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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 27, 1999
DAILY JOURNAL CORPORATION
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(Exact Name of Registrant as Specified in Charter)
South Carolina 0-14665 95-4133299
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
355 South Grand Avenue, 34th Floor
Los Angeles, California 90071-1560
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (213) 624-7715
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report
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Item 2. Acquisition or Disposition of Assets.
On January 27, 1999, Daily Journal Corporation invested a total of
$6.67 million in cash (a) to purchase 80% of the capital stock of Choice
Information Systems, Inc. from Choice and Michael W. Payton and Terence E. Hahm,
the two shareholders of Choice, (b) to cause Choice to purchase substantially
all of the assets of Quindeca Corporation, which assets primarily consisted of
software and computers, and (c) to leave approximately $4 million in Choice as
working capital immediately following these transactions.
Immediately following the investment, Choice entered into employment
agreements with Michael W. Payton and Terence E. Hahm, shareholders of Choice,
and with Jerry L. Short, shareholder of Quindeca. In addition, Daily Journal,
Quindeca and Messrs. Payton and Hahm, the shareholders of Choice, entered into a
Shareholders' Agreement with Choice covering all shares of Choice held by them.
Choice and Quindeca develop, market and support the SUSTAIN(R) family
of software products which enable court systems and other justice agencies to
automate their operations. Daily Journal intends to continue the business of
Choice and Quindeca.
Daily Journal raised the funds required for its investment by selling
approximately $6.67 million of U.S. Treasury Bills previously held by Daily
Journal. Subsequent to the investment, Daily Journal, through Choice,
repurchased approximately $4 million of U.S. Treasury Bills.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements of Choice and Quindeca required by this Item
7(a) will be filed by an amendment to this Form 8-K no later than April 12,
1999.
(b) Pro Forma Financial Information.
The pro forma financial statements required by this Item 7(b) will be
filed by amendment to this Form 8-K no later than April 12, 1999.
(c) The following exhibits are filed herewith or incorporated by
reference herein:
Exhibit Number Description
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2.1 Stock Purchase Agreement, dated as of January 22,
1999, by and among Daily Journal Corporation,
Choice Information Systems, Inc., Michael W.
Payton and Terence E. Hahm.
2.2 Asset Purchase Agreement, dated as of January 22,
1999, by and among Choice Information Systems,
Inc., Quindeca Corporation and Jerry L. Short.
10.1 Employment Agreement, dated as of January 22,
1999, between Choice Information Systems, Inc. and
Michael W. Payton.
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10.2 Employment Agreement, dated as of January 22,
1999, between Choice Information Systems, Inc. and
Jerry L. Short.
10.3 Employment Agreement, dated as of January 22,
1999, between Choice Information Systems, Inc. and
Terence E. Hahm.
10.4 Shareholders' Agreement, dated as of January 22,
1999, among Choice Information Systems, Inc.,
Daily Journal Corporation, Quindeca Corporation,
Michael W. Payton and Terence E. Hahm.
99.1 Press Release of Daily Journal Corporation issued
January 27, 1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DAILY JOURNAL CORPORATION
By: /s/ GERALD L. SALZMAN
Name: Gerald L. Salzman
Title: Chief Financial Officer
Dated: February 11, 1999
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EXHIBIT INDEX
Exhibit Number Description
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2.1 Stock Purchase Agreement, dated as of January 22, 1999, by
and among Daily Journal Corporation, Choice Information
Systems, Inc., Michael W. Payton and Terence E. Hahm.
2.2 Asset Purchase Agreement, dated as of January 22, 1999, by
and among Choice Information Systems, Inc., Quindeca
Corporation and Jerry L. Short.
10.1 Employment Agreement, dated as of January 22, 1999, between
Choice Information Systems, Inc. and Michael W. Payton.
10.2 Employment Agreement, dated as of January 22, 1999, between
Choice Information Systems, Inc. and Jerry L. Short.
10.3 Employment Agreement, dated as of January 22, 1999, between
Choice Information Systems, Inc. and Terence E. Hahm.
10.4 Shareholders' Agreement, dated as of January 22, 1999, among
Choice Information Systems, Inc., Daily Journal Corporation,
Quindeca Corporation, Michael W. Payton and Terence E. Hahm.
99.1 Press Release of Daily Journal Corporation issued January
27, 1999
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of January 22, 1999, by Daily
Journal Corporation, a South Carolina corporation ("Daily Journal"), Choice
Information Systems, Inc., a Virginia corporation ("Choice"), Michael W. Payton,
an individual resident in Virginia ("Payton") and Terence E. Hahm, an individual
resident in Wisconsin ("Hahm" and, collectively with Payton, the "Sellers").
RECITALS
The Sellers own all issued and outstanding shares of capital stock of
Choice. In order to induce Daily Journal to contribute capital and management
expertise to Choice, thereby benefitting all Sellers, each Seller has entered
into this Agreement whereby (a) Choice will issue 194.5 newly issued shares (the
"New Shares") of capital stock of Choice to Daily Journal, Payton will sell
51.25 issued and outstanding shares (the "Payton Shares") of capital stock of
Choice to Daily Journal and Hahm will sell 51.25 issued and outstanding shares
(the "Hahm Shares") of capital stock of Choice to Daily Journal, in each case on
the terms and conditions set forth in this Agreement, (b) each Seller will enter
into an Employment Agreement concurrently with the Closing under this Agreement
and (c) Choice, each Seller, Quindeca Corporation and Daily Journal will enter
into a Shareholders Agreement concurrently with the Closing under this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE 1.
SALE AND TRANSFER OF SHARES; CLOSING
1.1 Shares. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Daily Journal, and
Daily Journal will purchase the Shares from Sellers.
1.2 Purchase Price. The purchase price (the "Purchase Price") for the
Shares will be $6,666,667, payable as follows: $4,365,053 to Choice as payment
in full for the New Shares; $1,150,807 to Payton as payment in full for the
Payton Shares; and $1,150,807 to Hahm as payment in full for the Hahm Shares, in
each case subject to adjustment as provided in Section 1.4.
1.3 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Munger, Tolles & Olson LLP at 355
South Grand Avenue, 35/th/ Floor, Los Angeles, California, at 10:00 a.m. (local
time) on the date of this Agreement, or at such other time and place as the
parties may agree.
1.4 Purchase Price Adjustment.
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(a) Within six (6) months after the Closing Date, Daily Journal will
prepare a balance sheet (the "Final Balance Sheet") of Choice as of the Closing
Date and deliver the proposed Final Balance Sheet to the Sellers. The Final
Balance Sheet shall be prepared in accordance with GAAP and each of the
guidelines and procedures (the "Guidelines and Procedures") specified on Exhibit
1.4 to this Agreement. If the shareholders' equity shown on such Final Balance
Sheet is:
(i) less than $500,000, the Sellers shall each be jointly and
severally liable to Daily Journal for the difference,
(ii) greater than $550,000, then Daily Journal shall be liable to the
Sellers for the difference, and shall pay such amount to the Sellers, to
each in proportion to his share of the Purchase Price, or
(iii) equal to or between $500,000 and $550,000, then neither party
shall owe any further sums to the other pursuant to this Section 1.4, or.
(b) The Sellers may participate in and observe the preparation of
the Final Balance Sheet. Daily Journal shall make all of its workpapers and
other relevant documents in connection with the preparation of the Final Balance
Sheet available to the Sellers and shall make the persons in charge of the
preparation of the Final Balance Sheet available for reasonable inquiry by the
Sellers. The proposed Final Balance Sheet will be the Final Balance Sheet unless
the Sellers shall notify Daily Journal in writing within 20 days following the
receipt of the proposed Final Balance Sheet if the Sellers do not agree with the
proposed Final Balance Sheet, in which case the Sellers on the one hand and
Daily Journal on the other hand will use good faith efforts during the 10-day
period following the date of such written notice was received by Daily Journal
to resolve any differences they may have as to the proposed Final Balance Sheet.
The written notice will identify with reasonable specificity the calculations
with which the Sellers disagree or other bases for such disagreement. If the
Sellers and Daily Journal cannot reach agreement during such 10-day period,
disagreements shall be promptly submitted to an independent, nationally-
recognized public accounting firm jointly selected by the Sellers and Daily
Journal (the "Independent Accountant"), which shall conduct such additional
review as is necessary to resolve the specific disagreements referred to it and
shall determine the Final Balance Sheet which will be binding on the parties.
The review of the Independent Accountant will be restricted as to scope to
address only those matters as to which the Sellers and Daily Journal have not
reached agreement. The Independent Accountant's determination of the Final
Balance Sheet shall be completed as promptly as practicable but in no event
later than 30 days following its selection, shall be confirmed by the
Independent Accountant in writing to the parties and shall be final and binding
on the Sellers and Daily Journal.
(c) Any amounts payable pursuant to this Section 1.4 shall be paid
within 10 days following the date the Final Balance Sheet becomes final and
binding on the parties pursuant to paragraph (b) above.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Sellers jointly and severally represent and warrant to Daily Journal as
follows:
2.1 Organization and Good Standing. Choice is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia, with full corporate power and authority to conduct
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its business as it is now being conducted, to own or use the properties and
assets that it purports to own or use, and to perform all its obligations under
Applicable Contracts. Choice is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the absence of such qualification could not
reasonably be expected to have a material adverse effect on Choice. Choice has
no Subsidiaries.
2.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Choice and the Sellers, enforceable against each in accordance
with its terms. Choice and each Seller have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement, the
Employment Agreement to which each is a party and the Shareholders Agreement and
to perform their obligations under this Agreement, the Employment Agreement to
which each is a party and the Shareholders Agreement.
(b) Except as set forth in Part 2.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Choice, or (B) any resolution
adopted by the board of directors or the shareholders of Choice;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Choice, or any of the
assets owned or used by Choice, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any material
Governmental Authorization that is held by Choice or that otherwise relates
to the business of, or any of the assets owned or used by, Choice;
(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by Choice.
As of the date of this Agreement, Choice and the Sellers shall have given all
notices and obtained all Consents required from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
2.3 Capitalization. The authorized equity securities of Choice consist
of 5,000 shares of common stock, no par value, of which 152 shares are issued
and outstanding. The Sellers are and will be on the Closing Date the record and
beneficial owners and holders of all outstanding shares of capital stock of
Choice, free and clear of all Encumbrances. Payton owns 76 shares and
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Hahm owns 76 shares. No legend or other reference to any purported Encumbrance
(except for transfer restrictions imposed under securities laws) appears upon
any certificate representing equity securities of Choice. All of the outstanding
equity securities of Choice have been duly authorized and validly issued and are
fully paid and nonassessable. The New Shares have been duly and validly
authorized and, when issued and delivered to Daily Journal against payment
therefor as provided in this Agreement, will be duly and validly issued and
fully paid and nonassessable. There are no Contracts relating to the issuance,
sale, or transfer of any equity securities or other securities of Choice. None
of the equity securities or other securities of Choice was issued, redeemed or
repurchased by Choice in violation of the Securities Act or any other Legal
Requirement. Choice does not own, and has no Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business.
2.4 Financial Statements. On or immediately prior to the date of this
Agreement, the Sellers have delivered to Daily Journal a balance sheet of Choice
setting forth the financial condition of Choice as of December 31, 1998 (the
"Preliminary Balance Sheet"). Except as stated in Part 2.4 of the Disclosure
Letter, the Preliminary Balance Sheet has been prepared in accordance with the
books and records of Choice and each of the Guidelines and Procedures and fairly
presents the financial condition of Choice as of its date.
2.5 Books and Records. The books of account, minute books, stock record
books, and other records of Choice, all of which have been made available to
Daily Journal, are complete and correct in all material respects and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of
Choice contain accurate and complete records of all meetings held of, and
corporate action taken by, the shareholders, the Boards of Directors, and
committees of the Board of Directors of Choice, and no meeting of any such
shareholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of Choice.
2.6 Title to Properties; Encumbrances. Choice owns (with good and
marketable title in the case of real property) all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible) that it
purports to own located in the facilities owned or operated by Choice or
reflected as owned in the books and records of Choice. Except as set forth in
Part 2.6 of the Disclosure Letter, all such properties and assets are free and
clear of all Encumbrances.
2.7 Condition and Sufficiency of Assets. The equipment of Choice is in
good operating condition and repair and is adequate for the uses to which it is
being put, and none of such equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The buildings and equipment of Choice are sufficient for the
continued conduct of Choice's businesses after the Closing, assuming Choice's
business is conducted in substantially the same manner after the Closing as it
was conducted prior to the Closing.
2.8 Accounts Receivable. All accounts receivable of Choice that are
reflected on the Preliminary Balance Sheet (the "Accounts Receivable") represent
valid obligations arising from sales actually made or services actually
performed (except for Accounts Receivable offset on the Preliminary Balance
Sheet by corresponding liabilities for deferred revenues) in the Ordinary Course
of Business. The Accounts Receivable are current and, to the Knowledge of
Sellers, collectible net of the reserves shown on the Preliminary Balance Sheet
(which reserves are calculated consistent with past practice
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and, to the Knowledge of Sellers, are adequate). To the Knowledge of Sellers,
there is no contest, claim, or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
2.9 No Undisclosed Liabilities. Choice has no liabilities or obligations
of any nature (whether known or unknown and whether absolute, accrued,
contingent, or otherwise) except for liabilities or obligations reflected or
reserved against in the Preliminary Balance Sheet, and except for liabilities
and obligations incurred by Choice in the Ordinary Course of Business since the
date of the Preliminary Balance Sheet.
2.10 Taxes.
(a) Choice has filed or caused to be filed all Tax Returns that are or
were required to be filed by or with respect to it pursuant to applicable Legal
Requirements. Choice has paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment, except such Taxes, if any, as are listed in Part
2.10 of the Disclosure Letter and are being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been provided
in the Preliminary Balance Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
respective books of Choice are adequate (determined in accordance with GAAP) and
are at least equal to Choice's liability for Taxes. There exists no proposed tax
assessment against Choice except as disclosed in the Preliminary Balance Sheet
or in Part 2.10 of the Disclosure Letter. No consent to the application of
Section 341(f)(2) of the IRC has been filed with respect to any property or
assets held, acquired, or to be acquired by Choice. All Taxes that Choice is or
was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(c) All Tax Returns filed by (or that include on a consolidated basis)
Choice are true, correct, and complete in all material respects. There is no tax
sharing agreement that will require any payment by Choice after the date of this
Agreement. Choice is not, and within the five-year period preceding the Closing
Date has not been, an "S" corporation.
2.11 Employee Benefits. Part 2.11 of the Disclosure Letter lists all
employee benefit plans (as defined in Section 3(3) of ERISA) and all other
profit-sharing, bonus, deferred compensation, stock option, severance pay,
"parachute", insurance, short-term or long-term incentive compensation, or
retirement plan, program, agreement or arrangement sponsored by Choice or to
which any Choice is required to contribute (collectively, the "Plans"). Each
Plan has been operated in all material respects in accordance with its terms and
all applicable Legal Requirements and Orders and the annual report for each such
Plan with respect to which such report is required has been timely filed.
Choice has not received any notice that any Plan has been operated in violation
of any such Legal Requirements and Orders. No claim is pending or, to the
Knowledge of the Sellers, Threatened against any such Plan except for benefits
properly due. Choice has made or accrued for all contributions which are
required of it under any Plan for all plan years ending on or prior to the
Closing Date and which become due on or prior to the Closing Date. None of the
Plans has an accumulated funding deficiency (as defined in Section 412 of the
IRC), and no prohibited transaction (as defined in Section 4975 of the IRC) has
occurred with respect to any Plan unless the transaction has been corrected and
all liability occasioned thereby has been satisfied. Choice has complied in all
material respects with all reporting and disclosure requirements under ERISA and
the IRC to the extent applicable to any Plan.
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2.12 Compliance with Legal Requirements; Government Authorizations.
(a) Choice is, and at all times since January 1, 1994 has been, in
compliance in all material respects with Legal Requirements that are or were
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets. No event has occurred or circumstance exists that
(with or without notice or lapse of time) (i) may constitute or result in a
violation in any material respect by Choice of, or a failure on the part of
Choice to comply in any material respect with, any Legal Requirement, or (ii)
may give rise to any obligation of Choice to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature. Except as set forth
in Part 2.12(a) of the Disclosure Letter, Choice has not received, at any time
since January 1, 1994, any notice or other communication from any Governmental
Body or any other Person regarding (i) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement, or
(ii) any actual, alleged, possible, or potential obligation on the part of
Choice to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.
(b) Except as set forth in Part 2.12(b) of the Disclosure Letter, each
Governmental Authorization that is held by Choice or that otherwise relates to
the business of, or to any of the assets owned or used by, Choice is valid and
in full force and effect. Such Governmental Authorizations collectively
constitute all of the Governmental Authorizations necessary to permit Choice to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit Choice to own and use its assets in the
manner in which it currently owns and uses such assets. Choice is, and at all
times since January 1, 1994 has been, in compliance in all material respects
with all of the terms and requirements of each Governmental Authorization.
Except as set forth in Part 2.12(b) of the Disclosure Letter, Choice has not
received, at any time since January 1, 1994, any notice or other communication
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization.
2.13 Legal Proceedings; Orders.
(a) Part 2.13 of the Disclosure Letter lists all pending Proceedings
which have been commenced by or against Choice or, to the Knowledge of Sellers,
that otherwise relate to or may affect the business of, or any of the assets
owned or used by, Choice, or that challenge, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To the Knowledge of the Sellers, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding. The Proceedings listed in Part 2.13 of the Disclosure Letter
will not have a material adverse effect on the business, operations, assets,
condition, or prospects of Choice.
(b) There is no Order to which Choice, or any of the assets owned or
used by it, is subject, and no Seller is subject to any Order that relates to
the business of, or any of the assets owned or used by, Choice.
(c) As of the date of this Agreement, no Person has made or Threatened
any claim asserting that such Person (a) is the holder or the beneficial owner
of, or has the right to acquire or to obtain beneficial ownership of, any stock
of, or any other voting, equity, or ownership interest
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in, Choice, or (b) is entitled to all or any portion of the Purchase Price
payable for the Shares.
2.14 Contracts; No Defaults.
(a) Part 2.14(a) of the Disclosure Letter contains a complete and
accurate list, and the Sellers have delivered to Daily Journal true and complete
copies, of each of the following that are currently in effect:
(i) each Applicable Contract that involves performance of services
or delivery of goods or materials by Choice of an amount or value in excess
of $10,000;
(ii) each Applicable Contract that involves performance of services
or delivery of goods or materials to Choice of an amount or value in excess
of $10,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts by
Choice in excess of $5,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $1,000 and with terms of less than one
year);
(v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each employment agreement, collective bargaining agreement and
other Applicable Contract to or with any employee, labor union or other
employee representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by Choice with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Choice or any Affiliate of
Choice or limit the freedom of Choice or any Affiliate of Choice to engage
in any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by Choice to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$5,000;
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(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by Choice
other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) No Seller (and no Related Person of any Seller) has or may acquire
any rights under, and no Seller has or may become subject to any obligation or
liability under, any Contract that relates to the business of, or any of the
assets owned or used by, Choice.
(c) Each Contract identified or required to be identified in Part
2.14(a) of the Disclosure Letter is in full force and effect.
(d) Choice is, and at all times since January 1, 1994 has been, in
compliance in all material respects with all applicable terms and requirements
of each Contract under which it has or had any obligation or liability or by
which it or any of the assets owned or used by it is or was bound. Each other
Person that has or had any obligation or liability under any Contract under
which Choice has or had any rights is, and at all times since January 1, 1994
has been, in compliance in all material respects with all applicable terms and
requirements of such Contract. No event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with, or
result in a material violation of, or breach of, or give Choice or any other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract. Choice has not given to or received from any other
Person, at any time since January 1, 1994, any notice or other communication
(whether oral or written) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to Choice
under current or completed Contracts with any Person and no such Person has made
written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by Choice have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
2.15 Insurance. Except as set forth in Part 2.15 of the Disclosure
Letter, all policies of insurance to which Choice is a party or that provide
coverage to Choice or any director or officer of Choice: (a) are valid,
outstanding, and enforceable; (b) are issued by an insurer that is financially
sound and reputable; (c) taken together, provide adequate insurance coverage for
the assets and the operations of Choice for all risks normally insured against
by a Person carrying on the same business or businesses as Choice; (d) are
sufficient for compliance with all Legal Requirements and Contracts to which
Choice is a party or by which it is bound; (e) will continue in full force and
effect following the consummation of the Contemplated Transactions; and (f) do
not provide for any retrospective premium adjustment or other experienced-based
liability on the part of Choice. Choice has not received (a) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or (b) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to perform its obligations
thereunder. Choice has paid all premiums due, and has
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otherwise performed all of its obligations, under each insurance policy to which
it is a party or that provides coverage to it or any director or officer
thereof. Choice has given notice to the insurer of all claims that may be
insured thereby.
2.16 Environmental Matters. Choice is, and at all times has been, in
compliance in all material respects with, and has not been and is not in
violation of or liable in any material respect under, any Environmental Law.
There are no pending or, to the Knowledge of the Sellers, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which Choice
has or had an interest.
2.17 Employees. Choice has never been and is not presently a party to
any written or oral employment Contract, collective bargaining or other labor
Contract. There has not been, there is not presently pending or existing, and
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting Choice
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting Choice or
its premises, or (c) any application for certification of a collective
bargaining agent. Choice has complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. Choice is not liable in any material respect for the
payment of any compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for failure to comply with any of the foregoing Legal
Requirements.
2.18 Intellectual Property.
(a) Definition of "Intellectual Property Assets." The term
-------------------------------------------
"Intellectual Property Assets" includes:
(i) the names "Choice Information Systems", "ECOURT", "SUSTAIN",
"SUSTAIN Case Management System", "steps -- Scaleable Tools for Engineering
Powerful Solutions" and "Justice Edition", and all other fictional business
names, trading names, registered and unregistered trademarks, service
marks, and applications owned by Choice (collectively, "Marks");
(ii) all patents and patent applications owned by Choice
(collectively, "Patents");
(iii) all copyrights owned by Choice in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works owned by Choice (collectively, "Rights
in Mask Works"); and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets"); owned by Choice.
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Choice owns all items of the type described in clauses (i) through (v) above
that are used by it in its business other than commercially available software
licensed by Choice.
(b) Agreements. Part 2.18(b) of the Disclosure Letter contains a
----------
complete and accurate list and summary description, including the amount of any
royalties paid or received by Choice, of all Contracts relating to the
Intellectual Property Assets to which Choice is a party or by which Choice is
bound, except for any license implied by the sale of a product and perpetual,
paid-up licenses for commonly available software programs with a value of less
than $500 under which Choice is the licensee. There are no outstanding and, to
the Knowledge of the Sellers, no Threatened disputes or disagreements with
respect to any such agreement.
(c) Know-How Necessary for the Business. The Intellectual Property
-----------------------------------
Assets are all those necessary for the operation of Choice's business as it is
currently conducted. Except as set forth on Part 2.18(c) of the Disclosure
Letter, Choice is the owner of all right, title, and interest in and to each of
the Intellectual Property Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use without payment to a third party all of the Intellectual
Property Assets. Neither Seller nor, to the Knowledge of Sellers, any other
employee of Choice has entered into any Contract that restricts or limits in any
way the scope or type of work in which the employee may be engaged or requires
the employee to transfer, assign, or disclose information concerning his work to
anyone other than Choice.
(d) Patents. Choice does not own any Patents. To the Knowledge of
-------
Sellers, none of the products sold, nor any process or know-how used, by Choice
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
(e) Trademarks. Part 2.18(e) of Disclosure Letter contains a complete
----------
and accurate list and summary description of all Marks, if any. Except as set
forth on Part 2.18(e) of the Disclosure Letter, Choice is the owner of all
right, title, and interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims. All Marks that have been registered with the United States Patent and
Trademark Office are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date. No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to the Knowledge of the Sellers,
no such action is Threatened with the respect to any of the Marks. To the
Knowledge of the Sellers, there is no potentially interfering trademark or
trademark application of any third party. No Mark is infringed or, to the
Knowledge of the Sellers, has been challenged or threatened in any way. None of
the Marks owned by Choice or, to the Knowledge of Sellers, licensed or otherwise
used by Choice, infringes or is alleged to infringe any trade name, trademark,
or service mark of any third party. All products and materials containing a
Mark that have been registered as described above bear the proper federal
registration notice where permitted by law.
