records of the county assessor, if available and sufficiently
detailed for such purpose, shall be binding on both Landlord and Tenant as a
basis for determining whether the tenant improvements are assessed at a higher
valuation than Landlord's building standard tenant improvements.
6.2 TENANT'S SHARE OF OPERATING EXPENSES.
(a) ESTIMATED EXPENSES. Tenant shall pay to Landlord, as
Additional Rent, the amount by which Tenant's Share of Operating Expenses
(as such terms are defined below) exceeds the Operating Expense Allowance
set forth in Section 1.1 hereof. Commencing with the second (2nd) year of
the Term, and thereafter prior to the commencement of each calendar year of
the Term, Landlord shall reasonably estimate the annual Additional Rent
payable by Tenant pursuant to this provision, and Tenant shall pay to
Landlord on the first of each month in advance, one-twelfth (l/12th) of
Landlord's estimated amount. Tenant's Share of Operating Expenses for
calendar year 1993 shall be prorated to include only the period after
commencement of the second (2nd) year of the Term to and including the
expiration of the 1993 calendar year. At the end of each calendar year,
there shall be an adjustment made to account for any difference between the
actual and the estimated Operating Expenses for such calendar year. If
Tenant has overpaid the amount of Additional Rent owing pursuant to this
provision, Landlord shall, provided Tenant is not in default hereunder,
refund such overpayment to Tenant; provided that if said overpayment is
equal to or less than one month's Base Rent, Landlord shall credit such
overpayment to the next month's Base Rent. If Tenant has underpaid the
amount of Additional Rent owing pursuant to this provision, Tenant shall
pay the total amount of such deficiency to Landlord as Additional Rent in
monthly installments equal to one-half the current Base Rent or the balance
due, whichever is less, with the next payment(s) of Base Rent due under
this Lease following written notice of said deficiency from Landlord to
Tenant. Landlord shall provide Tenant with a statement of Operating
Expenses showing in reasonable detail the separate charges for Operating
Expenses for the previous year.
(b) DEFINED TERMS.
(i) OPERATING EXPENSES. For purposes of this Lease,
"Operating Expenses" means an amount equivalent to the total (without
duplication) of all expenses and costs of operation, management,
maintenance and repair of the Building and the Common Areas (and, to
the extent provided below, the Project) including, without limitation:
(1) all Real Property Taxes (as defined below); (2) premiums for
insurance maintained by Landlord pursuant to Section 7.1; (3) wages,
salaries and related expenses of all on-site and off-site employees
engaged in operation, management, maintenance and security and payroll
taxes and similar government charges with respect thereto; (4) all
supplies, materials and equipment (including rentals) used in such
operation, management, maintenance and repair; (5) all maintenance,
security and service costs, including snow removal costs; (6) all
janitorial costs, including refuse removal and window cleaning;
(7) costs incurred in the management of the Building and the Common
Areas (including supplies, on-site management office rent), together
with a fee for the management of the Building and, in the event
Landlord is directly involved in the administration of the Building
and the Common Areas, an administrative fee not to exceed five percent
(5%) of the annual Operating Expenses, excluding therefrom such fee);
(8) legal and accounting expenses, including the cost of audits by
certified public accountants; (9) cost of operating and maintaining
elevator(s) (if any); (10) all maintenance, repair and replacement
costs relating to the Building and the Common Areas, including
sidewalks, landscaping signs (other than tenant signs), service areas,
mechanical rooms, parking and plaza areas, Building exterior,
driveways, including any assessments against the Building, the Common
Areas and the Project pursuant to any covenants, conditions or
restrictions, reciprocal easement agreements, tenancy in common
agreements or similar restrictions or agreements; (11) all charges for
heat, water, gas, electricity, ventilation, air conditioning and other
utilities used or consumed in the Building and the Common Areas not
otherwise paid by individual tenants; (12) painting, decorating and
refurbishing of the Common Areas and the Building and repairing,
restriping and resurfacing the parking facilities and parking areas of
the Project; (13) roof system maintenance and repairs;
(14) amortization of capital improvements (such amortization to be on
a straight-line basis
5.
<PAGE>
over the useful life of the capital improvement) hereafter constructed
or installed to the extent such capital improvements are constructed
or installed or used to reduce the cost or consumption of other items
included in Operating Expenses (whether or not such costs in respect
of the same are in fact reduced) or to the extent such improvements
are required by laws, rules, ordinances or regulations enacted
following the Commencement Date hereof; (15) any personal property
taxes levied on or attributable to personal property used in
connection with the operation, management maintenance and/or repair of
the Building and the Common Areas; (16) the cost of permits,
certificates and licenses required in connection with the Building,
the Common Areas the Project or any portion thereof or any areas used
in connection therewith (except building permits, Temporary
Non-Residential Use Permits or any other permits required for specific
tenants and other development permits), and any other costs levied,
assessed or imposed by or at the direction of, or resulting from
statutes or regulations or interpretations thereof promulgated by any
federal or governmental authority in connection with the use or
occupancy of the Project; and (17) the cost of maintaining, servicing
and managing the fitness center and any other common facilities for
the general use of the tenants that may be constructed in the
Building.
In the case of a multi-building Project, if any such Operating
Expenses are not separately assessed or charged to the Building but
are assessed, charged or incurred against the Project as a whole,
Landlord shall reasonably determine the portion of such Operating
Expenses allocable to the Building in which the Premises are located.
Notwithstanding the foregoing, Operating Expenses shall not include
leasing commissions, space planners' fees, attorneys' fees arising
from lease negotiations or disputes, tenant improvements for specific
tenant premises and other specific costs incurred for the account of,
separately billed to or paid by specific tenants; repairs or
replacements to the extent that the cost of the same is recovered by
Landlord pursuant to original construction warranties or insurance;
interest on debt or capital retirement of debt, ground rent and costs
of capital improvements except as expressly provided above.
Notwithstanding any provision herein to the contrary, Operating
Expenses shall not include the costs of any capital improvements
required to be made to the Common Areas in order to comply with the
Americana With Disabilities Act of 1990, 42 U.S.C. Section 12101 ET
SEQ. Notwithstanding any provision herein to the contrary, in the
event the Building is less than ninety-five percent (95%) occupied
during all or any portion of any year of the Term, an adjustment shall
be made in computing variable Operating Expenses (including the
calculation of the Operating Expense Allowance) for such year so that
the same shall be computed for such year as though the Building had
been ninety-five percent (95%) occupied during such year. Such
variable Operating Expenses shall include Real Property Taxes (as
defined below), costs and expenses related to utility service, char
service, service contracts, maintenance and repair services for
building systems under warranty, management services and fees, any
administrative fee and costs related to the fitness center and any
other common facilities, if in operation at any time during the year.
Any Additional Rent payable by Tenant which would not otherwise be due
until after the date of the expiration or earlier termination of this
Lease, shall, if the exact amount is uncertain at the time this Lease
expires or terminates, be paid by Tenant to Landlord upon such
expiration or termination in an amount to be reasonably estimated by
Landlord, with an adjustment to be made once the exact amount is
known.
(ii) TENANT'S SHARE. For purposes of this Lease, "Tenant"s
Share" means the percentage, as set forth in Section 1.1, obtained by
dividing the Rentable Area of the Premises by the aggregate Rentable
Area of all premises available for lease, whether leased or not, in
the Building.
(iii) REAL PROPERTY TAXES. For purposes of this Lease, "Real
Property Taxes" shall consist of all transit charges, housing fund
assessments, real estate taxes, and all other taxes relating to the
Premises, the Building and/or the Project, all other taxes which may
be levied in lieu of real estate taxes, all assessments, assessment
bonds, levies, fees and other governmental charges, including, but not
limited to, charges for traffic facilities and improvements, water
service studies, and improvements or amounts necessary to be expended
because of governmental orders, whether general or special, ordinary
or extraordinary, unforeseen as well as foreseen, of any kind and
nature for public improvements, services, benefits, or any other
purpose, which are assessed, levied, confirmed, imposed or become a
lien upon the Premises, the Building or the Project or become payable
during the Term (or which become payable after the expiration or
earlier termination hereof and are attributable in whole or in part to
any
6.
<PAGE>
period during the Term hereof), together with all costs and expenses
incurred by Landlord in good faith in contesting, resisting, or
appealing any such taxes, rates, duties, levies or assessments. If,
as the result of a subsequent reduction in Real Estate Taxes for any
year, Tenant shall have paid an amount in excess of its proportionate
share for such year, then, such excess shall be refunded by Landlord
to Tenant upon receipt by Landlord of all refunds from the taxing
authority to which Landlord is entitled with respect to such year.
"Real Property Taxes" shall exclude any franchise, estate, inheritance
or succession transfer tax of Landlord, or any federal or state
income, profits or revenue tax or charge upon the net income of
Landlord from all sources; provided, however, that if at any time
during the Term there is levied or assessed against Landlord a
federal, state or local tax or excise tax on rent, or any other tax
however described on account of rent or gross receipts or any portion
thereof, Tenant shall pay one hundred percent (100%) of the Tenant's
share of any said tax or excise applicable to Tenant's Rent as
Additional Rent.
(iv) RIGHT TO AUDIT. Tenant, at reasonable times and upon
reasonable notice (which notice shall be given within ninety (90) days
after Tenant receives Landlord's statement of Operating Expenses for
the previous year of the Term), shall have access to all books,
records, accounts, invoices and such other information in any way
pertaining to Landlord's calculation of Operating Expenses for such
year and Tenant shall have the right, at its sole cost and expense, to
audit and verify all expenditures and other matters relating to such
Operating Expenses.
(v) ARBITRATION. Provided an Event of Default does not
then exist hereunder, if Tenant disputes Landlord's calculation of
Operating Expenses, and the parties, after good faith efforts to
resolve the dispute, have not reached agreement within thirty (30)
days of Tenant's notice to Landlord of such dispute, then, in that
event, the dispute shall be settled by informal arbitration by a
disinterested arbitrator, mutually selected by and acceptable to the
parties. The arbitrator's decision shall be final and judgment may be
had on the decision and award of the arbitrator in any court having
proper jurisdiction. The obligation of Landlord and Tenant to submit
a dispute to arbitration is limited to disputes concerning Operating
Expenses. If the arbitrator determines that Landlord has overstated
the Operating Expenses by greater than five percent (5%), Landlord
shall pay the full cost of the arbitrator. If the arbitrator
determines that Landlord has overstated the Operating Expenses by
greater than ten percent (10%) Landlord shall reimburse Tenant on
demand for the reasonable costs actually incurred by Tenant, if any,
in conducting an audit under Section 6.2(b)(iv) above. If it is
determined that the cost of Operating Expenses was overstated by five
percent (5%) or less, than, in that event, Tenant shall pay the full
cost of the arbitrator. In any event, each party shall pay its own
attorneys' fees. No claim for arbitration shall relieve or forestall
Tenant's obligation to pay when due the amount of Operating Expenses
sought by Landlord and it shall be a condition of Tenant's demand for
arbitration that all such amounts shall have been paid in full.
6.3 INSTALLMENT ELECTION. In the case of any Real Property Taxes which
may be evidenced by improvement or other bonds or which may be paid in annual or
other periodic installments, Landlord shall elect to cause such bonds to be
issued or cause such assessment to be paid in installments over the maximum
period permitted by law.
6.4 ADDITIONAL SERVICES.
(a) In the event Landlord provides additional utilities,
elevator heating, air conditioning, cleaning and/or other service to Tenant
beyond the standard services related to the operation and management of a
similarly aged and classed office building or at times other than during
the normal business hours, Tenant shall pay as Additional Rent Landlord's
estimated cost therefore without mark-up for such special services.
"Normal business hours" shall mean 8:00 A.M. to 6:00 P.M. Monday through
Friday and 8:00 A.M. to 12:00 P.M. on Saturday. Any cleaning of kitchens,
galleys, lunchrooms, cafeterias, etc., beyond that provided in Exhibit G
attached hereto, shall be on a special services basis (except with respect
to the removal of trash receptacles or cleaning incidental to normal
cleaning). Landlord shall supply and maintain a mechanical system to
provide adequate heating and cooling to the Premises in the manner of
similarly aged and classed office buildings located within Fairfax County.
Landlord shall supply HVAC services from 7:00 A.M. to 6:00 P.M. Monday
through Friday and from 8:00 A.M. to 12:00 P.M. on Saturday throughout the
year except for New Year's Day, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day and Christmas Day. Landlord shall provide after-hour HVAC
with 24 hours prior notice at Landlord's total estimated cost for such
service.
7.
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(b) If Tenant is likely to or does consume quantities of
electricity, water, gas or other utilities in excess of the amounts
customarily consumed by users of office space, Landlord shall have the
right, at Tenant's sole cost and expense, to install separate metering for
such utilities or to separately charge Tenant for any quantity of such
utilities consumed by Tenant beyond the amounts customarily consumed by
office users. Any such charges made by Landlord to Tenant shall be
reasonably determined by Landlord and shall be promptly paid by Tenant to
Landlord as Additional Rent.
(c) Tenant acknowledges and agrees that Landlord has provided
the fitness center for the convenience and enjoyment of the tenants of the
Project, including Tenant, and that Landlord shall not be responsible in
any manner for any injury, damage, loss or other liability to any person
engaged in the use of such common facility, except such liability as may
arise as the result of the sole active negligence or willful misconduct of
Landlord and/or its agents or employees. Tenant shall indemnify and hold
harmless Landlord against any such liabilities in accordance with the
provisions of Section 7.8 hereof. Tenant acknowledges and agrees that any
person who desires to use the fitness center shall be required to deliver
to Landlord prior to any such use the "Waiver of Liability and Key
Activation" attached hereto as Exhibit H.
(d) The Building is equipped with a 24-hour security system
designed, installed and currently monitored by Kastle Systems, Inc. Tenant
shall have the right, at Landlord's expense, to obtain card key security
access to the Premises through this Building security system.
ARTICLE VII: INSURANCE
7.1 LANDLORD'S INSURANCE. During the Term, Landlord shall procure and
maintain in full force and effect with respect to the Building, a policy or
policies of all-risk insurance (including sprinkler, vandalism and malicious
mischief coverage, and any other endorsements required by the holder of any fee
or leasehold mortgage) in an amount equal to one hundred percent (100%) of the
full insurance replacement value (replacement cost new, including debris
removal, and demolition) thereof. If the annual premiums charged Landlord for
such casualty insurance exceed the standard premium rates because the nature of
Tenant's operations results in increased exposure, then Tenant shall, upon
receipt of appropriate premium invoices, reimburse Landlord for such increased
amount. Landlord shall have the right, at its option, to keep and maintain in
full force and effect during the Term such other insurance in such amounts and
on such terms as Landlord and/or any first mortgagees or the beneficiary of any
first trust deed against the Building and/or the Project may reasonably require
from time to time in form, in amounts and for insurance risks against which a
prudent Landlord would protect itself, including, but not limited to, rental
abatement, earthquake and flood insurance.
7.2 PUBLIC LIABILITY. Tenant shall, at its own cost and expense, keep
and maintain in full force during the Term and any other period of occupancy of
the Premises by Tenant, a policy or policies of comprehensive public liability
insurance insuring Tenant's activities with respect to the Premises, the
Building, the Common Areas and the Project for loss, damage or liability for
personal injury or death of any person or loss or damage to property occurring
in, upon or about the Premises in an amount of not less then One Million Dollars
($1,000,000) combined single limit (with inflation endorsement) or such larger
amounts as may hereafter be reasonably requested by Landlord. The policy shall
insure the hazards of the Premises and Tenant's operations thereon, shall
include independent contractor and contractual liability coverage (covering the
indemnity contained in Section 7.8 hereof) and shall (a) name Landlord as an
additional insured; (b) contain a waiver of subrogation provision; and
(c) contain a provision that the insurance provided Landlord hereunder shall be
primary and non-contributing with any other insurance available to Landlord. If
at any time during the Term, Tenant shall have in full force and effect a
blanket policy of public liability insurance with the same coverage for the
Premises as described above as well as coverage of other premises and properties
of Tenant, such blanket insurance shall satisfy the requirements hereof.
7.3 TENANT'S PROPERTY AND OTHER INSURANCE. Tenant shall, at its own
cost and expense, keep and maintain in full force during the term and any other
period of occupancy of the Premises, a policy or policies or standard form
property insurance insuring against the perils of fire, extended coverage,
vandalism, malicious mischief, special extended coverage ("all-risk") and
sprinkler leakage. This insurance policy shall be upon all property owned by
Tenant, for which Tenant is legally liable or that was installed at Tenant's
expense, and which is located in the Building, including, without limitation,
furniture, fittings, installations, fixtures (other than the Improvements
installed by Landlord), and any other personal property, in an amount not less
than one hundred percent (100%) of the full replacement costs thereof. This
insurance policy shall also insure direct or indirect loss of Tenant's earnings
attributable to Tenant's inability to use fully or obtain access to the Premises
or the Building, together with workers' compensation coverage as required by
state law.
8.
