SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): NOVEMBER 24, 1997
ENCORE COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation or organization)
0-13576 04-2789167
(Commission File Number) (I.R.S. Employer Identification No.)
6901 WEST SUNRISE BOULEVARD, FORT LAUDERDALE, FL 33340-9148
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (954) 316-4400
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On November 24, 1997 (the "Closing"), pursuant to an Asset Purchase Agreement
dated as of July 17, 1997 (the "Agreement") by and among the registrant, Encore
Computer U.S., Inc., a Delaware corporation and a wholly-owned subsidiary of the
registrant ("Encore US"), Encore Computer International, Inc., a Delaware
corporation and a wholly-owned subsidiary of the registrant ("Encore
International" and, collectively with the registrant and Encore US, "Encore"),
and Sun Microsystems, Inc., a Delaware corporation, and Sun Microsystems
International, B.V., a Netherlands corporation (collectively, "Sun"), Encore
sold substantially all of the assets associated with its storage products
business to Sun (the "Sun Transaction"). The Agreement had contemplated that the
aggregate consideration to be paid to the Company by Sun for such assets was to
be $185,000,000, of which $150,000,000 in cash was to be paid at the closing
(the "Closing Payment") and $35,000,000 was to be payable on July 1, 1998 (the
"Second Payment"). Pursuant to the terms of a Modification Agreement, dated as
of November 24, 1997, among Encore and Sun, the parties agreed that the final
amount of the Closing Payment would be reduced to $149,882,683 to reflect that
Sun was assuming certain liabilities of certain non-U.S. subsidiaries of the
registrant in the amount of $117,317, which Sun had not previously agreed to
assume under the terms of the Agreement. In addition, the parties further agreed
that Sun was to pay an additional amount of $1,285,544 to Encore for the
purchase by Sun of certain finished storage product units, as contemplated by
the terms of the Agreement. Thus, the aggregate amount paid by Sun to Encore at
the Closing was $151,168,227 (the "Total Cash Closing Payment"), which was paid
by Sun to the registrant as follows: (i) at registrant's request,
$118,550,972.57 was paid to Gould Electronics Inc. ("Gould"), which represented
payment by the registrant to Gould for (I) the aggregate amount of outstanding
principal amount of indebtedness, and accrued interest thereon, owed by the
registrant to Gould and (II) the redemption of the registrant's outstanding
preferred stock, all of which was then owned by Gould and by its affiliate, EFI
International Inc. (collectively, the "Gould Agreement"); (ii) at registrant's
request, $11,876 was paid in French Francs to Encore Computer, S.A, a
wholly-owned subsidiary of the registrant; (iii) $22,000,000 was paid to First
Trust of California, National Association, as escrow agent, pursuant to the
terms of an escrow arrangement between Encore and Sun; and (iv) the remainder
was paid to the registrant. The purchase price for the sale of assets in the Sun
Transaction, and the modifications thereto as described above, were determined
as a result of arms-length negotiations between Encore and Sun.
At the closing of the Sun Transaction, Sun and the registrant entered into a
Technology License Agreement pursuant to which Sun granted to the registrant a
non-exclusive, non-transferable, royalty free, worldwide license in the licensed
materials sold to Sun as part of the storage products business to create and
distribute real-time products based on the licensed materials for use by the
registrant in its real-time business, subject to certain limitations specified
therein, but not for any other purpose. The license agreement also allows the
registrant to sublicense third parties to distribute such real-time products of
the registrant or incorporate such products into the third party's real-time
products, subject to certain limitations. The registrant also agrees not to use
the licensed materials in any storage products or to compete with Sun's storage
products business, and to grant to Sun a non-exclusive, royalty-free, paid up,
non-terminable, worldwide license under intellectual property rights in any
derivative works created by the registrant derived from the licensed materials,
so long as Sun does not use this grant back license to create or distribute
real-time products.
In connection with the Agreement and for a one-year period following the closing
of the Sun Transaction, Gould has agreed to take all actions necessary to ensure
that Encore
<PAGE>
remains solvent. In addition, Gould and certain of its affiliates have agreed
among other things, that, if within two years after the closing of the Sun
Transaction, the Company commences an insolvency proceeding and the Sun
Transaction is challenged in that proceeding, that Gould and such affiliates
will indemnify Sun for losses arising therefrom (the foregoing agreements
entered into by Gould and certain of its affiliates, on the one hand, and Sun,
on the other hand, as amended by the Modification Agreement thereto, are
referred to herein as the "Inducement Agreements").
Sun is a leading supplier of enterprise network computing products including
desktop systems, servers, storage subsystems, software, microprocessors, and a
full range of services and support. Sun's products command a significant share
of a rapidly growing segment of the computer industry: networked computing
environments. Sun's products are used for many demanding commercial and
technical applications in various industries.
The Agreement, the Modification Agreement, the Technology License Agreement and
the Inducement Agreements are attached hereto as Exhibits and are incorporated
herein by reference. The foregoing description of the Sun Transaction is subject
to, and qualified in its entirety by reference to such Exhibits.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Pro Forma Financial Information
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements for the year
ended December 31, 1996 and the nine months ended September 28, 1997 give effect
to the Sun Transaction and the Gould Agreement. The pro forma adjustments are
based on available information and upon certain assumptions that the Company's
management believes are reasonable under the circumstances. The unaudited pro
forma financial information should be read in conjunction with the December 31,
1996 audited Consolidated Financial Statements and the September 28, 1997
unaudited Consolidated Financial Statements of the Company incorporated herein
by reference
The unaudited Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated
Statements of Operations are necessarily based upon allocation, assumptions and
approximations and, therefore, do not reflect in precise numerical terms the
impact of the transaction on the historical financial statements. In addition,
such pro forma statements should not be used as a basis for forecasting the
future operation of the Company.
The pro forma adjustments made in the preparation of the unaudited Pro Forma
Consolidated Balance Sheet assume that the Sun Transaction and the Gould
Agreement had been consummated on September 28, 1997. The pro forma adjustments
related to the unaudited Pro Forma Consolidated Statement of Operations assume
that the Sun Transaction and the Gould Agreement had been consummated as of
January 1, 1996.
<PAGE>
ENCORE COMPUTER CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
----------------------------------
SUN GOULD PRO
HISTORICAL TRANSACTION AGREEMENT FORMA
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,461 $ 151,168(A) $ (84,738)(F) $ 40,146(H)
(5,745)(B) (25,000)(E)
Accounts receivable, less allowance 7,927 -- -- 7,927
Inventories 7,711 (3,357)(A) -- 4,354
Prepaid expenses and other current assets 1,122 -- -- 1,122(I)
------------ ------------- ------------ ------------
Total current assets 21,221 142,066 (109,738) 53,549
Due from Sun Microsytems -- 35,000(A) -- 35,000
Property and equipment, net 29,438 (27,132)(A) -- 2,306
Other assets 1,300 (365)(A) -- 935
------------ ------------- ------------ ------------
Total Assets $ 51,959 $ 149,569 $ (109,738) $ 91,790
============ ============= ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Current portion of long term debt-related parties $ 68,416 $ -- $ (68,416)(F) $ --(H)
Current portion of long term debt-other 137 (137)(B) -- --
Accounts payable and accrued liabilities 31,534 (1,006)(A) (16,322)(F) 30,174
(5,227)(B)
3,860 (C)
Restructuring and other charges -- 17,335 (D) -- --
------------ ------------- ------------ ------------
Total current liabilities 100,087 14,825 (84,738) 30,174
Long term debt-other 381 (381)(B) -- --
Other liabilities 1,800 -- 35,000 (E) 36,800
------------ ------------- ------------ ------------
Total liabilities 102,268 14,444 (49,738) 66,974
------------ ------------- ------------ ------------
SHAREHOLDERS' EQUITY (CAPITAL DEFICIENTY):
Preferred stock, $0.01 par value,
authorized 10,000,000 shares:
Series A Convertible Participating Preferred,
issued 73,641 shares in 1997 and 1996 1 -- (1)(G) --
6% Cumulative Series B Convertible Preferred
issued 728,722 with an aggregate liquidation
preference of $72,872,200 7 -- (7)(G) --
6% Cumulative Series D through I Convertible
Preferred, issued 4,110,478 with an aggregate
liquidation preference of $411,047,800 41 -- (41)(E) --
Common stock, $0.01 par value, authorized
200,000,000 shares; issued 37,559,976,
pro forma 67,346,291 376 -- 298 (G) 674
Additional paid-in capital 487,227 -- (59,959)(E) 426,978
(290)(G)
Accumulated deficit (537,961) 156,320 (A) -- (402,836)
(3,860)(C)
(17,335)(D)
------------ ------------- ------------ ------------
Total shareholders' equity (capital deficiency) (50,309) 135,125 (60,000) 24,816
------------ ------------- ------------ ------------
Total liabilities and shareholders'
equity (capital deficiency) $ 51,959 $ 149,569 $ (109,738) $ 91,790
============ ============= ============ ============
</TABLE>
<PAGE>
ENCORE COMPUTER CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
----------------------------------
SUN GOULD PRO
HISTORICAL TRANSACTION AGREEMENT FORMA
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES
Equipment $ 27,600 $ (6,603)(a) $ -- $ 20,997
Service 20,027 -- -- 20,027
Total 47,627 (6,063) -- 41,024
Costs and expenses:
Cost of equipment sales 35,786 (23,925)(a) -- 12,761
Cost of service sales 17,822 (5,979)(a) -- 11,843
Research and development 30,260 (18,156)(b) -- 12,104
Sales, general and administrative 30,977 (13,948)(b) -- 17,029
Total 114,845 (61,108) -- 53,737
Operating loss (67,218) 54,505 -- (12,713)
Interest expense, related parties (3,370) -- 3,370 (c) --
Interest expense, mortgages (80) 80 (d) -- --
Interest expense, other (70) -- -- (70)
Interest Income 196 -- -- 196
Other expense, net (554) -- -- (554)
Loss before income taxes (71,096) 54,585 3,370 (13,141)
Income tax benefit (364) -- -- (364)
Net loss $ (70,732) $ 54,585 $ 3,370 $ (12,777)(g)
============ ============= ============ ===========
Loss per common share:
Net loss $ (70,732) $ 54,585 $ 3,370 $ (12,777)
Preferred Stock dividends (25,413) -- 25,413 (e) --
Net loss attributable to common
shareholders $ (96,145) $ 54,585 $ 28,783 $ (12,777)
============ ============= ============ ===========
Net loss per common share $ (2.61) $ (0.19)
============ ===========
Weighted average shares of common stock 36,810 29,786 (f) 66,596
============ ============ ===========
See accompanying notes to Unaudited Pro Forma Consolidated Statement of Operations.
</TABLE>
<PAGE>
ENCORE COMPUTER CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
----------------------------------
SUN GOULD PRO
HISTORICAL TRANSACTION AGREEMENT FORMA
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES
Equipment $ 11,428 $ (5,190)(a) $ -- $ 6,238
Service 11,688 -- -- 11,688
Total 23,116 (5,190) -- 17,926
Costs and expenses:
Cost of equipment sales 18,138 (11,827)(a) -- 6,311
Cost of service sales 12,447 (4,954)(a) -- 7,493
Research and development 20,876 (12,526)(b) -- 8,350
Sales, general and administrative 21,961 (10,034)(b) -- 11,927
Total 73,422 (39,341) -- 34,081
Operating loss (50,306) 34,151 -- (16,155)
Interest expense, related parties (4,696) -- 4,696 (c) --
Interest expense, mortgages (49) 49 (d) -- --
Interest expense, other (33) -- -- (33)
Interest Income 94 -- -- 94
Other expense, net (1,281) -- -- (1,281)
Loss before income taxes (56,271) 34,200 4,696 (17,335)
Provision for income taxes 194 -- -- 194
Net loss $ (56,465) $ 34,200 $ 4,696 $ (17,569)
============ ============= ============ ===========
Loss per common share:
Net loss $ (56,465) $ 34,200 $ 4,696 $ (17,569)
Preferred Stock dividends (21,794) -- 21,794 (e) --
Net loss attributable to common
shareholders $ (78,259) $ 34,200 $ 26,490 $ (17,569)
============ ============= ============ ===========
Net loss per common share $ (2.09) $ (0.26)
============ ===========
Weighted average shares of common stock 37,419 29,786 (f) 67,205
============ ============ ===========
See accompanying notes to Unaudited Pro Forma Consolidated Statement of Operations.
NOTE: The results of operations for the nine months of Fiscal 1997 are
not necessarily indicative of the results to be expected for the
full year.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORM CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents $151,168,000 cash payment at the date of closing (Closing
Payment of $149,882,000 and $1,286,000 for certain storage product
inventory) and a $35,000,000 receivable from Sun Microsystems due July
1, 1998 received as part of the Sun Transaction in consideration for
substantially all of the assets associated with the Storage Products
Business detailed as follows:
<TABLE>
<S> <C>
Storage product inventory $ 3,357,000
Property, plant and equipment including land and buildings
located in Fort Lauderdale and Melbourne, Florida 27,132,000
Capitalized software purchased for internal use 365,000
---------------
30,854,000
Reversal of warranty reserves associated with the storage
product inventory (1,006,000)
---------------
$ 29,848,000
===============
Gain on sale of assets, excluding transaction costs $ 156,320,000
===============
</TABLE>
(B) Represents the payment of all trade accounts payable, certain accrued
liabilities and the balance of the mortgages on the buildings being
sold as part of the Sun Transaction.
(C) Represents reserve established for the payment of transaction costs
associated with the Sun Transaction.
(D) Represents estimated restructuring and other charges directly related
to the Sun Transaction as follows:
<TABLE>
<S> <C>
Employee severance $ 5,883,000
Employee retention bonuses 4,562,000
Employee incentive bonuses 1,000,000
Costs associated with termination of European facility leases 3,290,000
Costs associated with termination of European automobile leases 100,000
Building rearrangement costs 500,000
Tax Liability from sale of assets 1,000,000
Estimated closing costs 1,000,000
--------------
$ 17,335,000
==============
</TABLE>
The above was calculated as follows:
SEVERANCE
Employee severance is based on the number of employees of the Company who were
not hired by Sun or retained by Encore. It includes severance for employees
contracted by Sun as the Company has agreed to pay the difference between the
completion bonus the contractors will receive from Sun at the end of their
contract and the amount of severance they were entitled to if they had been
terminated.
EMPLOYEE RETENTION
<PAGE>
Pursuant to written agreements between the Company and each of approximately 49
employees.
EMPLOYEE INCENTIVE
Payment to certain key employees at the discretion of management.
TERMINATION OF EUROPEAN FACILITY LEASES
Based on remaining lease terms and buy out clauses associated with leased
facilities at the Company's European offices.
TERMINATION OF EUROPEAN AUTOMOBILE LEASES
Based on remaining lease terms on automobiles leased by the Company for European
employees.
BUILDING REARRANGEMENT
Leasehold improvements to be made at one of the Company's Fort Lauderdale
facilities which will be leased from Sun.
(E) Represents payment of $25,000,000 and a $35,000,000 payable due July 1,
1998 required by the Gould Agreement to retire the 6% Cumulative Series
D, E, F, G, H and I Convertible Preferred Stock.
(F) Represents cash payment of $84,738,000 to retire the Gould Debt and
accrued interest.
(G) Represents the conversion of 73,641 shares of Series A Convertible
Participating Preferred Stock and 728,722 shares of Series B
Convertible Preferred Stock to Common Stock in accordance with the
Gould Agreement.
(H) Excludes the use of $26,148,000 associated with the following items:
(i) Approximately $8,813,000 for retainment of additional funding
under the Gould Debt for the period 9/28/97 through the date of
closing.
(ii) Approximately $17,335,000 in restructuring and other costs in
connection with the Sun Transaction and organization and
operation of the Company following the Sun Transaction.
(I) Excludes valuation of the royalty-free license agreement because the
Company believes that future product revenues resulting from such
license agreement will be immaterial in value relative to the projected
product revenues, and short-term in duration. Also, the utilization of
the license granted thereunder is dependent upon the Company's future
course of operations.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(a) Represents the reversal of storage product revenue and all cost of
sales associated with the storage product including customer service
support which was provided to the customer at no charge under warranty
contracts.
(b) Represents the estimated portion of operating expenses incurred for the
development and sale of the storage product line, based in part on the
number of employees transferred to Sun. Sun hired 143 development
employees, or 60% of those employed by the Company. Development
spending was reduced using this percentage. Actual sales expenses
related to storage products are segregated on the Company's books by
means of cost centers, and these actual costs are the amounts that have
been deducted from sales expenses. No amounts have been deducted for
general and administrative expenses as none relate directly to the
assets sold.
(c) Represents interest expense on the Gould Debt which was retired as part
of the Gould Transaction.
(d) Represents interest expense on the mortgages which were retired as part
of the Sun Transaction.
(e) Represents the reversal of dividends on preferred stock retired or
converted to common stock as part of the Gould Agreement.
(f) Represents the common stock issued in the conversion of Series A and B
preferred stock as part of the Gould Transaction.
(g) Excludes the gain on the sale of assets associated with the Sun
Transaction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
/bullet/ the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
/bullet/ the Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1997.
(b) Exhibits
EXHIBIT 2.1 - Asset Purchase Agreement dated as of July 17, 1997 among
the registrant, Encore Computer U.S., Inc., Encore Computer
International, Inc., Sun Microsystems, Inc. and Sun Microsystems
International, B.V. (without exhibits), and the Modification Agreement
thereto dated as of November 24, 1997.
EXHIBIT 2.2 - Technology License Agreement entered into between the
registrant and Sun.
EXHIBIT 2.3 - The respective Inducement Agreements entered into by
Gould and its affiliates with Sun, and the Gould Modification Agreement
among such parties.
<PAGE>
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 hereunto duly authorized.
ENCORE COMPUTER CORPORATION
Date: December 9, 1997 By: /s/ KENNETH G. FISHER
---------------------------
Kenneth G. Fisher
Title: CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- - ------- -----------
2.1 Asset Purchase Agreement dated as of July 17, 1997 among the
registrant, Encore Computer U.S., Inc., Encore Computer International,
Inc., Sun Microsystems, Inc. and Sun Microsystems International,
B.V. (without exhibits), and the Modification Agreement thereto
dated as of November 24, 1997.
2.2 Technology License Agreement entered into between the registrant and
Sun.
2.3 The respective Inducement Agreements entered into by Gould and its
affiliates with Sun, and the Gould Modification Agreement among
such parties.
EXHIBIT 2.1
_________________________________________________
ASSET PURCHASE AGREEMENT
__________________________________________________
dated as of July 17, 1997
among
ENCORE COMPUTER CORPORATION
ENCORE COMPUTER U.S., INC.
ENCORE COMPUTER INTERNATIONAL, INC.
AS "SELLER"
and
SUN MICROSYSTEMS, INC.
and
SUN MICROSYSTEMS INTERNATIONAL, B.V.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I
SECTION 1.01. Certain Defined Terms. (1)
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
SECTION 2.01. Assets to Be Sold and Purchased. (10)
SECTION 2.02. Assumption and Exclusion of Liabilities. (12)
SECTION 2.03. Purchase Price; Allocation of Purchase Price. (16)
SECTION 2.04. Real Property (18)
SECTION 2.05. Closing. (18)
SECTION 2.06. Closing Deliveries by Seller. (19)
SECTION 2.07. Closing Deliveries by Purchaser. (19)
SECTION 2.08. Unassignable Assets. (19)
SECTION 2.09. SMIBV. (20)
SECTION 2.10. Non-U.S. Assets (20)
SECTION 2.11 Further Assurances (21)
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01. Organization and Good Standing of Seller. (21)
SECTION 3.02. Authorization and Validity (22)
SECTION 3.03. Subsidiaries or Affiliates (22)
SECTION 3.04. Capitalization; Required Stockholder Approval;
Stockholders Meeting (22)
SECTION 3.05. No Conflict. (23)
SECTION 3.06. Consents (23)
SECTION 3.07. Financial Statements. (23)
SECTION 3.08. Absence of Undisclosed Liabilities (24)
SECTION 3.09. Absence of Certain Changes or Events (24)
SECTION 3.10. Tax Matters (26)
SECTION 3.11. Title to and Condition of Purchased Assets;
Sufficiency of Purchased Assets (27)
SECTION 3.12. Real Property Assets (28)
SECTION 3.13. Lists of Certain Assets (28)
SECTION 3.14. No Restrictive Agreements (29)
SECTION 3.15. Full Force and Effect. (29)
SECTION 3.16. Litigation. (29)
SECTION 3.17. Compliance with Laws. (30)
SECTION 3.18. No Representation to Employees. (30)
SECTION 3.19. Employees. (30)
SECTION 3.20. Pension and Employee Benefit Matters. (31)
SECTION 3.21. Supplier and Customer Relationships. (32)
SECTION 3.22. Product and Inventory Status. (33)
SECTION 3.23. Intellectual Property Rights. (33)
SECTION 3.24. Brokers (36)
SECTION 3.25. Environmental Matters (36)
SECTION 3.26. Insurance (38)
SECTION 3.27. Disclosure (38)
SECTION 3.28. Solvency; No Bankruptcy or Insolvency Proceedings (39)
SECTION 3.29. Fairness of Consideration (40)
SECTION 3.30. Bulk Sales (40)
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Incorporation and Authority of Purchaser and SMIBV. (40)
SECTION 4.02. No Conflict. (41)
SECTION 4.03. Consents and Approvals. (41)
SECTION 4.04. Brokers (41)
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. (41)
SECTION 5.02. Books and Records. (42)
SECTION 5.03. Seller's Stockholders' Approval (42)
SECTION 5.04. Confidentiality. (43)
SECTION 5.05. Regulatory and Other Authorizations; Consents. (44)
SECTION 5.06. Further Actions. (44)
SECTION 5.07. Covenant Not to Compete. (45)
SECTION 5.08. Payroll Information. (45)
SECTION 5.09. Solvency; No Bankruptcy (46)
SECTION 5.10. Manufacturing Commitment. (46)
SECTION 5.11. Customer Transition (46)
SECTION 5.12 Support and Service Negotiations (46)
SECTION 5.13 Transitional Support (47)
SECTION 5.14 Interim Sales Representation and Marketing Cooperation (47)
SECTION 5.15 Diagnostic, Test and QA Software (49)
SECTION 5.16 Execution of the Inducement and Non-competition Agreements (49)
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Right to Offer Employment. (49)
SECTION 6.02. Termination of Employment. (51)
SECTION 6.03. General Matters. (51)
SECTION 6.04. Employee Withholding Taxes. (51)
ARTICLE VII
TAX MATTERS
SECTION 7.01. Transaction Taxes; Representation; Indemnity. (52)
SECTION 7.02. Representation and Indemnity. (52)
SECTION 7.03. No Limitation. (52)
SECTION 7.04. Treatment of Indemnity Payments. (52)
ARTICLE VIII
CONDITIONS TO THE CLOSING
SECTION 8.01. Conditions to Obligations of Seller. (53)
SECTION 8.02. Conditions to Obligations of Purchaser. (54)
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Loss Defined; Indemnitees (58)
SECTION 9.02. Indemnification by Seller. (58)
SECTION 9.03. Procedures for Indemnification. (60)
SECTION 9.04. Limitations on Indemnification (61)
SECTION 9.05. Setoff Rights (62)
SECTION 9.06. No Limitation on Other Rights (62)
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. (62)
SECTION 10.02. Effect of Termination. (63)
SECTION 10.03. Waiver. (63)
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. (63)
SECTION 11.02. Notices. (63)
SECTION 11.03. Public Announcements. (64)
SECTION 11.04. Headings. (64)
SECTION 11.05. Severability. (64)
SECTION 11.06. Entire Agreement. (65)
SECTION 11.07. Assignment. (65)
SECTION 11.08. No Third-Party Beneficiaries. (65)
SECTION 11.09. Amendment; Waiver. (65)
SECTION 11.10. Governing Law; Jurisdiction and Venue. (65)
SECTION 11.11. Construction of "Seller". (66)
SECTION 11.12. Counterparts. (66)
</TABLE>
EXHIBITS
Exhibit A List of Assigned Contracts
Exhibit B Form of Assumption Agreement
Exhibit C-1 Form of Bill of Sale and Assignment Agreement
Exhibit C-2 Form of Offshore Tangible Asset Bill of Sale and Assignment
Agreement
Exhibit D Form of Technology License Agreement
Exhibit E Form of Non-Competition Agreement
Exhibit F Form of Real Property Lease Agreement
Exhibit G Fort Lauderdale Facility Purchase Agreement
Exhibit H Melbourne Facility Purchase Agreement
Exhibit I Condominium Purchase Agreement
Exhibit J-1 Gould/EFI Inducement Agreement
Exhibit J-2 Form of JEC Inducement Agreement
Exhibit K Form of Patent Assignment
Exhibit L Form of Copyright Assignment
Exhibit M Form of Trademark Assignment
Exhibit N Matters to be Opined Upon by Choate, Hall & Stewart
Exhibit O Form of Solvency Certificate
Exhibit P Nonexclusive List of Additional Excluded Assets
Exhibit Q Certified Tangible Asset Schedule
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of July 17, 1997 (the "Effective Date"), by and among, on the one hand, ENCORE
COMPUTER CORPORATION, a Delaware corporation ("Encore") and its undersigned
wholly owned subsidiaries ENCORE COMPUTER U.S., INC., a Delaware corporation
and ENCORE COMPUTER INTERNATIONAL, INC., a Delaware corporation (individually
and collectively (subject to Section 11.11 hereof), "Seller"), on the one
hand, and, on the other hand, SUN MICROSYSTEMS, INC., a Delaware corporation
("Purchaser") and SUN MICROSYSTEMS INTERNATIONAL, B.V., a Netherlands
corporation ("SMIBV").
W I T N E S S E T H:
WHEREAS, Seller desires to sell to Purchaser and SMIBV, and Purchaser and
SMIBV desire to purchase from Seller, certain assets associated with Seller's
Storage Products Business (as defined in Section 1.01 below), not including
the Excluded Assets (as defined Section 1.01 below), and in connection
therewith, Purchaser is willing to assume certain specified liabilities of
Seller associated with the Storage Products Business, not including the
Excluded Liabilities (as defined in Section 1.01 below), all upon the terms
and subject to the conditions set forth in this Agreement; and
WHEREAS, in connection with the sale of assets described above, Seller will
permit Purchaser to interview and make offers of employment to certain
employees of Seller who work in the Storage Products Business in accordance
with this Agreement;
NOW, THEREFORE, in consideration of the facts stated in the above recitals and
of the mutual agreements and covenants hereinafter set forth, and for good and
valuable consideration, the receipt, sufficiency and adequacy of which is
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"affiliate" means, with respect to a specified person, any other person that
directly or indirectly controls, is controlled by, or is under common control
with, such specified person.
"Ancillary Agreements" means, collectively, the Assumption Agreement, the Bill
of Sale, the Offshore Tangible Asset Bills of Sale, the Non-competition
Agreements, the Real Property Lease Agreement, the License Agreement, the Real
Property Purchase Agreements, the Patent Assignment, the Copyright Assignment
and the Trademark Assignment (as such terms are defined herein).
"Applicable Purchaser Subsidiaries" will have the meaning specified in Section
2.10(c).
"Assigned Contracts" has the meaning specified in Section 2.01(a).
"Assumption Agreement" means the Assumption Agreement to be executed and
delivered by Purchaser and Seller at the Closing substantially in the form of
Exhibit B.
"Bill of Sale" means the Bill of Sale and Assignment Agreement to be executed
and delivered by Seller at the Closing substantially in the form of Exhibit
C-1.
"Business Day" means a day of the year on which banks are not required or
authorized to be closed in the City of San Francisco, California.
"Closing" and "Closing Date" have the meanings specified for such terms in
Section 2.05.
"Condominiums" means that certain real property commonly collectively known as
275 Jacaranda Drive Unit #10-2, Plantation, Florida 33324 and 233 Jacaranda
Drive Unit #42-6, Plantation, Florida 33324, that are more fully described in
Schedule 3-A to Seller's Disclosure Letter including, without limitation, all
buildings and other structures, facilities or improvements located on such
real property, all fixtures attached or appurtenant thereto, and all
easements, licenses, rights and appurtenances relating to the foregoing.
"control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or otherwise.
"Dollars" or "$" means U.S. dollars.
"EFI" has the meaning specified in Section 2.03(b).
"Employee" has the meaning specified in Section 6.01.
"Employee Assets" means all personal property assets owned (or leased) by
Seller, wherever located, that are utilized by Employees (as defined in
Section 6.01 below) in the normal course of the performance of their duties
and services for Seller at any time during the time period beginning on the
Effective Date and ending on the Closing Date, other than any such assets that
are consumed prior to the Closing Date in the ordinary course of Seller's
business, consistent with Seller's past practice. By way of example and not
limitation, Employee Assets will include work-stations, personal computers,
personal digital assistants and all associated licenses to use third-party
software applications used thereon, cellular telephones, pagers, furniture,
office supplies and other similar assets, as well as all furniture, fixtures
and other tangible items located in the Condominiums.
"Encumbrance" means any pledge, lien, collateral assignment, security
interest, mortgage, deed of trust, title retention, conditional sale or other
security arrangement, or any charge, adverse claim of title, ownership or use,
or any other encumbrance of any kind.
"Environmental Damage" means any actual or alleged Liability (including
without limitation Liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or relating to (i)
the presence, discharge, emission or release into the environment of any
Hazardous Substance or (ii) facts or circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state, local and non-U.S. laws and
regulations relating to pollution, the protection of human health or the
environment (including without limitation ambient air, surface water, ground
water, land surface or subsurface strata), including without limitation laws
and regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Substances, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, or relating to occupational health and
safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the rulings and regulations promulgated thereunder.
"Excluded Assets" shall have the meaning defined for it in Section 2.01(b).
"Excluded Contracts" means all Seller Contracts other than the Assigned
Contracts.
"Excluded Liabilities" shall have the meaning defined for it in Section
2.02(b).
"Finished Products" means those finished Storage Product units in Seller's
inventory at the Closing Date, including both (i) the units thereof utilized
for Seller's day to day business for demonstration, development, benchmarking
and/or test purposes at Seller's facilities ("Demo Units"), and (ii) the units
thereof in the possession of Seller customers as of the Closing Date under
Seller's "try and buy" program ("Customer Units").
"Fort Lauderdale Facility" means, collectively, those certain real properties
commonly known as 6901 West Sunrise Blvd., Fort Lauderdale, Florida 33313,
1801 NW 66th Avenue, Fort Lauderdale, Florida 33313, and 1800 NW 69th Avenue,
Fort Lauderdale, Florida 33313, that are more fully described in Schedule 3-B
to Seller's Disclosure Letter including, without limitation, all buildings and
other structures, facilities or improvements located on such real property,
all fixtures attached or appurtenant thereto, and all easements, licenses,
rights and appurtenances relating to the foregoing.
"GAAP" means United States generally accepted accounting principles and
practices as in effect from time to time and applied consistently throughout
the periods involved.
"Gould" means Gould Electronics Inc., an Ohio corporation.
"Governmental Antitrust Authority" means any non-U.S., federal, state or local
governmental or quasi-governmental authority charged with the administration
or enforcement of antitrust laws.
"Hazardous Substances" means: (i) any pollutant, contaminant, toxic,
hazardous or noxious substance or waste which is regulated by the laws of any
state, local, federal or other governmental authority or jurisdiction,
including but not limited to the State of Florida and the United States
Government, and includes but is not limited to (a) any oil or petroleum
compounds, flammable substances, explosives, radioactive materials, or any
other materials or pollutants which pose a hazard to persons or cause any real
property to be in violation of any Environmental Laws, (b) to the extent so
regulated, asbestos or any asbestos-containing material of any kind or
character, (c) polychlorinated biphenyls, as regulated by the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq., (d) any materials or substances
designated as "hazardous substances" pursuant to (1) Section 311 of the Clean
Water Act, 33 U.S.C. Section 1251 et seq., or (2) Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq.,(e) "chemical substance," "new chemical substance,
" or "hazardous chemical substance or mixture" pursuant to Sections 3, 6 and 7
of the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., and (f) any
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq.; and (ii) as of any date of
determination, any additional substances or materials which now or hereafter
may be incorporated in or added to the definition of "chemical substance," "new
chemical substance," "hazardous chemical substance or mixture," "hazardous
waste," "hazardous substance" or "toxic substance" or similar substance for
purposes of any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.
"Included Products" shall mean (i) the Demo Units and (ii) ten (10) additional
units of Finished Products.
"Inducement Agreements" shall have the meaning specified in Section 8.02(i).
"Industrial Property" means, collectively, the following (whether or not
patentable, copyrightable, registrable as a mask work, protectable as a trade
secret or otherwise protectable as, or by, any other Intellectual Property
Right): designs, plans, schematics, drawings, blueprints, technical
information, specifications, manufacturing plans or instructions, parts lists,
ideas, concepts, inventions, discoveries, processes, procedures,
methodologies, know-how and other technologies, including without limitation
any of the foregoing related to software or computer hardware of any kind.
"Insolvency Action" means, with respect to a person, any or all of the
following: (i) the voluntary or involuntary filing, with respect to such
person, of a petition for relief, or any other effort to seek relief, under
any Insolvency Proceeding; (ii) such person or any of its assets otherwise
becoming the subject of an Insolvency Proceeding; (iii) the formal or informal
dissolution, liquidation or winding up of such person, or any efforts to
initiate or carry out such dissolution, liquidation or winding up; (iv) the
appointment of (or efforts or attempts to appoint) a receiver, liquidator,
sequestrator, trustee, custodian or other similar officer with respect to such
person or any part of its assets or properties; (v) any composition of the
indebtedness of such person or any assignment for the benefit of such person's
creditors; or (vi) such person's ceasing to conduct business for any reason
other than such person's being merged or consolidated with another entity.
"Insolvency Proceeding" means any or all of the following actions, events or
proceedings: (i) any voluntary or involuntary case, contested matter or other
proceeding under the United States Bankruptcy Code, as amended, and any
successor law or laws thereto; (ii) any case, action or other proceeding under
any bankruptcy, insolvency, debt reorganization or similar law (whether now or
hereafter in effect) of any state, country or other jurisdiction.
"Intangible Assets" means, collectively, all intangible assets, properties and
rights associated with, related to or used in connection with, the Storage
Products Business or any of the Storage Products, including without
limitation, all of the following assets and all rights therein (whether or not
protectable under any Intellectual Property Rights): all software (in both
source code and binary code form) (including without limitation the Seller's
license rights with respect to the Minx manufacturing information system
software, the Cyborg payroll software and all software operating on those
Seller servers with the logical names "BSS" and "Quantum" and the Intellectual
Property Rights related to each thereof), Industrial Property, technology,
works of authorship, manuals, logbooks, notebooks, user's guides, programmers'
notes, documentation, manufacturing rights, know-how, trade secrets, vendor,
supplier, customer and prospect lists and all associated information, sales
proposals, sales and marketing materials, product literature, training
materials (for both training of customers and of service personnel), and other
collateral related to the Storage Products Business or any of the Storage
Products, including without limitation any of the foregoing related to: (a)
the development, integration and testing of open systems connectivity,
mainframe connectivity, mainframe DASD emulation, data sharing, remote
mirroring, reflective memory, diagnostics and caching; and/or (b)
installation, training (for both customers and service personnel), product
support or maintenance.
"Intellectual Property Rights" means, collectively, all of the following
worldwide intangible legal rights, including those existing or acquired by
ownership, license or other legal operation, whether or not filed, perfected,
registered or recorded and whether now or hereafter existing, filed, issued or
acquired: (i) patents, patent applications, and patent rights, including any
and all continuations, continuations-in-part, divisions, reissues,
reexaminations or extensions thereof; (ii) rights associated with works of
authorship (including without limitation audiovisual works), including without
limitation copyrights, copyright applications and copyright registrations,
moral rights, mask work rights, mask work applications and mask work
registrations; (iii) rights in trade secrets (including without limitation
rights in Industrial Property, customer, vendor and prospect lists and all
associated information or databases and other confidential or proprietary
information), and all rights relating to the protection of the same; (iv) any
rights analogous to those set forth in the preceding clauses and any other
proprietary rights relating to intangible property, including without
limitation brand names, trademarks, service marks, trademark and service mark
registrations and applications therefor, trade names, rights in trade dress
and packaging and all goodwill associated with the same; and (v) all rights to
sue or make any claims for any past, present or future infringement,
misappropriation or unauthorized use of any of the foregoing rights and the
right to all income, royalties, damages and other payments that are now or may
hereafter become due or payable with respect to any of the foregoing rights,
including without limitation damages for past, present or future infringement,
misappropriation or unauthorized use thereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended,
and the rulings and regulations promulgated thereunder.
"Inventory Assets" means, collectively, all inventory (including the Customer
Units, Demo Units and all other Finished Products), raw materials, works in
progress and finished goods, spare parts and supplies relating to any of the
Storage Products or otherwise relating to the Storage Products Business that
exist as of the Closing Date.
"JEC" means Japan Energy Corporation, a Japanese corporation.
"Leased Assets" means (i) all personal property assets, wherever located, that
are used in connection with, or are related to, the Storage Products Business
and are leased to Seller, any Seller Subsidiary or any other affiliate of
Seller by any third party under any Seller Contract, and (ii) all rights of
Seller, any Seller Subsidiary or any other affiliate of Seller to any such
third-party assets under any Seller Contract pursuant to which such assets are
leased.
"Leased Real Property" means (i) all real property, wherever located, that is
used in connection with the Storage Products Business and is leased to Seller,
any Seller Subsidiary or any other affiliate of Seller by any third party
under Seller Contract, and (ii) all rights of Seller, any Seller Subsidiary or
any other affiliate of Seller to any such leased real property under any
Seller Contract pursuant to which such real property is leased.
"Liabilities" (or when used with reference to a single item described below,
"Liability") means debts, liabilities and obligations (whether pecuniary or
not, including without limitation obligations to perform or forbear from
performing acts or services), fines or penalties, whether accrued or fixed,
absolute or contingent, matured or unmatured, determined or determinable,
known or unknown, including without limitation those arising under any law,
action or governmental order, liabilities for Taxes and those arising under
any contract, agreement, arrangement, commitment or undertaking of any kind
whatsoever (whether written or oral, express or implied), including those
arising under any Seller Contract.
"License Agreement" means the Technology License Agreement to be executed and
delivered by Purchaser and Seller at the Closing substantially in the form of
Exhibit D.
"Licensed Assets" means (i) all personal property assets, wherever located,
whether tangible or intangible (including but not limited to third party
software and documentation) that are used in connection with, or are related
to, the Storage Products Business or any Storage Product and are licensed to
Seller, any Seller Subsidiary or any other affiliate of Seller by a third
party under any Seller Contract (including any such assets that are used or
integrated with any Employee Assets, Intangible Assets or Tangible Assets),
and (ii) all Seller's license or other rights to such third-party assets under
any Seller Contract pursuant to which such assets are licensed to Seller any
Seller Subsidiary or any other affiliate of Seller.
"material" means any fact, event, action or failure to act, or other
circumstance with respect to, involving or affecting Seller, any Seller
Subsidiary or any other affiliate of Seller that: (i) involves in excess of
$50,000 or that results or is reasonably likely to result in a financial loss
of at least $50,000, (ii) involves exclusivity or non-competition covenants or
arrangements, (iii) involves Intellectual Property Rights or (iv) is otherwise
material.
"Melbourne Facility" means that certain real property commonly known as 100 N.
Babcock St., Melbourne, Florida 32901 that is more fully described in Schedule
4 to Seller's Disclosure Letter, including, without limitation, all buildings
and other structures, facilities or improvements located on such real
property, all fixtures attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Non-competition Agreements" means the Non-competition Agreements
substantially in the form of Exhibit E to be executed by certain Employees
prior to the earlier of the tenth day prior to the Closing Date or the
thirtieth (30th) day after the Effective Date as provided in Section 8.02(t).
"person" means any individual, partnership, limited liability company, firm,
corporation, association, trust, unincorporated organization or other entity,
as well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Purchased Assets" shall have the meaning set forth in Section 2.01.
"Real Property Assets" means, collectively, the Fort Lauderdale Facility, the
Melbourne Facility and the Condominiums.
"Real Property Lease Agreement" means the Real Property Lease Agreement to be
executed and delivered by Purchaser and Seller at the Closing substantially in
the form of Exhibit F, pursuant to which Purchaser shall lease back to Seller
the Fort Lauderdale Facility located at 6901 West Sunrise (excluding the X
telephone hub, which will be used for Purchaser and which Seller will be
permitted to use during the lease term), which lease shall be for an initial
term of one (1) year (the "First Year") after the Closing Date (during which
First Year Seller will pay all lease expenses on a "triple net" basis
(including without limitation tax, insurance and operating expenses) but base
rent shall be waived) and shall include an option to renew the lease for an
additional three (3) year term in exchange for fair market base rental (which
rent will not be waived during this option term) and payment by Seller of all
lease expenses on a "triple net" basis as described above.
"Real Property Leases" means all leases relating to Leased Real Property.
"Real Property Purchase Agreements" means, collectively, (i) the Real Property
Purchase Agreement dated as of the Effective Date and executed and delivered
by Seller and Purchaser on the Effective Date for the sale of the Fort
Lauderdale Facility by Seller to Purchaser, a copy of which is attached hereto
as Exhibit G (the "Fort Lauderdale Facility Purchase Agreement"), (ii) the
Real Property Purchase Agreement dated as of the Effective Date and executed
and delivered by Seller and Purchaser on the Effective Date for the sale of
the Melbourne Facility by Seller to Purchaser, a copy of which is attached
hereto as Exhibit H (the "Melbourne Facility Purchase Agreement") and (iii)
the Real Property Purchase Agreement dated as of the Effective Date and
executed and delivered by Seller and Purchaser on the Effective Date for the
sale of the Condominiums by Seller to Purchaser, a copy of which is attached
hereto as Exhibit I (the "Condominium Purchase Agreement").
"Restrictive Agreement" has the meaning specified in Section 3.14.
"Seller" will have the meaning set forth in the first paragraph of this
Agreement, and will be construed as provided in Section 11.11 hereof.
"Seller Contracts" means all agreements, contracts, understandings,
arrangements, commitments, mortgages, indentures, leases, licenses, permits,
franchises, instruments, notes, bonds, indemnities, guarantees, loan
agreements, credit agreements, representations, warranties, deeds,
assignments, powers of attorney, certificates, purchase orders, work orders,
insurance policies, benefit plans, covenants, assurances or undertakings of
any nature to which Seller, any Seller Subsidiary or any other affiliate of
Seller is or may be bound, subject or affected or under which Seller, any
Seller Subsidiary or any other affiliate of Seller is or may become liable or
obligated or pursuant to which Seller, any Seller Subsidiary or any other
affiliate of Seller has agreed to take any action or under which the business,
property or assets of Seller, any Seller Subsidiary or any other affiliate of
Seller receives or is or may become entitled to any benefit, right or
interest, or that relate to, affect, bind or relate to an Encumbrance on or
with respect to, any of the Purchased Assets, including without limitation the
Assigned Contracts. The Seller Contracts include, without limitation, all
Storage Products Leases, all Real Property Leases and all Storage Products
Licenses.
"Seller's Disclosure Letter" means Seller's Disclosure Letter dated as of the
Effective Date which is being delivered to Purchaser concurrently with the
execution of this Agreement.
"Seller's knowledge." A particular fact or other matter shall be deemed to be
within "Seller's knowledge" if any officer or, with respect to the particular
matters they are responsible for, any employee, consultant, agent, auditor,
attorney or other representative of Seller, any Seller Subsidiary or any other
affiliate of Seller, including without limitation Gould, has knowledge (as
defined in the following sentence) of such fact or other matter. An
individual shall be deemed to have "knowledge" of a particular fact or other
matter if (a) such individual is actually aware of such fact or other matter,
or (b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a diligent and
comprehensive investigation concerning the truth or existence of such fact or
other matter.
"Seller Subsidiary" shall mean any past or present subsidiary of Seller,
including without limitation Seller (excluding Encore).