(f) Copyrights. Part 2.18(f) of the Disclosure Letter contains a
----------
complete and accurate list and summary description of all Copyrights, if any.
Choice is the owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims. All the Copyrights have been
registered and are currently in compliance with formal legal requirements, are
valid and enforceable, and are not subject to any maintenance fees or taxes or
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actions falling due within ninety days after the date of Closing. No Copyright
is infringed or, to the Knowledge of the Sellers, has been challenged or
threatened in any way. None of the subject matter of any of the Copyrights
infringes or is alleged to infringe any copyright of any third party or is a
derivative work based on the work of a third party. All works encompassed by
the Copyrights have been marked with the proper copyright notice.
(g) Trade Secrets. With respect to each Trade Secret, the documentation
-------------
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual. Choice has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. Choice has good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the
public knowledge or literature, and, to the Knowledge of the Sellers, have not
been used, divulged, or appropriated either for the benefit of any Person or to
the detriment of Choice. No Trade Secret is subject to any adverse claim or has
been challenged or threatened in any way.
2.19 Computer Software.
(a) Performance. To the Knowledge of the Sellers, each of the computer
-----------
software products owned by Choice, other than commercially available software
programs not marketed by Choice (the "Software Products"), performs in
accordance with specifications, documentation and other written material used in
connection with the sale, license, distribution, marketing or use thereof. Part
2.19(a) of the Disclosure Letter contains a complete list of Software Products
sold, licensed, distributed or marketed by Choice since January 1, 1994.
(b) Development. No Seller or, to the Knowledge of Sellers, other
-----------
employee of Choice is in default under any employment Contract relating to the
Software Products, any noncompetition or confidentiality Contract or any other
Contract or restrictive covenant relating to the Software Products or their
development or exploitation. The Software Products do not include any
inventions of a Seller made prior to the time the Seller became an employee of
Choice or made outside of the scope of the Seller's employment, nor any property
or any previous employer of the Seller. To the Knowledge of the Sellers, the
Software Products do not include any inventions of other employees of Choice
made prior to the time such employees became employees of Choice or made outside
of the scope of such employees' employment, nor any property or any previous
employer of such employee.
(c) Title. All right, title and interest in and to the Software Products
-----
owned by Choice is free and clear of all liens. No government funding was
utilized in the development of any of the Software Products owned by Choice or,
to the Knowledge of Sellers, any other Software Products. The sale, license,
distribution, marketing or use of the Software Products by Choice does not
violate any rights of any other Person, and Choice has not received any
communication alleging such violation. Except as set forth on Part 2.19(c) of
the Disclosure Letter, Choice has no obligation to compensate any Person for the
sale, license, distribution, marketing or use of the Software Products other
than any obligation to Quindeca Corporation disclosed on Part 2.14(a) of the
Disclosure Letter. Choice has not granted to any other Person any license,
option or other right in or to any of the Software Products, except for non-
exclusive, royalty-bearing, end-user licenses granted by Choice in the Ordinary
Course of Business pursuant to license agreements substantially in the form
attached in Part 2.19(c) of the Disclosure Letter (the "End-User Licenses").
(d) Maintenance. Choice has no obligation to any other Person to
-----------
maintain, modify, improve or upgrade any of the Software Products, except
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for any such obligations set forth in the End-User Licenses or under a
maintenance agreement. Certain maintenance agreements are listed in Part 2.19(d)
of the Disclosure Letter.
(e) Year 2000. The Software Products currently being sold,
---------
distributed or marketed by Choice (i) include Year 2000 date conversion and
capabilities including, but not limited to: date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, correct sort ordering, and date data interface values that reflect the
century; (ii) automatically compensates for and manages and manipulates data
involving dates, including single century formulas and multi-century formulas,
and will not cause an abnormal abort within the application or result in the
generation of incorrect values or invalid inputs involving such date; (iii)
provides that all date-related user interface functionalities and data fields
include the indication of the correct century; (iv) provides that all date-
related system-to-system or application-to-application data interface
functionalities will include the indication of the correct century; and (v) will
continue to comply with clauses (i) through (iv) above. All data processing by
the Software Products currently being sold, distributed or marketed by Choice
includes four digit year format and recognizes and correctly processes dates for
leap years. Choice has no obligation to modify, improve or upgrade any of the
Software Products previously sold, distributed or marketed by Choice in order to
ensure their compliance with the Year 2000 capabilities described in this
Section 2.19(e).
(f) Protection of the Proprietary Nature of the Software Products.
-------------------------------------------------------------
Choice has kept secret and has not disclosed the source code for the Software
Products to any Person other than certain employees, licensed customers and
contractors of Choice. Choice has taken all reasonable measures to protect the
security, confidentiality and value of the Software Products.
2.20 Relationship with Customers. Choice has used its reasonable business
efforts to maintain, and currently maintains, in all material respects, good
working relationships with all of its customers. Each of Choice's contracts
with its customers and related customer relationships which have been terminated
(other than by expiration of its stated term) or canceled during the one year
period ended on the Closing Date are set forth and described on Part 2.20 of the
Disclosure Letter. During that one year period, none of Choice's existing
customers has given Choice written notice terminating, canceling or threatening
to terminate or cancel any contract or relationship with Choice.
2.21 Certain Payments. Since January 1, 1994, neither Choice nor any
director, officer, agent, or employee of Choice, or to the Knowledge of the
Sellers, any other Person associated with or acting for or on behalf of Choice,
has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of Choice or any
Affiliate of Choice, or (iv) in violation of any Legal Requirement, or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of Choice.
2.22 Disclosure. No representation or warranty of the Sellers in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
2.23 Relationships with Related Persons. No Seller or any Related Person
of any Seller or of Choice has, or since January 1, 1994 has had, any interest
in any property (whether real, personal, or mixed and whether
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tangible or intangible), used in or pertaining to Choice's business. No Seller
or any Related Person of any Seller or of Choice is, or since January 1, 1994
has owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with Choice other than business
dealings or transactions conducted in the Ordinary Course of Business with
Choice at substantially prevailing market prices and on substantially prevailing
market terms, or (ii) engaged in competition with Choice with respect to any
line of the products or services of Choice (a "Competing Business") in any
market presently served by Choice. Except as set forth in Part 2.23 of the
Disclosure Letter, no Seller or any Related Person of any Seller or of Choice is
a party to any Contract with, or has any claim or right against, Choice.
2.24 Brokers or Finders. The Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF DAILY JOURNAL
Daily Journal represents and warrants to each Seller as follows:
3.1 Organization and Good Standing. Daily Journal is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
South Carolina.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Daily Journal, enforceable against Daily Journal in accordance
with its terms. Daily Journal has the absolute and unrestricted right, power,
and authority to execute and deliver this Agreement and the Shareholders
Agreement and to perform its obligations under this Agreement and under the
Shareholders Agreement.
(b) Neither the execution and delivery of this Agreement by Daily
Journal nor the consummation or performance of any of the Contemplated
Transactions by Daily Journal will give any Person the right to prevent, delay,
or otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Daily Journal's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
shareholders of Daily Journal;
(iii) any Legal Requirement or Order to which Daily Journal may be
subject; or
(iv) any Contract to which Daily Journal is a party or by which Daily
Journal may be bound.
Daily Journal is not and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
3.3 Investment Intent. Daily Journal is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
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3.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Daily Journal and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Daily Journal's Knowledge, no such Proceeding has
been Threatened.
3.5 Brokers and Finders. Daily Journal and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold the Sellers harmless from any such
payment alleged to be due by or through Daily Journal as a result of the action
of Daily Journal or its officers or agents.
ARTICLE 4.
TERMINATION
This Agreement may, by notice given prior to or at the Closing, be
terminated by either Daily Journal or by all of the Sellers at any time after
the date of this Agreement if the Closing shall not have occurred on the date of
this Agreement.
ARTICLE 5.
INDEMNIFICATION; REMEDIES
5.1 Survival. All representations, warranties and obligations in this
Agreement and the Disclosure Letter will survive the Closing.
5.2 Indemnification and Payment of Damages by Sellers. Subject to the
provisions set forth below, the Sellers, jointly and severally, will indemnify
and hold harmless Daily Journal and its Representatives, shareholders and
controlling persons (collectively, the "Indemnified Persons") for, and will pay
to the Indemnified Persons the amount of, any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim
(collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by any Seller in
this Agreement or the Disclosure Letter;
(b) any Breach by Choice or any Seller of any obligation of such
Person in this Agreement or any Seller's Employment Agreement;
(c) any Software Product shipped or manufactured by, or any services
provided by, Choice prior to the Closing Date; or
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or Choice (or
any Person acting on their behalf) in connection with any of the
Contemplated Transactions.
The amount of Damages computed hereunder for an Indemnified Person shall be
reduced by the amount of proceeds actually received by the Indemnified Person
from any insurance policy covering such Damages. The remedies provided in this
Section 5.2 are the sole and exclusive remedy of each Indemnified Person under
this Agreement for any of the matters covered by clauses (a) through (d) above,
provided that these indemnification provisions are in addition to and not in
derogation of any statutory or common law remedy for fraud that may be available
to any Indemnified Person.
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5.3 Indemnification and Payment of Damages by Daily Journal. Daily
Journal will indemnify and hold harmless the Sellers, and will pay to the
Sellers the amount of any Damages arising, directly or indirectly, from or in
connection with (a) any Breach of any representation or warranty made by Daily
Journal in this Agreement or in any certificate delivered by Daily Journal
pursuant to this Agreement, (b) any Breach by Daily Journal of any covenant or
obligation of Daily Journal in this Agreement, or (c) any claim by any Person
for brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Daily
Journal (or any Person acting on its behalf) in connection with any of the
Contemplated Transactions. The amount of Damages computed hereunder for Sellers
shall be reduced by the amount of proceeds actually received by any Seller from
any insurance policy covering such Damages. The remedies provided in this
Section 5.3 are the sole and exclusive remedy of Sellers under this Agreement
for any of the matters covered by clauses (a) through (d) above, provided that
these indemnification provisions are in addition to and not in derogation of any
statutory or common law remedy for fraud that may be available to any Seller.
5.4 Time Limitations.
(a) If the Closing occurs, the Sellers will have no liability (for
indemnification or otherwise) with respect to any matters covered by paragraphs
(a), (b) or (c) of Section 5.2, other than those specified in Sections 2.3 or
2.10, unless on or before the date one year after the Closing Date Daily Journal
notifies the Sellers of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Daily Journal. A claim with
respect to the matters covered by Section 2.3 or 2.10, paragraph (d) of Section
5.2 or any other claim not based upon any matter covered by paragraphs (a), (b)
or (c) of Section 5.2 may be made at any time.
(b) If the Closing occurs, Daily Journal will have no liability (for
indemnification or otherwise) with respect to any matters covered by paragraphs
(a) or (b) of Section 5.3, unless on or before the date one year after the
Closing Date the Sellers notify Daily Journal of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by the
Sellers. Any other claim with respect to the matters covered by paragraph (c)
of Section 5.3 or any other claim not based upon any matter covered by
paragraphs (a) or (b) of Section 5.3 may be made at any time.
5.5 Limitations on Amount--Sellers. The Sellers will have no liability
(for indemnification or otherwise) with respect to the matters described in
clause (a), (b) or (c) of Section 5.2 until the total of all Damages with
respect to such matters exceeds $10,000, and then only for the amount by which
such Damages exceed $10,000; provided that these limits will not apply to any
Breach of any of the Sellers' representations and warranties of which any Seller
had Knowledge at any time prior to the date on which such representation and
warranty is made or any intentional Breach by any Seller of any covenant or
obligation, and the Sellers will be jointly and severally liable for all Damages
with respect to such Breaches. Notwithstanding any other provision of this
Agreement, the aggregate liability of Sellers under this Agreement to
Indemnified Persons under paragraphs (a), (b) and (c) of Section 5.2 (other than
Breaches of Sections 2.3 or 2.10) will be limited to $460,322. In any event,
the matters excluded from this dollar limitation of $460,322 shall be counted in
determining whether this dollar limitation has been exceeded.
5.6 Limitations on Amount--Daily Journal. Daily Journal will have no
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or (b) of Section 5.3 until the total of all Damages
with respect to such matters exceeds $10,000, and then only for the amount by
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which such Damages exceed $10,000. However, this Section 5.6 will not apply to
any Breach of any of Daily Journal's representations and warranties of which
Daily Journal had Knowledge at any time prior to the date on which such
representation and warranty is made or any intentional Breach by Daily Journal
of any covenant or obligation, and Daily Journal will be liable for all Damages
with respect to such Breaches. Notwithstanding any other provision of this
Agreement, the aggregate liability of Daily Journal under this Agreement to
Sellers under paragraphs (a) and (b) of Section 5.3 will be limited to $460,322.
5.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 5.2
or 5.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 5.7(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves Federal or state income Taxes of the indemnified party, be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to the indemnified party under
this Article 5 for any fees of other counsel or any other expenses with respect
to the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification. Neither the indemnified party nor the indemnifying
party may concede, settle or compromise any claim without the consent of the
other party, which consent will not be unreasonably withheld.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) The Sellers hereby consent to the non-exclusive jurisdiction of
any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and
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agree that process may be served on the Sellers with respect to such a claim
anywhere in the world.
5.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
5.9 Other Limitations. Any indemnification payable under Section 5.2
shall be, to the extent permitted by law, an adjustment to the Purchase Price
for Payton Shares and/or Hahm Shares, as the case may be. No indemnification
payable under Section 5.2 of this Agreement may be offset in any manner against
obligations or amounts owed to any Seller under their Employment Agreement,
except as specified in the Employment Agreement. Each indemnified person shall
have the duty to use its commercially reasonable efforts to mitigate the amount
of any Damages that the indemnified person may suffer as a result of or arising
out of or relating to any breach of a representation or warranty or failure to
perform any covenant under this Agreement, provided that the indemnified party
shall be entitled to recover from the indemnifying party mitigation costs
incurred by the indemnified party. There shall be no indemnification obligation
under this Article 5 for any indirect, special or consequential damages of the
indemnified persons.
ARTICLE 6.
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 6:
"Accounts Receivable" is defined in Section 2.8.
"Applicable Contract" means any Contract (a) under which Choice has or may
acquire any rights, (b) under which Choice has or may become subject to any
obligation or liability, or (c) by which Choice or any of the assets owned or
used by it is or may become bound.
A "Breach" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any inaccuracy
in or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.
"Closing" is defined in Section 1.3.
"Closing Date" is the date and time as of which the Closing actually takes
place.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" mean all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by the Sellers to Daily Journal;
(b) the execution, delivery, and performance of the Employment Agreements
and the Shareholders Agreement;
(c) the performance by Daily Journal and the Sellers of their respective
covenants and obligations under this Agreement; and
(d) Daily Journal's acquisition and ownership of the Shares.
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"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Daily Journal" is defined in the first paragraph of this Agreement.
"Damages" is defined in Section 5.2.
"Disclosure Letter" means the disclosure letter delivered by the Sellers to
Daily Journal concurrently with the execution and delivery of this Agreement.
"Employment Agreements" means the Employment Agreements to be entered into
by each of the Sellers with Choice at the Closing.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" mean any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"Environmental Law" means any Legal Requirement that is designed to
minimize, prevent, punish, or remedy the consequences of actions that damage or
threaten the Environment.
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"ERISA" means the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" mean any real property, leaseholds, or other interests
currently or formerly owned or operated by Choice and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by Choice.
"Final Balance Sheet" is defined in Section 1.4.
"GAAP" means generally accepted United States accounting principles.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement, other than actions under a Contract with a Governmental Body.
"Governmental Body" means any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or quasi-
governmental authority of any nature (including any governmental agency, branch,
department, official, or entity and any court or other tribunal); (d) multi-
national organization or body; or (e) body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"Guidelines and Procedures" is defined in Section 1.4.
"Independent Accountant" is defined in Section 1.4.
"Intellectual Property Assets" is defined in Section 2.18(a).
"IRC" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter or a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations
19
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and insurance companies), designed to provide safe and healthful working
conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"Organizational Documents" mean the articles or certificate of
incorporation and the bylaws of a corporation and any amendment to any of the
foregoing.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plans" is defined in Section 2.12.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Preliminary Balance Sheet" is defined in Section 2.4.
"Purchase Price" is defined in Section 1.2.
"Related Person" with respect to a particular individual means: (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity). With respect to a specified Person other
than an individual: (a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under common
control with such specified Person; (b) any Person that holds a Material
Interest in such specified Person; (c) each Person that serves as a director,
officer, partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; and (e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) the individual's
brothers, sisters and children, and (iv) any other natural person who resides
with such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least
10% of the outstanding voting power or equity interests in a Person.
"Release"means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
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"Representative" means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Sellers" is defined in the first paragraph of this Agreement.
"Shareholders Agreement" means the Shareholders Agreement to be entered
into by Choice, each of the Sellers, Jerry L. Short and Daily Journal at the
Closing.
"Shares" means the New Shares, the Payton Shares and the Hahm Shares,
collectively.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax Return"means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release"means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
ARTICLE 7.
GENERAL PROVISIONS
7.1 Expenses. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. It is acknowledged and agreed that
Choice shall pay any out-of-pocket expenses incurred by Choice or the Sellers
prior to the Closing Date in connection with this Agreement, including without
limitation attorneys' fees and disbursements; provided, however, that these
expenses will be listed as liabilities on the Final Balance Sheet to the extent
not paid by Choice as of the Closing Date. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by another
party.
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7.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Daily Journal and the Sellers
mutually agree, except as required by Legal Requirements and provided that the
Sellers acknowledge that Daily Journal may determine in its sole discretion
whether and how to disclose this Agreement and the Contemplated Transactions
pursuant to the requirements of the Federal securities laws. Choice and the
Sellers shall keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. Choice, the Sellers and Daily
Journal will consult with each other concerning the means by which Choice's
employees, customers, and suppliers and others having dealings with Choice will
be informed of the Contemplated Transactions, and Daily Journal will have the
right to be present for any such communication.
7.3 Confidentiality. Daily Journal, Choice and the Sellers will maintain
in confidence, and will cause the directors, officers, employees, agents, and
advisors of Daily Journal and Choice to maintain in confidence, and not use to
the detriment of another party any written, oral, or other information obtained
in confidence from another party in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information is
or becomes publicly available through no fault of such party, (b) the use of
such information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
Legal Requirements.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
7.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Choice:
Choice Information Systems, Inc.
11817 Cannon Boulevard, Suite 404
Newport News, VA 23606
Attention: Michael W. Payton
Fax: 757-873-6856
Sellers:
Michael W. Payton
__________________________________
__________________________________
Terence E. Hahm
__________________________________
__________________________________
Daily Journal:
Daily Journal Corporation
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915 E. First Street
Los Angeles, CA 90012
Attention: Gerald L. Salzman
Fax: 213-330-2666
7.5 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of California, County of Los Angeles, or, if it has or can acquire jurisdiction,
in the United States District Court for the Central District of California, and
each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
7.6 Further Assurances; Access to Records. The parties agree (a) to
furnish upon request to each other such further information, (b) to execute and
deliver to each other such other documents, and (c) to do such other acts and
things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in this
Agreement. After the Closing, the Sellers and their authorized representatives
shall have reasonable access to all records and files relating to Choice's
business prior to the Closing, upon reasonable notice to Choice, for purposes of
(i) considering, defending and resolving and disputes or claims relating to
activities conducted prior to the Closing; (ii) preparation of Tax Returns; and
(iii) other reasonable and necessary matters related to Choice's operation of
its business prior to the Closing.
7.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative, except as expressly stated in this Agreement.
Neither the failure nor any delay by any party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement
will operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement.
7.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties, and any prior understandings or
representations, with respect to its subject matter and constitutes (along with
the documents referred to in this Agreement) a complete and exclusive statement
of the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
7.9 Disclosure Letter. The disclosures in the Disclosure Letter, and
those in any Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement, unless and only
to the extent such disclosures clearly cross-reference other representations or
warranties in this Agreement. In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure
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Letter (other than an exception expressly set forth as such in the Disclosure
Letter with respect to a specifically identified representation or warranty),
the statements in the body of this Agreement will control.
7.10 Assignments, Successors and Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, except that Daily Journal may assign any of its rights under this
Agreement to any Subsidiary of Daily Journal. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
7.11 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.13 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
7.14 Governing Law. This Agreement will be governed by the laws of the
State of California without regard to conflicts of laws principles.
7.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.16 Sellers' Release.
(a) Each Seller hereby releases and forever discharges Choice and
Daily Journal from any and all claims, demands, Proceedings, causes of action,
Orders, obligations, Contracts, agreements, indebtedness, and Liabilities
whatsoever, whether known or unknown, at law or in equity, which the Seller now
has or has ever had against Choice or Daily Journal arising at or prior to the
Closing Date or on account of or arising out of any matter, cause or event
occurring at or prior to the Closing Date, other than (i) obligations of Choice
or Daily Journal to a Seller pursuant to the terms of this Agreement, the
Seller's Employment Agreement or the Shareholders Agreement, and (ii) benefits
and rights of a Seller in the Seller's capacity as a participant in any Plans of
Choice, whether accrued prior to or after the Closing.
(b) Each Seller hereby irrevocably covenants to refrain from,
directly or indirectly, asserting any claim or demand, or commencing,
instituting or causing to be commenced, any Proceeding of any kind against
Choice or Daily Journal, based on the matters released hereby.
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(c) Each Seller hereby waives any rights which may be conferred upon
such Seller by virtue of Section 1542 of the Civil Code of the State of
California (or any similar statute) 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
THIS RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
DAILY JOURNAL CORPORATION
By:_____________________________
Name:
Title:
CHOICE INFORMATION SYSTEMS, INC.
By:_____________________________
Name:
Title:
/s/ Michael W. Payton
________________________________
Michael W. Payton
/s/ Terence E. Hahm
________________________________
Terence E. Hahm
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EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is made as of January 22, 1999, by Choice
Information Systems, Inc., a Virginia corporation ("Choice"), Quindeca
Corporation, a Colorado corporation ("Quindeca"), and Jerry L. Short, an
individual resident in Colorado ("Short").
RECITALS
Based upon the representations, warranties and agreements of Quindeca and
Short contained in this Agreement, Choice wishes to purchase certain assets and
assume certain liabilities of Quindeca, and Quindeca wishes to transfer these
assets and permit Choice to assume these liabilities, subject to payment of the
Purchase Price. Short, as sole shareholder of Quindeca, will be the ultimate
recipient of the purchase price hereunder and therefore Short, with Quindeca,
makes representations and warranties to Choice and agrees to provide
indemnification to Choice as provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
AGREEMENT
The parties, intending to be legally bound, agree as follows:
ARTICLE 1.
SALE AND TRANSFER OF SHARES; CLOSING
1.1 Acquired Assets and Assumed Liabilities. On and subject to the terms
and conditions of this Agreement, Choice agrees to purchase from Quindeca, and
Quindeca agrees to sell, transfer, convey, and deliver to Choice, all of the
Acquired Assets at the Closing in consideration for (a) the Purchase Price
specified in Section 1.2 and (b) Choice assuming and becoming responsible for
all of the Assumed Liabilities at the Closing. Choice will not assume or have
any responsibility, however, with respect to any other obligation or liability
of Quindeca not included within the definition of Assumed Liabilities,
including, without limitation, any liability for sales taxes arising as a result
of the transfer of the Acquired Assets by Quindeca to Choice.
1.2 Purchase Price. The purchase price (the "Purchase Price") for the
Acquired Assets will be (a) $944,444 payable in cash to Quindeca and (b) a
certificate representing 24.75 shares of Choice common stock with an agreed-upon
value of $22,455 per share, each delivered at the Closing.