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7.4 FORM OF INSURANCE/CERTIFICATE. All policies shall be written in a
form satisfactory to Landlord, in its reasonable discretion, and shall be taken
out with insurance companies licensed in the state in which the Building is
located and holding a General Policy Holder's Rating of "A" and a financial
rating of "X" or better, as set forth in the most current issues of Best's
Insurance Guide. Tenant shall furnish to Landlord, prior to Tenant's entry on
the Premises and thereafter within thirty (30) days prior to the expiration of
each such policy, a certificate of insurance (or renewal thereof) issued by the
insurance carrier of each policy of insurance carried by Tenant pursuant hereto.
Said certificates shall expressly provide that such policies shall not be
cancelable or subject to reduction of coverage or otherwise be subject to
modification except after thirty (30) days prior written notice to the parties
named as insured in this Section 7.4.
7.5 TENANT'S FAILURE. If Tenant fails to maintain any insurance
required in this Lease, Tenant shall be liable for any loss or cost resulting
from said failure. This Section 7.5 shall not be deemed to be a waiver of any
of Landlord's rights and remedies under any other section of this Lease. If
Landlord obtains any insurance which is the responsibility of Tenant to obtain
under this Article VII, Landlord shall deliver to Tenant a written statement
setting forth a cost of any such insurance and showing in reasonable detail the
manner in which it has been computed and Tenant shall promptly remit said amount
to Landlord.
7.6 WAIVER OF SUBROGATION. Any all risk policy or policies of fire,
extended coverage or similar casualty insurance which either party obtains in
connection with the Premises or Tenant's personal property therein, shall either
(i) include a clause or endorsement denying the insurer any rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to the occurrence of injury or loss to property or (ii) name the
other party as additional insured.
7.7 TENANT'S PROPERTY AND FIXTURES. Tenant assumes the risk of damage
except for damage caused by the sole active negligence or willful misconduct of
Landlord and/or its agents or employees, to any furniture, equipment, machinery,
goods, supplies or fixtures which are or remain the property of Tenant or as to
which Tenant retains the right of removal from the Premises.
7.8 INDEMNIFICATION OF LANDLORD. Tenant shall indemnify and hold
Landlord, the Premises, the Building and the Project harmless from and against
(i) any and all liability, penalties, losses, damages, reasonable costs and
expenses, demands, causes of action, claims or judgments arising from any injury
to any person or persons or any damage to any property as a result of Tenant's
or Tenants' officers, employees, agents, servants, subtenants, concessionaires,
licensees, contractors or invitees' use, maintenance, occupation or operation of
the Premises and fitness center during the Term, or resulting tram any breach or
default in the performance of any obligation to be performed by Tenant under the
terms of this Lease, or arising from any act, neglect, fault or omission of
Tenant or any of Tenant's officers, employees, agents, servants, subtenants,
concessionaires, licensees, contractors or invitees, and (ii) from and against
all legal costs and charges, including reasonable attorneys fees, incurred in
and about any of such matters and the defense of any action arising out of the
same or in discharging the Project and/or Building or any part thereof from any
and all liens, charges or judgments which may accrue or be placed thereon by
reason of any act or omission of the Tenant; provided, however, that Tenant
shall not be required to indemnify Landlord for any damage or injury of any kind
arising as the result of the negligence or willful misconduct of Landlord and/or
its agents or employees. In no event shall Landlord nor any partner, director,
officer, agent or employee of Landlord be liable for any personal injury or
death or property damage caused by other lessees or persons in or about the
Building or the Project, or caused by public or quasi-public work, or for
consequential damages arising out of any loss of the use of the Premises or any
equipment or facilities therein by Tenant or any person claiming through or
under Tenant.
7.9 DAMAGE TO TENANT'S PROPERTY. Notwithstanding the provisions of
Section 7.8 to the contrary and except for any damage, loss or injury caused by
the sole active negligence or willful misconduct of Landlord and/or its agents
or employees, neither Landlord nor its officers, employees or agents shall be
liable for (i) any damage to property entrusted to employees or security
officers of the Building or the Project, (ii) loss or damage to any property by
theft or otherwise, and (iii) any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building, the Common Areas or the
Project or from the pipes, appliances or plumbing work therein or from the roof,
street, or subsurface or from any other place or resulting from dampness or any
other cause. Neither Landlord nor its agents shall be liable for interference
with light or other incorporeal hereditaments. Tenant shall give prompt notice
to Landlord in case Tenant is or becomes aware of fire or accidents in the
Premises, the Building, the Common Areas or any other portion of the Project or
of defects therein in the fixtures or equipment.
9.
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ARTICLE VIII: REPAIRS AND MAINTENANCE
8.1 TENANT REPAIRS AND MAINTENANCE. Except as otherwise set forth in
Section 8.2 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the entire Premises, including, but not by way of limitation, all
interior walls, doors, ceilings, fixtures, drapes, lights (but not standard
fluorescent light bulbs), and floor coverings thereof in good repair and in a
clean and safe condition.
8.2 LANDLORD REPAIRS AND MAINTENANCE. Subject to reimbursement pursuant
to Section 6.2 hereof, Landlord shall maintain in good condition and repair the
Common Areas and the structural and exterior portions of the Building and the
plumbing, heating, ventilating, air conditioning, elevator and electrical
systems installed or furnished by Landlord. In the event any of such
maintenance and repairs are attributable to improvements installed in the
Premises (other than the initial build-out of the Premises pursuant to the Work
Letter Agreement attached hereto as Exhibit C) which are above standard or are
necessitated by or attributable in part or in whole to the act, neglect or
omission of any duty by Tenant, its agents, officers, employees or invitees,
Tenant shall pay to Landlord, as Additional Rent, the cost of such maintenance
and repairs. Landlord shall not be liable for any failure to make any repairs
or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need for such repairs maintenance
is given to Landlord by Tenant. Except as set forth in Article XI hereof, there
shall be no abatement of Rent and no liability of Landlord by reason of any
injury to or interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein. Except as
may otherwise be expressly set forth herein, Tenant affirms that (a) neither
Landlord nor any agent, employee or officer of Landlord has made any
representation regarding the condition of the Premises, the Building, the Common
Areas or the Project and (b) Landlord shall not be obligated to undertake any
repair, alteration, remodel, improvement, painting or decorating. Tenant waives
the right to make repairs at Landlord's expense under any law, statute or
ordinance now or hereafter in effect. Pursuant to its obligations hereunder,
Landlord shall use reasonable efforts to maintain unobstructed access to the
Premises during normal working hours.
8.3 NON-LIABILITY OF LANDLORD. Notwithstanding anything to the contrary
contained in Section 8.2 above or elsewhere in this Lease, Landlord shall not be
in default hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the Rent herein reserved be abated by reason of
(a) the interruption or curtailment of the use of the Premises as a result of
the installation of any equipment in connection with the Premises or Building;
or (b) any failure to furnish or delay in furnishing any services required to be
provided by Landlord, unless such failure or delay is caused by any condition
created by Landlord's sole active negligence or willful misconduct or by
Landlord's failure to respond within a reasonable period of time to any written
request for service or repair for which Landlord is obligated under this Lease;
or (c) the limitation, curtailment, rationing or restriction of the use of water
or electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises, Building or Project. Landlord shall use
reasonable efforts to remedy any interruption in the furnishing of such services
so as to minimize any interference with the use of the Building by the tenants
thereof (including Tenant).
8.4 INSPECTION OF PREMISES. Except as may be required by an emergency,
Landlord, at reasonable times and upon reasonable notice to Tenant, may enter
the Premises with an escort of Tenant to complete construction undertaken by
Landlord on the Premises or Building, to inspect, clean, improve or repair the
same, to inspect the performance by Tenant of the terms and conditions hereof,
to show the Premises to prospective purchasers, lenders and tenants (but as to
tenants, only during the last twelve (12) months of the Term) and for all other
purposes as Landlord shall reasonably deem necessary or appropriate. Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises and any other loss in, upon or about the Premises, except as
otherwise provided in Article XI hereof.
ARTICLE IX: FIXTURES, PERSONAL PROPERTY AND ALTERATIONS
9.1 FIXTURES AND PERSONAL PROPERTY. Tenant, at Tenant's expense, may
install any necessary trade fixtures, equipment and furniture in the Premises,
provided that such items are installed and are removable without damage to the
structure of the Building. Landlord reserves the right to approve or disapprove
of curtains, draperies, shades, and paint (other than customary standard office
paints and neutral colors) in its sole and absolute discretion, including on
wholly aesthetic grounds. Such improvements must be submitted for Landlord's
written approval prior to installation, or Landlord may remove or replace such
items at Tenant's sole expense. Said trade fixtures, equipment and furniture
shall remain Tenant's property and shall be removed by Tenant upon the
expiration or earlier termination of this Lease. As a covenant which shall
survive the expiration or earlier termination of this Lease, Tenant shall
repair, at Tenant's sole expense, all damage caused by the installation or
removal of said trade fixtures, equipment, furniture or temporary improvements.
It Tenant fails to remove the foregoing items
10.
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prior to or upon the expiration or earlier termination of this Lease, Landlord,
at its option and without liability to Tenant for loss thereof, may keep and use
them or remove any or all of them and cause them to be stored or sold in
accordance with applicable law, and Tenant shall, upon demand of Landlord, pay
to Landlord as Additional Rent hereunder all costs and expenses incurred by
Landlord in so storing and/or selling said items.
9.2 ALTERATIONS. Tenant shall not make or allow to be made any
alterations, additions or improvements to the Premises, either at the inception
of this Lease or subsequently during the Term, without obtaining the prior
written consent of Landlord, which consent (except as to improvements addressed
in Section 9.1 above) shall not be unreasonably withheld or delayed. Tenant
shall deliver to Landlord full and complete plans and specifications of all such
alterations, additions or improvements, and any subsequent modifications or
additions to such plans and specifications, and no proposed work shall be
commenced or continued by Tenant until Landlord has given its written approval
thereof. Landlord does not expressly or implicitly covenant or warrant that any
plans or specifications submitted by Tenant are accurate, safe or sufficient or
that the same comply with any applicable laws, ordinances, building codes, or
the like. Further, Tenant shall indemnify and hold Landlord and the Premises
harmless from any loss, cost or expense, including attorneys' fees and costs,
incurred by Landlord as a result of any defects in design, materials or
workmanship resulting from Tenant's alterations, additions or improvements to
the Premises. All alterations, additions or improvements shall remain the
property of Tenant until termination of this Lease, at which time they shall,
unless otherwise mutually agreed by Landlord and Tenant in this Lease or in
another writing, be and become the property of Landlord. Landlord may, by
written notice to Tenant, at the time of approval by Landlord of Tenant's
improvements, require that Tenant, upon the expiration or earlier termination of
this Lease, remove any partitions, counters, railings and/or other improvements
installed by Tenant during the Term, and Tenant shall repair all damage
resulting from such removal or, at Landlord's option, shall pay to Landlord all
costs arising from such removal. All repairs, alterations, additions and
restorations by Tenant hereinafter required or permitted shall be done in a good
and workmanlike manner and in compliance with all applicable laws and
ordinances, building codes, by-laws, regulations and orders of any federal,
state, county, municipal or other public authority and of the insurers of the
Building. If required by Landlord, Tenant shall secure at Tenant's own cost and
expense a completion and lien indemnity bond satisfactory to Landlord for said
work. Tenant shall reimburse Landlord for Landlord's reasonable charges
(including any professional fees incurred by Landlord and a reasonable review
fee as established by Landlord from time to time) for reviewing and approving or
disapproving plans and specifications for any alterations proposed by Tenant.
Tenant shall require that any contractors used by Tenant carry a comprehensive
liability insurance policy naming Landlord as an additional insured, covering
bodily injury in such amounts as may be customary and appropriate for the
improvements undertaken, as reasonably determined by Landlord. Tenant shall
provide proof of such insurance prior to commencement of any work on the
Premises.
9.3 LIENS. Tenant shall promptly pay and discharge all claims for work
or labor done, supplies furnished or services rendered at the request of Tenant
or at request of Landlord on behalf of Tenant, and shall keep the Premises,
Building and Project free and clear of all mechanic's and materialmen's liens in
connection therewith. Landlord shall have the right, and shall be given ten
(10) business days written notice by Tenant prior to commencement of the work,
to post or keep posted on the Premises or in the immediate vicinity thereof, any
notices of non-responsibility for any construction, alteration, or repair of the
Premises by Tenant. If any such lien is filed, Tenant shall cause same to be
discharged of record (by bond or otherwise) within ten (10) days following
written notice thereof. If said lien is not timely discharged, Landlord may,
but shall not be required to, take such action or pay such amount as may be
necessary to remove such lien and Tenant shall pay to Landlord as Additional
Rent any such amounts expended by Landlord, together with interest thereon at
the Default Rate (as defined in Section 5.4 hereof), within five (5) days after
notice is received item Landlord of the amount expended by Landlord.
ARTICLE X: USE AND COMPLIANCE WITH LAWS
10.1 GENERAL USE AND COMPLIANCE WITH LAWS. Tenant shall only use the
Premises for office purposes, including sales, marketing, training and software
development, and uses customarily incidental thereto and for no other use.
Tenant shall, at Tenant's sole cost and expense, comply with all requirements of
municipal, county, state, federal and other applicable governmental authorities
now or hereafter in force pertaining to Tenant's occupancy and/or use of the
Premises, the Building and/or the Project, and shall secure any necessary
permits therefore (except that Landlord shall obtain the original Residential
Use Permit for the Premises) and shall faithfully observe in the use of the
Premises, the Building and the Project, all municipal, county, state, federal
and other applicable governmental entities' requirements which are now or which
may hereafter be in force. Without limitation of the foregoing, Tenant's use of
the Premises shall comply with all requirements of all applicable governmental
authorities such that a Certificate of Occupancy can be obtained and maintained
for the Premises. Tenant, in
11.
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Tenant's use and occupancy of the Premises, shall not subject or permit the
Premises, the Building and/or the project to be used in any manner which would
tend to damage any portion thereof, or which would increase the cost of any
insurance paid by Landlord with respect thereto. Tenant shall not do or permit
anything to be done in or about the Premises, the Building, the Common Areas
and/or the Project which will in any way obstruct or interfere with the rights
of other tenants or occupants of the Building, the Common Areas and/or the
Project or use or allow the Premises or any portion of the Project to be used in
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit a nuisance in, on or about the Premises, the Building
and/or the Project. Tenant shall comply with all restrictive covenants and
obligations created by private contracts which effect the use and operation of
the Premises, the Building, the Common Areas and/or the Project, provided copies
of such contracts have been provided to Tenant. Landlord reserves the right to
prescribe, in a reasonable manner, the weight and position of all files, safes
and heavy equipment which Tenant desires to place in the Premises so as to
properly distribute the weight thereof. Further, Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant so as to eliminate such vibration or
noise. Tenant shall be responsible for all structural engineering, fees and
costs required to determine structural load, other than such costs incurred in
connection with the initial build-out of the Premises as provided in the Work
Letter Agreement attached hereto as Exhibit C, which costs are the
responsibility of Landlord.
10.2 HAZARDOUS MATERIALS.
(a) Tenant shall not cause or permit any Hazardous Materials (as
defined hereinbelow) to be brought upon, kept or used in or about the
Premises, the Building and/or the Project by Tenant, its agents, employees,
contractors, licensees or invitees, except such incidental quantities of
Hazardous Materials as are commonly used in offices. such as copier fluid,
typewriter correction fluid, and ordinary cleaning solvents, provided that
such incidental quantities are at all times, used, kept and stored in the
manner that complies with all laws, rules, regulations and ordinances now
or hereafter regulating any such Hazardous Materials. If Tenant breaches
the covenants and obligations set forth herein or, if the presence of
Hazardous Materials on, in or about the Premises, the Building or the
Common Areas caused by Tenant, its agents, employees, contractors,
licensees or invitees results in contamination of all or any portion of the
Project or any other property, whether or not adjacent thereto, or if
contamination by Hazardous Materials otherwise occurs for which Tenant is
legally liable for damage resulting therefrom, then Tenant shall indemnify,
defend and hold Landlord free and harmless from and against any and all
claims, judgments, damages, penalties, fines, costs, liabilities and losses
(including, without limitation, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or
after the Term as a result of such contamination. This indemnification by
Tenant of Landlord shall include, without limitation, any and all costs
incurred with any investigation of site conditions and any cleanup,
remedial, removal or restoration work required by any federal, state or
local governmental agency or political subdivision because of the presence
of such Hazardous Materials caused by Tenant, its agents, employees,
contractors, licensees and/or invitees in, on or about the Premises, the
Building, the Common Areas or the soil or ground water on or under the
Project.
(b) Landlord represents that, to its actual knowledge as of the
date hereof, the air in the Premises is free of Hazardous Materials other
than in amounts not in violation of applicable law, and the Common Areas of
the Building are also free of Hazardous Materials other than in amounts not
in violation of applicable law. Landlord covenants that it shall not cause
any Hazardous Materials to be brought upon, kept or used in or about the
Building, the Common Areas or the Project, other than in amounts not in
violation of applicable law.