"Solvent" shall mean, with respect to any person on a particular date, that on
such date (a) the fair value of the property of such person is greater than
the total amount of liabilities, including contingent liabilities, of such
person; (b) the present fair saleable value of the assets of such person is
not less than the amount that will be required to pay the probable liability
of such person on its debts as they become absolute and matured; (c) such
person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such person's ability to pay as such debts and liabilities
mature; and (d) such person is not engaged in a business or transaction, and
is not about to engage in a business or transaction, for which such person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities (such as litigation, guarantees and pension plan
liabilities) at any time shall be computed as the amount that, in light of all
the facts and circumstances existing at the time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"Storage Products" means Seller's product line of devices, products, systems
and subsystems, including without limitation all hardware and software
elements thereof, that behave as storage devices (i.e., that function as a
device into which data can be placed and retained and from which data can be
retrieved), such as a disk, tape, CD or any other data or information storage
medium for use with another machine or system, or a device that stores data
for another machine or system, including, but not limited to, normal data
files, metadata, media objects, multimedia, video, audio or the like, all as
previously, currently or hereafter proposed to be developed, marketed or sold,
or in fact developed, marketed or sold, by Seller, any Seller Subsidiary or
any other affiliate of Seller and all proposed or contemplated devices and
products of any such type currently under development by or for Seller, any
Seller Subsidiary or any other affiliate of Seller and all related software,
hardware, components, services and technology, and all related utilities and
tools and diagnostics and the Seller's Remote Service and Support System (RSS)
(in each case including without limitation all of the products, devices,
software, tools, utilities, hardware, services and components listed on
Seller's Storage Products price list attached as Schedule 6 to Seller's
Disclosure Letter and all of the items included or proposed to be included in
Seller's line of Infinity Series of SP Products having the specifications set
forth on Schedule 5 to Seller's Disclosure Letter (or any improved
specifications thereof) or in Seller's Gateway line of products and all
customized configurations of any of the foregoing, and all derivative works,
upgrades, modifications, enhancements and configurations of any of the
foregoing and all software and components included in any configuration of any
of the foregoing, in each case whether or not ever commercially offered or
price-listed, and whether or not in development.
"Storage Products Business" means Seller's business of developing,
manufacturing, marketing, licensing, distributing, using, operating,
installing, servicing, supporting, maintaining, repairing or otherwise using
or commercially exploiting all or any aspect of any or all of the Storage
Products or of any Intangible Assets or Intellectual Property Rights related
to any of the Storage Products.
"Storage Products Leases" means all leases and lease agreements pursuant to
which any Leased Assets are leased to Seller, any Seller Subsidiary or any
other affiliate of Seller.
"Storage Products Licenses" means all licenses and license agreements pursuant
to which any Licensed Assets are licensed to Seller, any Seller Subsidiary or
any other affiliate of Seller.
"Tangible Assets" means, collectively, all tangible personal property assets,
wherever located, that are used in connection with, or are related to, the
Storage Products Business or any of the Storage Products, other than the
Inventory Assets and the Employee Assets. The Tangible Assets include,
without limitation, the following assets and properties: (i) all tangible
assets, properties and equipment used by Seller, any Seller Subsidiary or any
other affiliate of Seller in the development, manufacture, integration,
testing, sale, installation, service, maintenance, repair or support of any
Storage Products, including, but not limited to, all mainframe computers,
workstations, servers (including those bearing the logical names "BSS" and
"Quantum"), personal computers, hardware, telecommunications equipment,
switches, routers and all related software used by Seller, any Seller
Subsidiary or any other affiliate of Seller in connection with the Storage
Products Business; (ii) all service tools, diagnostic and test equipment;
(iii) all vehicles, furniture, other equipment and tangible personal property
used by Seller, any Seller Subsidiary or any other affiliate of Seller in
connection with the Storage Products Business; (iv) all media and all hardware
or other systems on which any copy of software related to the Storage Products
Business is resident, including media containing copies of the Minx
manufacturing information system software and the Cyborg payroll software and
all related user manuals and other tangible items associated therewith; and
(v) all other items listed on Seller's list of tangible assets as delivered
to, and evaluated by Coopers & Lybrand, as updated to reflect Seller's
tangible assets on hand as of the Closing Date ("Certified Tangible Asset
Schedule") (which schedule is (or will within ten days of the Effective Date
be) attached hereto as Exhibit Q and which schedule will be updated and
delivered to Purchaser at least ten days prior to the Closing).
"Tax" or "Taxes" means all taxes of any kind whatsoever (whether payable
directly or by withholding), including without limitation franchise, income,
gross receipts, personal property, real property, ad valorem, value added,
sales, use, documentary, stamp, intangible personal property, withholding or
other taxes, together with any interest and penalties, additions to tax or
additional amounts with respect thereto imposed by any taxing authority.
"Trademark Assets" means all those trademarks, service marks, trade names and
trade dress assets that are or have ever been associated or used in connection
with the Storage Products Business or any of the Storage Products, including
all worldwide registrations or recordations thereof and all applications for
any such registration or recordation and all goodwill associated with the
foregoing. The Trademark Assets are listed on Schedule 7 of Seller's
Disclosure Letter.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
SECTION 2.01. Assets to Be Sold and Purchased.
(a) Purchased Assets. Subject to the terms and conditions of this Agreement
(including without limitation the allocation provisions of Section 2.09),
Seller shall, on the Closing Date, sell, assign, transfer, convey and deliver
to Purchaser and SMIBV or cause to be sold, assigned, transferred, conveyed
and delivered to Purchaser and SMIBV, and on the Closing Date Purchaser and
SMIBV shall purchase and acquire from Seller, all right, title and interest in
and to all of the following assets and properties, free and clear of any and
all Encumbrances whatsoever (all such assets, other than the Excluded Assets
described in Section 2.01(b), being collectively referred to herein as the
"Purchased Assets") (with Purchaser having the right to expand or modify the
definition of Purchased Assets to include any additional assets associated
with the Storage Products Business at any time prior to the Closing Date):
(i) the Storage Products;
(ii) all of the Intangible Assets;
(iii) all of the Trademark Assets;
(iv) all of Seller's rights under the Assigned Contracts (as defined below).
(v) all of the Tangible Assets;
(vi) all of the Employee Assets (other than such Employee Assets that are
both (i) associated with Employees not offered employment by Purchaser, and
(ii) agreed in writing by Purchaser, in response to the prior written request
of Seller, to be Excluded Assets ("Excluded Employee Assets"));
(vii) all of the Inventory Assets;
(viii) all of the Real Property Assets;
(ix) all copies in a tangible medium, and all other tangible embodiments, of
the Storage Products and the Intangible Assets (collectively, the "Technology
Deliverables");
(x) all worldwide Intellectual Property Rights and all Industrial Property
related to or associated with, any or all of the assets described above in the
preceding subparagraphs of this Section 2.01(a) (collectively, the
"Intellectual Property Assets");
(xi) true, accurate and complete copies of all Seller's general and financial
records, financial information, marketing and sales information, pricing,
marketing plans, business plans, financial and business projections and other
files and records pertaining to the Storage Products Business (including but
not limited to any such records, information, plans and files relating to any
Purchased Assets), but excluding any personnel files of any past or present
employee of Seller (collectively, the "Business Records");
(xii) all municipal, state, local, federal and other governmental franchises,
permits, licenses, agreements, waivers and authorizations from, issued or
granted by, any jurisdiction (collectively, "Governmental Permits"), or the
portion thereof, held or used by Seller in connection with the Storage
Products Business, or necessary for the use or operation of any of the
Purchased Assets (including without limitation the Real Property Assets), to
the extent legally transferable by Seller;
(xiii) all claims, security or similar deposits, rights to refunds,
choses in action, causes of action, rights of recovery or rights to damages,
rights of set-off and other rights of recoupment (including without limitation
any of the foregoing related to the payment of Taxes, but excluding any of the
foregoing related to any Excluded Asset) that are associated with or related
to the Storage Products Business or any of the assets listed or described in
this Section 2.01(a) (collectively, the "Claim Assets"); and
(xiv) all goodwill associated with any of the assets described in the
foregoing subparagraphs of this Section 2.01(a) (the "Goodwill").
The term "Assigned Contracts", used in clause (iv) above and
elsewhere in this Agreement, means that subset of the Seller Contracts that
Purchaser elects in its sole discretion to have assigned by Seller to
Purchaser and/or SMIBV or their respective designees at the Closing. A
preliminary list of those Seller Contracts that Purchaser anticipates will be
Assigned Contracts will be attached by Purchaser as Exhibit A as promptly as
possible after the Effective Date. Prior to the Closing, Purchaser may in its
sole discretion amend Exhibit A to add Seller Contracts thereto or delete
Seller Contracts therefrom, and only those Seller Contracts specifically
listed in Exhibit A, as amended pursuant to this paragraph at any time prior
to the Closing, will be the Assigned Contracts.
(b) Excluded Assets. The Purchased Assets shall exclude all assets and
properties owned by Seller that are not included within the description of the
Purchased Assets in Section 2.01(a) above (collectively, the "Excluded
Assets"). The Excluded Assets shall include, without limitation, the
following:
(i) all Seller's cash, bank accounts and securities (including treasury
stock of Encore and all capital stock (or rights to acquire capital stock) of
Seller or any Seller Subsidiary or other affiliate of Seller);
(ii) all Seller's accounts receivable, unbilled receivables, accounts
payable, notes and other amounts receivable or payable from or to third
parties;
(iii) all insurance policies of Seller and all rights of Seller of every
nature and description under or arising out of such insurance policies;
(iv) claims for refunds of Taxes actually paid by Seller prior to the Closing
Date;
(v) Seller's minute books, stock ledgers and Tax records;
(vi) all assets of, or held by or with respect to, any employee benefit plan
(whether or not governed by ERISA) or any trust, fund or account that is
related to any such employee benefit plan or that is similar in purpose or
function thereto;
(vii) all rights of Seller under this Agreement and under any of the Ancillary
Agreements;
(viii) the Excluded Contracts and all of Seller's rights and obligations
arising thereunder;
(ix) all items listed in Exhibit P (which Purchaser may its sole discretion
amend at any time or from time to time prior to the Closing), as amended
pursuant to this subparagraph prior to the Closing;
(x) all Excluded Employee Assets; and
(xi) all French Assets (as defined in Section 2.10(b)).
SECTION 2.02. Assumption and Exclusion of Liabilities.
(a) Assumed Liabilities. Subject to the terms and conditions of this
Agreement, Purchaser shall, effective upon the consummation of the Closing on
the Closing Date, assume, pay, perform and discharge when due those (and only
those) Liabilities of Seller that are expressly listed in the following
subparagraphs of this Section 2.02(a) (collectively, the "Assumed
Liabilities") and no other Liabilities of Seller whatsoever:
(i) all Liabilities of Seller under those Assigned Contracts that are duly
and effectively assigned to Purchaser at the Closing without breach by Seller
of any such Assigned Contracts, but only to the extent that such Liabilities
(A) arise, are incurred or require performance of an action subsequent to the
Closing Date (but in no event shall Assumed Liabilities include any Liability
for payment of money, or taking of actions, post-Closing with respect to
obligations arising pre-Closing) and (B) do not arise or result from any
breach, default or violation by Seller, any Seller Subsidiary or any other
affiliate of Seller of any provision of any Assigned Contract or from any
other act or omission of Seller, any Seller Subsidiary or any other affiliate
of Seller that occurred prior to, on or after the Closing Date; and
(ii) all liabilities of Seller that are expressly assumed by Purchaser under
the Real Property Purchase Agreements, if any.
The parties acknowledge and agree that SMIBV is not assuming, and has not
agreed to assume, pay, perform or discharge, any of Seller's Liabilities
whatsoever and that SMIBV will not be liable or otherwise responsible for, any
of the Assumed Liabilities or any of the Excluded Liabilities.
(b) Excluded Liabilities Not Assumed. As a material inducement and
consideration to Purchaser to enter into this Agreement and perform its
obligations hereunder, the parties agree that, except for the Assumed
Liabilities of Seller expressly described above in Section 2.02(a), Purchaser
shall not assume, pay, perform or discharge or otherwise have any obligation,
responsibility or liability whatsoever for, any and all Liabilities of Seller,
any Seller Subsidiary or any other affiliate of Seller (whether now existing
or hereafter arising), and Seller, all Seller Subsidiaries and all Seller's
other affiliates shall retain, and shall be solely responsible and liable for
paying, performing and discharging when due, all Liabilities of Seller, any
Seller Subsidiary and of any other affiliate of Seller other than the Assumed
Liabilities (collectively, the "Excluded Liabilities"). By way of example and
not by way of limitation, the Excluded Liabilities not being assumed by
Purchaser include, without limitation:
(i) any and all Liabilities incurred in connection with the Storage Products
Business or any other business or activities of Seller or that arose or arise
from any act or omission of Seller, any Seller Subsidiary or any other
affiliate of Seller that occurs prior to, on or after the Closing Date (except
for the Assumed Liabilities expressly assumed by Purchaser pursuant to Section
2.02(a));
(ii) any and all Liabilities, whether now existing or hereafter arising, with
respect to the sale, lease, license or other provision of any products,
software or services of, by or for Seller, any Seller Subsidiary or any other
affiliate of Seller (except for the Assumed Liabilities expressly assumed by
Purchaser under Section 2.02(a));
(iii) any and all Liabilities for any Taxes (including without limitation any
and all Transaction Taxes as defined in Section 7.01) that are now or
hereafter due and payable by Seller, any Seller Subsidiary or any other
affiliate of Seller, whether or not attributable to the Purchased Assets,
Employees, the Storage Products Business or any transaction contemplated by
this Agreement or any Ancillary Agreement, including without limitation any
Liability for the unpaid Taxes of any other Person under Treasury Regulation
1.1502-6 (or any similar provision of state, local or non-U.S. law), as a
transferee or successor by contract or otherwise;
(iv) any and all Liabilities arising from any failure by Seller, any Seller
Subsidiaries or any other affiliate of Seller to file a tax return or to
withhold Taxes (including without limitation any Liabilities arising from a
failure to properly withhold taxes from Employees or a failure to file
required tax returns or reports with respect to Employees and/or consultants);
(v) all Liabilities with respect to any Environmental Damage or the
violation of any Environmental Law relating to Seller, any Seller Subsidiary
or any other affiliate of Seller or any of their respective businesses
(including but not limited to the Storage Products Business) or any of their
respective assets (including but not limited to the Purchased Assets) to the
extent such Environmental Damage or violation of such Environmental Law is
based upon (i) facts, events or circumstances that occurred or began on or
prior to the Closing Date or (ii) any acts or omissions of Seller, any Seller
Subsidiary or any other affiliate of Seller or any invitee, customer, guest,
employee, contractor, consultant or agent of Seller, any Seller Subsidiary or
any other affiliate of Seller, regardless of when such acts or omissions began
or occurred;
(vi) any and all Liabilities to Employees, including without limitation any
Liabilities related to any acts or omissions of Seller, any Seller Subsidiary
or any other affiliate of Seller, or arising from any facts, events or
circumstances occurring prior to, on or after the Closing Date, including
without limitation any liability to any Employee for the payment of any and
all accrued and unused vacation time, sick pay or severance pay;
(vii) any Liability of Seller to indemnify any person by reason of the fact
that such person was a director, officer, employee or agent of Seller, any
Seller Subsidiary or any other affiliate of Seller or was serving at the
request of Seller, any Seller Subsidiary or any other affiliate of Seller as a
partner, trustee, director, officer, employee or agent of another entity;
(viii) any and all Liabilities arising from the termination by Seller,
any Seller Subsidiary or any other affiliate of Seller of, or relating to, the
employment or services of any current or future employees, consultants or
contractors of Seller, any Seller Subsidiary or any other affiliates of
Seller, any other claims brought against Seller arising from Seller's
employment of any person or arising from any duties or obligations under any
existing or future employee benefit plans of Seller, any Seller Subsidiary or
any other affiliate of Seller (including without limitation any claim for
stock, stock options, or for participation in benefits under any medical,
health, dental, disability or life insurance plan, pension or savings plan or
other employee benefit plan of any kind);
(ix) any and all Liabilities arising from (A) any failure by Purchaser to
hire any employee or consultant of Seller, any Seller Subsidiary or any other
affiliate of Seller; (B) any relocation, change of title or assignment or
demotion of any employee of Seller, any Seller Subsidiary or any other
affiliate of Seller, whether or not such employee is hired by Purchaser, or
any claim of constructive termination, wrongful demotion or similar claim by
any such employee or consultant;
(x) any and all present or future Liabilities of Seller, any Seller
Subsidiary or any other affiliate of Seller to any existing or future
employees of Seller, any Seller Subsidiary or any other affiliate of Seller
under ERISA, the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, meaning Section 4980B of the Internal Revenue Code and the
regulations thereunder ("COBRA"), the Federal Worker Adjustment and Retraining
Act (the "WARN Act"), the Equal Pay Act or any severance pay or similar
obligations of Seller, any Seller Subsidiary or any other affiliate of Seller;
(xi) any and all Liabilities arising from any breach, default or violation by
Seller, any Seller Subsidiary or any other affiliate of Seller of any
contract, agreement or commitment (whether or not written), including but not
limited to any breach, default or violation of this Agreement, any Ancillary
Agreement or any Assigned Contract;
(xii) any and all Liabilities arising from or based on any tortious,
fraudulent, unlawful or criminal conduct of Seller, any Seller Subsidiary, any
other affiliate of Seller or any of their respective officers, directors,
shareholders, employees, contractors or agents, including without limitation
Liabilities based upon theories of strict liability, product liability, breach
of warranty, negligence, misrepresentation or fraud;
(xiii) any and all Liabilities relating to or arising from or out of any
or all of the Excluded Assets (including without limitation any Liability
under any contract or agreement as to which Purchaser has not assumed any
Assumed Liabilities thereunder);
(xiv) any and all Liabilities under any product or service warranty,
guarantee, performance, specification, misrepresentation or other claims
relating to any products or services (including without limitation Storage
Products) previously sold, licensed or provided by Seller, any of Seller's
Subsidiaries or any other affiliate of Seller prior to the Closing;
(xv) any and all Liabilities relating to any and all Intracompany Agreements
(as defined in the Inducement Agreements) or other intercompany agreements
(meaning agreements between Seller and any Seller Subsidiary and/or other
affiliate of Seller) (including but not limited to any cost or overhead
sharing or allocation agreement) or any and all intercompany payables incurred
by Seller, any Seller Subsidiary or any other affiliate of Seller relating to
the Storage Products Business accrued or arising prior to, on or after the
Closing Date; and
(xvi) all obligations and Liabilities of Seller, any Seller Subsidiary or any
Seller affiliate arising under or related to any of the Excluded Contracts,
including without limitation obligations or Liabilities arising as a result of
the performance, non-performance or breach thereof.
SECTION 2.03. Purchase Price; Allocation of Allocable Purchase Price.
(a) Purchase Price. Subject to Purchaser's and SMIBV's rights of
offset under Section 9.05, the aggregate purchase price for the Purchased
Assets shall be: (i) the sum of One Hundred Eighty-Five Million Dollars
($185,000,000) (the "Cash Payment") plus (ii) Purchaser's assumption of the
Assumed Liabilities (the Cash Payment, plus Purchaser's assumption of the
Assumed Liabilities, less the amount specified in Section 2.10(b), being
hereinafter together referred to as the "Purchase Price").
(b) Creditor List. Schedule 2.03(b) to Seller's Disclosure Letter
shall list (and be updated by Seller up to the Closing Date to list) all of
Seller's liabilities, debts, monetary obligations, accounts or trade payables
(including without limitation all contingent, unliquidated and disputed
liabilities) as of the Closing Date (collectively the "Closing Debts"),
specifying the creditor party (each a "Closing Creditor"), the amount owed to
each such Closing Creditor at the Closing Date (and if such Closing Creditor
will be entitled to ongoing future payments, such as royalties or rent under a
lease, then Schedule 2.03(b) shall set forth, and the Closing Debts will
include, an amount equal to the estimated aggregate amount of the total
projected payments due from Seller to such Closing Creditor) and all other
pertinent information (e.g., creditor address) with respect to each Closing
Debt. The Closing Debts shall include without limitation any Tax owed to
federal, state or local taxing authorities, any debts owed to Gould, EFI
International, Inc., a Delaware corporation ("EFI"), JEC, employees of Seller
and Seller's trade creditors and any other liabilities disclosed on the Latest
Balance Sheet (as defined in Section 3.07) which have not been satisfied as of
the Closing Date.
(c) Payment Procedure. The Cash Payment shall be paid by Purchaser
and SMIBV to Seller as follows, subject to Purchaser's and SMIBV's rights of
offset under Section 9.05:
(i) The sum of One Hundred Fifty Million Dollars ($150,000,000)
shall be transferred at the Closing (such payment being hereinafter referred to
as the "Closing Payment") to an escrow agent, being a national bank or other
national financial institution mutually agreeable to Purchaser and Seller, which
has been provided with a copy of Schedule 2.03(b) to Seller's Disclosure Letter
by Seller. Seller shall direct the escrow agent to pay all of the Closing Debts
in full, with monies being released from escrow directly to each Closing
Creditor to pay in full the Closing Debt owed to such Closing Creditor, unless
Purchaser has consented in advance in writing to the non-payment of any
particular Closing Debt (or any portion thereof) by the escrow agent. Seller
shall obtain from each Closing Creditor and deliver to Purchaser a receipt
executed by such Closing Creditor stating that each Closing Debt (except for any
Closing Debt (or any portion thereof) that Purchaser has consented to the
non-payment of as provided above) owed to it as of the Closing Date has been
satisfied in full (collectively the "Closing Receipts"). Upon the receipt by the
escrow agent of Closing Receipts from each Closing Creditor (except with respect
to any Closing Debt (or any portion thereof) that Purchaser has consented to the
non-payment of as provided above), the escrow agent shall remit the remaining
balance of the Closing Payment (if any) to Seller in cash by wire transfer of
immediately available funds to a United States-based account of Seller
designated by Seller upon at least five (5) Business Days' prior written notice
("Seller's Account") (Seller and Purchaser will execute any standard form
indemnity and escrow provisions and agreements required by such escrow agent
with escrow fees to be paid equally by Seller and Purchaser); and
(ii) The sum of Thirty-Five Million Dollars ($35,000,000) shall
be paid to Seller on July 1, 1998 (such payment being hereinafter referred to as
the "Second Payment"). The Second Payment shall be paid by Purchaser and SMIBV
in cash by wire transfer of immediately available funds to Seller's Account.
(d) Allocation of Allocable Purchase Price. Purchaser and Seller
shall use their reasonable efforts to agree prior to the Closing Date, to
allocate, among the Purchased Assets, in accordance with the allocation
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), the aggregate dollar amount of the sum of the Closing Payment,
the Second Payment, all amounts paid to Seller under Sections 2.03(g) and (h)
(collectively, the "Finished Product Payment") and that remaining portion of
the Purchase Price that is treated as Purchaser's and SMIBV's cost of the
Purchased Assets for federal income tax purposes (collectively, the "Allocable
Purchase Price"). The allocation of the Allocable Purchase Price agreed on by
the parties pursuant to this Section shall be reduced to a writing executed by
Seller and Purchaser that shall be delivered by Seller and Purchaser to each
other at the Closing (the "Purchase Price Allocation Agreement"). Any
subsequent adjustments to the Allocable Purchase Price shall be reflected in
the Purchase Price Allocation Agreement in a manner consistent with Treasury
Regulation Section 1.1060-lT(f). For all purposes Purchaser and Seller agree
to report the transactions contemplated in this Agreement in a manner
consistent with the Purchase Price Allocation Agreement, and will not take any
position inconsistent therewith in any financial statement, Tax return, in any
refund claim, in any litigation or otherwise, unless required to do so by a
governmental authority. Seller and Purchaser shall each be responsible for
the preparation of their own Internal Revenue Code Section 1060 statements and
forms in accordance with applicable Tax laws, and each shall execute and
deliver to each other such statements and forms as are reasonably requested.
(e) Fair and Equivalent Consideration. The parties agree that the
Purchase Price constitutes full and fair equivalent consideration for the
Purchased Assets and the covenants, agreements and performances of Seller
under this Agreement and the Ancillary Agreements.
(f) Exclusive Remedy. Notwithstanding anything in this Agreement to
the contrary, if (i) Purchaser or SMIBV fails to pay the Second Payment to
Seller when due under this Section 2.03 ("Case 1") or (ii) Purchaser fails to
pay, perform or discharge any Assumed Liabilities when the same become due
("Case 2"), then Seller's sole and exclusive remedy for such failure will be
the recovery of in Case 1, money damages equal to the amount of the unpaid
Second Payment not rightfully setoff or withheld by Purchaser and in Case 2
such unperformed Assumed Liabilities, plus in each Case 1 and Case 2 interest
accrued on such unpaid amount (not rightfully setoff or withheld) from and
after the date that the Second Payment was due and payable to Seller under
this Section 2.03 (in Case 1) or the Assumed Liability was not paid, performed
or discharged (in Case 2), at the lower of (i) the prime rate charged from
time to time by the Bank of America, N.T.&S.A. or (ii) the highest rate of
interest permitted under applicable law. Seller will not, under any
circumstances, have the right to rescind or otherwise terminate or alter this
Agreement, the sale or transfer of any Purchased Assets, to reacquire any
Purchased Assets or to terminate this Agreement or any Ancillary Agreement or
any rights of Purchaser or SMIBV hereunder or thereunder due to any failure of
Purchaser or SMIBV to timely pay the Second Payment or due to any failure of
Purchaser to timely pay, perform or discharge any Assumed Liability.
(g) Additional Payment for Finished Products. As additional
consideration for the Finished Products (other than the Included Products),
Purchaser shall pay to Seller at Closing, in addition to the Cash Payment and
amounts due under Section 2.03(h) below with respect to Customer Units, Three
Million Dollars ($3,000,000), less Two Hundred Thousand Dollars ($200,000) for
each Storage Product sold by or for Seller prior to the Closing Date, and less
any Loss or Liability of the type described in Section 9.02(k) incurred, or
estimated in good faith by Purchaser to be incurred, at any time prior to or
after Closing.
(h) Commission on Sale of Customer Units. Purchaser shall pay to
Seller, in addition to the Cash Payment and amounts due under Section 2.03(g)
above with respect to all Finished Products (other than the Included
Products), a commission upon any sale by or for Purchaser of any Customer Unit
during the 180 day period starting with the day after the Closing Date
("Collection Period"). The commission shall equal one-half (50%) of any
revenues actually collected by or for Purchaser with respect to Customer Units
sold by or for Purchaser during the Collection Period. The commission as to
any particular collected revenue amount shall be paid 30 days after the end of
the calendar quarter in which such revenues were collected and shall be
accompanied by a quarterly report as to each such sale during such calendar
quarter.
SECTION 2.04. Real Property. The purchase and sale of the Real Property
Assets from Seller to Purchaser shall, in addition to the terms and conditions
of this Agreement, be governed by and carried out pursuant to the terms and
conditions of the Real Property Purchase Agreements, each of which shall be
executed and delivered by Seller and Purchaser concurrently with the execution
of this Agreement and which shall provide for the closing of the sale and
purchase of the Real Property Assets from Seller to Purchaser concurrent with
the Closing of the sale and purchase of the other Purchased Assets in
accordance with this Agreement.
SECTION 2.05. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Purchased Assets and the assumption of
the Assumed Liabilities contemplated hereby shall take place at a closing at
the offices of Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto,
California (the "Closing") at 10:00 a.m., local time, on the second Business
Day after the satisfaction or waiver of the conditions to Closing set forth in
Article VIII or at such other time or on such other date or at such other
place as Seller and Purchaser may mutually agree in writing (the day on which
the Closing takes place being the "Closing Date ").
SECTION 2.06. Closing Deliveries by Seller. At the Closing, Seller shall
deliver or cause to be delivered to Purchaser:
(a) executed counterparts of all of the Ancillary Agreements to be
executed and entered into by Seller;
(b) the Purchase Price Allocation Agreement and all other agreements,
tangibles, documents and certificates to be delivered by Seller at the Closing
under Section 8.02 of this Agreement;
(c) a receipt for the Closing Payment; and
(d) all other items required to be delivered pursuant to Section 8.02 or
any other provision hereof.
SECTION 2.07. Closing Deliveries by Purchaser. At the Closing, Purchaser
shall deliver to Seller:
(a) the Closing Payment of $150,000,000 in cash in accordance with
Section 2.03 against receipt thereof from Seller;
(b) executed counterparts of all of the Ancillary Agreements to be
executed and entered into by Purchaser; and
(c) the Purchase Price Allocation Agreement and all other agreements,
tangibles, documents and certificates to be delivered by Purchaser at the
Closing under Section 8.01 of this Agreement; and
(d) the amount, if any, due under Section 2.03(g) hereof.
SECTION 2.08. Unassignable Assets. Notwithstanding any other provision of
this Agreement or any of the Ancillary Agreements, but subject to Section
8.02(o) hereof, to the extent that any of the Assigned Contracts or
Governmental Permits constituting part of the Purchased Assets are not
assignable or otherwise transferable to Purchaser and SMIBV without the
consent, approval or waiver of another party thereto or any third party
(including any governmental agency), or if such assignment or transfer would
constitute a breach thereof or a violation of any applicable law, then neither
this Agreement nor such Ancillary Agreements shall constitute an assignment or
transfer (or an attempted assignment or transfer) thereof until such consent,
approval or waiver of such party or parties has been duly obtained. With
respect to each Assigned Contract or Governmental Permit whose assignment or
transfer to Purchaser or SMIBV requires the consent, approval or waiver of
another party thereto or any third party, Seller shall use its best efforts to
obtain such consent, approval or waiver of such other party or parties or such
third party to such assignment or transfer as promptly as practicable, but in
any event prior to the Closing Date. Purchaser and SMIBV agree to cooperate
with Seller and supply relevant information to such party or parties or such
third party in order to assist Seller in its obligations under this Section.
Notwithstanding the foregoing, nothing contained herein shall obligate
Purchaser to expend or pay any amount to third parties to obtain any consents,
approvals or waivers.
SECTION 2.09. SMIBV. The Purchased Assets purchased hereunder shall be sold
and assigned to Purchaser and SMIBV and allocated between Purchaser and SMIBV
as determined by Purchaser and SMIBV in their sole discretion and as reflected
in an agreement or memorandum executed by them, except that (as between
Purchaser and SMIBV) SMIBV shall have no rights to exploit such Purchased
Assets within the United States of America.
SECTION 2.10. Non-U.S. Assets.
(a) Non-U.S. Operations of Seller. From the Effective Date until the
Closing Date, Seller will, and will cause all Seller Subsidiaries and all
affiliates of Seller to, cooperate and assist Purchaser with (i) the evaluation
and identification of Purchased Assets or assets which could properly be
Purchased Assets, Seller Contracts and Employees of Seller or Seller
Subsidiaries located in or related to countries other than the United States and
(ii) if Purchaser in its sole discretion so elects in writing, the transfer to,
assignment to, or employment by (as the case may be) Purchaser (in Purchaser's
sole discretion) of any or all of such assets, Seller Contracts or Employees;
and upon such transfer or assignment, such assets will be considered "Purchased
Assets" and such Seller Contracts will be considered "Assigned Contracts".
Purchaser will not be required to make any additional payment to Seller or any
of the Seller Subsidiaries or any affiliate of Seller (other than the Purchase
Price) with respect to any such assets or Seller Contracts.
(b) French Operations; No Announcement; Price Adjustment.
Notwithstanding any other provision of this Agreement, all assets of Seller or
any Seller Subsidiary located in France and all Seller Contracts pertaining to
France ("French Assets") shall be Excluded Assets and shall not be included in
the Purchased Assets, and any press release or other public statements by Seller
concerning the transactions contemplated hereby shall so state; provided,
however, that if Seller and Purchaser, SMIBV or an Applicable Purchaser
Subsidiary enter into a separate written agreement with respect to the purchase
and/or assignment of French Assets on a French Franc denominated basis, the
Purchase Price shall be reduced by the U.S. dollar equivalent of the such French
Franc sum.
(c) Cooperation on Assignment of Offshore Tangible Assets. As used
herein, the term "Offshore Tangible Assets" means the Tangible Assets, Inventory
Assets and/or Employee Assets included in the Purchased Assets that, as of
immediately prior to the Closing, are physically located in a jurisdiction other
than the United States of America (a "Non-U.S. Jurisdiction"). Notwithstanding
anything in this Agreement to the contrary, it is the intention of the parties
that, at the Closing, the Offshore Tangible Assets that, as of immediately prior
to the Closing, are located in any Non-U.S. Jurisdiction shall not be sold to
Purchaser, but instead shall be sold, assigned, transferred, conveyed and
delivered by Seller directly to the Applicable Purchaser Subsidiary (as defined
below) for such Non-U.S. Jurisdiction. An "Applicable Purchaser Subsidiary" with
respect to a particular Non-U.S. Jurisdiction means a corporate subsidiary of
Purchaser that, as of immediately prior to the Closing, has been formed and
exists under, or whose principal offices are located in, such Non-U.S.
Jurisdiction (or, if no such subsidiary of Purchaser exists, or if Purchaser
otherwise determines, such other corporate subsidiary of Purchaser as Purchaser
may designate to Seller). Notwithstanding the foregoing provisions of this
Section 2.10(c) and except as otherwise provided in Section 2.10(b), no
subsidiary of Purchaser shall pay to Seller any portion of the Purchase Price,
which shall be paid only by the Purchaser and SMIBV (subject to any
re-allocation of the Purchase Price among Purchaser and SMIBV and their
respective subsidiaries and affiliates as Purchaser and SMIBV may deem
advisable), subject to the terms and conditions of this Agreement. At the
Closing, separate bills of sale and assignment agreements (which shall be
substantially identical to the Bill of Sale in form and substance) shall be
prepared, executed and delivered by Seller and each of the Applicable Purchaser
Subsidiaries to document the sale, assignment and transfer of title of the
appropriate Offshore Tangible Assets to each Applicable Purchaser Subsidiary as
contemplated by this Section 2.10(c) (such bills of sale are hereinafter
referred to as the "Offshore Tangible Asset Bills of Sale"). Between the date of
this Agreement and the Closing Date, the parties will cooperate to complete
their investigation as to the physical location of all Offshore Tangible Assets
so as to effectuate the purposes and intent of this Section 2.10(c). In addition
to the above, Purchaser may elect to have any Seller Contracts relating to any
Non-U.S. Jurisdiction assigned directly by Seller to the Applicable Purchaser
Subsidiary for such Non-U.S. Jurisdiction or to any other subsidiary of
Purchaser, in which case Seller shall obtain all consents required to permit
such assignment to such Applicable Purchaser Subsidiary or such other subsidiary
of Purchaser.
SECTION 2.11. Further Assurances. In case at any time after the Closing
Date any further action is necessary or desirable to carry out the purposes of
this Agreement, each of the parties will take such further action (including
the execution and delivery of such further instruments and documents) as any
other party reasonably may request, all at the sole cost and expense of the
requesting party (unless the requesting party is entitled to indemnification
therefor under Article IX). Seller will sign and deliver any and all
instruments and documents necessary or appropriate to fully effect and perfect
the transfer to Purchaser and SMIBV (or if Purchaser so elects, any Applicable
Purchaser Subsidiary) of any and all of the Purchased Assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser and SMIBV that, except as
expressly set forth in the Seller's Disclosure Letter, all of the following
statements, representations and warranties are true and correct:
SECTION 3.01. Organization and Good Standing of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the corporate power and
authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted by Seller through
the Closing, and is qualified to transact business as a non-U.S. corporation
in each jurisdiction in which its failure to be so qualified could reasonably
be expected to have a Material Adverse Effect. As used in this Agreement, the
term "Material Adverse Effect" when used with reference to Seller, means any
event, change or effect that is (or could reasonably be expected to be)
materially adverse to Seller's financial condition, properties, assets,
liabilities, business, operations, results of operations or prospects. The
copies of the certificate of incorporation (certified by the Secretary of
State of the jurisdiction of Seller's incorporation) and the bylaws of Seller,
each as amended to date, which have been delivered to Purchaser, are complete
and correct, and Seller is not in default under or in violation of any
provision of its certificate of incorporation or bylaws.
SECTION 3.02. Authorization and Validity. Seller has all necessary right,
corporate power, legal capacity and authority to enter into, execute and
deliver this Agreement and, subject to obtaining the Seller's Stockholder
Approval (as defined below), to consummate the sale to Purchaser and SMIBV of
the Purchased Assets contemplated hereby and the other transactions
contemplated by this Agreement and the Ancillary Agreements. This Agreement
has been, and at the Closing the Ancillary Agreements will be, duly executed
and delivered by Seller, and (assuming due authorization, execution and
delivery by Purchaser and SMIBV) this Agreement constitutes, and, upon
Seller's execution of each of the Ancillary Agreements, each of the Ancillary
Agreements will constitute, a legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms. The execution,
delivery and performance by Seller of this Agreement and each of the Ancillary
Agreements have been duly and validly approved and authorized by all necessary
corporate action on the part of Seller's Board of Directors.
SECTION 3.03. Subsidiaries or Affiliates. Seller has no subsidiaries
except as set forth in Section 3.03 of Seller's Disclosure Letter (each of
which subsidiaries is 100% owned by Seller) and Seller has no interest in any
other corporation, partnership, limited partnership, limited liability company,
association or joint venture. None of the Purchased Assets are owned,
licensed to, leased to or otherwise held or used by any Seller Subsidiary
(other than Seller) or by any other affiliate of Seller (other than Seller).
SECTION 3.04. Capitalization; Required Stockholder Approval; Stockholders
Meeting.
(a) Capitalization. Encore's authorized and issued and outstanding capital
stock consists of (i) 200,000,000 shares of Common Stock, $0.01 par value per
share, of which 37,559,976 shares are issued and outstanding; and (ii)
10,000,000 shares of Preferred Stock, $0.01 par value per share, of which (A)
73,641 shares are designated Series A Convertible Participating Preferred
Stock, 73,641 shares of which are issued and outstanding; (B) 1,000,000 shares
are designated Series B Convertible Preferred Stock, 785,035 shares of which
are issued and outstanding; (C) 1,500,000 shares are designated Series D
Convertible Preferred Stock, 1,201,247 shares of which are issued and
outstanding; (D) 1,500,000 shares are designated Series E Convertible Stock,
1,227,866 shares of which are issued and outstanding; (E) 1,000,000 shares are
designated Series F Convertible Preferred Stock, 574,547 shares of which are
issued and outstanding; (F) 1,000,000 shares are designated Series G
Convertible Preferred Stock, 616,516 shares of which are issued and
outstanding; (G) 700,000 shares are designated Series H Convertible Preferred
Stock, 377,047 shares of which are issued and outstanding; (H) 800,000 shares
are designated Series I Convertible Preferred Stock, 409,045 shares of which
are issued and outstanding; and (I) 246,154 shares are designated Series J
Convertible Participating Preferred Stock, none of which are issued and
outstanding.
(b) Required Vote. The consummation of the sale and transfer of the
Purchased Assets to Purchaser and SMIBV pursuant to this Agreement and the
transactions contemplated by this Agreement and the Ancillary Agreements have
been approved by the respective Boards of Directors of Seller and by Encore as
sole shareholder of each of Encore Computer U.S., Inc. and Encore
International, Inc. and must, in compliance with applicable law and Encore's
certificate of incorporation and bylaws, both as amended, be approved by: (i)
a majority of the outstanding stock of Encore entitled to vote thereon and
(ii) the holders of 75% of the stock of Encore (or if there are two or more
classes of stock entitled to vote as separate classes, then in the case of
each such class, the holders of 75% of the stock of that class) present in
person or represented by proxy and voting thereon at a meeting of the
stockholders of Encore (such affirmative vote and approval of the foregoing
matters by the stockholders of Encore is hereinafter referred to as the
"Seller's Stockholder Approval"). Seller's stockholders are not and will not
be entitled to any dissenting stockholders' appraisal rights or similar rights
under any applicable law or under any certificate of incorporation, bylaws or
other charter document (in each case as amended to date) of Seller with
respect to the transactions contemplated by this Agreement.
SECTION 3.05. No Conflict. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Seller do not and will not (a)
breach, violate or conflict with the certificate of incorporation or bylaws of
Seller, both as amended to date, (b) conflict with or violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to Seller or to any of the Purchased Assets, (c) result in any
breach or violation of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a breach, violation
or default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Governmental Permit or any of the Seller
Contracts, or (d) result in the creation of any Encumbrance on any of the
Purchased Assets.
SECTION 3.06. Consents.
(a) Consents and Approvals. The execution and delivery of this Agreement
and the Ancillary Agreements by Seller and the execution and delivery of the
Inducement Agreements by Gould, EFI and JEC do not, and the performance of
this Agreement and the Ancillary Agreements by Seller and the performance of
the Inducement Agreements by Gould, EFI and JEC will not, require any consent,
approval, authorization or other action by, or filing with or notification to,
any court or governmental or regulatory authority, except for (a) filings and
approvals required under the HSR Act, and (b) the filing by Seller with the
U.S. Securities and Exchange Commission, and the distribution to the Company's
stockholders of, a proxy statement seeking the Seller's Stockholder Approval
and complying with the requirements of the Securities Exchange Act of 1934, as
amended, and other applicable laws.
(b) Consents to Assign. Schedule 3.06(b) to Seller's Disclosure Letter sets
forth a true and complete list of each and every Assigned Contract or
Governmental Permit with respect to which the consent or approval of any third
party or governmental authority is required in order for Seller or any of
Seller's Subsidiaries or other affiliates to assign or transfer to Purchaser
or SMIBV any rights or obligations under such Assigned Contract or
Governmental Permit.
SECTION 3.07. Financial Statements. Encore's consolidated audited Balance
Sheets at December 31, 1995 and 1996 and the related consolidated audited
statement of income, shareholders' equity and cash flows for the fiscal years
ended December 31, 1995 and 1996, the unaudited consolidated balance sheet of
the Encore as of March 31, 1997 (the latter balance sheet being hereinafter
referred to as the "Latest Balance Sheet"), and the related consolidated
unaudited statements of income, shareholders' equity and cash flows for the
three-month period ended March 31, 1997, including the related schedules and
notes (collectively, "Seller's Financial Statements"), have been prepared in
accordance with GAAP on a basis consistent with those of prior years, are in
accordance with the books and records of Seller and the Seller Subsidiaries
(which books and records are complete and correct) and fairly present the
consolidated financial position and results of operations of Seller as of said
dates and for each of the periods indicated. Copies of the financial
statements described in this Section 3.07 have been delivered to Purchaser.
Encore's December 31, 1995 and 1996 Balance Sheets and the Latest Balance
Sheet make full and adequate provision for all consolidated Liabilities of
Seller as of their respective dates as required by GAAP and on a basis
consistent with those of prior years. Seller has no material debt, liability
or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, except for (i) those shown on the
Latest Balance Sheet, and (ii) those that may have been incurred after March
31, 1997, the date of the Latest Balance Sheet (the "Seller Balance Sheet
Date") in the ordinary course of Seller's business consistent with past
practice, and that are not material in amount, either individually or
collectively. All reserves established by Seller and reflected in the Latest
Balance Sheet are reasonably adequate. At the Seller Balance Sheet Date,
there were no material loss contingencies (as such term is used in Statement
of Financial Accounting Standards No. 5 ("Statement No. 5") issued by the
Financial Accounting Standards Board in March 1975) which are not adequately
provided for in the Latest Balance Sheet as required by Statement No. 5.
SECTION 3.08. Absence of Undisclosed Liabilities. All Liabilities of Seller
have been paid when due or have been accrued properly. Seller has no
Liability (and there is no basis for the assertion of any Liability), arising
out of any transactions entered into at or prior to the Effective Date, or any
action or inaction at or prior to the Effective Date or any state of facts
existing at or prior to the Effective Date, except for (i) Liabilities
reflected on the Latest Balance Sheet or (ii) current Liabilities which have
arisen after the date of the Latest Balance Sheet in the ordinary course of
business, consistent with Seller's past practices and which are not material
in amount.