1.3 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Munger, Tolles & Olson LLP at 355
South Grand Avenue, 35/th/ Floor, Los Angeles, California, at 10:00 a.m. (local
time) on the date of this Agreement, or at such other time and place as the
parties may agree.
1.4 Purchase Price Allocation. The parties agree to allocate the
Purchase Price (and all other capitalizable costs) among the Acquired Assets for
all purposes (including financial accounting and tax purposes) in accordance
with the allocation schedule attached hereto as Exhibit 1.4.
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ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF QUINDECA AND SHORT.
Quindeca and Short jointly and severally represent and warrant to Choice as
follows:
2.1 Organization and Good Standing. Quindeca is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Colorado, with full corporate power and authority to conduct its business as it
is now being conducted, to own or use the properties and assets that it purports
to own or use, and to perform all its obligations under Applicable Contracts.
Quindeca has no Subsidiaries.
2.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Quindeca and Short, enforceable against each in accordance with
its terms. Quindeca and Short have the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement, the Employment
Agreement and the Shareholders Agreement (to the extent either is a party
thereto) and to perform their respective obligations under this Agreement, the
Employment Agreement and the Shareholders Agreement.
(b) Except as set forth in Part 2.2 of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Quindeca, or (B) any
resolution adopted by the board of directors or the shareholders of
Quindeca;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Quindeca, or any of the
assets owned or used by Quindeca, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any material
Governmental Authorization that is held by Quindeca or that otherwise
relates to the business of, or any of the assets owned or used by,
Quindeca;
(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any Applicable Contract; or
(v) result in the imposition or creation of any Encumbrance upon or
with respect to any of the Acquired Assets.
As of the date of this Agreement, Quindeca and Short shall have given all
notices and obtained all Consents required from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.
2.3 Title to Properties; Encumbrances. Quindeca owns (with good and
marketable title in the case of real property) all Acquired Assets. Except as
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set forth in Part 2.3 of the Disclosure Letter, all such Acquired Assets are
free and clear of all Encumbrances.
2.4 Condition and Sufficiency of Assets. The equipment of Quindeca is in
good operating condition and repair, and is adequate for the uses to which it is
being put, and none of such equipment is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The equipment of Quindeca is sufficient for the continued
conduct of Quindeca's businesses after the Closing, assuming Quindeca's business
is conducted in substantially the same manner after the Closing as it was
conducted prior to the Closing.
2.5 No Undisclosed Liabilities. Quindeca has no liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the balance sheet of Quindeca setting forth the
financial condition of Quindeca as of December 31, 1997 (the "Balance Sheet")
delivered to Choice on or prior to the date hereof, and except for liabilities
and obligations incurred by Quindeca in the Ordinary Course of Business since
that date.
2.6 Taxes.
(a) Quindeca has filed or caused to be filed all Federal and state
income Tax Returns and other material Tax Returns that are or were required to
be filed by or with respect to it pursuant to applicable Legal Requirements.
Quindeca has paid, or made provision for the payment of, all Taxes that have or
may have become due pursuant to those Tax Returns or otherwise, or pursuant to
any assessment, except such Taxes, if any, as are listed in Part 2.6 of the
Disclosure Letter and are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided in the Balance
Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
respective books of Quindeca are adequate (determined in accordance with GAAP)
and are at least equal to Quindeca's liability for Taxes. There exists no
proposed tax assessment against Quindeca except as disclosed in the Balance
Sheet or in Part 2.6 of the Disclosure Letter. No consent to the application of
Section 341(f)(2) of the IRC has been filed with respect to any property or
assets held, acquired, or to be acquired by Quindeca. All Taxes that Quindeca is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
(c) All Tax Returns filed by (or that include on a consolidated
basis) Quindeca are true, correct, and complete in all material respects. There
is no tax sharing agreement that will require any payment by Quindeca after the
date of this Agreement.
(d) Quindeca (and any predecessor of Quindeca) has been a validly
electing "S" corporation within the meaning of Sections 1361 and 1362 of the IRC
at all times during its existence for federal and state tax purposes (that is,
with respect to each state in which Quindeca is doing business or is registered
to do business), and such election shall remain in effect, and Quindeca will be
continue to qualify as an "S" corporation up to and including the Closing Date.
(e) Short has included in his Tax Returns filed prior to the date
hereof his distributive share of income of Quindeca set forth on the Tax Returns
of Quindeca.
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(f) Quindeca has not in the past ten (10) years (A) acquired assets
from another corporation in a transaction in which Quindeca's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (B) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
(g) Nothing in this Section 2.6 is intended to cover Taxes arising
from the Contemplated Transactions.
2.7 Compliance with Legal Requirements; Government Authorizations.
(a) Quindeca is, and at all times since January 1, 1994 has been, in
compliance in all material respects with Legal Requirements that are or were
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets. No event has occurred or circumstance exists that
(with or without notice or lapse of time) (i) may constitute or result in a
violation in any material respect by Quindeca of, or a failure on the part of
Quindeca to comply in any material respect with, any Legal Requirement, or (ii)
may give rise to any obligation of Quindeca to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature. Except as set forth
in Part 2.7(a) of the Disclosure Letter, Quindeca has not received, at any time
since January 1, 1994, any notice or other communication from any Governmental
Body or any other Person regarding (i) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement, or
(ii) any actual, alleged, possible, or potential obligation on the part of
Quindeca to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Except as set forth in Part 2.7(b) of the Disclosure Letter, each
Governmental Authorization that is held by Quindeca or that otherwise relates to
the business of, or to any of the assets owned or used by, Quindeca is valid and
in full force and effect. Such Governmental Authorizations collectively
constitute all of the Governmental Authorizations necessary to permit Quindeca
to lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit Quindeca to own and use its assets in
the manner in which it currently owns and uses such assets. Quindeca is, and at
all times since January 1, 1994 has been, in compliance in all material respects
with all of the terms and requirements of each Governmental Authorization.
Except as set forth in Part 2.7(b) of the Disclosure Letter, Quindeca has not
received, at any time since January 1, 1994, any notice or other communication
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization.
2.8 Legal Proceedings; Orders.
(a) Part 2.8 of the Disclosure Letter lists all pending Proceedings
which have been commenced by or against Quindeca or, to the Knowledge of
Quindeca and Short, that otherwise relate to or may affect the business of, or
any of the assets owned or used by, Quindeca, or that challenge, or that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions. To the Knowledge of
Quindeca and Short, (1) no such Proceeding has been Threatened, and (2) no event
has occurred or circumstance exists that may give rise to or serve as a basis
for the commencement of any such Proceeding. The Proceedings listed in Part 2.8
of the Disclosure Letter will not have a material adverse effect on the
business, operations, assets, condition, or prospects of Quindeca.
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(b) There is no Order to which Quindeca, or any of the assets owned
or used by it, is subject, and no shareholder of Quindeca is subject to any
Order that relates to the business of, or any of the assets owned or used by,
Quindeca.
(c) As of the date of this Agreement, no Person has made or
Threatened any claim asserting that such Person (a) is the holder or the
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest
in, Quindeca, or (b) is entitled to all or any portion of the Purchase Price
payable for the Acquired Assets.
2.9 Contracts; No Defaults.
(a) Part 2.9(a) of the Disclosure Letter contains a complete and
accurate list, and Quindeca and Short have delivered to Choice true and complete
copies, of each of the following that are currently in effect:
(i) each Applicable Contract that involves performance of services
or delivery of goods or materials by Quindeca of an amount or value in
excess of $10,000;
(ii) each Applicable Contract that involves performance of services
or delivery of goods or materials to Quindeca of an amount or value in
excess of $10,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts by
Quindeca in excess of $5,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property (except personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $1,000 and with terms of less than one
year);
(v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each employment agreement, collective bargaining agreement and
other Applicable Contract to or with any employee, labor union or other
employee representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by Quindeca with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Quindeca or any Affiliate of
Quindeca or limit the freedom of Quindeca or any Affiliate of Quindeca to
engage in any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods;
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(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by Quindeca to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$5,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by Quindeca
other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) No shareholder of Quindeca (and no Related Person of any
shareholder) has or may acquire any rights under, and no shareholder has or may
become subject to any obligation or liability under, any Contract that relates
to the business of, or any of the assets owned or used by, Quindeca.
(c) Each Contract identified or required to be identified in Part
2.9(a) of the Disclosure Letter is in full force and effect.
(d) Quindeca is, and at all times since January 1, 1994 has been, in
compliance in all material respects with all applicable terms and requirements
of each Contract under which it has or had any obligation or liability or by
which it or any of the assets owned or used by it is or was bound. Each other
Person that has or had any obligation or liability under any Contract under
which Quindeca has or had any rights is, and at all times since January 1, 1994
has been, in compliance in all material respects with all applicable terms and
requirements of such Contract. No event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with, or
result in a material violation of, or breach of, or give Quindeca or any other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract. Quindeca has not given to or received from any other
Person, at any time since January 1, 1994, any notice or other communication
(whether oral or written) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Quindeca under current or completed Contracts with any Person and no such Person
has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by Quindeca have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
2.10 Environmental Matters. Quindeca is, and at all times has been, in
compliance in all material respects with, and has not been and is not in
violation of or liable in any material respect under, any Environmental Law.
There are no pending or, to the Knowledge of Quindeca and Short, Threatened
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or
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any other properties and assets (whether real, personal, or mixed) in which
Quindeca has or had an interest.
2.11 Employees. Quindeca has never been and is not presently a party to
any written or oral employment Contract, collective bargaining or other labor
Contract. There has not been, there is not presently pending or existing, and
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting Quindeca
relating to the alleged violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable Governmental Body, organizational
activity, or other labor or employment dispute against or affecting Quindeca or
its premises, or (c) any application for certification of a collective
bargaining agent. Quindeca has complied in all material respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. Quindeca is not liable in any material respect for
the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
2.12 Intellectual Property.
(a) Definition of "Intellectual Property Assets." The term
-------------------------------------------
"Intellectual Property Assets" includes:
(i) the name "Quindeca" and all other fictional business names,
trading names, registered and unregistered trademarks, service marks, and
applications owned by Quindeca (collectively, "Marks");
(ii) all patents and patent applications owned by Quindeca
(collectively, "Patents");
(iii) all copyrights owned by Quindeca in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works owned by Quindeca (collectively,
"Rights in Mask Works"); and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets") owned by
Quindeca.
Quindeca owns all items of the type described in clauses (i) through (v) above
that are used by it in its business other than (A) commercially available
software licensed by Quindeca and (B) intellectual property assets provided by
Choice.
(b) Agreements. Part 2.12(b) of the Disclosure Letter contains a
----------
complete and accurate list and summary description, including any royalties paid
or received by Quindeca, of all Contracts relating to the Intellectual Property
Assets to which Quindeca is a party or by which Quindeca is bound, except for
any license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than $500 under which
Quindeca is the licensee. There are no outstanding and, to the Knowledge of
Quindeca and Short, no Threatened disputes or disagreements with respect to any
such agreement.
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(c) Know-How Necessary for the Business. The Intellectual Property
-----------------------------------
Assets are all those necessary for the operation of Quindeca's business as it is
currently conducted. Except as set forth on Part 2.12(c) of the Disclosure
Letter, Quindeca is the owner of all right, title, and interest in and to each
of the Intellectual Property Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use without payment to a third party all of the Intellectual
Property Assets. Neither Short nor, to the Knowledge of Quindeca and Short, any
other employee of Quindeca has entered into any Contract that restricts or
limits in any way the scope or type of work in which the employee may be engaged
or requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than Quindeca.
(d) Patents. Quindeca owns no Patents. To the Knowledge of Quindeca and
-------
Short, none of the products sold, nor any process or know-how used, by Quindeca
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
(e) Trademarks. Part 2.12(e) of Disclosure Letter contains a complete
----------
and accurate list and summary description of all Marks, if any. Except as set
forth in Part 2.12(e) of the Disclosure Letter, Quindeca is the owner of all
right, title, and interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims. All Marks that have been registered with the United States Patent and
Trademark Office are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date. No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to the Knowledge of the Sellers,
no such action is Threatened with the respect to any of the Marks. To the
Knowledge of Quindeca and Short, there is no potentially interfering trademark
or trademark application of any third party. No Mark is infringed or, to the
Knowledge of Quindeca and Short, has been challenged or threatened in any way.
None of the Marks owned by Quindeca or, to the Knowledge of Quindeca and Short,
licensed or otherwise used by Quindeca, infringes or is alleged to infringe any
trade name, trademark, or service mark of any third party. All products and
materials containing a Mark that have been registered as described above bear
the proper federal registration notice where permitted by law.
(f) Copyrights. Part 2.12(f) of the Disclosure Letter contains a
----------
complete and accurate list and summary description of all Copyrights, if any.
Quindeca is the owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims. None of the Copyrights have
been registered. All the Copyrights are currently in compliance with formal
legal requirements, are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days after the
date of Closing. No Copyright is infringed or, to the Knowledge of Quindeca and
Short, has been challenged or threatened in any way. None of the subject matter
of any of the Copyrights infringes or is alleged to infringe any copyright of
any third party or is a derivative work based on the work of a third party. All
works encompassed by the Copyrights have been marked with the proper copyright
notice.
(g) Trade Secrets. With respect to each Trade Secret, the documentation
-------------
relating to such Trade Secret is current, accurate, and sufficient in detail and
content to identify and explain it and to allow its full and proper use without
reliance on the knowledge or memory of any individual. Quindeca has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. Quindeca has good
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title and an absolute (but not necessarily exclusive) right to use the Trade
Secrets. The Trade Secrets are not part of the public knowledge or literature,
and, to the Knowledge of Quindeca and Short, have not been used, divulged, or
appropriated either for the benefit of any Person or to the detriment of
Quindeca. No Trade Secret is subject to any adverse claim or has been challenged
or threatened in any way.
2.13 Computer Software.
(a) Performance. To the Knowledge of Quindeca and Short, each of the
-----------
computer software products owned by Quindeca, other than commercially available
software programs not marketed by Quindeca (the "Software Products") performs in
accordance with specifications, documentation and other written material used in
connection with the sale, license, distribution, marketing or use thereof. Part
2.13(a) of the Disclosure Letter contains a complete list of Software Products
sold, licensed, distributed or marketed by Quindeca since January 1, 1994.
(b) Development. No shareholder or, to the Knowledge of Quindeca and
-----------
Short, employee of Quindeca is in default under any employment Contract relating
to the Software Products, any noncompetition or confidentiality Contract or any
other Contract or restrictive covenant relating to the Software Products or
their development or exploitation. The Software Products do not include any
inventions of Short made prior to the time such Short became an employee of
Quindeca or made outside of the scope of Short's employment, nor any property or
any previous employer of Short. To the Knowledge of Quindeca and Short, the
Software Products do not include any inventions of any employee other than Short
made prior to the time such employee became an employee of Quindeca or made
outside of the scope of such employee's employment, nor any property or any
previous employer of such employee.
(c) Title. All right, title and interest in and to the Software
-----
Products owned by Quindeca, is free and clear of all liens. No government
funding was utilized in the development of any of the Software Products owned by
Quindeca, or, to the Knowledge of Quindeca and Short, any other Software
Products. The sale, license, distribution, marketing or use of the Software
Products by Quindeca does not violate any rights of any other Person, and
Quindeca has not received any communication alleging such violation. Except as
set forth in Part 2.13(c) of the Disclosure Letter, Quindeca has no obligation
to compensate any Person for the sale, license, distribution, marketing or use
of the Software Products. Quindeca has not granted to any other Person any
license, option or other right in or to any of the Software Products, except for
non-exclusive, royalty-bearing, end-user licenses granted by Quindeca in the
Ordinary Course of Business pursuant to license agreements substantially in the
form attached in Part 2.13(c) of the Disclosure Letter (the "End-User
Licenses").
(d) Maintenance. Quindeca has no obligation to any other Person to
-----------
maintain, modify, improve or upgrade any of the Software Products, except for
any such obligations set forth in the End-User Licenses or under a maintenance
agreement. Certain maintenance agreements are listed in Part 2.13(d) of the
Disclosure Letter.
(e) Year 2000. The Software Products currently being sold,
---------
distributed or marketed by Quindeca (i) include Year 2000 date conversion and
capabilities including, but not limited to: date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, correct sort ordering, and date data interface values that reflect the
century; (ii) automatically compensates for and manages and manipulates data
involving dates, including single century formulas and multi-century formulas,
and will not cause an abnormal abort within the application
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or result in the generation of incorrect values or invalid inputs involving such
date; (iii) provides that all date-related user interface functionalities and
data fields include the indication of the correct century; (iv) provides that
all date-related system-to-system or application-to-application data interface
functionalities will include the indication of the correct century; and (v) will
continue to comply with clauses (i) through (iv) above. All data processing by
the Software Products currently being sold, distributed or marketed by Quindeca
includes four digit year format and recognizes and correctly processes dates for
leap years. Quindeca has no obligation to modify, improve or upgrade any of the
Software Products previously sold, distributed or marketed by Quindeca in order
to ensure their compliance with the Year 2000 capabilities described in this
Section 2.13(e).
(f) Protection of the Proprietary Nature of the Software Products.
-------------------------------------------------------------
Quindeca has kept secret and has not disclosed the source code for the Software
Products to any Person other than certain employees, licensed customers and
contractors of Quindeca. Quindeca has taken all reasonable measures to protect
the security, confidentiality and value of the Software Products.
2.14 Relationship with Customers. Quindeca has used its reasonable
business efforts to maintain, and currently maintains, in all material respects,
good working relationships with all of its customers. Each of Quindeca's
contracts with its customers and related customer relationships which have been
terminated (other than by expiration of its stated term) or canceled during the
one year period ended on the Closing Date are set forth and described on Part
2.14 of the Disclosure Letter. During that one year period, none of Quindeca's
current customers has given Quindeca written notice terminating, canceling or
threatening to terminate or cancel any contract or relationship with Quindeca.
2.15 Certain Payments. Since January 1, 1994, neither Quindeca nor any
director, officer, agent, or employee of Quindeca, or to the Knowledge of
Quindeca and Short, any other Person associated with or acting for or on behalf
of Quindeca, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of Quindeca or any
Affiliate of Quindeca, or (iv) in violation of any Legal Requirement, or (b)
established or maintained any fund or asset that has not been recorded in the
books and records of Quindeca.
2.16 Disclosure. No representation or warranty of Quindeca and Short in
this Agreement and no statement in the Disclosure Letter omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
2.17 Relationships with Related Persons. No shareholder of Quindeca or
any Related Person of any shareholder or of Quindeca has, or since January 1,
1994 has had, any interest in any property (whether real, personal, or mixed and
whether tangible or intangible), used in or pertaining to Quindeca's business.
No shareholder of Quindeca or any Related Person of any shareholder or of
Quindeca is, or since January 1, 1994 has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in, a Person
that has (i) had business dealings or a material financial interest in any
transaction with Quindeca other than business dealings or transactions conducted
in the Ordinary Course of Business with Quindeca at substantially prevailing
market prices and on substantially prevailing market terms, or (ii) engaged in
competition with Quindeca with respect to any line of the products or services
of Quindeca in any market presently served by
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Quindeca. Except as set forth in Part 2.17 of the Disclosure Letter, no
shareholder of Quindeca or any Related Person of any shareholder or of Quindeca
is a party to any Contract with, or has any claim or right against, Quindeca.
2.18 Brokers or Finders. Neither Quindeca nor Short incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CHOICE
Choice represents and warrants to Quindeca and Short as follows:
3.1 Organization and Good Standing. Choice is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia.
3.2 Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Choice, enforceable against Choice in accordance with its terms.
Choice has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement, the Employment Agreements and the Shareholders
Agreement and to perform its obligations under this Agreement, the Employment
Agreements and the Shareholders Agreement.
(b) Neither the execution and delivery of this Agreement by Choice
nor the consummation or performance of any of the Contemplated Transactions by
Choice will give any Person the right to prevent, delay, or otherwise interfere
with any of the Contemplated Transactions pursuant to:
(i) any provision of Choice's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
shareholders of Choice;
(iii) any Legal Requirement or Order to which Choice may be subject;
or
(iv) any Contract to which Choice is a party or by which Choice may
be bound.
Choice is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
3.3 Certain Proceedings. There is no pending Proceeding that has been
commenced against Choice and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Choice's Knowledge, no such Proceeding has been
Threatened.
3.4 Brokers and Finders. Choice and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Quindeca and Short harmless from any
such payment alleged to be due by or through Choice as a result of the action of
Choice or its officers or agents.
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ARTICLE 4.
TERMINATION
This Agreement may, by notice given prior to or at the Closing, be
terminated by either Choice or by both Quindeca and Short at any time after the
date of this Agreement if the Closing shall not have occurred on the date of
this Agreement.
ARTICLE 5.
INDEMNIFICATION; REMEDIES
5.1 Survival. All representations, warranties and obligations in this
Agreement and the Disclosure Letter will survive the Closing.
5.2 Indemnification and Payment of Damages by Quindeca and Short.
Subject to the provisions set forth below, Quindeca and Short, jointly and
severally, will indemnify and hold harmless Choice and its Representatives,
shareholders and controlling persons (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage, expense (including costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by Quindeca or
Short in this Agreement or the Disclosure Letter;
(b) any Breach by Quindeca or Short of any obligation of such Person
in this Agreement or the Employment Agreement;
(c) any Excluded Liabilities; or
(d) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Quindeca or Short (or any
Person acting on their behalf) in connection with any of the Contemplated
Transactions.
The amount of Damages computed hereunder for an Indemnified Person shall be
reduced by the amount of proceeds actually received by the Indemnified Person
from any insurance policy covering such Damages. The remedies provided in this
Section 5.2 are the sole and exclusive remedy of each Indemnified Person under
this Agreement for any of the matters covered by clauses (a) through (d) above,
provided that these indemnification provisions are in addition to and not in
derogation of any statutory or common law remedy for fraud that may be available
to any Indemnified Person.
5.3 Indemnification and Payment of Damages by Choice. Subject to the
provisions set forth below, Choice will indemnify and hold harmless Quindeca and
Short, and will pay to Quindeca and Short the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any Breach of any
representation or warranty made by Choice in this Agreement or in any
certificate delivered by Choice pursuant to this Agreement, (b) any Breach by
Choice of any covenant or obligation of Choice in this Agreement, (c) any
liability included within the Assumed Liabilities, or (d) any claim by any
Person for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by such Person
with Choice (or any Person acting on its behalf) in connection with any of the
Contemplated Transactions. The amount of Damages computed hereunder for
Quindeca and Short shall be reduced by the amount of proceeds actually received
by Quindeca or Short from any insurance policy covering such Damages. The
remedies provided in this Section 5.3 are the sole and exclusive remedy
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of Quindeca and Short under this Agreement for any of the matters covered by
clauses (a) through (d) above, provided that these indemnification provisions
are in addition to and not in derogation of any statutory or common law remedy
for fraud that may be available to Quindeca or Short.
5.4 Time Limitations.
(a) If the Closing occurs, Quindeca and Short will have no liability
(for indemnification or otherwise) with respect to any matters covered by
paragraphs (a) or (b) of Section 5.2, or paragraph (c) of Section 5.2, other
than those specified in Section 2.6 and for the amount of any Excluded
Liabilites paid by any Indemnified Person, unless on or before the date one year
after the Closing Date an Indemnified Person notifies Short of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Choice. A claim with respect to the matters covered by Section
2.6, for the amount of any Excluded Liabilities paid by any Indemnified Person,
or the matters covered by paragraph (d) of Section 5.2 or any other claim not
based upon any matter covered by paragraphs (a), (b) or (c) of Section 5.2 may
be made at any time. For the avoidance of doubt, the parties agree that the time
limitations decribed in the first sentence above apply to any Damages incurred
by any Indemnified Person in connection with the Excluded Liabilities, such as
legal costs and expenses, but do not apply to the actual payment of any Excluded
Liabilities by any Indemnified Person.
(b) If the Closing occurs, Choice will have no liability (for
indemnification or otherwise) with respect to any matters covered by paragraphs
(a) or (b) of Section 5.3, unless on or before the date one year after the
Closing Date Short notifies Choice of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Quindeca and Short.
