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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): September 1, 1998
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SVI Holdings, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation)
0-23049 84-1131608
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(Commission File Number) IRS Employer Identification No.)
7979 Ivanhoe Avenue, Suite 500, La Jolla, California 92037
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(Address of Principal Executive Offices) (Zip Code)
(619) 551-2365
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(Registrant's telephone number, including area code)
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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 September 1, 1998, SVI Holdings, Inc. ("SVI") completed an acquisition of
Applied Retail Solutions, Inc. ("ARS"), a San Diego based company specializing
in point of sale ("POS") software systems. The acquisition was accomplished via
a merger with and into a newly formed, wholly-owned subsidiary of SVI. ARS's
"Retail Solutions Package" is installed in over 4,000 locations world-wide. The
package utilizes an open architecture and is designed to work in a client-server
environment. The merger was effective as of July 1, 1998.
Under the merger, the former shareholders of ARS received 1,000,000 shares of
SVI common stock. 500,000 shares are held in escrow ("the Escrowed Shares") and
are subject to return to SVI if the sum of (X) the net profits of ARS for the
twelve months ended March 31, 1999, and (Y) the amount of after-tax run time
license fees earned by ARS during the twelve months ended March 31, 2000, is
less than $750,000. If the sum of (X) and (Y) is less than $750,000, the number
of Escrowed Shares equal to one-half the dollar amount of the short-fall will be
returned to SVI.
If the sum of (X) and (Y) above is $750,000 or more, the Escrowed Shares will be
released from escrow to the former ARS shareholders, and these shareholders will
be entitled to additional merger consideration equal to the amount that the sum
of (X) and (Y) exceeds $750,000, multiplied by eight, up to a maximum of
$2,000,000. The additional consideration, if any, is to be paid in shares of SVI
common stock valued at the average market value of such shares during the thirty
day period immediately preceding the final calculation of the adjustment amount.
In connection with the merger, SVI also entered into employment agreements with
the two principals of ARS, Sam O. Pickard and Larry K. Lahodny. Mr. Pickard will
serve as President and Chief Executive Officer of SVI's new ARS subsidiary. Mr.
Lahodny will serve as Executive Vice President of the new ARS subsidiary. Each
of Mr. Pickard and Mr. Lahodny will be employed for a term ending March 31,
2000. SVI may terminate each respective employment agreement during the initial
term or thereafter on thirty days' notice after release of the portion of the
Escrowed Shares held for the employee or its affiliate. After the initial term,
each agreement may be terminated by SVI or by the employee any time with six
months' prior notice. Mr. Pickard and Mr. Lahodny have each agreed not to
compete with SVI in the retail POS software business for the terms of their
respective employment agreements and for four years after termination of
employment.
SVI paid Mr. Pickard $1,100,593 and Mr. Lahodny $825,412 for entering into their
respective employment agreements and for agreeing to the covenants not to
compete. Mr. Pickard and Mr. Lahodny will each be paid a salary of $190,000 per
year during the term of the agreements, and will each receive a standard
benefits package.
The consideration for the merger and the terms of the employment agreement were
negotiated at arms' length. In determining these terms, SVI considered, among
other factors: (i) the technology of ARS; (ii) ARS's client base; (iii) the
synergies between ARS and SVI's own POS operations (conducted through its
wholly-owned subsidiary Divergent Technologies Pty. Ltd., which develops and
sells retail POS software systems in Australia, New Zealand, southern Africa and
the Pacific Rim); (iv) the historical revenues of ARS; (v) the potential
contributions of Mr. Pickard and Mr. Lahodny to SVI's POS business; and (vi) the
trading range of SVI's common stock during the period of May 1998 through June
1998, when agreement was reached concerning the value of ARS in the acquisition.
The source of funds for the employment agreement payments was the working
capital of SVI.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a), (b) The required financial statements will be filed by amendment to
this Form 8-K on or before November 16, 1998.
(c) Exhibits
2.1 Agreement of Merger and Plan of Reorganization
2.2 Certificate of Merger
2.3 Employment Agreement of Sam Pickard
2.4 Employment Agreement of Larry Lahodny
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Date: September 15, 1998
SVI Holdings, Inc.
(Registrant)
By: /s/ David L. Reese
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David L. Reese
Chief Financial Officer
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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
by and among:
SVI Holdings, Inc.,
a Nevada corporation;
Applied Retail Solutions, Inc., a Delaware corporation;
Applied Retail Solutions, Inc.,
a California corporation; and
the Shareholders of Applied Retail Solutions, Inc.
named in this Agreement
Dated as of July 1, 1998
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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
THIS AGREEMENT OR MERGER AND PLAN OF REORGANIZATION (this "Agreement")
is entered into as of July 1, 1998 (the "Effective Date"), by and among SVI
Holdings, Inc., a Nevada corporation ("SVI"), Applied Retail Solutions, Inc., a
Delaware corporation ("Merger Sub"), Applied Retail Solutions, Inc., a
California corporation ("ARS"), Sam Pickard ("Pickard") and Larry Lahodny
("Lahodny") (collectively, the "Shareholders"). Certain other capitalized terms
used in this Agreement are defined in attached Exhibit A.
RECITALS
A. The Shareholders own all outstanding shares of capital stock of ARS
(the "ARS Securities").
B. Under the terms and subject to the conditions of this Agreement,
SVI, Merger Sub, ARS and the Shareholders intend to enter into a business
combination transaction such that ARS merges with and into a wholly-owned
subsidiary of SVI, Merger Sub.
C. The Boards of Directors of ARS and SVI (i) have determined that the
Merger (as defined in Section 1.2 below) is consistent with, and in furtherance
of, their respective long-term business strategies and fair to, and in the best
interest of, their respective stockholders and (ii) have approved this
Agreement, the Merger and the other transactions contemplated by this Agreement.
D. The Board of Directors of Merger Sub has approved this Agreement,
the Merger and the other transactions contemplated by this Agreement.
E. The parties to this Agreement (the "Parties") intend, by executing
this Agreement to adopt a plan of reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended.
F. The Parties desire to set forth certain representations, warranties
and covenants made by each to the other as an inducement to the consummation of
the transactions contemplated hereby.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth in this Agreement, and for
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
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SECTION 1 THE MERGER.
1.1 CLOSING. The closing (the "Closing") of the merger of ARS with and
into Merger Sub shall take place at the office of SVI's counsel, Solomon Ward
Seidenwurm & Smith, LLP, 401 B Street, Suite 1200, San Diego, California,
concurrently with the execution of this Agreement (the "Closing Date"). As
between the Parties, risk of loss and the benefits of ownership of the
consideration shall be transferred as of the Effective Date, notwithstanding any
delay in completing the ministerial act of filing the Certificate of Merger as
contemplated in Section 1.3 below.
1.2 THE MERGER. As of the Effective Date (as defined below) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of California General Corporation Law ("California Law") and Delaware
law, ARS shall be merged with and into Merger Sub (the "Merger"), the separate
corporate existence of ARS shall cease and Merger Sub shall continue as the
surviving corporation but with the legal name "Applied Retail Solutions, Inc."
Merger Sub as the surviving corporation after the Merger is sometimes referred
to as the "Surviving Corporation."
1.3 EFFECTIVE DATE; CLOSING. Subject to the provisions of this
Agreement, the Parties shall cause the Merger to be completed by filing a
Certificate of Merger of Applied Retail Solutions, Inc., a California
corporation and Applied Retail Solutions, Inc., a Delaware corporation with the
Secretary of State of the States of Delaware, California and, if necessary,
Nevada, in accordance with applicable law in the form attached as Exhibit B (the
"Certificate of Merger").
1.4 EFFECT OF THE MERGER. At the Effective Date, the effect of the
Merger shall be provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Date all the property, rights, privileges, powers and
franchises of ARS and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of ARS and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Date, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Date, shall be the Articles
of Incorporation of the Surviving Corporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Date, shall be, at the Effective Date, the Bylaws of the Surviving
Corporation until thereafter amended.
1.6 OFFICERS AND DIRECTORS. The officers and directors of the Surviving
Corporation as of the Effective Date are listed on attached Exhibit C.
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1.7 EFFECT ON CAPITAL STOCK. At the Effective Date, by virtue of the
Merger and without any action on the part of Merger Sub, ARS or the holders of
any of the securities described below; each share of common stock of the ARS
Securities issued and outstanding immediately prior to the Effective Date will
be automatically converted into the right to receive a pro rata portion of the
Merger Consideration (as defined in Section 1.8 below) in accordance with the
Schedule of Shareholders set forth on attached Exhibit D (the "Schedule").
1.8 MERGER CONSIDERATION. The merger consideration ("Merger
Consideration") payable by SVI at Closing shall be as follows:
(a) One million (1,000,000) shares of common stock of SVI (the
"Consideration Shares") to be delivered at the Closing in accordance with the
Schedule. Five hundred thousand (500,000) Consideration Shares (the
"Escrowed Shares") shall be held in escrow pursuant to Section 1.15 below,
pending computation of the Adjustment Amount in accordance with Sections 1.12
and 1.13 below. The Consideration Shares and any other SVI shares to be issued,
if any under this Agreement, shall not be transferable for a period of one year
from the Closing and shall thereafter not be transferable except upon the
conditions specified in this Section 1.8, which conditions are intended to
ensure compliance with the provisions of this Agreement, the Securities Act and
other applicable laws. Each certificate representing any shares of the
Consideration Shares shall be stamped with a legend in the following form (in
addition to any legend required under applicable state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
HYPOTHECATED OR TRANSFERRED UNLESS (i) SUCH SALE, PLEDGE, TRANSFER OR
OTHER DISPOSITION IS MADE (a) IN CONFORMITY WITH THE REQUIREMENTS OF
RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933 (the "Act"), OR
(b) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
APPROPRIATE EXEMPTION FROM REGISTRATION, AND (ii) THE HOLDER OF THE
SHARES DELIVERS TO SVI HOLDINGS, INC., A NEVADA CORPORATION, A WRITTEN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO SVI IN FORM AND SUBSTANCE,
THAT SUCH SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM
REGISTRATION UNDER THE ACT."
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AS SET FORTH
IN AN AGREEMENT OF MERGER AND PLAN OF REORGANIZATION BETWEEN SVI
HOLDINGS, INC. AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION."
ARS shall cause any permitted transferee hereunder to agree to take and hold the
Consideration Shares subject to the provisions and upon the conditions specified
in this Section 1.8. Similar stop-transfer notices shall be entered on the stock
transfer books of SVI.
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(b) In addition to the Consideration Shares described in Section
1.12 below, the Shareholders shall be entitled to receive additional
consideration for the Merger if the Adjustment Amount determined in accordance
with Sections 1.12 and 1.14 below is a positive number.
1.9 SURRENDER OF CERTIFICATES; DELIVERY OF MERGER CONSIDERATION. At the
Closing (a) the Shareholders shall deliver to SVI the certificates representing
the ARS Securities (the "Certificates"), and (b) SVI shall deliver to the
Shareholders the Merger Consideration due at Closing in accordance with the
Schedule.
1.10 TAX CONSEQUENCES. It is intended by each of the Parties that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code, and each of the Parties will use its commercially reasonable efforts
to cause the Merger to be treated as such a reorganization. The Parties adopt
this Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations. Each
party shall seek the advice of such party's counsel or financial advisor
regarding the ability of the Merger to qualify as such a reorganization.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Date, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of ARS and Merger Sub, the Shareholders and officers and
directors of ARS and Merger Sub will, at the Shareholders' expense, take all
such lawful and necessary action. SVI shall cause Merger Sub to perform all of
its obligations relating to this Agreement and the transactions contemplated
thereby.
1.12 ADJUSTMENT AMOUNT.
(a) The "Adjustment Amount" shall be the result obtained (expressed
in dollars) by adding (x) representing Post-Closing Profits (as defined below)
to (y) representing Run Time Fees (as defined below) and subtracting $750,000
from the sum of (x) plus (y). Expressed mathematically, the Adjustment Amount
equals (x) + (y) - $750,000.
(b) The term "Post-Closing Profits" shall mean the Net Profits of
ARS and the Surviving Corporation for the 12-month period ended March 31, 1999
computed in accordance with GAAP (except as specified in this Section 1.12(b))
less the amount of federal and California state income taxes ("Taxes") payable
by the Surviving Corporation with respect to such Net Profits. In determining
"Net Profits" of ARS and the Surviving Corporation and taxes on such Net
Profits, the following rules shall apply:
(i) Only the income and expenses of ARS and the Surviving
Corporation shall be considered, and no income or expenses of any member of the
consolidated group of which the Surviving Corporation is a member shall be taken
into account.
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(ii) No deduction shall be taken for depreciation or
amortization of any intangible assets (including, without limitation, any
non-compete agreements and the amount of $2 million in the aggregate payable to
the Shareholders under their respective Employment Agreements) or goodwill of
ARS acquired by the Surviving Corporation in connection with the Merger.
(iii) No deduction shall be taken for the $73,995 paid or
payable by ARS or the Surviving Corporation to former holders of stock options
with respect to ARS stock.
(iv) No deduction shall be taken with respect to the fees
and costs incurred by ARS and/or the Surviving Corporation for accounting
expenses in connection with the audits prepared by ARS for the years ended March
31, 1996, March 31, 1997 and March 31, 1998 or for the fees of legal counsel
incurred by ARS and/or the Shareholders and the Surviving Corporation in
connection with the Merger providing such amounts were accrued by ARS prior to
the Effective Date.
(v) The "Taxes" on ARS' or the Surviving Corporation's Net
Profits and the Run Time Fees (defined in Section 1.12(c) below) will be
determined by applying to such Net Profits and Run Time Fees a tax rate which is
the actual combined federal and California state income tax rates (after taking
a deduction for California taxes) applicable to the taxable income of ARS or the
Surviving Corporation for the year ended March 31, 1999 with respect to Net
Profits and March 31, 2000 with respect to Run Time Fees.
(vi) Any licensing of technology to or by an Affiliate of
SVI shall be paid or otherwise recognized as it would if such transaction was
negotiated at arms length with a distributor having regard to the distributors
contribution with respect to marketing, installation, implementation and
customer support.
(c) DEFINITION AND CALCULATION OF RUN TIME FEES. The term "Run Time
Fees" means the gross amount of fees received by the Surviving Corporation from
March 31, 1999 to March 31, 2000, as consideration for license agreements or
similar agreements entered into by the Surviving Corporation in the normal
course of business during the period between the Closing Date and March 31,
1999, less Taxes (as defined in Section 1.12(b)(v) above) with respect to such
Run Time Fees providing that Run Time Fees shall not include any fees or income
included in Post-Closing Profits.
1.13 ADJUSTMENT PROCEDURES.
(a) The Chief Financial Officer of the Surviving Corporation, under
the supervision and direction of Larry Lahodny and Sam Pickard, shall make the
computations of both Post-Closing Profits and Run Time Fees. The computation of
Post-Closing Profits shall be made as soon as possible after March 31, 1999, and
in no event later than May 31, 1999, and the computation of Run Time Fees shall
be made as soon as possible after March 31, 2000, but in no event later than May
31, 2000. The calculations of Post-Closing Profits and Run Time Fees shall be
submitted to SVI's certified public accountants (the "Accountants") together
with the Surviving Corporation Chief Financial Officer's work papers and other
documents utilized in making the computations of Post-Closing Profits and Run
Time Fees.