SECTION 3.09. Absence of Certain Changes or Events. Since December 31,
1996, Seller has not:
(a) incurred or agreed to incur any material Liability, except current
Liabilities incurred in the ordinary course of business;
(b) delayed or postponed the payment of accounts payable or other
Liabilities with respect to which payment was due;
(c) subjected any Purchased Assets to any Encumbrance or agreed to take any
such action;
(d) transferred or leased any of its assets or properties related to the
Storage Products Business, or agreed to take any such action, other than
transfers or leases in the ordinary course of business consistent with
Seller's past practice;
(e) canceled, compromised, waived or released any material right, debt or
claim, or agreed to take any such action;
(f) transferred or granted any rights under any leases, licenses or
agreements or with respect to any Intangible Assets, Trademark Assets or
Intellectual Property Assets or agreed to take any such action;
(g) made or granted any individual wage or salary increase in excess of 10%
or any general wage or salary increase, or entered into any employment
contract with any shareholder, officer, employee or consultant or any
affiliate of Seller, changed or increased the rates of compensation payable
through bonus, pension, contract or other commitment to any shareholder,
officer, director, employee or consultant or any affiliate thereof for any
period before or after the Effective Date of this Agreement or made any other
change in employment terms for any of such persons, or agreed to take any such
action;
(h) adopted, amended, modified or terminated any bonus, profit-sharing
incentive, severance or other plan, contract or commitment for the benefit of
any of its officers, directors, employees or consultants (or taken any such
action with respect to any other employee benefit plan), or agreed to take any
such action except to the extent that such changes are not material or are
required by any regulatory agency such as the Department of Labor or the
Internal Revenue Service;
(i) entered into, or agreed to enter into, any contracts or agreements
involving more than $50,000 individually or $250,000 in the aggregate, other
than purchase orders entered into in the ordinary course of business;
(j) suffered any Material Adverse Effect;
(k) made any loan to, or received any loan from, any person or entered into
any transaction with any shareholder, officer or director or any affiliate of
Seller (including, without limitation, any agreement or other arrangement
providing for employment of, furnishing of services by, rental or license of
real or personal property from, or otherwise requiring payment to any
shareholder, officer, director or affiliate of Seller), or agreed to take any
such action;
(l) permitted any Person, including, without limitation, any shareholder,
officer or director or any affiliate of Seller, to withdraw assets from
Seller, or agreed to permit any such action;
(m) made any payment or transfer to or for the benefit of any shareholder,
officer or director or any affiliate thereof, or agreed to take any such
action;
(n) accelerated, terminated, modified or canceled any agreement, contract,
lease, or license (or series of related agreements, contracts, leases or
licenses) involving more than $50,000 individually or more than $250,000 in
the aggregate, to which Seller is a party or by which it is bound, or agreed
to take any such action; or
(o) made a bulk sale of inventory at below normal margins for the inventory
sold or declared, set aside or paid any dividend or made any payment or
distribution to its shareholders (whether in cash or in kind), or agreed to
take any such action.
SECTION 3.10. Tax Matters.
(a) Tax Returns. Seller and each Seller Subsidiary has prepared and timely
filed all required federal, state, local and non-U.S. returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
attributable to Seller or any Seller Subsidiary and such Returns were true and
correct and completed in accordance with applicable law.
(b) Payments. Seller and each Seller Subsidiary (i) has paid all Taxes that
Seller or such Seller Subsidiary is required to pay and has withheld with
respect to its Employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld and paid such withheld amounts to the
appropriate governmental body within the time prescribed by law, and (ii)
Seller has accrued on Seller's Financial Statements all Taxes attributable to
the periods covered by Seller's Financial Statements and has not incurred any
liability for Taxes for the period since the Seller Balance Sheet Date other
than in the ordinary course of business, consistent with Seller's past
practices.
(c) No Delinquencies. Neither Seller nor any Seller Subsidiary has been
delinquent in the payment of any Tax nor has there been any Tax deficiency
outstanding, proposed or assessed against Seller or any Seller Subsidiary, as
the case may be, nor has Seller or any Seller Subsidiary executed any waiver
of any statute of limitations on, or extended the period for assessment or
collection of, any Tax.
(d) No Audit. No audit or other examination of any Return of Seller or any
Seller Subsidiary is presently in progress, nor has Seller or any Seller
Subsidiary been notified of any request for such an audit or other
examination.
(e) No Unpaid Liabilities. Neither Seller nor any Seller Subsidiary has any
liability for any unpaid federal, state, local and non-U.S. Taxes which have
not been accrued or reserved against on Seller's Financial Statements, whether
asserted or unasserted, contingent or otherwise.
(f) Copies Made Available. Seller has made available to Purchaser copies of
all federal and state income tax returns and all state sales and use tax
returns for Seller for all periods ending after December 31, 1994.
(g) No Tax Liens. There are (and as of immediately following the Closing
there will be) no Encumbrances or charges of any sort on any of the assets of
Seller relating to or attributable to Taxes, other than liens for personal
property, sales and payroll taxes not yet due and payable.
(h) Tax Exempt Use Property. None of Seller's assets related to the Storage
Products Business are treated as "tax-exempt use property" within the meaning
of Section 168(h) of the Code.
(i) No Parachute Payments. There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any past or present employee of Seller or any Seller Subsidiary that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G of the Code.
(j) No Tax Sharing Agreement. Neither Seller nor any Seller Subsidiary is a
party to a third-party tax sharing or allocation agreement with any third
party nor does Seller or any Seller Subsidiary owe any amount under any such
agreement, other than this Agreement.
SECTION 3.11. Title to and Condition of Purchased Assets; Sufficiency of
Purchased Assets. Seller owns all the Purchased Assets and has good and
marketable title in and to all of the Purchased Assets, free and clear of all
Encumbrances whatsoever, except for licensed and leased assets specifically
listed as such, and Encumbrances listed, in Section 3.11 of Seller's
Disclosure Letter. No Seller Subsidiary other than Seller owns any of the
Purchased Assets. All of the tangible personal property included in the
Purchased Assets is in good working condition and repair, ordinary wear and
tear excepted, and is suitable for the purposes for which it is presently
used. The Purchased Assets constitute all assets, properties, rights and
Intellectual Property Rights that are necessary or required to enable
Purchaser, following the Closing, to own, conduct, operate and maintain the
Storage Products Business as historically conducted or as proposed to be
conducted by Seller through the Closing Date without: (i) the need for
Purchaser to acquire or license any other asset, property or Intellectual
Property Right, (ii) the breach or violation of any contract or commitment;
and (iii) infringement of any Intellectual Property Right of any party other
than Purchaser. Without limiting the preceding sentence, the Assigned
Contracts include, without limitation, all Storage Products Leases, all Real
Property Leases and all Storage Products Licenses. Title to all the Purchased
Assets is freely transferable from Seller to Purchaser and SMIBV free and
clear of all Encumbrances without obtaining the consent or approval of any
person. None of the Purchased Assets (whether tangible or intangible) that
were used in the Storage Products Business have been removed from use in such
business since December 31, 1996. The current location of all tangible
Purchased Assets is set forth in Schedule 3.11 to Seller's Disclosure Letter,
and Seller will not re-locate any material Purchased Assets from the
location(s) shown for such Purchased Assets on Schedule 3.11 to Seller's
Disclosure Letter without Purchaser's prior written consent. Seller has paid
in full all royalties, fees and any other payments that have ever become due
and payable under all license agreements included among the Assigned Contracts
or related to any of the Purchased Assets and no further royalties, license
fees, maintenance and support fees or any other payments whatsoever are due
and payable, nor will any further royalties, license fees, maintenance and
support fees or any other payments whatsoever become due and payable in the
future, under any license agreements included among the Assigned Contracts or
with respect to any Purchased Assets under any circumstances. Except as may
be set forth in the Disclosure Letter or any schedule to this Agreement, none
of the Purchased Assets is licensed from any third party and no royalties,
license fees or similar payments are due or payable (or may become due or
payable) to any third party under any license or other agreement. None of the
Purchased Assets is licensed to any third party, including any Seller
Subsidiary or any other affiliate of Seller. The Certified Tangible Asset
Schedule was prepared in the ordinary course, in a manner consistent with
Seller's past practice and in accordance with Seller's business records and in
accordance with GAAP and all other applicable professional standards and is
true, accurate and complete.
SECTION 3.12. Real Property Assets. Seller's title in the Real Property
Assets is free and clear of all Encumbrances created by or through Seller,
except: (a) liens for Taxes and assessments not yet due and payable (which
are summarized in Section 3.12 of Seller's Disclosure Letter); and (b)
immaterial imperfections of title set forth in the title report attached as
Exhibit 3.12A to Seller's Disclosure Letter (for the Fort Lauderdale Facility)
and in the title report attached as Exhibit 3.12B to Seller's Disclosure
Letter (for the Melbourne Facility) and in the title report attached as
Exhibit 3.12C to Seller's Disclosure Letter (for the Condominiums),
respectively, each of which title reports is dated within thirty days of the
Effective Date; provided, however, that nothing herein shall release or
discharge Seller from any of Seller's obligations under the Real Property
Purchase Agreements. The Real Property Assets are in good condition and
repair and are supplied with utilities and other services reasonably necessary
for the operation of such facilities. Seller does not sublease any of the
Real Property Assets. No portion of any of the Real Property Assets is leased
by Seller to any person or leased to Seller by any person. Seller's current
use of the Real Property Assets is permitted by all applicable laws and
regulations (including without limitation zoning laws) and Seller has all
permits and licenses necessary to use and occupy (and permit Purchaser to use
and occupy) the Real Property Assets.
SECTION 3.13. Lists of Certain Assets. Schedule 3.13 to Seller's
Disclosure Letter contains a true, correct and complete list of:
(a) all of the Tangible Assets (including without limitation equipment,
machinery and vehicles), including original cost, depreciation and current
book value of each of such Tangible Assets;
(b) all of the following items that relate in any manner to the Storage
Products Business, any or all of the Storage Products or any of the Purchased
Assets:
(i) all contracts or agreements for the purchase or sale of raw
materials, supplies, products or other personal property or for the furnishing
or receipt of services;
(ii) all license arrangements or agreements, including distribution,
sublicense, marketing, development or resale agreements of any kind;
(iii) all business licenses, franchises, approvals, Governmental
Permits, registrations and similar rights;
(iv) all other Seller Contracts, except for Seller Contracts that
either (A) are Excluded Contracts; or (B) are (w) unrelated to Intellectual
Property Rights or to any Encumbrance binding on Seller, any Seller
Subsidiary, any Seller affiliate or any of the Purchased Assets, and (x) not a
Restrictive Agreement (as defined below), and (y) not material, individually
or in the aggregate, and (z) terminable on 30 days or less notice without
liability; and
(c) all offices or locations in, or from which, the Storage Products
Business is conducted, wherever located.
True and complete copies of the documents referred to in such list have been
made available to Purchaser. All Seller Contracts are valid, in full force
and effect, and enforceable in accordance with their respective terms, and no
party has repudiated or claimed a breach of any provision thereof and no
breach or default thereunder will result from this Agreement, any of the
Ancillary Agreements, or any of the transactions contemplated hereby or
thereby. Neither Seller nor any other party to any Seller Contract is in
material breach or default in performance of any of their respective
obligations thereunder, and no event exists which, with the giving of notice
or lapse of time or both, would constitute a material breach, default or event
of default on the part of Seller or, to Seller's knowledge, on the part of any
other party, to any Seller Contract that is continuing unremedied. Those
Seller Contracts not listed pursuant to this Section 3.13 do not in the
aggregate represent a material portion of the liabilities of the Company.
SECTION 3.14. No Restrictive Agreements. Neither Seller nor any Seller
Subsidiary is a party to, and no Purchased Asset is bound or affected by, any
judgment, injunction, order, decree, contract, covenant or agreement
(noncompete or otherwise) that restricts or prohibits (or purports to restrict
or prohibit) Seller from freely engaging in its business (including without
limitation the Storage Products Business) as now conducted or proposed to be
conducted by Seller through the Closing Date or from competing anywhere in the
world (including without limitation any contracts, covenants or agreements
restricting the geographic area in which Seller may sell, license, market,
distribute or support any products or technology or provide services, or
restricting the markets, customers or industries that Seller may address in
operating its business) (collectively, "Restrictive Agreements") other than
this Agreement.
SECTION 3.15. Full Force and Effect. Each Assigned Contract and
Governmental Permit assigned to Purchaser or SMIBV or assumed by Purchaser
pursuant to this Agreement or any of the Ancillary Agreements is in full force
and effect and is not subject to any breach or default thereunder by Seller or
any other party thereto.
SECTION 3.16. Litigation. There is no claim, action, suit, arbitration,
mediation, investigation or other proceeding of any nature pending or, to the
best of Seller's knowledge, threatened, at law or in equity, by way of
arbitration or before any court, governmental department, commission, board or
agency that: (i) may adversely affect, contest or challenge Seller's
authority, right or ability to sell or convey any of the Purchased Assets to
Purchaser or SMIBV hereunder or otherwise perform Seller's obligations under
this Agreement or any of the Ancillary Agreements; (ii) challenges or contests
Seller's right, title or ownership of any of the Purchased Assets or seeks to
impose an Encumbrance on, or a transfer of title or ownership of, any
Purchased Asset; (iii) asserts that any Purchased Asset, or any action taken
by any employee, consultant or contractor of Seller, any Seller Subsidiary or
any other affiliate of Seller with respect to any Purchased Asset, infringes
or misappropriates any Intellectual Property Rights of any third party; (iv)
seeks to enjoin, prevent or hinder operation of the Storage Products Business,
the sale, license, marketing or distribution of any Storage Product or the
consummation of any of the transactions contemplated by this Agreement or any
of the Ancillary Agreements; (v) would impair or have an adverse affect on
Purchaser's or SMIBV's right or ability to use or exploit any of the Purchased
Assets or impair or have an adverse effect on the value of any Purchased
Asset; (vi) involves a wrongful termination, harassment or other
employment-related claim by any applicant for employment or any present or
former employee, consultant or contractor of Seller, any Seller Subsidiary or
any other affiliate of Seller or that would adversely affect or prevent
Purchaser from hiring or employing any Employee; (vii) involves or relates to
any potentially material claim against Seller by any creditor of Seller or
involves any claim of fraudulent conveyance or any similar claim; or (viii)
may adversely affect, contest or challenge Gould's or EFI's or JEC's authority
to enter into, and perform its respective obligations under, the respective
Inducement Agreement to which it is a party. There are no judgments, decrees,
injunctions or orders of any court, governmental department, commission,
agency, instrumentality or arbitrator pending or binding against Seller which
affect any of the Purchased Assets or Purchaser's ability to hire any
Employee.
SECTION 3.17. Compliance with Laws.
(a) General. Seller has complied with and has not received any notices of
violation with respect to, any non-U.S., federal, state or local statute, law
or regulation (including any Environmental Law), domestic or non-U.S.,
applicable to the Storage Products Business or any of the Purchased Assets.
Without limitation of the foregoing, the Real Property Assets conform to and
comply with all applicable legal requirements, laws, rules and regulations,
including without limitation, all Environmental Laws, zoning laws or building
codes, the Occupational Safety and Health Act ("OSHA") and the Americans With
Disabilities Act. Seller has no knowledge of any pending or proposed OSHA
regulations or amendments to OSHA regulations (including toxic chemical
regulations) that would require any change in any of Seller's facilities,
equipment, operations or procedures or affect Seller's business or its costs
of conducting its business as now conducted. Seller has never made any
bribes, kickback payments or other illegal contributions. Seller holds all
necessary Governmental Permits for the conduct of the Storage Products
Business and all such Governmental Permits are freely transferable to
Purchaser.
(b) Proxy Statement. Seller's Proxy Statement (as defined in Section 5.03)
in the form sent to Encore's stockholders, shall fully comply with the
Securities Exchange Act of 1934, as amended, and all rules and regulations
promulgated thereunder, and with all other applicable laws, including without
limitation all applicable securities laws.
SECTION 3.18. No Representation to Employees. Seller has made no
representations to any employee of Seller, any Seller Subsidiary or any other
affiliate of Seller or to any consultant or contractor of Seller, any Seller
Subsidiary or any other affiliate of Seller concerning whether Purchaser will
offer to hire or will hire such employee, consultant or contractor, the length
of time the employee's, consultant's or contractor's work, employment or
service may continue with Purchaser (if at all) or, to the extent inconsistent
with the terms hereof, the compensation or benefits to be paid to the
employees or any consultant or contractor by Purchaser or other terms or
conditions of employment with Purchaser. Seller has made no representation to
any employee, consultant or contractor of Seller, any Seller Subsidiary or any
other affiliate of Seller that Purchaser can or will terminate the employment
of its employees only upon certain terms or conditions or only on certain
grounds or that such employment is anything other than "at will".
SECTION 3.19. Employees.
(a) Employee List. Set forth in Schedule 3.19 to Seller's Disclosure Letter is a
complete and accurate list of all the Employees (as defined in Section 6.01).
Schedule 3.19 to Seller's Disclosure Letter also contains a complete and
accurate list of all consultants and contractors currently hired, retained or
engaged (or that were hired, retained or engaged at any time on or after January
1, 1996) by Seller or by any Seller Subsidiary or any other affiliate of Seller
to perform any work or services related to the Storage Products Business
(collectively "Consultants" and each individually a "Consultant"). Such Schedule
3.19 also contains a true and accurate list of all locations at which Employees
and/or Consultants are working as of the date hereof, together with the date of
hire, location of employment, years of employment or service, current annual
base salary and (in the case of Consultants) current compensation arrangement
for each Employee and Consultant.
(b) Employment and Consulting Agreements. Schedule 3.19 to Seller's Disclosure
Letter includes a complete and accurate list of (i) all employment contracts
related to any Employee (if any) that are (or will prior to the Closing be) in
effect and (ii) all consulting or similar agreements related to any Consultant
that are (or will prior to the Closing be) in effect.
(c) No Terminations Planned; No Restrictions. Seller has not received any
notice, nor, to Seller's knowledge is there any reason to believe, that any
executive or key employee of Seller or any group of employees of Seller has any
plans to terminate his, her or their employment with Seller. To Seller's
knowledge, no executive or key employee is subject to any agreement, obligation,
order or other legal hindrance that impedes or might impede such executive or
key employee from devoting his or her full business time to the affairs of
Seller prior to the Closing Date and, if such person becomes an employee of
Purchaser, to the affairs of Purchaser after the Closing Date.
(d) Compliance. Seller has complied with all laws, rules and regulations
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining and the payment of social
security and other Taxes. Seller will not be required to give any notice under
the WARN Act or any plant closing or similar law as a result of this Agreement,
the sale to Purchaser and SMIBV of the Purchased Assets or any of the other
transactions contemplated by this Agreement.
(e) Labor Matters. Seller does not have any labor relations problems or
disputes, nor has it experienced, nor is there threatened, any strike,
grievance, claim of unfair labor practices, other collective bargaining dispute
or any other material labor difficulty. Seller is not a party to or bound by any
collective bargaining agreement or union contract there is no union or
collective bargaining unit at Seller's facilities. No union organization effort
is threatened, initiated or is in progress with respect to any employees of
Seller and no such union organization effort has been threatened or initiated at
any time since June 1, 1996.
(f) No Debt. Seller is not indebted to any officer, director, employee,
consultant or shareholder, whether by loan, advance or otherwise, other than for
salaries accrued but not yet payable and reimbursable out-of-pocket expenses
incurred in the ordinary course of business consistent with Seller's past
practice and not yet payable, nor is any officer, director, employee or
shareholder so indebted to Seller.
SECTION 3.20. Pension and Employee Benefit Matters.
(a) Employee Benefit Plans. Schedule 3.20 to Seller's Disclosure Letter sets
forth a true and complete list of each worldwide employment, severance or other
similar contract, arrangement or policy, each "employee benefit plan" as defined
in Section 3(3) of ERISA and each savings or pension plan or similar
arrangement, each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insurance arrangements), workers' compensation
benefits, vacation benefits, severance benefits, disability benefits, death
benefits, hospitalization benefits, retirement or pension benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchases, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits for employees, consultants
or directors which is entered into, maintained or contributed to by Seller, any
Seller Subsidiary or any other affiliate of Seller and covers any employee or
former employee of Seller, any Seller Subsidiary or any other affiliate of
Seller in any jurisdiction of the world (collectively, the "Seller Employee
Benefit Plans"). Each Seller Employee Benefit Plan has been maintained in
compliance in all material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Seller Employee Benefit Plan, including without limitation
ERISA. Seller has delivered to Purchaser or its counsel a complete and correct
copy or description of each Seller Employee Benefit Plan.
(b) COBRA Compliance. The group health plans (as defined in Section 4980B(g) of
the Code) that benefit employees of Seller, any Seller Subsidiaries or any other
affiliates of Seller are in compliance, in all material respects, with the
continuation coverage requirements of Section 4980B of the Code. As of the
Closing Date, there will be no material outstanding, uncorrected violations
under COBRA, with respect to any of the Seller Employee Benefit Plans, covered
employees, or qualified beneficiaries that could result in a Material Adverse
Effect on Seller, or for which Purchaser or SMIBV may become liable by virtue of
their acquisition of the Purchased Assets or the hiring by Purchaser of any
Employee.
(c) No Liability. Neither Purchaser nor SMIBV will suffer any Liability or
adverse consequence from the administration, termination or continuation of any
of the Seller's Employee Benefit Plans or from any failure of any post-Closing
distribution of benefits to employees of Seller to be made by Seller in
compliance with all applicable legal requirements. Seller will remain liable for
all costs of employee compensation, including without limitation: (i) all
employee benefits and claims for periods prior to the Closing Date, (ii) Taxes
relating to employment and employees attributable to periods through the Closing
Date, whether reported by the Closing Date or thereafter and (iii) all group
health plan continuation coverage to which any employee, former employee or
dependent is entitled because of a qualifying event (as defined in Section
4980B(f)(3) of the Code) occurring through the Closing Date or as a result of
termination of employment with Seller, any Seller Subsidiary or any other
affiliate of Seller because of the transactions contemplated by this Agreement
and any benefit or excise tax liability or other costs arising from any failure
by Seller, any Seller Subsidiary or any other affiliate of Seller to provide
group health plan continuation coverage. All Seller Employee Benefit Plans
(including without limitation any of such plans related to savings, pension or
retirement or similar benefits) are fully funded and neither Purchaser nor SMIBV
are now, nor will they, as a result of the consummation of any of the
transactions contemplated by this Agreement, become, liable under the laws of
any country or jurisdiction, to pay into, contribute or otherwise fund any
amounts that may be payable into or due to any Seller Employee Benefit Plan.
SECTION 3.21. Supplier and Customer Relationships. Seller has good
commercial working relationships with its customers for the Storage Products
Business and since January 1, 1997, no customer or supplier, accounting for
two percent (2%) or more of Seller's gross sales revenues or purchases of
supplies related to the Storage Products Business, has canceled or otherwise
terminated its relationship with Seller, decreased or limited materially its
purchases or materials supplied to Seller from the corresponding period in
1996, or, to Seller's knowledge, threatened to take any such action.
SECTION 3.22. Product and Inventory Status.
(a) Product Quality, Warranty Claims. All products manufactured, sold, licensed,
leased or delivered by Seller and all services provided by Seller, to customers
on or prior to the Closing Date (including all Storage Products) conform to
applicable contractual commitments, express and implied warranties, product
specifications and quality standards, and Seller has no material Liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against Seller giving rise to
any Liability) for replacement or repair thereof or other damages in connection
therewith. No product manufactured, sold, leased or delivered by Seller, and no
service provided by Seller, to customers on or prior to the Closing Date is
subject to any express guaranty, express warranty or other indemnity except as
expressly set forth in Section 3.22 of Seller's Disclosure Letter.
(b) Product Liability. Neither Seller nor any Seller Subsidiary has any
Liability (and to Seller's knowledge there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against Seller or any Seller Subsidiary or any affiliate of Seller giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession or use of any product (including any Storage
Product) manufactured, sold, leased or delivered by Seller or any Seller
Subsidiary or any affiliate of Seller prior to the Closing Date. All such
personal injury or property damage product liability claims that have been
asserted against Seller since December 31, 1996, whether covered by insurance or
not and whether litigation has resulted therefrom or not, are listed and
summarized in Section 3.22 of Seller's Disclosure Letter.
(c) Inventory. To Seller's knowledge, the Inventory Assets consist of raw
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable, fit for the purpose for which it
was procured or manufactured, and in a condition and quantity usable in the
ordinary course of business. To Seller's knowledge, none of the Inventory Assets
is obsolete, damaged or defective.
SECTION 3.23. Intellectual Property Rights.
(a) Ownership. Seller owns or has the right to use pursuant to license,
sublicense, agreement, or other valid permission, all Intellectual Property
Rights necessary or desirable for the operation of the business of Seller
(including without limitation the Storage Products Business) as presently
conducted and as presently proposed to be conducted. Each Intellectual Property
Right owned, licensed to or used by Seller in the Storage Products Business
immediately prior to the Closing Date hereunder will be owned, licensed to or
available for use by Purchaser and SMIBV on identical terms and conditions
immediately subsequent to the Closing Date. Seller has taken all reasonable
steps to maintain and protect all Intellectual Property Rights that it owns, has
licensed or uses.
(b) No Infringement. The Purchased Assets include all assets, properties and
Intellectual Property Rights necessary to enable Purchaser and SMIBV to conduct
the Storage Products Business in the manner in which such business was conducted
by Seller on the Effective Date and as such business is currently being
conducted (assuming such business was or is being actively conducted) and as
such business is proposed to be conducted through the Closing Date, in each case
without the need for any license from any person. The Purchased Assets,
including but not limited to the Storage Products, the Intangible Assets, the
Inventory Assets, the Intellectual Property Assets, the Trademark Assets and the
Technology Deliverables do not infringe upon, misappropriate or otherwise
conflict with, any Intellectual Property Rights of any third party and no third
party has asserted or threatened to assert against Seller any claim of
infringement or misappropriation of any Intellectual Property Rights. The
transfer of the Purchased Assets to Purchaser and SMIBV will not infringe upon
any Intellectual Property Right of any third party. To the best knowledge of
Seller, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property Rights of Seller.
(c) Recorded Intellectual Property Rights and Licenses. Schedule 3.23(c) to
Seller's Disclosure Letter identifies: (i) each patent, copyright, mask work,
trademark or service mark (or registration thereof) which has been granted or
registered and issued to Seller in any jurisdiction, (ii) each pending patent
application or application for registration of a copyright, mask work,
trademark, service mark or similar right which Seller has made in any
jurisdiction, (iii) all unregistered copyrights and (iv) each license,
agreement, or other permission which Seller has granted to any third party with
respect to any of its Intellectual Property Rights or any of the Purchased
Assets. Seller has delivered to Purchaser correct and complete copies of all
such patents, patent applications, copyrights and mask work registrations and
all applications, licenses, agreements and permissions (as amended to date) and
has made available to Purchaser correct and complete copies of all other written
documentation evidencing ownership of each such item. Schedule 7 to Seller's
Disclosure Letter identifies each trademark, service mark, trade name and logo
used in connection with the Storage Products Business.
(d) Ownership. With respect to each Intellectual Property Right, license,
agreement or other permission required to be identified in Schedule 3.23(c) to
Seller's Disclosure Letter: (i) Seller possesses all right, title and interest
in and to such Intellectual Property Right, license, agreement or permission
free and clear of any Encumbrance, license or other restriction; (ii) such
Intellectual Property Right, license, agreement or permission is not subject to
any outstanding order or charge; and (iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to Seller's
knowledge, is threatened, which challenges the legality, validity,
enforceability, use or ownership of such Intellectual Property Rights, license,
agreement or permission.
(e) Licenses. Schedule 3.23(e) to Seller's Disclosure Letter sets forth and
summarizes each license Seller has granted to any third party with respect to
any Intangible Asset or Intellectual Property Asset. Such Schedule 3.23(e) sets
forth and summarizes each Intellectual Property Right that a third party owns
and that Seller uses pursuant to a license, sublicense, agreement or other
permission. Seller has delivered to Purchaser correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each Intellectual Property Right required to be identified in
such Schedule 3.23(e): (i) the license, sublicense, agreement or permission
covering the item is legal, valid, binding, enforceable and in full force and
effect; (ii) the license, sublicense, agreement or permission will continue to
be legal, valid, binding, enforceable and in full force and effect on identical
terms to Purchaser's and SMIBV's benefit immediately following the Closing and
all consents to the assignment of each Seller Contract (including without
limitation each Seller Contract that is a license, sublicense, agreement,
permission or covenant not to compete together with all Intellectual Property
Rights relating thereto) needed to assign any such Seller Contract to Purchaser
and/or SMIBV or any other subsidiary of Purchaser designated by Purchaser have
been obtained; (iii) the license, sublicense, agreement or permission does not
restrict Seller's ability to do business in any jurisdiction or with respect to
any market or industry; (iv) Seller is not in breach or default of, and to
Seller's knowledge, no other party to any such license, sublicense, agreement or
permission is in breach or default of, and no event has occurred which, with
notice or lapse of time or both, would constitute a breach or default of, or
permit termination, modification or acceleration of, any such license,
sublicense agreement or permission; (v) to Seller's knowledge, no party to the
license, sublicense, agreement or permission has repudiated or contested any
provision thereof; (vi) with respect to each sublicense, to Seller's knowledge,
the representations and warranties set forth in clauses (i) through (v) above
are true and correct with respect to the underlying license; (vii) to Seller's
knowledge, the underlying Intellectual Property Rights are not subject to any
outstanding order or charge; (viii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to Seller's
knowledge, is threatened which challenges the legality, validity or
enforceability of any such license, sublicense, agreement or permission or any
Intellectual Property Right governed thereby; and (ix) Seller has not granted
any sublicense or similar right with respect to the license, sublicense,
agreement or permission. Neither Seller, nor any Seller Subsidiary nor any
affiliate of Seller is liable for, or has made any contract or arrangement
whereby it may become liable to, any person for any royalty, fee or other
compensation for the ownership, use, license, sale, distribution, manufacture,
reproduction or disposition of any Purchased Asset. No person other than Seller
holds any license or other right to manufacture, modify, distribute or market
any of the Storage Products or other Purchased Assets. No person (other than
Purchaser and SMIBV) will be or become entitled to receive a copy of source code
of any software included among the Purchased Assets as a result of this
Agreement, any Ancillary Agreement or any other agreement or transaction
contemplated by this Agreement. To Seller's knowledge, no person holds or has
been granted access to any copy of source code of any software included among
the Purchased Assets unless such person has agreed in writing (i) to hold such
source code in confidence and take reasonable steps to preserve the secrecy of
such source code; and (ii) not to use such source code for any purpose except to
support such person's internal use of such source code or to modify such source
code solely for the purpose of internally using such modifications.
(f) Employee Invention Agreements. All employees, contractors and consultants of
Seller, any Seller Subsidiary or any other affiliate of Seller (including but
not limited to all the Employees and all the Consultants) and any other third
parties who have been involved in the development of Seller's Storage Products
Business, any Storage Product or any Purchased Asset, have executed invention
assignment and confidentiality agreements in the form delivered to Purchaser's
counsel, and all employees and consultants of Seller who have access to
confidential information or trade secrets related to the Storage Products
Business and/or the Purchased Assets have executed appropriate nondisclosure
agreements in the form delivered to Purchaser's counsel. Seller has taken
reasonable steps, consistent with industry standards, to protect the secrecy and
confidentiality of all Storage Products, Intangible Assets and Intellectual
Property Assets.
(g) Assigned Contracts. The Assigned Contracts include all Storage Products
Licenses and other licenses that are or may be necessary for Purchaser and SMIBV
to hold in order to operate the Storage Products Business after the Closing
and/or to manufacture, have manufactured, use, sell, lease, license, market,
distribute, install, service, support or otherwise commercially exploit any or
all of the Storage Products or Purchased Assets without: (i) the need to
purchase, license or acquire any other asset or property; (ii) violating any
contractual rights of any third party; or (iii) infringing, misappropriating or
misusing any software, technology, Industrial Property or Intellectual Property
Rights of any third party. The Assigned Contracts include, without limitation,
all Storage Products Leases.
(h) Product Development and Customer Complaints. Seller has made a full,
complete and accurate disclosure to Purchaser regarding the state of development
of the Storage Products and other Purchased Assets, including all known
deficiencies and all customer complaints known to Seller. Each of the Storage
Products complies with the specifications set out in any disclosure materials
provided by Seller to Purchaser and conforms in all material respects to express
representations made and express warranties given by Seller to its customers.
(i) Product Compliance. All of the Storage Products, as such are currently
marketed, and all other Purchased Assets, are capable of fully performing in
accordance with their current specifications, documentation and warranties, at
any and all chronological dates (including, but not limited to, dates after the
Year 2000), both currently and in the future without any adverse change or
effect, and without the need to modify or alter any of such Storage Products or
Purchased Assets in any respect.
(j) Nondisclosure Agreements. To Seller's knowledge, no third party is in
possession of any confidential information pertaining to any of the Purchased
Assets, except pursuant to a written confidentiality agreement in a form
disclosed in writing to Purchaser. Seller has not knowingly taken or knowingly
failed to take any action that, directly or indirectly, has caused any of the
Purchased Assets or any of Seller's Intellectual Property Rights to enter the
public domain, or has in any way affected its absolute and unconditional
ownership thereof.
SECTION 3.24. Brokers. No broker, finder or investment banker (other than
Genesis Merchant Group Securities LLC ("Genesis"), which shall be paid a fee
of $250,000 for rendering the opinion contemplated by Section 8.02(z) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Seller.
SECTION 3.25. Environmental Matters.
(a) Environmental Obligations. The Fort Lauderdale Facility, the Melbourne
Facility, the Condominiums and any other facilities or sites at which the
Storage Products Business or any other business of Seller, any Seller Subsidiary
or any other affiliate of Seller is now or has previously been conducted by
Seller, any Seller Subsidiary or any other affiliate of Seller, or any of their
predecessors-in-interest (collectively, the "Facilities") are not (and with
respect to each such previously owned, used or operated Facility was not, when
Seller, any Seller Subsidiary or any other affiliate of Seller or any of their
respective predecessors left such Facility) in violation of any Environmental
Laws, including any laws or regulations relating to industrial hygiene, disposal
of Hazardous Substances or the environmental conditions on or under such
properties or facilities, including but not limited to, soil and ground water
conditions. During the time that Seller, any Seller Subsidiary, any other
affiliate of Seller or any of their respective predecessors-in-interest owned,
leased, operated or occupied any Facility, Seller, each Seller Subsidiary, each
other affiliate of Seller and each of their respective predecessors-in-interest
did not use, generate, manufacture or store on or under any part of any such
Facility, or transport to or from any part of any Facility, any Hazardous
Substances in violation of any Environmental Laws. There has been no presence,
disposal, release or threatened release of any Hazardous Substances on, from or
under any part of any Facility and no Hazardous Substances are currently present
in, on, under or about any of the Facilities or their groundwater or soil.
(b) Environmental Obligations. Seller, each Seller Subsidiary and each other
affiliate of Seller is conducting, and at all times has conducted, its business
and operations, and has occupied and used the Facilities, in accordance with and
in compliance with all Environmental Laws so as not to give rise to liability
under any Environmental Laws. To Seller's knowledge (including, without limiting
the definition of "Seller's knowledge" herein, the knowledge of any officer or
manager of Seller responsible for environmental compliance issues), there is no
reasonable basis to believe or suspect that Seller's business, or the business
of any Seller Subsidiary or any other affiliate of Seller, has been conducted or
is being conducted in violation of any Environmental Laws, and Seller does not
have any knowledge of pending or proposed changes to any Environmental Laws that
would require any changes in any of Seller's Facilities, equipment, operations
or procedures or affect such business or the cost of conducting such business as
now conducted.
(c) Compliance, Disclosure of Environmental Conditions. No conditions,
circumstances or activities have existed or currently exist with respect to the
Facilities or the business or property of Seller, each Seller Subsidiary or any
other affiliate of Seller, which could reasonably be expected to result in
recovery by any governmental authority or other person of any remedial or
removal costs, response costs, natural resource damages or other costs, expenses
or damages arising from or relating to any alleged injury or threat of injury or
harm to public health, or safety or the environment. No conditions,
circumstances or activities have existed or currently exist with respect to
Seller's business or any properties or assets of Seller (including without
limitation the Facilities) that could reasonably be expected to subject Seller
or Purchaser to any administrative, civil or criminal liability, injunctive
relief, penalty or obligation or Environmental Damages, whether under common law
or equitable theory or pursuant to Environmental Laws, or which in the future
could reasonably be expected to result in or may have in the past resulted in
actual or threatened damage, harm, or impairment of, or a threat to, public
health or safety or the environment.
(d) No Outstanding Orders or Actions. There are no outstanding orders,
injunctions or decrees against Seller, nor are there any pending or threatened
investigations of any kind against Seller, concerning any environmental, public
health, safety or land use matters or other Environmental Laws, including, but
not limited to, the emission, discharge or release of hazardous or toxic
substances or wastes, pollutants, or contaminants into the environment or work
place, or the management of hazardous or toxic substances or wastes, pollutants
or contaminants. There are no actions, suits or administrative, arbitral or
other proceedings alleged, claimed, pending, affecting or, to Seller's
knowledge, threatened against Seller, any Seller Subsidiary or any other
affiliate of Seller at law or in equity with respect to any environmental,
public health, safety or land use matters or other Environmental Laws, and to
Seller's knowledge, there are no existing grounds on which any such action, suit
or proceeding could reasonably be expected to be commenced.
(e) No Waste Disposal. Any chemicals and chemical products which are included
among the Purchased Assets are integral to and required for the conduct of
Seller's business, have not been and are not intended to be discarded, and are
not waste or waste materials. All Hazardous Substances and waste materials
generated, used, transported, treated, stored or disposed of in connection with
Seller's business are handled, stored, treated and disposed of in accordance
with applicable Environmental Laws. Section 3.25 of the Disclosure Letter
describes all Hazardous Materials present on properties (including without
limitation the Facilities) leased or owned by Seller, any Seller Subsidiary or
any other affiliate of Seller or which has been treated, stored or disposed of
in connection with the business of Seller, any Seller Subsidiary or any
affiliate of Seller on such properties. At no time has any radioactive waste
been treated on any properties leased or owned by Seller.
(f) No Limitation. Nothing herein is intended to limit or modify any
representations or warranties regarding the subject matter of this Section 3.25
that are made or set forth in any of the Real Property Purchase Agreements.
SECTION 3.26. Insurance. Seller has policies of insurance (i) covering
risk of loss on the Purchased Assets, (ii) covering products liability and
liability for fire, property damage, personal injury and workers' compensation
coverage and (iii) for business interruption, all with responsible and
financially sound insurance carriers in adequate amounts and, to Seller's
knowledge, in compliance with governmental requirements and in accordance with
good industry practice. To Seller's knowledge, all such insurance policies
are valid, in full force and effect and enforceable in accordance with their
respective terms and no party has repudiated any provision thereof. All such
policies will remain in full force and effect following the Closing Date and
Seller's workers' compensation policy will be kept in force after the Closing
at Purchaser's expense until such time as Purchaser is able to arrange for
replacement coverage. Neither Seller nor, to Seller's knowledge, any other
party to any such policy is in breach or default (including without limitation
with respect to the payment of premiums or the giving of notices) in the
performance of any of their respective obligations thereunder, and no event
exists which, with the giving of notice or the lapse of time or both, would
constitute such a breach, default or event of default, or permit termination,
modification or acceleration under any such policy by Seller, or to Seller's
knowledge, by any other party. There are no claims, actions, proceedings or
suits arising out of or based upon any of such policies nor, to the best
knowledge of Seller, does any basis for any such claim, action, suit or
proceeding exist. All premiums have been paid on such policies as of the date
of this Agreement and will be paid on such policies through the Closing Date,
and Seller has not received notice of any increase in any such premium. All
material claims made during the three-year period ending on the Closing Date
with respect to any insurance coverage of Seller listed in the first sentence
of this Section, are set forth on Schedule 3.26 to Seller's Disclosure Letter.
Seller does not engage in any self-insurance activities.
SECTION 3.27. Disclosure. No representation, warranty or statement by
Seller in this Article III, or in any Ancillary Agreement or in any written
statement or certificate furnished to Purchaser or SMIBV by or on behalf of
Seller pursuant to this Agreement or the transactions contemplated hereby, or
in any report filed by Seller with the U.S. Securities Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended, since December 31,
1994, contains any untrue statement of a material fact or, when taken together,
omits to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. To Seller's knowledge, there is no fact which can reasonably be
expected to have a Material Adverse Effect on (i) the business, condition,
affairs or operations of Seller, (ii) any of Seller's properties or assets or,
(iii) to Seller's knowledge, any of Seller's prospects, which has not been set
forth in this Agreement or Seller's Disclosure Letter. Nothing in Seller's
Disclosure Letter shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the disclosure identifies the
exception with particularity and describes the relevant facts in reasonable
detail; provided that a particular matter need only be disclosed once in the
manner described in the immediately preceding clause so long as it is
cross-referenced wherever else applicable in Seller's Disclosure Letter in a
manner sufficiently clear to identify which representation or warranty an
exception is being made to. No disclosure made to Purchaser, discovery made
by Purchaser or knowledge of Purchaser, including without limitation (i) any
disclosure made by Seller, Seller Subsidiaries, affiliates of Seller or Gould
to Purchaser during the course of Purchaser's due diligence inquiry into
Seller, Gould, the Purchased Assets, the arrangements, assets, financial
condition and other affairs of Seller, Seller Subsidiaries, affiliates of
Seller and Gould and any other transaction contemplated by this Agreement,
(ii) any discovery made by Purchaser during the course of such due diligence
inquiry or (iii) any knowledge of Purchaser resulting from such due diligence
inquiry, shall be deemed adequate or sufficient to constitute an exception to
a representation or warranty made herein unless such exception is expressly
included and described in Seller's Disclosure Letter in the manner required by
the preceding sentence. The representations and warranties of Seller shall
not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by, or knowledge of Purchaser. For
purposes of this Agreement, each statement or other item of information set
forth in Seller's Disclosure Letter shall be deemed a representation and
warranty made by Seller to Purchaser in this Agreement. The Seller's
Disclosure Letter may not be amended, modified or corrected in any way, except
with Purchaser's prior written consent, which may be withheld in Purchaser's
sole discretion.
SECTION 3.28. Solvency; No Bankruptcy or Insolvency Proceedings. Seller,
each Seller Subsidiary and each of Seller's other affiliates, taken either
individually or together as a group, are each currently Solvent (as defined in
Article I) and will continue to be Solvent following the Closing of the
transactions contemplated by this Agreement. None of Seller, any Seller
Subsidiary or any other affiliate of Seller, or any of their respective assets
or properties, is subject to, or the subject of, any Insolvency Proceeding.
None of Seller, any Seller Subsidiary or any other affiliate of Seller has
initiated, taken or attempted to initiate or take, or been the subject of, any
Insolvency Action and no assets or properties of Seller, any Seller Subsidiary
or any other affiliate of Seller are subject to any Insolvency Proceeding or
Insolvency Action. No writ of attachment, execution or similar process has
been ordered, executed or filed against Seller or any of its assets or
properties. Seller has no any reason to expect that any of the aforementioned
actions, or any similar action, will take place or be taken, and Seller is not
aware of any grounds for any of the aforementioned actions or like action.
Neither Seller nor any of its affiliates intends to file for protection under
any bankruptcy or insolvency law.
SECTION 3.29. Fairness of Consideration. The consideration paid and
agreements made by Purchaser and SMIBV under this Agreement for the Purchased
Assets represents fair and reasonably equivalent consideration for the
Purchased Assets, and all other assignments and agreements made by Seller
under this Agreement and the Ancillary Agreements. Seller is not entering
into this Agreement or any Ancillary Agreement with the intent to defraud,
delay or hinder its creditors and the consummation of the transactions
contemplated by this Agreement, and the Ancillary Agreements referenced in
this Agreement will not have any such effect. The transactions contemplated
by this Agreement or any Ancillary Agreement will not give rise to any right
of any creditor of Seller, any Seller Subsidiary or any other affiliate of
Seller to assert any claim whatsoever against Purchaser or SMIBV or any of the
Purchased Assets in the hands of Purchaser, SMIBV or any of their respective
successors and assigns following the Closing.