Any other claim with respect to the matters covered by paragraph (c) or (d) of
Section 5.3 or any other claim not based upon any matter covered by paragraphs
(a) or (b) of Section 5.3 may be made at any time.
5.5 Limitations on Amount--Quindeca and Short. Quindeca and Short will
have no liability (for indemnification or otherwise) with respect to the matters
described in clause (a) or (b) of Section 5.2, or paragraph (c) of Section 5.2,
until the total of all Damages with respect to such matters exceeds $10,000, and
then only for the amount by which such Damages exceed $10,000; provided that
these limits will not apply to any Breach of any of the representations and
warranties of Quindeca and Short of which either Quindeca or Short had Knowledge
at any time prior to the date on which such representation and warranty is made
or any intentional Breach by Quindeca or Short of any covenant or obligation,
and Quindeca and Short will be jointly and severally liable for all Damages with
respect to such Breaches. Notwithstanding any other provision of this
Agreement, the aggregate liability of Quindeca and Short under this Agreement to
Indemnified Persons under paragraphs (a), (b) or (c) of Section 5.2 (other than
for Breaches of Section 2.6 and for the amount of any Excluded Liabilities paid
by any Indemnified Person) will be limited to $188,889. In any event, the
matters excluded from this dollar limitation of $188,889 shall be counted in
determining whether this dollar limitation has been exceeded. For the avoidance
of doubt, the parties agree that the amount limitations decribed above apply to
any Damages incurred by any Indemnified Person in connection with the Excluded
Liabilities, such as legal costs and expenses, but do not apply to the actual
payment of any Excluded Liabilities by any Indemnified Person. No Indemnified
Person will pay any Excluded Liabilities except in compliance with the
procedures provided in Section 5.7 of this Agreement.
5.6 Limitations on Amount--Choice. Choice will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) of Section 5.3 until the total of all Damages with respect to such
matters exceeds $10,000, and then only for the amount by which such Damages
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exceed $10,000. However, this Section 5.6 will not apply to any Breach of any of
Choice's representations and warranties of which Choice had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional Breach by Choice of any covenant or obligation, and Choice will be
liable for all Damages with respect to such Breaches. Notwithstanding any other
provision of this Agreement, the aggregate liability of Choice under this
Agreement to Quindeca and Short under paragraphs (a) and (b) of Section 5.3 will
be limited to $188,889.
5.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 5.2
or 5.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 5.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Federal or state income Taxes of the indemnified party, be
entitled to participate in such Proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation would be
inappropriate, or (ii) the indemnifying party fails to provide reasonable
assurance to the indemnified party of its financial capacity to defend such
Proceeding and provide indemnification with respect to such Proceeding), to
assume the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article 5 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification. Neither the
indemnified party nor the indemnifying party may concede, settle or compromise
any claim without the consent of the other party, which consent will not be
unreasonably withheld.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) The parties hereby consent to the non-exclusive jurisdiction of
any court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on any party with respect to such a claim anywhere in the
world.
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5.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
5.9 Other Limitations. Any indemnification payable under Section 5.2
shall be, to the extent permitted by law, an adjustment to the Purchase Price.
No indemnification payable under Section 5.2 of this Agreement may be offset in
any manner against obligations or amounts owed by Choice to Short under the
Employment Agreement, except as specified in the Employment Agreement. Each
indemnified person shall have the duty to use its commercially reasonable
efforts to mitigate the amount of any Damages that the indemnified person may
suffer as a result of or arising out of or relating to any breach of a
representation or warranty or failure to perform any covenant under this
Agreement, provided that the indemnified party shall be entitled to recover from
the indemnifying party mitigation costs incurred by the indemnified party.
There shall be no indemnification obligation under this Article 5 for any
indirect, special or consequential damages of the indemnified persons.
ARTICLE 6.
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 6:
"Acquired Assets" means all right, title, and interest in and to all of the
assets of Quindeca, including but not limited to all of its (a) real property,
leaseholds and subleaseholds therein, improvements, fixtures, and fittings
thereon, and easements, rights-of-way, and other appurtenants thereto (such as
appurtenant rights in and to public streets), (b) tangible personal property
listed in Exhibit 1.4, (c) Intellectual Property Assets, goodwill associated
therewith, licenses and sublicenses granted and obtained with respect thereto,
and rights thereunder, remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions, (d) leases,
subleases, and rights thereunder, (e) all Applicable Contracts, (f) Governmental
Authorizations, and (g) business goodwill of Quindeca, including customer lists,
any creative materials, advertising and promotional materials, studies, reports,
and other printed or written materials relating to the business of Quindeca;
provided, however, that the Acquired Assets shall not include (i) the corporate
charter, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of Quindeca as a corporation, (ii) any of the rights
of Quindeca under any Plans, (iii) Accounts Receivable, notes receivable and
other receivables, (iv) claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment (including any such item relating to the payment of Taxes), (v) books
of account, records, ledgers, files, documents, correspondence, lists, (vi) all
cash and cash equivalents (including securities and short term investments) or
(vii) any of the rights of Quindeca under this Agreement.
"Applicable Contract" means any Contract (a) under which Quindeca has or
may acquire any rights, (b) under which Quindeca has or may become subject to
any obligation or liability, or (c) by which Quindeca or any of the assets owned
or used by it is or may become bound.
"Assumed Liabilities" means all obligations of Quindeca under the
Applicable Contracts disclosed in Part 2.9(a) of the Disclosure Letter (except
for any liabilities for breach of any Applicable Contract). "Assumed
Liabilities" shall not include any other liabilities of Quindeca or Short,
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including without limitation, (i) any liability of Quindeca or Short for Taxes,
(ii) any Liability of Quindeca for the unpaid Taxes of any Person (other than
any of Quindeca and its Subsidiaries) under U.S. Treasury Regulations Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise, (iii) any obligation of
Quindeca to indemnify any Person (including any shareholder of Quindeca) by
reason of the fact that such Person was a director, officer, employee, or agent
of any of Quindeca and its Subsidiaries or was serving at the request of any
such entity as a partner, trustee, director, officer, employee, or agent of
another entity (whether such indemnification is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such indemnification is pursuant to any statute, charter
document, bylaw, agreement, or otherwise), (iv) any liability shown on the
Balance Sheet other than any liability under an Applicable Contract, (v) any
liability of Quindeca under any Plan, (vi) any liability of Quindeca for costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby, or (vii) any liability or obligation of Quindeca under this
Agreement.
"Balance Sheet" is defined in Section 2.5.
A "Breach" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been any inaccuracy
in or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.
"Closing" is defined in Section 1.3.
"Closing Date" is the date and time as of which the Closing actually takes
place.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" mean all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Acquired Assets by Quindeca to Choice;
(b) the assumption by Choice of the Assumed Liabilities;
(c) the execution, delivery, and performance of the Employment Agreement
and the Shareholders Agreement;
(d) the performance by Choice, Quindeca and Short of their respective
covenants and obligations under this Agreement; and
(e) Choice's acquisition and ownership of the Acquired Assets.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Choice" is defined in the first paragraph of this Agreement.
"Damages" is defined in Section 5.2.
"Disclosure Letter" means the disclosure letter delivered by Quindeca and
Short to Choice concurrently with the execution and delivery of this Agreement.
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"Employment Agreement" means the Employment Agreement to be entered into by
Short with Choice at the Closing.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" mean any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"Environmental Law" means any Legal Requirement that is designed to
minimize, prevent, punish, or remedy the consequences of actions that damage or
threaten the Environment.
"ERISA" means the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Excluded Liabilities" means all liabilities and obligations of Quindeca
and Short prior to Closing, other than Assumed Liabilities.
"Facilities" mean any real property, leaseholds, or other interests
currently or formerly owned or operated by Quindeca and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by Quindeca.
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"GAAP" means generally accepted United States accounting principles.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement, other than actions under a Contract with a Governmental Body.
"Governmental Body" means any (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or quasi-
governmental authority of any nature (including any governmental agency, branch,
department, official, or entity and any court or other tribunal); (d) multi-
national organization or body; or (e) body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.
"Intellectual Property Assets" is defined in Section 2.12(a).
"IRC" means the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter or a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person.
"Organizational Documents" mean the articles or certificate of
incorporation and the bylaws of a corporation and any amendment to any of the
foregoing.
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"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plans" means all employee benefit plans (as defined in Section 3(3) of
ERISA) and all other profit-sharing, bonus, deferred compensation, stock option,
severance pay, "parachute", insurance, short-term or long-term incentive
compensation, or retirement plan, program, agreement or arrangement sponsored by
Quindeca or to which Quindeca is required to contribute.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Purchase Price" is defined in Section 1.2.
"Related Person" with respect to a particular individual means: (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity). With respect to a specified Person other
than an individual: (a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under common
control with such specified Person; (b) any Person that holds a Material
Interest in such specified Person; (c) each Person that serves as a director,
officer, partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; and (e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) the individual's
brothers, sisters and children, and (iv) any other natural person who resides
with such individual, and (b) "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least
10% of the outstanding voting power or equity interests in a Person.
"Release"means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Representative" means with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Shareholders Agreement" means the Shareholders Agreement to be entered
into by Choice, Quindeca, Michael W. Payton, Terence E. Hahm and Daily Journal
Corporation at the Closing.
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
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directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
"Tax Return"means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release"means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
ARTICLE 7.
GENERAL PROVISIONS
7.1 Expenses. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by another
party.
7.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Choice and Quindeca mutually
agree, except as may be required by Legal Requirements. Quindeca and Short each
acknowledge that, at or subsequent to the Closing Date, Choice's principal
shareholder will be Daily Journal Corporation, which may determine in its sole
discretion whether and how to disclose this Agreement and the Contemplated
Transactions pursuant to the requirements of the Federal securities laws.
Quindeca, Short and Choice will consult with each other concerning the means by
which Quindeca's employees, customers, and suppliers and others having dealings
with Quindeca will be informed of the Contemplated Transactions, and Choice will
have the right to be present for any such communication.
7.3 Confidentiality. Choice, Quindeca and Short will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Choice and Quindeca to maintain in confidence, and not use to the
detriment of another party any written, oral, or other information obtained in
confidence from another party in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information is
or becomes publicly available through no fault of such party, (b) the use of
such information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
Legal Requirements.
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If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
7.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Quindeca and Short:
Quindeca Corporation
P.O. Box 16040
Golden, CO 80402
Attention: Jerry L. Short
Fax: 888-719-7819
Choice:
CHOICE Information Systems, Inc.
c/o Daily Journal Corporation
915 E. First Street
Los Angeles, CA 90012
Attention: Gerald L. Salzman
Fax: 213-330-2666
7.5 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of California, County of Los Angeles, or, if it has or can acquire jurisdiction,
in the United States District Court for the Central District of California, and
each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
7.6 Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
7.7 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative, except as expressly stated in this Agreement.
Neither the failure nor any delay by any party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement
will operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one party, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing signed
by the other party; (b) no waiver that may be
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given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
7.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties, and any prior understandings or
representations, with respect to its subject matter and constitutes (along with
the documents referred to in this Agreement) a complete and exclusive statement
of the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
7.9 Disclosure Letter. The disclosures in the Disclosure Letter, and
those in any Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement, unless and only
to the extent such disclosures clearly cross-reference other representations or
warranties in this Agreement. In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure Letter
(other than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
7.10 Assignments, Successors and Third-Party Rights. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, except that Choice may assign any of its rights under this
Agreement to Daily Journal Corporation or to any Subsidiary of Daily Journal
Corporation or Choice. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
7.11 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.13 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
7.14 Governing Law. This Agreement will be governed by the laws of the
State of California without regard to conflicts of laws principles.
7.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
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Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.16 Release.
(a) Quindeca and Short hereby release and forever discharge Choice
from any and all claims, demands, Proceedings, causes of action, Orders,
obligations, Contracts, agreements, indebtedness, and liabilities whatsoever,
whether known or unknown, at law or in equity, which Quindeca or Short now have
or have ever had against Choice arising at or prior to the Closing Date or on
account of or arising out of any matter, cause or event occurring at or prior to
the Closing Date, other than sales commissions owed by Choice to Quindeca as of
the date of this Agreement and amounts payable by Choice to Quindeca for
services as a subcontractor of Choice for customers of Choice from July 1, 1998
through the date of this Agreement, in each case to the extent such amounts are
reflected on the Preliminary Balance Sheet or Final Balance Sheet of Choice
(each as defined in the Stock Purchase Agreement being entered into as of the
date hereof among Choice, Michael W. Payton, Terence E. Hahm and Daily Journal
Corporation), and other than obligations of Choice to Quindeca or Short pursuant
to the terms of this Agreement, the Employment Agreement or the Shareholders
Agreement.
(b) Quindeca and Short hereby irrevocably covenant to refrain from,
directly or indirectly, asserting any claim or demand, or commencing,
instituting or causing to be commenced, any Proceeding of any kind against
Choice, based on the matters released hereby.
(c) Quindeca and Short hereby waive any rights which may be conferred
upon them by virtue of Section 1542 of the Civil Code of the State of California
(or any similar statute) 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
THIS RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
CHOICE INFORMATION SYSTEMS, INC.
By:___________________________________
Name:
Title:
QUINDECA CORPORATION
By:___________________________________
Name:
Title:
/s/ Jerry L. Short
______________________________________
Jerry L. Short
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 22, 1999
by Choice Information Systems, Inc., a Virginia corporation (the "Employer"),
and Michael W. Payton, an individual resident in Virginia (the "Employee").
The parties, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" means this Employment Agreement, including all exhibits hereto,
as amended from time to time.
"Benefits" is defined in Section 3.1.
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all:
(a) trade secrets concerning the business and affairs of the Employer,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and
ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer
lists, current and anticipated customer requirements, price lists, market
studies, business plans, computer software and programs (including object
code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information) of Employer, and any
other information of Employer, however documented, that is a trade secret
within the meaning of applicable state trade secret law; and
(b) information of Employer concerning the business and affairs of the
Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
Notwithstanding the foregoing, the term "Confidential Information" does not
include information that the Employee demonstrates (i) was or is generally
available to the public other than as a result of a disclosure by the Employee
or (ii) becomes available after the date of this Agreement to the Employee on a
non-confidential basis, but only in the case of (ii) if (A) the source of such
information is not bound by any confidentiality agreement with, or
confidentiality obligation to, the Employer, or is not otherwise prohibited from
transmitting the information to the Employee by a contractual, legal, fiduciary
or other legal obligation, and (B) if the Employee receives the information from
the source prior to its disclosure to the Employee by the
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Employer, the Employee notifies the Employer of Employee's prior knowledge
promptly after disclosure by the Employer of the information.
"Daily Journal" means the Daily Journal Corporation, a South Carolina
corporation, together with its subsidiaries and affiliates (other than
Employer).
"Declining Salary" is defined in Section 4.4.
"Disability" is defined in Section 4.2.
"Employee Invention" means any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Employee, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to the business then being conducted or proposed to be
conducted by the Employer during the Employment Period or (if disclosed to
Employee during the Employment Period) after the Employment Period, and any such
item created by the Employee, either solely or in conjunction with others,
following the Termination Date, that is based upon or uses Confidential
Information. The term "Employee Invention" includes the inventions, techniques,
and specially commissioned works described in Exhibit A. Notwithstanding the
foregoing, "Employee Inventions" shall not include software and related
consulting services that Employee can demonstrate (a) are not based upon and do
not use any Confidential Information, (b) have been developed solely on
Employee's own time consistent with his obligations under Section 2.3 of this
Agreement, (c) in the case of software, do not perform substantially the same
function as any software product developed or marketed by Employer in its
business (whether owned or licensed) whether prior to or during the Employment
Period, and (d) cannot reasonably be expected to be used in any industry served
or, if disclosed to Employee, proposed to be served by Employer during the
Employment Period.
"Employment Period" means the period of time the Employee is employed by
the Employer.
"Fiscal Year" means the Employer's fiscal year, as it exists on the date of
this Agreement or as changed from time to time.
"for Cause" is defined in Section 4.3.
"Payment Period" means the Employment Period and any additional period of
time during which Employee receives payments from the Employer pursuant to
Section 4 of this Agreement following termination of the Employment Period.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Proprietary Items" is defined in Section 5.2(a)(iv).
"Salary" is defined in Section 3.1(a).
"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated January 22, 1999, among the Employer, Daily Journal, Employee and Terence
E. Hahm.
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<PAGE>
"Termination Date" means the date on which Employee's employment with
Employer is terminated pursuant to this Agreement.
"Termination Notice" is defined in Section 4.1(d).
SECTION 2. EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. The Employee's term of employment will commence on January 22,
1999 and will end on January 23, 2004 unless earlier terminated pursuant to
Section 4 of this Agreement. Upon the termination of Employee's employment with
Employer, Employee shall be entitled only to the payments, if any, provided for
in Section 4.4 of this Agreement.
2.3 Duties. The Employee will have such duties as are assigned or
delegated to the Employee by the Board of Directors or President of the
Employer, and will initially serve as Managing Director and Assistant Secretary
of the Employer. The Employee will devote his entire business time, attention,
skill, and energy exclusively to the business of the Employer. The Employee
will (a) use his commercially reasonable efforts to promote the success of the
Employer's business, (b) perform his assigned duties diligently, loyally,
conscientiously, and with reasonable skill, (c) comply in all material respects
with all rules, procedures and standards promulgated from time to time by the
Employer with regard to his conduct and his access to and use of the Employer's
property, information, equipment and premises, and (d) cooperate fully with the
Board of Directors in the advancement of the best interests of the Employer.
If the Employee is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Employee will fulfill his duties as such
director or officer without additional compensation. Employee acknowledges that
the Employer retains its full management prerogatives and discretion to manage
and direct its business affairs, including the adoption, amendment,
reorganization or modification of research, development, production, marketing
or organizational decisions as it sees fit, notwithstanding any employee's
individual interest in or expectation regarding a particular business program,
position or product.
SECTION 3. COMPENSATION
3.1 Basic Compensation. The Employee will be paid an annual salary of
$375,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Employee will also,
during the Employment Period, be permitted to participate in such life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the Employee
is eligible under the terms of those plans, and be subject to the vacation, sick
leave and holiday policies of Employer as in effect from time to time
(collectively, the "Benefits"). Employee acknowledges that Employee's Benefits
may be amended, enlarged, diminished or eliminated by Employer in its discretion
from time to time.
3.2 Incentive Compensation. As additional compensation for the services
to be rendered by the Employee pursuant to this Agreement, the Employee will
earn Incentive Compensation as provided in this Section 3.2.
(a) Definitions. As used in this Section 3.2, the following terms have
-----------
the meanings specified below:
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<PAGE>
(i) "Hurdle Amount" means either $1,000,000 for a full Fiscal Year
or, for a partial Fiscal Year, the amount determined by multiplying
$1,000,000 by a fraction in which the numerator is the number of days in
such partial Fiscal Year and the denominator is three hundred sixty-five
(365).
(ii) "Pre-Tax Operating Income" means the Employer's income from
ordinary business operations (which will not include capital gains and
interest or other investment income in excess of interest expense) from
sale or rental of software, consulting services and other business
operations conducted by Employer, less expenses and other charges (which
will include interest expense in excess of interest income and will not
include any provision for federal and state income taxes), all as
reflected on the Employer's books, and will be calculated in accordance
with generally accepted accounting principles as in effect from time to
time and without taking the payment of Incentive Compensation to the
Employee and Jerry L. Short into account. Pre-Tax Operating Income may be
a negative number for any given period. For a partial Fiscal Year, Pre-
Tax Operating Income shall be the Pre-Tax Operating Income for the full
Fiscal Year multiplied by a fraction in which the numerator is the number
of days in such partial Fiscal Year and the denominator is three hundred
sixty-five (365). Daily Journal will have the exclusive right, unless
otherwise agreed by Daily Journal, to sell and otherwise disseminate any
information produced or processed by Employer. It is understood that
Employer's business operations will not include such sale and
dissemination of information, as distinguished from software and
consulting services.
(b) Determination of Incentive Compensation. For each Fiscal Year in
---------------------------------------
which Employee is eligible to receive Incentive Compensation, Employer
shall prepare a schedule detailing the Pre-Tax Operating Income for such
Fiscal Year and calculating the Incentive Compensation as follows:
FIRST, Employer shall subtract the Hurdle Amount from the Pre-Tax
Operating Net Income for the Fiscal Year, with the remaining amount being
the "Excess Pre-Tax Operating Income," which can be a negative number;
SECOND, Employer shall add the Excess Pre-Tax Operating Income to the
total Excess Pre-Tax Operating Income for each Fiscal Year and any
partial Fiscal Year from the date of this Agreement through the date on
which Incentive Compensation is being determined, with the total amount
being the "Cumulative Excess Pre-Tax Operating Income;"
THIRD, Employer shall multiply the Cumulative Excess Pre-Tax Operating
Income by fifteen percent (15%), with the product being the "Cumulative
Incentive Compensation;"
FOURTH, the Employer shall subtract from the Cumulative Incentive
Compensation the amount of Incentive Compensation previously paid to
Employee from the date of this Agreement, leaving an amount equal to the
"Incentive Compensation;" and
FIFTH, if the Incentive Compensation is a positive number, it shall be
paid to Employee as Incentive Compensation for that Fiscal Year.
Employer shall deliver the schedule to the Employee, together with any
Incentive Compensation due to the Employee, within 90 days following the
completion for the Fiscal Year of the annual financial audit of Daily
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<PAGE>
Journal Corporation's consolidated financial statements by its public
accounting firm. Workpapers and other relevant documents with respect to
the calculation of the Incentive Compensation shall be made available to
Employee for inspection, and Employer shall make the persons in charge of
the preparation of the financial statements of Employer available for
reasonable inquiry by Employee. Employee shall notify Employer in writing
within 30 days following receipt of the schedule which shows any Incentive
Compensation due if Employee does not agree with the amount of Incentive
Compensation or any part of the calculations shown on the schedule.
Employer and Employee will use good faith efforts during the 10 day period
following delivery of the written notice to Employer to resolve any
disputes. If Employer and Employee cannot resolve the disputes within the
10 day period, their disputes shall be promptly submitted to an independent
public accounting firm jointly selected by Employer and Employee, which
shall conduct such additional review as is necessary to resolve the
specific disputes referred to it and, based thereon, shall determine the
Incentive Compensation due to the Employee and related calculations. The
review of the independent accountant shall be restricted to only those
matters that are specifically identified to it by Employer and Employee as
being the subject of dispute. The independent accountant's determination
described above shall be made no later than 60 days following the selection
of the independent accountant, shall be confirmed in writing by the
independent accountant and shall be final and binding upon Employer and
Employee. The fees and expenses of the independent accountant shall be
prorated among Employer and Employee in proportion to the amounts in
dispute resolved against each of them.
(c) Prorated Incentive Compensation. For the Fiscal Year ended September
-------------------------------
30, 1999 and any subsequent Fiscal Year in which Employee ceases to be
eligible to earn Incentive Compensation under this Agreement for any period
of time, Employee shall only be eligible to earn Prorated Incentive
Compensation. "Prorated Incentive Compensation" is determined by
multiplying the Incentive Compensation for a full Fiscal Year by a fraction
of which the numerator is the actual number of days during which Employee
was eligible to earn Incentive Compensation during such Fiscal Year and the
denominator is three hundred sixty-five (365).
3.3 Expense Reimbursement. Employer shall reimburse Employee for business
expenses incurred in connection with the performance of Employee's duties under
this Agreement in accordance with Employer's business expense reimbursement
policies and procedures as in effect from time to time.
SECTION 4. TERMINATION
4.1 Events of Termination. The Employment Period, the Employee's Salary,
Bonus and Incentive Compensation, and any and all other rights of the Employee
under this Agreement or otherwise as an employee of the Employer will terminate:
(a) upon the death of the Employee;
(b) upon the Disability of the Employee (as defined in Section 4.2)
immediately upon notice from either party to the other;
(c) by Employer for Cause (as defined in Section 4.3), immediately upon
determination by the Board of Directors after providing the notice
specified in Section 4.3; or
(d) by either party at any time reasonably or unreasonably in the
absolute discretion of such party upon at least five (5) days' prior
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<PAGE>
written notice from the terminating party to the other party (a
"Termination Notice").