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(b) The Accountants shall have 60 days after receipt of the
computation of the Post-Closing Profits or the Run Time Fees, as the case may
be, to audit such computations. No later than 60 days after the receipt of each
such computation, the Accountants shall deliver to all parties to this Agreement
a letter (the "Accountants' Letter") stating whether they agree or disagree with
the computation of Post-Closing Profits or Run Time Fees, as the case may be. If
the Accountants disagree with the computation of Post-Closing Profits or Run
Time Fees, as the case may be, the Shareholders shall have 60 days from the day
of their receipt of the Accountants' Letter within which to determine whether to
accept the Accountants' conclusions, as set forth in the Accountants' Letter, or
to submit the issue of calculation of Post-Closing Profits or Run Time Fees, as
applicable, to a neutral independent certified public accountant (the "Neutral
CPA").
(c) If the Shareholders elect to submit the determination of
Post-Closing Profits or Run Time Fees to a Neutral CPA, they will deliver notice
of such election to SVI no later than 60 days after the date the Shareholders
receive the Accountants' Letter. The Shareholders, on the one hand, and SVI, on
the other hand, shall then immediately begin good faith negotiations in an
attempt to reach agreement on the identity of the Neutral CPA. If, after
negotiating for 15 days, SVI and the Shareholders have not reached agreement on
the appointment of a Neutral CPA, then either the Shareholders, on one hand, or
SVI, on the other hand, may petition the Presiding Judge of the Superior Court
of San Diego County for the appointment of a Neutral CPA in accordance with the
procedures for filing a petition to compel arbitration.
(d) The Neutral CPA shall review Sections 1.8 and 1.12 of the
Agreement, the computation of the Post-Closing Profit or Run Time Fees, as the
case may be, prepared by the Chief Financial Officer of the Surviving
Corporation and any comments on or objections to such computations set forth in
the Accountants' Letter. The Neutral CPA may interview the Shareholders and one
of the Accountants solely for the purpose of clarifying any matters that are not
clear to the Neutral CPA from the documents submitted to him. The Neutral CPA
will then determine whether the computation of Post-Closing Profits or Run Time
Fees produced by the Chief Financial Officer of the Surviving Corporation
accurately reflects the calculations required under this Section 1.13 or whether
the modifications to such computations set forth in the Accountants' Letter
should be adopted. The Neutral CPA shall not produce his own computations of the
Post-Closing Profits or Run Time Fees, as the case may be. The Neutral CPA shall
render a decision in writing regarding the computation of Post-Closing Profits
or Run Time Fees, as the case may be, within 15 days after the date that the
matter is first submitted to him for determination. The determination of the
Neutral CPA shall be final and binding on all parties to this Agreement for all
purposes in which the computation of Post-Closing Profits and/or Run Time Fees
is relevant.
1.14 IMPLEMENTATION OF ADJUSTMENTS RESULTING FROM ADJUSTMENT AMOUNT
CALCULATION.
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(a) After the Adjustment Amount is determined in the manner set
forth above, written notice of the Adjustment Amount shall be delivered by the
Chief Financial Officer of the Surviving Corporation to the Escrow Agent (as
defined in Section 1.15 below) under the Escrow Agreement (as defined in Section
1.15 below). The Escrow Agent shall be authorized to act with respect to the
Escrowed Shares upon receipt of such written notice of the Adjustment Amount in
the following manner:
(i) If the Adjustment Amount is a negative number, the
Escrow Agent shall deliver to SVI such number of the Escrowed Shares as results
from multiplying the Adjustment Amount by 2 and dividing the product of such
multiplication by 4. Mathematically, this computation can be expressed as
follows:
Number of shares to be delivered to SVI = Adjustment Amount x 2/4
After the portion of the Escrowed Shares to be delivered to SVI has been
computed, as set forth above, and delivered to SVI, the remaining Escrowed
Shares shall be delivered to the Shareholders in the proportions set forth in
the Schedule.
(ii) If the Adjustment Amount is zero (0) or a positive
number, the Escrow Agent shall distribute all of the Escrowed Shares to the
Shareholders in the proportions set forth in the Schedule. Additionally, the
amount of such positive Adjustment Amount shall be multiplied by 8 to determine
the additional consideration for the Merger to be paid to the Shareholders (the
"Additional Consideration"). In no event, however, will the Additional
Consideration exceed $2,000,000. SVI shall pay the Additional Consideration in
the form of additional SVI common stock. The number of shares of SVI common
stock issued to the Shareholders shall be equal to the quotient obtained by
dividing the dollar amount of the Additional Consideration (to a maximum of $2
million) by the average selling price per share of SVI common stock as quoted on
the American Stock Exchange for the 30-day period ending on the date that the
final determination of the Additional Consideration is made. Any shares of SVI
common stock received by the Shareholders as Additional Consideration shall be
taken in the proportions set forth in the Schedule and shall be subject to the
limitations on transfer set forth in Section 1.8(a) of this Agreement. The
Shareholders' rights to receive Additional Consideration are not transferable
except to a trust described in Section 1.16.
1.15 ESCROW. SVI and ARS will enter into an escrow agreement in the
form of Exhibit E (the "Escrow Agreement") under the terms of which Chicago
Title Company, Park Camino Branch (the "Escrow Agent") shall hold the Escrowed
Shares in Escrow pending adjustment, if any, in accordance with Sections 1.12
and 1.14 above. Under the Escrow Agreement, the Shareholders shall receive a
distribution of the Escrowed Shares in an amount of shares which are equal to
the dollar amount of Post-Closing Profits as determined in accordance with
Sections 1.12 and 1.13 above on the basis that each dollar of Post-Closing
Profits shall equal two-thirds of one Escrowed Share to be released. Such
release of Escrowed Shares, if any, shall occur as soon as practicable after the
Post-Closing Profits have been determined.
1.16 SHARES HELD BY SHAREHOLDERS' TRUSTS. Any Consideration Shares,
Escrowed Shares or Shares delivered pursuant to Section 1.14(b) above may, at
the election of the Shareholders be delivered to a Shareholders' respective
trust, the beneficiary or beneficiaries of which are himself, his spouse and/or
his children. Any such transferee shall hold such Shares subject to this
Agreement as it applies to the Shares of such Shareholder.
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SECTION 2 REPRESENTATIONS AND WARRANTIES OF ARS AND THE SHAREHOLDERS. Except as
otherwise set forth in the "ARS Disclosure Schedule," ARS and the Shareholders
jointly and severally represent and warrant to SVI and Merger Sub as set forth
below.
2.1 ORGANIZATION. ARS is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has corporate
power and authority to carry on its business as it is now being conducted and as
it is proposed to be conducted. ARS is duly qualified or licensed to do business
and in good standing in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary, except where the
failure to qualify would not be material to ARS' business. The ARS Disclosure
Schedule contains a true and complete list of the locations of offices or
facilities of ARS and a true and complete list of all states in which ARS
maintains any employees. The ARS Disclosure Schedule contains a true and
complete list of all states in which ARS is duly qualified to transact business
as a foreign corporation. True and complete copies of ARS' articles of
incorporation and bylaws, as in effect on the date hereof and as to be in effect
immediately prior to the Closing, have been provided to SVI or its
Representatives.
2.2 CAPITALIZATION.
(a) The authorized capital stock of ARS as of the date of this
Agreement consists of Five Million (5,000,000) Common Shares. As of the date of
this Agreement, One Million Four Hundred Thousand (1,400,000) Common Shares of
ARS stock are issued and outstanding and held of record by the Shareholders as
set forth and identified in the Schedule.
(b) All of the outstanding shares of ARS Securities have been duly
authorized and are validly issued, fully paid and nonassessable. All outstanding
ARS Securities were issued in compliance with applicable securities laws. Except
for stock options issued to certain employees, which will be repurchased and
canceled by ARS prior to the Closing, and shall be of no force and effect on
Closing, and except as set forth in this Section 2.2, ARS does not have any
other shares of its capital stock issued or outstanding and does not have any
other outstanding subscriptions, options, warrants, rights or other agreements
or commitments obligating ARS to issue shares of its capital stock or other
securities.
2.3 POWER, AUTHORITY AND VALIDITY. ARS has the corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is a party and to carry out its obligations hereunder and thereunder.
Each Shareholder has full power and authority to enter into this Agreement and
the other Transaction Documents to which such Shareholder is a party and to
carry out his or her obligations hereunder and thereunder. The execution and
delivery of this Agreement and the Transaction Documents to which ARS is a party
and the consummation of the transactions contemplated herein and therein have
been duly authorized by the board of directors of ARS, and no other corporate
Proceedings are necessary to authorize this Agreement and the other Transaction
Documents. ARS is not subject to or obligated under any charter, bylaw or
contract provision or any license, franchise or permit, or subject to any order
or decree, which would be breached or violated by or in conflict with its
executing and carrying out this Agreement and the transactions contemplated
herein and under the Transaction Documents. No consent of any person who is a
party to a contract which is material to ARS' business, nor consent of any
governmental body, is required to be obtained on the part of ARS or the
Shareholders to permit the transactions contemplated herein and to continue the
business activities of ARS as previously conducted by ARS. This Agreement
constitutes, and the other Transaction Documents to which ARS and/or each
Shareholder is a party when executed and delivered by ARS and/or such
Shareholder, as the case may be, shall constitute, valid and binding obligations
of ARS and/or such Shareholder enforceable in accordance with their respective
terms, subject to the laws of insolvency and bankruptcy applicable to ARS and
general principles of equity.
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2.4 FINANCIAL STATEMENTS.
SVI has received copies of ARS' unaudited balance sheet as of June 30, 1998 and
statements of operations and shareholders' equity for the twelve-month period
then ended (collectively, the "ARS Interim Financials") and the audited balance
sheets as of June 30, 1998, for the year ended October 31, 1997, for the
five-month period ended March 31, 1998, and for the eight-month period ended
June 30, 1998.
(a) and statements of operations and shareholder's equity for the
one-year period then-ended (collectively, the "ARS Financial Statements").
(b) The ARS Financial Statements are complete and in accordance
with the books and records of ARS and present fairly in all material respects
the financial position of ARS as of their historical dates. The ARS Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except as set forth in any audit opinion delivered with the
ARS Financial Statements and except as to year-end adjustments, which are not
expected to be material) applied on a basis consistent with the periods ended
June 30, 1997 and June 30, 1996. GAAP may not have been used in all prior
periods. Except and to the extent reflected or reserved against in the balance
sheets specified above (including the notes thereto), ARS does not have, as of
the dates of such balance sheets, any liabilities or obligations (absolute or
contingent) of a nature required to be or customarily reflected in a balance
sheet (or the notes thereto) prepared in accordance with GAAP. The reserves, if
any, reflected on the ARS Financial Statements are adequate in light of the
contingencies with respect to which they are made. The statements of operations,
shareholder's equity and cash flow are complete and in accordance with the books
and records of ARS and present fairly the results of operations, equity
transactions and changes of ARS for the periods indicated.
(c) ARS has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the ARS Interim
Financials, except for those (i) that may have been incurred after June 30,
1998, (ii) that are not required by GAAP to be included in a balance sheet or
the notes thereto (except that ARS has not established any reserves with respect
to the costs and fees associated with this Agreement and the transactions
contemplated herein), or (iii) that would not individually or in the aggregate
have a Material Adverse Effect. All debts, liabilities, and obligations incurred
after the date of the ARS Financial Statements were incurred in the ordinary
course of business, and are usual and normal in amount, both individually and in
the aggregate.
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(d) The ARS Disclosure Schedule sets forth an accurate and complete
breakdown and aging of all accounts receivable, notes receivable, and other
receivables of ARS as of June 30, 1998. Except as set forth on the ARS
Disclosure Schedule all existing accounts receivable of ARS (including those
accounts receivable reflected on the ARS Interim Financials that have not yet
been collected and those accounts receivable that have arisen since March 31,
1998 that have not yet been collected) (i) represent valid obligations of
customers of ARS arising from bona fide transactions entered into in the
ordinary course of business and (ii) are current and, to the Knowledge of ARS,
no facts or circumstances exist which would provide any such customer with any
counterclaim or setoff.
(e) The inventories of materials and supplies shown on the ARS
Interim Financials consist of items of a quality and quantity usable and salable
in the ordinary course of business except for obsolete and slow-moving items and
items below standard quality, all of which have been written down to net
realizable market value or have been provided for by adequate reserves. All such
items of inventory are currently the property of ARS, except for sales made in
the ordinary course of business since June 30, 1998; and for each of these sales
either the purchaser has made full payment or the purchaser's liability to make
payment is reflected in the books of ARS. No items included in such inventories
have been pledged as collateral or are held by ARS on consignment from others.
The inventories shown on all balance sheets included in the ARS Interim
Financials and the ARS Financial Statements are based on quantities determined
by physical count or measurement and are valued at the lower of cost (determined
on an average cost basis) or market value and on a basis consistent with that of
prior years.
2.5 TAX MATTERS.
(a) ARS has fully and timely, properly and accurately filed all tax
returns and reports required to be filed by it, including all federal, foreign,
state and local tax returns and estimates for all years and periods (and
portions thereof) for which any such returns, reports or estimates were due. All
such returns, reports and estimates were prepared in the manner required by
applicable law in all material respects. All income, sales, use, occupation,
property or other taxes or assessments due from ARS prior to the Closing Date
have been paid or will be paid on or before the Closing Date. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid or reserved for. The reserves for taxes, if any, reflected on
the ARS Financial Statements are adequate, and there are no tax liens on any
property or assets of ARS (other than liens for taxes not yet due and payable).
There have been no audits or examinations of any ARS tax returns or reports by
any applicable governmental agency. No facts exist which would constitute
grounds for a disallowance of any deduction taken in any tax returns and reports
filed by ARS. To ARS' Knowledge, no facts exist or have existed which would
constitute grounds for the assessment of any penalty or any further tax
liability beyond that shown on the respective tax reports, returns or estimates.
There are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal, foreign, state or local tax return or
report for any period.
(b) All taxes which ARS has been required to collect or withhold
have been duly withheld or collected and, to the extent required, have been paid
to the proper taxing authority.
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(c) ARS is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has ARS been included in the federal consolidated
income tax return of any affiliated group of corporations.
(e) ARS will not be required to include any adjustment in taxable
income for any tax period (or portion thereof) ending after the Closing Date
pursuant to Section 481(c) of the Code or any provision of the tax laws of any
jurisdiction requiring tax adjustments as a result of a change in method of
accounting implemented by ARS prior the Closing Date for any tax period (or
portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into by ARS prior to the Closing Date with
any taxing authority with regard to the tax liability of ARS for any tax period
(or portion thereof) ending on or before the Closing Date.
(f) ARS is not currently under any contractual obligation to pay to
any Governmental Body any tax obligations of, or with respect to any transaction
relating to, any other person or to indemnify any other person with respect to
any tax, other than pursuant to this Agreement.