SECTION 3.30. Bulk Sales. Seller has no Purchased Assets in any
jurisdiction that has applicable bulk sales or similar laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
SECTION 4.01. Incorporation and Authority of Purchaser and SMIBV.
(a) Purchaser. Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware and has all necessary corporate
power and authority to enter into this Agreement and the Ancillary Agreements to
which it is or is to be a signatory, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
This Agreement has been, and the Ancillary Agreements to which Purchaser is a
signatory or is to be a signatory at the Closing have been or will be, duly
executed and delivered by Purchaser, and (assuming due authorization, execution
and delivery by Seller) this Agreement and the Ancillary Agreements to which
Purchaser is a signatory as of the date hereof constitute legal, valid and
binding obligations of Purchaser enforceable against Purchaser in accordance
with its terms and the Ancillary Agreements to which Purchaser is to be a
signatory, upon their execution by Purchaser, will constitute legal, valid and
binding obligations of Purchaser, enforceable against it in accordance with
their respective terms.
(b) SMIBV. SMIBV is a corporation duly incorporated, validly existing and in
good standing under the laws of the Netherlands and has all necessary corporate
power and authority to enter into this Agreement and the Ancillary Agreements to
which it is to be a signatory, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
This Agreement has been, and the Ancillary Agreements to which SMIBV is to be a
signatory at the Closing will be, duly executed and delivered by SMIBV, and
(assuming due authorization, execution and delivery by Seller) this Agreement
constitutes a legal, valid and binding obligation of SMIBV enforceable against
SMIBV in accordance with its terms and the Ancillary Agreements to which SMIBV
is to be a signatory, upon their execution by SMIBV, will constitute legal,
valid and binding obligations of SMIBV, enforceable against it in accordance
with their respective terms.
SECTION 4.02. No Conflict. Except as may result from any facts or
circumstances relating solely to Seller, the execution, delivery and
performance of this Agreement and the Ancillary Agreements by Purchaser and
SMIBV do not and will not (a) violate or conflict with the certificate of
incorporation or bylaws of Purchaser or similar charter documents of SMIBV,
(b) conflict with or violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Purchaser or SMIBV or
(c) result in any breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a breach or default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to any material assets or properties to
which Purchaser, SMIBV or any of their respective subsidiaries is a party or
by which any of such material assets or properties is bound or affected.
SECTION 4.03. Consents and Approvals. The execution and delivery of this
Agreement and the Ancillary Agreements by Purchaser and SMIBV do not, and the
performance of this Agreement and the Ancillary Agreements by Purchaser and
SMIBV will not, require any consent, approval, authorization or other action
by, or filing with or notification to, any governmental or regulatory
authority with respect to Purchaser or SMIBV, except (a) under the HSR Act,
(b) where failure to obtain such consent, approval, authorization or action,
or to make such filing or notification, would not prevent or delay Purchaser
or SMIBV from performing any of its material obligations under this Agreement
or any of the Ancillary Agreements, and (c) as may be necessary as a result of
any facts or circumstances relating solely to Seller.
SECTION 4.04. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing. Seller covenants
and agrees that, between the date hereof and the Closing Date, it will
(except as Purchaser otherwise agrees in its sole discretion which as to clause
(d) below will not unreasonably be withheld):
(a) not sell, transfer, assign, convey, license, move, relocate or otherwise
dispose of any of the Purchased Assets or permit any Seller Subsidiary or any
other affiliate of Seller to do so (except that Finished Products (other than
the Included Products) may be sold by Seller in the ordinary course and
consistent with Seller Practice (as defined in Section 5.14(a)));
(b) conduct the Storage Products Business in the ordinary course and consistent
with Seller's past practice (taking into account the sale of the Purchased
Assets contemplated hereby and Seller's other agreements hereunder) except for
such actions of Seller as may be contemplated by this Agreement or agreed to by
Purchaser in a writing signed by Purchaser;
(c) not transfer any Employees of the Storage Products Business to any other
division or position of employment within Seller or any of Seller's Subsidiaries
or any other affiliates of Seller;
(d) not terminate the employment of any Employee;
(e) not encourage or otherwise act to cause any Employee not to accept any offer
of employment by Purchaser made pursuant to Section 6.01 hereof;
(f) not change the base salaries or bonus programs of any of the Employees or
establish a bonus plan or any new employee benefits for any Employee without
Purchaser's prior written approval;
(g) provide Purchaser with reasonable access to and the opportunity to meet and
interview each of the Employees for the purpose of negotiating offers of
employment contingent upon the consummation of the sale and transfer of the
Purchased Assets to Purchaser and SMIBV and the other transactions contemplated
hereby;
(h) use Seller's best efforts to secure and preserve good and marketable title
in Seller's name in and to all of the Purchased Assets, free of all
Encumbrances, and to cause the conditions to Closing set forth in Article VIII
to be fulfilled as promptly as possible;
(i) terminate any license rights held by any Seller Subsidiary or any other
affiliate of Seller (including Gould) with respect to any of the Purchased
Assets (except under the Gould License Agreement (as defined in the Inducement
Agreements), provided that the Gould License Agreement is assigned to Purchaser
and SMIBV under the Inducement Agreements);
(j) terminate or cause to be released or expunged all Encumbrances on any
Purchased Assets; and
(k) not configure any of the Finished Products without Purchaser's prior written
consent.
SECTION 5.02. Books and Records. If, in order properly to prepare
documents required to be filed with governmental authorities (including taxing
authorities) or its financial statements, it is necessary that any party
hereto or any successors be furnished with additional information relating to
the Purchased Assets, the Assumed Liabilities or the Storage Products
Business, and such information is in the possession of any other party hereto,
such party agrees to use its good faith efforts to promptly furnish such
information to the party needing such information, at the cost and expense of
the party being furnished such information.
SECTION 5.03. Seller's Stockholders' Approval. Encore shall promptly call
and provide notice of a special meeting of Encore's stockholders for the
purpose of approving the sale to Purchaser and SMIBV of the Purchased Assets
under this Agreement and the related transactions contemplated by this
Agreement and the Ancillary Agreements (the "Special Stockholders' Meeting").
Encore shall use its best efforts to hold the Special Stockholders' Meeting by
no later than September 20, 1997. Encore shall use its best efforts to
promptly prepare and file with the U.S. Securities and Exchange Commission
("SEC") a proxy statement for the Special Stockholders' Meeting describing the
transactions contemplated by this Agreement and the Ancillary Agreements and
seeking Encore's stockholders' approval of such transactions (the "Seller's
Proxy Statement"), which proxy statement shall comply with the Securities
Exchange Act of 1934, as amended, and all rules and regulations promulgated
thereunder, and will comply with all other applicable laws, including without
limitation all applicable securities laws. Subject to the fiduciary duties of
Encore's Board of Directors under applicable law, Encore shall, through its
Board of Directors, recommend approval of this Agreement, the sale of the
Purchased Assets pursuant hereto, all other actions and Ancillary Agreements
contemplated hereby, and all other matters relating to this Agreement and the
transactions contemplated hereby that are required (by this Agreement or
applicable law) to be submitted to a vote of Encore's stockholders at the
Special Stockholders' Meeting; Encore shall use its best efforts to obtain the
aforementioned approval by a disinterested majority of its stockholders
entitled to vote at the Special Stockholders' Meeting as well.
SECTION 5.04. Confidentiality.
(a) Existing Agreement. The terms of the Confidentiality Agreement dated as of
November 14, 1996 (the "Existing Confidentiality Agreement") between Encore and
Purchaser are hereby incorporated by reference and shall continue in full force
and effect until the Closing, at which time the Existing Confidentiality
Agreement shall terminate. If this Agreement is, for any reason, terminated
prior to the Closing, then the Existing Confidentiality Agreement and (ii) the
provisions of that certain Sun/Encore Memorandum of Understanding executed by
Purchaser, SMIBV and Encore with respect to the transactions contemplated by
this Agreement (the "MOU") regarding the rights of Purchaser, SMIBV and their
respective employees to freely use "Residuals" (as defined therein), shall each
continue in full force and effect in respect of all information subject to the
MOU.
(b) Seller's Confidential Information. Except for marketing and sales
information which has been publicly disseminated to Seller's end-user customers
prior to the Effective Date in the ordinary course of business consistent with
past business practice, all copies of financial information, marketing and sales
information, pricing, marketing plans, business plans, financial and business
projections, customer lists, methodologies, inventions, software, know-how,
product designs, product specifications and drawings, and other confidential
and/or proprietary information of the Seller related to the Storage Products
Business or any of the Purchased Assets, including but not limited to the
Storage Products, the Intangible Assets, the Intellectual Property Assets and
the Technology Deliverables (collectively, "Seller's Confidential Information")
will be held by Seller in strict confidence at all times after the Effective
Date of this Agreement unless and until this Agreement is terminated in
accordance with the provisions of Article X hereof. At all times following the
Closing, Seller will: (i) continue to hold all Seller's Confidential Information
in strict confidence, (ii) will not use or disclose any of Seller's Confidential
Information to any third party, and (iii) upon Purchaser's or SMIBV's request,
promptly destroy or deliver to Purchaser and/or SMIBV any Seller's Confidential
Information in Seller's possession or control; except that Seller may internally
use the original copies of all Business Records solely to prepare and file Tax
returns and prepare Seller's financial statements, and Seller may disclose any
Seller Confidential Information (except source code or other trade secrets) as
may be required to comply with requests from all governmental agencies,
including without limitation the SEC; provided that Seller must provide
Purchaser with prior written notice of any proposed disclosure to government
agencies and with respect to the SEC, an opportunity to seek confidential
treatment of such proposed disclosure. It is agreed that Sellers' Confidential
Information will not include information that is now, or later becomes, part of
the general public knowledge or literature in the art, other than as a result of
a breach of this Agreement by Seller.
SECTION 5.05. Regulatory and Other Authorizations; Consents.
(a) Efforts. Each party hereto will use its best efforts to obtain all
authorizations, consents, orders and approvals of all non-U.S., Federal, state
and local regulatory bodies and officials that may be or become necessary for
the execution and delivery of, and the performance of its obligations pursuant
to, this Agreement and the Ancillary Agreements and will cooperate fully with
the other party in promptly seeking to obtain all such authorizations, consents,
orders and approvals. Each party hereto agrees to make an appropriate filing of
a Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as is practicable after the date
hereof and to supply promptly any additional information and documentary
material that may be requested by any governmental authority pursuant to the HSR
Act. The parties hereto will not take any action that will have the effect of
delaying, impairing or impeding the receipt of any required approvals. Without
limiting the generality of the parties' undertakings pursuant to this Section
5.05(a), the parties shall use their best efforts to prevent the entry in a
judicial or administrative proceeding brought under any antitrust law by any
Government Antitrust Authority or any other party of any permanent or
preliminary injunction or other order that would make consummation of the
acquisition of the Purchased Assets in accordance with the terms of this
Agreement unlawful or that would prevent or delay such consummation.
(b) Communications. Each party hereto shall promptly inform the other of any
material communication between such party and the Federal Trade Commission, the
Department of Justice or any other federal, state or non-U.S. government or
governmental authority regarding any of the transactions contemplated hereby. If
any party or any affiliate of such party receives a request for additional
information or for documents or any material from any such government or
governmental authority with respect to the transactions contemplated hereby,
then such party shall endeavor in good faith to make or cause to be made, as
soon as reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request. Further, no written
materials shall be submitted by any party to the Federal Trade Commission, the
Department of Justice or any other federal, state or non-U.S. governmental
agency in connection with HSR Act compliance or the merger control regulations
of any other country, nor shall any oral communications be initiated with such
governmental entities by any party, without prior disclosure to and coordination
with the other parties and their counsel. Each party hereto will cooperate in
connection with reaching any understandings, undertakings or agreements (oral or
written) involving the Federal Trade Commission, the Department of Justice or
any other federal, state or non-U.S. governmental authority in connection with
the transactions contemplated hereby.
SECTION 5.06. Further Actions. Each of the parties hereto shall, at its
own expense, execute and deliver such documents and other papers and take such
further actions as may be reasonably required to carry out the provisions of
this Agreement and the Ancillary Agreements and to give effect to the
transactions contemplated by this Agreement and the Ancillary Agreements,
including without limitation causing each Seller Subsidiary and each other
affiliate of Seller to assign any Purchased Assets held by it and any Assigned
Contracts to which it is a party to Purchaser, SMIBV or any one or more
affiliates of Purchaser or of SMIBV, as applicable, and take all such actions
as may be necessary to affect such assignments.
SECTION 5.07. Covenant Not to Compete.
(a) Non-Competition Covenant. Subject to the following provisions of this
Section 5.07, as a material inducement and consideration for Purchaser to enter
into this Agreement, for a period of five (5) years from and after the Closing
Date (such five (5) year period of time being hereinafter called the "Restricted
Period"), Seller will not, within the Restricted Area (as defined below) carry
on any business, or own (in whole or in part), operate, advise, assist or lend
funds to or invest funds in, any person, firm, partnership, business,
corporation or other entity in any manner that would aid or assist any person,
firm, partnership, business, corporation or other entity to compete, in any
material respect, with the Storage Products Business (the "Restricted
Business"). As used herein, the term "Restricted Area" means any state of the
United States of America or any geographic area within any other country in
which Purchaser or SMIBV or their respective affiliates, directly or indirectly,
carries on or engages in business. During the Restricted Period, Seller further
agrees not to interfere with, disrupt or attempt to disrupt the relationship
between Purchaser or SMIBV and any third party, including without limitation any
customer, supplier or employee of Purchaser or SMIBV, with respect to the
Restricted Business.
(b) Non-Solicitation. For a period of three (3) years after the Closing Date,
Seller shall not, directly or indirectly, solicit any Employee hired by
Purchaser to (i) become employed by Seller, any Seller Subsidiary or any other
affiliate of Seller or (ii) terminate such hired Employee's employment with or
services to Purchaser or any affiliate of Purchaser.
(c) Injunctive Relief; Interpretation. In the event of a breach of any of the
covenants set forth in this Section 5.07, Purchaser and SMIBV will each be
entitled to an injunction against Seller restraining such breach in addition to
any other remedies provided by law or equity. In the event that any covenant in
this Section 5.07 is held to be invalid, illegal or unenforceable by any court
of competent jurisdiction or any other governmental authority, it is agreed and
understood that such covenant will not be voided but rather will be construed to
impose limitations upon Seller's activities no greater than allowable under then
applicable law.
(d) Seller. As used in this Section 5.07, the term "Seller" includes (i) Seller;
(ii) all Seller Subsidiaries; (iii) and all entities under the control of, or of
which more than 5% of the capital stock is beneficially owned (within the
meaning of the Securities Act of 1933 ("Securities Act") by, Seller or any
Seller Subsidiary (any entity described by this clause (iii) being referred to
as a "Controlled Entity"); and (iv) all directors, officers, employees,
stockholders, agents or representatives of Seller, any Seller Subsidiary or any
Controlled Entity that are acting, directly or indirectly, at the direction of,
or for the benefit of, or with the financial, technical or other assistance of
Seller, any Seller Subsidiary or any Controlled Entity.
SECTION 5.08. Payroll Information. Following execution of this Agreement,
Seller will notify Purchaser of the name, telephone, fax and electronic mail
address of the Seller employee who is principally responsible for
administering payroll for the Employees. Seller shall use its best efforts
(to the extent practicable) to provide to Purchaser, at least thirty (30) days
prior to the Closing Date, all W-2 information for calendar 1997 with respect
to each Employee and all information regarding Seller's payments for
unemployment insurance (including FUTA and SDU), paid by Seller in respect of
each Employee.
SECTION 5.09. Solvency; No Bankruptcy. Seller shall be and remain Solvent
(as defined in Article I hereof) at all times through the Closing Date and
shall use its best efforts to be and remain Solvent thereafter. Neither
Seller nor any of Seller's Subsidiaries intends or expects to file or seek
relief under the United States Bankruptcy Code or any other insolvency or
similar law for a period of four (4) years after the Closing Date. Seller
will at all times use its best efforts to discourage and avoid, and to
promptly dismiss and set aside, any involuntary petition by creditors or
others to place Seller in any bankruptcy case or proceeding under the United
States Bankruptcy Code or any other insolvency law or similar law.
SECTION 5.10. Manufacturing Commitment. Prior to the Closing, Seller will
manufacture units of such Storage Products and will source spares, if and as
designated by Purchaser to Seller in writing, and in such quantities and at
such times as are necessary to meet Purchaser's proposed post-Closing
forecasted inventory and sales requirements. Seller will make commitments to
Seller's suppliers for long lead time items as may be reasonably necessary in
order to enable Seller to timely comply with its obligations under the
preceding sentence. Purchaser shall pay for the parts needed by Seller to
comply with its obligations under the first sentence of this Section 5.10;
provided that Purchaser may in its sole discretion elect to pay Seller's
suppliers directly for such parts. In the event of a termination of this
Agreement, all such parts paid for by Purchaser shall be delivered by Seller
to Purchaser and Purchaser will purchase from Seller any such units of Storage
Products and spares as are manufactured by Seller in good faith in accordance
with the preceding sentence at a mutually agreed price reflecting a credit for
the aggregate amount paid by Purchaser for parts included in such Storage
Products and spares ("Aggregate Credit"); provided, however, that
notwithstanding the foregoing, Purchaser shall have no obligation whatsoever
to purchase from Seller or pay Seller for any of such units of Storage
Products or spares if this Agreement is terminated due to: (i) a material
willful breach by Seller of its obligations under this Agreement, (ii) a
failure by Encore's Board of Directors to timely recommend this Agreement for
approval by Encore's stockholders; or (iii) a failure by any of Gould, EFI or
Kenneth G. Fisher to timely approve this Agreement by the vote required under
Section 8.02(f); provided, further, however, that even if the immediately
foregoing proviso applies, Purchaser shall purchase from Seller and pay Seller
said mutually agreed price net of the Aggregate Credit for such number of
units of Storage Products and/or spares as is required to ensure that Seller's
total demonstrated actual manufacturing cost of producing Storage Products
and/or spares not so purchased by Purchaser (net of the Aggregate Credit) does
not exceed $10 million.
SECTION 5.11 Customer Transition. Following the Closing, Seller shall, at
its own expense, reasonably cooperate with Purchaser, and assist Purchaser, as
Purchaser may reasonably request, to transition Seller's installed customer
base for Storage Products to Purchaser.
SECTION 5.12 Support and Service Negotiations. The parties acknowledge and
agree that Purchaser shall not assume or otherwise take responsibility or
liability for any contractual or other Liabilities or obligations of Seller
relating to product or service warranties or any maintenance, support or
warranty service obligations or Liabilities (including but not limited to
those Excluded Liabilities described in Section 2.02(b)(xiv) of this
Agreement). Nevertheless, between the Effective Date and the earlier of (i)
the Closing Date or (ii) the termination of this Agreement in accordance with
its terms, Seller and Purchaser shall use good faith commercially reasonable
efforts to negotiate an arrangement between themselves under which Purchaser
(without thereby assuming any of the Liabilities described in the first
sentence of this Section) would provide to existing end-user customers of
Seller certain agreed-upon service and support with respect to Seller's
Infinity line of SP Products (which will include such services by Purchaser
pursuant to standard Purchaser terms and conditions and at no additional
charge for a limited period of time (and Purchaser will not seek reimbursement
from Seller for such non-charged services)); provided, however, that Purchaser
shall not (i) be obligated to agree to or bind itself to any such agreement or
arrangement; (ii) be or become liable to Seller with respect thereto; or (iii)
be deemed to have, nor be required to, assume any Excluded Liabilities
(including without limitation those set forth in Section 2.02(b)(xiv)).
SECTION 5.13 Transitional Support. Between the Effective Date and the
earlier of the Closing Date or the termination of this Agreement in accordance
with its terms, Seller and Purchaser shall use good faith, commercially
reasonable efforts to negotiate an informal business arrangement between
themselves under which Purchaser would provide to Seller, for a mutually
agreed time period not to exceed one (1) year, certain agreed upon MIS,
telephone, telecommunications, manufacturing, engineering support and other
similar mutually agreed upon services in support of Seller's continued conduct
of its existing real time business as permitted under the License Agreement;
with such services to be provided, if Purchaser so elects, on customary arm's
length commercial terms and prices (at least sufficient to provide a
commercially reasonable level of profit to Purchaser) and any such agreement
to include maximum resource burdens on Purchaser (e.g., maximum Purchaser man
month obligations, maximum impact on Purchaser's manufacturing capacities and
operations, etc.). Purchaser shall have no liability whatsoever under any
such arrangement and in no event will Seller make any claims against Purchaser
with respect to Purchaser's performance or non-performance thereunder.
SECTION 5.14 Interim Sales Representation and Marketing Cooperation.
(a) Appointment as Interim Period Sales Representative. Seller hereby authorizes
Purchaser, between the Effective Date and the earlier of (i) the Closing Date or
(ii) the termination of this Agreement in accordance with its terms ("Interim
Period"), to act as a sales representative for Storage Products. As such,
Purchaser shall be authorized, on behalf of Seller, to identify (by written
notice to Seller) sales prospects for Storage Products (which may include sales
prospects previously identified by, and existing customers of, Seller)
(collectively, "Prospects"), to negotiate and bind Seller and (with their
consent) Prospects to the terms of Storage Products sales and support agreements
approved in writing by Purchaser ("Sales Agreements"), and to negotiate and bind
Seller and (with their consent) Prospects to the terms of Storage Products "try
and buy" evaluation agreements approved in writing by Purchaser and with
evaluation periods in each case ending after the Closing Date ("Evaluation
Agreements"). Promptly following Seller's receipt of notice that any Prospect
has agreed to enter into an Evaluation Agreement or a Sales Agreement, Seller
will immediately execute the Evaluation Agreement or Sales Agreement and deliver
to the Prospect possession of the Storage Product and an executed copy of such
signed agreement. Seller will be required to execute and will be bound by the
terms of Sales Agreements and Evaluation Agreements even if they materially
deviate (e.g., by having an evaluation period longer than thirty days) from
Seller's standard forms thereof and/or past practice and/or ordinary course of
business and/or standard de facto pricing (collectively, "Seller Practice");
provided, however, that if the proposed Storage Product pricing for a Sales
Agreement or Evaluation Agreement represents a significant discount from
Seller's de facto pricing in the field for the Storage Product then Purchaser
shall give Seller a ten (10) day notice and opportunity to suggest a smaller
discount, and if Seller so suggests Purchaser shall seek to negotiate such
smaller discount; provided further, that if the Prospect in question does not
agree to such smaller discount, Seller shall nevertheless be required to execute
and will be bound by the terms of the Sales Agreements and Evaluation Agreements
in accordance with the first clause of this sentence.
(b) Recognition of Revenue Accruing Pre and Post Closing. Revenues accrued per
GAAP as a result of sales and deliveries prior to Closing of Storage Products
pursuant to Sales Agreements or pursuant to elections to purchase and deemed
deliveries prior to Closing under Evaluation Agreements will be for Seller's
account and Purchaser will not be entitled to any compensation or offset against
the Purchase Price with respect thereto, but Purchaser will be entitled to make
the adjustment provided for under Section 2.03(g). Revenues accrued per GAAP as
a result of deliveries after Closing of Storage Products pursuant to Sales
Agreements or Evaluation Agreements will be for Purchaser's account, and Seller
will not be entitled to any compensation with respect thereto, except as
expressly provided in Section 2.03(h) as to Customer Units.
(c) Seller Non-disturbance of Prospects. To avoid impairing negotiations between
Purchaser and any Prospect, neither Seller nor any Seller Subsidiary nor any
person or entity acting upon Seller's or any Seller Subsidiary's instructions
will, without Purchaser's prior written consent, contact any such Prospects, or
cause to be communicated to any such Prospect any proposal with respect to any
Storage Product, except that Seller will upon Purchaser's request cooperate with
Purchaser in dealing with each Prospect. If Purchaser ceases to actively pursue
any Prospect as a customer for Storage Products, Purchaser will so notify Seller
in which case the restrictions of this Section 5.14(c) will cease to apply as to
the Prospect specified in such notice.
(d) Assumption and Disclaimer as to Obligations. All Liabilities and obligations
arising under any Evaluation Agreement and any Sales Agreement will be Excluded
Liabilities except as expressly provided in this clause (d). If Closing never
occurs, Purchaser will never have and will not assume any Liabilities or
obligations under any Evaluation Agreement or any Sales Agreement, and all such
Liabilities or obligations will remain Excluded Liabilities. If Closing does
occur, then, notwithstanding anything in Article II hereof to the contrary: (i)
each Evaluation Agreement and each Sales Agreement shall become an Assigned
Contract and all Liabilities and obligations thereunder shall become Assumed
Liabilities and (ii) notwithstanding Section 5.10 hereof, Purchaser will pay
Seller, on the Closing Date, a mutually agreed amount for each Storage Product
purchasable under any Evaluation Agreement. In no event will Purchaser be liable
or responsible for paying any of Seller's sales personnel in connection with any
transactions contemplated by this Section 5.14.
(e) Seller Assumption of Risk/Liability. Seller understands and acknowledges
that if Evaluation Agreements or Sales Agreements are consummated but the
purchase of the Purchased Assets pursuant to this Agreement is not: (i) there is
an enhanced risk that the Prospects would elect to return Storage Products
provided to them under Evaluation Agreements and (ii) if a Prospect does elect
to purchase Storage Products provided to it under an Evaluation Agreement or
Sales Agreement, Seller would be forced to honor the Evaluation Agreement or
Sales Agreement, as the case may be, and the sales, support, warranty and other
terms negotiated by Purchaser on behalf of Seller. Further, Purchaser has no
obligation to take any action or to achieve any quota or objective as sales
representative of Seller under this Section 5.14, and Purchaser shall have no
liability if Purchaser shall fail to enter into any Evaluation Agreements or
Sales Agreements or to generate any revenue or net income for Seller. Seller
fully understands and accepts these and all other risks and potential
Liabilities associated with Purchaser's activities in the Interim Period as
respects Storage Products, Evaluation Agreements and Sales Agreements and agrees
to assume and to indemnify and hold harmless Purchaser from all of such risks
and Liabilities and further agrees that Purchaser's activities pursuant to this
Section shall not be deemed to cause Purchaser to have assumed any Excluded
Liabilities (including without limitation those set forth in Section
2.02(b)(xiv)) except as expressly provided in the third sentence of clause (d)
of this Section.
SECTION 5.15 Diagnostic, Test and QA Software. On or before the Closing
Date, Seller shall cooperate as requested by Purchaser to ensure that Seller
has the right to use in Seller's business on any mainframe platform (including
to test third party storage subsystems) all copies of mainframe diagnostic,
test and QA software, utilities and tools currently used by Seller in Seller's
business (including but not limited to all such software used to test third
party storage subsystems).
SECTION 5.16 Execution of the Inducement and Non-competition Agreements.
Seller shall exercise best efforts to cause the JEC Inducement Agreement to be
executed by JEC no later than the earlier of the Closing Date and August 15,
1997 and to cause each of the Non-competition Agreements to be executed by the
respective parties thereof other than Purchaser and SMIBV no later than within
thirty (30) days after the Effective Date and in any event prior to the
Closing Date. Each Employee therein named as a party to a Non-competition
Agreement shall be an Employee of Seller at the time of execution of the
Non-competition Agreement to which he is a party.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Right to Offer Employment.
(a) Employees. Schedule 6.01 of Seller's Disclosure Letter contains a
preliminary list (the "Preliminary List") of each employee of Seller, of any of
Seller's Subsidiaries or of any other affiliates of Seller who works in, or
provides services in connection with, the Storage Products Business (each an
"Employee"). Within twenty (20) days prior to the Closing Date, Seller shall
deliver to Purchaser a final list of the Employees (the "Final List"), which
list shall be included in Schedule 3.19 of Seller's Disclosure Letter and shall
identify those Employees who are active Employees of the Storage Products
Business as of that date, including those on vacation, sick leave, disability
leave, family leave or personal leave of absence and which shall separately
identify those Employees who are on a workers' compensation-related or
disability leave. For purposes of this Agreement, "Employees" means only those
individuals included on such final list.
(b) Offers of Employment. Effective on the Closing Date, Purchaser shall offer
to employ, on an "at will" basis, for such salary and compensation as Purchaser
shall determine and subject to Purchaser's standard terms, conditions and
policies of employment and the terms of this Agreement, those (and only those)
Employees to whom Purchaser, in its sole and absolute discretion, elects to
extend offers of employment. Purchaser will attempt to keep Seller apprised,
prior to the Closing Date, of Purchaser's then-current intentions as to which
Employees Purchaser intends to extend offers of employment to. Purchaser shall
not, however, be obligated to offer employment to any Employee. Such offers of
employment as may be extended by Purchaser to Employees will be on the same
basis of time commitment (full or part time) as such Employee was employed by
Seller immediately prior to the Closing Date; provided, however, that such offer
of employment with respect to those Employees who are on a workers'
compensation-related or disability leave or a Family Medical Leave Act leave
shall be conditioned upon their return from such leave in accordance with
Seller's leave of absence policy.
(c) No Employment Obligations Assumed. Seller shall retain, and Purchaser shall
not assume, any employer or employment related obligations to any Employees
hired by Purchaser or to any other Employees including, without limitation: (i)
accrued personal time off (including sick leave); (ii) any obligation to provide
retiree health or life insurance benefits pursuant to Seller Employee Benefit
Plans; (iii) any government-mandated employee or employment-related payments;
(iv) workers' compensation and disability insurance premiums paid by Seller on
behalf of Employees who are on workers' compensation or disability leave as of
the Closing Date; and (v) any bonuses at any time accrued or earned by any of
the Employees. Unless the parties otherwise agree, on the Closing Date, Seller
shall notify each Employee who accepts an offer of employment extended by
Purchaser as of the Closing Date, in a writing reasonably satisfactory to
Purchaser, that such Employee's employment with Seller has then terminated.
(d) Non-U.S. Employees. Without limiting any other provision hereof, Seller
acknowledges and agrees that if Purchaser elects to offer employment to some but
not all Employees located in particular non-U.S. jurisdictions, or if requisite
notice prior to the Effective Date or the Closing Date is not given to certain
non-U.S. Employees or non-U.S. governmental agencies regarding possible
employment transitions to Purchaser of certain Employees, certain non-U.S. laws,
rules or regulations may be violated or may not be complied with, possibly
resulting in Liability, possibly including without limitation a need to pay or
accrue severance, a need for Seller to continue employing non-U.S. Employees for
some mandated period, a need for Purchaser or an Applicable Purchaser Subsidiary
to commence employing non-U.S. Employees that Purchaser does not wish to employ
("Mandated Employees"), a need for Purchaser to pay salary to Mandated Employees
and then severance to them upon terminating them as soon as legally permissible,
an obligation of Purchaser to honor non-U.S. Employees' pension obligations,
even though Purchaser is not acquiring any of the assets described in Section
2.01(b)(vi), and fines, sanctions and penalties imposed on Seller or Purchaser
or related parties and related Liabilities with respect thereto and Liabilities
associated with claims brought against Seller or Purchaser or related parties by
non-U.S. Employees or non-U.S. governmental agencies or Mandated Employees with
respect to any of the foregoing (collectively, "Foreign Employee Liabilities").
Nevertheless, without limiting any other provision hereof, Seller agrees to
indemnify, hold harmless and defend Purchaser, SMIBV and all subsidiaries of any
thereof from and against any and all such Foreign Employee Liabilities, and to
take all actions required to avoid (where possible) or minimize such Foreign
Employee Liabilities, including without limitation, paying or accruing severance
or other amounts and giving all notices and obtaining all approvals and paying
all fines required to do so. Purchaser agrees to exercise commercially
reasonable efforts to minimize Foreign Employee Liabilities, but shall have no
liability for failing to do so and no actual or alleged failure to do so shall
relieve Seller from any of Seller's obligations or Liabilities under this
Section 6.01(d).
SECTION 6.02. Termination of Employment. Seller agrees to comply with the
provisions of the WARN Act and any other federal, state or local statute or
regulation regarding termination of employment, plant closing or layoffs and
to perform all obligations required by Seller with respect to the cessation of
any operations of the Storage Products Business or any other business of
Seller or the termination, re-assignment, re-location or change in position of
any Employee (or other employee of Seller or of any of Seller's Subsidiaries
or any other affiliate of Seller) on or after the Closing Date. Seller shall
indemnify and hold Purchaser and SMIBV harmless with respect to any liability
under the WARN Act or other applicable state or local statute or regulation
affecting termination of employment arising in connection with the
transactions contemplated by this Agreement, without regard to the limitations
on indemnification provided in Article IX hereof.
SECTION 6.03. General Matters.
(a) Credit for Prior Service. Purchaser currently intends to credit each United
States based Employee hired by Purchaser on the Closing Date with all prior
continuous service time with Seller and its affiliates and with all amounts paid
to each such Employee to the extent that service or pay is relevant under any
employee benefit plan of Purchaser that is in effect on the Closing Date for
purposes of determining the amount of any such benefit, the extent to which an
individual is vested or otherwise eligible to receive or elect to receive a
benefit or the extent to which a benefit is vested or nonforfeitable; provided,
however, that notwithstanding the foregoing, Purchaser does not intend to credit
any United States based Employee hired by Purchaser with more than seven (7)
years of service. U.S. based Employees' pre-existing medical conditions will be
waived upon entrance into any Purchaser employee benefit plan.
(b) Cooperation. Seller and Purchaser agree to cooperate fully with respect to
the actions which are necessary or reasonably desirable to accomplish the
transactions contemplated hereunder, including, without limitation, the
provision of records and information as each may reasonably request and the
making of all appropriate filings under ERISA and the Code.
(c) Indemnity. Seller shall defend and indemnify Purchaser and SMIBV and hold
Purchaser and SMIBV harmless from and against all liabilities and damages, loss
or liability to Purchaser or SMIBV to the extent that the same arise as a result
of any Employee's alleging that the sale of the Purchased Assets hereunder and
the hiring (or non-hiring) of Employees by Purchaser on the Closing Date
constitutes a termination entitling such Employee to severance or any similar
benefit or right. Notwithstanding anything to the contrary herein, there shall
be no monetary or time limitation on Seller's liability to Purchaser and SMIBV
under this Section 6.03(c).
SECTION 6.04. Employee Withholding Taxes. Seller shall prepare and furnish
to those employees of Purchaser who were employees of Seller prior to the
Closing Date and who became employees of Purchaser on the Closing Date
pursuant to employment offers made by Purchaser to them pursuant to this
Article VI ("Continuing Employees") a Form W-2 which shall reflect all wages
and compensation paid to continuing employees for that portion of the calendar
year in which the Closing Date occurs during which the continuing employees
were employed by Seller. Seller shall furnish to Purchaser the Forms W-4 and
W-5 of each Continuing Employee. Purchaser shall send to the appropriate
Social Security Administration office a duly completed Form W-3 and
accompanying copies of the duly completed Form W-2. It is the intent of the
parties hereunder that the obligations of Purchaser and Seller under this
Section 6.04 shall be carried out in accordance with Section 5 of Revenue
Procedure 84-77.
ARTICLE VII
TAX MATTERS
SECTION 7.01. Transaction Taxes; Representation; Indemnity. Seller shall
be responsible for, and shall defend, indemnify and hold Purchaser and SMIBV
harmless against and in respect of, any and all excise, value added,
registration, stamp, property, documentary, transfer and similar Taxes,
levies, charges and fees (including all real estate transfer taxes) incurred,
or that may be payable to any taxing authority, in connection with, the
transactions (including without limitation the sale, transfer, and delivery of
the Purchased Assets and the assumption of the Assumed Liabilities)
contemplated by this Agreement (collectively, "Transaction Taxes"). Purchaser
and Seller agree to cooperate in minimizing the amount of any such Taxes and
in the filing of all necessary documentation and all Tax returns, reports and
forms ("Returns") with respect to all such Taxes, including any available
pre-sale filing procedures.
SECTION 7.02. Representation and Indemnity. Seller hereby represents and
warrants to Purchaser and SMIBV (and their successors and assigns) that there
are no sales or use taxes payable in connection with the sale and purchase of
the Purchased Assets or any other transaction contemplated by this Agreement.
Seller shall be responsible for, and shall defend, indemnify and hold
Purchaser and SMIBV harmless against and in respect of, any and all taxes,
loss, liabilities, damages, fines, penalties, costs and expenses (including
without limitation reasonable attorney's fees) arising or resulting from any
breach of the foregoing representation and warranty of Seller in this Section
7.02, or from any failure of the foregoing representation and warranty of
Seller in this Section 7.02 to be true and correct in any respect.
SECTION 7.03. No Limitation. Notwithstanding anything to the contrary in
Article IX or elsewhere herein, there shall be no limitation on the amount of
Seller's liability with respect to its indemnification obligations under
Section 7.01 and/or Section 7.02 hereof, and Purchaser, SMIBV or their
successors and assigns may assert any such indemnity claim at any time prior
to expiration of the applicable legal statute of limitations applicable to the
subject matter of the claim underlying the claim for indemnification under
applicable law.
SECTION 7.04. Treatment of Indemnity Payments. All payments made by Seller
or Purchaser, as the case may be, to or for the benefit of the other party
pursuant to any indemnification obligations under this Agreement shall be
treated as adjustments to the Purchase Price for Tax purposes and such agreed
treatment shall govern for purposes of this Agreement, unless otherwise
required by law.
ARTICLE VIII
CONDITIONS TO THE CLOSING
SECTION 8.01. Conditions to Obligations of Seller. The obligations of
Seller to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Accuracy of Representations and Warranties; Covenants. The representations
and warranties of Purchaser contained in Article IV of this Agreement shall be
true and correct in all material respects as of the Closing, with the same force
and effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, and all the covenants contained in
this Agreement to be complied with by Purchaser on or before the Closing shall
have been complied with in all material respects.
(b) HSR Act. Any waiting period (and any extension thereof) under the HSR Act
applicable to the purchase of the Purchased Assets contemplated hereby shall
have expired or shall have been terminated.
(c) No Order. No non-U.S., United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
parties hereto shall use their best efforts to have any such order or injunction
vacated.
(d) No Litigation. No suit, claim, cause of action, arbitration, mediation,
investigation or other proceeding under which a third party is contesting,
challenging or seeking to alter, enjoin or adversely affect the sale and
purchase of the Purchased Assets contemplated by this Agreement or any other
transaction contemplated by this Agreement, will be pending or threatened.
(e) Ancillary Agreements. Purchaser shall have executed and delivered
counterparts of each of the Ancillary Agreements to which Purchaser is a
signatory.
(f) Purchase Price Allocation Agreement. Purchaser shall have executed and
delivered to Seller the Purchase Price Allocation Agreement.
(g) Closing Payment. Purchaser and SMIBV shall have made the Closing Payment to
Seller in the manner contemplated by Section 2.03 and shall have delivered any
amount due under Section 2.03(g).
(h) Stockholder Approval. Seller's Stockholder Approval shall have been duly and
validly obtained in accordance with applicable law and Seller's certificate of
incorporation and bylaws, each as amended through the Closing.
(i) License Agreement. Purchaser shall have executed the License Agreement.
SECTION 8.02. Conditions to Obligations of Purchaser. The obligations of
Purchaser and SMIBV to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Accuracy of Representations and Warranties; Covenants. The representations
and warranties of Seller contained in Article III of this Agreement (as
qualified by Seller's Disclosure Letter) and Article VII of this Agreement shall
be true and correct in all material respects as of the Closing, with the same
force and effect as if made as of the Closing, other than such representations
and warranties as are made as of another date, and all the covenants contained
in this Agreement to be complied with by Seller on or before the Closing shall
have been complied with in all material respects, and Purchaser and SMIBV shall
have received a certificate of Seller to such effect signed by a duly authorized
officer thereof.
(b) No Material Adverse Change. There shall have been no Material Adverse Effect
in or with respect to (i) the Storage Products Business or any of the Purchased
Assets or the economic value thereof; (ii) Seller's right, title or interest in
or to any of the Purchased Assets; or (iii) the financial condition of Seller or
of Gould; and no material Purchased Asset shall have been subject to any damage,
injury, loss, casualty or theft (whether or not covered by insurance) and
Purchaser and SMIBV will have received a certificate to such effect, dated as of
the Closing Date, executed by a duly authorized officer of Seller.
(c) HSR Act. Any waiting period (and any extension thereof) under the HSR Act
applicable to the purchase of the Purchased Assets contemplated hereby shall
have expired or shall have been terminated.
(d) No Order. No non-U.S., United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
parties hereto shall use their best efforts to have any such order or injunction
vacated.
(e) No Litigation. No suit, claim, cause of action, arbitration, mediation,
investigation or other proceeding under which a third party is contesting,
challenging or seeking to alter, enjoin or adversely affect the sale and
purchase of the Purchased Assets contemplated by this Agreement or any other
transaction contemplated by this Agreement, will be pending or threatened.
(f) Seller Stockholder Approval. There shall have been obtained, at a meeting of
Encore's stockholders duly called, noticed and held in compliance with all
applicable laws (including but not limited to the Delaware General Corporation
Law and the Securities Exchange Act of 1934, both as amended), Seller's
Stockholder Approval (and, if Purchaser deems it advisable and so notifies
Encore, the approval, by vote of a disinterested majority of Encore's
stockholders entitled to vote at such meeting, of this Agreement, the sale and
purchase of the Purchased Assets and all other transactions contemplated by this
Agreement and the Ancillary Agreements).
(g) Ancillary Agreements. Seller shall have executed and delivered counterparts
of each of the Ancillary Agreements.
(h) Purchase Price Allocation Agreement. Seller shall have executed and
delivered to Purchaser the Purchase Price Allocation Agreement.
(i) Inducement Agreements. Gould and EFI shall have executed and delivered to
Purchaser on the Effective Date the Gould/EFI Inducement Agreement attached as
Exhibit J-1 and JEC shall have executed and delivered to Purchaser by the
earlier of the Closing Date and August 15, 1997, the JEC Inducement Agreement in
the form attached as Exhibit J-2 (said two exhibits are collectively referred to
herein as the "Inducement Agreements") and each of Gould, EFI and JEC shall have
performed all actions required to be performed by them thereunder on or prior to
the Closing Date.
(j) Delivery. Purchaser and its legal counsel shall be satisfied that all
Purchased Assets shall have been duly delivered by or for Seller to Purchaser
and SMIBV as required by this Agreement. All software included in the Purchased
Assets and all other Purchased Assets that can be delivered electronically, will
have been delivered to Purchaser electronically to Purchaser's facilities at the
Fort Lauderdale Facility or the Melbourne Facility, at Purchaser's option, and
all Purchased Assets that cannot be delivered electronically will have been
delivered to Purchaser at the Fort Lauderdale Facility or the Melbourne Facility
or at another location specified by Purchaser, at Purchaser's option, and in
such manner as Purchaser directs, in each case at Seller's cost and expense.
(k) Intellectual Property Assignments. Purchaser shall have received from
Seller: (i) assignments substantially in the form of Exhibit K (the "Patent
Assignment"), by which Seller shall assign to Purchaser and SMIBV all patents
and patent applications (including any and all continuations,
continuations-in-part, divisions, reissues, reexaminations, or extensions
thereof, now existing or hereafter filed, issued or acquired and all rights to
sue for any past, present or future infringement of any of the foregoing rights
and the right to all income, royalties, damages and payments now or hereafter
due or payable with respect to any of the foregoing rights, including without
limitation damages for past, present or future infringement thereof) included in
the Purchased Assets, executed on Seller's behalf by the Chief Executive Officer
of Seller with his execution notarized, in a form acceptable for recording with
the United States Patent and Trademark Office and otherwise satisfactory in form
and substance to Purchaser and SMIBV; and (ii) assignments from Seller to
Purchaser and SMIBV of all registered and unregistered copyrights, trademarks
and service marks included in the Purchased Assets, duly executed on behalf of
Seller by Seller's Chief Executive Officer and notarized, and in a form
acceptable for recording with the United States Copyright Office or the United
States Patent and Trademark Office, as applicable, and in substantially the form
of Exhibit L attached hereto (the "Copyright Assignment") or Exhibit M attached
hereto (the "Trademark Assignment"), as applicable.
(l) Vehicle Certificates. All certificates for the transfer of title to any
vehicle included among the Purchased Assets that are required by applicable law
shall have been obtained and delivered to Purchaser.