4.2 Definition of "Disability". For purposes of Section 4.1, the
Employee will be deemed to have a "Disability" if, for physical or mental
reasons, the Employee is unable to perform the essential functions of the
Employee's duties under this Agreement for 60 consecutive days, or 90 days
during any twelve month period, as determined in accordance with this Section
4.2. The Disability of the Employee will be determined by a medical doctor
selected by written agreement of the Employer and the Employee upon the request
of either party by notice to the other. If the Employer and the Employee cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Employee has a Disability. The determination of the
medical doctor selected under this Section 4.2 will be binding on both parties.
The Employee must submit to a reasonable number of examinations by the medical
doctor making the determination of Disability under this Section 4.2, and the
Employee hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized attorney-in-fact
will act in the Employee's stead, under this Section 4.2, for the purposes of
submitting the Employee to the examinations, and providing the authorization of
disclosure, required under this Section 4.2.
4.3 Definition of "for Cause". For purposes of Section 4.1, the phrase
"for Cause" means the good faith determination by the Board of Directors, after
notice to the Employee and provision to the Employee of an opportunity to
present the Employee's view of the relevant facts and circumstances to the Board
of Directors, that the Employee has
(a) breached any of the Employee's material fiduciary duties or material
legal or contractual obligations to the Employer or any stockholder of the
Employer, which breach, if curable, has not been cured by Employee to
Employer's reasonable satisfaction within 30 days after notice to Employee
by Employer,
(b) engaged in gross or persistent misconduct which is materially
injurious to the Employer, or
(c) has been convicted of or pleaded nolo contendre to (i) any
misdemeanor which either (1) relates to the affairs of the Employer and is
materially injurious to the Employer or (2) which brings Employee into
public disrepute, or (ii) any felony.
4.4 Termination Pay. Effective upon the Termination Date, the Employer
will be obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is provided
in this Section 4.4, and in lieu of all other amounts and in settlement and
complete release of all claims the Employee may have against the Employer under
this Agreement. For purposes of this Section 4.4, the Employee's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Employee may designate by notice to the Employer from time to
time or, if the Employee fails to give notice to the Employer of such a
beneficiary, the Employee's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Employee, to determine whether any beneficiary designated by
the Employee is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust or to locate or attempt to locate any
beneficiary, personal representative, or trustee.
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(a) Termination upon Death. If this Agreement is terminated because of
----------------------
the Employee's death, the Employee will be entitled to receive his Salary
through the end of the calendar month in which his death occurs. The
Employee will receive Incentive Compensation for the period ending with the
end of the month in which death occurs.
(b) Termination upon Disability. If this Agreement is terminated by
---------------------------
either party as a result of the Employee's Disability, as determined under
Section 4.2, the Employer will pay the Employee his Salary through the
remainder of the calendar month during which such termination is effective
and for three (3) consecutive months thereafter, less any payment or other
compensation made by Employer to Employee for any vacation, holiday, sick
leave or other leave. The Employee will also receive Incentive
Compensation for the period ending with the end of the third calendar month
following the month in which termination for Disability is effective.
(c) Termination by the Employer for Cause. If the Employer terminates
-------------------------------------
the Employee's employment under this Agreement for Cause, the Employee will
be entitled to receive his Salary only through the date such of such
termination. The Employee will not earn (i) any Incentive Compensation for
the Fiscal Year during which such termination occurs or any subsequent
Fiscal Year or (ii) any additional Incentive Compensation whatsoever.
(d) Elective Termination by Employer. If Employer terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive (i) salary at an annual rate of $375,000 through January 3, 2004,
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly, and (ii)
his Incentive Compensation for the period ending with the end of the month
in which the Termination Date occurs.
(e) Elective Termination by Employee. If Employee terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive:
(i) If a notice has not been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
through January 3, 2004 and Incentive Compensation for the period ending
with the end of the month in which the Termination Date occurs, or
(ii) If a notice has been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
only through the Termination Date. The Employee will not earn (A) any
Incentive Compensation for the Fiscal Year during which the Termination
Date occurs or any subsequent Fiscal Year or (B) any additional Incentive
Compensation whatsoever.
Notwithstanding paragraphs (d) and (e) above, Employer shall have no obligation
to pay any Salary or Declining Salary after the Termination Date or any
Incentive Compensation for any monthly periods following the month during which
the Termination Date occurs if prior to the Termination Date Employer has
incurred aggregate unreimbursed Damages pursuant to Section 5.2 of the Stock
Purchase Agreement which exceed $500,000.
For purposes of this Agreement, "Declining Salary" means the following
annual salary levels during the period in which the Employee is eligible to
receive Declining Salary:
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During 1999, $375,000
During 2000, $300,000
During 2001, $225,000
During 2002, $175,000
During 2003 and 2004, $150,000.
Declining Salary will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than monthly.
The Employee's accrual of, or participation in plans providing for, the
Benefits will cease at the Termination Date, and the Employee will be entitled
to accrued Benefits pursuant to such plans only as provided in such plans. The
Employee will not receive, as part of his termination pay pursuant to this
Section 4, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the Termination Date.
SECTION 5. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
5.1 Acknowledgments by the Employee. The Employee acknowledges that (a)
during the Employment Period and as a part of his employment, the Employee will
be afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to obtain
exclusive ownership of each Employee Invention, and the Employer will be at a
substantial competitive disadvantage if it fails to acquire exclusive ownership
of each Employee Invention; (d) the Employer has required that the Employee make
the covenants in this Section 5 as a condition to its purchase of substantially
all of the assets of Quindeca Corporation; and (e) the provisions of this
Section 5 are reasonable and necessary to prevent the improper use or disclosure
of Confidential Information and to provide the Employer with exclusive ownership
of all Employee Inventions.
5.2 Agreements of the Employee. In consideration of the compensation and
benefits to be paid or provided to the Employee by the Employer under this
Agreement, the Employee covenants as follows:
(a) Confidentiality.
---------------
(i) During and following the Employment Period, the Employee will
hold in confidence the Confidential Information and will not disclose it
to any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under any applicable state trade secret law and
any other applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent jurisdiction not to be
a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret or post a bond or
other security.
(iii) If the Employee is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or documents,
subpoena, civil or criminal investigative demand, or similar process) or
is required by a regulatory body to make any disclosure that is
prohibited or otherwise constrained by this Agreement, the Employee will
provide the Employer with prompt notice
8
<PAGE>
of such request so that it may seek an appropriate protective order or
other appropriate remedy. Subject to the foregoing, the Employee may
furnish that portion (and only that portion) of the Confidential
Information that, in the written opinion of its counsel reasonably
acceptable to Employer, the Employee is likely legally compelled or is
otherwise required to disclose or else stand liable for contempt or
suffer other material censure or material penalty; provided, however,
that the Employee must use reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded any Confidential
Information so disclosed.
(iv) The Employee will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of
the Employee's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook,
plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form owned, leased or licensed by
Employer (collectively, the "Proprietary Items"). The Employee recognizes
that, as between the Employer and the Employee, all of the Proprietary
Items, whether or not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period,
the Employee will return to the Employer all of the Proprietary Items in
the Employee's possession or subject to the Employee's control, and the
Employee shall not retain any copies, abstracts, sketches, or other
physical embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong exclusively
-------------------
to the Employer. The Employee acknowledges that all of the Employee's
writing, works of authorship, specially commissioned works listed in
Exhibit A, and other Employee Inventions are works made for hire and the
property of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined that
any such works are not works made for hire, the Employee hereby assigns to
the Employer all of the Employee's right, title, and interest, including
all rights of copyright, patent, and other intellectual property rights, to
or in such Employee Inventions. The Employee covenants that he will
promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the Employer,
at the Employer's request and without additional compensation, all of the
Employee's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to
apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) at the expense of Employer, give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
5.3 Disputes or Controversies. The Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
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preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Employee, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
SECTION 6. NON-COMPETITION AND NON-INTERFERENCE
6.1 Acknowledgments by the Employee. The Employee acknowledges that: (a)
the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is national in scope and its products are marketed throughout the
United States and Canada; (c) the Employer competes with other businesses that
are or could be located in any part of the United States and Canada; (d) the
Employer has required that the Employee make the covenants in this Section 6 as
a condition to its purchase of substantially all of the assets (including all
goodwill) of Quindeca Corporation; and (e) the provisions of this Section 6 are
reasonable and necessary to protect the Employer's business. For purposes of
this Section 6 only, during the Employment Period "Employer" shall include Daily
Journal.
6.2 Covenants of the Employee. In consideration of the acknowledgments
by the Employee, and in consideration of the compensation and benefits to be
paid or provided to the Employee by the Employer, the Employee covenants that he
will not, directly or indirectly:
(a) during the Payment Period, except in the course of his employment
hereunder, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control
of, be employed by, associated with, or in any manner connected with, lend
the Employee's name or any similar name to, lend Employee's credit to or
render services or advice to, any business whose products or activities
compete in whole or in part with the products or activities of the Employer
anywhere within the United States or Canada; provided, however, that the
Employee may purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934;
(b) whether for the Employee's own account or for the account of any
other person, at any time during the Payment Period, solicit business of
the same or similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer, whether or not the
Employee had personal contact with such person during and by reason of the
Employee's employment with the Employer;
(c) whether for the Employee's own account or the account of any other
person (i) at any time during the Payment Period, solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce any employee
of the Employer to terminate his employment with the Employer; or (ii) at
any time during the Payment Period, interfere with the Employer's
relationship with any person, including any person who at any time during
the Employment Period was an employee, contractor, supplier, or customer of
the Employer; or
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(d) at any time during or after the Payment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or
agents.
Nothing in paragraphs (a) or (b) above shall prevent Employee, following the
Employment Period, from engaging or investing in, owning, managing, operating,
financing, controlling, or participating in the ownership, management,
operation, financing, or control of, being employed by, associated with, or in
any manner connected with, lending the Employee's name or any similar name to,
lending Employee's credit to or rendering services or advice to, any business
which markets or develops software and related consulting services that Employee
can demonstrate (i) are not based upon and do not use any Confidential
Information or Employee Inventions, (ii) in the case of software, do not perform
substantially the same function as any software product owned by or exclusively
licensed to Employer, and (iii) is not specifically targeted for any industry
served by Employer during the Employment Period or, if disclosed to Employee
during the Employment Period, is proposed to be served by the Employer and for
which the Employer has taken active steps during the Employment Period.
If any covenant in this Section 6.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Employee.
The period of time applicable to any covenant in this Section 6.2 will be
extended by the duration of any violation by the Employee of such covenant.
The Employee will, while the covenant under this Section 6.2 is in effect,
give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Employee's employer. Daily Journal or the
Employer may notify such employer that the Employee is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
SECTION 7. GENERAL PROVISIONS
7.1 Injunctive Relief and Additional Remedy. The Employee acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of either Section 5 or 6 of this Agreement would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of either Section 5 or 6 of this Agreement, and the Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting the Employer's rights under this Section 7 or any other remedies of the
Employer, if the Employee breaches any of the provisions of Section 5 or 6, the
Employer will have the right to cease making any payments otherwise due to the
Employee under this Agreement provided that Employer shall remit to Employee
such withheld payments upon a final determination that Employee did not engage
in a breach of either Section 5 or 6 of this Agreement.
7.2 Covenants of Sections 5 and 6 Are Essential Covenants. The covenants
by the Employee in Sections 5 and 6 are essential elements of this Agreement,
and without the Employee's agreement to comply with such covenants, the Employer
would not have entered into this Agreement or employed or continued the
employment of the Employee. The Employer and the Employee have
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independently consulted their respective counsel and have been advised in all
respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 are independent covenants and the
existence of any claim by the Employee against the Employer under this Agreement
or otherwise, or against Daily Journal, will not excuse the Employee's breach of
any covenant in Section 5.
If the Employee's employment hereunder expires or is terminated for any
reason, this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Employee in Sections
5 and 6.
7.3 Representations and Warranties by the Employee. The Employee
represents and warrants to the Employer as follows:
(a) The execution and delivery by the Employee of this Agreement do not,
and the performance by the Employee of the Employee's obligations hereunder
will not, with or without the giving of notice or the passage of time, or
both: (i) violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to the Employee; or (ii)
conflict with, result in the breach of any provisions of or the termination
of, or constitute a default under, any agreement to which the Employee is a
party or by which the Employee is or may be bound.
(b) The Employee has no outstanding commitments inconsistent with any of
the terms of this Agreement or the services to be rendered by Employee
under this Agreement.
7.4 Representations and Warranties by the Employer. The Employer
represents and warrants to the Employee that the execution and delivery by the
Employer of this Agreement have been duly authorized by Employer and do not, and
the performance by the Employer of the Employer's obligations hereunder will
not, with or without the giving of notice or the passage of time, or both: (i)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Employer; or (ii) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Employer is a party or by which the Employer
is or may be bound.
7.5 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
7.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
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which all or substantially all of its assets may be transferred. The duties and
covenants of the Employee under this Agreement, being personal, may not be
delegated.
7.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Choice Information Systems, Inc.
c/o Daily Journal Corporation
915 E. First Street
Los Angeles, CA 90012
Attn: Gerald L. Salzman
Fax: 213-330-2666
If to the Employee:
Michael W. Payton
_______________________________
_______________________________
Fax: __________________________
7.8 Entire Agreement; Amendments. This Agreement, the Stock Purchase
Agreement, the Shareholders Agreement, and the documents executed in connection
with this Agreement, the Stock Purchase Agreement and the Shareholders
Agreement, contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
7.9 Governing Law. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of California without regard
to conflicts of laws principles.
7.10 Mandatory Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Any arbitration under this Agreement shall be adjudicated
by three (3) arbitrators, one selected by Employer within fifteen (15) days
after the commencement of arbitration, one selected by Employee within fifteen
(15) days after the commencement of arbitration and one selected by the two
arbitrators within five (5) days after their appointment. If the arbitrators
selected by the parties are unable or fail to agree upon a third arbitrator, the
third arbitrator shall be selected by the American Arbitration Association. The
place of the arbitration shall be at a place within the City of Los Angeles,
California. Either party may apply to the arbitrators seeking injunctive relief
until the arbitration award is rendered or the controversy is otherwise
resolved. Consistent with the expedited nature of arbitration, each party will,
upon the written request of the other party, promptly provide the other with
copies of documents relevant to the
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issued raised by any claim or counterclaim. Any dispute regarding discovery, or
the relevance or scope thereof, shall be determined by the arbitrators, which
determination shall be conclusive. All discovery shall be completed within
forty-five (45) days following the appointment of the third arbitrator. The
award shall be by majority vote of the panel and shall be made within six (6)
months of the filing of the notice of intention to arbitrate, and the
arbitrators shall agree to comply with this schedule before accepting
appointment. The arbitration panel's award shall be final. The parties agree and
consent that judgment upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof. The prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees, and the party
losing the arbitration shall pay all expenses and fees of the American
Arbitration Association, all costs of the stenographic record, all expenses of
witnesses or proofs that may have been produced at the direction of the
arbitrators, and the fees, costs, and expenses of the arbitrators. The
arbitration panel shall designate the prevailing party for these purposes.
Except as may be required by law, neither a party, its counsel and other
representatives, nor an arbitrator may disclose the existence, content, or
results of any arbitrator hereunder without the prior written consent of both
parties.
7.11 No Guarantee. Nothing in this Agreement shall constitute an
obligation of Daily Journal, and Employee acknowledges that Daily Journal does
not guarantee or otherwise agree to perform any obligations of Employer whether
pursuant to this Agreement or otherwise.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
7.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.15 Indemnification. The Employer shall indemnify Employee for, and
provide for advancement of expenses relating to, any proceedings brought or
threatened to be brought against Employee by reason of the fact that Employee
was an employee, officer or director of Employer or any of its affiliates
following the date of this Agreement to the same extent and on the same terms as
Daily Journal provides indemnification and expense advancement to its employees,
officers and directors from time to time.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: CHOICE INFORMATION SYSTEMS, INC.
By:__________________________________
Name:
Title:
EMPLOYEE: /s/ Michael W. Payton
_____________________________________
Michael W. Payton
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EXHIBIT A
List of Employee Inventions
---------------------------
All software heretofore invented by Employee or under his direction relating to
business heretofore conducted by Employer or Quindeca Corporation.
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 22, 1999
by Choice Information Systems, Inc., a Virginia corporation (the "Employer"),
and Jerry L. Short, an individual resident in Colorado (the "Employee").
The parties, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" means this Employment Agreement, including all exhibits hereto,
as amended from time to time.
"Asset Purchase Agreement" means that certain Asset Purchase Agreement,
dated January 22, 1999, between Employer, Quindeca Corporation and Employee,
pursuant to which Employer purchased substantially all of the assets (including
all goodwill) and assumed certain liabilities of Quindeca Corporation.
"Benefits" is defined in Section 3.1.
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae, compositions,
processes, designs, sketches, photographs, graphs, drawings, samples,
inventions and ideas, past, current, and planned research and development,
current and planned manufacturing or distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information) of Employer, and any
other information of Employer, however documented, that is a trade secret
within the meaning of applicable state trade secret law; and
(b) information of Employer concerning the business and affairs of
the Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
Notwithstanding the foregoing, the term "Confidential Information" does not
include information that the Employee demonstrates (i) was or is generally
available to the public other than as a result of a disclosure by the Employee
or (ii) becomes available after the date of this Agreement to the Employee on a
non-confidential basis, but only in the case of (ii) if (A) the source of
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such information is not bound by any confidentiality agreement with, or
confidentiality obligation to, the Employer, or is not otherwise prohibited from
transmitting the information to the Employee by a contractual, legal, fiduciary
or other legal obligation, and (B) if the Employee receives the information from
the source prior to its disclosure to the Employee by the Employer, the Employee
notifies the Employer of Employee's prior knowledge promptly after disclosure by
the Employer of the information.
"Daily Journal" means the Daily Journal Corporation, a South Carolina
corporation, together with its subsidiaries and affiliates (other than
Employer).
"Declining Salary" is defined in Section 4.4.
"Disability" is defined in Section 4.2.
"Employee Invention" means any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Employee, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to the business then being conducted or proposed to be
conducted by the Employer during the Employment Period or (if disclosed to
Employee during the Employment Period) after the Employment Period, and any such
item created by the Employee, either solely or in conjunction with others,
following the Termination Date, that is based upon or uses Confidential
Information. The term "Employee Invention" includes the inventions, techniques,
and specially commissioned works described in Exhibit A. Notwithstanding the
foregoing, "Employee Inventions" shall not include software and related
consulting services that Employee can demonstrate (a) are not based upon and do
not use any Confidential Information, (b) have been developed solely on
Employee's own time consistent with his obligations under Section 2.3 of this
Agreement, (c) in the case of software, do not perform substantially the same
function as any software product developed or marketed by Employer in its
business (whether owned or licensed) whether prior to or during the Employment
Period, and (d) cannot reasonably be expected to be used in any industry served
or, if disclosed to Employee, proposed to be served by Employer during the
Employment Period.
"Employment Period" means the period of time the Employee is employed by
the Employer.
"Fiscal Year" means the Employer's fiscal year, as it exists on the date of
this Agreement or as changed from time to time.
"for Cause" is defined in Section 4.3.
"Payment Period" means the Employment Period and any additional period of
time during which Employee receives payments from the Employer pursuant to
Section 4 of this Agreement following termination of the Employment Period.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Proprietary Items" is defined in Section 5.2(a)(iv).
"Salary" is defined in Section 3.1(a).
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"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated January 22, 1999, among the Employer, Daily Journal, Michael W. Payton and
Terence E. Hahm.
"Termination Date" means the date on which Employee's employment with
Employer is terminated pursuant to this Agreement.
"Termination Notice" is defined in Section 4.1(d).
SECTION 2. EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. The Employee's term of employment will commence on January 22,
1999 and will end on January 23, 2004 unless earlier terminated pursuant to
Section 4 of this Agreement. Upon the termination of Employee's employment with
Employer, Employee shall be entitled only to the payments, if any, provided for
in Section 4.4 of this Agreement.
2.3 Duties. The Employee will have such duties as are assigned or
delegated to the Employee by the Board of Directors or President of the
Employer, and will initially serve as Managing Director and Assistant Secretary
of the Employer. The Employee will devote his entire business time, attention,
skill, and energy exclusively to the business of the Employer. The Employee
will (a) use his commercially reasonable efforts to promote the success of the
Employer's business, (b) perform his assigned duties diligently, loyally,
conscientiously, and with reasonable skill, (c) comply in all material respects
with all rules, procedures and standards promulgated from time to time by the
Employer with regard to his conduct and his access to and use of the Employer's
property, information, equipment and premises, and (d) cooperate fully with the
Board of Directors in the advancement of the best interests of the Employer.
If the Employee is elected as a director of the Employer or as a director or
officer of any of its affiliates, the Employee will fulfill his duties as such
director or officer without additional compensation. Employee acknowledges that
the Employer retains its full management prerogatives and discretion to manage
and direct its business affairs, including the adoption, amendment,
reorganization or modification of research, development, production, marketing
or organizational decisions as it sees fit, notwithstanding any employee's
individual interest in or expectation regarding a particular business program,
position or product.
SECTION 3. COMPENSATION
3.1 Basic Compensation. The Employee will be paid an annual salary of
$375,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Employee will also,
during the Employment Period, be permitted to participate in such life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the Employee
is eligible under the terms of those plans, and be subject to the vacation, sick
leave and holiday policies of Employer as in effect from time to time
(collectively, the "Benefits"). Employee acknowledges that Employee's Benefits
may be amended, enlarged, diminished or eliminated by Employer in its discretion
from time to time.
3.2 Incentive Compensation. As additional compensation for the services
to be rendered by the Employee pursuant to this Agreement, the Employee will
earn Incentive Compensation as provided in this Section 3.2.
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(a) Definitions. As used in this Section 3.2, the following terms
-----------
have the meanings specified below:
(i) "Hurdle Amount" means either $1,000,000 for a full Fiscal Year
or, for a partial Fiscal Year, the amount determined by multiplying
$1,000,000 by a fraction in which the numerator is the number of days in
such partial Fiscal Year and the denominator is three hundred sixty-five
(365).
(ii) "Pre-Tax Operating Income" means the Employer's income from
ordinary business operations (which will not include capital gains and
interest or other investment income in excess of interest expense) from
sale or rental of software, consulting services and other business
operations conducted by Employer, less expenses and other charges (which
will include interest expense in excess of interest income and will not
include any provision for federal and state income taxes), all as
reflected on the Employer's books, and will be calculated in accordance
with generally accepted accounting principles as in effect from time to
time and without taking the payment of Incentive Compensation to the
Employee and Michael W. Payton into account. Pre-Tax Operating Income may
be a negative number for any given period. For a partial Fiscal Year,
Pre-Tax Operating Income shall be the Pre-Tax Operating Income for the
full Fiscal Year multiplied by a fraction in which the numerator is the
number of days in such partial Fiscal Year and the denominator is three
hundred sixty-five (365). Daily Journal will have the exclusive right,
unless otherwise agreed by Daily Journal, to sell and otherwise
disseminate any information produced or processed by Employer. It is
understood that Employer's business operations will not include such sale
and dissemination of information, as distinguished from software and
consulting services.
(b) Determination of Incentive Compensation. For each Fiscal Year in
---------------------------------------
which Employee is eligible to receive Incentive Compensation, Employer
shall prepare a schedule detailing the Pre-Tax Operating Income for such
Fiscal Year and calculating the Incentive Compensation as follows:
FIRST, Employer shall subtract the Hurdle Amount from the Pre-Tax
Operating Net Income for the Fiscal Year, with the remaining amount being
the "Excess Pre-Tax Operating Income," which can be a negative number;
SECOND, Employer shall add the Excess Pre-Tax Operating Income to the
total Excess Pre-Tax Operating Income for each Fiscal Year and any
partial Fiscal Year from the date of this Agreement through the date on
which Incentive Compensation is being determined, with the total amount
being the "Cumulative Excess Pre-Tax Operating Income;"
THIRD, Employer shall multiply the Cumulative Excess Pre-Tax Operating
Income by fifteen percent (15%), with the product being the "Cumulative
Incentive Compensation;"
FOURTH, the Employer shall subtract from the Cumulative Incentive
Compensation the amount of Incentive Compensation previously paid to
Employee from the date of this Agreement, leaving an amount equal to the
"Incentive Compensation;" and
FIFTH, if the Incentive Compensation is a positive number, it shall be
paid to Employee as Incentive Compensation for that Fiscal Year.