(c) For purposes of this Lease, "Hazardous Materials" means any
toxic or hazardous wastes or substances or pollutants now or hereafter
regulated under any federal, state or local statute, law, ordinance, rule,
regulation or order, including, but not limited to, asbestos, PCBs or
substances defined as "hazardous wastes," "hazardous substances" or "toxic
substances" in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 ET SEQ.),
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801
ET SEQ.), The Resource Conservation and Recovery Act, as amended (42 U.S.C.
Section 6901 ET SEQ.) and the Toxic Substance Control Act of 1976, as
amended (15 U.S.C. Section 2601 ET SEQ.). The provisions of this
Section 10.2 shall survive the expiration or earlier termination of this
Lease.
10.3 SIGNS. The Tenant shall not paint, display, inscribe, place or
affix any sign, picture, advertisement, notice, lettering, or direction on any
part of the outside of the Premises, the Building or the Project or visible from
the outside of the Premises, the Building or the Project or in any lobby
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corridor, hallway, entrance or other public part of the Building or the Project;
PROVIDED that Landlord shall prescribe a uniform pattern for identification
signs for tenants to be placed on the outside of the main door leading into the
Premises; FURTHER PROVIDED that, at the request of the Tenant and at the
Landlord's expense, Landlord shall cause such a sign to be placed in position.
Tenant shall be entitled to representation in the building directory in the
entrance lobby of the Building or in any similar listing of all of the tenants
in the Building.
ARTICLE XI: DAMAGE AND DESTRUCTION
11.1 RECONSTRUCTION. If the Premises are damaged or destroyed during the
Term, Landlord shall, except as hereinafter provided, diligently repair or
rebuild them to substantially the condition in which they existed immediately
prior to such damage or destruction. If Landlord is obligated or elects to
repair or restore as herein provided, Landlord shall be obligated to make repair
or restoration of only those portions of the Building and the Premises which
were initially provided at Landlord's expense, and the repair and/or restoration
of items within the Premises not provided at Landlord's expense shall be the
obligation of Tenant.
11.2 RENT ABATEMENT. Rent due and payable hereunder shall be abated
proportionately during any period in which, by reason of any such damage or
destruction, there is substantial interference with the operation of Tenant's
business in the Premises, as reasonably detailed by Landlord having regard to
the extent to which Tenant may be required to curtail and/or cease operating its
business in the Premises. Such abatement shall continue for the period
commencing with such damage or destruction and ending with a substantial
completion by Landlord of the work of repair or reconstruction which Landlord is
obligated or undertakes to do. If it be determined that continuation of
business is not practical pending reconstruction, and if Landlord does not elect
to or is unable to provide alternative temporary space for continuation of such
business, then Rent due and payable hereunder shall abate, until construction is
substantially completed or until business is totally or partially resumed
whichever is the earlier; provided, however, that there shall be no abatement of
Rent to the extent any of such damage is a result of the negligence or
intentional wrongdoing of Tenant or its officers, employees, agents, subtenants,
licensees or invitees. Tenant shall not be entitled to any compensation or
damages for loss in the use in the whole or any part of the Premises and/or any
inconvenience or annoyance occasioned by such damage, repair, reconstruction or
restoration.
11.3 EXCESSIVE DAMAGE OR DESTRUCTION. Within forty-five (45) days after
the date of the damage or destruction, Landlord shall deliver to Tenant written
notice of its determination of the estimated time required, from and after the
date of such damage or destruction, to fully repair or restore the damage or
destruction of the Building (the "Estimated Restoration Period"). Landlord's
determination of the Estimated Restoration Period shall be in its sole and
absolute discretion and shall be binding on Tenant. If the Estimated
Restoration Period is greater than one hundred eighty (180) days, either
Landlord or Tenant may terminate this Lease by giving written notice to the
other no later than ten (10) days after the date of Landlord's notice to Tenant
of its determination of the Estimated Restoration Period. If the Estimated
Restoration Period is greater than one hundred eighty (180) days, and neither
Landlord nor Tenant terminate the Lease as permitted above, or if the Estimated
Restoration Period is equal to or less than one hundred eighty (180) days, this
Lease shall remain in full force and effect and Landlord shall diligently repair
and restore the damage as soon as reasonably possible. Subsequently, if
Landlord is delayed or prevented from repairing and/or restoring the damage to
Premises within the later of (i) thirty (30) days after the expiration of the
Estimated Restoration Period or (ii) one hundred eighty (180) days after the
occurrence of such damage or destruction, Landlord or Tenant may at any time
thereafter (but prior to the substantial completion of said repair and/or
restoration by Landlord) terminate this Lease by ten (10) days prior written
notice to the other, whereupon Landlord and Tenant shall (except as otherwise
expressly provided in this Lease) be released from any further obligations under
this Lease.
11.4 UNINSURED CASUALTY. Notwithstanding anything contained herein to
the contrary, in the event of damage to or destruction of all or any portion of
the Premises for which Landlord is responsible, or of all or any portion of the
Building, which damage or destruction is not fully covered by the insurance
proceeds received by Landlord under the insurance policies required under
Section 7.1 hereinabove, Landlord may terminate this Lease by written notice to
Tenant given within forty-five (45) days after the date of notice to Landlord
that said damage or destruction is not so covered. If Landlord does not elect
to terminate this Lease, the Lease shall remain in full force and effect and the
Building shall be repaired and rebuilt in accordance with the provisions for
repair set forth in Section 11.1 hereinabove.
11.5 WAIVER. With respect to any destruction which Landlord is obligated
to repair or may elect to repair under the terms of this Article XI, Tenant
hereby waives all rights to terminate this Lease pursuant to rights otherwise
presently or hereafter accorded by law to tenants, except as expressly otherwise
provided herein.
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11.6 MORTGAGEE'S RIGHT. Notwithstanding anything herein to the contrary,
if the holder of any indebtedness secured by a mortgage or deed of trust
covering the Building and/or the Project requires that the insurance proceeds be
applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after such requirement is made. Upon any termination of this Lease
under the provisions hereof, the parties shall be released without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord, except for items which are theretofore accrued and are then unpaid.
11.7 DAMAGES NEAR END OF TERM. Notwithstanding anything to the contrary
contained in this Article XI, Landlord shall not have any obligation whatsoever
to repair, reconstruct or restore the Premises when the damage resulting from
any casualty covered under this Article XI occurs during the last twelve (12)
months of the Term of this Lease as may be extended.
ARTICLE XII: EMINENT DOMAIN
12.1 EMINENT DOMAIN. In case the whole of the Premises, or such part
thereof as shall, in the reasonable determination of Landlord, substantially
interfere with Tenant's use and occupation thereof, be taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or are sold in lieu of or to
prevent such taking, either party shall have the right to terminate this Lease
effective as of the date possession is required to be surrendered to said
authority. Tenant shall not assert any claim against Landlord or the taking
authority for any compensation because of such taking, and Landlord shall be
entitled to receive the entire amount of any award without deduction for any
estate or interest of Tenant. In the event the amount of property or the type
of estate taken shall not, in the reasonable determination of Landlord,
substantially interfere with the conduct of Tenant's business, Landlord shall be
entitled to the entire amount of the award without deduction for any estate or
interest of Tenant, Landlord shall promptly proceed to restore the Premises to
substantially their same condition prior to such partial taking less the portion
thereof lost in such condemnation, and the Base Rent shall be proportionately
reduced by the time during which, and the portion of the Premises which, Tenant
shall have been deprived of an account of said taking and restoration. Nothing
contained in this Section 12.1 shall be deemed to give Landlord any interest in
any separate award made to Tenant for the taking of personal property and
fixtures belonging to Tenant.
ARTICLE XIII: DEFAULT
13.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" on the part of the Tenant with or without
notice from Landlord:
(a) Tenant shall fail to pay within three (3) business days after
written notice thereof from Landlord any installment of Rent or any other
payment required pursuant to this Lease; (b) Tenant shall abandon or vacate
any substantial portion of the Premises, whether or not Tenant is in
default of the Rent payments due under this Lease; provided, however, that
any vacation of the Premises during the last three (3) months of the Term,
as may be extended, shall not be an Event of Default hereunder provided
Tenant is not in default of any Rent payments due hereunder; (c) Tenant
shall fail to comply with any term, provision or covenant of this Lease,
other than the payment of Rent or other sums of money due hereunder, and
the failure is not cured within fourteen (14) days after written notice
thereof to Tenant (said notice being in lieu of, and not in addition to,
any notice required as a prerequisite to an unlawful detainer or similar
action or claim) or if such failure is not susceptible of cure within said
14-day period, Tenant fails to immediately commence action to cure and/or
thereafter fails to diligently pursue the cure to completion, but in no
event later than sixty (60) days after written notice thereof to Tenant;
(d) Tenant shall file a petition or be adjudged a debtor or bankrupt or
insolvent under the United States Bankruptcy Code, as amended, or any
similar law or statute of the United States or any State; or a receiver or
trustee shall be appointed for all or substantially all of the assets of
Tenant; or Tenant shall make a transfer in fraud of creditors or shall make
an assignment for the benefit of creditors.
13.2 REMEDIES.
(a) Upon the occurrence of any Event of Default set forth in this
Lease, in addition to any other remedies available to Landlord at law or in
equity, Landlord shall have the immediate option to terminate this Lease
and all rights of Tenant hereunder. In the event that Landlord shall elect
to so terminate this Lease, then Landlord may recover from Tenant (i) the
worth at the time of award of any unpaid Rent which had been earned at the
time of such termination; plus (ii) the worth at the time of award of the
amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; plus (iii) the worth
at
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the time of award of the amount by which the unpaid Rent for the balance of
the Term after the time of award exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the damage proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom. As
used in Subsections 13.2(a)(i) and (ii) above, the "worth at
the time of award" is computed by allowing interest at the Default Rate.
As used in Section 13.2(a)(iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(b) In the event of any such default by Tenant, Landlord shall also
have the right with or without terminating this Lease, to re-enter the
Premises and remove all persons and property from the Premises; such
property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of the Tenant. No re-entry or taking
possession of the Premises by Landlord pursuant to this Section 13.2(b)
shall be construed as an acceptance of a surrender of the Premises or an
election to terminate this Lease unless a written notice of such intention
is given to Tenant or unless the termination thereof is decreed by a court
of competent jurisdiction.
(c) In the event of the vacation or abandonment of any substantial
portion of the Premises by Tenant as set forth in Section 13.1(b) above, or
in the event that Landlord shall elect to re-enter as provided above or
shall take possession of the Premises pursuant to legal proceedings or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided above, Landlord may from time to time,
without terminating this Lease, either recover all Rent as it becomes due
or relet the Premises or any part thereof for the Term of this Lease on
terms and conditions as Landlord at its sole discretion may deem advisable
with the right to make alterations and repairs to the Premises.
In the event that Landlord shall elect to so relet, then rents
received by Landlord from such reletting shall be applied: first, to the
payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; second, to the payment of any costs of such reletting; third, to
the payment of the cost of any alterations and repairs to the Premises;
fourth, to the payment of Rent due and unpaid hereunder and the residual,
if any, shall be held by Landlord and applied to payment at future Rent as
the same shall become due and payable hereunder. Should that portion of
such rents received from such reletting during the month which is applied
to the payment of Rent be less than the Rent payable during that month by
Tenant hereunder, then Tenant shall pay any such deficiency to Landlord
immediately upon demand therefor by Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord, as soon as
is certain, any of the costs and expenses incurred by Landlord in such
reletting or in making such alterations and repairs not covered by the
rents received from such reletting.
(d) All rights, options and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of them
shall be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which
may be provided by law whether or not stated in this Lease. No waiver of
any default of Tenant hereunder shall be implied from any acceptance by
Landlord of any Rent or other payments due hereunder or any omission by
Landlord to take any action on account at such default if such default
persists or is repeated, and no express waiver shall affect defaults other
than as specified in said waiver. The consent or approval of Landlord to
or of any act by Tenant requiring Landlord's consent or approval shall not
be deemed to waive or render unnecessary Landlord's consent or approval to
or of any subsequent similar acts by Tenant.
ARTICLE XIV: ASSIGNMENT AND SUBLETTING
14.1 PROHIBITION. Tenant shall not assign, mortgage, pledge or otherwise
transfer or encumber this Lease, in whole or in part, nor sublet, assign or
permit occupancy by any party other than Tenant of all or any part of the
Premises, without the prior written consent of Landlord in each instance, which
consent shall not be withheld or conditioned unreasonably or delayed beyond the
time period provided below. The Tenant shall, at the time the Tenant requests
the consent of Landlord, deliver to Landlord such information in writing as
Landlord may reasonably require respecting the proposed assignee or subtenant,
including, without limitation, the name, address, nature of business, ownership,
financial responsibility and standing of such proposed assignee or subtenant;
and Landlord shall have not less than fifteen (15) business days after receipt
of all required information to elect one of the following: (a) consent to such
proposed assignment, encumbrance or sublease; (b) refuse such consent, which
refusal shall be on reasonable grounds; or (c) elect to terminate this Lease or,
or in the case of a partial sublease
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of at least twenty percent (20%) or greater of the square footage of the
Rentable Area of the Premises, terminate this Lease as to the portion of the
Premises proposed to be sublet; provided, however, that this option (c)
regarding Landlord's right to terminate shall not be available to Landlord in
the event the proposed assignment by Tenant is in connection with a proposed
sale of substantially all of the assets of Tenant or in connection with a
proposed sale of the majority of the controlling stock of Tenant, Furthermore,
in the event a proposed assignment by Tenant is in connection with a proposed
sale of substantially all of the assets of Tenant or in connection with a
proposed sale of the majority of the controlling stock of Tenant, Landlord's
right to refuse consent under subsection (b) above shall only be based upon
Landlord's reasonable assessment that the nature, history or trend of the
proposed assignee's business, as well as the risks of the marketplace, may
render the proposed assignee unable to meet all of Tenant's obligations, both
monetary or otherwise, under the Lease or Landlord's reasonable assessment that
such proposed assignment would diminish the value of the Lease to Landlord
because, without limitation, of the proposed assignee's reputation in the
marketplace or the incompatibility of the proposed assignee's business or use of
the Premises with other tenants or with the operation of the Building as a first
class office building in the Fairfax County market. As a condition for
Landlord's consent to any assignment, encumbrance or release, Landlord may
require that the assignee or, if an Event of Default shall have occurred
hereunder, the sublessee remit directly to Landlord on a monthly basis, all
monies due to Tenant by said assignee or sublessee (except with respect to
excess rentals otherwise due Tenant pursuant to Section 14.2). In addition, a
condition to Landlord's consent to any assignment, sublease or encumbrance of
this Lease shall be the delivery to Landlord of a true copy of the fully
executed instrument of assignment, transfer or encumbrance and an agreement
executed by the assignee, sublessee or other transferee in form and substance
satisfactory to Landlord and expressly enforceable by Landlord, whereby the
assignee assumes and agrees to be bound by the terms and provisions of this
Lease and perform all the obligations of Tenant hereunder. In the event that
Landlord shall elect to exercise its right to terminate this Lease upon a
proposed assignment, subletting or other encumbrance of this Lease by Tenant,
Tenant shall have the right, until ten (10) days following receipt of written
notice of Landlord's election to terminate, to elect to withdraw its request for
Landlord's consent to such proposed assignment, subletting or other encumbrance,
in which event Landlord's termination notice shall be null and void and the
Lease shall remain in full force and effect. The assignment or subletting by
Tenant shall relieve Tenant of any obligation under this Lease, including
Tenant's obligation to pay Base Rent and Additional Rent hereunder, unless
Landlord so agrees in writing. Any purported assignment or subletting contrary
to the provisions hereof without consent shall be void. The consent by Landlord
to any assignment or subletting shall not constitute a waiver of the necessity
for such consent to any subsequent assignment or subletting. Tenant shall pay
Landlord a reasonable amount, as established by Landlord from time to time to
reimburse Landlord for reasonable legal and other expenses and administrative
costs incurred by Landlord in connection with any request by Tenant for consent
to assignment or subletting.
14.2 EXCESS RENTAL. If for any assignment or sublease, Tenant receives
rent or other consideration, either initially or over the term of the assignment
or sublease, in excess of the Rent called for hereunder, or in case of the
sublease of a portion of the Premises, in excess of such Rent fairly allocable
to such portion, after appropriate adjustments to assure that all other payments
called for hereunder are appropriately taken into account, Tenant shall pay to
Landlord promptly after its receipt, as Additional Rent hereunder, eighty-five
percent (85%) of the excess of each such payment of rent or other consideration
received by Tenant less Tenant's cost for (i) brokerage commissions then
customary in the Fairfax County market; (ii) reasonable marketing expenses, such
as the cost of brochures and advertising; and (iii) all build-out or retrofiting
costs required to the Premises by such assignee or subtenant, all such costs to
be actually incurred in connection with any such assignment or subletting and
all such costs to be amortized over the term of the applicable assignment or
sublease.
14.3 SCOPE. The prohibition against assigning or subletting contained in
this Article shall be construed to include a prohibition against any assignment
or subletting by operation of law. If this Lease be assigned, or if the
underlying beneficial interest of Tenant is transferred, or if the Premises or
any part thereof be sublet or occupied by anybody other than Tenant, Landlord
may collect rent from the assignee, subtenant or occupant and apply the net
amount collected to the Rent herein reserved and apportion any excess rent so
collected in accordance with the terms of the immediately preceding Section, but
no such assignment, subletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The assignment or subletting
shall affect the continuing primary liability of Tenant (which, following
assignment, shall be joint and several with the assignee), and Tenant shall not
be released from performing any of the terms, covenants and conditions of this
Lease, unless Landlord so agrees in writing.