2.6 ARS PROJECTIONS. Section 2.6 of the ARS Disclosure Schedule
itemizes the projections of ARS regarding all quotations, commitments or
proposals (including, without limitation, development projects) made by ARS
which may result in future sales. All orders that have been accepted by the
Company will be satisfied in the normal course of business.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. From June 30, 1998, to the
date of this Agreement:
(a) there has not been any Material Adverse Change in ARS'
financial condition or in the operations of ARS' business, prospects, condition,
assets or income and no event has occurred or circumstance exists that may
result in such a Material Adverse Change;
(b) there has not been any Material Adverse Change in its balance
sheet (with the ARS Financial Statements and any subsequent balance sheet
analyzed as if each had been prepared according to GAAP exclusive of footnotes
and year-end adjustments), and including but not limited to cash distributions
or material decreases in the net assets of ARS;
(c) there has not been any damage, destruction or loss of property
of ARS, whether or not covered by insurance, in an aggregate amount in excess of
Ten Thousand Dollars ($10,000);
(d) no grant or agreement to make any increase in the compensation
payable or to become payable by ARS to its officers or employees, has been made
except those occurring in the ordinary course of business;
(e) no dividend or other distribution has been declared, set aside
or paid on or in respect of the capital stock of ARS, nor has any direct or
indirect redemption, retirement, purchase or other acquisition by ARS of such
shares occurred except for repurchase of options granted to employees of ARS for
total consideration of $73,995, which will be repurchased and canceled by ARS
prior to the Closing, and shall be of no force and effect on Closing;
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(f) ARS has not issued any shares of capital stock of ARS or any
warrants, rights, options or entered into any commitment relating to the shares
of ARS;
(g) ARS has not made any change in the accounting methods or
practices it follows, whether for general financial or tax purposes, or any
change in depreciation or amortization policies or rates adopted therein except
for audit of statements for periods ended June 30, 1998, June 30, 1997 and June
30, 1996;
(h) ARS has not sold, leased, abandoned or otherwise disposed of
any real property or any machinery, equipment or other operating property other
than in the ordinary course of business;
(i) ARS has not sold, assigned, transferred, licensed or otherwise
disposed of any Patent, trademark, trade name, brand name, Copyright (or pending
application for any Patent, trademark or Copyright), invention, work of
authorship, process, know-how, formula or Trade Secret or interest thereunder or
other intangible asset, except in the ordinary course of its business;
(j) ARS has not been involved in any Proceeding or received any
threat of Proceedings involving any employee which may result in a material
liability to ARS;
(k) ARS has not engaged in any activity or entered into any
material commitment or transaction (including without limitation any borrowing
or capital expenditure), in either case, other than in the ordinary course of
business;
(l) ARS has not incurred any liabilities, contingent or otherwise,
either matured or unmatured (whether or not required to be reflected in
financial statements in accordance with GAAP, and whether due or to become due),
except for (i) liabilities identified as such in the of the ARS Interim
Financials, (ii) accounts payable, accrued taxes or accrued salaries that have
been incurred by ARS since March 31, 1998 in the ordinary course of business and
consistent with ARS' past practices, (iii) liabilities which individually or in
the aggregate would not have a Material Adverse Effect, and (iv) liabilities in
Section 2.7 (l) of the ARS Disclosure Schedule;
(m) ARS has not permitted or allowed any of its material property
or assets to be subjected to any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance of any kind, except those permitted under Section
2.8 hereof, other than any purchase money security interests incurred in the
ordinary course of business;
(n) ARS has not made any capital expenditure or commitment for
additions to property, plant or equipment individually in excess of Ten Thousand
Dollars ($10,000), or in the aggregate, in excess of Fifty Thousand Dollars
($50,000);
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(o) ARS has not paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets to, or entered into any agreement
or arrangement with, any of its officers, directors or shareholders or, to ARS'
Knowledge, any Affiliate or associate of any of the foregoing except that ARS
has paid salaries to its officers in the normal course of business;
(p) ARS has not amended or terminated any agreement which, if not
so amended or terminated, would be required to be disclosed on the ARS
Disclosure Schedule;
(q) ARS has not agreed to take any action described in this Section
2.7 or outside of its ordinary course of business or which would constitute a
breach of any of the representations contained in this Agreement; or
(r) change in ARS' authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of ARS; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by ARS of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(s) payment or increase by ARS of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the ordinary
course of business) employee or entry into any employment, severance, or similar
contract with any director, officer, or employee;
(t) entered into, terminated, or received notice of termination of
(i) any license, distributorship, dealer, sales Representative, joint venture,
credit, or similar agreement, or (ii) any contract or transaction involving a
total remaining commitment by or to ARS of at least $5,000.
2.8 TITLE AND RELATED MATTERS. ARS has good and marketable title to all
the properties, interests in properties and assets, real and personal, tangible
and intangible, reflected in the ARS Financial Statements or acquired after the
date of the ARS Financial Statements (except properties, interests in properties
and assets sold or otherwise disposed of since the date of the ARS Financial
Statements in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, (ii) brokers' fees and expenses
and (iii) liens which in the aggregate do not secure more than Ten Thousand
Dollars ($10,000) in liabilities. All real or personal property leases to which
ARS is a party are, to ARS' Knowledge, valid, binding, enforceable and effective
in accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency, and the relief of debtors and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. There is not under any of such leases any existing default
by ARS or event of default or event which, with notice or lapse of time or both,
would constitute a default. The ARS Disclosure Schedule contains a listing of
all real and personal property leased or owned by ARS, describing ARS' interest
in said property. True and correct copies of ARS' leases have been provided to
SVI or its Representatives.
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2.9 CONDITION AND SUFFICIENCY OF ASSETS. The leased space occupied by
ARS and the equipment of ARS are in good operating condition and repair, and are
adequate for the uses to which they are being put, and such leased space or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The leased
space and equipment of ARS are sufficient for the continued conduct of ARS'
businesses after the Closing in substantially the same manner as conducted prior
to the Closing.
2.10 PROPRIETARY RIGHTS AND WARRANTY CLAIMS.
(a) PROPRIETARY ASSETS. The term "Proprietary Assets" includes:
(i) the names, "ARS" and "Applied Retail Solutions," all
fictional business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in
Mask Works"); and all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets"); owned, used,
or licensed by ARS as licensee or licensor.
(b) AGREEMENTS. ARS is not a party to any Contracts relating to the
Proprietary Assets, except for licenses of ARS software products described in
Part 2.10(b) of the ARS Disclosure Schedule and 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 $5,000 under which ARS is the licensee. There
are no outstanding and, to ARS' Knowledge, no Threatened disputes or
disagreements with respect to any such agreement.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS.
(i) The Proprietary Assets are all those necessary for the
operation of ARS' businesses as they are currently conducted. ARS is the owner
of all right, title, and interest in and to each of the Proprietary 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 Proprietary Assets.
(ii) Except as set forth in Part 2.10(c)(ii) of the ARS
Disclosure Schedule, all former and current employees of ARS have executed
written contracts with ARS that assign to ARS all rights to any Proprietary
Rights, inventions, improvements, discoveries, or information relating to the
business of ARS. No employee of ARS 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 ARS.
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(d) PATENTS.
(i) ARS has no patents as owner or licensee.
(ii) To ARS' Knowledge, there is no potentially interfering
patent or patent application of any third party.
(iii) None of the products manufactured and sold, nor any
process or know-how used, by ARS infringes or is alleged to infringe any patent
or other proprietary right of any other person.
(e) TRADEMARKS.
(i) Part 2.10(e)(i) of the ARS Disclosure Schedule contains
a complete and accurate list and summary description of all Marks.
(ii) No Marks have been registered with the United States
Patent and Trademark Office.
(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to ARS' Knowledge, no such action
is Threatened with the respect to any of the Marks.
(iv) To ARS' Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark is infringed or, to ARS' Knowledge, has been
challenged or threatened in any way. None of the Marks used by ARS infringes or
is alleged to infringe any trade name, trademark, or service mark of any third
party.
(f) COPYRIGHTS.
(i) Part 2.10(f)(i) of the ARS Disclosure Schedule contains
a complete and accurate list and summary description of all Copyrights. ARS 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.
(ii) All Copyrights are currently 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.
(iii) No Copyright is infringed or, to ARS' Knowledge, 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.
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(iv) No former or current employee or independent
contractor of ARS has: (a) claimed any interest in any Proprietary Asset,
including without limitation any software used or produced by ARS, or (b) has
any basis for asserting such claim.
(g) TRADE SECRETS.
(i) 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 use without reliance on
the Knowledge or memory of any individual.
(ii) ARS has taken all reasonable precautions to protect
the secrecy, confidentiality, and value of their Trade Secrets.
(iii) ARS has 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 ARS' Knowledge, have not been used, divulged,
or appropriated either for the benefit of any person (other than one or more
customers of ARS) or to the detriment of ARS. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
2.11 EMPLOYEE BENEFIT PLANS.
(a) As used in this Section 2.11, the following terms have the
meanings set forth below.
"COMPANY PLAN" means all plans as given the meaning in ERISA ss. 3(3)
of which ARS is or was a Plan Sponsor, or to which ARS otherwise contributes or
has contributed, or in which ARS otherwise participates or has participated.
"MULTI-EMPLOYER PLAN" has the meaning given in ERISA ss. 3(37)(A).
"OTHER BENEFIT OBLIGATIONS" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are plans as given the meaning in ERISA ss. 3(3) and which are
owned, adopted or followed by ARS. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of Code ss. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PENSION PLAN" has the meaning given in ERISA ss. 3(2)(A).
"PLAN SPONSOR" has the meaning given in ERISA ss. 3(16)(B).
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"QUALIFIED PLAN" means any Company Plan that meets or purports to meet
the requirements of Code ss. 401(a).
"TITLE IV PLANS" means all Pension Plans that are subject to Title IV
of ERISA, 29 U.S.C. ss. 1301 et seq., other than Multi-Employer Plans.
Except as provided in the following sentence, ARS has no current or
prior Company Plan, Multi Employer Plan, Other Benefit Obligations, PBGC,
Pension Plan, Plan Sponsor, Qualified Plan or Title IV Plans. ARS maintains only
a 401k plan, which is administered by the Principal Financial Group, a Blue
Shield Medical Insurance Plan and a Company insured Dental Plan.
2.12 BANK ACCOUNTS. The ARS Disclosure Schedule sets forth the names
and locations of all banks, savings and loan associations, and other financial
institutions at which ARS maintains accounts of any nature and the names of all
persons authorized to draw thereon or make withdrawals therefrom.
2.13 CONTRACTS.
(a) The ARS Disclosure Schedule identifies each material license
agreement, development agreement, manufacturing and supply agreement, sales
representative agreement, distribution agreement, and OEM agreement to which ARS
is a party.
(b) Except as set forth in Section 2.13(b) of the ARS Disclosure
Schedule,
(i) ARS has no agreements, contracts or commitments that
call for prospective fixed and/or contingent payments or expenditures by or to
ARS of more than Ten Thousand Dollars ($10,000) other than salespersons
commission agreements entered into in the ordinary course of business concerning
the sale of ARS Products;
(ii) There are no outstanding sales contracts, commitments
or proposals (including, without limitation, development projects) of ARS that
ARS currently expects to result either individually or in the aggregate in any
material loss to ARS upon completion or performance thereof;
(iii) ARS has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than ninety days and without liability, commission, penalty
or premium exceeding Five Thousand Dollars ($5,000) in any single instance or
Twenty Thousand Dollars ($20,000) in the aggregate;
(iv) ARS has no currently effective collective bargaining
or union agreements, contracts or commitments;
(v) ARS is not restricted by agreement from competing with
any person or from carrying on its business anywhere in the world;
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(vi) ARS is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to ARS of inventory
or merchandise in the possession of wholesalers, distributors, retailers, or
other customers, except such liabilities, obligations and claims as, in the
aggregate, do not exceed the reserves therefor set forth in the ARS Financial
Statements;
(vii) ARS has not guaranteed any obligations of other
persons or made any agreements to acquire or guarantee any obligations of other
persons; and
(viii) ARS has no outstanding loan or advance to any
person; nor is it party to any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort which would permit the
borrowing by ARS of any sum not reflected in the ARS Financial Statements.
(c) The ARS Disclosure Schedule lists all agreements pursuant to
which ARS has agreed to (i) manufacture for, or supply to, any third party any
ARS Products or components thereto or, (ii) purchase materials or supplies from
third parties, in either case requiring, or expected to require, payments of
Twenty-Five Thousand Dollars ($25,000) or more over the life of any such
agreement. The ARS Disclosure Schedule also lists each vendor which is the sole
source for any product or component included in the ARS Products which ARS
believes is not readily available from other sources.
(d) ARS has made available to SVI or its Representatives accurate
and complete copies of all written contracts described in this Section 2.13,
including all amendments thereto. ARS has not entered into any material oral
contracts. Each contract described in this Section 2.13 (a "Material Contract")
is valid and in full force and effect, and to the Knowledge of ARS is
enforceable by ARS in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
(ii) rules of law governing indemnification, specific performance, injunctive
relief and other equitable remedies. No such contract, agreement or instrument
contains any liquidated damages, penalty or similar provision. To ARS'
Knowledge, no party to any such contract, agreement or instrument intends to
cancel, withdraw, modify or amend such contract, agreement or instrument.
(e) Except as set forth in Section 2.13 of the ARS Disclosure
Schedule:
(i) ARS has not violated or breached, or committed any
default under, any Material Contract, and, to ARS' Knowledge, no other Person
has violated or breached, or committed any default under, any Material Contract,
which violation, breach or default would individually or in the aggregate have a
Material Adverse Effect; and
(ii) No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Material Contract, (B) give any Person the right to declare
default or exercise any remedy under any Material Contract, (C) give any Person
the right to accelerate the maturity or performance of any Material Contract or
(D) give any Person the right to cancel, terminate or modify any Material
Contract, other than such violations, breaches, defaults, exercises,
accelerations, cancellations, terminations or modifications which individually
or in the aggregate would have a Material Adverse Effect.
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2.14 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfilled orders
entered into by ARS for the sale, license, or lease or other disposition by ARS
of its products, and all agreements, contracts, or commitments for the purchase
of supplies by ARS, were made in the ordinary course of business. No outstanding
material purchase or outstanding lease commitment of ARS is in excess of the
normal, ordinary and usual requirements of its business or was made at a price
(on both a per unit and aggregate basis) in excess of the current market price
at the time made, or contains terms and conditions materially more onerous to
ARS than those usual and customary in the industry.
2.15 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATION.
(a) Except as set forth in Part 2.15 of the ARS Disclosure
Schedule:
(i) ARS is, and at all times since June 30, 1998 has been,
in full compliance with each Legal Requirement that is or was applicable to it
or to the conduct or operation of its business or the ownership or use of any of
its assets;
(ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) (A) may constitute or result in a
violation by ARS of, or a failure on the part of ARS to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part of ARS to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature; and
(iii) ARS has not received, at any time since June 30,
1998, any notice or other communication (whether oral or written) from any
Governmental Body or any other person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation on
the part of ARS to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) ARS requires and therefore has no Governmental Authorizations
that are applicable to the business of, or to any of the assets owned or used
by, ARS.
2.16 LABOR MATTERS.
(a) ARS is not engaged in any unfair labor practice and is not in
violation of any applicable laws relating to employment and employment
practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against ARS pending
or threatened before the National Labor Relations Board or other Governmental
Body.
(c) There is no strike, labor dispute, slowdown, or stoppage
pending or threatened against ARS.
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(d) No union representation question with respect to the employees
of ARS has been made known to ARS and, to ARS' Knowledge, no union organizing
activities are taking place.
(e) No grievance or arbitration Proceeding arising out of or under
any collective bargaining agreement is pending and to ARS' Knowledge no claims
therefor exist.
(f) No agreement that is binding on ARS restricts it from
relocating or closing any of its operations.
(g) ARS has not experienced any work stoppage or other labor
difficulty.
(h) There is and has not been any claim against ARS based on actual
or alleged wrongful termination or on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious conduct,
nor to ARS' Knowledge, is there any reasonable basis for any such claim.
(i) ARS is not aware of any key ARS employee who intends to
terminate his or her employment with ARS.
2.17 TRADE REGULATION. ARS has not terminated its relationship with or
refused to ship ARS Products to any dealer, distributor, OEM, third party
marketing entity or customer which had theretofore paid or been obligated to pay
ARS in excess of Ten Thousand Dollars ($10,000) over any consecutive twelve (12)
month period. No claims against ARS have been communicated or threatened to ARS
with respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and to ARS'
Knowledge, no specific situation, set of facts, or occurrence provides a
reasonable basis for any such claim.