(m) Opinion. Purchaser and SMIBV will have received a favorable opinion of
Seller's counsel, Choate, Hall & Stewart, with respect to each of the matters
set forth in Exhibit N attached hereto.
(n) Solvency Certificate. Seller shall have executed and delivered to Purchaser
a solvency certificate substantially in the form of Exhibit O.
(o) Third Party Consents Obtained; Licenses Modified. Seller shall have obtained
all consents, waivers and approvals from third parties and governmental entities
necessary to effect the assignment and transfer to Purchaser of all Assigned
Contracts, Governmental Permits, Storage Products Licenses and Storage Products
Leases and other Purchased Assets for which such consents, waivers and approvals
are required to sell, assign or otherwise transfer such Purchased Assets to
Purchaser as contemplated by this Agreement. The Software License Agreement
dated December 1, 1993 between Fundamental Software and Encore and the
Distribution Agreement dated August 6, 1988 between Encore and Japan Encore
Computer, Inc. ("JECI"), certain third party support contracts and certain other
Assigned Contracts identified by Purchaser to Seller prior to the Closing Date
as requiring modification, shall have been modified in such manner as Purchaser,
in its sole discretion, deems acceptable (including without limitation by the
termination of JECI's exclusive Japanese distribution rights as to Storage
Products).
(p) Receipt. A duly authorized officer of Seller shall have executed and
delivered to Purchaser a written receipt for the Closing Payment and for any
payment made under Section 2.03(g).
(q) Due Diligence Satisfactory. Purchaser shall, in its sole discretion, be
satisfied with the results of its due diligence inquiry into Seller, Gould, the
Purchased Assets and the agreements, assets, financial condition and other
affairs of Seller, Seller's Subsidiaries and other affiliates of Seller and
Gould.
(r) Conduct of Seller's Business in Ordinary Course. From the Effective Date to
the Closing Date, Seller will have conducted its business (including without
limitation the Storage Products Business) only in the ordinary course,
consistent with Seller's past practices, except for actions expressly permitted
or contemplated by this Agreement, matters incident to carrying out this
Agreement, or such further matters as may be consented to by Purchaser and SMIBV
in writing, and Purchaser and SMIBV will have received a certificate to such
effect, dated as of the Closing Date, executed by a duly authorized officer of
Seller.
(s) Acceptance by Employees of Offers of Employment. At least seventy-five
percent (75%) of the Employees to whom Purchaser extends offers of employment in
accordance with Section 6.01, and each of the Employees identified in a letter
of Purchaser to Seller dated as of July 14, 1997 referencing this subsection
8.02(s) (which letter Purchaser can unilaterally modify at any time prior to
Closing and which letter Seller shall not copy, and shall retain in confidence
and shall not disclose the existence or contents thereof to anyone other than
its addressee and to Gould's in-house counsel), shall have accepted Purchaser's
offer of employment in a writing signed by them on the terms set forth in
Article VI hereof.
(t) Non-competition Agreements. Non-competition Agreements providing for
non-competition covenants for a term of three (3) years from the Closing Date
and in the form of Exhibit E shall have been executed, in accordance with the
requirements of Section 5.16 hereof by each of those Employees identified in a
letter of Purchaser to Seller dated as of July 14, 1997 referencing this
subsection 8.02(t) and delivered to Purchaser (which letter Purchaser can
unilaterally modify at any time prior to the thirtieth day after the Effective
Date and which letter Seller shall not copy, and shall retain in confidence and
shall not disclose the existence or contents thereof to anyone other than its
addressee and to Gould's in-house counsel).
(u) No Insolvency Proceeding. None of Seller, any Seller Subsidiary or any other
affiliate of Seller or Gould shall have: (i) become subject to any Insolvency
Proceeding or (ii) taken or attempted to take, any Insolvency Action.
(v) Proceedings and Documents Satisfactory. All proceedings, corporate or other,
to be provided or undertaken by Seller in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to counsel to Purchaser.
(w) No Violations. Consummation of the transactions contemplated by this
Agreement, the Ancillary Agreements and the Inducement Agreements will not
breach any of the Intracompany Agreements (as that term is defined in the
Inducement Agreements) and Gould, EFI and JEC shall have performed all of their
respective obligations under the Inducement Agreements required to be performed
by them thereunder prior to Closing, including assignment to Purchaser and SMIBV
of the Gould License Agreements if Purchaser has so requested (as defined in the
Inducement Agreements).
(x) Real Property Purchase Conditions. Each of the conditions precedent to
Purchaser's purchase from Seller of the Fort Lauderdale Facility and the
Melbourne Facility and the Condominiums contained in the Real Property Purchase
Agreements shall have been satisfied in full or waived in writing by Purchaser.
The Real Property Assets shall be free and clear of all Encumbrances whatsoever,
including without limitation any mortgages.
(y) Sales and Use Taxes. Purchaser shall have received satisfactory evidence
(including without limitation confirmation from the Florida Department of
Revenue) of Seller's payment of all sales and use taxes due on or prior to the
Closing.
(z) Fairness Opinion. Seller shall have received an opinion from Genesis that,
as of the date of such opinion, the Cash Payment to be paid for the Storage
Products Business is fair to Seller from a financial point of view (the "Genesis
Opinion") and concurrently with the signing of this Agreement Seller shall have
(i) delivered to Purchaser either a copy of the written Genesis Opinion or a
draft thereof and (ii) confirmed that Genesis has delivered the Genesis Opinion
to the Board of Directors of Seller in writing or orally (followed by delivery
in writing promptly thereafter and in any event prior to Closing). Prior to the
Closing, Purchaser shall have received a signed copy of the Genesis Opinion.
(aa) Non-U.S. Assets. The Offshore Tangible Asset Bills of Sale substantially in
the form of Exhibit C-2 hereof shall have been executed and delivered by Seller
at the Closing, and all other obligations of Seller under Section 2.10 hereof
shall have been performed.
(bb) Diagnostic, Test and QA Software. Purchaser shall be satisfied in its
reasonable discretion that Purchaser shall have the right after Closing to
lawfully use (without violating the Intellectual Property Rights of any third
party) on any mainframe platform (including to test third party storage
subsystems) all copies of mainframe diagnostic, test and QA software utilities
and tools ("Test Software") currently used by Seller in Seller's business
(including but not limited to Test Software used to test third party storage
subsystems) or alternative Test Software that can be so lawfully used (without
violating the Intellectual Property Rights of any third party) for the same
purposes and with the same functional equivalency and efficiency (the
"Noninfringing Test Software Use Right").
(cc) Certified Tangible Asset Schedule. Purchaser shall have received and shall
be satisfied, in its sole discretion, with the Certified Tangible Asset Schedule
and the report and evaluation of Coopers & Lybrand with respect thereto,
including without limitation satisfied as to the details thereof and as to the
location of the Purchased Assets and as to the correlation between said Schedule
and the actual Tangible Assets delivered at Closing.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Loss Defined; Indemnitees. For purposes of this Article IX,
the term "Loss" will mean and include any and all Liability, loss, damage,
claim, expense, cost, fine, fee, penalty, obligation, injury or amounts paid
in settlement, including, without limitation, those resulting from any and all
claims, actions, suits, demands, assessments, investigations, judgments,
orders, awards, arbitrations, settlements or other proceedings, together with
reasonable costs and expenses, including the reasonable attorneys' and
experts' fees, court costs, arbitration costs, filing fees and other legal
costs and expenses relating thereto, together with interest accrued on each of
the foregoing amounts from the date the same was incurred at the lower of (i)
the prime rate charged from time to time by the Bank of America, N.T.&S.A. or
(ii) the highest rate of interest permitted under applicable law. As used in
this Article IX, the term "Purchaser Indemnitees" means and includes
Purchaser, SMIBV and any present or future officer, director, employee,
affiliate, stockholder or agent of Purchaser or SMIBV and its or their
respective successors and assigns.
SECTION 9.02. Indemnification by Seller. Seller agrees, subject to the
other terms, conditions and limitations of this Agreement (including the
provisions of Section 9.05 hereof), to indemnify Purchaser, SMIBV and each of
the other Purchaser Indemnitees against, and to hold Purchaser, SMIBV and each
of the other Purchaser Indemnitees harmless from, all Loss arising out of:
(a) the failure of any representation or warranty of Seller contained in Article
III (as qualified by Seller's Disclosure Letter) or Article VII of this
Agreement to be true and correct as of the Effective Date and as of the Closing
Date;
(b) the breach or violation by Seller of any covenant of Seller made herein;
(c) any of the Excluded Assets or any of the Excluded Liabilities or any other
obligations or Liability of Seller not expressly assumed by Purchaser under this
Agreement;
(d) the operation or management of the Storage Products Business or the
Purchased Assets by Seller at any time or times on or prior to the Closing Date
(including without limitation any and all Taxes arising out of, or payable with
respect to, Seller's business operations through the Closing Date);
(e) Liability for (or any Liability applicable to Purchaser, SMIBV or any other
Purchaser Indemnitee as a result of) noncompliance with any bulk sales, bulk
transfer or similar laws applicable to the transactions contemplated by this
Agreement or any claim asserting that any transactions contemplated by this
Agreement constitutes a fraudulent conveyance or any similar claim;
(f) any demand, claim, debt, suit, cause of action, arbitration or other
proceeding (including, but not limited to, a warranty claim, a product liability
claim or any other claim) that is made or asserted by any third party that
relates to any product or service that was sold, licensed or otherwise provided
by Seller (either prior to, on or after the Closing);
(g) any demand, claim, debt, suit, cause of action, arbitration, investigation
or other proceeding made or asserted by Seller or a shareholder or creditor of
Seller or by Gould, EFI, or JEC or any affiliate thereof or by any other person
or by any, receiver or trustee in bankruptcy of Seller or of the property or
assets of Seller, asserting that the transfer of the Purchased Assets to
Purchaser or SMIBV hereunder constitutes a fraudulent conveyance, fraudulent
transfer or a preference under any applicable state or federal law, including
but not limited to the United States Bankruptcy Code;
(h) any (A) Foreign Employee Liabilities; or (B) amount paid to or other
Liability incurred with respect to any Mandated Employee; or (C) demand, claim,
debt, suit, cause of action, arbitration, investigation or other proceeding made
or asserted by any Mandated Employee or any other employee or independent
contractor of Seller, any Seller Subsidiary or any affiliate of Seller or any
former employee or independent contractor of Seller, any Seller Subsidiary or
any affiliate of Seller, that relates in any manner to any alleged, actual or
constructive termination by Seller, any Seller Subsidiary or any affiliate of
Seller of such person's employment or the services of such person, or that
involves a claim of adverse employment action, relocation, promotion, demotion,
unequal pay or any other matter relating to the employment of such person by
Seller, any Seller Subsidiary or any affiliate of Seller;
(i) termination by Seller, any Seller Subsidiary or any affiliate of Seller of
the employment of any of the Employees at any time prior to, on or after the
Closing Date, severance benefits related to any Employee's termination of
employment with Seller, any Seller Subsidiary or any Seller affiliate, and any
failure by Seller, any Seller Subsidiary or any Seller affiliate to pay or
withhold any Taxes payable with respect to the employment by Seller any Seller
Subsidiary or any Seller affiliate of any Employee or any failure by Purchaser
to hire such Employee;
(j) any Transaction Taxes payable on or with respect to the purchase, sale,
transfer or delivery of the Purchased Assets hereunder; and
(k) the failure of the closing condition set forth in Section 8.02(bb) to have
been satisfied (whether or not such condition was waived by Purchaser), or any
failure of Purchaser and SMIBV to have the Noninfringing Test Software Use Right
from and after Closing or any claim by any party that Purchaser's or SMIBV'suse
of the Test Software, or other exercise or attempted exercise of the
Noninfringing Test Software Right, infringes any third party's Intellectual
Property Rights or any Loss or Liabilities associated with acquiring the
Noninfringing Test Software Use Right and related licenses from all parties
whose Intellectual Property Rights might be infringed by Purchaser's use of the
Test Software in connection with the Storage Products Business and, if such
rights and licenses cannot be acquired, all Loss related to developing or having
developed new, noninfringing Test Software for use in connection with the
Storage Products Business in replacement of the Test Software used by Seller or
related to hiring third parties to provide services equivalent to those
Purchaser could provide itself if it had a Noninfringing Test Software Use
Right.
(l) any claim for fees or costs, or amounts payable pursuant to indemnification
obligations to, Genesis, including the $250,000 fee due Genesis.
SECTION 9.03. Procedures for Indemnification.
(a) As used herein, an "Indemnified Party" means a Purchaser Indemnitee seeking
indemnification pursuant to Section 9.02 hereof. The Indemnified Party agrees to
give Seller prompt written notice of any event, or any claim, action, suit,
demand, assessment, investigation, arbitration or other proceeding by or in
respect of a third party (a "Third Party Claim") of which it has knowledge, for
which such Indemnified Party is entitled to indemnification under this Article
IX. No delay on the part of an Indemnified Party in giving Seller notice of a
Third Party Claim shall relieve Seller from any obligation hereunder unless (and
then solely to the extent) that Seller is prejudiced thereby.
(b) Seller will have the right, at its sole cost and expense, to defend the
Indemnified Party against the Third Party Claim with counsel of Seller's choice
that is reasonably satisfactory to the Indemnified Party so long as (i) Seller
notifies the Indemnified Party in writing within ten (10) days after the
Indemnified Party has given notice of the Third Party Claim that Seller intends
to undertake such defense, (ii) Seller provides each Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that Seller will have
the financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, (v) Seller conducts the defense of the Third
Party Claim actively and diligently; and (vi) the counsel chosen by Seller does
not have any conflict of interest in representing the interests of the
Indemnified Party.
(c) So long as Seller is conducting the defense of the Third Party Claim in
accordance with Section 9.03(b) above, (i) the Indemnified Party may retain
separate co-counsel and participate in the defense of the Third Party Claim at
its own cost and expense (except as provided below) and shall have the right to
receive copies of all pleadings, notices and communications with respect to the
Third Party Claim to the extent no privilege is thereby waived, (ii) the
Indemnified Party may participate in settlement negotiations with respect to the
Third Party Claim, and (iii) Seller will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
unless (A) each affected Indemnified Party consents thereto in writing (which
consent will not unreasonably be withheld) or (B) the settlement, compromise or
consent includes an unconditional release from all liability with respect to the
claim in favor of each affected Indemnified Party.
(d) If Seller does not elect to assume control of or otherwise participate in
the defense or settlement of any Third Party Claim, or if Seller does so elect
but any of the conditions in Section 9.03(b) above is or becomes unsatisfied, or
if Seller ceases to any time to actively defend the Third Party Claim, then, (i)
the Indemnified Party may defend against and consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim,
provided, however, that Seller (A) shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third Party Claim so
long as the receipt of such documents by Seller does not affect any
attorney-client privilege relating to the Indemnified Party, and (B) may
participate in settlement negotiations with respect to the Third Party Claim and
the Indemnified Party shall not enter into any settlement without the prior
written consent of the Seller (which consent shall not be unreasonably
withheld), (ii) Seller will reimburse the Indemnified Party promptly and
periodically for all costs and expenses incurred in defending against the Third
Party Claim (including without limitation reasonable attorneys' and experts'
fees and expenses and court and arbitration costs), and (iii) Seller will remain
responsible for any Loss the Indemnified Party may suffer resulting from,
arising out of, relating to or caused by the Third Party Claim to the fullest
extent provided in this Article IX.
SECTION 9.04 Limitations on Indemnification.
(a) No Limitation Except Basket and Cap. Seller's liability to indemnify
Purchaser and other Indemnified Parties for Loss under this Article IX shall not
be subject to any limitation except as set forth below in clauses (i) and (ii)
of this Section 9.04(a):
(i) Seller shall not be required to provide indemnification under this
Article IX unless and until the aggregate Loss for which one or more Indemnified
Parties seeks indemnification hereunder exceeds an aggregate of Five Hundred
Thousand Dollars ($500,000) (the "Basket"), in which event Seller shall be
liable to indemnify the Indemnified Parties for all Loss, including any Loss
within the Basket.
(ii) The aggregate Loss recoverable by Indemnified Parties (considered
together as a group) against Seller under this Article IX shall not exceed the
Cash Payment (the "Cap").
Notwithstanding the foregoing, Purchaser and any other Indemnified Party
shall be entitled to recover any Loss arising from (i) fraud or willful
misconduct on the part of Seller, (ii) the failure of any representation or
warranty of Seller contained in Article VII to be true and correct as of the
Closing or (iii) the rescission of or injunction against any transaction
contemplated by this Agreement, in each case regardless of the Basket and/or the
Cap provisions contained in this Section 9.04(a).
(b) Time Limits. Notwithstanding anything herein to the contrary, no claim for
indemnification under this Article IX may be brought after the expiration of the
legal statute of limitations applicable to the subject matter of the claim
underlying the claim for indemnification; provided, however, that with respect
to the representations and warranties of Seller contained in Sections 3.07,
3.20, 3.21 and 3.26 of this Agreement, no claim for indemnification under this
Article IX may be brought after the fourth anniversary of the Closing Date. To
preserve a claim for indemnification under this Article IX, an Indemnified Party
need only provide written notice in reasonable detail of such claim to Seller
prior to the expiration of the applicable time limit (if any) described in the
preceding sentence; and if an Indemnified Party provides such notice prior to
the expiration of such time limit, such Indemnified Party may pursue such claim
for indemnification after the expiration of such time limit.
SECTION 9.05 Setoff Rights. In addition to its foregoing rights under this
Article IX, Purchaser and SMIBV may offset the amount of any Loss for which
Purchaser and SMIBV are entitled to indemnification under this Article IX as a
credit against Purchaser's and SMIBV's obligations under Article II hereof to
pay Seller the Second Payment of Thirty-Five Million Dollars ($35,000,000),
and Purchaser and SMIBV may effect such offset by withholding payment to
Seller of the applicable amount of the Second Payment. Purchaser and SMIBV
may set off a Loss under the preceding sentence even if the Basket is not yet
exceeded, except in that case the Basket shall be reset to $0 for purposes of
Section 9.04(a)(i). Purchaser shall give Seller written notice of its intent
to withhold and set off any part of the Second Payment and an opportunity for
thirty (30) days to object thereto in writing, provided that the basis of the
objection is specified in detail (if the parties cannot resolve a dispute as
to whether setoff is proper, then if and to the extent that the proposed
setoff exceeds $500,000 the excess shall be placed in escrow for up to one
year pending resolution of the dispute). To ensure that Purchaser and SMIBV
will be able to exercise its rights under this Section 9.05, until July 1,
1998, Seller shall not, directly or indirectly, assign or transfer to any
other person any right to receive any portion of the Second Payment; provided
that Seller my assign such right to Gould provided that such assignment will
not in any way diminish Purchaser's and SMIBV's setoff rights under this
Section 9.05 or diminish or adversely affect any other rights of Purchaser or
SMIBV under this Agreement or give Gould any right to bring any claim against
Purchaser or SMIBV with respect to the Second Payment or any exercise of
setoff rights under this Section 9.05.
SECTION 9.06 No Limitation on Other Rights. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable or common law remedies that Purchaser, SMIBV or any other
Indemnified Party may have.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of Seller and Purchaser; or
(b) by either Purchaser or Seller at any time prior to Closing, if the other
commits a material breach of this Agreement that is not cured within thirty (30)
days after notice thereof.
(c) by either Seller or Purchaser, if the Closing shall not have occurred prior
to November 30, 1997; provided, however, that the right to terminate this
Agreement under this Section 10.01(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior to such
date; or
(d) by either Seller or Purchaser if there shall have been instituted, pending
or threatened (and not withdrawn) any action or proceeding by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, or there shall be in
effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prevent consummation of any of the transactions contemplated by this
Agreement, the Ancillary Agreements or the Inducement Agreements, or seeking to
prohibit or limit Purchaser or any of its subsidiaries from exercising all
material rights and privileges pertaining to ownership of the Purchased Assets
or the ownership or operation by Purchaser or any of its subsidiaries of all or
a material portion of the Purchased Assets, or seeking to compel Purchaser or
any of its subsidiaries to dispose of or hold separate all or any material
portion of the Purchased Assets.
SECTION 10.02. Effect of Termination. In the event of termination of this
Agreement as provided in Section 10.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto; provided
that nothing herein shall relieve either party from liability for any willful
breach hereof.
SECTION 10.03. Waiver. At any time prior to the Closing, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party to be bound thereby.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01. Expenses. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
SECTION 11.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to
the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Seller:
Encore Computer Corporation
6901 W. Sunrise Boulevard
Fort Lauderdale, FL 33313-4499
Attention: Kenneth G. Fisher, Chairman and CEO
Telecopy: (954) 797-5618
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
Attention: Cameron Read, Esq.
Telecopy: (617) 248-4000
(b) if to Purchaser or SMIBV:
Sun Microsystems, Inc.
901 San Antonio Road
Palo Alto, CA 94303
Attention: General Counsel
Telecopy: (415) 786-7947
with a copy to:
Fenwick & West LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attention: David W. Healy, Esq.
Kenneth A. Linhares, Esq.
Telecopy: (415) 494-1417
SECTION 11.03. Public Announcements. Except as may otherwise be required
by law, Seller shall not make or cause to be made any public announcements in
respect of this Agreement or the transactions contemplated herein or otherwise
communicate with any news media without prior written consent of Purchaser.
SECTION 11.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11.05. Severability.
(a) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
(b) Notwithstanding Section 11.05(a) above, the scope and effect of the
covenants contained in Section 5.07 hereof shall be as broad in time (but not
beyond the applicable time periods set forth therein), geography, scope of
business and in all other respects as is permitted by applicable law. The
covenant contained in Section 5.07(a) hereof shall be construed as a series of
separate covenants, one for each geographic area within the Restricted Area.
Each such separate covenant shall be construed to be a separate, independent and
concurrent covenant and obligation of Seller that is cumulative and in addition
to, and not in lieu of or in conflict with, any other of such separate
covenants, and the unenforceability of any such separate, independent and
concurrent covenant or covenants shall have no effect on the enforceability of
any other of such separate covenants. Should a court or other body of competent
jurisdiction determine that any term or provision of the covenants contained in
Section 5.07 is excessive in scope or duration or is unenforceable in any
respect, then the parties agree that such term or provision shall not be voided
or made unenforceable, but rather shall be modified so as to be enforceable, in
accordance with the purposes stated in the preceding sentence and with
applicable law, and all other terms and provisions of the covenants contained in
Section 5.07 shall remain valid and fully enforceable.
(c) Notwithstanding any other provision in Section 5.14, to the extent that
Purchaser determines in good faith that any right or obligation under Section
5.14 would be contrary to the requirements of the HSR Act, such right or
obligation shall not be enforceable unless and until such time as the
requirements under the HSR Act have been satisfied.
SECTION 11.06. Entire Agreement. This Agreement, the Ancillary Agreements
and the Purchase Price Allocation Agreement constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and undertakings with respect to the
subject matter hereof, both written and oral. Upon the effectiveness of the
Closing, the Existing Confidentiality Agreement shall terminate.
SECTION 11.07. Assignment. This Agreement shall not be assigned by
Purchaser or SMIBV or Seller without the prior written consent of the
non-assigning parties; provided, however, that Purchaser may assign all or a
portion of its rights and obligations hereunder to one or more wholly-owned
subsidiaries of Purchaser.
SECTION 11.08. No Third-Party Beneficiaries. This Agreement is for the
sole benefit of the parties hereto and their permitted assigns and nothing
herein, express or implied, is intended to or shall confer upon any other person
or entity any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 11.09. Amendment; Waiver. This Agreement may not be amended or
modified except by an instrument in writing signed by Seller and Purchaser
(which instrument will bind SMIBV). Waiver of any term or condition of this
Agreement shall only be effective if in writing and shall not be construed as
a waiver of any subsequent breach or waiver of the same term or condition, or
a waiver of any other term or condition of this Agreement.
SECTION 11.10. Governing Law; Jurisdiction and Venue. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the
State of California applicable to contracts executed in and to be performed by
residents of California within that State. Seller consents to submit to the
jurisdiction of any federal or state court located in the State of California
and agrees not to object to venue in the federal or state courts located in
Santa Clara County, California.
SECTION 11.11. Construction of "Seller". The term "Seller", wherever used
in this Agreement, shall be deemed to refer to each, any and/or all of Encore,
Encore Computer U.S., Inc. and Encore Computer International, Inc., except
where Purchaser otherwise consents or unilaterally specifies in writing by
written notice to Encore. Collective references to Seller will be construed
as if all such entities are a single entity, so that, for example, verbs used
therewith can be as if "Seller" referred to a single entity, even though it
refers to multiple entities, and "Seller's" shall be construed to mean "each
Seller's".
SECTION 11.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
[Remainder of This Page Left Intentionally Blank]
IN WITNESS WHEREOF, Seller, SMIBV and Purchaser have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
"SELLER" "PURCHASER"
ENCORE COMPUTER CORPORATION SUN MICROSYSTEMS, INC.
By: By:
Name: Name:
Title: Title:
"SMIBV"
ENCORE COMPUTER INTERNATIONAL,INC. SUN MICROSYSTEMS INTERNATIONAL, B.V.
By: By:
Name: Name:
Title: Title:
ENCORE COMPUTER U.S., INC.
By:
Name:
Title:
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
<PAGE>
MODIFICATION AGREEMENT
This Modification Agreement (this "AGREEMENT") is made and entered into
as of November 24, 1997 (the "EFFECTIVE DATE") among ENCORE COMPUTER
CORPORATION, a Delaware corporation ("ENCORE") and its undersigned wholly owned
subsidiaries ENCORE COMPUTER U.S., INC., a Delaware corporation, and ENCORE
COMPUTER INTERNATIONAL, INC., a Delaware corporation (individually and
collectively, "SELLER"), on the one hand, and, on the other hand, SUN
MICROSYSTEMS, INC., a Delaware corporation ("PURCHASER"), and SUN MICROSYSTEMS
INTERNATIONAL, B.V., a Netherlands corporation ("SMIBV").
R E C I T A L S
A. The parties hereto have entered into a certain Asset Purchase
Agreement dated as of July 17, 1997 (the "PURCHASE AGREEMENT"), pursuant to
which Seller will, subject to certain terms and conditions, sell to Purchaser
and SMIBV certain assets associated with the Seller's Storage Products Business
(as defined in Section 1.01 of the Purchase Agreement).
B. Pursuant to the provisions of Section 11.09 of the Purchase
Agreement (which permits the Purchase Agreement to be amended and modified by a
writing signed by Seller and Purchaser) the parties are entering into this
Agreement to modify and amend the Purchase Agreement as provided herein.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereby agree as follows:
1. CERTAIN TERMS. Any capitalized terms not defined in this Agreement
shall have the same meanings defined for such terms in the Purchase Agreement.
2. AGREEMENTS REGARDING PAYMENT AND ESCROW.
(a) BACKGROUND. Section 2.03(c)(i) of the Purchase Agreement
provides that, at the Closing and on the Closing Date, Purchaser will pay the
sum of One Hundred Fifty Million Dollars ($150,000,000) of the Cash Payment
(which $150,000,000 sum is defined in the Purchase Agreement as the "CLOSING
PAYMENT") to an escrow agent, with the Closing Payment to be disbursed as
provided in Section 2.03(c)(i) of the Purchase Agreement, in order to pay in
full all Closing Debts to Closing Creditors. Section 2.03(g) of the Purchase
Agreement further provides that, as additional consideration for the Finished
Products (other than the Included Products), Purchaser will pay to Seller at the
Closing on the Closing Date an amount (hereinafter called the "ADDITIONAL
PAYMENT") equal to Three Million Dollars ($3,000,000) minus (i) the sum of Two
Hundred Thousand Dollars ($200,000) for each Storage Product sold by or for
Seller prior to the Closing Date and (ii) any Loss or Liability of the type
described in Section 9.02(k) of the Purchase Agreement that is incurred, or
estimated in good faith by Purchaser to be incurred, at any time prior to or
after the Closing.
(b) ADJUSTMENT AND FINAL COMPUTATION OF CLOSING PAYMENT.
Notwithstanding the provisions of the Purchase Agreement, the parties hereby
acknowledge and agree that the
<PAGE>
final amount of the Closing Payment described in Section 2.03(c) of the Purchase
Agreement shall be reduced from One Hundred Fifty Million Dollars
(U.S.$150,000,000) to One Hundred Forty-Nine Million Eight Hundred Eighty-Two
Thousand Six Hundred Eighty-Three Dollars (U.S.$149,882,683) (the "FINAL CLOSING
PAYMENT"). This reduction of the Closing Payment by the sum of One Hundred
Seventeen Thousand Three Hundred Seventeen Dollars (U.S$117,317) is being made
to reflect that certain subsidiaries of Purchaser will be required to assume
Liabilities of certain non-United States subsidiaries of Encore in the amount of
U.S.$117,317 which Purchaser had not agreed to assume under the Purchase
Agreement.
(c) FINAL COMPUTATION OF ADDITIONAL PAYMENT. The parties
hereby acknowledge and agree that the final amount of the Additional Payment
called for by Section 2.03(g) of the Purchase Agreement shall be the sum of One
Million Two Hundred Eighty Five Thousand Five Hundred Forty-Four Dollars
(U.S.$1,285,544) (the "FINAL ADDITIONAL PAYMENT"). The Final Additional Payment
was computed as follows:
Beginning Additional Payment: $3,000,000
LESS amounts for each Storage Product
sold by or for Seller prior to Closing: ($1,714,456)
------------
FINAL ADDITIONAL PAYMENT: $1,285,544
(d) AGREEMENT REGARDING PAYMENTS AT CLOSING. Notwithstanding
anything in the Purchase Agreement to the contrary, the parties hereby agree
that the total amount of cash payable by Purchaser, SMIBV and/or certain
subsidiaries of Purchaser at the Closing under the Purchase Agreement shall be
the sum of One Hundred Fifty One Million One Hundred Sixty-Eight Thousand Two
Hundred Twenty-Seven Dollars ($151,168,227), which amount is hereinafter called
the "TOTAL CASH CLOSING PAYMENT". The amount of the Total Cash Closing Payment
was computed as follows:
Final Closing Payment: $149,882,683
Final Additional Payment: $1,285,544
----------
TOTAL CASH CLOSING PAYMENT: $151,168,227
(e) TOTAL AMOUNTS PAYABLE UNDER PURCHASE AGREEMENT. The
parties acknowledge and agree that the total amount payable by Purchaser under
the Purchase Agreement is One Hundred Eighty-Six Million One Hundred Sixty-Eight
Thousand Two Hundred Twenty-Seven Dollars ($186,168,227), consisting of the
Total Cash Closing Payment of $151,168,227, plus the Second Payment of
Thirty-Five Million Dollars ($35,000,000) referred to in Section 2.03(d) of the
Purchase Agreement. This Section is included for clarification purposes only and
nothing herein will alter Purchaser's rights of offset and indemnity under the
Purchase Agreement.
(f) PAYMENT OF TOTAL CASH CLOSING PAYMENT. The parties
acknowledge and agree that, at the Closing on the Closing Date (except as
provided in Section 2(f)(i)(b) below), the Total Cash Closing Payment shall be
paid to Seller as follows:
2
<PAGE>
(i) Purchaser shall pay to Encore in United States funds the
following amounts (collectively, the "ENCORE PAYMENT") by a wire transfer to
Encore's bank account set forth on EXHIBIT 1: (a) the sum of Ten Million One
Hundred Fifty Eight Thousand Nine Hundred Seventy-Eight Dollars and Forty-Three
Cents (U.S.$10,158,978.43); and (b) the sum of Four Hundred Forty Six Thousand
Four Hundred Dollars Exactly (U.S.$446,400), which sum shall be wire transferred
within five (5) business days after Closing. [Since this U.S.$446,400 sum was
not included in the amounts allocated under the executed Purchase Price
Allocation Agreement prepared in accordance with Section 2.03(d) of the Purchase
Agreement, Purchaser may unilaterally modify the Purchase Price Allocation
Agreement to include such sum and provide written notice of such modification to
Seller and such modification shall bind Seller.]
(ii) Purchaser shall pay to Gould Electronics, Inc. ("GOULD")
the sum of One Hundred Eighteen Million Five Hundred Fifty Thousand Nine Hundred
Seventy-Two Dollars and Fifty-Seven Cents (U.S.$118,550,972.57) (the "DIRECTED
PAYMENT") by a wire transfer to Gould's bank account set forth on EXHIBIT 1
hereto. The parties acknowledge that the Directed Payment is being paid to Gould
at Seller's request and direction for Seller's account and benefit in payment of
certain obligations of Seller to Gould. Seller hereby agrees with Purchaser and
SMIBV that, by no later than the close of business on the second (2nd) business
day following the Closing Date, Seller shall furnish to Purchaser a receipt
executed by Gould in which Gould will acknowledges its receipt of the entire
Directed Payment.
(iii) Purchaser shall cause Sun Microsystems France, S.A. to
pay to Encore Computer, S.A. ("ENCORE FRANCE") the sum of Eleven Thousand Eight
Hundred Seventy-Six Dollars (U.S.$11,876), which shall be paid in French Francs
as provided in EXHIBIT 2.
(iv) Purchaser shall pay to the First Trust of California,
National Association, as escrow agent (the "ESCROW AGENT") under the Escrow
Agreement described in Section 2(h) below, the sum of Twenty-Two Million Dollars
(U.S.$22,000,000).
(g) OFFSHORE PAYMENTS. The parties acknowledge and agree that
the portion of the Encore Payment (as defined above) indicated on EXHIBIT 2 is
being paid by Purchaser on behalf of those Purchaser subsidiaries listed on
Exhibit 2 to Encore as agent for the applicable Encore subsidiaries indicated on
Exhibit 2 in the respective amounts shown on such Exhibit.
(h) ESCROW AGREEMENT. The parties hereby agree that, at the
Closing, the parties will each execute and deliver to each other an Escrow
Agreement in the form attached hereto as EXHIBIT 3 (the "ESCROW AGREEMENT). The
parties acknowledge and agree that the terms and conditions of the Escrow
Agreement shall supersede the provisions of Section 2.03(c)(i) of the Purchase
Agreement regarding any escrow of any part of the Closing Payment or the Final
Closing and the release or disbursement of any such amount.
(i) UPDATED CLOSING CREDITOR LIST. As required by the Purchase
Agreement, at the Closing, Seller shall deliver to Purchaser and to the party
appointed to act as the escrow agent under the Escrow Agreement, an updated
Schedule 2.03(b) to Seller's Disclosure Letter prepared in accordance with the
provisions of Section 2.03(b) of the Purchase Agreement (the "UPDATED CLOSING
CREDITOR LIST") which shall list all Closing Debts and Closing Creditors at the
Closing Date strictly in accordance with the provisions of Section 2.03(b) of
the Purchase
3
<PAGE>
Agreement. Seller represents and warrants to Purchaser that all information in
the Updated Closing Creditor List is true, accurate and complete in all respects
and that the Updated Closing Creditor List shall contain a true and complete
list of all Closing Debts, all Closing Creditors and all amounts owed to each
Closing Creditor as required by the provisions of Section 2.03(b) of the
Purchase Agreement, and that any inaccuracy or error in the Updated Closing
Creditor List or any omission from the Updated Closing Creditor List of any
information required to be included therein pursuant to Section 2.03(b) of the
Purchase Agreement or this Section 2(d) shall be deemed to be a failure of a
representation and warranty of Seller under Article III of the Purchase
Agreement, such that Purchaser shall be entitled to indemnification from Seller
for any Loss arising out of such failure in accordance with the provisions of
Article IX of the Purchase Agreement.
3. AMENDMENT OF SECTION 9.02; ADDITIONAL INDEMNITY.
(a) LITIGATION. Prior to November 24, 1997, various lawsuits, including
those identified on Schedule 3(a) hereto, were filed in the Delaware Chancery
Court against Gould, Seller and Seller's directors relating to the transaction
contemplated by the Asset Purchase Agreement (the "FILED LITIGATION"). For
purposes of this Agreement, the term "LITIGATION" shall mean and include any of
the following, whether filed prior to or after the Closing: (i) the Filed
Litigation, (ii) any additional lawsuits filed against Gould, Seller and/or
Seller's officers or directors (including by or on behalf of stockholders of
Encore or Encore itself) challenging or otherwise relating to (A) the
transaction contemplated by the Asset Purchase Agreement ("TRANSACTION"), (B)
the use or distribution of Transaction proceeds, (C) the agreement between Gould
and Encore dated July 17, 1997 relating to the use and distribution of
Transaction proceeds, (D) the process of soliciting stockholder approval of the
Transaction, or (E) the Encore directors' exercise of fiduciary duties in
connection with the Transaction and/or such Gould/Encore agreement, (iii) any
actions seeking full or partial rescission of the Transaction, and (iv) any
lawsuits filed against any of the Purchaser Parties by or on behalf of
stockholders of Encore or derivatively on behalf of Encore itself relating to
the Transaction, including without limitation those seeking full or partial
rescission of the Transaction, rescissory damages or other damages, in each
case, as such lawsuits are originally filed, later amended, or later
consolidated with each other or with other suits constituting Litigation. The
filing and pendency of any Litigation prior to the Closing could preclude the
closing condition set forth in Section 8.02(e) of the Asset Purchase Agreement
from being satisfied. To induce Purchaser and SMIBV to waive this Closing
condition and close the Transaction contemplated by the Asset Purchase Agreement
despite the pendency of any Litigation at the time scheduled for Closing, Seller
hereby agrees with Purchaser and SMIBV to amend and modify Section 9.02 of the
Purchase Agreement by adding the following new subsections (m) and (n) to the
end of Section 9.02 to read in their entirety as follows:
(M) THE LITIGATION (AS DEFINED IN THAT CERTAIN MODIFICATION
AGREEMENT DATED AS OF NOVEMBER 24, 1997 AMONG SELLER, PURCHASER AND
SMIBV (THE "MODIFICATION AGREEMENT")), INCLUDING WITHOUT LIMITATION ANY
DAMAGES, LEGAL FEES AND OTHER COSTS OR OTHER LOSS INCURRED BY ANY OF
PURCHASER INDEMNITEES IN CONNECTION WITH THE LITIGATION AND ALL LOSS AT
ANY TIME ARISING AS A RESULT OF THE LITIGATION DUE TO ANY FULL OR
PARTIAL RESCISSION OF, OR INJUNCTION AGAINST, OR AWARD OF RESCISSORY
DAMAGES IN LIEU OF RESCISSION OF, OR OTHER AWARD OF DAMAGES IN
CONNECTION WITH, ANY OF THE FOLLOWING: (X)
4
<PAGE>
THE PURCHASE BY PURCHASER, SMIBV OR ANY OF THEIR SUBSIDIARIES OR
AFFILIATES OF THE PURCHASED ASSETS OR ANY PORTION THEREOF PURSUANT TO
THIS AGREEMENT OR (Y) THE DISTRIBUTION OF THE PROCEEDS OF ANY AMOUNTS
PAID BY PURCHASER, SMIBV OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES
PURSUANT TO THIS AGREEMENT OR FOR ANY PURCHASED ASSETS TO OR BY SELLER,
GOULD, ANY CREDITOR OR EMPLOYEE OR SHAREHOLDER OF ENCORE OR THE ESCROW
AGENT APPOINTED PURSUANT TO THE ESCROW AGREEMENT CALLED FOR BY THE
MODIFICATION AGREEMENT.
(N) WITH RESPECT TO THE PROXY STATEMENT OF ENCORE COMPUTER
CORPORATION MAILED TO ITS STOCKHOLDERS SEEKING APPROVAL OF THE
TRANSACTION (AS DEFINED IN THE MODIFICATION AGREEMENT), THE INCLUSION
OF ANY UNTRUE STATEMENT OF A MATERIAL FACT OR THE OMISSION TO STATE ANY
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES IN WHICH THEY ARE
MADE, NOT MISLEADING, OR THE FAILURE OF SUCH PROXY STATEMENT (OR OF THE
TIMING OR MANNER OF DISTRIBUTION OF SUCH PROXY STATEMENT) TO COMPLY
WITH THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND ALL RULES AND REGULATIONS PROMULGATED THEREUNDER AND THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
(B) TECHNOLOGY TRANSFER. To indemnify Purchaser from Loss resulting
from failure of Technology Transfer (as defined in Section 11 hereof), Seller
hereby agrees with Purchaser and SMIBV to amend and modify Section 9.02 of the
Purchase Agreement by adding the following new subsection (o) to the end of
Section 9.02 to read in its entirety as follows (with Losses under Section
9.02(o) being recoverable without reference to the Basket limitations of Section
9.04(a) thereof (but any such recovered sum shall not be credited against the
Basket)):
(O) RESULTING FROM THE FAILURE OF THE NAMED EMPLOYEE (AS
DEFINED IN THE MODIFICATION AGREEMENT) TO EXERCISE BEST EFFORTS TO
ACCOMPLISH, AND TO SUCCESSFULLY COMPLETE TO PURCHASER'S REASONABLE
SATISFACTION, THE TECHNOLOGY TRANSFER (AS THAT TERM AND PROCESS IS
DEFINED IN AND PURSUANT TO THE MODIFICATION AGREEMENT) BY THE 90TH DAY
AFTER THE CLOSING DATE.
(C) NONINFRINGING TEST SOFTWARE USE RIGHT. Purchaser has been advised
by the vendor of the Test Software that the Noninfringing Test Software Right
may not be available at no cost to Purchaser or for the uses intended, including
to test storage subsystems, and/or that to obtain limited use rights thereof
Purchaser may be required to obtain a maintenance contract, under which
Purchaser may be required to pay for service that does not meet the need for
which Purchaser required the Noninfringing Test Software Right. Accordingly,
without limiting any rights of Purchaser under Section 9.02(k) of the Purchase
Agreement, Seller hereby agrees with Purchaser and SMIBV to amend and modify
Section 9.02 of the Purchase Agreement by adding the following new subsection
(p) to the end of Section 9.02 to read in its entirety as follows (with Losses
under Section 9.02(k) or Section 9.02(p) being recoverable without reference to
the Basket limitations of Section 9.04(a) thereof (but any such recovered sum
shall not be credited against the Basket)):
(P) ASSOCIATED WITH ACQUIRING OR OBTAINING LICENSE RIGHTS FOR
THE NONINFRINGING TEST SOFTWARE RIGHT FROM THE TEST SOFTWARE VENDOR OR
OTHERS,
5
<PAGE>
FOR USE IN TESTING STORAGE SUBSYSTEMS, OR ACQUIRING A MAINTENANCE
CONTRACT FOR THE USEFUL LIFE OF THE STORAGE PRODUCTS WHEREBY AT LEAST
LIMITED PORTIONS OF THE NONINFRINGING TEST SOFTWARE RIGHT ARE OBTAINED,
INCLUDING ALL PURCHASE, LICENSE AND MAINTENANCE FEES IN CONNECTION
THEREWITH.
(D) SETOFF RIGHTS. All Loss recoverable under Sections 3(b) and (c)
hereof (and Sections 9.02 (k), (o) and (p) of the Purchase Agreement) may be
offset from the Second Payment in accordance with the procedures specified in
Section 9.05 of the Asset Purchase Agreement and without reference to the Basket
limitations of Section 9.04(a) thereof (and this offset sum shall not be
credited against the Basket), in addition to any other remedy Purchaser and any
Purchaser Indemnitee may have under Article IX of the Purchase Agreement.
4. AMENDMENT OF SECTION 9.04(A). The last paragraph of Section
9.04(a) of the Purchase Agreement shall be amended to read in its entirety as
follows (amended text being highlighted in bold format):
Notwithstanding the foregoing, Purchaser and any other Indemnified
Party shall be entitled to recover any Loss arising from (i) fraud or
willful misconduct on the part of Seller, (ii) the failure of any
representation or warranty of Seller contained in Article VII to be
true and correct as of the Closing, (iii) the rescission of or
injunction against any transaction contemplated by this Agreement, (IV)
ANY MATTER DESCRIBED IN SECTION 9.02(M) OF THIS AGREEMENT, OR (V) ANY
MATTER DESCRIBED IN SECTION 9.02(N) OF THIS AGREEMENT, in each case
regardless of the Basket and/or Cap provisions contained in this
Section 9.04(a).