14.4 WAIVER. Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee or failure of Landlord to take action against any assignee or
sublease, Tenant hereby waives notice of any default of any assignee or
sublessee and agrees that Landlord may, at its option, proceed against Tenant
without having taken action against
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or joined such assignee or sublessee, except that Tenant shall have the benefit
of any indulgences, waivers and extensions of time granted to any such assignee
or sublessee.
14.5 CHANGE IN CONTROL. If the Tenant is a non-reporting or closely held
company, a change in the control of such company (other than a change in control
resulting from the death or disability of a shareholder) shall be deemed for the
purposes hereof to be an assignment of this Lease, and shall be subject to the
provisions of this Article XIV, including, specifically, Section 14.l(c). If
Tenant is a partnership, a withdrawal or change, in one or more transfers, of
partners owning more than a fifty percent (50%) interest in the partnership,
shall constitute a voluntary assignment and shall be subject to the provisions
of this Article XIV, including, specifically, Section 14.1(c).
14.6 Release. Whenever Landlord conveys its interest in the Project and/or
Building or in the event of an assignment by Landlord of this Lease, Landlord
shall be automatically released from the further performance of covenants or
conditions, express or implied, on the part of Landlord herein contained, and
from any and all further liability, obligations, costs and expenses, demands,
causes of action, claims or judgments arising out of this Lease from and after
the effective date of said release, and in such event Tenant agrees to look
solely to the successor in interest of Landlord. The effective date of said
release shall be the effective date of an executed assumption by assignee of
such an assignment whereby the assignee expressly agrees to assume all of
Landlord's obligations, duties, responsibilities and liabilities with respect to
this Lease. If requested, Tenant shall execute a form of release and such other
documentation as may be required to further effect the provisions of this
Section. If any Security Deposit is given by the Tenant to secure performance
of the Tenant's covenants hereunder, Landlord may transfer such Security Deposit
to any purchaser and thereupon Landlord shall be discharged from any further
liability in reference thereto.
ARTICLE XV: OFFSET STATEMENT, ATTORNMENT AND SUBORDINATION
15.1 OFFSET STATEMENT. Within fifteen (15) days after request therefor
by Landlord, Tenant shall deliver, in recordable form, an offset statement
(estoppel certificate) in the form attached hereto as Exhibit E or in such other
form as requested by Landlord to any proposed mortgagee or purchaser, and to
Landlord, certifying (if such be the case) that this Lease is in full force and
effect; the date of Tenant's most recent payment of Rent, and that Tenant has no
defense or offsets outstanding, or stating those claimed by Tenant, and any
other information contained in such Exhibit E or reasonably requested by
Landlord or such proposed mortgagee or purchaser. Tenant's failure to deliver
said statement within said period shall, at Landlord's option, be an Event of
Default hereunder and shall in any event be conclusive upon Tenant that:
(i) this Lease is in full force and effect, without modification except as may
be represented by Landlord; (ii) there are no uncured defaults in Landlord's
performance and Tenant has no right to offset, counterclaim or deduction against
Rent hereunder; and (iii) no more than one period's Base Rent has been paid in
advance.
15.2 ATTORNMENT. Tenant shall, in the event any proceedings are brought
for the foreclosure of, or in the event of exercise of the power of sale under
any mortgage or deed of trust made by Landlord, its successors or assigns,
encumbering the Premises, or any part thereof, or in the event of termination of
a ground lease, if any, and if so requested, attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure and
recognize such purchaser as Landlord under this Lease.
15.3 SUBORDINATION AND NONDISTURBANCE. The rights of Tenant hereunder
are and shall be, at the election of any mortgagee or the beneficiary of a deed
of trust now or hereafter encumbering the Project and/or Building, subject and
subordinate to the lien of such mortgage or deed of trust, or the lien resulting
from any other method of financing or refinancing, now or hereafter in force
against the Project and/or the Building, and to all advances made or hereafter
to be made upon the security thereof. Upon Tenant's request, Landlord shall use
good faith effort to obtain, within thirty (30) days from its receipt of such
request, a non-disturbance agreement from any such mortgagee, beneficiary or
lender in favor of Tenant providing that, in pertinent part, so long as Tenant
is not in default under any at the terms, covenants and conditions at this
Lease, neither this Lease nor any of the rights of Tenant hereunder shall be
terminated or subject to termination by the exercise of any rights or remedies
of such mortgagee or beneficiary, including, without limitation, any trustee's
sale, any action to enforce the security, by any proceeding or action in
foreclosure, by a deed in lieu at foreclosure, or by a sale or refinancing in
settlement thereof. If requested, Tenant agrees to execute whatever
documentation may be required to further effect the provisions of this Article.
Landlord's failure to obtain the non-disturbance agreement contemplated herein
shall in no way affect Tenant's continued obligations under this Lease.
15.4 RECORDING. Tenant covenants and agrees with Landlord that Tenant
shall not record this Lease. Notwithstanding the provisions of Section 15.3, in
the event that Landlord or its lender requires this Lease to be recorded in
priority to any mortgage, deed of trust or other encumbrance which may now
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or at any time hereafter affect in whole or in part the Premises, the Building
or the Project, and whether or not any such mortgage, deed of trust or other
encumbrance shall affect only the Premises, the Building or the Project, or
shall be a blanket mortgage, deed of trust or encumbrance affecting other
premises as well, the Tenant covenants and agrees with Landlord that the Tenant
shall execute promptly upon request from Landlord any certificate, priority
agreement or other instrument may from time to time be requested to give effect
thereto; and the Tenant hereby irrevocably appoints Landlord as agent and
attorney for the Tenant with full power and authority to execute and deliver
such instruments for and in the name of the Tenant.
ARTICLE XVI: MISCELLANEOUS
16.1 NOTICES. All notices required to be given hereunder shall be in
writing and mailed postage prepaid by certified or registered mail, return
receipt requested, or by personal or overnight delivery, to the appropriate
address indicated in Section 1.1 hereof or at such other place or places as
either Landlord or Tenant may, from time to time, respectively, designate in a
written notice given to the other. Notices shall be deemed sufficiently served
upon actual receipt.
16.2 SUCCESSORS BOUND. This Lease and each of its covenants and
conditions shall be binding upon and shall inure to the benefit or the parties
hereto and their respective assignees, subject to the provisions hereof.
Whenever in this Lease a reference is made to Landlord, such reference shall be
deemed to refer to the person in whom the interest of Landlord shall be vested,
and Landlord shall have no obligation hereunder as to any claim arising after
the transfer of its interest in the Premises. Any successor or assignee of the
Tenant who accepts an assignment or the benefit of this Lease and enters into
possession or enjoyment hereunder shall thereby assume and agree to perform and
be bound by the covenants and conditions thereof. Nothing herein contained
shall be deemed in any manner to give a right of assignment to Tenant without
the prior written consent of Landlord and otherwise than in compliance with
Article XIV hereof.
16.3 WAIVER. No waiver of any default or breach of any covenant by
either party hereunder shall be implied from any omission by either party to
take action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the waiver, then said waiver shall be operative only for the time and to the
extent therein stated. Waivers of any covenant, term or condition contained
herein by either party shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
either party to or of any act by either party requiring further consent or
approval shall not be deemed to waive or render unnecessary their consent or
approval to or of any subsequent similar acts.
16.4 SUBDIVISION AND EASEMENTS. Landlord reserves the right to
(i) subdivide the Project, (ii) alter the boundaries of the Project, and
(iii) grant easements on the Project and dedicate for public use portions
thereof; provided, however, that no such subdivision, alteration, grant or
dedication shall materially interfere with Tenant's use of the Premises. Tenant
hereby consents to any such subdivision, boundary revision, and/or grant or
dedication of easements and agrees from time to time, at Landlord's request, to
execute, acknowledge and deliver to Landlord, in accordance with Landlord's
instructions, any and all documents, instruments, maps or plats necessary to
effectuate Tenant's consent thereto.
16.5 LANDLORD'S RESERVED RIGHTS IN COMMON AREAS. Landlord reserves the
right from time to time, provided that Tenant's use and enjoyment of the
Premises is not substantially and adversely affected thereby, to: (a) install,
use, maintain, repair and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the Building above the
ceiling surfaces, below the floor surfaces, within the walls and in the central
core areas, and to relocate any pipes, ducts, conduit, wires and appurtenant
meters in the Premises which are so located or located elsewhere outside the
Premises; (b) make changes to the Common Areas and/or the parking facilities
located thereon, including, without limitation, changes in the location, size,
shape and number of driveways, entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped areas and
walkways; (c) close temporarily all or any portion of the Common Areas and/or
the Building in order to perform any of the foregoing or any of Landlord's
obligations under this Lease, so long as reasonable access to the Premises
remains available during normal business hours; and (d) alter, relocate or
expand, and/or to add additional structure and improvements to, or remove same
from, all or any portion of the Common Areas.
16.6 RELOCATION. At any time after Tenant's execution of this Lease,
Landlord shall have the right, upon providing Tenant thirty (30) days' notice in
writing, to provide Tenant with reasonably similar space elsewhere in the
Building or approximately the same size as the Premises and to move Tenant to
said space. Any such space shall have elevator lobby exposure, shall be located
in the front of the Building on any of floors 2 through 8 and shall be improved
in a manner reasonably similar to the initial
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build-out of the Premises. In the event that Landlord shall exercise such right
subsequent to the actual occupancy of the Premises by Tenant, Landlord shall
arrange for moving Tenant and shall pay the costs of moving Tenant to such new
space and all other reasonable expenses related to such relocation. In the
event Landlord moves Tenant to such new space, then this Lease and each and all
of the terms and covenants and conditions hereof shall remain in full force and
effect and thereupon be deemed applicable to such new space except that a
revised floor plan shall became part or this Lease and shall reflect the
location of the new space. Should Tenant refuse to permit Landlord to move
Tenant to such new space at the end of said thirty (30) day period, Landlord
shall have the right to terminate this Lease by notice given to Tenant in
writing within ten (10) days following the end of said thirty (30) day period,
which termination shall be effective sixty (60) days after the date of the
original notice of relocation by Landlord.
16.7 ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than the Rent herein stipulated shall be deemed to
be other than on account of the Rent, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as Rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or pursue any
other remedy provided in this Lease.
16.8 LIMITATION OF LANDLORD'S LIABILITY. The obligations of Landlord
under this Lease do not constitute personal obligations of the individual
partners, directors, officers, or shareholders of Landlord, and Tenant shall
look solely to the real estate that is the subject of this Lease and to no other
assets of Landlord for satisfaction of any liability in respect of this Lease
and will not seek recourse against the individual partners, directors, officers
or shareholders of Landlord or any of their personal assets for such
satisfaction.
16.9 TIME. Time is of the essence of every provision hereto.
16.10 ATTORNEYS' FEES. In any action or proceeding which Landlord or the
Tenant may be required to prosecute to enforce its respective rights hereunder,
the unsuccessful party therein agrees to pay all costs incurred by the
prevailing party therein, including reasonable attorneys' fees, to be fixed by
the court, and said costs and attorneys' fees shall be made a part of the
judgment in said action. In any situation in which a dispute is settled other
than by action or proceeding, the parties shall each pay their own costs and
attorneys' fees.
16.11 CAPTIONS AND ARTICLE NUMBERS. The captions, article and section
numbers and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or intent of such sections or articles of this Lease nor in any way affect
this Lease.
16.12 SEVERABILITY. If any term, covenant, condition or provision of this
Lease, or the application thereof to any person or circumstance, shall to any
extent be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, covenants, conditions or provisions
of this Lease, or the application thereof to any person or circumstance, shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
16.13 APPLICABLE LAW. This Lease, and the rights and obligations of the
parties hereto, shall be construed and enforced in accordance with the laws of
the state in which the Premises are located.
16.14 SUBMISSION OF LEASE. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of or option for leasing the Premises. This document shall become
effective and binding only upon execution and delivery hereof by Landlord and
Tenant. No act or omission of any officer, employee or agent of Landlord or
Tenant shall alter, change, or modify any of the provisions hereof.
16.15 SURRENDER OF PREMISES AND HOLDING OVER. Upon expiration or other
termination of this Lease, Tenant shall immediately surrender possession of the
Premises to Landlord in substantially the same condition existing on the
Commencement Date, reasonable wear and tear, damage by fire or other insured
casually excepted (provided that all insurance proceeds are assigned to
Landlord), shall surrender to Landlord all keys to the Premises and shall inform
Landlord of all combinations on locks, safes and vaults, if any, in the
Premises. Should Tenant, or any of its successors in interest, holdover the
Premises or any part thereof after the expiration or earlier termination of this
Lease WITHOUT Landlord's prior written consent, such consent to be within
Landlord's sole and absolute discretion, such holding over shall constitute and
be construed as tenancy at sufferance only, at a monthly rent equal to one
hundred twenty-five percent (125%) of the Base Rent owed during the final month
19.
<PAGE>
of the Term of this Lease for the first month of such holdover; one hundred
fifty percent (150%) of the Base Rent owed during the final month of the Term of
this Lease for the second month of such holdover and two hundred percent (200%)
of the Base Rent owed during the final month of the Term of this Lease for the
third and any subsequent months of any such holdover, and otherwise upon the
terms and conditions in this Lease, so far as applicable. Should Tenant, or any
of its successors in interest, holdover the Premises or any part thereof after
the expiration or earlier termination of this Lease WITH Landlord's prior
written consent, such holding over shall constitute and be construed as a
tenancy from month to month only, at a monthly rent equal to one hundred
twenty-five percent (125%) of the Base Rent owed during the final month of the
Term of this Lease for the first and second months of such holdover; one hundred
fifty percent (150%) of the Base Rent owed during the final month of the Term of
this Lease for the third month of such holdover and two hundred percent (200%)
of the Base Rent owed during the final month of the Term of this Lease for the
fourth and any subsequent months of any such holdover, and otherwise upon the
terms and conditions of this Lease, so far as applicable. The acceptance by
Landlord of Rent after such expiration or early termination shall not result in
a renewal or extension of this Lease. The foregoing provisions of this
Section 16.15 are in addition to and do not affect Landlord's right of re-entry
or any other rights of Landlord hereunder or as otherwise provided by law. If
Tenant fails to surrender the Premises on the expiration of this Lease and holds
over without Landlord's prior written consent, Tenant shall indemnify and hold
Landlord harmless from and against all loss or liability, including, without
limitation, any claim made by any succeeding tenant resulting from such failure
to surrender by Tenant and any attorneys' fees and costs incurred by Landlord
with respect to any such claim.
16.16 RULES AND REGULATIONS. At all times during the Term, Tenant
shall comply with Rules and Regulations for the Building and the Project, as sat
forth in Exhibit F attached hereto, together with such amendments thereto as
Landlord may from time to time reasonably adopt and enforce in a
non-discriminatory fashion but only so long as any such amendments do not
modify, in any material respect, the rights and obligations of Tenant under this
Lease.
16.17 PARKING. Tenant shall be entitled to the number of unreserved
vehicle parking spaces as set forth in Section 1.1. No portion of such spaces
shall be designated by Landlord as visitor parking. Except as otherwise
designated by Landlord, parking spaces shall be available for the common use of
the tenants, subtenants and invitees of the Project on a non-exclusive basis,
subject to any reasonable restrictions from time to time imposed by Landlord.
Tenant shall not use or permit its officers, employees or invitees to use any
spaces which have been specifically reserved by Landlord to other tenants or for
such other uses as have been designated by appropriate governmental entities as
being restricted to certain uses. Tenant shall at all times comply and cause
its officers, employees and invitees to comply with any parking Rules and
Regulations as Landlord may from time to time reasonably adopt. The number of
parking spaces made available to specific tenants shall be at Landlord's sole
discretion.
16.18 NO NUISANCE. Tenant shall conduct its business and control its
agents, employees, invitees and visitors in such a manner as not to create any
nuisance, or interfere with, annoy or disturb any other tenant or Landlord in
its operation of the Building or Project.
16.19 BROKER. Tenant warrants that it has had no discussions,
negotiations and/or other dealings with any real estate broker or agent other
than the broker(s) listed in Section 1.1 hereof ("Broker") in connection with
the negotiation of this Lease, and that its knows of no other real estate broker
or agent who is or may be entitled to any commission or finder's fee in
connection with this Lease. Tenant agrees to indemnify Landlord and hold
Landlord harmless from and against any and all claims, demands, losses,
liabilities, lawsuits, judgments, costs and expenses (including, without
limitation, attorneys' fees and costs) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of Tenant's discussions,
negotiations and/or dealings with any real estate broker or agent other than
Broker. This Section 16.19 is not intended to benefit any third parties and
shall not be deemed to give any rights to brokers or finders.