2.18 INSIDER TRANSACTIONS. No Affiliate of ARS has any interest in (i)
any equipment or other material property, real or personal, tangible or
intangible, including, without limitation, any Proprietary Asset, used in
connection with or pertaining to the business of ARS or, (ii) any creditor,
supplier, customer, manufacturer, agent, Representative, or distributor of ARS
Products; PROVIDED, HOWEVER, that no such Affiliate or other person shall be
deemed to have such an interest solely by virtue of (a) the ownership of less
than one percent (1%) of the outstanding stock or debt securities of any
publicly-held company whose stock or debt securities are traded on a recognized
stock exchange or quoted on the National Association of Securities Dealers
Automated Quotation System, or (b) such person's status as a general or limited
partner of a venture capital or similar fund, which fund is also a holder of the
securities of such creditor, supplier, customer, manufacturer, agent,
Representative or distributor.
2.19 EMPLOYEES.
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(a) Part 2.19 of the ARS Disclosure Schedule contains a complete
and accurate list of the following information for each employee or director of
the ARS, including each employee on leave of absence or layoff status: employer;
name; job title; current compensation paid or payable and any change in
compensation since June 30, 1998; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the ARS' pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan or any Director Plan.
(b) No employee or director of ARS is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of ARS, or (ii) the ability of ARS to conduct its business,
including any Proprietary Rights Agreement with ARS by any such employee or
director. To ARS' Knowledge, no director, officer, or other key employee of ARS
intends to terminate his employment with ARS.
(c) ARS has no former employees who retired.
2.20 INSURANCE.
(a) ARS has delivered to SVI:
(i) true and complete copies of all policies of insurance
to which ARS is a party or under which ARS, or any director of ARS, is or has
been covered at any time within the 3 years preceding the date of this
Agreement;
(ii) for the three-year period preceding the Closing ARS
has had no claim or any occurrence permitting a claim under any policy of
insurance;
(iii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by ARS; and
(iv) all obligations of ARS to third parties with respect
to insurance (including such obligations under leases and service agreements)
and identifies the policy under which such coverage is provided.
(b) Except as set forth in Part 2.20(b) of the ARS Disclosure
Schedule:
(i) All policies to which ARS is a party or that provide
coverage to either ARS, or any director or officer of ARS:
(1) are valid, outstanding, and enforceable;
(2) are issued by an insurer that is financially
sound and reputable;
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(3) taken together, provide adequate insurance
coverage for the assets and the operations of ARS for all risks;
(4) are sufficient for compliance with all Legal
Requirements and Contracts to which ARS is a party or by which any of them is
bound;
(5) will continue in full force and effect
following the consummation of the Contemplated Transactions; and
(6) do not provide for any retrospective premium
adjustment or other experienced-based liability on the part of ARS.
(ii) Neither SVI nor ARS has 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.
(iii) ARS has paid all premiums due, and have otherwise
performed all of its respective obligations, under each policy to which ARS is a
party or that provides coverage to ARS or director thereof.
(iv) ARS has given notice to the insurer of all claims that
may be insured thereby.
2.21 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.21 of the ARS Disclosure
Schedule, there is no pending Proceeding:
(i) that has been commenced by or against ARS or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, ARS; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement and its exhibits.
(iii) to the Knowledge of ARS, (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.
ARS has delivered to SVI copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 2.21 of the ARS Disclosure
Schedule. The Proceedings listed in Part 2.21 of the ARS Disclosure Schedule
will not have a material adverse effect on the business, operations, assets,
condition, or prospects of ARS.
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(b) Except as set forth in Part 2.21 of the ARS Disclosure
Schedule:
(i) there is no Order to which ARS, or any of the assets
owned or used by ARS, is subject;
(ii) SVI is not a subject to any Order that relates to the
business of, or any of the assets owned or used by, ARS; and
(iii) to the Knowledge of ARS, no officer, director, agent,
or employee of ARS is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of ARS.
(c) Except as set forth in Part 2.21 of the ARS Disclosure
Schedule:
(i) ARS is, and at all times since June 30, 1998 has been,
in full compliance with all of the terms and requirements of each Order to which
it, or any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which ARS, or
any of the assets owned or used by ARS, is subject; and
(iii) ARS has not received, at any time since June 30,
1998, any notice or other communication (whether oral or written) from any
Governmental Body or any other person regarding any actual, alleged, possible,
or potential violation of, or failure to comply with, any term or requirement of
any Order to which ARS, or any of the assets owned or used by ARS, is or has
been subject.
2.22 SECTION 341(F)(2). ARS has not, with regard to any property or
assets held, acquired or to be acquired by it, at any time, filed a consent to
the application of Section 341(f)(2) of the Code nor will any such consent be
filed before the Closing.
2.23 SUBSIDIARIES. ARS has no subsidiaries. ARS does not own or control
(directly or indirectly) any capital stock, bonds or other securities of, and
does not have any proprietary interest in, any other corporation, general or
limited partnership, firm, association or business organization, entity or
enterprise, and ARS does not control (directly or indirectly) the management or
policies of any other corporation, partnership, firm, association or business
organization, entity or enterprise.
2.24 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. ARS has obtained all
material permits, licenses and other authorizations which are required under
federal, state and local laws applicable to ARS' business and relating to
pollution or protection of the environment. ARS is in material compliance with
all terms and conditions of the required permits, licenses and authorizations.
ARS is not aware of, nor has ARS received written notice of, any conditions,
circumstances, activities, practices, incidents, or actions which might
reasonably form the basis of a claim, action, suit, Proceeding, hearing, or
investigation of, by, against or relating to ARS, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste.
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2.25 CORPORATE DOCUMENTS. ARS has furnished or made available to SVI
for its examination: (i) copies of its articles of incorporation and bylaws,
(ii) its minute book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof, (iii) any material permits, orders, and
consents issued by any regulatory agency with respect to ARS, or any securities
of ARS, and all applications for such permits, orders, and consents, and (iv)
the stock transfer books of ARS setting forth all transfers of any capital
stock. The corporate minute books, stock certificate books, stock registers and
other corporate records of ARS are complete and accurate in all material
respects, and the signatures appearing on all documents contained therein are
the true signatures of the persons purporting to have signed the same. All
actions reflected in such books and records were duly and validly taken in
compliance in all material respects with the laws of the applicable
jurisdiction.
2.26 NO BROKERS. Neither ARS nor the Shareholders are obligated for the
payment of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby or thereby.
2.27 DISCLOSURE. The statements by ARS contained in this Agreement, the
exhibits and schedules hereto, and the certificates or documents required to be
delivered by ARS to SVI under this Agreement, taken as a whole, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
2.28 MATERIAL CONSENTS. ARS has obtained any and all consents necessary
with respect to the Material Contracts to consummate the transactions
contemplated by this Agreement.
2.29 YEAR 2000 COMPLIANCE. All express written warranties and
representations made by ARS to its customers relating to Year 2000 Compliance
including, without limitation, as set forth in Section 11.d) of the Applied
Retail Solutions Software Development and Licensing Agreement are true and
correct.
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. The Shareholders
jointly and severally represent and warrant to SVI and Merger Sub as set forth
below.
3.1 OWNERSHIP OF ARS SECURITIES. The Shareholders are the sole owners
of all rights, title and interest in and to the ARS Securities free and clear of
all liens and claims of any third party.
3.2 SVI SECURITIES.
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(a) The Shareholders have been advised that (i) the issuance of the
Consideration Shares and the Shares, if any, to be issued as Additional
Consideration under Section 1.14(b) in connection with the Merger (the "SVI
Common Stock") is expected to be effected pursuant to an exemption from
registration under the Act, which exemption depends upon, among other things,
the bona fide nature of the Shareholders' investment intent as expressed in
Section 3.2(b) below and (ii) the resale of such shares will be subject to the
restrictions set forth in Rule 144 promulgated under the Act unless otherwise
transferred pursuant to an effective registration statement under the Act or an
appropriate exemption from registration. Each Shareholder accordingly agrees not
to sell, pledge, transfer or otherwise dispose of the SVI Common Stock issued to
the Shareholders in the Merger unless (i) such sale, transfer or other
disposition is made in conformity with the requirements of Rule 144, (ii) such
sale, pledge, transfer or other disposition is made (a) in conformity with the
requirements of Rule 144 promulgated under the securities act of 1933 (the
"Act"), or (b) pursuant to an effective registration statement under the act or
an appropriate exemption from registration, and (ii) the holder of the shares
delivers to SVI Holdings, Inc., a Nevada corporation, a written opinion of
counsel, reasonably acceptable to SVI in form and substance, that such sale,
pledge, transfer or other disposition is exempt from registration under the Act.
(b) Each Shareholder will hold SVI Common Stock for investment for
such Shareholder's own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the Act.
(c) Each Shareholder has had an opportunity to: (i) review this
Agreement, the exhibits hereto, all other documents contemplated hereby, and the
SEC reports (as defined in Section 4.5), including the risk factors and
cautionary language contained therein; (ii) obtain legal and financial advice
from experienced advisors which the Shareholder considers sufficient to evaluate
the merits and risks of a prospective investment in SVI and (iii) request any
additional information regarding the business and affairs of SVI as such
Shareholder and the advisors of such Shareholder consider appropriate to provide
a full understanding of or to evaluate the merits and risks of a prospective
investment in SVI; the Shareholders have received such requested information.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SVI AND MERGER SUB. SVI and Merger
Sub represent and warrant to ARS and the Shareholders that:
4.1 ORGANIZATION AND GOOD STANDING. SVI and Merger Sub are corporations
duly organized, validly existing and in good standing under the laws of the
State of California and each of them has full power and authority to carry on
its business as now conducted and as proposed to be conducted. SVI is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the nature of its business or properties makes such qualification or
licensing necessary, except where the failure to qualify would not be material
to its business.
4.2 CAPITALIZATION.
(a) The authorized capital stock of SVI as of the date of this
Agreement consists of: (i) Fifty Million (50,000,000) Common Shares and (ii)
Five Million (5,000,000) Preferred Shares of SVI. As of June 30, 1998, Twenty
Eight Million Two Hundred Thirty-Three Thousand Six Hundred Eighty Four
(28,233,684) shares of Common Stock of SVI and no shares of preferred stock of
SVI were issued and outstanding.
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(b) All of the outstanding shares of capital stock of SVI have been
duly authorized and validly issued, fully paid and are nonassessable. All
outstanding shares of capital stock of SVI were issued in compliance with
applicable securities laws. The capital stock of SVI constituting Merger
Consideration will be duly authorized, fully paid and nonassessable when issued.
4.3 POWER, AUTHORIZATION AND VALIDITY. SVI and Merger Sub have the
right, power, legal capacity and authority to enter into and perform their
obligations under this Agreement and the other Transaction Documents to which
they are a party. The execution and delivery of this Agreement and the other
Transaction Documents have been duly and validly approved and authorized by the
board of directors of SVI and Merger Sub. No authorization or approval,
governmental or otherwise, is necessary in order to enable SVI or Merger Sub to
enter into and to perform the terms of this Agreement or the other Transaction
Documents on their part to be performed, except for (i) the filing of
appropriate documents with the relevant authorities of other states, if any, in
which SVI and Merger Sub are qualified to do business, and (ii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the laws of any foreign country in which SVI or
any of SVI's subsidiaries or Merger Sub conducts any business or owns any
property or assets. This Agreement is, and the other Transaction Documents when
executed and delivered by SVI and Merger Sub shall be, the valid and binding
obligations of SVI and Merger Sub enforceable in accordance with their
respective terms.
4.4 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
herein will conflict with, or result in a material breach or violation of, any
provision of SVI's or Merger Sub's articles of incorporation, and bylaws as
currently in effect, any instrument or contract to which SVI or Merger Sub is a
party or by which either of them is bound, or to SVI's Knowledge, any federal,
state or local judgment, writ, decree, order, statute, rule or regulation
applicable to either of them.
4.5 LITIGATION. Except as noted in the forms, reports and documents
filed or required to be filed by SVI with the Securities and Exchange Commission
(the "SEC") since December 31, 1996 other than registration statements on Form
S-8 (collectively, the "SVI SEC Reports") there is no suit, action, Proceeding,
claim or investigation pending or, to SVI's or Merger Sub's Knowledge,
threatened against SVI or Merger Sub before any court or administrative agency
which questions or challenges the validity of this Agreement or which could have
a Material Adverse Effect.
4.6 SEC FILINGS. SVI has delivered to the Shareholders all of the SVI
SEC Reports. The SVI SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Act, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such SVI SEC Reports or necessary in order to make the
statements in such SVI SEC Reports, in the light of the circumstances under
which they were made, not misleading.
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4.7 FINANCIAL STATEMENTS. Each of the consolidated financial statements
(including, in each case, any related notes) contained in the SVI SEC Reports,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-QSB promulgated by the SEC) and
presented fairly, in all material respects, the consolidated financial position
of SVI as at the respective dates and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
4.8 ARS SECURITIES. SVI and Merger Sub have had an opportunity to: (i)
review this Agreement, the Exhibits and Schedules hereto, and all other
documents contemplated hereby; (ii) obtain legal and financial advice from
experienced advisors and (iii) request any additional information regarding the
business and affairs of ARS as SVI and Merger Sub have considered appropriate to
provide a full understanding of or to evaluate the merits and risks of a merger
of ARS with and into Merger Sub.
SECTION 5 ITEMS TO BE DELIVERED BY SVI OR MERGER SUB AT THE CLOSING. At the
Closing, in addition to the Merger Consideration SVI shall deliver each of the
following:
5.1 SVI AUTHORIZATIONS. A certificate or certificates of an executive
officer of SVI attaching copies of the resolutions authorizing (a) the
execution, delivery and performance of SVI's obligations under this Agreement
and certifying that such resolutions have been duly and validly approved and
authorized by the Board of Directors of SVI and (b) the execution, delivery and
performance of Merger Subs' obligations under this Agreement and certifying that
such resolutions have been duly and validly approved and authorized by the sole
shareholder of Merger Sub.
5.2 MERGER SUB AUTHORIZATIONS. A certificate of an executive officer of
Merger Sub attaching copies of the resolutions authorizing the execution,
delivery and performance of Merger Subs' obligations under this Agreement and
certifying that such resolutions have been duly and validly approved and
authorized by the Board of Directors of Merger Sub.
SECTION 6 DOCUMENTS TO BE DELIVERED BY ARS OR THE SHAREHOLDERS AT CLOSING. At
the Closing, in addition to the certificates for the Common Shares ARS and the
Shareholders shall deliver each of the following:
6.1 AUTHORIZATIONS. A certificate of the Secretary of ARS attaching
copies of the resolutions of ARS' Board of Directors and the Shareholders
authorizing the execution, delivery and performance of this Agreement and
certifying that such resolutions have been duly and validly approved and
authorized.
6.2 EMPLOYMENT AGREEMENTS. Employment Agreements and Noncompetition
Agreements substantially in the form attached hereto as Exhibit F executed by
each Shareholder.
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SECTION 7 INDEMNIFICATION AND RELATED MATTERS.
7.1 INDEMNIFICATION BY ARS AND THE SHAREHOLDERS. Subject to the
limitations set forth in this Section 7 and elsewhere in this Agreement, the
Shareholders shall, jointly and severally, indemnify SVI against any Damages
that SVI actually incurs as a result of any breach by ARS or the Shareholders of
any representation, warranty or covenant of ARS or the Shareholders as set forth
in Sections 2 or 3 of the Agreement. The representations, warranties or
covenants of ARS and the Shareholders shall not be limited or otherwise affected
by, or as a result of, any information furnished to, or any investigation made
by or Knowledge of (except as specifically provided in the ARS Disclosure
Schedule), any of the Parties or any of their Representatives.