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Employer shall deliver the schedule to the Employee, together with any
Incentive Compensation due to the Employee, within 90 days following the
completion for the Fiscal Year of the annual financial audit of Daily
Journal Corporation's consolidated financial statements by its public
accounting firm. Workpapers and other relevant documents with respect to
the calculation of the Incentive Compensation shall be made available to
Employee for inspection, and Employer shall make the persons in charge of
the preparation of the financial statements of Employer available for
reasonable inquiry by Employee. Employee shall notify Employer in writing
within 30 days following receipt of the schedule which shows any Incentive
Compensation due if Employee does not agree with the amount of Incentive
Compensation or any part of the calculations shown on the schedule.
Employer and Employee will use good faith efforts during the 10 day period
following delivery of the written notice to Employer to resolve any
disputes. If Employer and Employee cannot resolve the disputes within the
10 day period, their disputes shall be promptly submitted to an independent
public accounting firm jointly selected by Employer and Employee, which
shall conduct such additional review as is necessary to resolve the
specific disputes referred to it and, based thereon, shall determine the
Incentive Compensation due to the Employee and related calculations. The
review of the independent accountant shall be restricted to only those
matters that are specifically identified to it by Employer and Employee as
being the subject of dispute. The independent accountant's determination
described above shall be made no later than 60 days following the selection
of the independent accountant, shall be confirmed in writing by the
independent accountant and shall be final and binding upon Employer and
Employee. The fees and expenses of the independent accountant shall be
prorated among Employer and Employee in proportion to the amounts in
dispute resolved against each of them.
(c) Prorated Incentive Compensation. For the Fiscal Year ended
-------------------------------
September 30, 1999 and any subsequent Fiscal Year in which Employee ceases
to be eligible to earn Incentive Compensation under this Agreement for any
period of time, Employee shall only be eligible to earn Prorated Incentive
Compensation. "Prorated Incentive Compensation" is determined by
multiplying the Incentive Compensation for a full Fiscal Year by a fraction
of which the numerator is the actual number of days during which Employee
was eligible to earn Incentive Compensation during such Fiscal Year and the
denominator is three hundred sixty-five (365).
3.3 Expense Reimbursement. Employer shall reimburse Employee for
business expenses incurred in connection with the performance of Employee's
duties under this Agreement in accordance with Employer's business expense
reimbursement policies and procedures as in effect from time to time.
SECTION 4. TERMINATION
4.1 Events of Termination. The Employment Period, the Employee's
Salary, Bonus and Incentive Compensation, and any and all other rights of the
Employee under this Agreement or otherwise as an employee of the Employer will
terminate:
(a) upon the death of the Employee;
(b) upon the Disability of the Employee (as defined in Section 4.2)
immediately upon notice from either party to the other;
(c) by Employer for Cause (as defined in Section 4.3), immediately upon
determination by the Board of Directors after providing the notice
specified in Section 4.3; or
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(d) by either party at any time reasonably or unreasonably in the
absolute discretion of such party upon at least five (5) days' prior
written notice from the terminating party to the other party (a
"Termination Notice").
4.2 Definition of "Disability". For purposes of Section 4.1, the
Employee will be deemed to have a "Disability" if, for physical or mental
reasons, the Employee is unable to perform the essential functions of the
Employee's duties under this Agreement for 60 consecutive days, or 90 days
during any twelve month period, as determined in accordance with this Section
4.2. The Disability of the Employee will be determined by a medical doctor
selected by written agreement of the Employer and the Employee upon the request
of either party by notice to the other. If the Employer and the Employee cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Employee has a Disability. The determination of the
medical doctor selected under this Section 4.2 will be binding on both parties.
The Employee must submit to a reasonable number of examinations by the medical
doctor making the determination of Disability under this Section 4.2, and the
Employee hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized attorney-in-fact
will act in the Employee's stead, under this Section 4.2, for the purposes of
submitting the Employee to the examinations, and providing the authorization of
disclosure, required under this Section 4.2.
4.3 Definition of "for Cause". For purposes of Section 4.1, the phrase
"for Cause" means the good faith determination by the Board of Directors, after
notice to the Employee and provision to the Employee of an opportunity to
present the Employee's view of the relevant facts and circumstances to the Board
of Directors, that the Employee has
(a) breached any of the Employee's material fiduciary duties or
material legal or contractual obligations to the Employer or any
stockholder of the Employer, which breach, if curable, has not been cured
by Employee to Employer's reasonable satisfaction within 30 days after
notice to Employee by Employer,
(b) engaged in gross or persistent misconduct which is materially
injurious to the Employer, or
(c) has been convicted of or pleaded nolo contendre to (i) any
misdemeanor which either (1) relates to the affairs of the Employer and is
materially injurious to the Employer or (2) which brings Employee into
public disrepute, or (ii) any felony.
4.4 Termination Pay. Effective upon the Termination Date, the Employer
will be obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is provided
in this Section 4.4, and in lieu of all other amounts and in settlement and
complete release of all claims the Employee may have against the Employer under
this Agreement. For purposes of this Section 4.4, the Employee's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Employee may designate by notice to the Employer from time to
time or, if the Employee fails to give notice to the Employer of such a
beneficiary, the Employee's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Employee, to determine whether any beneficiary designated by
the Employee is alive or to ascertain the address of
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any such beneficiary, to determine the existence of any trust or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
(a) Termination upon Death. If this Agreement is terminated because
----------------------
of the Employee's death, the Employee will be entitled to receive his
Salary through the end of the calendar month in which his death occurs. The
Employee will receive Incentive Compensation for the period ending with the
end of the month in which death occurs.
(b) Termination upon Disability. If this Agreement is terminated by
---------------------------
either party as a result of the Employee's Disability, as determined under
Section 4.2, the Employer will pay the Employee his Salary through the
remainder of the calendar month during which such termination is effective
and for three (3) consecutive months thereafter, less any payment or other
compensation made by Employer to Employee for any vacation, holiday, sick
leave or other leave. The Employee will also receive Incentive
Compensation for the period ending with the end of the third calendar month
following the month in which termination for Disability is effective.
(c) Termination by the Employer for Cause. If the Employer terminates
-------------------------------------
the Employee's employment under this Agreement for Cause, the Employee will
be entitled to receive his Salary only through the date such of such
termination. The Employee will not earn (i) any Incentive Compensation for
the Fiscal Year during which such termination occurs or any subsequent
Fiscal Year or (ii) any additional Incentive Compensation whatsoever.
(d) Elective Termination by Employer. If Employer terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive (i) salary at an annual rate of $375,000 through January 3, 2004,
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly, and (ii)
his Incentive Compensation for the period ending with the end of the month
in which the Termination Date occurs.
(e) Elective Termination by Employee. If Employee terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive:
(i) If a notice has not been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
through January 3, 2004 and Incentive Compensation for the period ending
with the end of the month in which the Termination Date occurs, or
(ii) If a notice has been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
only through the Termination Date. The Employee will not earn (A) any
Incentive Compensation for the Fiscal Year during which the Termination
Date occurs or any subsequent Fiscal Year or (B) any additional Incentive
Compensation whatsoever.
Notwithstanding paragraphs (d) and (e) above, Employer shall have no obligation
to pay any Salary or Declining Salary after the Termination Date or any
Incentive Compensation for any monthly periods following the month during which
the Termination Date occurs if prior to the Termination Date Employer has
incurred aggregate unreimbursed Damages pursuant to Section 5.2 of the Asset
Purchase Agreement which exceed $250,000.
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For purposes of this Agreement, "Declining Salary" means the following
annual salary levels during the period in which the Employee is eligible to
receive Declining Salary:
During 1999, $375,000
During 2000, $300,000
During 2001, $225,000
During 2002, $175,000
During 2003 and 2004, $150,000.
Declining Salary will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than monthly.
The Employee's accrual of, or participation in plans providing for, the
Benefits will cease at the Termination Date, and the Employee will be entitled
to accrued Benefits pursuant to such plans only as provided in such plans. The
Employee will not receive, as part of his termination pay pursuant to this
Section 4, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the Termination Date.
SECTION 5. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
5.1 Acknowledgments by the Employee. The Employee acknowledges that (a)
during the Employment Period and as a part of his employment, the Employee will
be afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to obtain
exclusive ownership of each Employee Invention, and the Employer will be at a
substantial competitive disadvantage if it fails to acquire exclusive ownership
of each Employee Invention; (d) the Employer has required that the Employee make
the covenants in this Section 5 as a condition to its purchase of substantially
all of the assets of Quindeca Corporation; and (e) the provisions of this
Section 5 are reasonable and necessary to prevent the improper use or disclosure
of Confidential Information and to provide the Employer with exclusive ownership
of all Employee Inventions.
5.2 Agreements of the Employee. In consideration of the compensation
and benefits to be paid or provided to the Employee by the Employer under this
Agreement, the Employee covenants as follows:
(a) Confidentiality.
---------------
(i) During and following the Employment Period, the Employee will
hold in confidence the Confidential Information and will not disclose it
to any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under any applicable state trade secret law and
any other applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent jurisdiction not to be
a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret or post a bond or
other security.
(iii) If the Employee is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or
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documents, subpoena, civil or criminal investigative demand, or similar
process) or is required by a regulatory body to make any disclosure that
is prohibited or otherwise constrained by this Agreement, the Employee
will provide the Employer with prompt notice of such request so that it
may seek an appropriate protective order or other appropriate remedy.
Subject to the foregoing, the Employee may furnish that portion (and only
that portion) of the Confidential Information that, in the written
opinion of its counsel reasonably acceptable to Employer, the Employee is
likely legally compelled or is otherwise required to disclose or else
stand liable for contempt or suffer other material censure or material
penalty; provided, however, that the Employee must use reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded
any Confidential Information so disclosed.
(iv) The Employee will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of
the Employee's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook,
plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form owned, leased or licensed by
Employer (collectively, the "Proprietary Items"). The Employee recognizes
that, as between the Employer and the Employee, all of the Proprietary
Items, whether or not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period,
the Employee will return to the Employer all of the Proprietary Items in
the Employee's possession or subject to the Employee's control, and the
Employee shall not retain any copies, abstracts, sketches, or other
physical embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong
-------------------
exclusively to the Employer. The Employee acknowledges that all of the
Employee's writing, works of authorship, specially commissioned works
listed in Exhibit A, and other Employee Inventions are works made for hire
and the property of the Employer, including any copyrights, patents, or
other intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Employee hereby
assigns to the Employer all of the Employee's right, title, and interest,
including all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Employee covenants that he
will promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the Employer,
at the Employer's request and without additional compensation, all of the
Employee's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to
apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
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(v) at the expense of Employer, give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
5.3 Disputes or Controversies. The Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Employee, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
SECTION 6. NON-COMPETITION AND NON-INTERFERENCE
6.1 Acknowledgments by the Employee. The Employee acknowledges that:
(a) the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is national in scope and its products are marketed throughout the
United States and Canada; (c) the Employer competes with other businesses that
are or could be located in any part of the United States and Canada; (d) the
Employer has required that the Employee make the covenants in this Section 6 as
a condition to its purchase of substantially all of the assets (including all
goodwill) of Quindeca Corporation; and (e) the provisions of this Section 6 are
reasonable and necessary to protect the Employer's business. For purposes of
this Section 6 only, during the Employment Period "Employer" shall include Daily
Journal.
6.2 Covenants of the Employee. In consideration of the acknowledgments
by the Employee, and in consideration of the compensation and benefits to be
paid or provided to the Employee by the Employer, the Employee covenants that he
will not, directly or indirectly:
(a) during the Payment Period, except in the course of his employment
hereunder, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control
of, be employed by, associated with, or in any manner connected with, lend
the Employee's name or any similar name to, lend Employee's credit to or
render services or advice to, any business whose products or activities
compete in whole or in part with the products or activities of the Employer
anywhere within the United States or Canada; provided, however, that the
Employee may purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934;
(b) whether for the Employee's own account or for the account of any
other person, at any time during the Payment Period, solicit business of
the same or similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer, whether or not the
Employee had personal contact with such person during and by reason of the
Employee's employment with the Employer;
(c) whether for the Employee's own account or the account of any other
person (i) at any time during the Payment Period, solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce any employee
of the Employer to terminate his employment with the
10
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Employer; or (ii) at any time during the Payment Period, interfere with the
Employer's relationship with any person, including any person who at any
time during the Employment Period was an employee, contractor, supplier, or
customer of the Employer; or
(d) at any time during or after the Payment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or
agents.
Nothing in paragraphs (a) or (b) above shall prevent Employee, following the
Employment Period, from engaging or investing in, owning, managing, operating,
financing, controlling, or participating in the ownership, management,
operation, financing, or control of, being employed by, associated with, or in
any manner connected with, lending the Employee's name or any similar name to,
lending Employee's credit to or rendering services or advice to, any business
which markets or develops software and related consulting services that Employee
can demonstrate (i) are not based upon and do not use any Confidential
Information or Employee Inventions, (ii) in the case of software, do not perform
substantially the same function as any software product owned by or exclusively
licensed to Employer, and (iii) is not specifically targeted for any industry
served by Employer during the Employment Period or, if disclosed to Employee
during the Employment Period, is proposed to be served by the Employer and for
which the Employer has taken active steps during the Employment Period.
If any covenant in this Section 6.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Employee.
The period of time applicable to any covenant in this Section 6.2 will be
extended by the duration of any violation by the Employee of such covenant.
The Employee will, while the covenant under this Section 6.2 is in effect,
give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Employee's employer. Daily Journal or the
Employer may notify such employer that the Employee is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
SECTION 7. GENERAL PROVISIONS
7.1 Injunctive Relief and Additional Remedy. The Employee acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of either Section 5 or 6 of this Agreement would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of either Section 5 or 6 of this Agreement, and the Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting the Employer's rights under this Section 7 or any other remedies of the
Employer, if the Employee breaches any of the provisions of Section 5 or 6, the
Employer will have the right to cease making any payments otherwise due to the
Employee under this Agreement provided that Employer shall remit to Employee
such withheld payments upon a final determination that Employee did not engage
in a breach of either Section 5 or 6 of this Agreement.
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7.2 Covenants of Sections 5 and 6 Are Essential Covenants. The
covenants by the Employee in Sections 5 and 6 are essential elements of this
Agreement, and without the Employee's agreement to comply with such covenants,
the Employer would not have purchased substantially all of the assets of
Quindeca Corporation pursuant to the Asset Purchase Agreement and the Employer
would not have entered into this Agreement or employed or continued the
employment of the Employee. The Employer and the Employee have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 are independent covenants and the
existence of any claim by the Employee against the Employer under this Agreement
or otherwise, or against Daily Journal, will not excuse the Employee's breach of
any covenant in Section 5.
If the Employee's employment hereunder expires or is terminated for any
reason, this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Employee in Sections
5 and 6.
7.3 Representations and Warranties by the Employee. The Employee
represents and warrants to the Employer as follows:
(a) The execution and delivery by the Employee of this Agreement do
not, and the performance by the Employee of the Employee's obligations
hereunder will not, with or without the giving of notice or the passage of
time, or both: (i) violate any judgment, writ, injunction, or order of any
court, arbitrator, or governmental agency applicable to the Employee; or
(ii) conflict with, result in the breach of any provisions of or the
termination of, or constitute a default under, any agreement to which the
Employee is a party or by which the Employee is or may be bound.
(b) The Employee has no outstanding commitments inconsistent with any
of the terms of this Agreement or the services to be rendered by Employee
under this Agreement.
7.4 Representations and Warranties by the Employer. The Employer
represents and warrants to the Employee that the execution and delivery by the
Employer of this Agreement have been duly authorized by Employer and do not, and
the performance by the Employer of the Employer's obligations hereunder will
not, with or without the giving of notice or the passage of time, or both: (i)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Employer; or (ii) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Employer is a party or by which the Employer
is or may be bound.
7.5 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right
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of the party giving such notice or demand to take further action without notice
or demand as provided in this Agreement.
7.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Employee under this Agreement, being personal, may not be
delegated.
7.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Choice Information Systems, Inc.
c/o Daily Journal Corporation
915 E. First Street
Los Angeles, CA 90012
Attn: Gerald L. Salzman
Fax: 213-330-2666
If to the Employee:
Jerry L. Short
P.O. Box 16040
Golden, CO 80402
Fax: 888-719-7819
7.8 Entire Agreement; Amendments. This Agreement, the Asset Purchase
Agreement and the Shareholders Agreement, and the documents executed in
connection with this Agreement, the Asset Purchase Agreement and the
Shareholders Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
7.9 Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of California without
regard to conflicts of laws principles.
7.10 Mandatory Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Any arbitration under this Agreement shall be adjudicated
by three (3) arbitrators, one selected by Employer within fifteen (15) days
after the commencement of arbitration, one selected by Employee within fifteen
(15) days after the commencement of arbitration and one selected by the two
arbitrators within five (5) days after their appointment. If the arbitrators
selected by the parties are unable or fail to agree upon a third arbitrator, the
third arbitrator shall be selected by the American
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Arbitration Association. The place of the arbitration shall be at a place within
the City of Los Angeles, California. Either party may apply to the arbitrators
seeking injunctive relief until the arbitration award is rendered or the
controversy is otherwise resolved. Consistent with the expedited nature of
arbitration, each party will, upon the written request of the other party,
promptly provide the other with copies of documents relevant to the issued
raised by any claim or counterclaim. Any dispute regarding discovery, or the
relevance or scope thereof, shall be determined by the arbitrators, which
determination shall be conclusive. All discovery shall be completed within
forty-five (45) days following the appointment of the third arbitrator. The
award shall be by majority vote of the panel and shall be made within six (6)
months of the filing of the notice of intention to arbitrate, and the
arbitrators shall agree to comply with this schedule before accepting
appointment. The arbitration panel's award shall be final. The parties agree and
consent that judgment upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof. The prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees, and the party
losing the arbitration shall pay all expenses and fees of the American
Arbitration Association, all costs of the stenographic record, all expenses of
witnesses or proofs that may have been produced at the direction of the
arbitrators, and the fees, costs, and expenses of the arbitrators. The
arbitration panel shall designate the prevailing party for these purposes.
Except as may be required by law, neither a party, its counsel and other
representatives, nor an arbitrator may disclose the existence, content, or
results of any arbitrator hereunder without the prior written consent of both
parties.
7.11 No Guarantee. Nothing in this Agreement shall constitute an
obligation of Daily Journal, and Employee acknowledges that Daily Journal does
not guarantee or otherwise agree to perform any obligations of Employer whether
pursuant to this Agreement or otherwise.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
7.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.15 Indemnification. The Employer shall indemnify Employee for, and
provide for advancement of expenses relating to, any proceedings brought or
threatened to be brought against Employee by reason of the fact that Employee
was an employee, officer or director of Employer or any of its affiliates
following the date of this Agreement to the same extent and on the same terms as
Daily Journal provides indemnification and expense advancement to its employees,
officers and directors from time to time.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: CHOICE INFORMATION SYSTEMS, INC.
By:__________________________________
Name:
Title:
EMPLOYEE: /s/ Jerry L. Short
_____________________________________
Jerry L. Short
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EXHIBIT A
List of Employee Inventions
---------------------------
All software heretofore invented by Employee or under his direction relating to
business heretofore conducted by Employer or Quindeca Corporation.
16
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of January 22, 1999
by Choice Information Systems, Inc., a Virginia corporation (the "Employer"),
and Terence E. Hahm, an individual resident in Wisconsin (the "Employee").
The parties, intending to be legally bound, agree as follows:
SECTION 1. DEFINITIONS
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
"Agreement" means this Employment Agreement, including all exhibits hereto,
as amended from time to time.
"Benefits" is defined in Section 3.1.
"Board of Directors" means the board of directors of the Employer.
"Confidential Information" means any and all:
(a) trade secrets concerning the business and affairs of the Employer,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and
ideas, past, current, and planned research and development, current and
planned manufacturing or distribution methods and processes, customer
lists, current and anticipated customer requirements, price lists, market
studies, business plans, computer software and programs (including object
code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information) of Employer, and any
other information of Employer, however documented, that is a trade secret
within the meaning of applicable state trade secret law; and
(b) information of Employer concerning the business and affairs of the
Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
Notwithstanding the foregoing, the term "Confidential Information" does not
include information that the Employee demonstrates (i) was or is generally
available to the public other than as a result of a disclosure by the Employee
or (ii) becomes available after the date of this Agreement to the Employee on a
non-confidential basis, but only in the case of (ii) if (A) the source of such
information is not bound by any confidentiality agreement with, or
confidentiality obligation to, the Employer, or is not otherwise prohibited from
transmitting the information to the Employee by a contractual, legal, fiduciary
or other legal obligation, and (B) if the Employee receives the information from
the source prior to its disclosure to the Employee by the
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Employer, the Employee notifies the Employer of Employee's prior knowledge
promptly after disclosure by the Employer of the information.
"Daily Journal" means the Daily Journal Corporation, a South Carolina
corporation, together with its subsidiaries and affiliates (other than
Employer).
"Declining Salary" is defined in Section 4.4.
"Disability" is defined in Section 4.2.
"Employee Invention" means any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial design
(whether registerable or not), any mask work, however fixed or encoded, that is
suitable to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Employee, either solely or in conjunction with others, during the Employment
Period, or a period that includes a portion of the Employment Period, that
relates in any way to the business then being conducted or proposed to be
conducted by the Employer during the Employment Period or (if disclosed to
Employee during the Employment Period) after the Employment Period, and any such
item created by the Employee, either solely or in conjunction with others,
following the Termination Date, that is based upon or uses Confidential
Information. The term "Employee Invention" includes the inventions, techniques,
and specially commissioned works described in Exhibit A. Notwithstanding the
foregoing, "Employee Inventions" shall not include software and related
consulting services that Employee can demonstrate (a) are not based upon and do
not use any Confidential Information, (b) have been developed solely on
Employee's own time consistent with his obligations under Section 2.3 of this
Agreement, (c) in the case of software, do not perform substantially the same
function as any software product developed or marketed by Employer in its
business (whether owned or licensed) whether prior to or during the Employment
Period, and (d) cannot reasonably be expected to be used in any industry served
or, if disclosed to Employee, proposed to be served by Employer during the
Employment Period.
"Employment Period" means the period of time the Employee is employed by
the Employer.
"Fiscal Year" means the Employer's fiscal year, as it exists on the date of
this Agreement or as changed from time to time.
"for Cause" is defined in Section 4.3.
"Payment Period" means the Employment Period and any additional period of
time during which Employee receives payments from the Employer pursuant to
Section 4 of this Agreement following termination of the Employment Period.
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"Proprietary Items" is defined in Section 5.2(a)(iv).
"Salary" is defined in Section 3.1(a).
"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated January 22, 1999, among the Employer, Daily Journal, Michael W. Payton and
Employee.
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"Termination Date" means the date on which Employee's employment with
Employer is terminated pursuant to this Agreement.
"Termination Notice" is defined in Section 4.1(d).
SECTION 2. EMPLOYMENT TERMS AND DUTIES
2.1 Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 Term. The Employee's term of employment will commence on January 22,
1999 and will end on January 23, 2004 unless earlier terminated pursuant to
Section 4 of this Agreement. Upon the termination of Employee's employment with
Employer, Employee shall be entitled only to the payments, if any, provided for
in Section 4.4 of this Agreement.