16.20 LANDLORD'S RIGHT TO PERFORM. Upon Tenant's failure to perform
any obligation of Tenant hereunder after applicable notice and cure periods, if
any, including, without limitation, payment of Tenant's insurance premiums,
charges of contractors who have supplied materials or labor to the Premises,
etc., Landlord shall have the right to perform such obligation of Tenant on
behalf of Tenant and/or to make payment on behalf of Tenant to such parties.
Tenant shall reimburse Landlord the reasonable coat of Landlord's performing
such obligation on Tenant's behalf, including reimbursement of any amounts that
may be expended by Landlord, plus interest at the Default Rate, as Additional
Rent.
16.21 ENTIRE AGREEMENT. This Lease, together with all Exhibits, sets
forth all covenants, promises, agreements, conditions and understandings between
Landlord and Tenant concerning the Premises, the Building and the Project, and
there are no covenants, promises, agreements, conditions or understandings,
either oral or written, between Landlord and Tenant other than as are herein set
forth. No subsequent alteration, amendment, change or addition to the Lease
shall be binding upon Landlord or Tenant unless reduced to writing and signed by
Landlord and Tenant.
20.
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16.22 QUIET ENJOYMENT. Subject to the provisions of this Lease and
conditioned upon the performance of all of the provisions to be performed by
Tenant hereunder, Landlord shall secure to Tenant during the Term hereof the
quiet and peaceful possession of the Premises and all rights and privileges
appertaining thereto.
16.23 WAIVER OF JURY TRIAL. Landlord and Tenant each agree to and they
hereby waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other on any matter whatsoever arising
out of or in any way connected with the Lease, the relationship of Landlord and
Tenant or Tenant's use or occupancy of the Premises, and any claim of injury or
damage and/or any statutory remedy.
16.24 JOINT AND SEVERAL LIABILITY. If there is more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several.
16.25 EXHIBITS. The following Exhibits are attached to this Lease
after the signatures and by reference hereto are incorporated herein:
Exhibit A - Depiction of Project and Building
Exhibit B - Depiction of Premises
Exhibit C - Work Letter Agreement with Attachments
Exhibit D - Notice of Commencement
Exhibit E - Offset Statement and Estoppel Certificate
Exhibit F - Rules and Regulations
Exhibit G - Janitorial Services
Exhibit H - Waiver of Liability and Key Activation
16.26 ADDENDUM PROVISIONS. Addendum provisions of this Lease, if any,
are numbered I.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above-written.
"Landlord"
UPLAND INDUSTRIES CORPORATION,
a Nebraska corporation
WITNESS
/s/ Susan K. Scott By:/s/ C. Hunter Barrier
- ------------------------------- ----------------------------------
C. Hunter Barrier, Director
-- Real Estate OPERATIONS
COLLIN EQUITIES, INC.,
a Texas corporation
WITNESS
/s/ Patricia A. Lee By:/s/ Robert C. Brown
- ------------------------------- ----------------------------------
Robert C. Brown
Vice President
"Tenant"
DATAMETRICS SYSTEMS CORPORATION,
a Delaware corporation
WITNESS
/s/ John N. Dripps By:/s/ John C. Kelly
- ------------------------------- ----------------------------------
John C. Kelly
President
<PAGE>
October 16, 1996
FIRST AMENDMENT TO LEASE
This FIRST AMENDMENT TO LEASE ("First Amendment") is made on the 16th day
of October, 1996 between CMD REALTY INVESTMENT FUND, L.P., an Illinois limited
partnership ("Landlord"), and DATAMETRICS SYSTEMS CORPORATION, a Delaware
corporation ("Tenant").
A. Upland Industries Corporation, a Nebraska corporation and Collin
Equities, Inc., a Texas corporation, as tenants in common collectively,
("Original Landlord") and Tenant previously entered into that certain Office
Building Lease, dated July 31, 1992 ("Lease"), regarding the lease of certain
premises commonly known as Suite 300 ("Original Premises") in the building
("Building") commonly known as One Monument Place, 12150 Monument Drive,
Fairfax, Virginia 22033-4051. Landlord is successor to Original Landlord.
B. Pursuant to the terms and conditions of Section 5 of Addendum I to the
Lease, Tenant desires to exercise its Right of First Offer contained therein,
and Landlord and Tenant desire to expand the Original Premises and make certain
other modifications to the terms and conditions of the Lease, all pursuant to
the terms and conditions hereof.
Landlord and Tenant agree as follows:
1. DEFINITIONS. All of the terms used in this First Amendment shall
have tile same meanings as set forth in the Lease except to the extent expressly
set forth herein.
(a) EXPANSION SPACE. The term "EXPANSION SPACE" means those
certain premises known as Suite 301 designated on Exhibit A attached hereto and
made a part hereof. It is hereby stipulated that Suite 301 is 5,224 rentable
square feet.
(b) EXPANSION SPACE COMMENCEMENT DATE. The term "EXPANSION
SPACE COMMENCEMENT DATE" means the date Landlord notifies Tenant in writing that
the Expansion Space is ready for occupancy as defined in Section 3.03 of the
Lease.
2. IMPROVEMENTS TO BE CONSTRUCTED. Landlord will make or construct
certain improvements in the Premises ("Tenant Improvements") substantially in
accordance with the Working Drawings and Specifications (as hereinafter defined)
and subject and according to the terms and conditions set forth herein.
(a) PREMISES WORKING DRAWINGS AND SPECIFICATIONS. Landlord
shall cause to be prepared and delivered to Tenant working drawings and
specifications for the Tenant Improvements ("Working Drawings and
Specifications"). Tenant shall have the right to approve or disapprove the
Working Drawings and Specifications by written notice to Landlord within 5 days
after receipt thereof, which approval may not be unreasonably withheld. If
Tenant fails to deliver a written notice of approval or disapproval within such
5 day period, the Working Drawings and Specifications shall be deemed approved.
If Tenant delivers to Landlord within
1
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such 5 day period a written notice of disapproval of the Working Drawings and
Specifications, then Landlord shall revise the Working Drawings and
Specifications to remove the reasons for Tenant's disapproval within 10 days of
Landlord's receipt of such disapproval notice. Landlord's preparation of the
Working Drawings and Specifications shall not constitute assumption of any
liability on the part of Landlord for the accuracy of their conformity with the
requirements of any building code or the municipal governmental regulation or
ordinance.
(i) PREMISES CONSTRUCTION DOCUMENTS. Promptly after
Tenant's approval or deemed approval of the Working Drawings and Specifications,
Landlord shall deliver to Tenant a copy of a written contract covering the
construction of the Premises Improvements ("Construction Contract"), setting
forth the total cost of completion of the Premises Improvements in accordance
with the Working Drawings and Specifications ("Contract Amount"). The Contract
Amount, plus Landlord's construction management fee (which shall equal five
percent (5%) of the Contract Amount) and the cost of preparing the Working
Drawings and Specifications are collectively referred to herein as the
"Construction Cost".
(ii) PREMISES IMPROVEMENTS ALLOWANCE.
(a) PREMISES IMPROVEMENTS ALLOWANCE. The term
"Improvements Allowance" means, for the purpose of this Lease, an amount equal
to the lesser of (A) the Construction Cost, and (B) the Maximum Improvements
Allowance (as hereinafter defined).
(b) MAXIMUM IMPROVEMENTS ALLOWANCE. The term
"Maximum Improvements Allowance" shall be determined by the product of (x)
$20.00 multiplied by the number of square feet of the Rentable Area contained in
the Expansion Space and (y) the percentage obtained by dividing the number of
months remaining under the Term from and after the Expansion Space Commencement
Date by 60 (60 being the total number of months in the Term).
(iii) PREMISES CONSTRUCTION ESCROW. Landlord shall,
prior to the commencement of construction of the Premises Improvements,
establish an escrow ("Construction Escrow") with itself or a title company
satisfactory to Landlord ("Escrow Agent"). Landlord shall deposit in the
Construction Escrow as and when required amounts ("Landlord Deposits") which in
the aggregate do not exceed the Improvements Allowance. If the Construction
Cost is greater than the Maximum Improvements Allowance, then Tenant shall
deposit in the Construction Escrow within seven (7) business days after the
establishment of the Construction Escrow an amount ("Tenant Deposit") equal to
the difference between (i) the Construction Cost and (ii) the Maximum
Improvements Allowance. All amounts of the Construction Cost shall be paid by
the Escrow Agent. All amounts payable to the Escrow Agent with respect to the
creation, maintenance and disbursement of the Construction Escrow shall be the
sole responsibility of Tenant.
3. ADDITIONAL PREMISES. From and after the Expansion Space
Commencement Date, Landlord does hereby lease to Tenant and Tenant does hereby
take and rent from Landlord the Expansion Space in "As Is" condition and upon
all of the terms and
2
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conditions of this First Amendment and the Lease except to the extent expressly
set forth herein. From and after the Expansion Space Commencement Date, the
term "Premises" under the Lease shall be deemed to include the Expansion Space,
and Landlord and Tenant agree that from and after the Expansion Space
Commencement Date, the rentable area contained in the Premises shall be 18,874
square feet.
4. BASE RENT. Notwithstanding anything contained in the Lease to
the contrary, commencing on the Expansion Premises Commencement Date, Tenant
shall pay to Landlord in the manner described in the Lease, Base Rent in equal
monthly installments as follows:
MONTHLY INSTALLMENT
PERIOD OF BASE RENT
Expansion Space Commencement $25,705.99
Date - 10/31/97
5. TENANT'S SHARE. Notwithstanding anything contained in the Lease
to the contrary, Tenant's proportionate share, as defined in Section 1.01 of
the Lease, as amended, shall be, from and after the Additional Premises
Commencement Date, equal to 8.5855 %.
6. ADDENDUM I OF THE LEASE. Sections 2, 3, 4, 5, and 9 of Addendum
I of the Original Lease are no longer applicable and are hereby deleted in their
entirety.
7. BROKERAGE. Tenant represents and warrants to Landlord that, no
broker, agent, commission salesperson, or other person has represented Tenant
other than The Bank Companies, Inc. ("Broker") in the negotiations for this
First Amendment, and that no commissions and/or fees of any kind are due and
payable in connection with this transaction other than that agreed to between
Landlord and Broker. Tenant agrees to indemnify and hold Landlord harmless from
all loss, cost, and damage suffered or incurred by Landlord as a result of a
breach by Tenant of the representation and warranty contained herein, whether or
not disclosed.
8. PAYMENTS DUE LANDLORD. Notwithstanding anything to the contrary
in the Lease, all rent and other payments required to be made by Tenant to
Landlord under the Lease, as amended from time to time, shall be payable to
Landlord at CMD Realty Investment Fund, L.P., c/o The First National Bank of
Chicago, P.O. Box 70485, Chicago, Illinois 60673-0485, or at such other address
as Landlord may specify from time to time by written notice delivered in
accordance herewith.
9. NOTICES. The address for notice or documents delivered to
Landlord set forth in the Lease is hereby deleted, and the following is
substituted in its place:
3
<PAGE>
CMD Realty Investment Fund, L.P.
c/o CMD Realty Investors, Inc.
12150 Monument Drive, Suite 215
Fairfax, Virginia 22033-4051
Attention: Senior Property Manager
with copies to:
CMD Realty Investment Fund, L.P.
c/o CMD Realty Investors, Inc.
2500 Meridian Parkway, Suite 135
Durham, NC 27713
Attention: Asset Manager
CMD Realty Investment Fund, L.P.
c/o CMD Realty Investors, Inc.
227 West Monroe Street, Suite 3900
Chicago, Illinois 60606
Attention: General Counsel
10. AMENDMENT. This First Amendment is an amendment to the Lease,
and not a lease for the Expansion Space separate and apart from the lease of the
premises under the Lease. Notwithstanding the foregoing, any default by Tenant
under this First Amendment shall be a default, and Landlord may thereupon
exercise any and all rights available for default, under the Lease.
11. FULL FORCE AND EFFECT. All of the terms and conditions set forth
in the Lease shall remain in full force and effect, except to the extent
otherwise expressly set forth in this First Amendment.
12. CONFLICTS. In the event that any of the provisions of the Lease
conflict with any of the terms and provisions of this First Amendment, the terms
and conditions of this First Amendment shall prevail.
13. EXCULPATION. Neither the partners, if Landlord is a partnership,
or if Landlord is a trustee of a trust, the beneficiaries of such trust, nor the
shareholders (nor any of the partners comprising same), directors or officers of
any of the foregoing (collectively, the "Parties") shall be liable for the
performance of Landlord's obligations under this First Amendment and the Lease.
Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder
and shall not seek any damages against the rest of the Parties. The liability
of Landlord for Landlord's obligations under this First Amendment and the Lease
shall not exceed and shall be limited to the value of Landlord's interest in the
Building and Tenant shall not look to the property or assets of any of the
Parties in seeking either to enforce Landlord's obligations under this First
Amendment or the Lease or to satisfy a judgment against Landlord.
4
<PAGE>
14. TIME OF ESSENCE. Time is of the essence of each and every term
of this First Amendment.
LANDLORD:
CMD REALTY INVESTMENT FUND, L.P.,
an Illinois limited partnership
By: CMD REIM, INC., an Illinois corporation,
General Partner
/s/ James R. Higley
--------------------------------------------
By: James R. Higley
Its: Vice President
TENANT:
DATAMETRICS SYSTEMS CORPORATION, a Delaware
corporation
/s/ John N. Dripps
-------------------------------------------------
By: John Dripps
Its: Vice President, Finance & Admin.
<PAGE>
FORM OF LEASE
DATED
- --------------------------------------------------------------------------------
P.R. JUBERT ESQ AND OTHERS (1)
PALMER & WEBB LIMITED (2)
J.C. PALMER AND R.H. WEBB (3)
- --------------------------------------------------------------------------------
L E A S E
Re: premises known as Unit ____
Fountain house Cleeve Road Leatherhead Surrey
- --------------------------------------------------------------------------------
Commencing :
Term of Years:
Expires :
Rent of
TURNER KENNETH BROWN
100 Fetter Lane
London EC4A 1DD
Ref:
Tel: 01-242 6006
1.
<PAGE>
T H I S L E A S E made the
of
B E T W E E N :
(1) PETER ROWLEY JUBERT of Clouds Hills Farm Leatherhead Road Oxshott Surrey
ANDREW CHARLES JUBERT of Stable House Home Farm Coldharbour Lane Dorking
Surrey RH4 3JG PAUL JUBERT of Tollgate Cottage Effingham Common Road
Effingham Surrey and JOHN ROWLEY JUBERT of Byways Rose Hill Dorking Surrey
("the Landlord")
(2) PALMER & WEBB LIMITED whose registered office is at Regent House First
Floor 188 High Street Sutton Surrey ("the Tenant") and
(3) JULIAN CHRISTOPHER CLAYTON PALMER of Tanglewood Holmbury St. Mary Dorking
surrey RH5 6LQ and REGINALD HARRY WEBB OF 36 Shaftesbury Way Twickenham
Middlesex TW2 5RP ("the Sureties")
W I T N E S S E T H as follows:-
DEFINITIONS AND INTERPRETATION
1. (1) THE following expressions shall unless the context otherwise requires
have the following meanings:-
(i) "the Landlord" includes the person for the time being
entitled to
2.
<PAGE>
the reversion immediately expectant on the determination of the term
(ii) "the Tenant" includes the Tenant's successors in title and
personal representatives and if two or more persons obligations herein
express or implied on the part of the Tenant shall apply to such
persons jointly and severally
(iii) "the Sureties" shall include if any Surety is an individual
his personal representatives
(iv) "the demised premises" means the premises demised by Clause
2(1) and any part thereof
(v) "Plan 1" means the plan annexed hereto and marked Plan 1 and
"plan 2" means the plan annexed hereto marked Plan 2 and anything
referred to herein as shown on the said plans or either of them is so
shown for identification only
(vi) "The Building" means the building of which the demised
premises form part including all alterations and improvements to such
building and all plant equipment machinery fittings and
3.
<PAGE>
furnishings now or hereafter on or about it and not included in any
demise thereof
(vii) "the Property" means the Landlord's property known as
Fountain House and shown edged red on Plan 2 upon which the Building
is erected
4.
<PAGE>
[PICTURE OF LEASED PREMISES]
5.
<PAGE>
(viii) "utilities" means and includes foul and surface water
drainage electricity gas water telephone heating ventilation air
conditioning the passage of smoke and fumes and all other utilities
and services and facilities from time to time provided or capable of
being provided to the Building the demised premises or any other
material premises
(ix) "conducting media" means and includes sewers drains
watercourses pipes wires vents chimneys ducts shafts cables cisterns
tanks gutters radiators meters sanitary and water apparatus and all
other conducting media or apparatus for the provision of utilities
(x) "the term" means the term of years granted by Clause 2(1)
together with the period of any extension or holding over thereof
whether by statute or at common law
(xi) "the commencement date" means the date expressed in Clause
2(1) as the commencement of the term
(xii) "the insured risks" means fire storm tempest lightning
explosion flood
6.