5. EUROPEAN EMPLOYEES. Seller and Purchaser agree that, effective as of
the date of the Closing, Purchaser and/or any subsidiary of Purchaser designated
by Purchaser, will hire the thirteen (13) European Employees who are listed on
EXHIBIT 4 attached hereto (the "EUROPEAN EMPLOYEES") as "at will" employees of
Purchaser or of any such subsidiary of Purchaser, as applicable, at each such
European Employee's current base salary rate and on the terms and conditions set
forth in this Section 5; PROVIDED HOWEVER, that Purchaser and each Purchaser
subsidiary shall be free to terminate the employment of any and all of the
European Employees employed by them at any time, for any reason or no reason. In
the event that Purchaser or any Purchaser subsidiary terminates the employment
of any European Employee at any time during the six (6) month period beginning
on the Closing Date, then Seller shall indemnify, hold harmless and defend
Purchaser, SMIBV, any subsidiary of Purchaser or SMIBV (and any officers,
directors and employees thereof) from and against all loss and Liabilities
arising in any manner from the termination of any or all of such European
Employees, as if each of such European Employees was a "Mandated Employee" (as
defined in Section 6.01(d) of the Purchase Agreement) and such loss and
Liabilities were Foreign Employee Liabilities (as defined in Section 6.01(d) of
the Purchase Agreement).
6. COPYRIGHT RECORDATIONS. Without in any way altering or limiting any
provision of the Purchase Agreement, as a material inducement to Purchaser and
SMIBV to effect the Closing, Seller agrees: (a) to file with the United States
Copyright Office on an expedited basis, by no later than five (5) business days
after the Closing Date, applications to register United States copyrights in all
copyrightable works of Seller (including without limitation software and
documentation) that are included among the Purchased Assets and which Purchaser
has
6
<PAGE>
designated to Seller in a writing that Purchaser will deliver to Seller within
two (2) business days of the Closing Date; and (b) to sign confirmatory
assignments of all copyrightable works of Seller (including without limitation
software and documentation) that are included among the Purchased Assets and to
record such confirmatory assignments with the United States Copyright Office no
later than one (1) month after the Closing Date. Purchaser will pay all out of
pocket costs reasonably incurred by Seller in completing any of the foregoing
tasks and will commit appropriate legal or other resources in an effort to
assist Seller to complete these tasks.
7. BILL OF SALE. Section 2.10(c) of the Purchase Agreement provides
that separate Offshore Tangible Asset Bills of Sale will be prepared, executed
and delivered by Seller and each of the Applicable Purchaser Subsidiaries to
document the sale, assignment and transfer of title to the Offshore Tangible
Assets to such Applicable Purchaser Subsidiaries. In lieu of such requirement,
documentation of the sale, assignment and transfer of title to the Offshore
Tangible Assets to the Applicable Purchaser Subsidiaries shall occur in the Bill
of Sale. Furthermore, the Offshore Tangible Asset Bills of Sale shall not be
considered Ancillary Agreements.
8. SPARE PARTS. Spare parts of Seller located in France shall not be
considered Excluded Assets.
9. PATENT DOCUMENTATION. Without in any way altering or limiting any
provision of the Purchase Agreement, Seller agrees to complete or correct the
listing of issued patents and patent applications appearing in SCHEDULE A of the
Patent Assignment if said SCHEDULE A is not completely accurate (as determined
by Purchaser in its sole discretion) as of the Closing as soon as possible after
the Closing and in no event later than five (5) business days after the Closing.
10. TRADEMARK ASSIGNMENT. Without in any way altering or limiting any
provision of the Purchase Agreement, as a material inducement to Purchaser and
SMIBV to effect the Closing, Seller agrees that, to the extent requested by
Purchaser and SMIBV, Seller will provide all assistance necessary for Purchaser
and SMIBV to register and enforce the Trademark Assets and record the assignment
to Purchaser and SMIBV of the Trademark Assets, including without limitation, by
executing trademark assignments for recordation in foreign jurisdictions and
providing Purchaser and SMIBV with (i) information concerning the specific
products with which each of Seller's marks has been used in the United States
and in foreign jurisdictions, (ii) the dates on which Seller's marks were first
used in the United States and in foreign jurisdictions, (iii) evidence, such as
purchase orders and invoices, demonstrating such first use dates and (iv)
product packaging or other specimens demonstrating use of Seller's marks on
products distributed in the United States and in foreign jurisdictions.
Purchaser will pay all out of pocket costs reasonably incurred by Seller in
completing any of the foregoing tasks and will commit appropriate legal or other
resources in an effort to assist Seller to complete these tasks.
11. TECHNOLOGY TRANSFER AND BONUS. Purchaser believes that it may be
critical to Purchaser's ability to utilize and further develop and integrate the
Storage Products that a certain employee of Seller or one of its subsidiaries
(the "NAMED EMPLOYEE") exercise best efforts to transfer to Purchaser, and to
train and cooperate with Purchaser technical personnel and management with
respect to, all technical information and know-how relating to the Storage
Products or to the manufacture, installation, use or integration thereof that is
requested by Purchaser or known to the Named Employee, all in accordance with
technology transfer requirements and procedures specified by Purchaser
(collectively, the "TECHNOLOGY TRANSFER").
7
<PAGE>
Accordingly, Seller agrees, jointly and severally with Gould, to fund
immediately upon demand by Purchaser, the payment of a bonus in the amount of
(pound)120,000 to the Named Employee, which bonus shall be payable only if
Purchaser determines that the Named Employee has exercised best efforts to
effect and has successfully completed the Technology Transfer by the 90th day
after the Closing Date. If this bonus is not so paid upon such demand, Purchaser
may offset (pound)120,000 plus interest at the highest legally permissible rate
from the Second Payment in accordance with the procedures specified in Section
9.05 of the Asset Purchase Agreement and without reference to the Basket
limitations of Section 9.04(a) thereof (and this offset sum shall not be
credited against the Basket). The Named Employee is Nick Connolly.
12. REPRESENTATION. Seller hereby represents to Purchaser and SMIBV as
set forth in this Section. The proxy statement of Encore Computer Corporation
mailed to its stockholders seeking approval of the Transaction (as defined in
the Modification Agreement) does not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading. Further, all corporate approvals of the
Transaction and the Purchase Agreement required under the General Corporation
Law of the State of Delaware have been duly, validly and timely obtained in
compliance with that law and the certificate of incorporation and bylaws of
Encore Computer Corporation. Both the notice of the stockholders meeting to
approve the Transaction and the proxy statement soliciting such stockholder
approval complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended, and all rules and regulations
promulgated thereunder and the General Corporation Law of the State of Delaware
and each was duly and timely mailed in excess of 20 days prior to the
stockholders meeting and the transfer agent certificate so certifying is in all
respects accurate and complete and not misleading or fraudulent in any way. The
foregoing shall be deemed to be a representation and warranty by Seller to
Purchaser and SMIBV made under Article III of the Purchase Agreement (the
"CORPORATE APPROVAL REPRESENTATION"). Purchaser and SMIBV shall be entitled to
exercise their rights of indemnification under Article IX of the Purchase
Agreement with respect to any and all Loss arising out of any failure of any
Corporate Approval Representation to be true and correct in all material
respects.
13. AMENDMENT TO EXHIBIT A. Purchaser shall have the right unilaterally
to amend Exhibit A to the Purchase Agreement at any time within thirty (30) days
after Closing and Seller shall cooperate with Purchaser to ensure that Exhibit A
accurately describes each Assigned Contract listed in Exhibit A and that any
contract added as an exhibit post-Closing is duly assigned to Purchaser without
breach of any such assigned contract. Furthermore, although the Intellectual
Property License Agreement between Encore Computer Corporation, Encore Computer
U.S., Inc. and Gould dated as of January 28, 1991 and the associated Escrow,
Access and Training Agreement of even date therewith between the same parties
are included in Exhibit A, it shall, notwithstanding Section 2.01(a) of the
Purchase Agreement and notwithstanding the Assumption Agreement delivered
pursuant thereto, be deemed assigned (and the corresponding obligations of
Encore thereunder assumed) not necessarily to and by Purchaser but to and by
such designee of Purchaser (which could include Purchaser or any subsidiary or
other related designee of Purchaser) as is named in SCHEDULE 13 hereof. Such
Schedule 13 may be unilaterally attached hereto by Purchaser, countersigned by
such subsidiary or designee, at any time within 30 days after the Closing Date
and it will be deemed to have been attached, and the assignment to and
assumption by, such designee shall be deemed to have occurred, as of the
8
<PAGE>
Closing Date without an intervening assignment of such Encore contract rights to
Purchaser (if a different designee is named).
14. EFFECT OF THIS AGREEMENT. Except as expressly modified by this
Agreement, the Purchase Agreement shall remain in full force and effect. To the
extent that there is any conflict with or inconsistency between this Agreement
and the Purchase Agreement, the provisions of this Agreement will prevail and
govern.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, parties have executed this Agreement effective as
of the Effective Date of this Agreement.
ENCORE COMPUTER CORPORATION SUN MICROSYSTEMS, INC.
By: By:
-------------------------------- ----------------------------------
Name: Name:
------------------------------ --------------------------------
Title: Title:
----------------------------- -------------------------------
ENCORE COMPUTER U.S., INC. SUN MICROSYSTEMS
INTERNATIONAL, B.V.
By: By:
-------------------------------- ----------------------------------
Name: Name:
------------------------------ --------------------------------
Title: Title:
----------------------------- -------------------------------
ENCORE COMPUTER INTERNATIONAL,
INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
ATTACHMENTS:
Exhibit 1: Bank Accounts of Encore and Gould
Exhibit 2: Offshore Subsidiary Payments
Exhibit 3: Escrow Agreement
Exhibit 4: European Employees
[SIGNATURE PAGE TO MODIFICATION AGREEMENT]
<PAGE>
EXHIBIT 1
BANK ACCOUNTS OF ENCORE AND GOULD
ENCORE'S BANK ACCOUNT
Name of Bank: Industrial Bank of Japan LTD, New York Branch
Address: 1251 Avenue of the Americas, New York, NY 10020-1104
Account No.: 2051-14033
ABA # and Wire Instructions: 026008345
Contact Person
Telephone
Fax
GOULD'S BANK ACCOUNT
Name of Bank: National City Bank
Address: Cleveland, OH 44101
Account No.: 2530806
ABA # and Wire Instructions: 041000124
Contact Person
Telephone
Fax
<PAGE>
EXHIBIT 2
OFFSHORE SUBSIDIARY PAYMENTS
Payment by Sun Microsystems France, S.A. to Encore Computer, S.A.: FRF 68,933
Payment by Purchaser to Seller on behalf of Purchaser's subsidiaries for the
benefit of Seller's subsidiaries:
<TABLE>
<CAPTION>
PURCHASER SUBSIDIARY SELLER SUBSIDIARY AMOUNT
- - -------------------- ----------------- ------
<S> <C> <C>
Sun Microsystems GmbH Encore Computer GmbH US$ 364,295
Sun Microsystems Italia S.p.A. Encore Computer Italia S.p.A. US$ 18,787
Sun Microsystems Nederland B.V. Encore Computer Nederland B.V. US$ 19,786
Sun Microsystems Iberica S.A. Encore Computer Espana, S.A. US$ 44,683
Sun Microsystems Ltd. Encore Computer (UK) Ltd. US$ 609,910
</TABLE>
<PAGE>
EXHIBIT 3
ESCROW AGREEMENT
<PAGE>
EXHIBIT 4
EUROPEAN EMPLOYEES
Angus Reid (U.K.)
Glen Robinson (U.K.)
Helen Kemp (U.K.)
Carina Mallett (U.K.)
Ed Aston (U.K.)
Lee Herring (U.K.)
Tom Higgins (U.K.)
Stephen Cross (U.K.)
Peter Stevens (U.K.)
John Pimlott (U.K.)
Michael Stanke (Germany)
A. Garcia (Spain)
P. Proserpio (Italy)
<PAGE>
SCHEDULE 3(A)
COMPLAINTS FILED PRE-CLOSING IN THE DELAWARE CHANCERY COURT
AGAINST GOULD, SELLER AND SELLER'S DIRECTORS
BY THE PLAINTIFFS BELOW NAMED
RELATING TO THE ASSET PURCHASE AGREEMENT
1. Case No. 16044; Plaintiffs Collings, Helfgott, Kiley, Rosenblum,
Stewart and Williams
2. Case No. 16045; Plaintiff Croyden Associates
3. Case No. 16046; Plaintiff William DiLorenzo
4. Case No. 16049; Plaintiff Joseph Shires
<PAGE>
SCHEDULE 13
PURCHASER DESIGNEE OF SELLER RIGHTS UNDER GOULD AGREEMENT
[TO FOLLOW]
EXHIBIT 2.2
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (this "Agreement") is made and entered
into effective as of ____________, 1997 (the "Effective Date") between Sun
Microsystems, Inc., a Delaware corporation having its principal executive
offices located at 2550 Garcia Avenue, Mountain View, California 94043-1100
("Sun") and Encore Computer Corporation, a Delaware corporation having its
principal executive offices located at 6901 West Sunrise Boulevard, Ft.
Lauderdale, Florida 33313-4499 ("Encore").
RECITALS
A. Concurrently herewith the parties hereto are consummating the sale
from Encore to Sun and Sun Microsystems International, B.V. ("SMIBV") of certain
assets of Encore pursuant to an Asset Purchase Agreement dated July ___, 1997.
In order to continue to conduct certain aspects of its business related to
real-time systems not being acquired by Sun and SMIBV under such Asset Purchase
Agreement, Encore requires a limited license back from Sun to use, copy and
modify certain intangible and intellectual property assets acquired by Sun and
SMIBV for certain limited purposes, subject to the terms, conditions and
restrictions contained herein.
B. It is a condition to Encore's obligation to consummate the sale of
the foregoing assets to Sun under the Asset Purchase Agreement that Sun enter
into this Agreement.
NOW, THEREFORE, in consideration of the facts recited above and the
mutual agreements set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms will have the following
meanings:
1.1 "Asset Purchase Agreement" means the Asset Purchase Agreement dated
July ___, 1997 being executed among Sun, SMIBV, and Encore.
1.2 "Change of Control" means (a) a merger or consolidation of Encore
with or into any other corporation or entity; or (b) any other transaction in
which the shareholders of Encore immediately prior to such transaction cease to
own a majority of the voting power of Encore or of the surviving or acquiring
corporation or entity immediately after such transaction; or (c) a sale,
transfer or lease of all or substantially all of Encore's assets (other than any
of the foregoing effected with or to Sun or any of Sun's affiliates). A Change
of Control will be deemed to have occurred at such time as Encore enters into
any agreement with any person or entity requiring Encore to take any steps to
consummate or seek the consummation of a Change of Control.
1.3 "Confidential Information" means (a) the Licensed Materials, (b) any
and all information that is disclosed by Sun to Encore orally, electronically,
visually or in a document or other tangible form, which is either identified as
or should be reasonably understood to be confidential and/or proprietary
information of Sun or its licensors, (c) any notes, extracts, analyses, or
materials prepared by Encore that are copies of or derived from the Confidential
Information or from which the substance of the Confidential Information can be
inferred or otherwise perceived or understood; provided however, that
"Confidential Information" does not include information Encore received from Sun
that Encore can clearly establish by written evidence (i) is or becomes known by
Encore without any obligation to maintain its confidentiality (except that no
Licensed Materials shall be excluded from the definition of Confidential
Information by virtue of any of Encore's pre-existing knowledge of such Licensed
Materials that was gained prior to the Effective Date of this Agreement); (ii)
is or becomes generally known to the public through no act or omission of Encore
or of any person, firm or corporation having authority to act for Encore or for
any customer of Encore; or (iii) is independently developed by Encore without
use of or reference to any Confidential Information.
1.4 "Derivative Work" means: (a) for copyrightable or copyrighted
material (including materials subject to mask work rights), a work which is
based upon one or more pre-existing works, such as a revision, modification,
translation, abridgement, condensation, expansion, collection, compilation or
any other form in which such pre-existing works may be recast, transformed or
adapted; (b) for patentable or patented materials, any adaptation, addition,
improvement, or combination thereof; and (c) for material subject to trade
secret protection, any new material, information or data relating to and derived
from such existing trade secret material, including new material which may be
protectable by copyright, patent or other proprietary rights.
1.5 "Encore Derivative Works" means Derivative Works based upon the
Licensed Materials created by or on behalf of Encore and which are owned by or
licensable by Encore.
1.6 "Intellectual Property Rights" means, collectively, all of the
following worldwide intangible legal rights, whether or not filed, perfected,
registered or recorded and whether now or hereafter existing, filed, issued or
acquired: (i) patents, patent applications, and patent rights, including any and
all continuations, continuations-in-part, divisions, reissues, reexaminations or
extensions thereof; (ii) rights associated with works of authorship (including
without limitation audiovisual works), including without limitation copyrights,
copyright applications and copyright registrations, moral rights, mask work
rights, mask work applications and mask work registrations; (iii) rights in
trade secrets (including without limitation rights in industrial property,
customer, vendor and prospect lists and all associated information or databases
and other confidential or proprietary information), and all rights relating to
the protection of the same; and and (iv) any rights analogous to those set forth
in the preceding clauses and any other proprietary rights relating to intangible
property; but specifically excluding trademarks, service marks, trade dress, and
trade names.
1.7 "Licensed Materials" means, collectively, any and all of the
following items associated with, related to or used in connection with Encore's
Storage Products Business which were sold, assigned, transfered, conveyed and
delivered to Sun and SMIBV pursuant to the Asset Purchase Agreement as of the
Effective Date: software (in both source code and binary code form), designs,
plans, schematics, drawings, blueprints, technical information, specifications,
manufacturing plans or instructions, ideas, concepts, inventions, discoveries,
processes, procedures, methodologies, and know-how. Licensed Materials does not
include any Derivative Works created by or on behalf of Sun after the Effective
Date of this Agreement.
1.8 "Real Time Products" means, collectively, Real Time Systems and any
software, hardware, or components which comprise or are designed for use in or
for the design and/or testing of Real Time Systems. Real Time Products
specifically excludes any Storage Products.
1.9 "Real Time Systems" means computer systems, which may include an
incidental amount of storage capacity, in which the computer is required to
perform its tasks within the time constraints of some process, or simultaneously
with a system it is assisting, so as to be capable of intervening appropriately
and in real time in such process or with respect to the assisted system.
1.10 "Storage Products" means (i) mechanisms, devices or functional
units into which data can be placed and retained and from which data can be
retrieved, and (ii) any software, hardware or components which comprise or are
designed for use in or in conjunction with the operation of any of the items
listed in the preceding clause (i).
1.11 "Storage Products Business" means Sun's business of developing,
manufacturing, marketing, licensing, distributing, using, operating, servicing
or otherwise using or commercially exploiting all or any aspect of any or all of
the Storage Products.
1.12 "Sublicensee" means any third party customer of Encore who is the
recipient of a sublicense granted by Encore pursuant to the provisions of
clauses (i) or (ii) in Section 3.1(b) below.
1.13 "Sun Trademarks" means all names, marks, logos, designs, trade
dress and other brand designations used by Sun in connection with Sun products
and services.
ARTICLE II
OWNERSHIP
2.1 Ownership of Confidential Information. Encore acknowledges and
agrees that Sun is the sole and exclusive owner of all right, title and interest
in and to the Confidential Information and all associated Intellectual Property
Rights. Encore agrees that it will acquire no interests under this Agreement in
or to any Confidential Information or any Intellectual Property Rights therein,
other than the limited license interests specifically granted to Encore under
this Agreement.
2.2 No Limitations on Sun Use. Nothing in this Agreement shall be
construed to limit or restrict, in any way or manner, any right of Sun to
encumber, transfer, license, sublicense, assign, transfer, access, reference,
market, distribute, use, sell, commercially exploit or otherwise practice all or
any part of the Confidential Information in any way or for any purpose
whatsoever, including without limitation the use, licensing, and/or registration
of the Confidential Information anywhere in the world for any purpose or use in
connection with the development, manufacture, distribution, marketing, promotion
and/or sale of any product or service.
ARTICLE III
GRANT OF LICENSES
3.1 License Grant to Encore. Subject to all of the terms, limitations
and conditions of this Agreement, Sun hereby grants to Encore a non-exclusive,
non-transferable (except as otherwise permitted under Section 9.11 below),
royalty-free, paid-up license under any Intellectual Property Rights in the
Licensed Materials:
(a) To internally use, modify, copy, and create Encore
Derivative Works based upon the Licensed Materials solely for the purpose of the
design, manufacture, marketing, distribution, sale, licensing, installation,
support, repair, and maintenance of Real Time Products of Encore and for no
other purpose; and
(b) To sublicense Sublicensees of Encore (i) to manufacture,
market, distribute, sell, license, install, support, repair, and maintain Real
Time Products of Encore created within the scope of the license rights set forth
in Section 3.1(a) above, under either Encore's brand name(s) or under the brand
name(s) of such Sublicensees; (ii) to incorporate such Real Time Products of
Encore in unmodified form only into Real Time Products of such Sublicensees
("Sublicensee Real Time Products"), and to manufacture, market, distribute,
sell, license, install, support, repair, and maintain such Sublicensee Real Time
Products under the brand name(s) of such Sublicensees; and/or (iii) to further
sublicense customers of such Sublicensees to do any of the activities set forth
in the preceding clauses (i) and (ii), provided, however, that no such further
sublicense shall grant any rights to use any source code for any of the Licensed
Materials, nor shall any Sublicensee disclose such source code to any further
sublicensee, without the advance written permission of Sun, which Sun shall be
free to grant or deny in its sole discretion. Except as expressly set forth in
clause (iii) of the preceding sentence, Sublicensees of Encore shall have no
right to further sublicense any of the rights sublicensed to them pursuant to
this Section 3.1(b), to create Derivative Works based upon the Licensed
Materials or upon any Real Time Products of Encore, or to sublicense others to
create such Derivative Works. As a condition to the right to grant sublicenses
set forth in this Section 3.1(b), Encore shall give Sun prompt written notice of
any such sublicense granted by Encore, identifying the name of the recipient of
such sublicense and summarizing the nature and scope of the sublicense granted.
3.2 Restrictions on Licenses to Encore. Encore acknowledges and agrees
that it may not disclose any of the Licensed Materials to anyone except to the
extent necessary to exercise Encore's license rights hereunder. Encore may not
use the Licensed Materials or any portion thereof in any manner not expressly
authorized by this Agreement, including but not limited to use in the design,
manufacture, marketing, distribution, sale, licensing, installation, support,
repair, and maintenance of Storage Products or use in any way competitive with
Sun's Storage Products Business as it may exist as of the Effective Date or at
any time in the future.
3.3 No Other Rights to Encore. Encore acknowledges and agrees that Sun
and its licensors reserve and retain all rights in the Licensed Materials and
other Confidential Information not expressly granted to Encore under this
Agreement. Other than the limited license rights granted in this Agreement,
Encore acquires no right, title, interest or other right in or to any of the
Licensed Materials or any other Confidential Information.
3.4 Licenses Back to Sun for Derivative Works.
(a) License from Encore and Supply of Encore Derivative Works.
Encore hereby grants and agrees to grant to Sun a non-exclusive, non-terminable,
royalty-free, paid-up license under any Intellectual Property Rights in any
Encore Derivative Works to use, modify, copy, and create Derivative Works based
upon the Encore Derivative Works for any purpose whatsoever other than the
design, manufacture, marketing, distribution, sale, licensing, installation,
support, repair, and maintenance of Real Time Products. Encore agrees to supply
to Sun one (1) copy of each Encore Derivative Work promptly upon its creation,
together with accompanying documentation for the same (including but not limited
to commented source code) sufficient to enable Sun to exercise the rights with
respect to such Encore Derivative Work set forth in the preceding sentence.
(b) Removal of Restrictions With Respect to Real Time Products.
In the event that this Agreement is terminated by Sun for breach or in the event
that Encore transfers ownership of any Encore Derivative Works to any third
party, then the restrictions on Sun's license rights set forth in Sections
3.4(a) above shall automatically become null and void and Sun shall be entitled
to exercise such license rights without restriction of any kind.
3.5 No Obligation to Supply Enhancements or Support. Neither Sun, SVIB,
nor any of their licensors will have any obligation whatsoever to provide any
updates, upgrades, enhancements, or improvements to any of the Licensed
Materials, or to provide support or maintenance, including bug fixes and
training, with respect to any of the Licensed Materials. Encore will have no
obligation whatsoever to provide any support or maintenance, including bug fixes
and training, with respect to any Encore Derivative Works.
ARTICLE IV
CONFIDENTIALITY
4.1 Confidentiality Obligations. Encore agrees that it shall, and it
shall cause each Sublicensee to agree to, hold the Licensed Materials and any
other Confidential Information in confidence and not to use the Licensed
Materials except as expressly permitted under this Agreement. Encore and its
Sublicensees shall not disclose any Confidential Information to any third party
and shall protect and treat all Confidential Information so as to maintain its
confidential status with the same degree of care as each uses to protect its own
confidential information of like importance, but in no event less than
reasonable care. Except as expressly permitted in Article III or for backup or
archival purposes, Encore agrees, and shall cause its Sublicensees to agree, not
to use, make or have made any copies of Confidential Information, in whole or in
part, without the prior written authorization of Sun. Encore agrees, and shall
cause its Sublicensees to agree, to disclose Confidential Information only to
their respective employees who require access to the same for purposes of
exercising the license rights granted under Article III of this Agreement.
Encore agrees, and shall cause its Sublicensees to agree, to notify and inform
such employees of the limitations, duties and obligations regarding use, access
to and nondisclosure of Confidential Information and to obtain or have obtained
their employees' agreements to comply with such limitations, duties and
obligations. Encore agrees, and shall cause its Sublicensees to agree, to
provide notice to Sun immediately after learning of or having reason to suspect
a breach of any of the proprietary restrictions set forth in this Article IV. In
the event that Encore or one of its Sublicensees is required to disclose any
Confidential Information pursuant to law, Encore agrees, and shall cause its
Sublicensees to agree, to first notify Sun of the required disclosure with
sufficient time to seek relief, to cooperate with Sun in taking appropriate
protective measures, and to make such disclosure in a fashion that maximizes
protection and minimizes disclosure of Confidential Information. This Article IV
will not affect any other confidential disclosure agreement between the parties.
4.2 Injunctive Relief. Encore acknowledges and agrees that the
Confidential Information constitutes a unique and proprietary asset of Sun and
Encore acknowledges that the unauthorized use or disclosure of the Confidential
Information would cause substantial harm and injury to Sun, the extent of which
cannot be readily ascertained and which cannot be remedied by the payment of
monetary damages alone. Accordingly, Encore agrees that Sun will be entitled to
preliminary and permanent injunctive relief and other equitable relief for any
breach of this Article IV or any other breach by Encore of this Agreement.
ARTICLE V
TERM AND TERMINATION
5.1 Term. The licenses to the Licensed Materials granted herein shall
continue in effect until this Agreement is terminated in accordance with this
Article V.
5.2 Termination by Sun. Sun may immediately terminate this Agreement and
all licenses and rights granted to Encore hereunder in the event that: (a)
Encore or any of its Sublicensees materially breaches any of the obligations or
restrictions contained in this Agreement and fails to cure such breach within
thirty (30) days after Sun gives Encore or such Sublicensee written notice of
such breach; (b) Encore or any of its Sublicensees takes any action in
derogation of the rights of Sun to the Licensed Materials, (c) the Licensed
Materials, or any portion thereof, becomes, or in Sun's reasonable opinion is
likely to become, the subject of a claim of infringement of a patent, trade
secret, copyright, mask right or other Intellectual Property Right, or (d)
Encore undergoes or suffers a Change of Control (except in the case in which Sun
elects to permit assignment of this Agreement in connection with such Change of
Control pursuant to Section 9.11 below).
5.3 Insolvency. In the event that Encore becomes insolvent or the
subject of a voluntary or involuntary bankruptcy case or proceeding, then Sun
may at its sole option and in its sole discretion terminate the licenses granted
under Article III, and terminate this Agreement immediately upon written notice
to Encore.
5.4 Obligations on Termination. Upon termination of Encore's licenses or
this Agreement, Encore shall immediately discontinue all use of the Licensed
Materials and the licenses and rights granted hereunder shall terminate. Within
thirty (30) days after such termination, Encore shall deliver and return to Sun,
and shall cause all of its Sublicensees to deliver and return to Sun, F.O.B.
Sun's facilities, all Licensed Materials and all Derivative Works based thereon,
including any and all copies of any of the foregoing.
5.5 Survival. The provisions of Article II, Article IV, Article V,
Article VI, Article VIII, Article IX, and Sections 3.4 and 3.5 hereof shall
survive termination of this Agreement for any reason.
ARTICLE VI
DISCLAIMER OF ALL WARRANTIES AND SUPPORT OBLIGATIONS
6.1 Disclaimer of All Warranties. ENCORE ACKNOWLEDGES AND AGREES THAT
ALL LICENSED MATERIALS LICENSED BY SUN UNDER THIS AGREEMENT ARE PROVIDED BY SUN
"AS IS" AND WITHOUT WARRANTY OF ANY KIND. SUN HEREBY DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO ANY LICENSED MATERIALS, INCLUDING
BUT NOT LIMITED TO ANY WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT, OR WARRANTIES ARISING FROM A COURSE OF
DEALING, USAGE OR TRADE PRACTICE. IN PARTICULAR, NOTHING IN THIS AGREEMENT SHALL
BE CONSTRUED AS ANY WARRANTY OR REPRESENTATION BY SUN THAT THE LICENSED
MATERIALS WILL BE ERROR-FREE OR WILL NOT INFRINGE THE INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES. SUN HEREBY EXPRESSLY DISCLAIMS AND SHALL NOT BE
RESPONSIBLE FOR ANY LIABILITY ARISING AS A RESULT OF OR IN CONNECTION WITH ANY
CLAIM, SUIT OR PROCEEDING ALLEGING: (A) THAT THE LICENSED MATERIALS CONTAIN ANY
BUGS OR ERRORS OF ANY KIND; OR (B) THAT THE USE OF ANY LICENSED MATERIALS
INFRINGES THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. No agent of Sun
is authorized to make or incur any warranty obligations on behalf of Sun or to
modify the limitations and disclaimers set forth in this Section 6.1.
6.2 Restriction on Aircraft, Nuclear and Other Applications. None of the
Licensed Materials is designed or intended for use in the control of aircraft or
other aeronautic craft (including space flight), air traffic control, aircraft
navigation or aircraft communications; or in the design, construction, operation
or maintenance of any nuclear facility. Without limiting or modifying the
foregoing disclaimers of warranties, Sun disclaims any express or implied
warranty of fitness for such uses. As a condition of being granted the license
rights granted to it hereunder, Encore agrees and represents that it will not
use any Licensed Materials for any of the purposes described in this Section.
6.3 Responsibility for Backup. Encore and its Sublicensees shall have
the sole responsibility for taking steps to protect and backup or archive their
data and/or equipment used with any of the Licensed Materials and Encore agrees,
and shall cause its Sublicensees to agree, not to make any claim of any kind
against Sun for lost data, re-run time, inaccurate output, work delays, or lost
profits resulting from the use of any of the Licensed Materials or any portion
thereof.
ARTICLE VII
COPYRIGHT AND PROPRIETARY NOTICES
7.1 Included Notices. In the exercise of the rights and licenses granted
in this Agreement Encore agrees, and shall cause its Sublicensees to agree, to
retain, reproduce and apply any copyright notices and/or other proprietary
rights notices included on or embedded in the Licensed Materials by Sun on all
copies, in whole or in part, in any form of the Licensed Materials and in any
Encore Derivative Works. In addition, Encore shall comply, and shall cause its
Sublicensees to comply, with all reasonable requests by Sun to include copyright
and/or other proprietary rights notices on any part of the Licensed Materials.
7.2 Trademarks, Logos and Product Designs. Neither Encore nor any of its
Sublicensees is granted any right, title or license to, or interest in, any Sun
Trademarks. Encore acknowledges Sun's rights in Sun Trademarks and acknowledges
and agrees Encore is not being granted any license or other right or interest in
or to any Sun Trademark under this Agreement. Encore agrees, and will cause its
Sublicensees to agree, not to (a) challenge Sun's ownership or use of, (b)
register, or (c) infringe, any Sun Trademarks, nor shall Encore incorporate any
Sun Trademarks into Encore's trademarks, service marks, company names, internet
addresses, domain names, brand names or similar designations. If Encore or any
of its Sublicensees acquires any rights in any Sun Trademarks by operation of
law or otherwise, it will immediately and at no expense to Sun assign, and cause
its Sublicensees to assign, all such rights to Sun along with any associated
goodwill, applications and/or registrations.
ARTICLE VIII
LIMITATION OF LIABILITY; INDEMNITY
8.1 Limitation of Liability. INASMUCH AS ENCORE IS NOT BEING CHARGED ANY
LICENSE FEES FOR THE LICENSES AND OTHER RIGHTS GRANTED UNDER THIS AGREEMENT, AND
GIVEN ENCORE'S PRIOR FAMILIARITY WITH THE LICENSED MATERIALS, ENCORE AGREES THAT
SUN SHALL HAVE NO LIABILITY TO ENCORE WHATSOEVER UNDER THIS AGREEMENT. IN NO
EVENT SHALL SUN BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL,
EXEMPLARY OR PUNITIVE DAMAGES IN CONNECTION WITH OR ARISING OUT OF OR RELATING
TO THIS AGREEMENT (INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF BUSINESS,
REVENUE, PROFITS, USE, DATA OR OTHER ECONOMIC BENEFIT OR ADVANTAGE), HOWEVER
ARISING, WHETHER FOR BREACH OF THIS CONTRACT OR IN TORT (INCLUDING NEGLIGENCE),
EVEN IF SUN HAS PREVIOUSLY BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
FOREGOING LIMITATION OF LIABILITY SHALL BE EFFECTIVE AND SUCH DAMAGES SHALL BE
EXCLUDED, EVEN IF ANY REMEDY PROVIDED FOR HEREIN FAILS OF ITS ESSENTIAL PURPOSE.
8.2 Indemnity by Encore. Inasmuch as Encore is not being charged any
license fees for the licenses and other rights granted to it under this
Agreement, and given Encore's prior familiarity with the Licensed Materials, Sun
is unwilling to incur any liability with respect to any actions taken by Encore
or its Sublicensees pursuant to this Agreement or in connection with the
Licensed Materials. Accordingly, as a material inducement and consideration for
Sun to enter into this Agreement, Encore hereby agrees to indemnify and hold Sun
and all of its past, present or future affiliates, subsidiaries, parents,
officers, directors, shareholders, employees and agents harmless from and
against any and all loss, liabilities, damages, costs and expenses whatsoever
(including without limitation reasonable attorneys' fees) arising in any manner
and at any time from any use, modification or reproduction by Encore and/or any
of its affiliates, licensees or Sublicensees of any Licensed Materials, whether
or not such use, modification or reproduction is authorized by this Agreement.
ARTICLE IX
GENERAL TERMS
9.1 Governing Law and Jurisdiction. This Agreement shall be governed by
the internal laws of the State of California without regard to or application of
choice of law rules or principles. Any disputes arising under this Agreement
will be brought in the federal or state courts of the Northern District of
California. Encore agrees to be subject to the jurisdiction and venue of such
courts.
9.2 Relationship of the Parties. The relationship of the parties to this
Agreement is solely that of independent contractors, and the parties hereto are
not partners, joint venturers or agents of the other.
9.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the addresses listed in Exhibit A (or at such other address for a
party as shall be specified by like notice).
9.4 Waiver; Modification. This Agreement may not be changed, amended or
modified in any manner without the written consent of each party hereto. No
party shall be deemed to have waived any of its rights under this Agreement
unless its waiver is signed by such party in writing. The waiver by any party of
any default or breach of this Agreement will not constitute a waiver of any
other or subsequent default or breach.
9.5 Compliance with Law. Encore agrees to comply fully with all relevant
laws in its exercise of any rights granted to it herein.
9.6 Government Rights. If Encore or any of its Sublicensees ever
provides any Licensed Materials in the form of software to the U.S. Government,
Encore will ensure that the U.S. Government's use, duplication or disclosure of
such software will be subject to restrictions of FAR 12.212(a)(1995), FAR
52.227-14 (ALT III) and FAR 52.227-19, or DFARS 252.227-7013(c)(1)(ii) (OCT
1988) and DFARS 227.7202-1(a) and 227.7202-3(a) (1995), as applicable.
9.7 Third Party Beneficiaries. SMIBV shall be a third party beneficiary
of this Agreement and have the right to enforce this Agreement to protect its
rights in the Licensed Materials. Except as expressly stated herein, this
Agreement is made for the benefit of the parties hereto, and not for the benefit
of any third parties.
9.8 Headings. The headings used herein are for reference only and shall
not be considered as substantive parts of this Agreement.
9.9 Construction. This Agreement has been negotiated by the parties,
each of which has been represented by counsel. This Agreement will be fairly
interpreted in accordance with its terms, without any strict construction in
favor of or against either party.
9.10 Provisions Found Invalid. If any term or provision of this
Agreement is found to be invalid under any applicable statute or rule of law
then, that provision notwithstanding, this Agreement shall remain in full force
and effect and such provision shall be enforced to the greatest extent possible.
9.11 Restriction on Assignment. The parties agree that Encore may not
assign this Agreement or any of the licenses granted to it under Article III
hereof, whether expressly, by operation of law or otherwise, without the express
advance written consent of Sun, and any attempt to assign this Agreement or any
of the rights or licenses hereunder without such advance written consent shall
be void; provided, however, that Sun will not unreasonably withhold consent to
the assignment of this Agreement by Encore to a successor to Encore that
succeeds to all of the business of Encore, by merger, operation of law,
assignment, purchase or otherwise. For purposes of the preceding sentence, Sun
shall not be deemed to have acted unreasonably in withholding its consent to an
assignment where Sun determines in its sole discretion that the successor to
whom Encore proposes to assign this Agreement is a competitor or potential
competitor of Sun.
9.12 Entire Agreement. This Agreement, together with its exhibits,
constitutes the complete agreement and understanding between the parties
regarding the subject matter hereof.
9.13 Taxes and Duties. Any tariffs, duties and/or local, state or
federal sales, excise, personal property or use tax, or any other similar tax or
duties imposed by any government shall be assumed and paid by Encore. Each of
Encore and Sun shall assume and be responsible for any tax or duty payable with
respect to its income. Encore or any Sublicensee shall assume and pay any such
taxes imposed in connection with any sublicense from Encore to a Sublicensee.
9.14 Compliance with Export Regulations. Encore agrees that it will not
export or re-export, and that it shall cause its Sublicensees not to export or
re-export, the Licensed Materials and Encore Derivative Works, in contravention
of the Export Administration Act of 1979, as amended, of the United States and
any other statute or regulation promulgated by the United States government or
the government of any state regarding export and re-export of products now in
effect or hereafter adopted. Encore further agrees that it will obtain, and it
will cause its Sublicensees to obtain, all export licenses required by said Act
or laws and regulations, prior to such export or re-export. Encore shall
cooperate fully with any Sublicensees to permit their compliance with the
foregoing laws and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and entered into by
the parties effective as of the Effective Date of this Agreement.
Sun Microsystems, Inc. Encore Computer Corporation
By: By:
Printed Name: Printed Name:
Title: Title:
Attachments:
Exhibit A: Addresses for Notice
EXHIBIT A
Addresses for Notice
(a) Encore:
Encore Corporation
6901 W. Sunrise Boulevard
Fort Lauderdale, FL 33313-4499
Attention: Kenneth G. Fischer, Chairman and CEO
Telecopy: (954) 797-5618
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109-2891
Attention: Cameron Read, Esq.
Telecopy: (617) 248-4000
(b) Sun:
Sun Microsystems, Inc.
2550 Garcia Avenue
MS: MPK10-212
Mountain View, CA 94043-1100
Attention: ________________
Telecopy: ________________
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: David L. Hayes, Esq.
Telecopy: (415) 857-0361
EXHIBIT 2.3
GOULD/EFI INDUCEMENT AGREEMENT
This Gould/EFI Inducement Agreement (this "Agreement") is made and
entered into effective as of July 17, 1997 (the "Effective Date") by and between
Gould Electronics Inc., an Ohio corporation ("Gould") and EFI International,
Inc., a Delaware corporation ("EFI"), on the one hand, and Sun Microsystems,
Inc., a Delaware corporation ("Purchaser") and Sun Microsystems International,
B.V., a Netherlands corporation ("SMIBV"), on the other hand. Purchaser and
SMIBV are hereinafter sometimes collectively referred to as "Purchaser Parties".
Gould, Japan Energy Corporation, a Japanese corporation ("JEC") and EFI, a
wholly owned subsidiary of JEC, are hereinafter sometimes collectively referred
to as "Seller Parties". The term "Affiliates" shall mean any and all
"Affiliates" (as defined for purposes of U.S. federal securities laws) of any of
Seller Parties, and all successors and assigns of any of the Seller Parties or
any of their respective Affiliates.
R E C I T A L S
A. Purchaser and SMIBV have, concurrently herewith, entered into a
certain Asset Purchase Agreement dated as of July 16, 1997 (the "Asset Purchase
Agreement") with Seller (as that term is defined in the Asset Purchase
Agreement) pursuant to which Seller has agreed to sell to Purchaser Parties, and
Purchaser Parties have agreed to purchase, certain assets associated with
Seller's Storage Products Business. Seller Parties have each reviewed, and
understand, the provisions of the Asset Purchase Agreement. All terms (whether
in upper or lower case text or any combination thereof) defined in the Asset
Purchase Agreement will have the same meanings assigned to such terms in the
Asset Purchase Agreement, except as otherwise expressly defined herein;
provided, however, that for purposes of this Agreement the term "material", when
used herein with reference to any of Seller Parties or any Affiliate, shall mean
any fact, event, action or failure to act, or other circumstance with respect
to, involving or affecting any of Seller Parties or any Affiliate that: (i)
involves in excess of $350,000 or that results or is reasonably likely to result
in a financial loss of at least $350,000, (ii) involves any of the Purchased
Assets or any Encumbrance on any of the Purchased Assets or (iii) is otherwise
material.
B. Gould and EFI are principal stockholders and/or debt holders of
Seller as of the Effective Date and no other Affiliate is a stockholder or debt
holder of Seller.
C. As a material inducement and consideration for Purchaser Parties to
enter into the Asset Purchase Agreement and to pay the Purchase Price provided
for therein, and as a material condition precedent to Purchaser Parties'
obligations to consummate the transactions contemplated by the Asset Purchase
Agreement, Gould and EFI have agreed to enter into and to perform their
respective obligations under this Agreement and to be bound by the terms of this
Agreement.
NOW THEREFORE, as a material inducement to Purchaser Parties to enter
into, to consummate the transactions contemplated by, the Asset Purchase
Agreement, and in consideration of the mutual agreements and promises made
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
1.0 Representations and Warranties. Gould hereby represents and warrants
to Purchaser Parties that all statements in the following subparagraphs of this
Section 1.0 are true and correct:
1.01 Organization and Good Standing. Gould is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted. Gould is qualified to transact business as a foreign corporation in
each jurisdiction in which its failure to be so qualified could reasonably be
expected to have a material adverse effect on Gould's condition (financial or
otherwise), properties, assets, liabilities, business, operations, results of
operations or prospects. Gould is not in default under or in violation of any
provision of its certificate of incorporation or bylaws, both as amended to
date.
1.02 Authorization and Validity. Seller Parties have all necessary
right, corporate power, legal capacity and authority to enter into, execute and
deliver this Agreement and to perform all of their respective covenants,
agreements and obligations under this Agreement. This Agreement has been duly
executed and delivered by Seller Parties and will constitute a legal, valid and
binding obligation of Seller Parties enforceable against Seller Parties in
accordance with its terms. The execution, delivery and performance by each of
Seller Parties of this Agreement have been duly and validly approved and
authorized by all necessary corporate action on the part of each of Seller
Parties, respectively.