7.2 INDEMNIFICATION BY SVI. Subject to the limitations set forth in
this Section 7 and elsewhere in this Agreement, SVI or the Merger Sub shall
indemnify the Shareholders against any Damages that the Shareholders actually
incur as a result of any breach by SVI or the Merger Sub of any representation,
warranty or covenant of SVI as set forth in Section 4. The representations,
warranties or covenants of SVI shall not be limited or otherwise affected by, or
as a result of, any information furnished to, or any investigation made by or
Knowledge of any of the Parties or any of their Representatives.
7.3 EXPIRATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Except for
Section 2.5 and any intentional misrepresentation and/or intentional concealment
of a material fact, all of the representations and warranties of ARS, the
Shareholders and SVI set forth in this Agreement shall terminate and expire, and
shall cease to be of any force or effect, at 10:00 a.m. (California time) on the
third anniversary of the Closing Date, and all liability of ARS, the
Shareholders and SVI with respect to such representations and warranties shall
thereupon be extinguished; PROVIDED, HOWEVER, that if, prior to such third
anniversary, SVI on the one hand or the Shareholders on the other hand shall
have duly delivered a Claim Notice to the other Parties in conformity with all
of the applicable procedures set forth in this Section 7, then the specific
indemnification claim set forth in such Claim Notice shall survive such third
anniversary (and shall not be extinguished thereby).
7.4 THRESHOLD AMOUNT.
(a) Without limiting the effect of any of the other limitations set
forth herein, the Shareholders shall not be required to make any indemnification
payment hereunder with respect to any breach of any of their representations,
warranties or covenants except to the extent that the cumulative amount of the
Damages actually incurred by SVI as a direct result of all such breaches of such
representations, warranties or covenants actually exceeds the Threshold Amount;
provided, however, that once the Threshold Amount is exceeded, SVI shall be
entitled to recover the full amount of all Damages from the Shareholders subject
to the limitations set forth in Section 7.5 below. The "Threshold Amount" shall
be $20,000.
(b) Without limiting the effect of any of the other limitations set
forth herein, SVI shall not be required to make any indemnification payment
hereunder with respect to any breach of any of their representations, warranties
or covenants except to the extent that the cumulative amount of the Damages
actually incurred by the Shareholders as a direct result of all such breaches of
such representations, warranties or covenants actually exceeds the Threshold
Amount; provided, however, that once the Threshold Amount is exceeded, the
Shareholders shall be entitled to recover the full amount of all Damages from
SVI subject to the limitations set forth in Section 7.5 below. The "Threshold
Amount" shall be $20,000.
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7.5 MAXIMUM LIABILITY OF THE SHAREHOLDERS. Except for breaches arising
as a result of intentional misrepresentation and/or intentional concealment of a
material fact, the total amount of the payments that the Shareholders can be
required to make under or in connection with this Agreement (including all
indemnification payments required to be made to SVI and all amounts payable to
any counsel retained by SVI in accordance with Section 7.7) shall be limited in
the aggregate to a maximum of $2,000,000 plus the value of the Consideration
Shares and any Additional Amount paid to the Shareholders under this Agreement.
The value of the Consideration Shares and Additional Shares for the purpose of
this Section 7.5 shall be the average price of SVI Shares for the 30-day period
immediately preceding the date of final determination of liability for such
breach.
7.6 NO CONTRIBUTION. The Shareholders acknowledge and agree that they
shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against ARS in connection with (a) any indemnification obligation or any other
liability to which the Shareholders or ARS may become subject under or in
connection with this Agreement or (b) any certificate delivered by ARS in
connection with this Agreement.
(a) NO IMPLIED REPRESENTATIONS. SVI and the Shareholders
acknowledge that, except as expressly provided in Sections 2, 3 and 4, neither
party hereto, and none of the Representatives of either party hereto, has made
or is making any representations or warranties whatsoever, implied or otherwise.
7.7 DEFENSE OF THIRD PARTY ACTIONS. If either party hereto (the
"Indemnitee") receives notice or otherwise obtains Knowledge of any Legal
Proceeding or any threatened Legal Proceeding that may give rise to an
indemnification claim against the other party hereto (the "Indemnifying Party"),
then the Indemnitee shall promptly deliver to the Indemnifying Party a written
notice describing such Legal Proceeding in reasonable detail; PROVIDED, HOWEVER,
that for the sole purpose of determining whether a Legal Proceeding or
threatened Legal Proceeding may give rise to an indemnification claim against
the Shareholders within the meaning of this sentence, the limitation set forth
in Section 7.4 shall not be taken into account. The timely delivery of such
written notice by the Indemnitee to the Indemnifying Party shall not be a
condition precedent to any liability on the part of the Indemnifying Party under
this Section 7 with respect to such Legal Proceeding, except to the extent the
Indemnifying Party is actually prejudiced. With the consent of the Indemnitee,
which will not be unreasonably withheld, the Indemnifying Party shall have the
right, at its option, to assume the defense of any such Legal Proceeding with
its own counsel. If the Indemnifying Party assumes the defense of any such Legal
Proceeding, then:
(a) notwithstanding anything to the contrary contained in this
Agreement, the Indemnifying Party shall not be required to pay or otherwise
indemnify the Indemnitee against any attorneys' fees or other expenses incurred
on behalf of the Indemnitee in connection with such Legal Proceeding following
the Indemnifying Party's election to assume the defense of such Legal
Proceeding;
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(b) the Indemnitee shall make available to the Indemnifying Party
all books, records and other documents and materials that are under the direct
or indirect control of the Indemnitee or any of the Indemnitee's Representatives
and that the Indemnifying Party considers reasonably necessary or desirable for
the defense of such Legal Proceeding;
(c) the Indemnitee shall execute such documents and take such other
actions as the Indemnifying Party may reasonably request for the purpose of
facilitating the defense of, or any settlement, compromise or adjustment
relating to, such Legal Proceeding;
(d) the Indemnitee shall otherwise cooperate as reasonably
requested by the Indemnifying Party in the defense of such Legal Proceeding;
(e) the Indemnitee shall not admit any liability with respect to
such Legal Proceeding; and
(f) the Indemnifying Party shall not settle, adjust or compromise
such Legal Proceeding without the prior written consent of the Indemnitee, such
consent not to be unreasonably withheld.
If the Indemnifying Party does not assume the defense of such Legal Proceeding,
then the Indemnitee shall proceed diligently to defend such Legal Proceeding
with the assistance of counsel reasonably satisfactory to the Indemnifying
Party; PROVIDED, HOWEVER, that the Indemnitee shall not settle, adjust or
compromise such Legal Proceeding, or admit any liability with respect to such
Legal Proceeding, without the prior written consent of the Indemnifying Party,
such consent not to be unreasonably withheld.
7.8 SUBROGATION. To the extent that either party hereto (the
"Indemnitor") makes or is required to make any indemnification payment to the
other party hereto (the "Indemnified Party"), the Indemnitor shall be entitled
to exercise, and shall be subrogated to, any rights and remedies (including
rights of indemnity, rights of contribution and other rights of recovery) that
the Indemnified Party or any of the Indemnified Party's Representatives may have
against any other Person with respect to any Damages, circumstances or Legal
Proceeding to which such indemnification payment is directly or indirectly
related. The Indemnified Party shall permit the Indemnitor to use the name of
the Indemnified Party and the names of the Indemnified Party's Representatives
in any transaction or in any proceeding or other Legal Proceeding involving any
of such rights or remedies; and the Indemnified Party shall take such actions as
the Indemnitor may reasonably request for the purpose of enabling the Indemnitor
to perfect or exercise the Indemnitor's right of subrogation hereunder.
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SECTION 8 TERMINATION OF AGREEMENTS.
8.1 STOCK OWNERSHIP AGREEMENT. Effective upon the Closing, any
Shareholders, Buy-Sell or similar agreement subsisting among ARS and the
Shareholders shall be deemed terminated and of no further force and effect.
8.2 TERMINATION OF EMPLOYMENT AGREEMENTS.
(a) Effective upon the Closing any employment agreement subsisting
between ARS and any Shareholder shall be terminated and of no further force and
effect.
(b) Each Shareholder fully and forever releases and discharges ARS,
SVI and Merger Sub, their agents, employees, officers, directors, attorneys and
assigns from any and all claims, demands, damages, liabilities and obligations,
whether known or unknown, in any way relating to the employment agreements that
were terminated in accordance with Section 8.2(a) above.
(c) Each Shareholder expressly waives all rights under Section 1542
of the California Civil Code with regard to the release set forth in Section
8.2(b) above, which provides:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if know by him, must have
materially affected his settlement with the debtor.
SECTION 9 COVENANTS FOLLOWING CLOSING.
9.1 KEY MAN LIFE INSURANCE. Each Shareholder shall make himself
reasonably available and shall cooperate with SVI to permit SVI to obtain
key-man insurance on his life for the benefit of SVI.
9.2 OPERATION AND MANAGEMENT OF SURVIVING CORPORATION. From and after
the Closing Date and until the earlier of: (a) a final determination and
adjustment with respect to the Adjustment Amount has been made and/or paid, or
(b) March 31, 1999 (the "Adjustment Date"), the day to day management and
conduct of the business of the Surviving Corporation shall be as set forth in
Sections 9.3, 9.4 and 9.5 below. Sections 9.3, 9.4 and 9.5 shall be of no
further force or effect after the Adjustment Date.
9.3 CORPORATE GOVERNANCE.
(a) BOARD OF DIRECTORS. SVI and the Shareholders hereby agree that:
(i) The Board of Directors shall consist solely of five (5)
directors, two of whom shall be Larry Lahodny and Sam Pickard.
(ii) Members of the Board of Directors shall serve until
the Adjustment Date.
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<PAGE> 37
9.4 CONDUCT OF BUSINESS.
(a) GENERAL. SVI and the Shareholders confirm that it is their
intention that the day to day business of the Surviving Corporation will
continue to be directed by its Board of Directors and conducted in generally the
same manner as ARS has historically been operated until the Adjustment Date.
(b) SURVIVING CORPORATION'S MANAGEMENT AND EMPLOYEES. The
Shareholders and SVI desire that, after the closing of the transaction
contemplated by the Agreement and until the Adjustment Date, the day to day
management of the Surviving Corporation shall continue to be managed by Sam
Pickard and Larry Lahodny, subject to the discretion of the Board of Directors.
Accordingly, SVI grants to Sam Pickard and Larry Lahodny the discretionary
authority, subject to the supervision and oversight by the Board of Directors of
the Surviving Corporation as required (to allow the Board to discharge its
fiduciary duties to the Shareholders of SVI), to hire, promote, terminate,
relocate, and demote the employees of the Surviving Corporation as well as to
define the positions and responsibilities of all such employees (an "Employment
Decision"); provided however, that all matters concerning the compensation,
discipline and/or termination of any employee by the Surviving Corporation will
be referred to the Human Resources Department before the Surviving Corporation
takes any action thereon.
(c) CORPORATE ACTION. Until the Adjustment Date the approval (which
shall not be unreasonably withheld) of Sam Pickard and Larry Lahodny shall be
required for the following actions:
(i) The hiring of all senior executive officers of the
Surviving Corporation and any employee of the Surviving Corporation earning in
excess of [$100,000] per year;
(ii) All employment agreements and all compensation
programs for officers and key employees;
(iii) Annual business plans, budgets and financial plans of
the Surviving Corporation; and
(iv) All real estate leases.
9.5 CONSENTS FOR CERTAIN CORPORATE ACTIONS. From the Closing Date
hereof to the date referred to in Section 9.2 above, the Surviving Corporation
shall not take, nor agree to take, nor shall SVI cause the Surviving Corporation
to take any of the following actions, without the unanimous consent which shall
not be unreasonably withheld of Pickard and Lahodny if such action which taken
by itself, or as to its impact on the whole, could reasonably be viewed as
negatively affecting the ability of the Surviving Corporation to achieve
positive Post-Closing Profits or Run Time Fees and thereby prevent payment of
the Additional Consideration in accordance with Section 1.14 above:
32
<PAGE> 38
(a) Any merger or consolidation involving the Surviving
Corporation;
(b) Any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all, or a material part, of the assets of,
or of any shares of the capital stock of, the Surviving Corporation;
(c) The dissolution of the Surviving Corporation; the adoption of a
plan of liquidation of the Surviving Corporation; any action by the Surviving
Corporation to commence any suit, case, proceeding or other action (i) under any
existing or future law of any jurisdiction relating to bankruptcy, insolvency,
reorganization or relief of debtors seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or (ii) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or making a general assignment
for the benefit of its creditors;
(d) The redemption, repurchase or other offer to purchase made by
the Surviving Corporation for any equity securities of the Surviving
Corporation;
(e) The payment of any dividends on any stock of any class of the
Surviving Corporation;
(f) The making of any material investment in any entity which
reasonably could be viewed as has the effect of negatively affecting the ability
of the Surviving Corporation to achieve Post-Closing Profits and/or Run Time
Fees or preventing payment of the Additional Consideration in accordance with
Section 1.14 above;
(g) The increasing of the compensation paid to the officers of the
Surviving Corporation by more than a reasonable amount in any fiscal year;
(h) Any change in the fundamental business purpose or business
organization of the Surviving Corporation.
SECTION 10 MISCELLANEOUS.
10.1 GOVERNING LAWS. It is the intention of the Parties that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
Parties.
10.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, Representatives,
administrators and assigns of the Parties. Neither ARS nor any Shareholder shall
assign this Agreement to any person or entity (including by operation of law)
without the prior written consent of the other parties, which consent shall not
be unreasonably withheld.
33
<PAGE> 39
10.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to effect
reasonably the intent of the Parties. The Parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
10.4 ENTIRE AGREEMENT. This Agreement, the exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the Parties with respect to the subject matter
hereof and thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the Parties with respect hereto and thereto.
10.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the Parties reflected hereon as signatories.
10.6 EXPENSES. Except as provided to the contrary herein, each party
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto.
No other legal, accounting, investment banking, broker's and finder's fees
incurred by ARS or the Shareholders in connection with the transactions
contemplated by this Agreement shall be borne or assumed by SVI except as
incurred under Section 1.12.
10.7 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of a default in the performance hereof shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
10.8 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations
and warranties made herein shall survive the execution and delivery of this
Agreement for the applicable time period set forth in this Agreement and the
consummation of the transactions contemplated hereby notwithstanding any
investigation of the Parties.
10.9 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
10.10 ATTORNEYS' FEES. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including, without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party is
entitled to recover costs or attorneys' fees.
34
<PAGE> 40
10.11 NOTICES. Any notice provided for or permitted under this
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telecopy, (c) sent by commercial overnight courier with
written verification of receipt, or (d) mailed postage prepaid by certified or
registered mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 10.11.
Applied Retail Solutions, Inc.
12707 High Bluff Drive, #335
San Diego, CA 92130
Attn: Larry K. Lahodny
Facsimile: (619) 481-1710
Larry K. Lahodny
Applied Retail Solutions, Inc.
12707 High Bluff Drive, #335
San Diego, CA 92130
Facsimile: (619) 481-1710
Sam Pickard
Applied Retail Solutions, Inc.
12707 High Bluff Drive, #335
San Diego, CA 92130
Facsimile: (619) 481-1710
With copy to: Pillsbury, Madison & Sutro, LLP
101 West Broadway, Ste. 1800
San Diego, CA 92101
Attn: K. Michael Garrett, Esq.
Facsimile: (619) 236-1995
SVI Holdings, Inc.