<PAGE>
burst pipes impact and (in peacetime) aircraft and articles dropped
therefrom riot civil commotion malicious damage and such other
insurable risks as the Landlord may require (including provision for
the cost of demolition removal of debris temporary works professional
fees and disbursements and other incidental expenses) together with
loss of rent for such period (being not less than two years) as the
Landlord may require having regard to the likely period required for
reinstatement in the event of partial or total destruction
(xiii) "Unit" "the Common Areas" "the service charge" and "service
charge period" shall have the meanings assigned to them in the Second
Schedule
(xiv) "services" means and includes any services or other
obligations or things provided or performed by the Landlord which fall
within the scope of the service charge
(xv) "the Tenant's proportion of the service charge" means the
part of the service charge for which the Tenant
7.
<PAGE>
is liable which shall be one sixth of the total of the service charge
(xvi) "Notice" means a notice in writing to the Tenant forty-eight
hours before any entry is made on the demised premises PROVIDED THAT
in the case of an emergency no notice shall be required
(xvii) "the prescribed rate" means four percent per annum above the
Base Rate of The Royal Bank of Scotland plc (or such other Clearing
Bank as the Landlord shall nominate) for the time being
(xviii) "the Planning Acts" means the Town and Country Planning Acts
1971 to 1974
(xix) "this Lease" means these presents whether the same are a
head lease or an inferior lease of any degree
(xx) "relevant review date" "reviewed rent" "the Surveyor" "the
said interval" and "the shortfall" shall have the meanings assigned to
them in Clause 6
(xxi) "the Landlord's Surveyor" shall mean any person or firm
appointed by or acting for the Landlord (including
8.
<PAGE>
an employee of the Landlord) to perform the function of a surveyor for
any purpose of this Lease
(2) References to any statute herein shall be deemed to refer to any
statutory extension modification or re-enactment thereof for the time being
in force and any regulations or orders made thereunder
(3) Where in this Lease any act is prohibited the Tenant shall not allow
permit or suffer such act to be done
(4) Words importing the singular number shall include the plural and vice
versa and words importing the masculine or neuter gender shall include all
or any of the masculine feminine and neuter genders
(5) The headings herein shall not affect the construction of this Lease
PREMISES DEMISED, HABENDUM, REDDENDUM
2. (1) THE Landlord hereby demises unto the Tenant ALL THAT Part of the First
Floor of the Building shown on Plan 1 and thereon edged red and known as
Unit ___ Fountain House and more specifically described in the First
Schedule hereto TOGETHER WITH the Landlord's fixtures and fittings now or
at
9.
<PAGE>
any time during the term hereby granted in or on the demised premises
TOGETHER ALSO WITH:
(i) the right to use the utilities supplied or provided by means
of such conducting media as actually serve the demised premises at the
date hereof
(ii) A right of way over and along the section of the forecourt
coloured brown on Plan 2 with or without vehicles for the sole purpose
of gaining access to and egress from the car parking spaces and on
foot only for the sole purpose of gaining access to and egress from
the demised premises over and along the said forecourt (but so that
such right shall not prevent the parking of cars on the car parking
spaces) paths entrances landings passages and staircases in the
Property
(iii) subject to the provisions of Clause 3(46) the right to park
one private motor vehicle in each of the parking spaces numbered 14 15
16 and 17 shown on Plan 2
(iv) the right of support and protection from the remainder of
the Building
10.
<PAGE>
(v) the right to use the sanitary conveniences shown on Plan 1
and situated on the First floor of the Building
(vi) The right to keep one dustbin in the dustbin area hatched
green on plan 2 or in such other place as the Landlord shall from time
to time designate and the right of access thereto for the purpose of
depositing and removing refuse
EXCEPTING AND RESERVING unto the Landlord and their tenants and the
occupiers of the Building and any adjoining or neighbouring premises and
all other persons authorised by the Landlord or having the like rights and
easements:
(i) the free and uninterrupted passage and running of utilities
from and to other parts of the Building and any adjacent or nearby
property through the conducting media which are now or may hereafter
during the term be in or upon or under the demised premises with the
right to construct and maintain new conducting media for the benefit
of any adjacent or nearby premises the right to
11.
<PAGE>
repair maintain and renew such existing and new conducting media and
the right at any time but on Notice to enter (or in the Tenant's
absence to break and enter) the demised premises
(ii) the full right and liberty at any time or from time to time
to execute works and erections upon or to alter or rebuild any other
part of the Building or any adjacent or nearby premises and to use the
other parts of the Building and any adjacent or nearby premises in
such manner as the Landlord may think fit notwithstanding that the
access of light and air to the demised premises may thereby be
interfered with
(iii) the full right of support and protection from the demised
premises enjoyed by other parts of the Building
(iv) the full right and liberty to build on or into any perimeter
wall of the demised premises and after giving Notice to enter the
demised premises to place and lay in under and upon the same such
footings for any intended wall or structure with the foundations
therefor as the Landlord shall think proper and
12.
<PAGE>
for such purpose to excavate the demised premises along the line of
the junction between the demised premises and any adjoining premises
AND also the right to erect and use scaffolding upon the demised
premises for such purposes
(v) the full right and liberty at any time on Notice to enter
(or during the Tenant's absence to break and enter) the demised
premises in order to (a) inspect or view the condition of the demised
premises (b) carry out work upon any adjacent or nearby premises and
(c) to carry out any repairs or other work or do contained or referred
to in the Second Schedule hereto
TO HOLD the same unto the Tenant from and including the _____ day of
_____ 19 _____ for the term of _____ years SUBJECT to all rights
easements privileges restrictions and stipulations of whatever nature
affecting the demised premises and YIELDING AND PAYING therefor unto
the Landlord FIRSTLY during the first _____ years of the term the
yearly rent of _____ and during the remainder of the term the yearly rent
of
13.
<PAGE>
_____ or such other rent as may be assessed in accordance with the
provisions of Clause 6 whichever shall be the greater without any deduction
by equal quarterly payments in advance on the usual quarter days in every
year the first of such payments (being a proportionate part of a quarter's
rent if appropriate) to be made on the signing hereof AND YIELDING AND
PAYING by way of additional rent during the term SECONDLY the gross cost
to the Landlord from time to time (including any increased premium payable
in respect of the demised premises or any adjoining property or other parts
of the Building by reason of any act or omission of the Tenant) of keeping
the demised premises insured in the full reinstatement value thereof
against loss or damage by the insured risks such additional rent to be
paid on demand without any deduction and THIRDLY the Tenant's proportion of
the service charge at the times and in the manner specified in the Second
Schedule
14.
<PAGE>
INTEREST ON ARREARS
(2) In the event of the rents hereinbefore reserved or any other money (or
part thereof) due from the Tenant under the provisions of this Lease being
in arrear or unpaid for any period after the same become due (whether
formally demanded or not) or if earlier the date upon which the Landlord
shall have expended moneys in respect of which interest is required under
this Lease then the Tenant shall pay to the Landlord interest from the due
date for payment or the date of expenditure of money by the Landlord (as
the case may be) on all such sums as are in arrear or unpaid at the
prescribed rate current at such date compounded with quarterly rests on the
usual quarter days until the date of payment and any such interest shall be
recoverable by the Landlord as rent in arrear
3. THE Tenant hereby covenants with the Landlord as follows:-
RENTS
(1) To pay the said rents at the times and in manner aforesaid and (save
for the said additional rents) by bankers standing order or direct debit
15.
<PAGE>
RATES AND OUTGOINGS
(2) (a) To pay and discharge all existing and future rates taxes duties
charges burdens assessments impositions and outgoings whatsoever
(hereinafter collectively called "outgoings") and whether or not of a
non-recurring nature which now are or may be charged levied assessed
imposed or payable in respect of the demised premises either by the
owner or the occupier thereof and to pay bear and discharge the
proportion properly attributable to the demised premises of any
outgoings which may be charged levied assessed or imposed upon any
premises of which the demised premises form part (such proportion to
be determined by the Landlord's Surveyor whose decision shall be
final) and not to make any claim for relief against outgoings payable
in respect of the demised premises without the Landlord's prior
written consent
(b) To pay to the Landlord on demand all outgoings for utilities
available to or used on the demised premises and in case any utilities
shall be metered
16.
<PAGE>
jointly with those used on other premises or the outgoings therefor
shall be assessed on or payable in respect of any part of the demised
premises in common with other premises to pay to the Landlord a fair
proportion to be settled in case of difference by the Landlord's
Surveyor whose decision shall be final
REPAIR (INTERNAL ONLY)
(3) Throughout the term to put and keep the interior of the demised
premises and (without prejudice to the generality of the foregoing) all
additions thereto and the Landlord's fixtures thereon and the conducting
media thereof in good and substantial repair and condition free from all
defects (whether or not inherent) in the demised premises
FIXTURES AND FITTINGS
(4) Without prejudice to the generality of the foregoing to repair or
replace forthwith by new articles of similar kind and quality any fixtures
fittings or plant or equipment (other than tenants or trade fixtures and
fittings) in the demised premises which shall become in need of repair or
replacement
17.
<PAGE>
REPAINTING
(5) Without prejudice to the generality of the foregoing to paint with
three coats of good quality paint in a workmanlike manner all the internal
parts of the demised premises previously or usually painted in every fourth
year of the term the painting to be done in the last year of the term
(whether determined by effluxion of time or otherwise) as well and after
every such painting to treat redecorate repaper and clean all such parts as
have been previously or ought to be so dealt with using treatment and
materials of good quality such painting and redecorating in the last year
of the term to be carried out in colours and materials first approved in
writing by the Landlord
WORKS REQUIRED BY STATUTE
(6) That the Tenant will during the term do and execute or cause to be
done and executed all such works as under or by virtue of any Act of
Parliament already or hereafter to be passed now are or shall or may be
directed or required by any public local or other competent authority to be
done or executed upon or in respect of the demised premises or any part
thereof by the owner Landlord Tenant
18.
<PAGE>
or occupier thereof and will keep the Landlord indemnified against all
claims and liability in respect thereof
INSPECTION, NOTICE OF WANTS OF REPAIR
(7) To permit Landlord's Agents with or without workmen and others at
reasonable times upon Notice to enter upon and examine the condition of the
demised premises and if as a result of such examination or otherwise the
Landlord becomes aware of any breaches of covenant by the Tenant hereunder
the Landlord may serve upon the Tenant a notice in writing specifying any
repairs and/or other works necessary to be done and requiring the Tenant
forthwith to execute the same and if the Tenant shall not within one month
after service of such notice proceed diligently with the execution of such
repairs and/or other works and thereafter diligently complete the same then
to permit the Landlord to enter upon the demised premises and execute such
repairs and/or other works and the cost thereof together with interest
thereon at the prescribed rate current at the date one month after service
of such notice for the period from that date to the date of
19.
<PAGE>
payment shall be forthwith recoverable as liquidated damages or as rent in
arrear
ENTRY BY LANDLORD FOR WORKS
(8) To permit the Landlord's Agents and workmen at all reasonable hours in
the daytime upon Notice to enter upon the demised premises so far as may be
useful or necessary in order to inspect maintain repair or execute any
works of construction or otherwise alter any other part of the Building or
adjoining property or any conducting media upon or under the demised
premises
ENTRY BY LANDLORD FOR GENERAL PURPOSES
(9) To permit Landlord's Agents with or without workmen and others at
reasonable times upon Notice to enter upon the demised premises for any
purpose connected with the interest of the Landlord in the demised premises
and not hereinbefore referred to including (without prejudice to the
generality of the foregoing) for the purpose of making or disposing of any
interest of the Landlord
PLANNING APPLICATIONS AND PERMISSIONS
(10) (a) At the expense of the Tenant to obtain from the appropriate
authorities
20.
<PAGE>
all licences consents and permissions as may be required for the carrying
out by the Tenant of any operations or uses on any part of the demised
premises
(b) Not without the prior written consent of the Landlord to make any
application for permission under the provisions of the Planning Acts
without first producing a copy of the same and obtaining the prior written
consent of the Landlord to such application
(c) Notwithstanding any consent that may have been granted by the Landlord
not to implement any planning permission before such permission has been
produced to the Landlord and acknowledged by it in writing as satisfactory
to it but so that the Landlord may refuse so to express its satisfaction
with any such planning permission on the ground that the period thereof or
anything contained therein or omitted therefrom would in the opinion of the
Landlord's Surveyor be or be likely to be prejudicial to its interest in
the demised premises whether during the term or following the expiration
thereof
21.
<PAGE>
(d) At the expense of the Tenant to remove any works or alterations
carried out or made without any necessary planning permission or other
consent required from any competent authority or in respect of which such
permission or other consent is withdrawn or lapses and at the expense of
the Tenant to comply with every order of the planning or other competent
authority requiring the removal or demolition of or other work in
connection with any such works or alterations and in all such cases at its
own expense and to the satisfaction of the Landlord to make good all damage
caused by such removal demolition or other work
(e) Unless the Landlord shall otherwise in writing direct to carry out
before the date of expiration or sooner determination o.the term any works
stipulated to be carried out to the demised premises as a condition of any
planning permission which may have been granted during the term and
implemented by the Tenant or any other person whether or not the date by
which the
22.
<PAGE>
planning permission requires such works to be carried out falls within the
term
(f) In any case where a planning permission is granted subject to
conditions and if the Landlord reasonably so requires to provide security
for the compliance with such conditions and such planning permission shall
not be implemented until such security shall have been provided
(g) If reasonably required by the Landlord but at the cost of the Tenant
to appeal against any refusal of planning permission or the imposition of
any conditions on a planning permission in either case made pursuant to an
application therefor under this sub-clause
BREACH OF PLANNING ACTS
(11) Not to do or omit to be done any act matter or thing in on or
respecting the demised premises which shall contravene the provisions of
the Planning Acts and at all times hereafter to keep the Landlord
indemnified against all actions proceedings costs expenses claims and
demands in respect of any such act matter or thing
23.
<PAGE>
COMPENSATION UNDER PLANNING ACTS
(12) That if the Tenant shall receive any compensation in respect of the
interest of the Tenant hereunder because of any restriction placed upon the
user of the demised premises under or by virtue of the Planning Acts then
if and when the Tenant's interest hereunder shall be determined by
surrender or under the power of re-entry herein contained the Tenant shall
forthwith make such provision as is just and equitable for the Landlord to
receive its due benefit from such compensation
ALTERATIONS
(13) (a) Not to erect any new building or erection or make or permit or
suffer to be made any alterations or additions to the demised premises
or cut alter or injure any part thereof and not to make any change in
the existing design or appearance of the demised premises PROVIDED
ALWAYS that the Tenant may with the prior written consent of the
Landlord carry out internal non-structural alterations to any
buildings for the time being erected on the demised premises PROVIDED
FURTHER that
24.
<PAGE>
if the Landlord shall consent in writing to the Tenant carrying out
internal non-structural alterations the Tenant shall not make any such
alterations except in accordance with plans elevations sections and
specifications previously approved by the Architects and Surveyors of
the Landlord and the Superior Landlord (the Tenant paying the
reasonable fees of such Architects and Surveyors in relation thereto)
(b) Not to make any alteration or addition to the electrical
installation of the demised premises save in accordance with the terms
and conditions laid down by the Institution of Electrical Engineers
and the regulations of the Electricity Supply Authority
(c) If the Tenant shall make any addition or alteration to the
demised premises then at the expiration or sooner determination of the
term if so required by the Landlord at the Tenant's own cost to
reinstate and make good the demised premises to the satisfaction of
the Landlord and restore the same to the
25.
<PAGE>
same plan and design as if such addition or alteration (or such of
them as may be specified by the Landlord) had not been made and to pay
the expenses incurred by the Landlord (including all professional
fees) of and incidental to the superintendence of such reinstatement
and making good
PROHIBITED ALIENATION
(14) (a) Not to assign underlet or charge part of the demised premises
(meaning a portion only and not the whole thereof) or agree to do so
and not to part with or share the possession or occupation of the
whole or part of the demised premises or agree to do so
(b) Not to hold or occupy the demised premises or any part thereof as
nominee trustee or agent or otherwise for the benefit of any other
person
PROVISIONS RELATING TO SUB-LETTINGS ETC
(15) (a) Not to create any interest in the demised premises (however
remote or inferior) otherwise than at the full rack rent (being not
less than the rent then payable under this Lease) without a fine or
premium and with provision for
26.
<PAGE>
rent reviews coinciding with the reviews under this Lease
(b) To procure in any underletting of the demised premises that the
rent under such underletting is reviewed in accordance with the terms
of the said rent reviews but not to agree the rent payable thereunder
with the undertenant without the prior written consent of the Landlord
(such consent not to be unreasonably withheld) and to procure that if
the rent under any Underlease is to be determined by an independent
person not to determine whether such person is to act as an expert or
as an arbitrator without the Landlords prior written consent and to
procure that the Landlord's representations as to the rent payable
thereunder are made to such independent person to the reasonable
satisfaction of the Landlord
(c) Not to vary the terms of or accept any surrender of any
underlease permitted under this Clause (or agree so to do) without the
Landlord's written consent (such consent not to be unreasonably
withheld)
27.