1.03 No Conflict. The execution and delivery of this Agreement by Seller
Parties and the performance of this Agreement by Seller Parties and the
Affiliates do not and will not (a) breach, violate or conflict with the
respective certificates of incorporation or bylaws or other charter documents of
any of Seller Parties, in each case as amended to date, (b) conflict with or
violate any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to Seller Parties or, to Seller Parties'
knowledge, to any of the Purchased Assets, (c) result in any breach or violation
of, or constitute a default (or event which with the giving of notice or lapse
of time, or both, would become a breach, violation or default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument to which any of Seller Parties or
any Affiliate is a party or is bound or by which any Purchased Assets are bound
or affected or (d) result in the creation of any Encumbrance on any of the
Purchased Assets in favor of any of Seller Parties or their respective
Affiliates or, to Seller Parties' knowledge, in favor of any other party or
person. As of the Effective Date and as of the Closing, no Affiliate, other than
Gould and EFI, is or will be a stockholder and/or debt holder of Seller or has
or will have any other rights against Seller or any of the Purchased Assets.
1.04 Consents and Approvals. The execution and delivery of this
Agreement by Seller Parties do not, and the performance of this Agreement by
Seller Parties and the Affiliates will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any court
or governmental or regulatory authority or any other third party (except notice
to, and the possible need to obtain the consent of, the United States Defense
Investigative Service with respect to the transfer of the Purchased Assets by
Seller to Purchaser Parties).
1.05 Financial Statements. Gould has delivered to Purchaser: (i) Gould's
audited balance sheet as of December 31, 1996 and audited statement of
operations, statement of cash flows and statement of shareholder's equity for
the year ended December 31, 1996; (ii) Gould's unaudited balance sheet as of
March 31, 1997 (the "Gould Balance Sheet"), and (iii) Gould's unaudited
statement of operations for the three (3) month period ended March 31, 1997 (all
such financial statements of Gould are hereinafter collectively referred to as
the "Gould Financial Statements"). The Gould Financial Statements (a) are in
accordance with the books and records of Gould, (b) fairly present the financial
condition of Gould at the dates therein indicated and the results of operations
for the periods therein specified and (c) have been prepared in accordance with
GAAP applied on a consistent basis with prior periods. Gould has no material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, except for: (i) those
reflected in the Gould Financial Statements or described in accordance with GAAP
in the notes thereto; (ii) those that may have been incurred after March 31,
1997, the date of the Gould Balance Sheet (the "Balance Sheet Date") in the
ordinary course of Gould's business consistent with past practice; and (iii)
those not required by GAAP to be reflected on the Gould Balance Sheet. All
reserves established by Gould and reflected in the Gould Balance Sheet are
reasonably adequate. At the Gould Balance Sheet Date, there were no material
loss contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in the Gould Balance Sheet as
required by said Statement No. 5. Since the Balance Sheet Date, there has been
no material adverse change in Gould's assets, liabilities, financial condition
or results of operations, except for any write offs by Gould with respect to
Gould's investment in Seller and Seller payables to Gould and financial
obligations of Seller to Gould on Gould's books and/or the taking of related
reserves.
1.06 Solvency. Gould is Solvent and Gould presently believes, based on
recent due inquiry and reasonable assumptions, that it will continue to be
Solvent for at least four (4) years after the Closing Date notwithstanding its
performance of this Agreement and the consummation by Seller of the transactions
contemplated by the Asset Purchase Agreement. During the four (4) year period
ending on the Closing Date, none of Seller, any Seller Subsidiary, any other
affiliate of Seller or any Seller Party has initiated, taken or attempted to
initiate or take, or been the subject of, any Insolvency Action or Insolvency
Proceeding and no assets or properties of Seller, any Seller Subsidiary or any
other affiliate of Seller or of any Seller Party are subject to any Insolvency
Proceeding or Insolvency Action; provided, however, that prior to or after
Closing, EFI may be liquidated (but if EFI is so liquidated, EFI and Gould
covenant that no Insolvency Proceeding will be involved in connection with such
liquidation and that in connection with such liquidation Gould shall succeed to,
assume and be bound by all assets, rights, liabilities and obligations of EFI,
including without limitation those relating to, arising under or created by this
Agreement and any and all Seller stock and debt and related rights and
obligations with respect to Seller held by or binding upon EFI). No writ of
attachment, execution or similar process has been ordered, executed or filed
against any Seller Party or any Seller Party's assets or properties that has not
been satisfied or, to the best knowledge of Seller Parties, against Seller or
any of its assets or properties that has not been satisfied. Gould has no reason
to expect that any of the aforementioned actions, or any similar action, will
take place or be taken, and Gould is not aware of any grounds for any of the
aforementioned actions or any like action. Neither Gould, nor to Gould's
knowledge (except as noted above regarding EFI's possible liquidation not
involving an Insolvency Proceeding), any of Seller, any other Seller Party, or
any Affiliate, intends to become the subject of any Insolvency Proceeding or
Insolvency Action or otherwise to file for protection under any bankruptcy or
insolvency law. Without limiting the effect of the last sentence of Recital A
above, for purposes of this Article I, the terms "Solvent", "Insolvency
Proceeding" and "Insolvency Action" shall have the same respective meanings
given to such terms in the Asset Purchase Agreement.
1.07 No Bankruptcy Proceedings. None of Seller Parties is presently the
subject of any Insolvency Action or Insolvency Proceeding; no decree or order
for relief has been entered in respect of any Seller Party, voluntarily or
involuntarily, under any bankruptcy or insolvency law; and, no receiver,
liquidator, sequestrator, trustee, custodian or other officer has been appointed
with respect to any Seller Party or any Seller Party's assets and liabilities
pursuant to any bankruptcy or insolvency law. No Seller Party has made
arrangements for any composition of its indebtedness nor made any assignment for
the benefit of creditors, and Gould has no reason to expect that any of the
aforementioned actions, or any similar action, will take place or be taken.
1.08 Intracompany Agreements; Absence of Unwaived Breach. The Seller's
Disclosure Letter contains an accurate and complete list and description of each
Seller Contract between, among or involving Seller on the one hand and any
Seller Party or any Affiliate on the other hand, or otherwise involving, or
which may upon default involve, any of the Purchased Assets, including in each
case without limitation, any (oral or written) security agreement, deed of
trust, mortgage, indenture, lien, UCC-1 Financing Statement, guarantee,
indemnity agreement, loan agreement, credit facility, loan commitment, debt
instrument or promissory note between or among any of such parties
(collectively, "Intracompany Agreements"). A true and complete copy of each of
the Intracompany Agreements, as amended to date, has been delivered to Purchaser
by Gould or Seller. The Purchased Assets are, or as of immediately prior to the
Closing the Purchased Assets will be, free of any and all Encumbrances created
by any of the Intracompany Agreements or otherwise arising in favor of any of
Seller Parties or any of their respective Affiliates. Except for any rights
assigned under Section 3.06 hereof, upon Closing no event or right will exist
that gives or would give any Seller Party or any Affiliate any right as to any
of the Purchased Assets (except for rights that will have been either waived,
released or terminated effective as of the Closing). The sale and transfer of
the Purchased Assets and the consummation of the other transactions and actions
contemplated by the Asset Purchase Agreement will not violate, breach or cause
any default, event of default, or event which with the passage of time would
constitute a default, under any of the Intracompany Agreements. Except for
breaches, defaults or events of default that will be waived, released or
terminated effective as of the Closing expressly to permit the sale and transfer
of the Purchased Assets and the consummation of the other transactions and
actions contemplated by the Asset Purchase Agreement, and except as to
continuing rights or claims of any of the Seller Parties or any Affiliates
("Continuing Gould Claims") none of which will in any way cause any Loss to or
result in any Liability or obligation of either of Purchaser Parties or in any
way restrict Purchaser Parties' use of, or apply to, any of the Purchased
Assets, neither Seller nor any Seller Party nor any Affiliate is in breach of
any of the Intracompany Agreements and no event exists which, with the giving of
notice or lapse of time or both, would constitute a material breach, default or
event of default on the part of Seller, any Seller Party or any Affiliate as to,
or of, any of the Intracompany Agreements.
1.09 Accuracy of Seller Representations. To Gould's knowledge, all of
Seller's representations and warranties contained in Article III (as qualified
by Seller's Disclosure Letter) and in Article VII of the Asset Purchase
Agreement are true and correct as of the date of the Asset Purchase Agreement
and will be true and correct as of the Closing Date. Without limiting the
preceding sentence (and except as qualified by Seller's Disclosure Letter), all
of Seller's representations and warranties contained in Sections 3.05(a) and (d)
(No Conflicts) and Section 3.29 (Fair Consideration) of the Asset Purchase
Agreement, and all of Seller's representations and warranties in the Asset
Purchase Agreement to the extent they relate or apply to any Seller Parties or
any right of or obligation to any Seller Party or to any Intracompany Agreement,
will be true and correct as of immediately preceding the Closing.
ARTICLE II
2.0 Indemnification
2.01 Definitions. Without limiting the last sentence in Recital A, for
purposes of this Article II, the terms "Loss" and "Purchaser Indemnities" shall
have the respective meanings given to such terms in Section 9.01 of the Asset
Purchase Agreement.
2.02 Indemnification by Gould. Gould agrees, pursuant to the terms and
conditions of this Article II, to indemnify Purchaser, SMIBV and each of the
other Purchaser Indemnitees against, and to hold Purchaser, SMIBV and each of
the other Purchaser Indemnitees harmless from, any and all Loss arising out of:
(a) the failure of any representation or warranty of Gould
contained in this Agreement to be true and correct, or any fraud or willful
misconduct on the part of Gould;
(b) any breach, violation of, or other failure by Gould or EFI
to perform any of their respective covenants or obligations under this Agreement
or any breach, violation of, or other failure by JEC to honor the JEC Inducement
Agreement between Purchaser Parties and JEC entered into concurrently herewith;
(c) the failure of any representation or warranty of Seller in
Article III (as qualified by Seller's Disclosure Letter) or Article VII of the
Asset Purchase Agreement to be true and correct as of the date of the Asset
Purchase Agreement and as of the Closing Date;
(d) the breach or violation by Seller of any covenant of Seller
under the Asset Purchase Agreement;
(e) any of the Excluded Assets or any of the Excluded
Liabilities or any other obligation or Liability of Seller not expressly assumed
by Purchaser under the Asset Purchase Agreement;
(f) the operation or management of the Storage Products Business
or the Purchased Assets by Seller at any time or times on or prior to the
Closing Date (including without limitation any and all Taxes arising out of, or
payable with respect to, Seller's business operations through the Closing Date);
(g) Liability for (or any Liability applicable to Purchaser,
SMIBV or any other Purchaser Indemnitee as a result of) noncompliance with any
bulk sales, bulk transfer or similar laws applicable to the transactions
contemplated by the Asset Purchase Agreement;
(h) any demand, claim, debt, suit, cause of action, arbitration,
investigation or other proceeding made or asserted by Seller or by a shareholder
or creditor of Seller or by any of Seller Parties or by any Affiliate or by any
other person or by any receiver or trustee in bankruptcy of Seller or of the
property or assets of Seller, asserting that the transfer of the Purchased
Assets to Purchaser under the Asset Purchase Agreement constitutes a fraudulent
conveyance, fraudulent transfer or a preference under any applicable state or
federal law, including, but not limited to, the United States Bankruptcy Code;
(i) any (A) Foreign Employee Liabilities; or (B) any amount paid
to or other Liability incurred with respect to any Mandated Employee; or (C) any
demand, claim, debt, suit, cause of action, arbitration, investigation or other
proceeding made or asserted by any Mandated Employee or any other employee or
independent contractor of Seller, any Seller Subsidiary or any affiliate of
Seller or any former employee or independent contractor of Seller, any Seller
Subsidiary or any affiliate of Seller, that relates in any manner to any
alleged, actual or constructive termination by Seller, any Seller Subsidiary or
any affiliate of Seller of such person's employment or the services of such
person, or that involves a claim of adverse employment action, relocation,
promotion, demotion, unequal pay or any other matter relating to the employment
of such person by Seller, any Seller Subsidiary or any affiliate of Seller;
(j) any Continuing Gould Claims or any pursuit, collection or
enforcement thereof by any of Seller Parties; and/or
(k) termination by Seller, any Seller Subsidiary or any
affiliate of Seller of the employment of any of the Employees at any time prior
to, on or after the Closing Date, severance benefits related to any Employee's
termination of employment with Seller, any Seller Subsidiary or any Seller
affiliate, and any failure by Seller, any Seller Subsidiary or any Seller
affiliate to pay or withhold any Taxes payable with respect to the employment by
Seller, any Seller Subsidiary or any Seller affiliate of any Employee or any
failure by Purchaser to hire such Employee.
(l) the failure of the closing condition set forth in Section
8.02(bb) of the Asset Purchase Agreement to have been satisfied (whether or not
such condition was waived by Purchaser), or any failure of Purchaser and SMIBV
to have the Noninfringing Test Software Use Right from and after Closing or any
claim by any party that Purchaser's or SMIBV's use of the Test Software, or
other exercise or attempted exercise of the Noninfringing Test Software Right,
infringes any third party's Intellectual Property Rights or any Loss or
Liabilities associated with acquiring the Noninfringing Test Software Use Right
and related licenses from all parties whose Intellectual Property Rights might
be infringed by Purchaser's use of the Test Software in connection with the
Storage Products Business and, if such rights and licenses cannot be acquired,
all Loss related to developing or having developed new, noninfringing Test
Software for use in connection with the Storage Product Business in replacement
of the Test Software used by Seller or related to hiring third parties to
provide services equivalent to those Purchaser could provide itself if it had a
Noninfringing Test Software Use Right.
(m) any claim for fees or costs of, or amounts payable pursuant
to indemnification obligations to, Genesis, including without limitation the
$250,000 fee Seller owes to Genesis.
2.03 Procedures for Indemnification
(a) As used herein, an "Indemnified Party" means a Purchaser
Indemnitee seeking indemnification pursuant to Section 2.02 hereof. The
Indemnified Party agrees to give Gould prompt written notice of any event, or
any claim, action, suit, demand, assessment, investigation, arbitration or other
proceeding by or in respect of a third party (a "Third Party Claim") of which it
has knowledge, for which such Indemnified Party is entitled to indemnification
under this Article II. No delay on the part of an Indemnified Party in giving
Gould notice of a Third Party Claim shall relieve Gould from any obligation
hereunder unless (and then solely to the extent) that Gould is materially
prejudiced thereby.
(b) Gould will have the right, at its sole cost and expense, to
defend the Indemnified Party against the Third Party Claim with counsel of
Gould's choice that is reasonably satisfactory to the Indemnified Party so long
as: (i) Gould notifies the Indemnified Party in writing within ten (10) days
after the Indemnified Party has given notice of the Third Party Claim that Gould
intends to undertake such defense; (ii) Gould provides each Indemnified Party
with evidence reasonably acceptable to the Indemnified Party that Gould will
have the financial resources required to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder; (iii) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief (provided, however, that Gould will have the right, at its sole
cost and expense, to defend the Indemnified Party against any such Third Party
Claim seeking both money damages and an injunction with counsel of Gould's
choice that is reasonably satisfactory to the Indemnified Party so long as the
Indemnified Party has the right through its own counsel and at Gould's expense
to participate in the injunction portion of any such proceeding and has the
right, directly or through its counsel, to control all tactical decisions in
opposing any such application for an injunction); (iv) Gould conducts the
defense of the Third Party Claim actively and diligently; and (v) the counsel
chosen by Gould does not have any conflict of interest in representing the
interests of the Indemnified Party.
(c) So long as Gould is conducting the defense of the Third
Party Claim in accordance with Section 2.03(b) above, (i) the Indemnified Party
may retain separate co-counsel and participate in the defense of the Third Party
Claim at its own cost and expense (except as provided in Section 2.03(d) below)
and shall have the right to receive copies of all pleadings, notices and
communications with respect to the Third Party Claim to the extent no
attorney-client privilege is thereby waived, (ii) the Indemnified Party may
participate in settlement negotiations with respect to the Third Party Claim,
and (iii) Gould will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim unless (A) the affected
Indemnified Party consents thereto in writing (which consent will not
unreasonably be withheld) or (B) the settlement, compromise or consent includes
an unconditional release of the affected Indemnified Party from all liability
with respect to the claim.
(d) If Gould does not elect to assume control of or otherwise
participate in the defense or settlement of any Third Party Claim, or if Gould
does so elect but any of the conditions in Section 2.03(b) above is or becomes
unsatisfied, or if Gould ceases at any time to actively defend the Third Party
Claim, then, (i) the Indemnified Party may defend against and consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim, provided, however, that Gould (A) shall have the right to receive
copies of all pleadings, notices and communications with respect to the Third
Party Claim so long as the receipt of such documents by Gould does not affect
any attorney-client privilege relating to the Indemnified Party, and (B) may
participate in settlement negotiations with respect to the Third Party Claim and
the Indemnified Party shall not enter into any settlement of the Third-Party
Claim without the prior written consent of Gould (which consent shall not be
unreasonably withheld), (ii) Gould will reimburse the Indemnified Party promptly
and periodically for all costs and expenses incurred in defending against the
Third Party Claim (including without limitation reasonable attorneys' and
experts fees and expenses and court and arbitration costs), and (iii) Gould will
remain responsible for any Loss the Indemnified Party may suffer resulting from,
arising out of, relating to or caused by the Third Party Claim to the fullest
extent provided in this Article II.
2.04 No Limitation Except Applicable Cap and Gould Basket.
(a) Gould's liability to indemnify Purchaser Parties and other
Indemnified Parties for Loss under this Article II shall not be subject to any
limitation except for the Gould Basket (as defined and described below) and
except for the Applicable Cap limitation (as defined and described below).
(b) The aggregate Loss recoverable by Indemnified Parties
(considered together as a group) against Gould under this Article II shall not
exceed: (i) $185,000,000 in the aggregate; (ii) $185,000,000 as to claims
arising in the First Contract Year; or (iii) $110,000,000 as to claims arising
in the Second Contract Year (collectively, the "Applicable Cap"). The "First
Contract Year" and the "Second Contract Year" are the two successive annual
periods ending on the first and on the second anniversaries of the Closing Date,
respectively. A claim shall be deemed to arise in a Contract Year if any of the
material facts giving rise to such claim, or any Loss resulting from facts
asserted in such claim, first occurred or were first suffered in that Contract
Year. Gould shall have no liability under this Article II for any claims for
indemnification hereunder first asserted at any time after the fourth (4th)
anniversary of the Closing Date (with respect to claims or Loss relating to or
arising from any fraud or willful misconduct on the part of Gould) or first
asserted at any time after the third (3rd) anniversary of the Closing Date (as
to any claims or Loss not relating to or arising from any fraud or willful
misconduct on the part of Gould) or for any claims not deemed to arise (as
defined above) in the First Contract Year or in the Second Contract Year.
(c) Notwithstanding the foregoing provisions of this Section
2.04, the Applicable Cap shall not limit the amount of Gould's indemnity
liability for, and Purchaser and any other Indemnified Party shall be entitled
to recover from Gould, any and all Loss arising from: (i) fraud or willful
misconduct on the part of Gould; (ii) any Loss resulting from any Seller Parties
and/or any of their respective Affiliates (and/or any successors or assigns of
any thereof to the extent such successors or assigns take any action whatsoever
with respect to or in relation to any claim of any of the Seller Parties against
Seller ("Assigns")), instituting or causing to be instituted any Insolvency
Action or any Insolvency Proceeding relating to Seller or any of Seller's assets
at any time prior to the end of the Second Contract Year; (iii) any rescission
of or injunction against the purchase by Purchaser Parties of the Purchased
Assets pursuant to the Asset Purchase Agreement occurring in the First Contract
Year; or (iv) any Continuing Gould Claims or the pursuit, collection or
enforcement thereof by any Seller Party and/or any of its Affiliates or any
Assigns; provided, however, that in no event will Losses in excess of the
Applicable Cap for which Purchaser Parties may be indemnified hereunder include
special or consequential damages or lost profits (but this proviso will not
apply to limit the types of Loss recoverable by any Purchaser Parties below the
Applicable Cap).
(d) For purposes of this paragraph (d), the term "Encore Loss"
shall mean any Loss arising solely out of the matters described in Sections
2.02(c), (d), (e), (f), (g), (i), (k), (l) or (m) hereof or solely as a result
of a breach of Section 1.09 hereof. Gould shall not be required to provide
indemnification for any Encore Loss to Purchaser Parties and other Indemnified
Parties under this Article II unless and until the aggregate Encore Loss for
which one or more Indemnified Parties seeks indemnification hereunder exceeds an
aggregate of Five Hundred Thousand Dollars ($500,000) (the "Gould Basket"), in
which event Gould shall be liable to indemnify the Purchaser Parties and the
Indemnified Parties for all Encore Loss, including any Encore Loss within the
Gould Basket. There shall be no Gould Basket or other "basket" of any amount
with respect to any Loss other than an Encore Loss. Notwithstanding the
foregoing, Purchaser and any other Indemnified Party shall be entitled to
recover from Gould any Loss, regardless of the Gould Basket, arising from any of
the matters described in clauses (i), (ii), (iii) or (iv) of Section 2.04(c)
above or arising from the failure of any representation or warranty of Seller
contained in Article VII of the Asset Purchase Agreement to be true and correct
as of the Closing or arising from the fraud or willful misconduct on the part of
Seller.
ARTICLE III
3.0 Covenants
3.01 Covenant Not to Compete.
(a) Non-Competition Covenant. Subject to the following
provisions of this Section 3.01, as a material inducement and consideration for
Purchaser Parties to enter into the Asset Purchase Agreement, for a period of
five (5) years from and after the Closing Date (such five (5) year period of
time being hereinafter called the "Restricted Period"), Gould will not, within
the Restricted Area (as defined below) carry on any business, or own (in whole
or in part), operate, advise, assist or lend funds to or invest funds in, any
person, firm, partnership, limited liability company, business, corporation or
other entity or enterprise that competes, in any material respect, with the
Storage Products Business (the "Restricted Business"). As used herein, the term
"Restricted Area" means any state of the United States of America or any
geographic area within any other country in which Purchaser or SMIBV or their
respective affiliates, directly or indirectly, at any time carries on or engages
in business. During the Restricted Period, Gould further agrees not to interfere
with, disrupt or attempt to disrupt or otherwise adversely affect the
relationship between Purchaser or SMIBV and any third party, including without
limitation any customer, supplier or employee of Purchaser or SMIBV, with
respect to the Restricted Business.
(b) Non-Solicitation. For a period of three (3) years after the
Closing Date, Gould shall not, directly or indirectly, solicit any Employee
hired by Purchaser or any affiliate of Purchaser to (i) become employed by Gould
or any Affiliate or (ii) terminate such Employee's employment with or services
to Purchaser or any affiliate of Purchaser.
(c) Injunctive Relief; Interpretation. In the event of a breach
of any of the covenants set forth in this Section 3.01, Purchaser and SMIBV will
each be entitled to an injunction against Gould restraining such breach in
addition to any other remedies available at law or in equity. In the event that
any covenant in this Section 3.01 is held to be invalid, illegal or
unenforceable by any court of competent jurisdiction or any other governmental
authority in any respect, it is agreed and understood that such covenant will
not be voided but rather will be construed to impose limitations upon Gould's
activities no greater than allowable under then applicable law.
(d) Gould. As used in this Section 3.01, the term "Gould"
includes, in addition to Gould itself, each person (as defined in the Asset
Purchase Agreement) 50% or more of the equity interests of which is beneficially
owned by Gould (within the meaning of the Securities Act) or that is otherwise
controlled by Gould (each a "Gould Subsidiary") and all directors, officers,
employees, stockholders, agents, subsidiaries and Affiliates of Gould or any
Gould Subsidiary or any other Seller Party acting on behalf of, or at the
direction of or with the direct or indirect assistance of Gould, any Gould
Subsidiary or any other Seller Party.
3.02 Further Actions to Avoid Breach of Intracompany Agreements.
Seller Parties will take all actions required on their part or on the part of
any Affiliate (including without limitation the filing of termination
statements with respect to all UCC-1 Financing Statements, and the termination
of any security agreements, describing or with respect to any of the Purchased
Assets), and will cause Seller to take all actions on its part required, to
ensure that: (i) no breach or default under any of the Intracompany
Agreements will result from execution or performance of the Asset Purchase
Agreement or any of the transactions contemplated thereby; (ii) as of the
Closing, none of the Purchased Assets shall be encumbered by any Encumbrance
arising under any of the Intracompany Agreements or be subject to any other
interest or right of any Seller Party (or of any Affiliate) created by any of
the Intracompany Agreements or otherwise; and (iii) title to all the Purchased
Assets shall, when transferred from Seller to Purchaser Parties at the
Closing, be free and clear of any right or interest of any Seller Party or of
any Affiliate or any Gould Subsidiary.
3.03 Further Assurances as to Continued Seller Solvency. Gould shall,
except as otherwise consented to in writing by Purchaser:
(i) take all actions (including without limitation making
continued capital infusions in Seller, defending, discharging or seeking
dismissal of third party claims or suits against Seller or the Purchased
Assets, forgiving or restructuring indebtedness owed by Seller to any Seller
Party or Gould Subsidiary, terminating or modifying (or causing to be
terminated or modified) any Intracompany Agreements and releasing or
terminating any Encumbrances on any of the Purchased Assets created by any of
the Intracompany Agreements or otherwise), and
(ii) forbear (and cause EFI to forbear) from causing Seller, any
successors or assigns of Seller, or any of the Purchased Assets from becoming
involved in or subject to any Insolvency Action or Insolvency Proceeding and
from otherwise taking any actions to enforce any rights or remedies of Seller
Parties with respect to any claims any Seller Party or any Affiliate may have
against Seller or against or with respect to the Purchased Assets, in each case
(i) and (ii) as required to ensure that (a) Seller is Solvent as of the
Effective Date and at the Closing Date; and (b) Seller (1) remains Solvent and
(2) does not become the subject of any Insolvency Action or any Insolvency
Proceeding, in each case (b)(1) and (b)(2) for a period of one (1) year after
the Closing Date. Without limiting the foregoing in any way, Gould and EFI shall
not, except as otherwise consented to in writing by Purchaser (which consent
will not unreasonably be withheld), for a period of one (1) year after the
Closing Date, institute or cause Seller to become involved in any Insolvency
Action or any Insolvency Proceeding, including without limitation by institution
of an involuntary proceeding in bankruptcy or by voting as a stockholder, or
causing any representatives of Gould on Seller's Board of Directors to vote as a
director, in favor of any proposal to liquidate, wind up or dissolve Seller.
3.04. Fairness of Consideration. Gould represents, and each of Seller
Parties hereby acknowledges and stipulates, for itself and its respective
Affiliates, as follows and agrees never to assert to the contrary at any time
or in any circumstances: (i) the consideration paid and agreements made by
Purchaser Parties under the Asset Purchase Agreement for the Purchased Assets
represent fair and reasonably equivalent consideration for the Purchased
Assets and all other assignments and agreements made by Seller under the Asset
Purchase Agreement and the Ancillary Agreements, (ii) Seller is not entering
into the Asset Purchase Agreement or any Ancillary Agreement with the intent
to defraud, delay or hinder its creditors and the consummation of the
transactions contemplated by the Asset Purchase Agreement and the Ancillary
Agreements will not have any such effect; and (iii) the transactions
contemplated in the Asset Purchase Agreement or any Ancillary Agreements will
not give rise to any right or ability of any Seller Party, any Gould
Subsidiary or any Affiliate, or to Gould's knowledge, of any other creditor or
shareholder of Seller, to assert any claim whatsoever against any Purchaser
Party or any of the Purchased Assets in the hands of any Purchaser Party or
any Purchaser Party's successors and assigns following the Closing or to in
any way challenge the sale of the Purchased Assets to Purchaser Parties under
the Asset Purchase Agreement.
3.05 Opinion of Counsel. At the Closing, counsel to Seller Parties will
provide a legal opinion as to the truth of the statements in Sections 1.02,
1.03 and 1.04 as respects each of the Seller Parties and as to the
enforceability of all provisions of this Agreement against Gould and EFI
(except Section 4.02 and Section 4.05 hereof, the enforceability of which can
be excluded from any such opinion, and except for standard exceptions as to
statutory or public policy limitations applicable to the extent the scope of
the Restricted Business exceeds, or the duration of the Non-Competition
Covenant in Section 3.01(a) is in excess of, such scope or duration as are
deemed reasonably necessary to protect Purchaser Parties' reasonable
interests).
3.06 Assignment of Gould License Agreement. Gould hereby represents and
warrants to Purchaser Parties that Gould is the permitted successor or assign
of all rights of Gould, Inc., a Delaware corporation, under that certain
Intellectual Property License Agreement among Gould, Inc., Seller and Encore
Computer U.S., Inc. and that certain Escrow, Access and Training Agreement
among the same parties, each dated as of January 28, 1991, as amended through
Closing (collectively, the "Gould License Agreements"). Gould further
represents that no sublicenses have been granted nor have any items,
derivatives or works protectible by Intellectual Property Rights been created,
pursuant to any rights granted under the Gould License Agreements. Gould
shall, upon receipt of written request from Purchaser, assign to Purchaser
Parties, effective as of the Closing Date, all right, title and interest of
Gould (but none of Gould's obligations or Liabilities, if any) arising under,
relating to or granted or imposed by the Gould License Agreements, including
without limitation in or to any of the Purchased Assets. Gould shall, upon
receipt of written request from Purchaser, take all further actions required
to cause Gould's non-exclusive technology license rights, rights to obtain
source code, rights to access and training and other rights arising under,
relating to or granted by the Gould License Agreements to be assigned to
Purchaser Parties effective as of the Closing Date, such that Purchaser
Parties shall be able to exercise all rights Gould was entitled to exercise
under or as a result of its entry into the Gould License Agreements as if
Purchaser Parties were the original parties thereto. A true and complete copy
of the Gould License Agreements are attached hereto as Appendix A.
ARTICLE IV
4.0 General Release; Covenant Not to Sue; Waiver of Defenses.
4.01 General Release by Seller Parties. Each of Seller Parties
does hereby, for itself and its respective Affiliates, officers, directors,
stockholders, employees, agents, legal successors and assigns (collectively, the
"Releasing Parties"), release and absolutely and forever discharge each of
Purchaser Parties and all affiliates (as defined under the Securities Act but
excluding shareholders of Purchaser) thereof and each of the respective
shareholders, officers, directors, employees, agents, attorneys, legal
successors and assigns of any of Purchaser Parties or any affiliate (as defined
immediately above) thereof (collectively, the "Released Parties"), of and from
any and all claims, demands, damages, debts, liabilities, accounts, reckonings,
obligations, costs, expenses, liens, actions and causes of action of every kind
and nature whatsoever, whether now known or unknown, suspected or unsuspected,
which the Releasing Parties now have, own or hold or at any time heretofore ever
had, owned or held or could, shall or may hereafter have, own or hold against
the Released Parties (or any of them) based upon or arising out of any matter,
cause, fact, thing, act or omission whatsoever occurring or existing at any time
to and including the date hereof, or arising on or after the date hereof, in
connection with the facts, circumstances and events relating to the Purchased
Assets or to any of the transactions contemplated by the Asset Purchase
Agreement or any of the Ancillary Agreements or any of the Intracompany
Agreements or any Liability or obligation thereunder or any of the Continuing
Gould Claims or any pursuit, collection or enforcement thereof by any of Seller
Parties (collectively, together with the enumerated examples below, the
"Released Matters"), including without limitation any claim or allegation by any
of the Releasing Parties or any other party that: (i) any of the Released
Parties is on any theory liable for any of the debts or obligations or
Liabilities of Seller not expressly assumed by Purchaser under the Asset
Purchase Agreement (including without limitation any Liability arising under any
of the Intracompany Agreements or any of the Continuing Gould Claims); (ii) any
of the Released Parties is on any theory liable to any of the Releasing Parties
for any claim, cause of action, loss, damages or other amount whatsoever, as a
result of Purchaser Parties' purchase of the Purchased Assets; (iii) any of the
Releasing Parties has any right in, claim as to or Encumbrance on or with
respect to, any of the Purchased Assets; or (iv) the purchase of the Purchased
Assets under the Asset Purchase Agreement constituted a fraudulent conveyance, a
fraudulent transfer, or a preference or was otherwise improper, unlawful or
violative of any rights of any of the Releasing Parties under the Intracompany
Agreements or otherwise (all of which foregoing matters are hereinafter referred
to as and included within the "Released Matters"). It is the intention of Seller
Parties that the release set forth above in this Section 4.01 shall be effective
as a full and final accord and satisfaction and general release by each of the
Releasing Parties of and from all claims now existing or hereafter arising
against any of the Released Parties relating to any of the Released Matters.
4.02 Waiver of Unknown Claims. In furtherance of the intentions set
forth herein, each of Seller Parties acknowledges, for itself and each of the
other Releasing Parties, that it is familiar with Section 1542 of the Civil Code
of the State of California (and similar laws of the States of Ohio and Florida
and of Japan), which provides as follows:
"A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release, which
if known by him must have materially affected his settlement with the debtor."
Each of Seller Parties, for itself and each of the other Releasing Parties,
hereby waives and relinquishes any right or benefit which it has or may have
under Section 1542 of the Civil Code of the State of California or any similar
provision of the statutory or nonstatutory law of any other jurisdiction
(including without limitation the States of Ohio and Florida and of Japan), to
the full extent that it may lawfully waive all such rights and benefits
pertaining to the subject matter of this Agreement. In connection with such
waiver and relinquishment, each of Seller Parties acknowledges that it is
aware that it or its attorneys or accountants may hereafter discover claims or
facts in addition to or different from those which it now knows or believes to
exist with respect to the subject matter of this Agreement or of the Asset
Purchase Agreement or the Released Parties, but that it is its intention
hereby fully, finally and forever to settle and release, for itself and each
of the other Releasing Parties, all of the Released Matters which now exist,
may exist or heretofore have existed or which arise on or after the date
hereof as to all of the Released Parties. In furtherance of this intention,
the release herein given by Seller Parties for themselves and each of the
other Releasing Parties shall be and remain in full force and effect as a full
and complete release, and operate as a full release of claims hereafter
arising, notwithstanding the discovery or existence of any such additional or
different claims or facts.
4.03 Authorized Release. Each of Seller Parties warrants and represents
that it is the sole and lawful owner of all right, title and interest in and to
all of the respective Released Matters as to which it is the Releasing Party and
that it has not heretofore voluntarily, by operation of law or otherwise,
assigned or transferred (or purported to assign or transfer) to any person
whomsoever any Released Matter or any part or portion thereof of any claim,
demand or right against any Released Party. Seller Parties shall indemnify and
hold harmless the Released Parties from and against any Loss based on, or
arising in connection with or out of any such assignment or transfer (or
purported or claimed assignment or transfer).
4.04 Covenant Not to Sue. Each of Seller Parties hereby agrees not to
sue or otherwise bring any claim against any of the Released Parties on or with
respect to any of the Released Matters or against or with respect to any of the
Purchased Assets, in each case whether by way of complaint, cross-complaint,
cross claim, set off, defense or by any other means or manner in any court,
other tribunal or otherwise. Each of Seller Parties hereby further agrees not to
take any action against or with respect to any of the Purchased Assets utilizing
any of Seller Parties' rights as a creditor, secured creditor or stockholder,
including without limitation any foreclosure action or any action permitted to
be taken by a secured party under the Uniform Commercial Code as adopted in any
jurisdiction or any action permitted to be taken by a lienholder or judgment
creditor under applicable state laws (including without limitation, attachment
and garnishment actions and imposition of or execution upon any lien).
4.05 KNOWING AND EXPLICIT WAIVERS. THE SELLER PARTIES ACKNOWLEDGE THAT
PURCHASER PARTIES ARE RELYING ON THIS AGREEMENT IN ENTERING INTO THE ASSET
PURCHASE AGREEMENT AND THE ANCILLARY AGREEMENTS AND THE TRANSACTIONS
CONTEMPLATED THEREBY. SELLER PARTIES AND/OR THEIR RESPECTIVE AFFILIATES ARE
PRINCIPAL STOCKHOLDERS AND/OR DEBT HOLDERS OF SELLER AND ACCORDINGLY SELLER
PARTIES REPRESENT THAT THEY FULLY UNDERSTAND THE BUSINESS, PROSPECTS, CASH
POSITION, LIABILITIES, OPERATING RESULTS AND FINANCIAL CONDITION OF SELLER AND
THE PROVISIONS OF THE ASSET PURCHASE AGREEMENT AND THE ANCILLARY AGREEMENTS.
SELLER PARTIES HAVE ENTERED INTO THIS AGREEMENT BASED SOLELY ON THEIR
INDEPENDENT KNOWLEDGE OF THESE FACTS RELATING TO SELLER AND SELLER PARTIES
ACCORDINGLY ASSUME FULL RESPONSIBILITY FOR OBTAINING ANY FURTHER INFORMATION
WITH RESPECT TO SELLER OR THE CONDUCT OF SELLER'S BUSINESS. SELLER PARTIES
REPRESENT THAT, AS BETWEEN SELLER PARTIES AND PURCHASER PARTIES, SELLER PARTIES
ARE NOW AND WILL FOREVER REMAIN RESPONSIBLE FOR ASCERTAINING THE FINANCIAL
CONDITION OF SELLER. EACH OF SELLER PARTIES WAIVES ANY DUTY ON THE PART OF ANY
OF THE RELEASED PARTIES TO DISCLOSE TO IT, AND AGREES THAT IT IS NOT RELYING ON
OR EXPECTING ANY OF THE RELEASED PARTIES TO DISCLOSE TO IT, ANY FACT NOW OR
HEREAFTER KNOWN BY ANY OF THE RELEASED PARTIES RELATING TO THE OPERATION OR
CONDITION OF SELLER. SELLER PARTIES WAIVE ANY RIGHT TO ASSERT AGAINST ANY
PURCHASER PARTIES ANY DEFENSES OR SET-OFF RIGHTS SELLER HAS OR MAY ACQUIRE
AGAINST ANY OF PURCHASER PARTIES. SELLER PARTIES HEREBY WAIVE, FOR THEMSELVES
AND EACH AFFILIATE, ANY AND ALL DEFENSES BASED UPON OR ARISING BY REASON OF (A)
ANY DISABILITY OR OTHER DEFENSE OF SELLER OR ANY OTHER PERSON, (B) THE
CESSATION, OR ANY LIMITATION, FROM ANY CAUSE WHATSOEVER, OF ANY LIABILITY OF
SELLER OR ANY PORTION THEREOF, (C) ANY LACK OF AUTHORITY OF ANY AGENT OR OTHER
PERSON ACTING OR PURPORTING TO ACT ON BEHALF OF SELLER, (D) ANY DEFECT IN THE
FORMATION OR OTHER CORPORATE FORMALITIES OF SELLER, (E) THE APPLICATION BY
SELLER OF THE PURCHASE PRICE OR ANY PORTION THEREOF FOR PURPOSES OTHER THAN THE
PURPOSES REPRESENTED TO, OR INTENDED OR UNDERSTOOD BY SELLER PARTIES OR ANY
AFFILIATE, INCLUDING WITHOUT LIMITATION THE DISTRIBUTION BY SELLER OF ANY
PORTION OF THE PURCHASE PRICE TO ANY CREDITOR OR SHAREHOLDER OTHER THAN SELLER
PARTIES; (F) ANY ACT OR OMISSION BY SELLER OR PURCHASER PARTIES THAT DIRECTLY OR
INDIRECTLY, BY OPERATION OF LAW OR OTHERWISE, RESULTS IN OR AIDS THE DISCHARGE
OF SELLER, ANY LIABILITIES OF SELLER OR ANY CLAIM OR ENCUMBRANCE ON OR WITH
RESPECT TO ANY OF THE PURCHASED ASSETS; (G) ANY MODIFICATION OF SELLER'S
OBLIGATIONS TO ANY PURCHASER PARTY OR ANY PURCHASER INDEMNITEE IN ANY FORM
WHATSOEVER, INCLUDING BY AMENDMENT TO THE ASSET PURCHASE AGREEMENT OR ANY
ANCILLARY AGREEMENT OR ASSERTION, PAYMENT OR SETTLEMENT OF ANY CLAIM FOR
INDEMNIFICATION BROUGHT THEREUNDER OR ANY OTHER RENEWAL, EXTENSION,
ACCELERATION, INCREASE, MODIFICATION, OR OTHER CHANGE IN TIME FOR PAYMENT OF
SELLER'S OBLIGATIONS OR LIABILITIES TO EITHER OF THE PURCHASER PARTIES UNDER THE
ASSET PURCHASE AGREEMENT OR OTHERWISE OR (H) AN ELECTION OF REMEDIES BY ANY OF
THE RELEASED PARTIES, EVEN THOUGH THAT ELECTION OF REMEDIES HAS TERMINATED
SELLER PARTIES' SECURITY INTEREST IN OR OTHER RIGHTS WITH RESPECT TO THE
PURCHASED ASSETS OR OTHER RIGHTS. EACH OF SELLER PARTIES REPRESENTS AND WARRANTS
THAT IT IS FULLY AWARE OF THE SPECIFIC PROVISIONS OF DIVISION THREE, PART 4,
TITLE 13 OF THE CALIFORNIA CIVIL CODE ("CCC"), INCLUDING SECTIONS 2787 THROUGH
2856 THEREOF, AND OF SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF
CIVIL PROCEDURE ("CCP") AND SIMILAR PROVISIONS UNDER FLORIDA, OHIO AND OTHER
STATES' LAWS; EACH OF SELLER PARTIES NEVERTHELESS WAIVES, FOR ITSELF AND EACH
AFFILIATE, AND ANY ALL DEFENSES ARISING UNDER ANY OF SUCH STATUES OR ANY OTHER
DEFENSES THAT ARE OR MAY BE AVAILABLE TO GUARANTORS OR SECURED PARTIES UNDER ANY
APPLICABLE LAW, INCLUDING WITHOUT LIMITATION THOSE ARISING BY VIRTUE OF ANY ACT
OR OMISSION OF SELLER OR ANY RELEASED PARTY OR OTHER PERSON INCLUDING WITHOUT
LIMITATION THOSE LISTED IN THE ABOVE SECTIONS OF THE CCC AND CCP. EACH OF SELLER
PARTIES FURTHER REPRESENTS AND WARRANTS THAT (A) ITS WAIVERS HEREIN OF ALL
RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES THAT MAY BE AVAILABLE UNDER OR BY
VIRTUE OF THE ABOVE LISTED SECTIONS OF THE CCC AND CCP AND ALL OTHER WAIVERS
HEREIN ARE EXPLICIT, KNOWING WAIVERS, (B) IT HAS EITHER OBTAINED THE ADVICE OF
COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE
TERMS AND PROVISIONS OF THIS AGREEMENT, (C) BY EXECUTING THIS AGREEMENT, IT IS
WAIVING CERTAIN RIGHTS AS OTHERWISE SET FORTH HEREIN TO WHICH IT MAY OTHERWISE
BE ENTITLED BY LAW, AND (D) IT IS NOT RELYING UPON ANY STATEMENTS OR
REPRESENTATIONS OF ANY OF THE RELEASED PARTIES OR OF SELLER AND THAT SUCH
STATEMENTS OR REPRESENTATIONS, IF ANY, ARE OF NO FORCE OR EFFECT AND ARE FULLY
SUPERSEDED BY THIS AGREEMENT. EACH OF THE RELEASING PARTIES FURTHER WAIVES ALL
RIGHTS AND DEFENSES THAT SUCH RELEASING PARTY MAY HAVE BECAUSE THE SELLER'S
OBLIGATIONS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER THINGS: (A)
PURCHASER PARTIES MAY COLLECT FROM ANY OF SELLER PARTIES ANY AMOUNTS DUE UNDER
OR WHICH ARE RECOVERABLE BECAUSE OF A BREACH OF THIS AGREEMENT WITHOUT FIRST
FORECLOSING ON ANY REAL OR PERSONAL PROPERTY COLLATERAL OF SELLER; (B) IF THE
PURCHASER PARTIES FORECLOSE ON ANY REAL PROPERTY COLLATERAL PLEDGED BY THE
SELLER: (i) THE AMOUNT OF THE OBLIGATIONS MAY BE REDUCED ONLY BY THE PRICE FOR
WHICH THAT COLLATERAL IS SOLD AT THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS
WORTH MORE THAN THE SALE PRICE; (ii) PURCHASER PARTIES MAY COLLECT SUCH AMOUNTS
FROM THE SELLER PARTIES EVEN IF PURCHASER PARTIES, BY FORECLOSING ON REAL
PROPERTY COLLATERAL, HAVE DESTROYED ANY RIGHT SELLER PARTIES MAY HAVE TO COLLECT
FROM PURCHASER PARTIES OR SELLER. THIS IS AN UNCONDITIONAL AND IRREVOCABLE
WAIVER OF ANY RIGHTS AND DEFENSES SELLER PARTIES MAY HAVE BECAUSE SELLER'S
OBLIGATIONS ARE SECURED BY REAL PROPERTY, INCLUDING WITHOUT LIMITATION ANY
RIGHTS OR DEFENSES BASED UPON SECTION 580a, 580b, 580d, OR 726 OF THE CCP.