7979 Ivanhoe Avenue, Ste. 500
La Jolla, California 92037
Facsimile: (619) 551-5067
With copy to: Solomon Ward Seidenwurm & Smith, LLP
401 B Street, Suite 1200
San Diego, California 92101
Attn: Norman L. Smith, Esq.
Facsimile: (619) 231-4755
Such notice will be treated as having been received upon actual receipt.
35
<PAGE> 41
10.12 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by
the respective Parties and their attorneys and the language hereof shall not be
construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole.
10.13 NO JOINT VENTURE. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the Parties. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party shall have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 10.13.
10.14 PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
10.15 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to evidence and reflect better the transactions described herein
and contemplated hereby and to carry into effect the intents and purposes of
this Agreement.
10.16 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Agreement including Section 10.6 are intended, nor shall be interpreted, to
provide or create any third party beneficiary rights or any other rights of any
kind in any client, customer, affiliate, shareholder, partner of any party
hereto or any other person or entity, and, except as specifically provided
otherwise herein, all provisions hereof shall be personal solely between the
Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.
SVI HOLDINGS, INC. APPLIED RETAIL SOLUTIONS, INC.
a Nevada corporation a California corporation
By:_____________________________ By:___________________________
Name:___________________________ Name:_________________________
Its:____________________________ Its:__________________________
36
<PAGE> 42
APPLIED RETAIL SOLUTIONS, INC. SHAREHOLDERS:
a Delaware corporation
By:_____________________________ __________________________
Sam Pickard
Name:___________________________
Its:____________________________ __________________________
Larry Lahodny
37
<PAGE> 43
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACT. "Act" means the Securities Act of 1933, as amended.
AFFILIATE. "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Securities and Exchange Commission pursuant to
the Securities Act.
SVI SEC REPORTS. "SVI SEC Reports" shall have the meaning set forth in Section
4.5.
CALIFORNIA LAW. "California Law" shall have the meaning set forth in Section
1.1.
CERTIFICATES. "Certificates" shall have the meaning set forth in Section 1.9.
CERTIFICATE OF MERGER. "Certificate of Merger" shall have the meaning set forth
in Section 1.2.
CODE. "Code" means the federal Internal Revenue Code of 1986, as amended.
CLOSING AND CLOSING DATE. "Closing" and "Closing Date" shall have the meanings
set forth in Section 1.1.
DAMAGES. "Damages" shall include any loss, damage, injury, liability, claim,
demand, settlement, judgment, award, fine, penalty, tax, fee (including
reasonable attorneys' fees), charge, interest, costs (including reasonable costs
of investigation) or reasonable related third party expenses.
ARS FINANCIAL STATEMENTS. "ARS Financial Statements" shall have the meaning set
forth in Section 2.4(a).
ARS INTERIM FINANCIALS. "ARS Interim Financials" shall have the meaning set
forth in Section 2.4.
ARS PRODUCTS. "ARS Products" shall mean all versions and implementations of any
product which has been or is being marketed by ARS or is under development as of
the Effective Date and the Closing, and all patents, patent applications, trade
secrets, copyrights, trademarks, trade names and other proprietary rights
related thereto.
PROPRIETARY ASSETS. "ARS Proprietary Rights" shall have the meaning set forth in
Section 2.10(a).
ARS SECURITIES. "ARS Securities" shall have the meaning set forth in Recital A.
EFFECTIVE DATE. "Effective Date" shall have the meaning set forth in Section
1.2.
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
1
<PAGE> 44
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
EXCHANGE ACT. "Exchange Act" shall have the meaning set forth in Section 4.6.
GOVERNMENTAL AUTHORIZATION. Governmental Authorization shall mean 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.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) SVI or the
Shareholders, as the case may be; (b) SVI's current and future affiliates; (c)
the respective Representatives of the Persons referred to in clauses "(a)" and
"(b)" above; and (d) the respective successors of the Persons referred to in
clauses "(a)" and "(b)" and "(c)" above.
KNOWLEDGE. The terms "knowledge" and "known" when not capitalized shall be
construed, except as specifically otherwise provided, to qualify the matter
referred to as being to the actual knowledge after reasonably diligent inquiry
of the executive officers of the party making the statement or representation,
including information that a person in a similar situation reasonably should
have known.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit, litigation,
arbitration proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving any court or other Governmental Body or any arbitrator or arbitration
panel.
LEGAL REQUIREMENT. Legal Requirement shall mean any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
MATERIAL. The term "material" when not capitalized and used with respect to any
subsection or subsections of Section 2 or Section 3 hereof shall be construed,
except as specifically otherwise provided, to qualify the matter or matters
referred to as having a value in excess of Twenty Dollars ($20,000). For
example, a "material breach" would be a breach resulting in Damages exceeding
Twenty Thousand Dollars ($20,000).
MATERIAL ADVERSE CHANGE. "Material Adverse Change" shall mean a change which
would have a Material Adverse Effect.
2
<PAGE> 45
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to have a
"Material Adverse Effect" on ARS or SVI, as applicable, if such violation or
other matter would be material in impact or amount to ARS' or SVI's, as
applicable, business, intellectual property rights or condition, or, taken as a
whole, its assets, liabilities, operations, or financial performance. The
definition of "material" for purposes of this definition shall be construed as
having a value in excess of Fifty Thousand Dollars ($50,000).
MATERIAL CONTRACT. "Material Contract" shall have the meaning set forth in
Section 2.13(d).
MERGER. "Merger" shall have the meaning set forth in Section 1.2.
MERGER CONSIDERATION. "Merger Consideration" shall have the meaning as set forth
in Section 1.8.
ORDER. "Order" shall mean 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.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROCEEDING. "Proceeding" shall mean 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.
PROPRIETARY ASSET. "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors, employees,
agents, attorneys, accountants and other professional advisors.
SCHEDULE. "Schedule" shall have the meaning set forth in Section 1.7.
SEC. "SEC" shall have the meaning set forth in Section 4.5.
SHAREHOLDERS. "Shareholders" shall mean Sam Pickard and Larry Lahodny.
THREATENED. "Threatened" shall mean 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), or if any other event has occurred or any other circumstances exist,
that would lead a prudent person to conclude that such a claim, proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
3
<PAGE> 46
TRANSACTION DOCUMENTS. "Transaction Documents" shall mean this Agreement
(including the ARS Disclosure Schedule delivered pursuant to Section 2 hereof)
and the documents or agreements required to be delivered hereunder including the
Merger Agreement, the Noncompetition Agreements and the Employment Agreements to
be executed by the Shareholders.
4
<PAGE> 47
<TABLE>
EXHIBIT D
SCHEDULE OF SHAREHOLDERS
<CAPTION>
MERGER CONSIDERATION
Shares:
-------
<S> <C>
Sam O. Pickard and Kathleen Louise McClellan - Pickard
Revocable trust of April 11, 1995 571,000
Larry Kent Lahodny, Janet Rhae Lahodny as trustees of the Lahodny
Family Trust dated August 24, 1998 429,000
August 24, 1998
Cash Payment:
-------------
Sam Pickard $1,100,593.00
Larry Lahodny $ 825,412.00
(Held for employee option payout) $ 73,995.00
</TABLE>
5
<PAGE> 48
CERTIFICATE OF MERGER
OF
APPLIED RETAIL SOLUTIONS, INC.,
a California corporation
AND
APPLIED RETAIL SOLUTIONS, INC.,
a Delaware corporation
It is hereby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
1.1. APPLIED RETAIL SOLUTIONS, INC., WHICH IS INCORPORATED UNDER THE
LAWS OF THE STATE OF CALIFORNIA; AND
1.2. APPLIED RETAIL SOLUTIONS, INC., WHICH IS INCORPORATED UNDER THE
LAWS OF THE SATE OF DELAWARE.
2. An Agreement of Merger and Plan of Reorganization (the "Agreement of
Merger") has been approved, adopted, certified, executed, and acknowledged by
each of the aforesaid constituent corporations in accordance with the provisions
of subsection (c) of Section 252 of the General Corporation Law of the State of
Delaware, to wit, by Applied Retail Solutions, Inc., a California corporation in
accordance with the laws of the State of its incorporation, namely California,
and by Applied Retail Solutions, Inc., a Delaware corporation in the same manner
as is provided in Section 251 of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation in the merger herein certified
is Applied Retail Solutions, Inc., which will continue its existence as said
surviving corporation under Applied Retail Solutions, Inc. upon the effective
date of said merger pursuant to the provisions of the General Corporation Law of
the State of Delaware.
4. The Certificate of Incorporation of Applied Retail Solutions, Inc.,
as now in force and effect, shall continue to be the Certificate of
Incorporation of said surviving corporation until amended and changed pursuant
to the provisions of the General Corporation Law of the State of Delaware.
5. The executed Agreement of Merger between the aforesaid constituent
corporations is on file at the principal place of business of the aforesaid
surviving corporation, the address of which is as follows: 7979 Ivanhoe Avenue,
Suite 500, La Jolla, CA 92037
1
<PAGE> 49
6. A copy of the aforesaid Agreement of Merger will be furnished by the
aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Applied Retail Solutions, Inc.,
consists of 1,500 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
July 1, 1998 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated:___________________, 1998 APPLIED RETAIL SOLUTIONS, INC.,
a California corporation
By:________________________________
Its:________________________________
Dated:___________________, 1998 APPLIED RETAIL SOLUTIONS, INC.,
a Delaware corporation
By:________________________________
Its:________________________________
2
<PAGE> 50
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 27,
1998 (the "Effective Date") by and between SVI Holdings, Inc., a Nevada
corporation ("Employer"), and Sam Pickard ("Employee"), with reference to the
following facts:
A. Employee is experienced in managing the business formerly conducted
by Applied Retail Solutions, Inc., a California corporation ("Old ARS").
B. Old ARS has been merged into a wholly-owned subsidiary of Employer
pursuant to the Agreement of Merger and Plan of Reorganization dated July 1,
1998 among Applied Retail Solutions, Inc., a Delaware corporation, Applied
Retail Solutions, Inc., a California corporation, the Shareholders of Applied
Retail Solutions, Inc., a California corporation and Employer (the "Merger
Agreement") evenly dated herewith, which has been named "Applied Retail
Solutions, Inc." ("New ARS").
C. Employer desires to employ Employee to perform the duties and
responsibilities described herein on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the terms and provisions of this Agreement,
Employee hereby is employed by Employer as the President and Chief Executive
Officer of New ARS. Employee's duties shall consist of such duties as
customarily are associated with service as the president and chief executive
officer of a corporate business, with full responsibility and authority for
managing the day-to-day operations of New ARS and implementing such policies as
the Board of Directors of New ARS may from time to time promulgate. Employee
shall report directly to the Chairman of the Board of Directors of New ARS, who
shall be the Chairman of the Board of Directors of Employer.
3. SCOPE OF SERVICES. Employee shall devote substantially all of his
business time, attention, energies, skills, learning and efforts to New ARS'
business.
4. Term of Employment and Voluntary Termination. Subject to prior
termination of this Agreement as hereinafter provided, the term of this
Agreement shall commence on the Effective Date and shall continue through March
31, 2000 and may thereafter be terminated upon six months written notice which
may be given by either Employer or Employee at any time after March 31, 2000.
5. COMPENSATION.
5.1. As consideration for Employee's entering into this Agreement
and agreeing to a covenant not to compete set forth in Section 11, below,
Employer shall pay to Employee on the date of this Agreement $1,100,593.00.
<PAGE> 51
5.2. Employee's annual compensation ("Base Compensation") under
this Agreement, prorated for any partial year, shall be $190,000 per year,
commencing on the Effective Date. The Base Compensation shall be payable
bi-weekly in arrears from the Effective Date in accordance with the ordinary
payroll procedures of New ARS.
6. OTHER BENEFITS. Employee shall also be entitled to receive all other
benefits, such as health insurance, vacations, sick pay and retirement plan
participation, as are made available to other personnel employed by Employer or
New ARS, as set forth in the New ARS employee handbook.
7. TERMINATION. The employment of Employee may be terminated as
follows:
7.1. TERMINATION BY MUTUAL AGREEMENT. Employer and Employee may
mutually agree in writing to terminate Employee's employment.
7.2. TERMINATION FOR DEATH. Employee's employment shall terminate
immediately upon Employee's death.
7.3. TERMINATION UPON DISABILITY. Employee's employment shall
terminate if Employee should become totally and permanently disabled. For
purposes of this Agreement, Employee shall be considered "totally and
permanently disabled" if Employee would be treated as "disabled" under any
disability insurance policy maintained by New ARS or Employer. In the event any
such policy is either not in force or the benefits are not available under such
policy, then "total and permanent disability" shall mean the inability of the
Employee, as a result of substance abuse, any mental, nervous or psychiatric
disorder, or physical condition, injury or illness to perform substantially all
of his duties on a full-time basis currently and in the foreseeable future, as
determined by the Board of Directors of New ARS.
7.4. TERMINATION BY EMPLOYER. The Employer may terminate this
Agreement: (a) at will, for any reason, or for no reason at all, on or after the
earlier of (i) March 31, 2000 or (ii) upon release to Employee of the "Escrowed
Shares" as defined in the Merger Agreement upon 30 days' written notice to
Employee after, or (b) for "Cause" upon three days' written notice. For purposes
of this Agreement, "Cause" shall mean the existence or occurrence of any of the
following:
7.4.1. Employee's conviction of a felony.
7.4.2. Employee's commission of theft, embezzlement or fraud.
7.4.3. Employee's willful violation of a reasonable Employer
policy previously made known to him or a directive of the Board of Directors of
New ARS.
7.4.4. Employee's breach of his obligations set forth in
Sections 9, 10 and 11, below.
7.4.5. Any neglect or breach of duty by Employee, or any
failure by Employee to perform, to the reasonable satisfaction of the Board of
Directors of New ARS.
<PAGE> 52
7.4.6. If Employee breaches any material term of the Merger
Agreement and remains in breach for 10 days after receipt of written notice
describing such breach.
7.5. TERMINATION BY EMPLOYEE. At any time after March 31, 2000,
Employee may terminate his employment upon six months' prior written notice to
Employer.
8. REPRESENTATIONS AND WARRANTIES. Employee hereby represents and
warrants that as of the date of execution of this Agreement: (i) this Agreement
will not cause or require Employee to breach any obligation to, or agreement or
confidence with, any other person; (ii) except as disclosed in writing by
Employee to Employer prior to the execution of this Agreement, Employee is not
representing, or otherwise affiliated in any capacity with, any other lines of
products, manufacturers, vendors or customers of Employer; and (iii) Employee
has not been induced to enter into this Agreement by any promise or
representation other than as expressly set forth in this Agreement. In addition,
in connection with the issuance of the SVI Holdings Shares (the "Shares"),
Employee hereby represents and warrants that the following factual statements
are true and accurate as of the Effective Date and will be true and accurate as
of the Closing: (a) Employee has a preexisting business relationship with
Employer, or by reason of its business or financial experience, is capable of
evaluating the risks and merits of an investment in the Shares and of protecting
its own interests in connection with the investment; (b) Employee has received
and reviewed all information it considers necessary or appropriate for deciding
whether to accept the Shares; (c) Employee has had an opportunity to ask
questions and receive answers from Employer and its officers, directors, and
employees regarding the business, financial affairs, and other aspects of
Employer and has further had the opportunity to obtain all information which it
deems necessary to evaluate the investment and to verify the accuracy of
information otherwise provided it; and (d) Employee is acquiring the Shares for
his own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
9. CONFIDENTIALITY. Employee hereby acknowledges that Employer has made
(or may make) available to Employee certain customer lists, product design
information, performance standards and other confidential and/or proprietary
information of Employer or licensed to Employer, including without limitation
trade secrets, copyrighted materials and/or financial information of Employer
(or any of its Affiliates, as defined in Section 11.5 below), including without
limitation, financial statements, reports and data (collectively, the
"Confidential Material"). Except as essential to Employee's obligations under
this Agreement, neither Employee nor any agent, employee, officer, or
independent contractor of or retained by Employee shall make any disclosure of
this Agreement, the terms of this Agreement, or any of the Confidential
Material. Except as essential to Employee's obligations under this Agreement,
neither employee nor any agent, employee, officer, or independent contractor of
or retained by Employee shall make any duplication or other copy of any of the
Confidential Material. Immediately upon request from Employer, Employee shall
return to Employer all Confidential Material. Employee shall notify each person
to whom any disclosure is made that such disclosure is made in confidence, that
the Confidential Material shall be kept in confidence by such person, and that
such person shall be bound by the provisions of this Section.