<PAGE>
ALIENATION WITH LANDLORD'S LICENCE
(16) Not to assign underlet or charge the whole of the demised premises
without the previous consent in writing of the Landlord and Provided That
the Landlord may as a condition for giving its consent for any permitted
assignment or underletting require the proposed assignee or underlessee to
enter into a direct covenant with the Landlord to perform and observe the
Tenant's covenants and the conditions contained in this Lease (save as to
payment of rent in the case of an underletting) and Provided Further that:-
(a) if an intended assignee shall be a limited company then if the
Landlord shall so require two (or more if the Landlord so requires) of
its directors of satisfactory standing shall join in such deed as
sureties for such company in order jointly and severally to covenant
with the Landlord as sureties that such company will pay the said
rents and perform and observe the said covenants and to indemnify the
Landlord against all loss damages costs and expenses arising by reason
of any default by the company and such covenant
28.
<PAGE>
shall further provide that any neglect or forbearance of the Landlord
shall not release or exonerate the sureties and shall further provide
for the sureties to accept a new lease of the demised premises upon
disclaimer of this Lease by the company or on its behalf if so
required by the Landlord within three months of such disclaimer such
new lease to be for the residue then unexpired of the term and at the
rents payable and subject to the same Tenant's covenants and to the
same provisos and conditions as those in force immediately before such
disclaimer and to be granted at the cost of the sureties in exchange
for a counterpart duly executed by the sureties and
(b) upon the Landlord consenting to an underletting of the demised
premises to procure that the underlease shall contain:-
(i) an unqualified covenant on the part of underlessee with
the Landlord that the underlessee will not assign or charge (or
agree so to do) any part of the premises (as
29.
<PAGE>
distinct from the whole) thereby demised and will not underlet or
(save by way of an assignment of the whole) part with or agree so
to do or share possession of or permit any person to occupy the
whole or any part of the premises thereby demised
(ii) a covenant on the part of the underlessee with the
Landlord that the underlessee will not assign or charge (or agree
so to do) the whole of the premises thereby demised without the
previous consent in writing of the Landlord
(iii) covenants by the underlessee to prohibit the
underlessee from doing or suffering any act or thing upon or in
relation to the premises demised by, the Underlease which will
contravene any of the Tenant's obligations in this Lease
(iv) provision for review of the rent reserved by the
Underlease corresponding both as to the terms
30.
<PAGE>
and dates with the provisions set out in Clause 6 hereof for
review of the yearly rent first hereby reserved
REGISTRATION OF DEALINGS
(17) Within one month after any Assignment of the term or after any
underletting by the Tenant or after any assignment of any Underlease or
after any devolution by Will or otherwise of the term or any Mortgage or
Charge affecting the term to produce to and leave with the Landlord's
solicitors the deed instrument or document effecting the same together with
a certified copy thereof and to pay such reasonable fee (being not less
than 15.00 (pounds)) as they may require and such fees as may be payable to
the Superior Landlord and to procure that every document creating an
underletting of the demised premises or any part thereof shall contain a
similar covenant by the underlessee with the Tenant and the Landlord
PROVIDED THAT registration of any such deed instrument or document shall be
evidence of notification of such transaction to the Landlord but shall not
require the Landlord to consider the terms of such transaction or the said
deed
31.
<PAGE>
instrument or document and shall not be evidence that it has done so
COSTS IN RESPECT OF BREACH OF COVENANT
(18) To pay all expenses (including professional fees) incurred by the
Landlord arising out of or incidental to any breach of the Tenant's
covenants herein contained and in the preparation and service of any notice
whether served before or after the determination of this Lease (including a
notice under Section 146 of the Law of Property Act 1925) requiring the
Tenant to remedy such breach notwithstanding that forfeiture may be avoided
otherwise than by relief granted by the Court and any Schedule of
Dilapidations (including a terminal Schedule)
PARTY ITEMS
(19) Insofar as the same is not included in the Tenant's proportion of the
service charge to pay a fair and proper proportion of the expense
(including any professional fees) of repairing rebuilding painting
maintaining cleaning and lighting all party structures and all roofs
conducting media boundary structures forecourts yards roads ways entrances
passages staircases and other
32.
<PAGE>
amenities or things the use or benefit of which is common to the demised
premises and any adjoining or neighbouring premises notwithstanding that
any part of any such item may not be specifically used or appear to be i
usable by the Tenant in relation to the demised premises such proportion to
be determined by the Landlord's surveyors whose determination shall be
final and binding on the Tenant
NUISANCE
(20) Not to use the demised premises for any illegal or immoral purpose or
for any noisy noxious dangerous or offensive trade manufacture or business
or for anything which may be or become a nuisance annoyance or cause damage
or inconvenience to the Landlord or the tenants or occupiers of any
adjoining or neighbouring property or to any local or other authority
INSURANCE REQUIREMENTS
(21) (a) At all times during the term to comply with all requirements of
the insurers of the demised premises
(b) Not without the Landlord's prior written consent to effect any
insurance
33.
<PAGE>
of the demised premises (other than of the glass or contents)
(c) Not to do anything which may prejudice any policy of insurance
for the time being in force in respect of the demised premises or any
adjoining or nearby premises or which may result in such insurance
becoming void or voidable or the rate of premium under such insurances
being increased and if the payment of any insurance monies is refused
as a result of anything done by the Tenant to pay to the Landlord on
demand with interest at the prescribed rate the amount so refused
PROHIBITION OF DANGEROUS SUBSTANCES
(22) Not to store or bring upon the demised premises any substance or
article of a specially combustible inflammable or dangerous nature
PREVENTION OF FIRE
(23) To keep the demised premises equipped with effective fire fighting
equipment maintained in good working order and to comply with all
regulations of the fire authority and other precautions against fire
34.
<PAGE>
which may be deemed necessary by the Landlord's surveyor or insurers
USER
(24) At all times during the term to use the demised premises as an
industrial building or structure as defined in Section 7 of the Capital
Allowances Act 1968 and to which Section 73 of the Finance Act 1982 applies
and for no other purpose
PROVIDED that the Tenant hereby acknowledges and admits that
notwithstanding the foregoing provisions as to the use of the demised
premises permitted to the Tenant the Landlord does not thereby or in any
way give or make any representation or warranty that any such use is a
permitted use within the provisions of the Planning Acts nor shall any
consent in writing which the Landlord may hereafter give to any change of
use be taken as including any such representation or warranty and that
notwithstanding that any such use is not a permitted use within such
provisions the Tenant shall remain fully bound and liable to the Landlord
in respect of the obligations undertaken by the Tenant by virtue of this
Lease without any compensation recompense or relief of any kind
35.
<PAGE>
RUBBISH
(25) Not to form any refuse dump or scrap heap on the demised premises but
to remove not less frequently than once a week all refuse rubbish and scrap
which may have accumulated on the demised premises and generally to keep
the demised premises clean and in good order
SIGNS AND ADVERTISEMENTS
(26) Not to affix to or upon any part of the exterior of the demised
premises or of the external walls rails or fences thereof any sign placard
poster bill signboard inscription or other advertisement except such as
shall be approved in writing by the Landlord
NO AUCTIONS
(27) Not to hold any sale by auction on the demised premises
STATUTORY NOTICES ETC
(28) Within seven days of the receipt of any notice or order or proposal
for an order given issued or made to the Tenant by a planning or other
competent authority under or by virtue of the Planning Acts or any other
Act of Parliament or otherwise to give full particulars to the Landlord and
if so
36.
<PAGE>
required by the Landlord produce such notice to the Landlord and also
without delay to take all reasonable or necessary steps to comply with any
such notice or order AND ALSO at the request of the Landlord make or join
with the Landlord in making such objection or representation against or in
respect of any proposal for such a notice or order as the Landlord may deem
necessary or expedient
COMPLIANCE WITH LEGISLATION
(29) To comply forthwith at the Tenant's own expense with any nuisance
sanitary or other statutory notice lawfully served by any competent
authority upon either the Landlord or the Tenant in respect of the demised
premises and similarly to comply with all requirements of all legislation
and all requirements of any competent authority so far as they relate to or
affect the demised premises or the user thereof or the employment therein
of any person or any fixture machinery plant or chattels therein and not at
any time during the term to do or omit on or about the demised premises any
act or thing by reason of which the Landlord may under any enactment incur
or have imposed upon it or become liable to pay any penalty
37.
<PAGE>
damages compensation costs charges or expenses and to keep the Landlord
fully and effectually indemnified against all proceedings costs expenses
claims and demands in respect thereof
NOTICE FOR RE-LETTING OR SALE
(30) To permit the Landlord during the six months immediately preceding the
determination of the term or (in the case of the prospective sale of any
reversionary interest) at any time during the term to affix and retain
without interference upon any part of the demised premises a notice for
re-letting or selling the same and during the said six months to permit
persons with written authority from the Landlord or the Agent of the
Landlord at reasonable times of the day to view the demised premises
PREVENTION OF ENCROACHMENT
(31) To take all necessary steps to prevent any encroachment upon the
demised premises or the acquisition of any new right to light air passage
drainage or other easement over upon or under the demised premises and to
give notice to the Landlord of any threatened encroachment or attempt to
acquire any such easement
38.
<PAGE>
PROTECTION OF EASEMENTS
(32) To use its best endeavours to prevent any easement or right belonging
to or used with the demised premises from being obstructed or lost
NO OBSTRUCTION OF LIGHTS
(33) Not to stop up darken or obstruct any windows or light belonging to
the demised premises or to any other part of the Building or any adjoining
or neighbouring buildings now or hereafter belonging to the Landlord or
prevent the free and uninterrupted access of light and air thereto
YIELDING UP
(34) To yield up the demised premises with the fixtures and additions
thereto at the determination of the term in good and substantial repair and
condition in accordance with the covenants hereinbefore contained
COSTS OF LICENCES
(35) To pay on demand the legal and Surveyors' and other professional fees
and disbursements of the Landlord resulting from all applications by the
Tenant for any consent or approval of the Landlord required by this Lease
including fees' actually
39.
<PAGE>
incurred in cases where consent or approval is refused or the application
is withdrawn
COSTS OF DISTRAINT FOR RENTS
(36) To pay to the Landlord on demand all costs charges and expenses
(including legal and Surveyors' and other professional fees) including
Bailiffs' costs incurred by the Landlord for or in connection with the levy
of a distress for the rents payable hereunder or any part thereof or as a
result of the Bailiff being paid the said rents or any part thereof whether
or not any distress in the event be levied or otherwise for or in
connection with the recovery of arrears of the said rents or the moneys
payable by the Tenant hereunder
PLEDGING CHATTELS AS SECURITY
(37) Not to give any bill of sale or offer preferential security on the
stock in trade or personal chattels of the Tenant which shall for the time
being be on or about the demised premises
GENERAL INDEMNITY FOR ACTS OF TENANT
(38) To be responsible for and to indemnify the Landlord against (a) all
damage loss or injury occasioned to the demised premises or any adjoining
or neighbouring premises or the
40.
<PAGE>
utilities or conducting media thereof or to any person or chattels (whether
or not upon the demised premises) caused by any act default or negligence
of the Tenant or the servants agents licencees or invitees of the Tenant
or by reason of any defect in the demised premises or any part thereof &
(b) (without prejudice to the foregoing) all losses claims proceedings
costs & expenses occasioned by any default in the Tenant's obligations
under this Lease
VAT
(39) To pay and indemnify the Landlord against any Value Added Tax payable
in respect of any costs fees or other moneys for which the Tenant is liable
pursuant to this Lease
NOT TO OVERLOAD
(40) Not to overload any floor of the demised premises or impose upon any
part of the structure a strain greater than that which it is designed or
able to bear
NO AERIALS
(41) Not to erect any aerial upon the outside of the demised premises or of
the Building
USE OF COMMON AREAS
41.
<PAGE>
(42) Not to damage misuse or obstruct the Common Areas in any way
NO OUTSIDE STORAGE OR DISPLAY
(43) Not to place or store or exhibit any goods or materials for sale or
otherwise outside the demised premises
PARKING AREAS
(44) Not to use such parts of the Property as are laid out as parking areas
otherwise than for the parking of the number of private motor vehicles
permitted by Clause 2 (1) of persons employed in or visiting the demised
premises
CONDUCTING MEDIA
(45) Not to overload damage obstruct or otherwise misuse any conducting
media (whether or not serving the demised premises)
LANDLORD'S REGULATIONS
(46) To comply with any regulations which the Landlord may make
consistently with the terms of this Lease to govern the use and enjoyment
of the Property and/or any land or premises used or to be used in common or
jointly with any other person by the tenants and occupiers thereof
MAINTENANCE CONTRACTS
42.
<PAGE>
(47) At the Tenant's cost to enter into such contracts as the Landlord may
require with reputable contractors for the repair maintenance inspection
and servicing of any central heating air conditioning and fire fighting
equipment serving the demised premises or any plant and' machinery
contained therein
BREACHES BY UNDERTENANTS TO BE REMEDIED
(48) Forthwith upon discovering any breach of any of the Tenant's covenants
or conditions contained in this Lease by any undertenant or other person in
occupation of the demised premises to take all necessary steps and
proceedings to remedy such breach
LANDLORD TO BE INFORMED OF DEFECTS
(49) To inform the Landlord immediately in writing of any defect in the
demised premises which might give rise to a duty imposed by common law or
statute on the Landlord in favour of any other person (including the
Tenant)
TO PROVIDE INFORMATION AS TO OCCUPANCY
(50) Within one month after any written request by the Landlord to notify
the Landlord in writing:-
43.