2.3 Duties. The Employee will have such duties as are assigned or
delegated to the Employee by the Board of Directors or President of the
Employer. The Employee will devote his entire business time, attention, skill,
and energy exclusively to the business of the Employer. The Employee will (a)
use his commercially reasonable efforts to promote the success of the Employer's
business, (b) perform his assigned duties diligently, loyally, conscientiously,
and with reasonable skill, (c) comply in all material respects with all rules,
procedures and standards promulgated from time to time by the Employer with
regard to his conduct and his access to and use of the Employer's property,
information, equipment and premises, and (d) cooperate fully with the Board of
Directors in the advancement of the best interests of the Employer. If the
Employee is elected as a director of the Employer or as a director or officer of
any of its affiliates, the Employee will fulfill his duties as such director or
officer without additional compensation. Employee acknowledges that the
Employer retains its full management prerogatives and discretion to manage and
direct its business affairs, including the adoption, amendment, reorganization
or modification of research, development, production, marketing or
organizational decisions as it sees fit, notwithstanding any employee's
individual interest in or expectation regarding a particular business program,
position or product.
SECTION 3. COMPENSATION
3.1 Basic Compensation. The Employee will be paid an annual salary of
$250,000, subject to adjustment as provided below (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly. The Employee will also,
during the Employment Period, be permitted to participate in such life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the Employee
is eligible under the terms of those plans, and be subject to the vacation, sick
leave and holiday policies of Employer as in effect from time to time
(collectively, the "Benefits"). Employee acknowledges that Employee's Benefits
may be amended, enlarged, diminished or eliminated by Employer in its discretion
from time to time.
3.2 Expense Reimbursement. Employer shall reimburse Employee for business
expenses incurred in connection with the performance of Employee's duties under
this Agreement in accordance with Employer's business expense reimbursement
policies and procedures as in effect from time to time.
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SECTION 4. TERMINATION
4.1 Events of Termination. The Employment Period, the Employee's Salary
and Bonus, and any and all other rights of the Employee under this Agreement or
otherwise as an employee of the Employer will terminate:
(a) upon the death of the Employee;
(b) upon the Disability of the Employee (as defined in Section 4.2)
immediately upon notice from either party to the other;
(c) by Employer for Cause (as defined in Section 4.3), immediately upon
determination by the Board of Directors after providing the notice
specified in Section 4.3; or
(d) by either party at any time reasonably or unreasonably in the
absolute discretion of such party upon at least five (5) days' prior
written notice from the terminating party to the other party (a
"Termination Notice").
4.2 Definition of "Disability". For purposes of Section 4.1, the
Employee will be deemed to have a "Disability" if, for physical or mental
reasons, the Employee is unable to perform the essential functions of the
Employee's duties under this Agreement for 60 consecutive days, or 90 days
during any twelve month period, as determined in accordance with this Section
4.2. The Disability of the Employee will be determined by a medical doctor
selected by written agreement of the Employer and the Employee upon the request
of either party by notice to the other. If the Employer and the Employee cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Employee has a Disability. The determination of the
medical doctor selected under this Section 4.2 will be binding on both parties.
The Employee must submit to a reasonable number of examinations by the medical
doctor making the determination of Disability under this Section 4.2, and the
Employee hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Employee is not legally
competent, the Employee's legal guardian or duly authorized attorney-in-fact
will act in the Employee's stead, under this Section 4.2, for the purposes of
submitting the Employee to the examinations, and providing the authorization of
disclosure, required under this Section 4.2.
4.3 Definition of "for Cause". For purposes of Section 4.1, the phrase
"for Cause" means the good faith determination by the Board of Directors, after
notice to the Employee and provision to the Employee of an opportunity to
present the Employee's view of the relevant facts and circumstances to the Board
of Directors, that the Employee has
(a) breached any of the Employee's material fiduciary duties or material
legal or contractual obligations to the Employer or any stockholder of the
Employer, which breach, if curable, has not been cured by Employee to
Employer's reasonable satisfaction within 30 days after notice to Employee
by Employer,
(b) engaged in gross or persistent misconduct which is materially
injurious to the Employer, or
(c) has been convicted of or pleaded nolo contendre to (i) any
misdemeanor which either (1) relates to the affairs of the Employer and is
materially injurious to the Employer or (2) which brings Employee into
public disrepute, or (ii) any felony.
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4.4 Termination Pay. Effective upon the Termination Date, the Employer
will be obligated to pay the Employee (or, in the event of his death, his
designated beneficiary as defined below) only such compensation as is provided
in this Section 4.4, and in lieu of all other amounts and in settlement and
complete release of all claims the Employee may have against the Employer under
this Agreement. For purposes of this Section 4.4, the Employee's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Employee may designate by notice to the Employer from time to
time or, if the Employee fails to give notice to the Employer of such a
beneficiary, the Employee's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Employee, to determine whether any beneficiary designated by
the Employee is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust or to locate or attempt to locate any
beneficiary, personal representative, or trustee.
(a) Termination upon Death. If this Agreement is terminated because of
----------------------
the Employee's death, the Employee will be entitled to receive his Salary
through the end of the calendar month in which his death occurs.
(b) Termination upon Disability. If this Agreement is terminated by
---------------------------
either party as a result of the Employee's Disability, as determined under
Section 4.2, the Employer will pay the Employee his Salary through the
remainder of the calendar month during which such termination is effective
and for three (3) consecutive months thereafter, less any payment or other
compensation made by Employer to Employee for any vacation, holiday, sick
leave or other leave.
(c) Termination by the Employer for Cause. If the Employer terminates
-------------------------------------
the Employee's employment under this Agreement for Cause, the Employee will
be entitled to receive his Salary only through the date such of such
termination.
(d) Elective Termination by Employer. If Employer terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive salary at an annual rate of $250,000 through January 3, 2004,
payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly.
(e) Elective Termination by Employee. If Employee terminates this
--------------------------------
Agreement under subparagraph 4.1(d), the Employee will be entitled to
receive:
(i) If a notice has not been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
through January 3, 2004, or
(ii) If a notice has been delivered to Employee under Section 4.3
within six months prior to the date on which a Termination Notice is
delivered, the Employee will be entitled to receive his Declining Salary
only through the Termination Date.
Notwithstanding paragraphs (d) and (e) above, Employer shall have no obligation
to pay any Salary or Declining Salary after the Termination Date if prior to the
Termination Date Employer has incurred aggregate unreimbursed Damages pursuant
to Section 5.2 of the Stock Purchase Agreement which exceed $500,000.
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For purposes of this Agreement, "Declining Salary" means the following
annual salary levels during the period in which the Employee is eligible to
receive Declining Salary:
During 1999, $250,000
During 2000, $200,000
During 2001, $150,000
During 2002, $116,667
During 2003 and 2004, $100,000.
Declining Salary will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than monthly.
The Employee's accrual of, or participation in plans providing for, the
Benefits will cease at the Termination Date, and the Employee will be entitled
to accrued Benefits pursuant to such plans only as provided in such plans. The
Employee will not receive, as part of his termination pay pursuant to this
Section 4, any payment or other compensation for any vacation, holiday, sick
leave, or other leave unused on the Termination Date.
SECTION 5. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
5.1 Acknowledgments by the Employee. The Employee acknowledges that (a)
during the Employment Period and as a part of his employment, the Employee will
be afforded access to Confidential Information; (b) public disclosure of such
Confidential Information could have an adverse effect on the Employer and its
business; (c) because the Employee possesses substantial technical expertise and
skill with respect to the Employer's business, the Employer desires to obtain
exclusive ownership of each Employee Invention, and the Employer will be at a
substantial competitive disadvantage if it fails to acquire exclusive ownership
of each Employee Invention; (d) the Employer has required that the Employee make
the covenants in this Section 5 as a condition to its purchase of substantially
all of the assets of Quindeca Corporation; and (e) the provisions of this
Section 5 are reasonable and necessary to prevent the improper use or disclosure
of Confidential Information and to provide the Employer with exclusive ownership
of all Employee Inventions.
5.2 Agreements of the Employee. In consideration of the compensation and
benefits to be paid or provided to the Employee by the Employer under this
Agreement, the Employee covenants as follows:
(a) Confidentiality.
---------------
(i) During and following the Employment Period, the Employee will
hold in confidence the Confidential Information and will not disclose it
to any person except with the specific prior written consent of the
Employer or except as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of the
protections and benefits under any applicable state trade secret law and
any other applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent jurisdiction not to be
a trade secret for purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information for purposes of this
Agreement. The Employee hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret or post a bond or
other security.
(iii) If the Employee is requested or becomes legally compelled (by
oral questions, interrogatories, requests for information or
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documents, subpoena, civil or criminal investigative demand, or similar
process) or is required by a regulatory body to make any disclosure that
is prohibited or otherwise constrained by this Agreement, the Employee
will provide the Employer with prompt notice of such request so that it
may seek an appropriate protective order or other appropriate remedy.
Subject to the foregoing, the Employee may furnish that portion (and only
that portion) of the Confidential Information that, in the written
opinion of its counsel reasonably acceptable to Employer, the Employee is
likely legally compelled or is otherwise required to disclose or else
stand liable for contempt or suffer other material censure or material
penalty; provided, however, that the Employee must use reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded
any Confidential Information so disclosed.
(iv) The Employee will not remove from the Employer's premises
(except to the extent such removal is for purposes of the performance of
the Employee's duties at home or while traveling, or except as otherwise
specifically authorized by the Employer) any document, record, notebook,
plan, model, component, device, or computer software or code, whether
embodied in a disk or in any other form owned, leased or licensed by
Employer (collectively, the "Proprietary Items"). The Employee recognizes
that, as between the Employer and the Employee, all of the Proprietary
Items, whether or not developed by the Employee, are the exclusive
property of the Employer. Upon termination of this Agreement by either
party, or upon the request of the Employer during the Employment Period,
the Employee will return to the Employer all of the Proprietary Items in
the Employee's possession or subject to the Employee's control, and the
Employee shall not retain any copies, abstracts, sketches, or other
physical embodiment of any of the Proprietary Items.
(b) Employee Inventions. Each Employee Invention will belong exclusively
-------------------
to the Employer. The Employee acknowledges that all of the Employee's
writing, works of authorship, specially commissioned works listed in
Exhibit A, and other Employee Inventions are works made for hire and the
property of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined that
any such works are not works made for hire, the Employee hereby assigns to
the Employer all of the Employee's right, title, and interest, including
all rights of copyright, patent, and other intellectual property rights, to
or in such Employee Inventions. The Employee covenants that he will
promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the Employer,
at the Employer's request and without additional compensation, all of the
Employee's right to the Employee Invention for the United States and all
foreign jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request in order to
apply for and obtain patents or other registrations with respect to any
Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
(v) at the expense of Employer, give testimony and render any other
assistance in support of the Employer's rights to any Employee Invention.
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5.3 Disputes or Controversies. The Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. All
pleadings, documents, testimony, and records relating to any such adjudication
will be maintained in secrecy and will be available for inspection by the
Employer, the Employee, and their respective attorneys and experts, who will
agree, in advance and in writing, to receive and maintain all such information
in secrecy, except as may be limited by them in writing.
SECTION 6. NON-COMPETITION AND NON-INTERFERENCE
6.1 Acknowledgments by the Employee. The Employee acknowledges that: (a)
the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (b) the Employer's
business is national in scope and its products are marketed throughout the
United States and Canada; (c) the Employer competes with other businesses that
are or could be located in any part of the United States and Canada; (d) the
Employer has required that the Employee make the covenants in this Section 6 as
a condition to its purchase of substantially all of the assets (including all
goodwill) of Quindeca Corporation; and (e) the provisions of this Section 6 are
reasonable and necessary to protect the Employer's business. For purposes of
this Section 6 only, during the Employment Period "Employer" shall include Daily
Journal.
6.2 Covenants of the Employee. In consideration of the acknowledgments
by the Employee, and in consideration of the compensation and benefits to be
paid or provided to the Employee by the Employer, the Employee covenants that he
will not, directly or indirectly:
(a) during the Payment Period, except in the course of his employment
hereunder, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation, financing, or control
of, be employed by, associated with, or in any manner connected with, lend
the Employee's name or any similar name to, lend Employee's credit to or
render services or advice to, any business whose products or activities
compete in whole or in part with the products or activities of the Employer
anywhere within the United States or Canada; provided, however, that the
Employee may purchase or otherwise acquire up to (but not more than) one
percent (1%) of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of
1934;
(b) whether for the Employee's own account or for the account of any
other person, at any time during the Payment Period, solicit business of
the same or similar type being carried on by the Employer, from any person
known by the Employee to be a customer of the Employer, whether or not the
Employee had personal contact with such person during and by reason of the
Employee's employment with the Employer;
(c) whether for the Employee's own account or the account of any other
person (i) at any time during the Payment Period, solicit, employ, or
otherwise engage as an employee, independent contractor, or otherwise, any
person who is or was an employee of the Employer at any time during the
Employment Period or in any manner induce or attempt to induce any employee
of the Employer to terminate his employment with the Employer; or (ii) at
any time during the Payment Period, interfere with the Employer's
relationship with any person, including any person who at
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any time during the Employment Period was an employee, contractor,
supplier, or customer of the Employer; or
(d) at any time during or after the Payment Period, disparage the
Employer or any of its shareholders, directors, officers, employees, or
agents.
Nothing in paragraphs (a) or (b) above shall prevent Employee, following the
Employment Period, from engaging or investing in, owning, managing, operating,
financing, controlling, or participating in the ownership, management,
operation, financing, or control of, being employed by, associated with, or in
any manner connected with, lending the Employee's name or any similar name to,
lending Employee's credit to or rendering services or advice to, any business
which markets or develops software and related consulting services that Employee
can demonstrate (i) are not based upon and do not use any Confidential
Information or Employee Inventions, (ii) in the case of software, do not perform
substantially the same function as any software product owned by or exclusively
licensed to Employer, and (iii) is not specifically targeted for any industry
served by Employer during the Employment Period or, if disclosed to Employee
during the Employment Period, is proposed to be served by the Employer and for
which the Employer has taken active steps during the Employment Period.
If any covenant in this Section 6.2 is held to be unreasonable, arbitrary,
or against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Employee.
The period of time applicable to any covenant in this Section 6.2 will be
extended by the duration of any violation by the Employee of such covenant.
The Employee will, while the covenant under this Section 6.2 is in effect,
give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Employee's employer. Daily Journal or the
Employer may notify such employer that the Employee is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
SECTION 7. GENERAL PROVISIONS
7.1 Injunctive Relief and Additional Remedy. The Employee acknowledges
that the injury that would be suffered by the Employer as a result of a breach
of either Section 5 or 6 of this Agreement would be irreparable and that an
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of either Section 5 or 6 of this Agreement, and the Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting the Employer's rights under this Section 7 or any other remedies of the
Employer, if the Employee breaches any of the provisions of Section 5 or 6, the
Employer will have the right to cease making any payments otherwise due to the
Employee under this Agreement provided that Employer shall remit to Employee
such withheld payments upon a final determination that Employee did not engage
in a breach of either Section 5 or 6 of this Agreement.
7.2 Covenants of Sections 5 and 6 Are Essential Covenants. The covenants
by the Employee in Sections 5 and 6 are essential elements of this
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Agreement, and without the Employee's agreement to comply with such covenants,
the Employer would not have entered into this Agreement or employed or continued
the employment of the Employee. The Employer and the Employee have independently
consulted their respective counsel and have been advised in all respects
concerning the reasonableness and propriety of such covenants, with specific
regard to the nature of the business conducted by the Employer.
The Employee's covenants in Section 5 are independent covenants and the
existence of any claim by the Employee against the Employer under this Agreement
or otherwise, or against Daily Journal, will not excuse the Employee's breach of
any covenant in Section 5.
If the Employee's employment hereunder expires or is terminated for any
reason, this Agreement will continue in full force and effect as is necessary or
appropriate to enforce the covenants and agreements of the Employee in Sections
5 and 6.
7.3 Representations and Warranties by the Employee. The Employee
represents and warrants to the Employer as follows:
(a) The execution and delivery by the Employee of this Agreement do not,
and the performance by the Employee of the Employee's obligations hereunder
will not, with or without the giving of notice or the passage of time, or
both: (i) violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to the Employee; or (ii)
conflict with, result in the breach of any provisions of or the termination
of, or constitute a default under, any agreement to which the Employee is a
party or by which the Employee is or may be bound.
(b) The Employee has no outstanding commitments inconsistent with any of
the terms of this Agreement or the services to be rendered by Employee
under this Agreement.
7.4 Representations and Warranties by the Employer. The Employer
represents and warrants to the Employee that the execution and delivery by the
Employer of this Agreement have been duly authorized by Employer and do not, and
the performance by the Employer of the Employer's obligations hereunder will
not, with or without the giving of notice or the passage of time, or both: (i)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Employer; or (ii) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Employer is a party or by which the Employer
is or may be bound.
7.5 Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
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7.6 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Employee under this Agreement, being personal, may not be
delegated.
7.7 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer:
Choice Information Systems, Inc.
c/o Daily Journal Corporation
915 E. First Street
Los Angeles, CA 90012
Attn: Gerald L. Salzman
Fax: 213-330-2666
If to the Employee:
Terence E. Hahm
__________________________
__________________________
Fax: _____________________
7.8 Entire Agreement; Amendments. This Agreement, the Stock Purchase
Agreement, the Shareholders Agreement, and the documents executed in connection
with this Agreement, the Stock Purchase Agreement and the Shareholders
Agreement, contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended orally, but only by an agreement in
writing signed by the parties hereto.
7.9 Governing Law. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of California without regard
to conflicts of laws principles.
7.10 Mandatory Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its
National Rules for the Resolution of Employment Disputes, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. Any arbitration under this Agreement shall be adjudicated
by three (3) arbitrators, one selected by Employer within fifteen (15) days
after the commencement of arbitration, one selected by Employee within fifteen
(15) days after the commencement of arbitration and one selected by the two
arbitrators within five (5) days after their appointment. If the arbitrators
selected by the parties are unable or fail to agree upon a third arbitrator, the
third arbitrator shall be selected by the American Arbitration Association. The
place of the arbitration shall be at a place within the City of Los Angeles,
California. Either party may apply to the
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arbitrators seeking injunctive relief until the arbitration award is rendered or
the controversy is otherwise resolved. Consistent with the expedited nature of
arbitration, each party will, upon the written request of the other party,
promptly provide the other with copies of documents relevant to the issued
raised by any claim or counterclaim. Any dispute regarding discovery, or the
relevance or scope thereof, shall be determined by the arbitrators, which
determination shall be conclusive. All discovery shall be completed within
forty-five (45) days following the appointment of the third arbitrator. The
award shall be by majority vote of the panel and shall be made within six (6)
months of the filing of the notice of intention to arbitrate, and the
arbitrators shall agree to comply with this schedule before accepting
appointment. The arbitration panel's award shall be final. The parties agree and
consent that judgment upon the arbitration award may be entered in any federal
or state court having jurisdiction thereof. The prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees, and the party
losing the arbitration shall pay all expenses and fees of the American
Arbitration Association, all costs of the stenographic record, all expenses of
witnesses or proofs that may have been produced at the direction of the
arbitrators, and the fees, costs, and expenses of the arbitrators. The
arbitration panel shall designate the prevailing party for these purposes.
Except as may be required by law, neither a party, its counsel and other
representatives, nor an arbitrator may disclose the existence, content, or
results of any arbitrator hereunder without the prior written consent of both
parties.
7.11 No Guarantee. Nothing in this Agreement shall constitute an
obligation of Daily Journal, and Employee acknowledges that Daily Journal does
not guarantee or otherwise agree to perform any obligations of Employer whether
pursuant to this Agreement or otherwise.
7.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
7.13 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
7.15 Indemnification. The Employer shall indemnify Employee for, and
provide for advancement of expenses relating to, any proceedings brought or
threatened to be brought against Employee by reason of the fact that Employee
was an employee, officer or director of Employer or any of its affiliates
following the date of this Agreement to the same extent and on the same terms as
Daily Journal provides indemnification and expense advancement to its employees,
officers and directors from time to time.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date above first written above.
EMPLOYER: CHOICE INFORMATION SYSTEMS, INC.
By:__________________________________
Name:
Title:
EMPLOYEE: /s/ Terence E. Hahm
_____________________________________
Terence E. Hahm
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EXHIBIT A
List of Employee Inventions
---------------------------
All software heretofore invented by Employee or under his direction relating to
business heretofore conducted by Employer or Quindeca Corporation.
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EXHIBIT 10.4
SHAREHOLDERS AGREEMENT
DATED JANUARY 22, 1999
BY AND AMONG
CHOICE INFORMATION SYSTEMS, INC.
MICHAEL W. PAYTON,
TERENCE E. HAHM
QUINDECA CORPORATION
AND
DAILY JOURNAL CORPORATION
SHAREHOLDERS AGREEMENT
OF
CHOICE INFORMATION SYSTEMS, INC.
THIS AGREEMENT is made and entered into on this day of January 22, 1999,
(the "Effective Date") by and among Choice Information Systems, Inc., a Virginia
corporation (the "Company"), and Michael W. Payton, Terence E. Hahm, Quindeca
Corporation, a Colorado corporation, and Daily Journal Corporation, a South
Carolina corporation (each a "Shareholder" and, collectively, the
"Shareholders").
RECITALS
The Shareholders are owners of outstanding shares of the Company's capital
stock.
Certain of the parties are concurrently entering into an Asset Purchase
Agreement among the Company, Quindeca Corporation and Jerry L. Short and a Stock
Purchase Agreement among the Company, the Daily Journal Corporation, Michael W.
Payton and Terence E. Hahm. As a condition to the consummation of the
transactions contemplated by those agreements, the parties are entering into
this Agreement. The purpose of this Agreement is to establish certain rights
and certain restrictions regarding the stock of the Company.
AGREEMENT
In consideration of the mutual promises and covenants contained herein and
other good and valuable consideration, the parties hereto agree as follows:
Article 1
Definitions
As used in this Agreement, the following terms (whether used in singular or
plural forms) shall have the following meanings:
"Affiliate" of a specified Person means any other Person (1) which,
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified Person, (2) which
beneficially owns or holds 50% or more of any class of the voting securities or
equity of the specified Person, or (3) 50% or more of the voting securities or
equity of which is beneficially owned or held by the specified
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Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" means this Shareholders Agreement, as executed and as it may be
amended from time to time.
"Beneficial owner" and "owned beneficially" with respect to any equity or
voting interest means any person or entity which directly or indirectly, through
any contract, arrangement, understanding, relationship, or otherwise has or
shares: (a) voting power which includes the power to vote, or to direct the
voting of, such interest; and/or (b) investment power which includes the power
to dispose, or to direct the disposition of, such interest. A person or entity
shall also be deemed to be the beneficial owner of an interest for purposes of
this Agreement, if the person or entity has the right to acquire beneficial
ownership of such interest, including but not limited to any right through an
option, warrant, right to purchase or conversion. When two or more persons or
entities act as a partnership, limited partnership, syndicate or other group for
the purpose of acquiring, holding, transferring or voting of interests, such
syndicate or group shall be deemed a "person" for purposes of this definition.
"Company" means Choice Information Systems, Inc., a Virginia corporation,
and any of its successors or assigns.
"Disposition" and "disposed of" mean any sale, gift, transfer, assignment,
pledge, mortgage, distribution or other form of disposition or conveyance,
whether voluntary, involuntary or by operation of law, and whether testamentary
or inter vivos, or otherwise, or any attempted disposition, including but not
limited to a transfer or attempted transfer pursuant to a court ordered property
settlement in connection with a marital dissolution or pursuant to a written
separation agreement. For purposes of this Agreement, in the case of Quindeca
Corporation as a Shareholder and in the case of a Shareholder which is not a
natural person, does not have its equity securities traded on an established
public market and beneficially owns Shares constituting more than 10% of the
total assets of the Shareholder as shown on its balance sheet after acquisition
of the Shares when prepared in accordance with generally accepted accounting
principles as then in effect, "disposition" and "disposed of" include a change
in control of Quindeca Corporation or that Shareholder, whether through a
merger, consolidation, reorganization or a sale of substantially all assets.