10. PROPRIETARY INFORMATION. For purposes of this Agreement,
"Proprietary Information" shall mean any information, observation, data, written
material, record, document, computer program, software, firmware, invention,
discovery, improvement, development, tool, machine, apparatus, appliance,
design, promotional idea, customer list, practice, process, formula, method,
technique, trade secret, product and/or research related to the actual or
<PAGE> 53
anticipated research, marketing strategies, pricing information, business
records, development, products, organization, business or finances of Employer.
All right, title and interest of every kind and nature whatsoever in and to the
Proprietary Information made, discussed, developed, secured, obtained or learned
by Employee during the term of this Agreement, or the 60-day period immediately
following termination of this Agreement, shall be the sole and exclusive
property of Employer for any purposes or uses whatsoever, and shall be disclosed
promptly by Employee to Employer. The covenants set forth in the preceding
sentence shall apply regardless of whether any Proprietary Information is made,
discovered, developed, secured, obtained or learned (a) solely or jointly with
others, (b) during the usual hours of work or otherwise, (c) at the request and
upon the suggestion of Employer or otherwise, or (d) with the Employer's
materials, tools, instruments or on the Employer's premises or otherwise. All
Proprietary Information developed, created, invented, devised, conceived or
discovered by Employee that are subject to copyright protection are explicitly
considered by Employee and Employer to be works made for hire to the extent
permitted by law. Employee hereby assigns to Employer all of Employee's right,
title and interest in and to the Proprietary Information. Employee hereby
forever fully releases and discharges Employer, any Affiliates of Employer and
their respective officers, directors and employees, from and against any and all
claims, demands, damages, liabilities, costs and expenses of Employee arising
out of, or relating to, any Proprietary Information. Employee shall execute any
documents and take any action the Company may deem necessary or appropriate to
effectuate the provisions of this Agreement, including without limitation
assisting Employer in obtaining and/or maintaining patents, copyrights or
similar rights to any Proprietary Information assigned to Employer, if Employer,
in its sole discretion, requests such assistance. Employee shall comply with any
reasonable rules established from time to time by Employer for the protection of
the confidentiality of any Proprietary Information. Employee irrevocably
appoints the Chief Executive Officer of Employer to act as Employee's agent and
attorney-in-fact to perform all acts necessary to obtain and/or maintain
patents, copyrights and similar rights to any Proprietary Information assigned
by Employee to Employer under this Agreement if (a) Employee refuses to perform
those acts, or (b) is unavailable, within the meaning of any applicable laws.
Employee acknowledges that the grant of the foregoing power of attorney is
coupled with an interest and shall survive the death or disability of Employee.
Employee shall promptly disclose to Employer, in confidence (a) all Proprietary
Information that Employee creates during the term of this Agreement, and (b) all
patent applications filed by Employee within one year after termination of this
Agreement. Any application for a patent, copyright registration or similar right
filed by Employee within one year after termination of this Agreement shall be
presumed to relate to Proprietary Information created by Employee during the
term of this Agreement, unless Employee can prove otherwise. Nothing contained
in this Agreement shall be construed to preclude Employer from exercising all of
its rights and privileges as sole and exclusive owner of all of the Proprietary
Information owned by or assigned to Employer under this Agreement. The Employer,
in exercising such rights and privileges with respect to any particular item of
Proprietary Information, may decide not to file any patent application or any
copyright registration on such Proprietary Information, may decide to maintain
such Proprietary Information as secret and confidential, or may decide to
abandon such Proprietary Information or dedicate it to the public. Employee
shall have no authority to exercise any rights or privileges with respect to the
Proprietary Information owned by or assigned to Employer under this Agreement.
This Agreement does not apply to any Proprietary Information that qualifies
fully under the provisions of California Labor Code Section 2870 or any similar
or successor statute.
11. COVENANT NOT TO COMPETE AND NONCOMPETITION. Employee acknowledges
that this Agreement is being entered in connection with the acquisition by
Employer of all of the shares of a corporation with respect to which Employee
and his spouse are major shareholders. To the extent permitted by applicable
law, during the period of time set forth in Section 11.5 below:
<PAGE> 54
11.1. Employee shall not, directly or indirectly, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, or control of, be employed by, associated with, or in any
manner connected with, or render services or advice to, any business whose
products or activities compete in whole or in part with the products or business
of Employer anywhere in the world, which business consists of developing,
marketing and selling computer software for use in point of sale computers in
retail businesses.
11.2. Employee shall not undertake any employment or activity
competitive with the Employer's business, including without limitation the
inducement or solicitation of the Employer's customers, if the duties or work
of, in connection with or related to such competitive employment or activity
would or might cause Employee to reveal or use any Confidential Material or
Proprietary Information. The restriction set forth in this Section 11 shall not
be limited to a particular geographical area.
11.3. Employee shall not, directly or indirectly, either for
himself or any other person, (i) induce or attempt to induce any employee of
Employer or any Affiliate (as defined below) to leave the employ of such
employer, (ii) in any way interfere with the relationship between Employer or
any Affiliate and any employee of such Employer, (iii) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of
Employer or any Affiliate, or (iv) induce or attempt to induce any customer,
supplier, licensee, or business relation of the Employer or any Affiliate to
cease doing business with such company, or in any way interfere with the
relationship between any customer, supplier, licensee, or business relation of
such employer.
11.4.Employee shall not, directly or indirectly, either for himself
or any other person, solicit the business of any person known to Employee to be
a customer of the Employer or any Affiliate, whether or not Employee had
business or personal contact with such person, unless Employee's solicitation of
such person is done in connection with a business that is not competitive with
that of Employer or any Affiliate.
11.5.The duration of the covenants set forth in this Section 11
shall be the entire term of Employee's employment with Employer plus a period of
four years after the termination of such employment. Employee agrees that this
covenant is reasonable with respect to its duration, geographical area, and
scope. Notwithstanding such restriction, 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.
In the event of a breach by Employee of any covenant set forth in
this Section 11, the term of such covenant will be extended by the period of the
duration of such breach, provided, however, that such extension shall be limited
to four years. In addition to the Employer's right to damages and any other
rights it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce the
provisions of this Section, Employee agrees that money damages alone would be
inadequate to compensate Employer and would be an inadequate remedy for such
breach. If a court of competent jurisdiction holds that the obligations of
Employee pursuant to this Section 11 are unenforceable due to the duration,
<PAGE> 55
geographical areas or scope of this covenant, then such duration, geographical
area or scope of this covenant shall be reduced to the least degree necessary to
render this covenant enforceable. For purposes of this Agreement, "Affiliate"
shall mean any partner, employee, director, shareholder, officer of Employer or
any person or entity controlled by, controlling, or under common control with,
directly or indirectly, Employer, and shall include New ARS or its successor in
title and interest.
12. BUSINESS OPPORTUNITIES. During the term of this Agreement, if
Employee (or any agent, employee, officer or independent contractor of or
retained by Employee) becomes aware of, or develops, creates, invests, devisees,
conceives or discovered, any project, investment, venture, business or other
opportunity (any of the preceding, an "Opportunity") that is similar to,
competitive with, related to or in the same field as Employer or any Affiliate,
or any project, investment, venture, or business of Employer or any Affiliate,
then Employee shall so notify the Employer immediately in writing of such
Opportunity and shall use Employee's good-faith efforts to cause the Employer to
have the opportunity to invest in, participate in or otherwise become affiliated
with such Opportunity.
13. SECTION HEADINGS. The section headings or captions in this
Agreement are for convenience of reference only and do not form a part hereof,
and do not in any way modify, interpret or construe the intent of the parties or
affect any of the provisions of this Agreement.
14. SURVIVAL. The obligations and rights imposed upon the parties
hereto by the provisions of this Agreement which relate to acts or events
subsequent to the termination of this Agreement shall survive the termination of
this Agreement and shall remain fully effective thereafter.
15. VENUE AND JURISDICTION. For purposes of venue and jurisdiction,
this Agreement shall be deemed made and to be performed in the City of San
Diego, California.
16. SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable in any relevant
jurisdiction, then such illegal or unenforceable provision shall be modified by
the proper court, if possible, but only to the extent necessary to make such
provision enforceable, and such modified provision and all other provisions of
this Agreement shall be given effect separately from the provision or portion
thereof determined to be illegal or unenforceable and shall not be affected
thereby; provided, that any such modification shall apply only with respect to
the operation of this Agreement in the particular jurisdiction in which such
determination of illegality or unenforceability is made.
17. WAIVER. The failure of either party to enforce any provision of
this Agreement shall not be construed as a waiver of any such provision, nor
prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such party's
right to assert all other legal remedies available under the circumstances.
18. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and the successors,
assigns and affiliates of Employer, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right
of action over or against any party to this Agreement.
<PAGE> 56
19. ASSIGNMENT. The rights and obligations under this Agreement shall
be binding upon, and inure to the benefit of, the heirs, executors, successors
and assigns of Employee and Employer. Except as specifically provided in this
Section 19, neither Employer nor Employee may assign this Agreement or delegate
their respective responsibilities hereunder without the consent of the other
party hereto. Employer may assign this Agreement to an employee leasing company
retained by Employer to provide personnel to or for the benefit of Employer.
Upon the sale, exchange or other transfer of substantially all of the assets of
the Employer, the Employer shall assign this Agreement to the transferee of such
assets. No assignment of this Agreement by Employer shall relieve Employer of,
and Employer shall remain obligated to perform, its duties and obligations under
this Agreement, including, without limitation, payment of the annual salary set
forth in Section 5, above.
20. ATTORNEYS' FEES. In the event of any suit, action or arbitration to
enforce any of the terms or provisions of this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees and costs. The foregoing
entitlement shall also include attorneys' fees and costs of the prevailing party
on any appeal of a judgment and for any action to enforce a judgment.
21. MODIFICATION. This Agreement may be modified only by a contract in
writing executed by the party(ies) to this Agreement against whom enforcement of
such modification is sought.
22. PRIOR UNDERSTANDINGS. This Agreement contains the entire agreement
between the parties to this Agreement with respect to the subject matter of this
Agreement, is intended as a final expression of such parties' agreement with
respect to such terms as are included in this Agreement, is intended as a
complete and exclusive statement of the terms of such agreement, and supersedes
all negotiations, stipulations, understandings, agreements, representations and
warranties, if any, with respect to such subject matter, which precede or
accompany the execution of this Agreement.
23. INTERPRETATION. Whenever the context so requires in this Agreement,
all words used in the singular shall be construed to have been used in the
plural (and vice versa), each gender shall be construed to include any other
genders, and the word "person" shall be construed to include a natural person, a
corporation, a firm, a partnership, a joint venture, a trust, an estate or any
other entity.
24. PARTIAL INVALIDITY. Each provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. If any provision of this
Agreement or the application of such provision to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected by such invalidity or unenforceability, unless such provision or such
application of such provision is essential to this Agreement.
25. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and no representation, inducement, promise or agreement, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom such modification, termination
or waiver is sought to be enforced.
<PAGE> 57
26. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed under, and governed by, the laws of the
State of California without giving effect to conflict of laws provisions.
28. DRAFTING AMBIGUITIES. Each party to this Agreement has reviewed and
revised this Agreement. Each party to this Agreement has had the opportunity to
have such party's legal counsel review and revise this Agreement. The rule of
construction that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or of any
amendments or exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMPLOYER:
SVI HOLDINGS, INC., a Nevada corporation
By:
--------------------------------------
EMPLOYEE:
--------------------------------------
Sam Pickard
<PAGE> 58
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 27,
1998 (the "Effective Date") by and between SVI Holdings, Inc., a Nevada
corporation ("Employer"), and Larry Lahodny ("Employee"), with reference to the
following facts:
A. Employee is experienced in managing the business formerly conducted
by Applied Retail Solutions, Inc., a California corporation ("Old ARS").
B. Old ARS has been merged into a wholly-owned subsidiary of Employer
pursuant to the Agreement of Merger and Plan of Reorganization dated July 1,
1998 among Applied Retail Solutions, Inc., a Delaware corporation, Applied
Retail Solutions, Inc., a California corporation, the Shareholders of Applied
Retail Solutions, Inc., a California corporation and Employer (the "Merger
Agreement") evenly dated herewith, which has been named "Applied Retail
Solutions, Inc." ("New ARS").
C. Employer desires to employ Employee to perform the duties and
responsibilities described herein on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts such employment upon the terms and conditions hereinafter set forth.
2. DUTIES. Subject to the terms and provisions of this Agreement,
Employee hereby is employed by Employer as the Executive Vice President of New
ARS. Employee's duties shall consist of such duties as customarily are
associated with service as the president and chief executive officer of a
corporate business, with full responsibility and authority for managing the
day-to-day operations of New ARS and implementing such policies as the Board of
Directors of New ARS may from time to time promulgate. Employee shall report
directly to the Chief Executive Officer and the Board of Directors of New ARS.
3. SCOPE OF SERVICES. Employee shall devote substantially all of his
business time, attention, energies, skills, learning and efforts to New ARS'
business.
4. TERM OF EMPLOYMENT AND VOLUNTARY TERMINATION. Subject to prior
termination of this Agreement as hereinafter provided, the term of this
Agreement shall commence on the Effective Date and shall continue through March
31, 2000 and may thereafter be terminated upon six months written notice which
may be given by either Employer or Employee at any time after March 31, 2000.
5. COMPENSATION.
5.1. As consideration for Employee's entering into this Agreement
and agreeing to a covenant not to compete set forth in Section 11, below,
Employer shall pay to Employee on the date of this Agreement $825,412.
<PAGE> 59
5.2. Employee's annual compensation ("Base Compensation") under
this Agreement, prorated for any partial year, shall be $190,000 per year,
commencing on the Effective Date. The Base Compensation shall be payable
bi-weekly in arrears from the Effective Date in accordance with the ordinary
payroll procedures of New ARS.
6. OTHER BENEFITS. Employee shall also be entitled to receive all other
benefits, such as health insurance, vacations, sick pay and retirement plan
participation, as are made available to other personnel employed by Employer or
New ARS, as set forth in the New ARS employee handbook.
7. TERMINATION. The employment of Employee may be terminated as
follows:
7.1. TERMINATION BY MUTUAL AGREEMENT. Employer and Employee may
mutually agree in writing to terminate Employee's employment.
7.2. TERMINATION FOR DEATH. Employee's employment shall terminate
immediately upon Employee's death.
7.3. TERMINATION UPON DISABILITY. Employee's employment shall
terminate if Employee should become totally and permanently disabled. For
purposes of this Agreement, Employee shall be considered "totally and
permanently disabled" if Employee would be treated as "disabled" under any
disability insurance policy maintained by New ARS or Employer. In the event any
such policy is either not in force or the benefits are not available under such
policy, then "total and permanent disability" shall mean the inability of the
Employee, as a result of substance abuse, any mental, nervous or psychiatric
disorder, or physical condition, injury or illness to perform substantially all
of his duties on a full-time basis currently and in the foreseeable future, as
determined by the Board of Directors of New ARS.