<PAGE>
(a) whether the Tenant occupies the demised premises wholly or in
part
(b) whether the Tenant has granted an Underlease of the whole or any
part of the demised premises and if so then to comply forthwith with
the provisions of Clause 3(17) of this Lease (if such provisions have
not already been complied with) and to advise the Landlord of the rent
reserved by any Underlease and the full name and address of any
underlessee and
(c) whether there are any grounds known to the Tenant on which an
application under Section 24(1) or Section 26(1) of the Landlord and
Tenant Act 1954 might reasonably be opposed by the Competent Landlord
(as defined by that Act)
FRONT DOOR
(51) To ensure that the front door of the building is kept securely locked
at all times except when actually in use by persons entering or leaving the
building
(52) To use and procure that all employees invitees visitors of the Tenant
or other persons under the control of the Tenant shall use the said
sanitary conveniences in a
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proper and reasonable manner and not to throw dirt rubbish rags or other
refuse or permit the same to be thrown into the sinks basins or lavatories
4. THE LANDLORD hereby covenants with the Tenant:-
QUIET ENJOYMENT
(1) That the Tenant paying the rents hereby reserved and performing and
observing the covenants on the Tenant's part herein contained shall
peaceably hold and enjoy the demised premises during the term without any
interruption by the Landlord or any person rightfully claiming under or in
trust for the Landlord
INSURANCE AND REINSTATEMENT
(2) Subject to the due payment at all times of the yearly rent secondly
hereby reserved to keep the demised premises insured in the full
reinstatement value thereof against loss or damage by the insured risks
(and so that the amount for loss of rent may take into account a reasonable
estimate of potential increases pursuant to Clause 6) subject to such
excesses exclusions or limitations as the Landlord or its Insurers may
require in some insurance office of repute or with such
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underwriters and through such agency as the Landlord may from time to time
decide and to make all payments necessary for such purpose when the same
shall respectively become payable and to cause all moneys received by
virtue of such insurance to be laid out (subject to the Landlord being able
to obtain all necessary consents) in rebuilding and reinstating the demised
premises and the Tenant will pay the Landlord on demand with interest at
the prescribed rate the amount equivalent to any excess which may be
applicable to such insurance Provided Always that
(a) the Landlord's obligation under this covenant shall cease if the
insurance shall be rendered void or voidable by reason of any act or
default of the Tenant and
(b) if the rebuilding or reinstatement of the demised premises or the
Building shall be prevented or frustrated all such insurance moneys
shall be the absolute property of the Landlord
(c) the Landlord shall at the Tenant's cost whenever reasonably
required on 14 days' notice produce to the Tenant or
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his agent at the offices of the Landlord or the Landlord's solicitors
the policy of insurance and the receipt for the current year's premium
5. PROVIDED ALWAYS and it is hereby expressly agreed as follows:-
PROVISO FOR RE-ENTRY
(1) If the rents hereby reserved or any part thereof shall at any time be
unpaid for twenty-one days after becoming payable (whether formally
demanded or not) or if the covenants on the Tenant's part herein contained
shall not be performed or observed or if the Tenant for the time being (or
any of them) shall become bankrupt or make any assignment for the benefit
of creditors or enter into an agreement or make any arrangement with
creditors for liquidation of the debts of the Tenant by composition or
otherwise or suffer any distress or process of execution to be levied on
the goods of the Tenant or being a corporation shall go into liquidation or
if a Receiver shall be appointed of any part of its undertaking or if the
demised premises shall be vacant or unoccupied for a period of three
consecutive months then and in any such case it shall be
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lawful for the Landlord at any time thereafter to re-enter upon the demised
premises or any part thereof in the name of the whole and thereupon this
demise shall absolutely determine but without prejudice to the rights of
action of the Landlord in respect of any antecedent breach of the Tenant's
covenants herein contained
CESSER OF RENT
(2) In case the demised premises or any part thereof shall at any time
during the term be destroyed or damaged by fire or aircraft or other
insured risks so as to be unfit for occupation and use and the policy of
insurance effected by the Landlord shall not have been vitiated or payment
of the policy moneys refused in whole or in part in consequence of any act
or default of the Tenant then from the date of such destruction or damage
the rent hereby reserved or a fair proportion thereof according to the
nature and extent of the damage sustained shall be suspended until the
demised premises shall be again rendered fit for occupation and use or
until the expiration of two years whichever shall first occur and any
dispute regarding the cesser of rent shall be referred to a
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single arbitrator to be appointed in default of agreement upon the
application of either party by the President_for the time being of the
Royal Institution of Chartered Surveyors or such professional body of
surveyors as the Landlord shall designate under the Arbitration Acts 1950
and 1979
RECEIPT OF RENT NOT WAIVER
(3) The receipt of rent by the Landlord shall not be deemed to be a waiver
of any of the covenants provisions or conditions herein contained and on
the part of the Tenant to be observed and performed
NO COMPENSATION
(4) Any entitlement of the Tenant or any undertenant to compensation from
the Landlord on quitting under the Landlord and Tenant Act or other
legislation shall be excluded (so far as permitted by law)
EXCLUSION OF RESTRICTIONS BY IMPLICATION
(5) Nothing herein contained or implied shall impose any restriction on
the use of any property not comprised in this Lease or give the Tenant the
benefit of or the right to enforce or to have enforced or to permit the
release or modification of any covenant agreement or condition entered into
by any
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purchaser from or by any lessee or occupier of the Landlord in respect of
property not comprised in this Lease or prevent or restrict in any way the
development of any property not comprised in this Lease
LIMITATION OF LANDLORD'S LIABILITY
(6) Notwithstanding anything herein contained the Landlord shall not be
liable or responsible for:-
(a) any interruption in the utilities services amenities or
facilities normally available to the Tenant by reason of any necessary
repair or maintenance of any plant equipment conducting media or other
apparatus or damage thereto or destruction thereof through any cause
beyond the Landlord's control or by reason of mechanical or other
defect or breakdown or freezing or other inclement conditions or
unavoidable shortage of fuel materials or labour
(b) any act omission or negligence of any servant or agent of the
Landlord in or about the performance of any duty relating to any such
utilities services amenities or facilities
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(c) any defect or want of repair relating to any matter for which the
Landlord may be responsible unless the Landlord shall have had actual
notice thereof
(d) any accident or occurrence of injury or loss of or damage to
goods or chattels sustained by the Tenant or any invitee of the Tenant
upon any part of the Property by reason of any act omission or
negligence of any servant or agent of the Landlord or of any other
person whether or not such person is under the direction or control of
the Landlord
RENT REVIEWS
6. (1) PROVIDED ALWAYS AND IT IS HEREBY AGREED that after the expiration of
each period of five years (the time in each case being computed from the
commencement date and the date of expiration of each such period being
hereinafter referred to as the "relevant review date") the yearly rent
first hereby reserved for the time being payable hereunder shall be
reviewed (the Landlord being entitled at any time within the period of
twelve months next before the relevant review
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date or at any time thereafter to serve notice in writing upon the Tenant
requiring a review of the rent hereby reserved) and from and after each
relevant review date the yearly rent payable in respect of the demised
premises shall be such sum (the "reviewed rent") as shall be agreed between
the Landlord and the Tenant (or determined as hereinafter appearing) as
represents the best yearly open market rack rental value of the demised
premises as at the relevant review date as between a willing landlord and a
willing tenant without taking a fine or premium for a term of years
commencing on the relevant review date and equal in length to the whole of
the term with vacant possession and taking no account of
(i) any goodwill attributable to the demised premises by reason
of any trade or business carried on therein by the Tenant
(ii) any improvements to the demised premises carried out during
the term by the Tenant with the consent of the Landlord other
than any
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improvements effected at the expense of the Landlord or in pursuance
of any obligation to the Landlord whether under the provisions of this
Lease or any other document
But upon the supposition (if not a fact) that the demised premises and the
Property shall be in good and substantial repair and free from defects and
ready for immediate beneficial occupation and that all the Tenant's and the
Landlord's covenants shall have been complied with and in all other
respects on the terms and conditions of this Lease including the provisions
of this clause and if the Landlord and the Tenant have not agreed on the
amount of the reviewed rent by a date three months before the relevant
review date then and in any such case the question shall as soon as
practicable be referred by either party to the decision of some competent
person ("the Surveyor") to be agreed upon by the Landlord and by the Tenant
or (in the event of failure so to agree) to be nominated by or on behalf of
the President for the time being of the Royal Institution of Chartered
Surveyors or such professional
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body of Surveyors as the Landlord shall designate who shall at the option
of the Landlord to be notified to the Surveyor and the Tenant in writing
within 21 days following the agreement of the parties as to the identity of
the Surveyor or the nomination of the Surveyor as aforesaid act either as
an arbitrator pursuant to the provisions of the Arbitration Acts 1950 and
1979 or as an expert valuer whose decision shall be final and binding on
all persons who are or have been parties hereto and which decision shall be
given within two months of his appointment or within such extended period
as may be reasonable
(2) Notice in writing of his appointment shall be given by the Surveyor to
the Landlord and the Tenant and he shall invite each to submit within a
specified period (which shall not exceed four weeks) a valuation
accompanied if desired by a statement of reasons
(3) If the Surveyor shall fail to determine the open market rent and give
notice thereof within the time and in the manner provided or if he shall
relinquish his appointment or die or if it shall become apparent that for
any
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reason he will be unable to complete his duties the Landlord nay apply to
the said President for a substitute to be appointed in his place which
procedure may be repeated as may times as necessary
(4) The fees of the Surveyor shall be shared as the Surveyor shall
determine
(5) In the event of the reviewed rent not being ascertained by the
relevant review date then:-
(a) during the period ("the said interval") from the relevant review
date to the quarter day immediately following the date on which the
reviewed rent shall be agreed or (failing agreement) the decision of
the Surveyor shall have been communicated to the Landlord and the
Tenant the rent payable hereunder shall continue to be paid at the
rate payable immediately before the relevant review date
(b) at the expiration of the said interval there shall be due as
additional rent a sum ("the shortfall") equal to the amount (if any)
by which the rent actually payable during the said interval falls
short of the rent
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which would have been payable during the said interval if the reviewed
rent had been ascertained by the relevant review date
(c) at the expiration of the said interval the Tenant shall pay
interest on the shortfall at the prescribed rate
(d) such interest shall be calculated from each quarter day during
the said interval to the end of the said interval on the portion of
the shortfall which would have been payable on that quarter day (if
the reviewed rent had been ascertained by the relevant review date)
(6) In no event shall the reviewed rent payable after each relevant review
date be less than the yearly rent payable immediately before such relevant
review date
(7) As respects all periods of time referred to in this Clause 6 time
shall not be of the essence
(8) If on any relevant review date there shall be in force any act which
shall restrict interfere with or affect the Landlord's right to revise the
rent hereby reserved in accordance with the terms hereof then the Landlord
shall be entitled once
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following each removal or modification of such Act to serve notice
requiring a review of the said rent (hereinafter called an "interim
notice") upon the Tenant and from and after the date of service of such
interim notice until the next relevant review date the rent shall be
increased to whichever is the higher of the best yearly open market rack
rental value of the demised premises (determined in accordance with this
Clause) at the date of service of the interim notice and the rent payable
immediately prior thereto and the provisions of this Clause shall apply
accordingly with the substitution of the said date of service for the
relevant review date
(9) The Landlord may at any time earlier than three months before the end
of the term serve notice in writing upon the Tenant requiring a review of
the rent hereby reserved as at the date seven days before the expiration of
the term and in such event such date shall be treated as a relevant review
date and the provisions of sub-clauses (1) to (8) of this Clause 6 shall
apply accordingly
(10) A memorandum of any increased rent determined pursuant to this Clause
6 shall as
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soon as may be after such determination be endorsed on or annexed to the
Lease and Counterpart thereof and signed by or on behalf of the Landlord
and the Tenant respectively
NOTICES
7. THIS Deed shall incorporate the regulations as to notices contained in
Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery
Service Act 1962
LEGAL COSTS OF LEASE
8. THE Landlord's Solicitors' fees and disbursements incurred in connection
with the preparation and completion of this Lease and Counterpart thereof
together with the stamp duties payable thereon shall be paid by the Tenant
SURETIES
9. THE Sureties in consideration of the demise hereinbefore contained being
made by the Landlord at the Sureties' instance and request HEREBY JOINTLY AND
SEVERALLY COVENANT with AND GUARANTEE to the Landlord that the Tenant will at
all times during the term pay the rents hereby reserved (including any increased
rent determined pursuant to Clause 6) and all other sums and payments agreed to
be paid by the Tenant at the respective times and in manner hereinbefore
appointed for
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payment thereof and will also duly perform and observe and keep the several
covenants and obligations hereinbefore on the part of the Tenant contained
PROVIDED THAT if the Tenant fails to pay the rents hereby reserved and all other
sums and payments agreed to be paid and/or fails to perform and observe the
covenants and obligations hereinbefore on the part of the Tenant contained then
the Sureties and the Sureties only shall exercise the option of EITHER
(i) making good to the Landlord all losses costs and expenses sustained
by the Landlord through the default of the Tenant in respect of such
matters provided that any neglect or forbearance of the Landlord in
endeavouring to obtain payment of the said rents and payments as and when
the same become due or its delay to take steps to enforce performance or
observance of the several covenants and obligations herein on the part of
the Tenant contained and any time which may be given by the Landlord to the
Tenant or that the Tenant may have ceased to exist or any other act or
thing shall not release or in any way lessen or affect the liability of the
Sureties under this guarantee AND the Sureties hereby further jointly and
severally
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covenant that if in those circumstances the Landlord shall so require by
notice in writing the Sureties will accept within three months of service
of such notice a Lease of the demised premises for a term equivalent to the
residue then unexpired of the Lease at the same rents as shall be payable
hereunder immediately prior to such notice (with provision for the review
of rent at the times and in the manner contained in this Lease) and subject
to the like covenants provisos and conditions as are contained in this
Lease with the exception of this clause 9 the said new Lease and the rights
and liabilities thereunder to take effect as from the date of such
disclaimer or forfeiture and in such case the Sureties shall pay the
Landlord's % costs of and accept such new Lease accordingly and will
execute and deliver to the Landlord a counterpart thereof OR
(ii) offering to the Landlord whereupon the Landlord shall accept a full
surrender of the residue then unexpired of the Lease and the release of all
covenants and obligations contained therein on the part of both the Tenant
and the Sureties and the Sureties hereby jointly and severally covenant to
pay
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or cause to be paid to the Landlord a sum equivalent to six of the
quarterly payments of rent payable hereunder at the rate applicable at the
date of the exercise of the said option but the calculation of such sum
will not include any additional rent or insurance premium payable under the
terms of this Lease and it is further agreed that if the Sureties exercise
the second option herein then the Sureties and the Tenant shall be released
from all further liability under the terms of this Lease
I N W I T N E S S whereof the Landlord and the Sureties have hereunto set
their respective hands and seals and the Tenant has caused its Common Seal to be
hereunto affixed the day and year first above written
THE FIRST SCHEDULE - SEE CLAUSE 2(1)
(ITEMS INCLUDED IN THE DEMISED PREMISES)
1. The inner surfaces and interior decorative finishes of walls and stanchions
which are exterior walls of the Building and their stanchions (but not
other parts of such exterior walls or stanchions) and the inner surfaces of
the ceilings
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2. The floor finishes but not items below such finishes
3. The inner half severed medially of internal walls dividing the demised
premises from other parts of the Building and the whole of all other
internal walls or partitions
4. Windows and window frames
5. All additions and improvements to the demised premises
6. All Landlord's fixtures and fittings in or upon the demised premises
whether or not installed at the date hereof
7. Any conducting media exclusively serving the demised premises
THE SECOND SCHEDULE - SERVICE CHARGE
PART I - DEFINITIONS
1. "Unit" means a part of the Property (including the demised premises) let or
intended for letting
2. "the Common Areas" means all parts of the Property other than any Unit
including (without prejudice to the generality of the foregoing) the following
insofar as the responsibility for the repair and maintenance thereof is not
imposed exclusively on any one lessee of the Property
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either under the covenants contained in this Lease or in any other lease of a
Unit:-
(a) All roads ways forecourts yards parking areas and other open spaces
and unbuilt areas
(b) All entrances passages halls staircases and other parts of the
Building or any other building or structure upon the Property
(c) All plant machinery equipment utilities and conducting media in under
or serving the areas referred to in paragraphs 2(a) and (b) of this
Schedule
(d) All boundary walls fences and other boundary structures of the
Property
3. "service charge" means the aggregate cost to the Landlord of:-
(a) repairing renewing redecorating maintaining and cleaning the structure
and exterior of the Building and all other parts thereof the responsibility
for the repair and maintenance whereof is not imposed exclusively on any
one Lessee of the Property or any unit under the covenants contained in
this Lease or in any other lease of a unit and of any other building or
erection upon the Property which accommodates any Unit other than those
parts of the said structure and exterior maintainable by occupational
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tenants or lessees in pursuance of the demise to them
(b) repairing renewing redecorating maintaining cleaning and lighting the
Common Areas and any land adjoining the Property used for the benefit of
any part of the Property and any plant machinery equipment (including
entryphone) and conducting media serving or used for the benefit of any
part of the Property other than those exclusively serving one Unit
(c) carrying out or contributing to the repair renewal redecoration
maintenance cleaning and lighting of party structures and all conducting
media boundary structures forecourts yards roads ways amenities and things
used or enjoyed by the occupiers of the Property or any part of it in
common with the owners or occupiers of any adjoining or neighbouring
property
(d) executing such works and complying with such requirements relating to
the Common Areas (or other land or thing as referred to in paragraph 3(b)
of this Schedule) as are directed or required by any Act of Parliament or
by any statutory local or other competent authority
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(e) tending maintaining and renewing all gardens and grassed planted or
landscaped areas and all trees shrubs grass and other plants within the
Common Areas
(f) cleaning the windows of the Property inside and out at least once in
every period of two months
(g) regulating and controlling the movement ad parking of vehicles upon
the Property
(h) paying and discharging all rates outgoings and charges for utilities
imposed assessed or charged on any part of the Common Areas
(i) providing (if and to the extent that the Landlord considers it
appropriate) security fire fighting and prevention apparatus cleaning
lighting refuse collection entryphone and any other services which the
Landlord shall in its absolute discretion procure for the better use and
enjoyment of the Property and its facilities
(j) retaining managing agents and professional advisers and all other
costs and expenses incurred in connection with the management and
administration of the Property and the preservation or improvement of its
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use and enjoyment and the provision of the services
(k) insuring the Common Areas and the utilities and services of the
Property and third party and public liability and liability under the
Defective Premises Act 1972 in relation to the Property and any other risks
relating to the management of the Property and the provision of services
for it
(l) providing a contingency fund in each year of a reasonable sum to cover
the prospective and contingent costs of carrying out necessary repairs
decorations and replacements to the Property and any premiums on sinking
fund policies covering future capital expenditure on fixtures and fittings
(m) The cost of carrying out works or services of any kind whatsoever
which the Landlord may deem desirable or necessary for the purpose of
maintaining or improving the services in or for the Property and the cost
of any other services reasonably provided by the Landlord from time to time
for the better employment or use of the Property by its occupiers
(n) The proper fees charges expenses and commissions payable to any
solicitor
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accountant surveyor valuer architect engineer and managing agent which the
Landlord may from time to time employ in connection with the management
repair and maintenance of the Building
(o) Value Added Tax on the cost of any of the services provided under this
Lease
4. "service charge period" shall mean the period for which the service charge
is calculated as from time to time determined by the Landlord and notified to
the Tenant
PART II - CALCULATION AND COLLECTION OF SERVICE CHARGE
5. The determination by the Landlord of the amount of the service charge or
the Tenant's proportion of the service charge shall be accepted by the Tenant as
final-and binding if verified by the Landlord's Surveyor
6. Advance payments on account of the Tenant's proportion of the service
charge shall be paid by the Tenant according to the reasonable estimate made by
the Landlord's Surveyor of the amount of the service charge for the current
service charge period by equal installments each of the usual quarter days
occurring during such current service charge period but shall be subject to
adjustment
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under paragraphs 7 and 8 of this Schedule and the first advance payment (being a
proportion from the date hereof to the quarter day next following) shall be made
on the execution hereof
7. The Landlord shall as soon as practicable after the end of each service
charge period supply to the Tenant a statement verified by the Landlord's
Surveyor giving particulars of the service charge incurred for that service
charge period and if the Tenant's proportion of the service charge shall be more
or less than the total of the payments on account paid by the Tenant during that
service charge period under paragraph 6 of this Schedule then any sum due to or
payable by the Landlord by way of adjustment to the Tenant's proportion of the
service charge shall be added to or subtracted from (as the case may be) the
next advance payment on account of the Tenant's proportion of the service charge
on the quarter day following the date of receipt by the Tenant of the verified
statement
8. Notwithstanding the previous provisions of this Schedule the Landlord may
at any time during the currency of any service charge period by notice to the
Tenant increase the amount of any or all of the remaining payments on account of
the
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Tenant's proportion of the service charge for that service charge period
69.
