<PAGE>
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): June 12, 1997
Discreet Logic Inc.
-------------------
(Exact name of Registrant as specified in its charter)
Quebec 0-26100 98-0150790
--------------------------- ----------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
5505 Boulevard St. Laurent, Suite 5200
Montreal, Quebec, Canada H2T 1S6
- ------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (514) 272-0525
<PAGE>
Item 2. Acquisition or Disposition of Assets
Discreet Logic Inc. ("Discreet"), through its wholly-owned subsidiary
3380491 Canada Inc. ("Acquisition Sub"), acquired substantially all of the
assets (the "Assets") and assumed certain liabilities (the "Assumed
Liabilities") of Denim Software L.L.C., a Delaware limited liability company
("Denim") pursuant to the terms of an Asset Purchase Agreement dated as of June
12, 1997 among Acquisition Sub, Denim Software L.L.C., Sam Khulusi, Frank
Khulusi, Westco Denim Investments Group, Ltd., a California limited partnership,
and Frank Khulusi Family Limited Partnership, a California limited partnership.
The purchased assets consist primarily of Denim software products,
including Illuminaire Paint Source Code Version 1.0 and Version 1.1, Illuminaire
Composition Source Code Version 1.0 and Illuminaire Studio Version 1.0 and
related know-how and good will.
The aggregate purchase price for the assets was comprised of (i) $9,125,611
in cash, (ii) the assumption of certain enumerated liabilities in an amount
equal to no more than $2,209,250 in the aggregate, and (iii) the assumption of
certain on-going obligations under certain existing contracts of Denim. The
$9,125,611 cash consideration and $655,356 with respect to certain liabilities,
were paid at the closing. The cash used by Discreet to fund the acquisition was
derived primarily from cash flow from operations. The transaction will be
accounted for using the purchase method. Discreet expects to incur a one-time
charge in the range of $9 million to $10 million (approximately $0.32 to $0.36
per share) for in-process research and development, purchased and expensed in
its fourth fiscal quarter ending June 30, 1997.
The terms of the transaction and the consideration received by Denim were
the result of arms'-length negotiations between the representatives of Discreet
and Denim. The terms of the transaction are more fully described in the Asset
Purchase Agreement, a copy of which is filed as Exhibit 2.1 to this Report and
is incorporated herein by reference.
The acquisition of Denim is part of Discreet's new multi-platform software
initiative which includes the formation of two new product development groups:
Discreet Logic Systems Group and the Discreet Logic Software Group. The new
product organization is part of Discreet's strategy to develop a comprehensive
business model of selling software across Apple(R) Macintosh(R), Microsoft(R)
Windows NT(TM) and UNIX platforms, in addition to its existing fully integrated
real-time turnkey systems solutions.
Certain Factors that May Affect Future Results
Information provided by Discreet from time to time, including statements in
this Form 8-K which are not historical facts, constitute forward looking
statements that involve risks and uncertainties and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and the releases of the Securities and Exchange Commission. Actual results of
operations in connection with the acquisition of the Assets may vary
significantly based on a number of factors, including the integration of the
Denim software
<PAGE>
products into Discreet's product line, market acceptance of the Denim software
products, successful penetration of new markets for institutional customers and
professional consumers, the impact of the acquisition on the Company's current
business, the timely development and acceptance of new products, the impact of
competitive products and pricing, the timely development and release of products
by strategic suppliers, and other risks discussed from time to time in
Discreet's other filings with the Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits (c) Exhibits
Exhibit Index
-------------
Exhibit No. Description
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2.1 Asset Purchase Agreement dated as of June 12, 1997
among 3380491 Canada Inc., Denim Software L.L.C.,
Sam Khulusi, Frank Khulusi, Westco Denim
Investments Group, Ltd., a California limited
partnership, and Frank Khulusi Family Limited
Partnership, a California limited partnership
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DISCREET LOGIC INC.