For purposes of this Agreement, "disposition" and "disposed of" do not include a
change in control of (a) Daily Journal Corporation, (b) another entity that
becomes a Shareholder and has its equity securities traded on an established
public market, or (c) an entity that becomes a Shareholder and beneficially owns
Shares constituting 10% or less of the total assets of that Shareholder as shown
on its balance sheet after acquisition of the Shares when prepared in accordance
with generally accepted accounting principles as then in effect, whether through
a merger, consolidation, reorganization or a sale of substantially all assets,
whether or not Daily Journal Corporation or such Shareholder is the surviving
Person, so long as any Person into which Daily Journal Corporation or such other
Shareholder is merged, or any Person formed by any such consolidation, or any
Person to whom Daily Journal Corporation or such other Shareholder sells assets
which include all or any part of the Shares previously held by Daily Journal
Corporation or such other Shareholder accepts the terms and conditions of this
Agreement by executing and delivering a Statement of Acceptance in the form
attached hereto as Exhibit A.
"Original Signatory Party" means each of the four original parties to this
Agreement (excluding the Company) as of January 22, 1999.
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"Permitted Transferee" means (a) an Original Signatory Party, (b) the
spouse, children (by blood or adoption) or other descendants (by blood or
adoption) of an Original Signatory Party, (c) each trust, corporation,
partnership or other entity of which an Original Signatory Party beneficially
owns an 80% or more voting interest, (d) a transferee by will or intestacy, (e)
a transferee of a bona fide gift, (f) a transferee by disposition in an
involuntary manner without the consent of the holder of the Shares, including
without limitation dispositions under judicial order relating to bankruptcy, or
(g) any pledgee under a pledge that is made pursuant to a bona fide loan
transaction, provided that the term Permitted Transferee does not include any
pledgee or other Person acquiring Shares due to a default on the loan secured by
the pledge.
"Person" means any natural person, corporation, limited liability company,
partnership, trust or other entity.
"Shareholder" or, collectively, "Shareholders" shall mean each of the
Original Signatory Parties, as well as subsequent Shareholders who become
parties hereto in accordance with this Agreement, including the execution and
delivery of an instrument in the form attached hereto as Exhibit A.
"Shareholder" shall also mean any successors or assigns of any signatory party
in interest or power with respect to any Shares owned beneficially now or in the
future by any signatory party and any subsequent successors or assigns with
respect to any such Shares; provided, however, that no succession or assignment
shall be deemed to be permitted under this Agreement by virtue of this
definition.
"Shares" means any and all shares of Common Stock of the Company; any and
all other equity or voting securities of the Company; any equity or voting
securities of the Company for or into which such Common Stock or such other
securities (or any successor equity or voting security) is exchanged,
reclassified or converted; any options, warrants or other securities which may
be converted into or carry rights to acquire equity or voting securities of the
Company; and any right or interest with respect thereto.
Article 2.
Restrictions on Disposition of Shares
Section 2.1 Restriction. The Shareholders shall not make or attempt to
make a disposition of any Shares owned beneficially now or in the future, unless
in compliance with the terms and conditions of this Agreement.
Section 2.2 Effect. The restrictions, terms and conditions of this
Agreement shall remain in effect as to all Shares owned beneficially now or
acquired in the future by a Shareholder, whether or not disposed of in
accordance with the terms and conditions of this Agreement and whether or not
the Shares are in the hands of an original Shareholder or a subsequent
Shareholder, including a Permitted Transferee, regardless of how or when
acquired. No disposition of such Shares shall in any way enlarge or limit any
rights or obligations under this Agreement.
Section 2.3 Statement of Acceptance. No disposition of Shares shall be
effective unless in compliance with this Agreement and unless and until the
proposed transferee, including a Permitted Transferee and the Transferee's
spouse (if any), shall accept the terms and conditions of this Agreement by
executing and delivering a Statement of Acceptance in the form attached hereto
as Exhibit A. '
Section 2.4 Company's Role. The Company shall not transfer or reissue any
of the Shares in violation of this Agreement or without proof of compliance with
this Agreement, and the Company shall not transfer or reissue any of the Shares
except as the same shall be made subject to this Agreement
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<PAGE>
by acceptance of the terms and conditions hereof by a proposed transferee or
recipient, by executing and delivering a Statement of Acceptance in the form
attached hereto as Exhibit
A.
Section 2.5 Legend. The Company and Shareholders shall cause any
certificates for Shares subject to this Agreement to be endorsed substantially
as follows:
"Notice of Restrictions on Disposition
This certificate and the shares of stock represented thereby are subject
to the provisions of a Shareholders Agreement dated as of January 22,
1999, (as it may be amended from time to time) whereby the disposition of
such shares of stock or any interest therein is restricted. A copy of
said Agreement is on file at the registered office of the Company where
it may be inspected."
Further, the Company shall cause all certificates evidencing Shares which are
transferred or reissued subsequent to the execution of this Agreement to be
endorsed with said notice.
Section 2.6 Offer to Company and Shareholders. Except for a disposition
to a Permitted Transferee, if a Shareholder (the "Transferring Shareholder")
desires to dispose of any of the Shareholder's Shares (those Shares proposed to
be disposed of called the "Available Shares"), the Transferring Shareholder
shall first offer all Available Shares to the Company and the other Shareholders
by written notice (the "Initial Notice") stating the Shares which the
Transferring Shareholder desires to dispose of and the proposed price (expressed
in dollars) and terms of disposition (which shall be for cash payable upon the
transfer). The Company and each of the other Shareholders shall then have 30
days within which to give notice (the "Return Notice") of the maximum number of
Available Shares they wish to acquire at the specified price and terms. Copies
of each Return Notice shall be sent to the Company, to the Transferring
Shareholder and to each other Shareholder. '
The Company shall be entitled to purchase any or all of the Available
Shares, subject to the requirement that all Available Shares must be acquired by
the Company and other Shareholders in order for the offer of the Transferring
Shareholder to be accepted. If the Company elects to purchase fewer than all of
the Available Shares, each Shareholder (other than the Transferring Shareholder)
shall be entitled to acquire a pro rata portion of the balance of the Available
Shares remaining. Pro rata portion for this purpose means the number of shares
each Shareholder electing to purchase Available Shares owns as compared to the
number of Shares owned by all Shareholders electing to purchase the Available
Shares.
Section 2.7 Payment. The Company shall, at the close of the 30-day period
provided in Section 2.6 for delivery of the Return Notice, confirm by notice the
Available Shares to be acquired by each Shareholder and by the Company. Payment
for the Available Shares shall be delivered within 30 days thereafter at the
price and on the terms specified in the Initial Notice, against receipt from the
Transferring Shareholder of certificates for the Available Shares purchased,
duly endorsed for transfer, free and clear of all liens, restrictions, claims
and encumbrances, except as provided in this Agreement and under applicable
securities laws.
Section 2.8 Right to Sell. If, at the close of the 30-day period provided
in Section 2.6 for delivery of the Return Notice, the Company and the other
Shareholders have not sent notice of their intention to acquire, in the
aggregate, all of the Available Shares, the Transferring Shareholder shall have
90 days to dispose of the Available Shares specified in the Initial Notice at
the price and on the terms set forth in the Initial Notice, or at a higher price
than the price specified therein. After the expiration of 90
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<PAGE>
days, the Transferring Shareholder may not dispose of such Shares unless and
until they are again offered to the Company and the other Shareholders under the
procedures specified in Sections 2.6 through 2.8, where applicable.
Section 2.9 Permitted Transferees. Each Shareholder shall have the right
to dispose of all or any part of his or her Shares to a Permitted Transferee in
compliance with the terms of Sections 2.2, 2.3 and 2.5 and the other Articles of
this Agreement.
Article 3.
Co-Sale Rights
Section 3.1 Additional Rights. If any Shareholder or Shareholders desire
to dispose of Shares representing more than 50% of the outstanding Shares of the
Company, then this Article 3 shall apply to those transactions and Sections 2.6
through 2.8 above, concerning a right of first offer, shall not apply to the
proposed dispositions.
Section 3.2 Tag-Along Rights.
(a) Except for a disposition to a Permitted Transferee, no Shareholder
or Shareholders desiring to dispose of Shares representing more than 50% of the
outstanding Shares shall, in any one transaction or series of transactions,
dispose of or accept an offer to dispose of Shares unless (i) such transferring
Shareholder(s) (the "Subject Shareholder") shall have received a bona fide offer
for the acquisition of the Shares and (ii) the bona fide offer includes an offer
to each nontransferring Shareholder (at its option) to purchase, on the same
terms and conditions as have been extended to the Subject Shareholder, the Tag-
Along Shares held by such nontransferring Shareholder. For purposes of this
Agreement, "Tag-Along Shares" shall mean the number of Shares obtained by
multiplying the number of Shares held by a nontransferring Shareholder as of the
date of the transfer notice by a fraction, the numerator of which is the number
of Shares proposed to be disposed of by the Subject Shareholder and the
denominator of which is the total number of Shares held by the Subject
Shareholder. A transfer notice must be given by the Subject Shareholder to the
nontransferring Shareholders and the Company at least 30 days in advance of the
proposed disposition which: (i) sets forth such Subject Shareholder's intention
to dispose of its Shares; (ii) specifies the consideration to be received by the
Subject Shareholder in exchange for such Shares; (iii) indicates the number of
Shares proposed to be disposed of in such transaction or series of related
transactions; (iv) identifies the name and address of the proposed transferee;
(v) indicates the date on which the proposed transfer is to occur; and (vi)
includes a copy of the bona fide offer (and any related correspondence
reasonably necessary to understand and evaluate such bona fide offer). The
Subject Shareholder shall also provide additional information reasonably
requested by other Shareholders with respect to the proposed disposition. Any
nontransferring Shareholder may elect to accept the offer to purchase included
in the bona fide offer for the Tag-Along Shares by providing written notice of
its acceptance of such offer to each of the Company, the proposed transferee and
the other Shareholders, on or prior to the 30th day after the delivery of the
transfer notice (which transfer by such Shareholder shall not be subject to
Sections 2.6 through 2.8). If, within 30 days after the receipt of a transfer
notice, a nontransferring Shareholder has not accepted the offer to purchase
included in the bona fide offer, such nontransferring Shareholder shall be
deemed to have waived any and all rights with respect to the sale or other
disposition of Shares described in the transfer notice. '
(b) In the event that the nontransferring Shareholders do not accept the
offer from a proposed transferee as specified in Section 3.2(a), the proposed
transferee may purchase from the Subject Shareholder or
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<PAGE>
Shareholders the number of Shares of such Shareholders set forth in the transfer
notice.
(c) In the event that any nontransferring Shareholder elects to accept
the offer from such proposed transferee, the proposed transferee shall purchase
from the Subject Shareholder the number of Shares set forth in the transfer
notice and from each electing nontransferring Shareholder its Tag-Along Shares.
Section 3.3 Bring-Along Rights.
(a) In the event that one or more Shareholders determine to dispose of
Shares representing more than 50% of the outstanding Shares (the "Sellers") to a
third Person that is not a Permitted Transferee (a "Buyer") pursuant to a bona
fide offer (a "Sale"), each of the other Shareholders shall be obligated to and
shall upon the written request of the Sellers: (i) sell, transfer and deliver,
or cause to be sold, transferred and delivered, to the Buyer, his or her Shares,
on the same terms and conditions applicable to the Sellers (with appropriate
adjustments to reflect the relative preferences and priorities of the Shares);
and (ii) execute and deliver such instruments of conveyance and transfer and
take such other actions, including voting such Shares in favor of any Sale
proposed by the Sellers and executing any agreements or related documents, as
the Sellers or the Buyer may reasonably require in order to carry out the terms
and provisions of this Section 3.3.
(b) Not less than 30 days prior to the date proposed for the closing of
any Sale, the Sellers shall give written notice to the other Shareholders,
setting forth the information required in Section 3.2(a) and stating the
interest of the Sellers to exercise their rights pursuant to this Section 3.3.
The Sellers shall provide any additional information reasonably requested by
other Shareholders with respect to the Sale.
Article 4.
Preemptive Rights
Section 4.1 Notice of Issuance. The Company will give each Shareholder at
least 20 days prior written notice of any proposed sale or issuance by the
Company of any Shares, except for Exempt Issuances (as defined below). The
notice will identify the Shares to be issued, the approximate date of issuance,
and the price and other terms and conditions of the issuance. The notice will
also include an offer (the "Offer") to transfer to each Shareholder its
Proportionate Percentage (as defined below) of such Shares (the "Offered
Securities") at the price and on the other terms as are proposed for such sale
or issuance. The Offer by its terms shall remain open for a period of 15 days
from the date of receipt of such notice and may be accepted by any Shareholder
in the Shareholder's sole discretion. The Offer will also specify each
Shareholder's Proportionate Percentage.
Section 4.2 Acceptance. Each Shareholder shall give notice to the Company
of the Shareholder's intention to accept an Offer prior to the end of the 15-day
period of the Offer, setting forth the portion of the Offered Securities which
the Shareholder elects to purchase and specifying the maximum number of
additional Shares the Shareholder is willing to purchase if any other
Shareholder declines to purchase all of the other Shareholder's Offered
Securities. If any Shareholder fails to subscribe for that Shareholder's
Proportionate Percentage of the Offered Securities, the other subscribing
Shareholders shall be entitled to purchase Offered Securities as are not
subscribed for by such Shareholder, up to the number of additional Shares
specified in their notice in the same relative proportion in which they were
initially entitled to purchase the Offered Securities. The Company shall notify
each Shareholder within five days following the expiration of the 15-day period
described above of the additional amount of Offered Securities
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<PAGE>
which each Shareholder may purchase pursuant to the foregoing sentence and each
Shareholder shall then have five days from the delivery of such notice to
indicate such additional amount, if any, that the Shareholder wishes to
purchase.
Section 4.3 Sale to Shareholders. Upon the closing of any sale or
issuance as to which the Company has given notice under Section 4.1, each of the
Shareholders shall purchase from the Company, and the Company shall sell to the
Shareholder, the Offered Securities subscribed for by the Shareholder at the
price and on the terms specified in the Offer, which shall be the same price and
terms at which all other Persons acquire such Shares in connection with such
sale or issuance.
Section 4.4 Sale to Third Parties. If, but only if, the Shareholders do
not subscribe for all of the Offered Securities, the Company shall have 150 days
from the end of the foregoing 15- or five-day period, whichever is applicable,
to sell all or any part of such Offered Securities as to which Shareholders have
not accepted an Offer to any other Persons, at a price and on terms and
conditions which are no more favorable to such other Persons or less favorable
to the Company than those set forth in the Offer. Any Offered Securities not
purchased by the Shareholders or other Persons in accordance with Section 4.3
and Section 4.4 may not be sold or otherwise disposed of until they are again
offered to the Shareholders under the procedures specified in this Article 4.
Section 4.5 Exempt Issuances; Proportionate Percentage. As used in this
Article, "Exempt Issuances" means (a) the issuance of any Shares to any
employees of the Company or any wholly-owned subsidiary of the Company, (b) the
issuance of any Shares to satisfy any option or warrant rights, conversion
rights or other outstanding rights to acquire any Shares as to which rights the
Company complied with provisions of this Article 4 or was not required to comply
with those provisions, and (c) the issuance of any Shares sold for other than
money. "Proportionate Percentage" of a Shareholder means a fraction of which
(a) the numerator is the number of then outstanding shares of Common Stock held
by such Shareholder and (b) the denominator is the total number of then
outstanding shares of Common Stock.
Article 5.
Transactions with Affiliates
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Neither the Company nor any entity of the Company of which the Company owns
beneficially more than 50% of the outstanding voting or equity securities will
enter into any transaction, including without limitation, the purchase, sale or
exchange of property or the rendering of any service, with any Affiliate of the
Company, except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such controlled entity's business and upon
commercially reasonable terms no less favorable to the Company or such
controlled entity than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate. No party to this Agreement may
bring any claim against the Company or any Affiliate of the Company alleging a
breach of this Article 5, or recover any damages or require specific performance
therefor, if either (a) the party previously approved in writing the transaction
giving rise to such claim after receiving written notice of the transaction and
its material terms and having subsequently being given a reasonable opportunity
to question management of the Company regarding the terms of the transaction, or
(b) such claim is brought more than one year after the later to occur of (i) the
first transaction giving rise to such claim or (ii) the delivery of written
notice to the party specifying the material terms of the transaction. The
delivery of monthly or quarterly financial statements (prepared as indicated
below) or annual financial statements of the Company (prepared in accordance
with generally accepted accounting principles as then in effect) shall
constitute written notice of material terms of a transaction shown in the
financial statements or allocations reflected in the financial statements, so
long as the receiving party is given a reasonable opportunity to question
management of the Company regarding the terms and other details of the
transaction or allocations. The monthly or quarterly financial statements that
constitute written notice may be prepared either (a) in accordance with
generally accepted accounting principles as then in effect or (b) if annual
financial statements of the Company are prepared for the fiscal year containing
such month or quarter in accordance with generally accepted accounting
principles as then in effect, then in accordance with the Company's books and
records. This Article 5 shall not apply to corporate wide programs and plans of
the Daily Journal Corporation (for example, health plans) applicable on the same
or substantially the same terms and conditions to the Daily Journal Corporation
and generally its Affiliates. This Article 5 is also effective only as to and
shall only benefit Michael W. Payton, Terence E. Hahm and Quindeca Corporation
and shall not benefit any of their successors, assigns or transferees (including
Permitted Transferees).
Article 6.
Specific Enforcement
Because of the unique relationship of the Shareholders in the Company and
the unique value of their Shares, in addition to any other remedies for breach
hereof, this Agreement shall be specifically enforceable.
Article 7
Notices
All notices required or permitted to be given or made pursuant to this
Agreement shall be in writing and shall be deemed given when delivered in
person, by overnight delivery service, or by express or certified mail, with
postage or other charges prepaid, to the parties at the addresses set forth
below their signatures to this Agreement, or such other addresses as may from
time to time be designated by notice hereunder.
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Article 8.
Term
This Agreement shall continue in effect until the occurrence of any one of
the following events, whichever is first to occur:
(a) cessation of the Company's business;
(b) the insolvency, bankruptcy, receivership or dissolution of the
Company;
(c) the voluntary written agreement by all Original Signatory Parties or
by the voluntary written agreement of the Shareholders who hold all outstanding
Shares subject to the terms and conditions of this Agreement;
(d) the closing of an underwritten public offering of Common Stock of the
Company made pursuant to a registration statement filed by the Company and
effective under the Securities Act of 1933 or any successor law; or
(e) 21 years after the last death of the Original Signatory Parties who
are natural persons.
Article 9.
Miscellaneous
Section 9.1 Entire Agreement; Binding Effect. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof,
and supersedes all prior negotiations or agreements, whether written or oral.
This Agreement shall be binding upon and inure to the benefit of the parties,
their heirs, personal representatives, successors and assigns.
Section 9.2 Amendment. This Agreement may be amended only by a writing
signed by all then parties.
Section 9.3 Assignment. The rights and obligations of the parties
pursuant to this Agreement may not be assigned without the express written
consent of all other parties.
Section 9.4 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Virginia or, if and when
the Company shall reincorporate in any other state, the laws of such state.
Section 9.5 Counterparts. This Agreement may be executed in counterparts,
in which case all such counterparts shall constitute one and the same agreement.
Section 9.6 Attorneys' Fees. In any action at law or in equity to enforce
any of the provisions or rights under this Agreement, the unsuccessful party or
parties to such litigation, as determined by the court in a final judgment or
decree, shall pay the successful party or parties all costs, expenses and
reasonable attorneys' fees incurred by the successful party or parties,
including, without limitation, such costs, expenses and fees on any appeals. If
the successful party or parties shall recover judgment in any action or
proceeding, its costs, expenses and attorneys' fees shall be included as part of
such judgment.
Section 9.7 Enforceability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable, all other
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provisions shall be given effect separately therefrom and shall not be affected.
EXECUTED as of the date first written above.
CHOICE INFORMATION SYSTEMS, INC.
By:
Name:
Title:
Address:
/s/ Michael W. Payton
Address:
/s/ Terence E. Hahm
Address:
QUINDECA CORPORATION
By: /s/ Jerry L. Short
Name: Jerry L. Short
Title: President
Address:
DAILY JOURNAL CORPORATION
By: /s/ Gerald L. Salzman
Name: Gerald L. Salzman
Title: President
Address:
On the date of the foregoing Agreement, each of the undersigned, being the
spouse of a Shareholder who signed the foregoing Agreement, has read and hereby
approves of and agrees to the terms and conditions of this Agreement, and
consents to each of the transactions contemplated thereby, including but not
limited to the restrictions against the transfer of the Shareholder's
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Shares, including transfers related to a marital dissolution and including any
community property interest of such spouse in any Shares.
/s/ Amy Louise Payton
Address:
/s/ Suzanne Marie Hahm
Address:
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Exhibit A
STATEMENT OF ACCEPTANCE
Reference is made to the Shareholders Agreement effective as of January 22, 1999
as it may be amended from time to time (the "Agreement"), by and among certain
Shareholders of Choice Information Systems, Inc., a Virginia corporation, and
said Company. As a proposed recipient of Shares covered by the Agreement, the
undersigned hereby agrees that such Shares upon receipt shall remain subject to
all of the terms and conditions of the Agreement and all rights and obligations
thereunder arising prior to such receipt, that upon such receipt the undersigned
shall be deemed automatically to have accepted all of the terms and conditions
of the Agreement and that the undersigned shall thereafter be deemed to be a
signatory party to the Agreement in the position of one of the Shareholders. It
is understood that the executed Statement of Acceptance shall be attached to the
Agreement and shall form a part thereof without any further action.
Dated:
SPOUSAL CONSENT
The undersigned is a spouse of the person executing the above Statement of
Acceptance. The undersigned approves of and agrees to the Statement of
Acceptance and accordingly also approves of and agrees to the terms and
conditions of the Agreement, including but not limited to restrictions against
the transfer of Shares, including transfers related to a marital dissolution and
including any community property interest of the undersigned in any Shares.
12
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EXHIBIT 99.1
DAILY JOURNAL CORPORATION
355 South Grand Avenue, 34th Floor
Los Angeles, California 90071-1560
DAILY JOURNAL CORPORATION INVESTS IN CHOICE INFORMATION SYSTEMS, INC.
For Immediate Release
Wednesday, January 27, 1999
LOS ANGELES - Daily Journal Corporation (Nasdaq:DJCO) has invested a total of
$6.67 million (a) to purchase 80% of the capital stock of CHOICE Information
Systems, Inc. from CHOICE and certain of its shareholders, (b) to cause CHOICE
to purchase substantially all of the assets of QUINDECA Corporation, the
consulting and implementation arm of CHOICE, and (c) to leave approximately $4
million in working capital at CHOICE immediately following these transactions.
In addition, CHOICE has entered into employment agreements with the principal
owners of CHOICE and QUINDECA, and these officers will continue to own 20% of
CHOICE.
CHOICE provides the SUSTAIN(R) family of products which consist of technologies
and applications to enable justice agencies to automate their operations. The
latest product released from CHOICE is the SUSTAIN(R) eCourt(TM) system which is
an electronic commerce platform for the justice community and allows users to
file cases electronically and publish information on-line. CHOICE has
installations in nine states and three countries, and many of its clients have
more than a decade of experience with the SUSTAIN(R) product line. In December
1997, Microsoft Corporation announced a strategic alliance with CHOICE to
promote electronic commerce in the justice community using the SUSTAIN(R)
eCourt(TM) product.
CHOICE installations include the Napa Superior Court and Los Angeles Superior
Court in California and the Gwinnett County Court in Georgia, all of which
license the SUSTAIN(R) Justice Edition(TM) and the SUSTAIN(R) eCourt(TM)
products. In addition, the Metropolitan Toronto Court in Canada has been
pioneering the use of the SUSTAIN(R) eCourt(TM) product for more than 18 months.
This project has resulted in the ability for lawyers to conduct business
electronically with the Court and to create an "electronic court record". In
November 1998, the Santa Barbara County Trial Courts in California became the
newest licensee of SUSTAIN(R).
Daily Journal is primarily a gatherer and distributor of information through its
publications, including the Los Angeles Daily Journal, the San Francisco Daily
Journal, California Lawyer magazine, and specialized information services.
1