7.4. TERMINATION BY EMPLOYER. The Employer may terminate this
Agreement: (a) at will, for any reason, or for no reason at all, on or after the
earlier of (i) March 31, 2000 or (ii) upon release to Employee of the "Escrowed
Shares" as defined in the Merger Agreement upon 30 days' written notice to
Employee after, or (b) for "Cause" upon three days' written notice. For purposes
of this Agreement, "Cause" shall mean the existence or occurrence of any of the
following:
7.4.1. Employee's conviction of a felony.
7.4.2. Employee's commission of theft, embezzlement or fraud.
7.4.3. Employee's willful violation of a reasonable Employer
policy previously made known to him or a directive of the Board of Directors of
New ARS.
7.4.4. Employee's breach of his obligations set forth in
Sections 9, 10 and 11, below.
7.4.5. Any neglect or breach of duty by Employee, or any
failure by Employee to perform, to the reasonable satisfaction of the Board of
Directors of New ARS.
<PAGE> 60
7.4.6. If Employee breaches any material term of the Merger
Agreement and remains in breach for 10 days after receipt of written notice
describing such breach.
7.5. TERMINATION BY EMPLOYEE. At any time after March 31, 2000,
Employee may terminate his employment upon six months' prior written notice to
Employer.
8. REPRESENTATIONS AND WARRANTIES. Employee hereby represents and
warrants that as of the date of execution of this Agreement: (i) this Agreement
will not cause or require Employee to breach any obligation to, or agreement or
confidence with, any other person; (ii) except as disclosed in writing by
Employee to Employer prior to the execution of this Agreement, Employee is not
representing, or otherwise affiliated in any capacity with, any other lines of
products, manufacturers, vendors or customers of Employer; and (iii) Employee
has not been induced to enter into this Agreement by any promise or
representation other than as expressly set forth in this Agreement. In addition,
in connection with the issuance of the SVI Holdings Shares (the "Shares"),
Employee hereby represents and warrants that the following factual statements
are true and accurate as of the Effective Date and will be true and accurate as
of the Closing: (a) Employee has a preexisting business relationship with
Employer, or by reason of its business or financial experience, is capable of
evaluating the risks and merits of an investment in the Shares and of protecting
its own interests in connection with the investment; (b) Employee has received
and reviewed all information it considers necessary or appropriate for deciding
whether to accept the Shares; (c) Employee has had an opportunity to ask
questions and receive answers from Employer and its officers, directors, and
employees regarding the business, financial affairs, and other aspects of
Employer and has further had the opportunity to obtain all information which it
deems necessary to evaluate the investment and to verify the accuracy of
information otherwise provided it; and (d) Employee is acquiring the Shares for
his own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
9. CONFIDENTIALITY. Employee hereby acknowledges that Employer has made
(or may make) available to Employee certain customer lists, product design
information, performance standards and other confidential and/or proprietary
information of Employer or licensed to Employer, including without limitation
trade secrets, copyrighted materials and/or financial information of Employer
(or any of its Affiliates, as defined in Section 11.5 below), including without
limitation, financial statements, reports and data (collectively, the
"Confidential Material"). Except as essential to Employee's obligations under
this Agreement, neither Employee nor any agent, employee, officer, or
independent contractor of or retained by Employee shall make any disclosure of
this Agreement, the terms of this Agreement, or any of the Confidential
Material. Except as essential to Employee's obligations under this Agreement,
neither employee nor any agent, employee, officer, or independent contractor of
or retained by Employee shall make any duplication or other copy of any of the
Confidential Material. Immediately upon request from Employer, Employee shall
return to Employer all Confidential Material. Employee shall notify each person
to whom any disclosure is made that such disclosure is made in confidence, that
the Confidential Material shall be kept in confidence by such person, and that
such person shall be bound by the provisions of this Section.
10. PROPRIETARY INFORMATION. For purposes of this Agreement,
"Proprietary Information" shall mean any information, observation, data, written
<PAGE> 61
material, record, document, computer program, software, firmware, invention,
discovery, improvement, development, tool, machine, apparatus, appliance,
design, promotional idea, customer list, practice, process, formula, method,
technique, trade secret, product and/or research related to the actual or
anticipated research, marketing strategies, pricing information, business
records, development, products, organization, business or finances of Employer.
All right, title and interest of every kind and nature whatsoever in and to the
Proprietary Information made, discussed, developed, secured, obtained or learned
by Employee during the term of this Agreement, or the 60-day period immediately
following termination of this Agreement, shall be the sole and exclusive
property of Employer for any purposes or uses whatsoever, and shall be disclosed
promptly by Employee to Employer. The covenants set forth in the preceding
sentence shall apply regardless of whether any Proprietary Information is made,
discovered, developed, secured, obtained or learned (a) solely or jointly with
others, (b) during the usual hours of work or otherwise, (c) at the request and
upon the suggestion of Employer or otherwise, or (d) with the Employer's
materials, tools, instruments or on the Employer's premises or otherwise. All
Proprietary Information developed, created, invented, devised, conceived or
discovered by Employee that are subject to copyright protection are explicitly
considered by Employee and Employer to be works made for hire to the extent
permitted by law. Employee hereby assigns to Employer all of Employee's right,
title and interest in and to the Proprietary Information. Employee hereby
forever fully releases and discharges Employer, any Affiliates of Employer and
their respective officers, directors and employees, from and against any and all
claims, demands, damages, liabilities, costs and expenses of Employee arising
out of, or relating to, any Proprietary Information. Employee shall execute any
documents and take any action the Company may deem necessary or appropriate to
effectuate the provisions of this Agreement, including without limitation
assisting Employer in obtaining and/or maintaining patents, copyrights or
similar rights to any Proprietary Information assigned to Employer, if Employer,
in its sole discretion, requests such assistance. Employee shall comply with any
reasonable rules established from time to time by Employer for the protection of
the confidentiality of any Proprietary Information. Employee irrevocably
appoints the Chief Executive Officer of Employer to act as Employee's agent and
attorney-in-fact to perform all acts necessary to obtain and/or maintain
patents, copyrights and similar rights to any Proprietary Information assigned
by Employee to Employer under this Agreement if (a) Employee refuses to perform
those acts, or (b) is unavailable, within the meaning of any applicable laws.
Employee acknowledges that the grant of the foregoing power of attorney is
coupled with an interest and shall survive the death or disability of Employee.
Employee shall promptly disclose to Employer, in confidence (a) all Proprietary
Information that Employee creates during the term of this Agreement, and (b) all
patent applications filed by Employee within one year after termination of this
Agreement. Any application for a patent, copyright registration or similar right
filed by Employee within one year after termination of this Agreement shall be
presumed to relate to Proprietary Information created by Employee during the
term of this Agreement, unless Employee can prove otherwise. Nothing contained
in this Agreement shall be construed to preclude Employer from exercising all of
its rights and privileges as sole and exclusive owner of all of the Proprietary
Information owned by or assigned to Employer under this Agreement. The Employer,
in exercising such rights and privileges with respect to any particular item of
Proprietary Information, may decide not to file any patent application or any
copyright registration on such Proprietary Information, may decide to maintain
such Proprietary Information as secret and confidential, or may decide to
abandon such Proprietary Information or dedicate it to the public. Employee
shall have no authority to exercise any rights or privileges with respect to the
<PAGE> 62
Proprietary Information owned by or assigned to Employer under this Agreement.
This Agreement does not apply to any Proprietary Information that qualifies
fully under the provisions of California Labor Code Section 2870 or any similar
or successor statute.
11. COVENANT NOT TO COMPETE AND NONCOMPETITION. Employee acknowledges
that this Agreement is being entered in connection with the acquisition by
Employer of all of the shares of a corporation with respect to which Employee
and his spouse are major shareholders. To the extent permitted by applicable
law, during the period of time set forth in Section 11.5 below:
11.1. Employee shall not, directly or indirectly, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, or control of, be employed by, associated with, or in any
manner connected with, or render services or advice to, any business whose
products or activities compete in whole or in part with the products or business
of Employer anywhere in the world, which business consists of developing,
marketing and selling computer software for use in point of sale computers in
retail businesses.
11.2 Employee shall not undertake any employment or activity
competitive with the Employer's business, including without limitation the
inducement or solicitation of the Employer's customers, if the duties or work
of, in connection with or related to such competitive employment or activity
would or might cause Employee to reveal or use any Confidential Material or
Proprietary Information. The restriction set forth in this Section 11 shall not
be limited to a particular geographical area.
11.3. Employee shall not, directly or indirectly, either for
himself or any other person, (i) induce or attempt to induce any employee of
Employer or any Affiliate (as defined below) to leave the employ of such
employer, (ii) in any way interfere with the relationship between Employer or
any Affiliate and any employee of such Employer, (iii) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of
Employer or any Affiliate, or (iv) induce or attempt to induce any customer,
supplier, licensee, or business relation of the Employer or any Affiliate to
cease doing business with such company, or in any way interfere with the
relationship between any customer, supplier, licensee, or business relation of
such employer.
11.4. Employee shall not, directly or indirectly, either for
himself or any other person, solicit the business of any person known to
Employee to be a customer of the Employer or any Affiliate, whether or not
Employee had business or personal contact with such person, unless Employee's
solicitation of such person is done in connection with a business that is not
competitive with that of Employer or any Affiliate.
11.5. The duration of the covenants set forth in this Section 11
shall be the entire term of Employee's employment with Employer plus a period of
four years after the termination of such employment. Employee agrees that this
covenant is reasonable with respect to its duration, geographical area, and
scope. Notwithstanding such restriction, 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.
<PAGE> 63
In the event of a breach by Employee of any covenant set forth in
this Section 11, the term of such covenant will be extended by the period of the
duration of such breach, provided, however, that such extension shall be limited
to four years. In addition to the Employer's right to damages and any other
rights it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce the
provisions of this Section, Employee agrees that money damages alone would be
inadequate to compensate Employer and would be an inadequate remedy for such
breach. If a court of competent jurisdiction holds that the obligations of
Employee pursuant to this Section 11 are unenforceable due to the duration,
geographical areas or scope of this covenant, then such duration, geographical
area or scope of this covenant shall be reduced to the least degree necessary to
render this covenant enforceable. For purposes of this Agreement, "Affiliate"
shall mean any partner, employee, director, shareholder, officer of Employer or
any person or entity controlled by, controlling, or under common control with,
directly or indirectly, Employer, and shall include New ARS or its successor in
title and interest.
12. BUSINESS OPPORTUNITIES. During the term of this Agreement, if
Employee (or any agent, employee, officer or independent contractor of or
retained by Employee) becomes aware of, or develops, creates, invests, devisees,
conceives or discovered, any project, investment, venture, business or other
opportunity (any of the preceding, an "Opportunity") that is similar to,
competitive with, related to or in the same field as Employer or any Affiliate,
or any project, investment, venture, or business of Employer or any Affiliate,
then Employee shall so notify the Employer immediately in writing of such
Opportunity and shall use Employee's good-faith efforts to cause the Employer to
have the opportunity to invest in, participate in or otherwise become affiliated
with such Opportunity.
13. SECTION HEADINGS. The section headings or captions in this
Agreement are for convenience of reference only and do not form a part hereof,
and do not in any way modify, interpret or construe the intent of the parties or
affect any of the provisions of this Agreement.
14. SURVIVAL. The obligations and rights imposed upon the parties
hereto by the provisions of this Agreement which relate to acts or events
subsequent to the termination of this Agreement shall survive the termination of
this Agreement and shall remain fully effective thereafter.
15. VENUE AND JURISDICTION. For purposes of venue and jurisdiction,
this Agreement shall be deemed made and to be performed in the City of San
Diego, California.
16. SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable in any relevant
jurisdiction, then such illegal or unenforceable provision shall be modified by
the proper court, if possible, but only to the extent necessary to make such
provision enforceable, and such modified provision and all other provisions of
this Agreement shall be given effect separately from the provision or portion
thereof determined to be illegal or unenforceable and shall not be affected
thereby; provided, that any such modification shall apply only with respect to
the operation of this Agreement in the particular jurisdiction in which such
determination of illegality or unenforceability is made.
<PAGE> 64
17. WAIVER. The failure of either party to enforce any provision of
this Agreement shall not be construed as a waiver of any such provision, nor
prevent such party thereafter from enforcing such provision or any other
provision of this Agreement. The rights granted both parties herein are
cumulative and the election of one shall not constitute a waiver of such party's
right to assert all other legal remedies available under the circumstances.
18. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties hereto and the successors,
assigns and affiliates of Employer, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third person to any
party to this Agreement, nor shall any provision give any third person any right
of action over or against any party to this Agreement.
19. ASSIGNMENT. The rights and obligations under this Agreement shall
be binding upon, and inure to the benefit of, the heirs, executors, successors
and assigns of Employee and Employer. Except as specifically provided in this
Section 19, neither Employer nor Employee may assign this Agreement or delegate
their respective responsibilities hereunder without the consent of the other
party hereto. Employer may assign this Agreement to an employee leasing company
retained by Employer to provide personnel to or for the benefit of Employer.
Upon the sale, exchange or other transfer of substantially all of the assets of
the Employer, the Employer shall assign this Agreement to the transferee of such
assets. No assignment of this Agreement by Employer shall relieve Employer of,
and Employer shall remain obligated to perform, its duties and obligations under
this Agreement, including, without limitation, payment of the annual salary set
forth in Section 5, above.
20. ATTORNEYS' FEES. In the event of any suit, action or arbitration to
enforce any of the terms or provisions of this Agreement, the prevailing party
shall be entitled to its reasonable attorneys' fees and costs. The foregoing
entitlement shall also include attorneys' fees and costs of the prevailing party
on any appeal of a judgment and for any action to enforce a judgment.
21. MODIFICATION. This Agreement may be modified only by a contract in
writing executed by the party(ies) to this Agreement against whom enforcement of
such modification is sought.
22. PRIOR UNDERSTANDINGS. This Agreement contains the entire agreement
between the parties to this Agreement with respect to the subject matter of this
Agreement, is intended as a final expression of such parties' agreement with
respect to such terms as are included in this Agreement, is intended as a
complete and exclusive statement of the terms of such agreement, and supersedes
all negotiations, stipulations, understandings, agreements, representations and
warranties, if any, with respect to such subject matter, which precede or
accompany the execution of this Agreement.
23. INTERPRETATION. Whenever the context so requires in this Agreement,
all words used in the singular shall be construed to have been used in the
plural (and vice versa), each gender shall be construed to include any other
genders, and the word "person" shall be construed to include a natural person, a
corporation, a firm, a partnership, a joint venture, a trust, an estate or any
other entity.
<PAGE> 65
24. PARTIAL INVALIDITY. Each provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. If any provision of this
Agreement or the application of such provision to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected by such invalidity or unenforceability, unless such provision or such
application of such provision is essential to this Agreement.
25. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and no representation, inducement, promise or agreement, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom such modification, termination
or waiver is sought to be enforced. 26. Counterparts.
26. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
27. APPLICABLE LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed under, and governed by, the laws of the
State of California without giving effect to conflict of laws provisions.
28. DRAFTING AMBIGUITIES. Each party to this Agreement has reviewed and
revised this Agreement. Each party to this Agreement has had the opportunity to
have such party's legal counsel review and revise this Agreement. The rule of
construction that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or of any
amendments or exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMPLOYER:
SVI HOLDINGS, INC., a Nevada corporation
By:
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EMPLOYEE:
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Larry Lahodny