June 27, 1997
By: /s/ Francois Plamondon
----------------------
Francois Plamondon
Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
<PAGE>
Exhibit Index
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Exhibit No. Description
----------- ------------
2.1 Asset Purchase Agreement dated as of June 12, 1997
among 3380491 Canada Inc., Denim Software L.L.C.,
Sam Khulusi, Frank Khulusi, Westco Denim
Investments Group, Ltd., a California limited
partnership, and Frank Khulusi Family Limited
Partnership, a California limited partnership
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
DATED AS OF
JUNE 12, 1997
AMONG
3380491 CANADA INC.,
DENIM SOFTWARE L.L.C.,
SAM KHULUSI,
FRANK KHULUSI,
WESTCO DENIM INVESTMENTS GROUP, LTD., A CALIFORNIA LIMITED PARTNERSHIP, AND
FRANK KHULUSI FAMILY LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - DEFINITIONS 1
1.01. DEFINITIONS............................................................. 1
ARTICLE II - PURCHASE AND SALE.................................................. 4
2.01. PURCHASE AND SALE....................................................... 4
2.02. EXCLUDED ASSETS......................................................... 5
2.03. ASSUMPTION OF LIABILITIES............................................... 6
2.04. EXCLUDED LIABILITIES.................................................... 6
2.05. ASSIGNMENT OF CONTRACTS AND RIGHTS...................................... 7
2.06. PURCHASE PRICE; ALLOCATION OF PURCHASE PRICE............................ 8
2.07. CLOSING................................................................. 8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER.......................... 9
3.01. CORPORATE EXISTENCE AND POWER........................................... 9
3.02. AUTHORIZATION........................................................... 9
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS.................................... 9
3.04. NON-CONTRAVENTION....................................................... 9
3.05. REQUIRED AND OTHER CONSENTS............................................. 9
3.06. FINANCIAL STATEMENTS.................................................... 10
3.07. ABSENCE OF CERTAIN CHANGES.............................................. 10
3.08. TITLE TO PROPERTY; ENCUMBRANCES; CONDITION.............................. 11
3.09. SUFFICIENCY OF PURCHASED ASSETS......................................... 13
3.10. TITLE TO PURCHASED ASSETS............................................... 13
3.11. NO UNDISCLOSED MATERIAL LIABILITIES..................................... 13
3.12. LITIGATION.............................................................. 13
3.13. MATERIAL CONTRACTS...................................................... 13
3.14. LICENSES AND PERMITS.................................................... 14
3.15. INSURANCE COVERAGE...................................................... 14
3.16. COMPLIANCE WITH LAWS.................................................... 15
3.17. INVENTORIES............................................................. 15
3.18. RECEIVABLES............................................................. 15
3.19. PROPRIETARY RIGHTS...................................................... 15
3.20. EMPLOYEES............................................................... 17
3.21. PRODUCTS................................................................ 17
3.22. FINDERS' FEES........................................................... 17
3.23. OTHER INFORMATION....................................................... 17
3.24. ENVIRONMENTAL COMPLIANCE................................................ 18
3.25. REPRESENTATIONS......................................................... 20
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER............................ 20
4.01. ORGANIZATION AND EXISTENCE............................................. 20
</TABLE>
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4.02. CORPORATE AUTHORIZATION................................................. 20
4.03. GOVERNMENTAL AUTHORIZATION.............................................. 21
4.04. NON-CONTRAVENTION....................................................... 21
4.05. FINDERS' FEES........................................................... 21
4.06. FINANCING............................................................... 21
ARTICLE V - COVENANTS OF SELLER................................................. 21
5.01. CONDUCT OF SELLER....................................................... 21
5.02. ACCESS TO INFORMATION................................................... 22
5.03. NOTICES OF CERTAIN EVENTS............................................... 22
5.04. NONCOMPETITION.......................................................... 22
5.05. CONFIDENTIALITY......................................................... 23
5.06. TRADEMARKS; TRADENAMES.................................................. 24
5.07. NO NEGOTIATIONS WITH THIRD PARTIES...................................... 24
5.08. SUPPLEMENT TO SCHEDULES................................................. 24
5.09. USE OF PROPRIETARY RIGHTS............................................... 25
ARTICLE VI - COVENANTS OF BUYER................................................. 25
6.01. CONFIDENTIALITY......................................................... 25