ARTICLE V
5.0 General Provisions
5.01 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
5.02 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
5.03 Entire Agreement. This Agreement, along with the defined terms in
the Asset Purchase Agreement used herein, constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and undertakings with respect to the subject
matter hereof, both written and oral.
5.04 Assignment. This Agreement shall not be assigned or delegated by
Seller Parties without the prior written consent of Purchaser Parties. Purchaser
Parties shall be free to assign their rights hereunder and such rights will
inure to all of the Released Parties and to the respective successors, assigns
and affiliates of any of the Released Parties.
5.05 Amendment; Waiver. This Agreement may not be amended or modified
except by an instrument in writing signed by Gould and Purchaser (which
instrument will bind EFI and SMIBV). Waiver of any term or condition of this
Agreement shall only be effective if in writing and shall not be construed as a
waiver of any subsequent breach or waiver of the same term or condition, or a
waiver of any other term or condition of this Agreement.
5.06 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
California applicable to contracts executed in and to be performed by residents
of California within that State, without reference to the conflict of laws
provisions thereof. As to matters arising out of or relating to this Agreement,
Gould and EFI consent to submit to the jurisdiction of any federal or state
court located in the State of California and agree not to object to venue in the
federal or state courts located in Santa Clara County, California.
5.07 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
5.08 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to each
party at the addresses indicated for such party on the signature page hereof (or
at such other address for a party as shall be specified by like notice).
5.09 Termination. In the event that the Asset Purchase Agreement is
terminated by Purchaser in accordance with its terms, this Agreement shall then
terminate concurrently.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
GOULD ELECTRONICS INC. SUN MICROSYSTEMS, INC.
By: By:
Name: Name:
Title: Title:
Address for Notice: Address for Notice:
___________________________ __________________________
___________________________ __________________________
___________________________ __________________________
EFI INTERNATIONAL, INC. SUN MICROSYSTEMS INTERNATIONAL, B.V.
By: By:
Name: Name:
Title: Title:
Address for Notice: Address for Notice:
___________________________ __________________________
___________________________ __________________________
___________________________ __________________________
[GOULD/EFI INDUCEMENT AGREEMENT SIGNATURE PAGE]
APPENDIX A
Copy of
Gould License Agreements
dated January 28, 1991
Exhibit A
JEC INDUCEMENT AGREEMENT
This JEC Inducement Agreement (this "Agreement") is made and entered into
effective as of August __, 1997 (the "Effective Date") by and between Japan
Energy Corporation, a Japanese corporation ("JEC"), on the one hand, and Sun
Microsystems, Inc., a Delaware corporation ("Purchaser") and Sun Microsystems
International, B.V., a Netherlands corporation ("SMIBV"), on the other hand.
Purchaser and SMIBV are hereinafter sometimes collectively referred to as
"Purchaser Parties". JEC, EFI International, Inc., a Delaware corporation
("EFI"), and Gould Electronics Inc., an Ohio corporation ("Gould") are
hereinafter sometimes collectively referred to as "Seller Parties". The term
"Affiliates" shall mean any and all "Affiliates" (as defined for purposes of
U.S. federal securities laws) of any of Seller Parties, and all successors and
assigns of any of the Seller Parties or any of their respective Affiliates.
R E C I T A L S
A. Purchaser, SMIBV and Encore Computer Corporation, a Delaware corporation
("Seller") have, concurrently herewith, entered into a certain Asset Purchase
Agreement dated as of July 16, 1997 (the "Asset Purchase Agreement") pursuant
to which Seller has agreed to sell to Purchaser Parties, and Purchaser Parties
have agreed to purchase, certain assets associated with Seller's Storage
Products Business. JEC has reviewed, and understands, the provisions of the
Asset Purchase Agreement. All terms (whether in upper or lower case text or
any combination thereof) defined in the Asset Purchase Agreement will have the
same meanings assigned to such terms in the Asset Purchase Agreement, except
as otherwise expressly defined herein; provided, however, that for purposes of
this Agreement the term "material", when used herein with reference to any of
Seller Parties or any Affiliate, shall mean any fact, event, action or failure
to act, or other circumstance with respect to, involving or affecting any of
Seller Parties or any Affiliate that: (i) involves in excess of $350,000 or
that results or is reasonably likely to result in a financial loss of at least
$350,000, (ii) involves any of the Purchased Assets or any Encumbrance on any
of the Purchased Assets or (iii) is otherwise material.
B. JEC's subsidiaries, Gould and EFI, are principal stockholders and/or
debt holders of Seller as of the Effective Date and no other Affiliate is a
stockholder or debt holder of Seller.
C. As a material inducement and consideration for Purchaser Parties to
enter into the Asset Purchase Agreement and to pay the Purchase Price provided
for therein, and as a material condition precedent to Purchaser Parties'
obligations to consummate the transactions contemplated by the Asset Purchase
Agreement, JEC has agreed to enter into and to perform its obligations under
this Agreement and to be bound by the terms of this Agreement.
NOW THEREFORE, as a material inducement to Purchaser Parties to enter into, to
consummate the transactions contemplated by, the Asset Purchase Agreement, and
in consideration of the mutual agreements and promises made herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
1.0 Representations and Warranties. JEC hereby represents and warrants to
purchaser Parties that all statements in the following subparagraphs of this
Section 1.0 are true and correct:
1.01 Organization and Good Standing. JEC is a corporation duly
organized, validly existing and in good standing under the laws of Japan and has
the corporate power and authority to own, operate and lease its properties and
to carry on its business as now conducted and as proposed to be conducted.
1.02 Authorization and Validity. JEC has all necessary right, corporate
power, legal capacity and authority to enter into, execute and deliver this
Agreement and to perform all of its covenants, agreements and obligations under
this Agreement. This Agreement has been duly executed and delivered by JEC and
will constitute a legal, valid and binding obligation of JEC enforceable against
it in accordance with its terms. The execution, delivery and performance by JEC
of this Agreement has been duly and validly approved and authorized by all
necessary corporate action on the part of JEC.
1.03 No Conflict. The execution and delivery of this Agreement by JEC
and the performance of this Agreement by JEC do not and will not (a) breach,
violate or conflict with the certificate of incorporation or bylaws or other
applicable charter documents of JEC, in each case as amended to date, (b)
conflict with or violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to JEC, (c) result in any
breach or violation of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a breach, violation or
default) under, or give to JEC or others any rights of termination, amendment,
acceleration or cancellation of, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument to
which JEC is a party or is bound or by which any Purchased Assets are bound or
affected or (d) result in the creation of any Encumbrance on any of the
Purchased Assets in favor of JEC. As of the Effective Date and as of the
Closing, no Affiliate, other than Gould and EFI, is or will be a stockholder
and/or debt holder of Seller or has or will have any other rights against Seller
or any of the Purchased Assets.
1.04 Consents and Approvals. The execution and delivery of this
agreement by JEC do not, and the performance of this Agreement by JEC will not,
require any consent, approval, authorization or other action by, or filing with
or notification to, any court or governmental or regulatory authority or any
other third party.
1.05 Intracompany Agreements; Absence of Unwaived Breach. The Purchased
Assets are, or as of immediately prior to the Closing the Purchased Assets will
be, free of any and all Encumbrances or other rights in favor of JEC. No event
or right exists that gives or would give JEC any right as to any of the
Purchased Assets (except for rights that were either waived, released or
terminated effective as of the Closing) or any right to pursue any claim against
Purchaser Parties after the Closing. The sale and transfer of the Purchased
Assets and the consummation of the other transactions and actions contemplated
by the Asset Purchase Agreement will not violate, breach or cause any default,
event of default, or event which with the passage of time would constitute a
default, under any agreement or understanding to which JEC and Seller are
parties.
ARTICLE II
2.0 Covenants
2.01 Covenant Not to Compete.
(a) Non-Competition Covenant. Subject to the following
provisions of this Section 2.01, as a material inducement and consideration for
Purchaser Parties to enter into the Asset Purchase Agreement, for a period of
five (5) years from and after the Closing Date (such five (5) year period of
time being hereinafter called the "Restricted Period"), JEC will not, within the
Restricted Area (as defined below) carry on any business, or own (in whole or in
part), operate, advise, assist or lend funds to or invest funds in, any person,
firm, partnership, limited liability company, business, corporation or other
entity or enterprise that competes, in any material respect, with the Storage
Products Business (the "Restricted Business"). As used herein, the term
"Restricted Area" means any state of the United States of America or any
geographic area within any other country in which Purchaser or SMIBV or their
respective affiliates, directly or indirectly, at any time carries on or engages
in business. During the Restricted Period, JEC further agrees not to interfere
with, disrupt or attempt to disrupt or otherwise adversely affect the
relationship between Purchaser or SMIBV and any third party, including without
limitation any customer, supplier or employee of Purchaser or SMIBV, with
respect to the Restricted Business.
(b) Non-Solicitation. For a period of three (3) years after the
Closing Date, JEC shall not, directly or indirectly, solicit any Employee hired
by Purchaser or any affiliate of Purchaser to (i) become employed by JEC or any
Affiliate or (ii) terminate such Employee's employment with or services to
Purchaser or any affiliate of Purchaser.
(c) Injunctive Relief; Interpretation. In the event of a breach
of any of the covenants set forth in this Section 2.01, Purchaser and SMIBV will
each be entitled to an injunction against JEC restraining such breach in
addition to any other remedies available at law or in equity. In the event that
any covenant in this Section 2.01 is held to be invalid, illegal or
unenforceable by any court of competent jurisdiction or any other governmental
authority in any respect, it is agreed and understood that such covenant will
not be voided but rather will be construed to impose limitations upon JEC's
activities no greater than allowable under then applicable law.
(d) JEC. As used in this Section 2.01, the term "JEC" includes
in addition to JEC itself, each person (as defined in the Asset Purchase
Agreement) 50% or more of the equity interests of which is beneficially owned by
JEC (within the meaning of the Securities Act) or that is otherwise controlled
by JEC (each a "JEC Subsidiary") and all directors, officers, employees,
stockholders, agents, subsidiaries and Affiliates of JEC or any JEC Subsidiary
acting on behalf of, or at the direction of or with the direct or indirect
assistance of JEC or any JEC Subsidiary.
2.02 Further Actions to Avoid Breach of Intracompany Agreements. JEC
will take all actions required on its part (including without limitation the
filing of termination statements with respect to all UCC-1 Financing Statements,
and the termination of any security agreements, describing or with respect to
any of the Purchased Assets) to ensure that (i) no breach or default under any
agreement between JEC and Seller will result from execution or performance of
the Asset Purchase Agreement or any of the transactions contemplated thereby;
(ii) as of the Closing, none of the Purchased Assets shall be encumbered by any
Encumbrance arising under any agreement between JEC and Seller or be subject to
any other interest or right of JEC created by any agreement between JEC and
Seller; and (iii) title to all the Purchased Assets shall, when transferred from
Seller to Purchaser Parties at Closing, be free and clear of any right or
interest of JEC or any JEC Subsidiary.
2.03 Fairness of Consideration. JEC hereby acknowledges and stipulates
as follows and agrees never to assert to the contrary at any time or in any
circumstances: (i) the consideration paid and agreements made by Purchaser
Parties under the Asset Purchase Agreement for the Purchased Assets represent
fair and reasonably equivalent consideration for the Purchased Assets, (ii)
Seller is not entering into the Asset Purchase Agreement or any Ancillary
Agreement with the intent to defraud, delay or hinder its creditors and the
consummation of the transactions contemplated by the Asset Purchase Agreement
and the Ancillary Agreements will not have any such effect; and (iii) the
transactions contemplated in the Asset Purchase Agreement or any Ancillary
Agreements will not give rise to any right or ability of JEC or any JEC
Subsidiary to assert any claim whatsoever against any Purchaser Party or any of
the Purchased Assets in the hands of any Purchaser Party or any Purchaser
Party's successors and assigns following the Closing or to in any way challenge
the sale of the Purchased Assets to Purchaser Parties under the Asset Purchase
Agreement.
2.04 Opinion of Counsel. At the Closing, counsel to JEC will provide a
legal opinion from its Japanese counsel as to the truth of the statements in
Sections 1.01, 1.02, 1.03 and 1.04 and as to the enforceability of all
provisions of this Agreement (except Section 3.02 hereof, which can be excluded
from any such opinion) against JEC.
2.05 Guaranty of Gould Performance; Knowing Waiver of Surety Defenses.
(a) Guaranty. JEC unconditionally guarantees to Purchaser
Parties all the obligations of Gould under the Gould/EFI Inducement Agreement
dated July 17, 1997 (the "Gould Agreement") among Gould, EFI, Purchaser and
SMIBV. This guaranty is a guaranty of performance and not a guaranty of
collection. If Gould fails to fulfill, or violates any of its obligations under
the Gould Agreement, (a) if JEC is able to fulfill the obligation or cause the
obligation to be fulfilled, JEC will do so immediately on demand by Purchaser,
and (b) if JEC is not able to fulfill the obligation or cause the obligation to
be fulfilled, JEC will be liable to each of Purchaser Parties for any damages it
suffers because of the failure of Gould to fulfill its obligations under the
Gould Agreement as fully as though JEC were the party to the Gould Agreement
which had failed to fulfill the obligations.
(b) Waivers. JEC waives any requirement of notice, presentment
or other diligence by Purchaser Parties with regard to this guaranty. JEC agrees
that Purchaser Parties may enforce this guaranty against JEC without making any
effort to obtain remedies against Gould because of Gould's failure to fulfill or
violation of its obligations under the Gould Agreement. JEC agrees that this
guaranty will remain in force despite any amendments to the Gould Agreement,
whether or not those amendments increase the obligations of Gould, and this
guaranty will not be affected by any agreement by Purchaser Parties to waive any
obligation of Gould, or to defer the time by which Gould is required to fulfill
any obligation under the Gould Agreement, except to the extent that because of a
waiver or extension, Gould is not, or is not yet, required to fulfill particular
obligations under the Gould Agreement. The obligations under this guaranty shall
remain in full force and effect and JEC shall not be exonerated or discharged by
reason of any action or circumstance that might constitute a defense available
to, or a legal or equitable discharge of, any surety, pledgor or guarantor. JEC
hereby affirms and acknowledges the knowing and explicit waivers made on its
behalf for the benefit of Purchaser Parties in Section 4.05 of the Gould
Agreement.
ARTICLE III
3.0 General Release; Covenant Not to Sue; Waiver of Defenses.
3.01 General Release by JEC. JEC does hereby, for itself and its
respective Affiliates, officers, directors, stockholders, employees, agents,
legal successors and assigns (collectively, the "Releasing Parties"), release
and absolutely and forever discharge each of Purchaser Parties and all
affiliates (as defined under the Securities Act but excluding shareholders of
Purchaser) thereof and each of the respective shareholders, officers, directors,
employees, agents, attorneys, legal successors and assigns of any of Purchaser
Parties or any affiliate (as defined immediately above) thereof (collectively,
the "Released Parties"), of and from any and all claims, demands, damages,
debts, liabilities, accounts, reckonings, obligations, costs, expenses, liens,
actions and causes of action of every kind and nature whatsoever, whether now
known or unknown, suspected or unsuspected, which the Releasing Parties now
have, own or hold or at any time heretofore ever had, owned or held or could,
shall or may hereafter have, own or hold against the Released Parties (or any of
them) based upon or arising out of any matter, cause, fact, thing, act or
omission whatsoever occurring or existing at any time to and including the date
hereof, or arising on or after the date hereof, in connection with the facts,
circumstances and events relating to the Purchased Assets or to any of the
transactions contemplated by the Asset Purchase Agreement or any of the
Ancillary Agreements or any of the Intracompany Agreements (as defined in the
Gould/EFI Inducement Agreement of even date herewith) or any agreement between
JEC and Seller or any Liability or obligation thereunder (collectively, together
with the enumerated examples below, the "Released Matters"), including without
limitation any claim or allegation by any of the Releasing Parties or any other
party that: (i) any of the Released Parties is on any theory liable for any of
the debts or obligations or Liabilities of Seller not expressly assumed by
Purchaser under the Asset Purchase Agreement (including without limitation any
Liability arising under any of the Intracompany Agreements or any agreement
between JEC and Seller); (ii) any of the Released Parties is on any theory
liable to any of the Releasing Parties for any claim, cause of action, loss,
damages or other amount whatsoever, as a result of Purchaser Parties' purchase
of the Purchased Assets; (iii) any of the Releasing Parties has any right in,
claim as to or Encumbrance on or with respect to, any of the Purchased Assets;
or (iv) the purchase of the Purchased Assets under the Asset Purchase Agreement
constituted a fraudulent conveyance, a fraudulent transfer, or a preference or
was otherwise improper, unlawful or violative of any rights of any of the
Releasing Parties under the Intracompany Agreements or any agreement between JEC
and Seller or otherwise (all of which foregoing matters are hereinafter referred
to as and included within the "Released Matters"). It is the intention of JEC
that the release set forth above in this Section 3.01 shall be effective as a
full and final accord and satisfaction and general release by each of the
Releasing Parties of and from all claims now existing or hereafter arising
against any of the Released Parties relating to any of the Released Matters.
3.02 Waiver of Unknown Claims. In furtherance of the intentions
set forth herein, JEC acknowledges, for itself and each of the other Releasing
Parties, that it is familiar with Section 1542 of the Civil Code of the State of
California (and similar laws of Japan), which provides as follows:
"A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release, which
if known by him must have materially affected his settlement with the debtor."
JEC, for itself and each of the other Releasing Parties, hereby waives and
relinquishes any right or benefit which it has or may have under Section 1542
of the Civil Code of the State of California or any similar provision of the
statutory or nonstatutory law of any other jurisdiction (including without
limitation Japan), to the full extent that it may lawfully waive all such
rights and benefits pertaining to the subject matter of this Agreement. In
connection with such waiver and relinquishment, JEC acknowledges that it is
aware that it or its attorneys or accountants may hereafter discover claims or
facts in addition to or different from those which it now knows or believes to
exist with respect to the subject matter of this Agreement or of the Asset
Purchase Agreement or the Released Parties, but that it is its intention
hereby fully, finally and forever to settle and release, for itself and each
of the other Releasing Parties, all of the Released Matters which now exist,
may exist or heretofore have existed or which arise on or after the date
hereof as to all of the Released Parties. In furtherance of this intention,
the release herein given by JEC, for itself and each of the other Releasing
Parties, shall be and remain in full force and effect as a full and complete
release, and operate as a full release of claims hereafter arising,
notwithstanding the discovery or existence of any such additional or different
claims or facts.
3.03 Authorized Release. JEC warrants and represents that it is the sole
and lawful owner of all right, title and interest in and to all of the
respective Released Matters as to which it is the Releasing Party and that it
has not heretofore voluntarily, by operation of law or otherwise, assigned or
transferred (or purported to assign or transfer) to any person whomsoever any
Released Matter or any part or portion thereof of any claim, demand or right
against any Released Party.
3.04 Covenant Not to Sue. JEC hereby agrees not to sue or otherwise
bring any claim against any of the Released Parties on or with respect to any of
the Released Matters or against or with respect to any of the Purchased Assets,
in each case whether by way of complaint, cross-complaint, cross claim, set off,
defense or by any other means or manner in any court, other tribunal or
otherwise. JEC hereby further agrees not to take any action against or with
respect to any of the Purchased Assets utilizing any rights JEC may have or
hereafter acquire as a creditor, secured creditor or stockholder of Seller,
including without limitation any foreclosure action or any action permitted to
be taken by a secured party under the Uniform Commercial Code as adopted in any
jurisdiction or any action permitted to be taken by a lienholder or judgment
creditor under applicable state laws (including without limitation, attachment
and garnishment actions and imposition of or execution upon any lien).
ARTICLE IV
4.0 General Provisions
4.01 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
4.02 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
4.03 Entire Agreement. This Agreement, along with the defined terms in
the Asset Purchase Agreement used herein, constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior agreements and undertakings with respect to the subject
matter hereof, both written and oral.
4.04 Assignment. This Agreement shall not be assigned or delegated by
JEC without the prior written consent of Purchaser Parties. Purchaser Parties
shall be free to assign their rights hereunder and such rights will inure to all
of the Released Parties and to the respective successors, assigns and affiliates
of the Released Parties.
4.05 Amendment; Waiver. This Agreement may not be amended or modified
except by an instrument in writing signed by JEC and Purchaser (which instrument
will be binding on SMIBV). Waiver of any term or condition of this Agreement
shall only be effective if in writing and shall not be construed as a waiver of
any subsequent breach or waiver of the same term or condition, or a waiver of
any other term or condition of this Agreement.
4.06 Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
California applicable to contracts executed in and to be performed by residents
of California within that State, without reference to the conflict of laws
provisions thereof. As to matters arising out of or relating to this Agreement,
JEC consents to submit to the jurisdiction of any federal or state court located
in the State of California and agrees not to object to venue in the federal or
state courts located in Santa Clara County, California.
4.07 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
4.08 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to each
party at the addresses indicated for such party on the signature page hereof (or
at such other address for a party as shall be specified by like notice).
4.09 Termination. In the event that the Asset Purchase Agreement is
terminated by Purchaser in accordance with its terms, this Agreement shall then
terminate concurrently.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed
as of the date first written above by their respective officers thereunto duly
authorized.
JAPAN ENERGY CORPORATION SUN MICROSYSTEMS, INC.
By: By:
Name: Name:
Title: Title:
Address for Notice: Address for Notice:
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
[SIGNATURE PAGE TO JEC INDUCEMENT AGREEMENT]
Exhibit B
July 14, 1997
The Board of Directors
Encore Computer Corporation
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313
Dear Members of the Board:
We understand that Encore Computer Corporation (the "Company"), Sun
Microsystems, Inc. ("Sun") and Sun Microsystems International, B.V. ("SMIBV")
propose to enter into an asset purchase agreement ("Agreement") pursuant to
which Sun and SMIBV will acquire certain assets associated with, and assume
certain liabilities of, the storage business of the Company (the "Storage
Business") for (i) $150 million in cash (the "Closing Payment"), payable at
the closing of the Acquisition Transaction (as defined below) (the "Closing"),
and (ii) $35 million in cash (the "Second Payment" and, together with the
Closing Payment, the "Cash Payment"), payable on July 1, 1998 (the
"Acquisition Transaction"). The terms of the Acquisition Transaction are more
fully described in the Agreement.
You have requested our opinion as to the fairness to the Company,
from a financial point of view, of the Cash Payment to be paid for the Storage
Business in the Acquisition Transaction. In connection with this opinion, we
have:
(i) reviewed the financial terms and conditions of a draft dated
July 10, 1997 of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and the Storage Business;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company relating to its business and the Storage
business;
(iv) conducted discussions with members of the senior management of
the Company and Gould Electronics, Inc. ("Gould"), the
principal stockholder of the Company, with respect to (A) each
of the Company's and the Storage Business' business and
prospects, (B) recent efforts undertaken by the Company and
Gould to solicit third party indications of interest in either
entering into an OEM relationship with the Company or acquiring
the Company or the Storage Business, (C) the unwillingness of
Gould to continue to provide financial support to the Company
and (D) the strategic rationale for the Acquisition Transaction
and alternatives thereto reasonably available to the Company;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be generally
comparable to the business of the Storage Business;
(vi) reviewed the financial terms of certain business combinations
and acquisitions involving companies in lines of business we
believe to be generally comparable to the Storage Business;
(vii) reviewed the historical stock prices and trading volumes of the
shares of common stock of the Company; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
financial and other information, and have not assumed any responsibility for
any independent verification of such information or any independent valuation
or appraisal of any of the assets, or technology of the Company or the Storage
Business. With respect to the financial forecasts referred to above, we have
assumed that they have beenreasonably prepared on bases reflecting the best
currently available estimates and judgments of management of the Company as to
the future financial performance of the Company and the Storage Business. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based. In addition, we express no
recommendation or opinion as to how stockholders of the Company should vote at
the stockholders' meeting held in connection with the Acquisition Transaction.
For the purposes of this opinion, we have assumed that (i) the full
amount of the Closing Payment shall be paid to the Company at the Closing and
(ii) the full amount of Second Payment shall be paid to the Company on July 1,
1998.
Further, our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Acquisition
Transaction will be consummated on the terms described in the draft of the
Agreement that we reviewed, without any waiver of any material terms or
conditions by the Company. We were not requested to, and did not, solicit
third party indications of interest in acquiring the Company or the Storage
Business. In addition, we did not participate in the negotiation of the
Agreement or the Memorandum of Understanding dated May 27, 1997 among the
Company, Sun and SMIBV.
Genesis Merchant Group Securities LLC is acting as financial advisor
to the Company in connection with the Acquisition Transaction and will receive
a fee for our services.
Our engagement and the opinion expressed herein were prepared for the
use of the Company's Board of Directors and do not constitute a recommendation
to Encore's stockholders as to how they should vote at the stockholders'
meeting in connection with the Acquisition Transaction. It is understood that
this letter may not be disclosed or otherwise referred to without our prior
consent, which consent will not be unreasonably withheld.
Based on and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Cash Payment to be paid for the Storage Business in
the Acquisition Transaction is fair to the Company from a financial point of
view.
Very truly yours,
GENESIS MERCHANT GROUP SECURITIES LLC
Exhibit C Memorandum
To Ed Baker, Encore Computer Private
From/Location Mark Weinsten, Price Waterhouse
Date August 19, 1997
Re Liquidation Analysis Assumptions
The following are the major assumptions associated with the Encore Computer
Liquidation Analysis:
Accounts Receivable: 60.5% of receivables are for equipment and have a
recovery rate of 75% and 39.5% of receivables are for service and have a
recovery rate of 25%. The split between equipment and service is based on
YTD revenues.
Proceeds From Foreign Liquidations: Includes residual equity amounts and
intercompany receivables paid from the liquidation of foreign subsidiaries
pursuant to regulations and procedures in respective countries.
Inventories: Different recovery rates were used for different inventory
groups. Typically, the less proprietary the item, the higher the recovery
rate. 15% was applied to gross raw materials, 12% was applied to purchased
sub-assemblies, and 10% was applied to work in process and finished goods.
Fixed Assets: Includes land, buildings, machinery and equipment, furniture
and fixtures and spares inventory. The recovery for land and building is
based on 90% of low end of appraisals net of a 6% cost for commissions and
fees. Recovery rates for other fixed assets are based on estimates from
liquidators of like assets.
Other Assets: Other assets include: pre-paid expenses and deposits, the
net value of capitalized software used to support the business (e.g. payroll
and accounting systems) and patents and licenses. A 40% recovery rate was
applied to all "other assets" not including patents and licenses which were
valued at $2,600,000.
Administrative Claims: Includes Trustee's fees based on formula stipulated
in Bankruptcy Code and professional/liquidation fees based on experience
with liquidation of similar organizations.
Secured Claims: It is assumed that the holder of the mortgage will have
sufficient collateral to recover 100% of the value of the balance
outstanding. The balance of proceeds available to secured creditors will be
paid towards the outstanding principal and accrued interest of the notes
held by Gould.
Priority Claims: It is assumed that priority claims per employee will
amount to $2,500 which approximately equals one pay period including
benefits and accrued vacation. The amount of pre-petition taxes is equal to
the amount of accrued tax expense.
Unsecured Claims: Includes accounts payable, accrued expenses net of
accrued taxes and accrued interest payable to Gould, and lease/purchase
obligations. Lease obligations are based on the maximum of one year's
payment or 15% of future payments (capped at three years).
Encore Computer Corporation
Summary of U.S. Chapter 7 Liquidation Analysis
Assuming Contemporaneous Liquidation of Foreign Subsidiaries
As of June 29, 1997
(In US Dollars)
Amount Estimated
As of 6/29/97 Liquidation Value
Assets and Proceeds
Total Cash & Equivalents 330,807 330,807 100%
Accounts Receivable 2,210,046 1,221,050 55%
Proceeds from Foreign Liquidations 0 708,929
Inventory 6,288,051 4,232,431 67%
Fixed Assets 28,883,328 14,825,338 51%
Other Assets 1,118,786 3,047,114 272%
Total Proceeds 38,831,018 24,365,669 63%
Liabilities & Claims
Administrative Claims 1,755,000 1,755,000 100%
Secured Claims
Notes Payable Gould (incl. Acc. Interest) 71,438,717 22,044,978 31%
Morgage Payable 565,690 565,690 100%
72,004,407 22,610,668 31%
Priority Claims 2,406,500 0 0%
Unsecured Claims 25,019,747 0 0%
<PAGE>
GOULD MODIFICATION AGREEMENT
This Gould Modification Agreement (this "AGREEMENT") is made and
entered into as of November 24, 1997 (the "EFFECTIVE DATE") among Gould
Electronics Inc., an Ohio corporation ("GOULD") and Sun Microsystems, Inc., a
Delaware corporation ("PURCHASER").
R E C I T A L S
A. The parties hereto have entered into a certain Gould/EFI Inducement
Agreement effective as of July 17, 1997 (the "INDUCEMENT AGREEMENT"). Other
parties to the Inducement Agreement are EFI International, Inc., a Delaware
corporation ("EFI") and Sun Microsystems International, B.V., a Netherlands
corporation ("SMIBV"). Section 5.05 of the Inducement Agreement provides that it
may be amended by an instrument in writing signed by Purchaser and Gould, and
that such instrument will bind EFI and SMIBV.
B. Prior to November 24, 1997 various lawsuits, including those
identified on EXHIBIT A hereto, were filed in the Delaware Chancery Court
against Gould, Seller and Seller's directors relating to the transaction
contemplated by the Asset Purchaser Agreement (the "FILED LITIGATION"). For
purposes of this Agreement, the term "LITIGATION" shall mean and include any of
the following, whether filed prior to or after the Closing: (i) the Filed
Litigation, (ii) any additional lawsuits filed against Gould, Seller and/or
Seller's officers or directors (including by or on behalf of stockholders of
Encore or Encore itself) challenging or otherwise relating to (A) the
transaction contemplated by the Asset Purchase Agreement ("TRANSACTION"), (B)
the use or distribution of Transaction proceeds, (C) the agreement between Gould
and Encore dated July 17, 1997 relating to the use and distribution of
Transaction proceeds, (D) the process of soliciting stockholder approval of the
Transaction, or (E) the Encore directors' exercise of fiduciary duties in
connection with the Transaction and/or such Gould/Encore agreement, (iii) any
actions seeking full or partial rescission of the Transaction, and (iv) any
lawsuits filed against any of the Purchaser Parties by or on behalf of
stockholders of Encore or derivatively on behalf of Encore itself relating to
the Transaction, including without limitation those seeking full or partial
rescission of the Transaction, rescissory damages or other damages, in each
case, as such lawsuits are originally filed, later amended, or later
consolidated with each other or with other suits constituting Litigation.
C. The filing and pendency of the Litigation could preclude the closing
condition set forth in Section 8.02(e) of the Asset Purchase Agreement from
being satisfied. To induce Purchaser and SMIBV to waive this Closing condition
and close the Transaction contemplated by the Asset Purchase Agreement despite
the pendency of any Litigation at the time scheduled for Closing, Gould is
willing to agree to the modifications of the Inducement Agreement provided for
below.
D. Accordingly, pursuant to the provisions of Section 5.05 of the
Inducement Agreement, Gould and Purchaser agree, and EFI and SMIBV are deemed to
agree, to enter into this Agreement to modify and amend the Inducement Agreement
as provided herein.
<PAGE>
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the parties hereby agree as follows:
1. CERTAIN TERMS. Any capitalized terms not defined in this Agreement
shall have the same meanings defined for such terms in the Inducement Agreement.
2. AMENDMENT OF INDEMNITY AND INDEMNITY CAP PROVISIONS.
(a) The reference in Section 2.01 of the Inducement Agreement to
"Purchaser Indemnities" shall be revised to read "Purchaser Indemnitees" and
Section 2.02 of the Inducement Agreement shall be amended to add the following
clauses (n) and (o) at the end thereof (WITH MODIFIED TEXT BEING HIGHLIGHTED IN
BOLD TEXT FORMAT):
(N) THE LITIGATION (AS DEFINED IN THAT CERTAIN GOULD
MODIFICATION AGREEMENT DATED AS OF NOVEMBER 24, 1997 AMONG GOULD AND
PURCHASER (THE "GOULD MODIFICATION AGREEMENT")) (INCLUDING WITHOUT
LIMITATION ANY DAMAGES, ANY LEGAL FEES OR OTHER COSTS TO THE EXTENT
PROVIDED BELOW, OR OTHER LOSS INCURRED BY ANY OF PURCHASER INDEMNITEES
IN CONNECTION WITH THE LITIGATION AND ALL LOSS AT ANY TIME ARISING AS A
RESULT OF THE LITIGATION DUE TO ANY FULL OR PARTIAL RESCISSION OF, OR
INJUNCTION AGAINST, OR AWARD OF RESCISSORY DAMAGES IN LIEU OF
RESCISSION OF, OR OTHER AWARD OF DAMAGES IN CONNECTION WITH, ANY OF THE
FOLLOWING: (X) THE PURCHASE BY PURCHASER PARTIES OF THE PURCHASED
ASSETS OR ANY PORTION THEREOF PURSUANT TO THE ASSET PURCHASE AGREEMENT
OR (Y) THE DISTRIBUTION OF THE PROCEEDS THEREFROM TO OR BY SELLER,
GOULD, ANY CREDITOR OR EMPLOYEE OR SHAREHOLDER OF ENCORE OR THE ESCROW
AGENT APPOINTED PURSUANT TO THE ESCROW AGREEMENT CALLED FOR BY THE
MODIFICATION AGREEMENT DATED AS OF NOVEMBER 24, 1997 BETWEEN SELLER,
PURCHASER AND SMIBV (THE "MODIFICATION AGREEMENT"). UNLESS PURCHASER
INDEMNITEES ARE NAMED AS PARTIES TO THE LITIGATION, THEY WILL NOT BE
ENTITLED TO INDEMNIFICATION FOR LEGAL FEES OR OTHER COSTS INCURRED BY
THEM IN CONNECTION WITH THE LITIGATION, EXCEPT THAT IF PURCHASER
INDEMNITEES REASONABLY BELIEVE THERE IS A REALISTIC RISK THAT THE
PURCHASE BY PURCHASER PARTIES OF THE PURCHASED ASSETS OR A PORTION
THEREOF WILL BE RESCINDED OR THAT PURCHASER INDEMNITEES WILL BE
REQUIRED TO PAY RESCISSORY OR OTHER DAMAGES AS A RESULT OF THE
LITIGATION, THEY WILL BE INDEMNIFIED FOR LEGAL FEES AND OTHER COSTS
THEY REASONABLY INCUR WITH REGARD TO THE LITIGATION UP TO $50,000. IF
PURCHASER PARTIES ARE NAMED AS PARTIES TO THE LITIGATION, THEY WILL BE
ENTITLED TO BE INDEMNIFIED FOR ALL THE LEGAL FEES AND OTHER COSTS THEY
REASONABLY INCUR WITH REGARD TO THE LITIGATION, INCLUDING LEGAL FEES
AND OTHER COSTS THEY INCUR BEFORE THEY ARE MADE PARTIES TO THE
LITIGATION.
(O) WITH RESPECT TO THE PROXY STATEMENT OF ENCORE COMPUTER
CORPORATION MAILED TO ITS STOCKHOLDERS SEEKING APPROVAL OF THE
TRANSACTION (AS DEFINED IN THE GOULD MODIFICATION AGREEMENT), THE
INCLUSION OF ANY UNTRUE STATEMENT OF A MATERIAL FACT OR THE OMISSION TO
STATE ANY MATERIAL FACT
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REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN, IN LIGHT OF THE CIRCUMSTANCES IN WHICH THEY ARE MADE, NOT
MISLEADING, OR THE FAILURE OF SUCH PROXY STATEMENT (OR OF THE TIMING OR
MANNER OF DISTRIBUTION OF SUCH PROXY STATEMENT) TO COMPLY WITH THE
REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
ALL RULES AND REGULATIONS PROMULGATED THEREUNDER AND THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE.
(b) Section 2.04(b) of the Inducement Agreement shall be amended to
read in full as follows (WITH MODIFIED TEXT BEING HIGHLIGHTED IN BOLD TEXT
FORMAT):
(b) The aggregate loss recoverable by Indemnified Parties
(considered together as a group) against Gould under this Article II
shall not exceed: (i) $185,000,000 in the aggregate; (ii) $185,000,000
as to claims arising PRIOR TO OR in the First Contract Year; or (iii)
$110,000,000 as to claims arising in the Second Contract Year
(collectively, the "APPLICABLE CAP"). The "FIRST CONTRACT YEAR" and the
"SECOND CONTRACT YEAR" are the two successive annual periods ending on
the first and second anniversaries of the Closing Date, respectively. A
claim shall be deemed to arise in a Contract Year if any of the
material facts giving rise to such claim or any Loss resulting from
facts asserted in such claim, first occurred or were first suffered in
that Contract Year. Gould shall have no liability under this Article II
for any claims for indemnification hereunder first asserted at any time
after the fourth (4th) anniversary of the Closing Date (with respect to
claims or Loss relating to or arising from fraud or willful misconduct
on the part of Gould) or first asserted at any time after the third
(3rd) anniversary of the Closing Date (as to any claims or Loss not
relating to or arising from any fraud or willful misconduct on the part
of Gould) or for any claims not deemed to arise (as defined above)
PRIOR TO OR in the First Contract Year or in the Second Contract Year.
(c) Sections 2.04(c) and 2.04(d) of the Inducement Agreement shall be
amended to read in full as follows (WITH MODIFIED TEXT BEING HIGHLIGHTED IN BOLD
TEXT FORMAT):
(c) Notwithstanding the foregoing provisions of this Section
2.04, the Applicable Cap shall not limit the amount of Gould's
indemnity liability for, and Purchaser and any other Indemnified Party
shall be entitled to recover from Gould, any and all Loss arising from:
(i) fraud or willful misconduct on the part of Gould; (ii) any Loss
resulting from any Seller Parties and/or any of their respective
Affiliates (and/or any successors or assigns of any thereof to the
extent such successors or assigns take any action whatsoever with
respect to or in relation to any claim of any of the Seller Parties
against Seller ("ASSIGNS"), instituting or causing to be instituted any
Insolvency Action or any Insolvency Proceeding relating to Seller or
any of Seller's assets at any time prior to the end of the Second
Contract Year; (iii) any rescission of or injunction against the
purchase by Purchaser Parties of the Purchased Assets pursuant to the
Asset
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Purchase Agreement occurring PRIOR TO OR in the First Contract Year; or
(iv) any Continuing Gould Claims or the pursuit, collection or
enforcement thereof by any Seller Party and/or any of its Affiliates or
any Assigns; PROVIDED, HOWEVER, that in no event will Losses in excess
of the Applicable Cap for which Purchaser Parties may be indemnified
hereunder include special or consequential damages or lost profits (but
this proviso will not apply to limit the types of Loss recoverable by
any Purchaser Parties below the Applicable Cap).
(d) For purposes of this paragraph (d), the term
"ENCORE LOSS" shall mean any Loss arising solely out of the matters
described in Sections 2.02(c), (d), (e), (f), (g), (i), (k), (l) or (m)
hereof or solely as a result of a breach of Section 1.09 hereof. Gould
shall not be required to provide indemnification for any Encore Loss to
Purchaser Parties and other Indemnified Parties under this Article II
unless and until the aggregate Encore Loss for which one or more
Indemnified Parties seeks indemnification hereunder exceeds an
aggregate of Five Hundred Thousand Dollars ($500,000) (the "GOULD
BASKET"), in which event Gould shall be liable to indemnify the
Purchaser Parties and the Indemnified Parties for all Encore Loss,
including any Encore Loss within the Gould Basket. There shall be no
Gould Basket or other "basket" of any amount with respect to any Loss
other than an Encore Loss. Notwithstanding the foregoing, Purchaser and
any other Indemnified Party shall be entitled to recover from Gould any
Loss, regardless of the Gould Basket, arising from any of the matters
described in clauses (i), (ii), (iii), or (iv) of Section 2.04(c) above
or arising from the failure of any representation or warranty of Seller
contained in Article VII of the Asset Purchase Agreement to be true and
correct as of the Closing or arising from the fraud or willful
misconduct on the part of Seller OR ARISING FROM THE MATTERS DESCRIBED
IN SECTION 2.02(N) HEREOF OR ARISING FROM THE MATTERS DESCRIBED IN
SECTION 2.02(O) HEREOF.
(d) The following new Section 2.05 shall be added to the Inducement
Agreement:
2.05 AGREEMENT NOT TO DELAY. THE SELLER PARTIES WILL NOT SEEK
OR MOVE TO DELAY ANY LITIGATION-RELATED ACTION TO RESCIND THE PURCHASE
OF THE PURCHASED ASSETS FOR THE SOLE PURPOSE OF DEFERRING THE CONTRACT
YEAR IN WHICH THE RESCISSION TAKES PLACE.
3. TECHNOLOGY TRANSFER AND BONUS. Purchaser believes that it may be
critical to Purchaser's ability to utilize and further develop and integrate the
Storage Products that a certain employee of Seller or one of its subsidiaries
(the "NAMED EMPLOYEE") exercise best efforts to transfer to Purchaser, and to
train and cooperate with Purchaser technical personnel and management with
respect to, all technical information and know-how relating to the Storage
Products or to the manufacture, installation, use or integration thereof that is
requested by Purchaser or known to the Named Employee, all in accordance with
technology transfer requirements and procedures specified by Purchaser
(collectively, the "TECHNOLOGY TRANSFER"). Accordingly, Gould, jointly and
severally with Encore, agrees to fund, immediately upon
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demand by Purchaser, the payment of a bonus in the amount of (pound)120,000 to
the Named Employee, which bonus shall be payable only if Purchaser determines
that the Named Employee has exercised best efforts to effect and has
successfully completed the Technology Transfer by the 90th day after the Closing
Date. If this bonus is not so paid upon such demand, Purchaser may offset
(pound)120,000 plus interest at the highest legally permissible rate from the
Second Payment in accordance with the procedures specified in Section 9.05 of
the Asset Purchase Agreement and without reference to the Basket limitations of
Section 9.04(a) thereof (and this offset sum shall not be credited against the
Basket). The Named Employee is Nick Connolly.
4. EFFECT OF THIS AGREEMENT. Except as expressly modified by this
Agreement, the Inducement Agreement shall remain in full force and effect. To
the extent that there is any conflict with or inconsistency between this
Agreement and the Inducement Agreement, the provisions of this Agreement will
prevail and govern.
5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
GOULD ELECTRONICS INC. SUN MICROSYSTEMS, INC.
By: By:
------------------------ ------------------------
Name: Name:
---------------------- ----------------------
Title: Title:
--------------------- ---------------------
[SIGNATURE PAGE TO GOULD MODIFICATION AGREEMENT]
<PAGE>
EXHIBIT A
COMPLAINTS FILED PRE-CLOSING IN THE DELAWARE CHANCERY COURT
AGAINST GOULD, SELLER AND SELLER'S DIRECTORS
BY THE PLAINTIFFS BELOW NAMED
RELATING TO THE ASSET PURCHASE AGREEMENT
1. Case No. 16044; Plaintiffs Collings, Helfgott, Kiley, Rosenblum,
Stewart and Williams
2. Case No. 16045; Plaintiff Croyden Associates
3. Case No. 16046; Plaintiff William DiLorenzo
4. Case No. 16049; Plaintiff Joseph Shires