6.02. ACCESS.................................................................. 25
6.03. EARLY PAYMENT OF CERTAIN ASSUMED LIABILITIES............................ 26
ARTICLE VII - COVENANTS OF BOTH PARTIES......................................... 26
7.01. BEST EFFORTS; FURTHER ASSURANCES........................................ 26
7.02. CERTAIN FILINGS......................................................... 26
7.03. SOFTWARE DELIVERY AND RECEIPT PROCEDURES................................ 27
ARTICLE VIII - TAX MATTERS...................................................... 27
8.01. TAX DEFINITIONS......................................................... 27
8.02. TAX MATTERS............................................................. 27
8.03. TAX COOPERATION; ALLOCATION OF TAXES.................................... 29
ARTICLE IX - EMPLOYEE BENEFITS.................................................. 30
9.01. EMPLOYEE BENEFITS DEFINITIONS........................................... 30
9.02. ERISA REPRESENTATIONS................................................... 30
9.03. SELLER'S EMPLOYEE BENEFIT PLANS......................................... 32
9.04. BUYER BENEFIT PLANS..................................................... 33
9.05. CONTINUATION OF CERTAIN ADMINISTRATIVE SERVICES AND INSURANCE COVERAGE.. 33
9.06. NO THIRD PARTY BENEFICIARIES............................................ 33
ARTICLE X - CONDITIONS TO CLOSING............................................... 33
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY............................ 33
10.02. CONDITIONS TO OBLIGATIONS OF BUYER..................................... 34
10.03. CONDITIONS TO OBLIGATION OF SELLER..................................... 35
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE XI - SURVIVAL; INDEMNIFICATION.......................................... 36
11.01. SURVIVAL............................................................... 36
11.02. INDEMNIFICATION........................................................ 37
11.03. PROCEDURES; NO WAIVER.................................................. 38
ARTICLE XII - TERMINATION....................................................... 38
12.01. GROUNDS FOR TERMINATION................................................ 38
12.02. NOTICE OF TERMINATION; EFFECT OF TERMINATION........................... 40
12.03. PROCEDURE UPON TERMINATION............................................. 40
ARTICLE XIII - MISCELLANEOUS.................................................... 40
13.01. NOTICES................................................................ 40
13.02. AMENDMENTS; NO WAIVERS................................................. 41
13.03. EXPENSES............................................................... 41
13.04. SUCCESSORS AND ASSIGNS................................................. 41
13.05. GOVERNING LAW.......................................................... 42
13.06. COUNTERPARTS; EFFECTIVENESS............................................ 42
13.07. ENTIRE AGREEMENT....................................................... 42
13.08. BULK SALES LAWS........................................................ 42
13.09. JURISDICTION........................................................... 42
13.10. CAPTIONS............................................................... 42
13.11. OTHER REMEDIES; SPECIFIC PERFORMANCE................................... 42
EXHIBITS
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Exhibit A -- Form of Bill of Sale and General Assignment
Exhibit B -- Form of Assignment of Copyrights
Exhibit C -- Form of Assignment of Trademarks
Exhibit D -- Form of Assignment and Assumption Agreement
SCHEDULES
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Schedule 2.02(iv) Excluded Contracts
Schedule 2.03 Assumed Liabilities Incurred Since Balance Sheet Date
Schedule 3.01 Corporate Existence and Power
Schedule 3.03(a) Governmental Authorization; Contracts
Schedule 3.04 Non-Contravention
Schedule 3.05 Required Consents
Schedule 3.06 Financial Statements
Schedule 3.07 Absence of Certain Changes
</TABLE>
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Schedule 3.08(a) Real Property
Schedule 3.08(b) Personal Property
Schedule 3.08(f) Guaranties
Schedule 3.09 Sufficiency of Purchased Assets
Schedule 3.10 Title to Purchased Assets
Schedule 3.11 Undisclosed Liabilities
Schedule 3.13 Contracts
Schedule 3.14 Licenses and Permits
Schedule 3.15 Insurance
Schedule 3.16 Compliance with Laws
Schedule 3.18 Receivables
Schedule 3.19 Proprietary Rights
Schedule 3.20 Employees
Schedule 3.21 Products
Schedule 3.23 Other Information
Schedule 3.24 Environmental Compliance
Schedule 4.04 Payments Subject to Canadian Income Tax
Schedule 5.04(a) Restricted Employees
Schedule 7.03 Software Delivery and Receipt Procedures
Schedule 8.02(c) Taxes
Schedule 9.02 Employee Benefits
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<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of June 12, 1997 among 3380491 Canada Inc., a
corporation organized under the Canada Business Corporation Act ("Buyer"), and
-----
Denim Software L.L.C., a Delaware limited liability company ("Seller"), and Sam
------
Khulusi, an individual, Frank Khulusi, an individual, Westco Denim Investments
Group, Ltd., a California limited partnership, and Frank Khulusi Family Limited
Partnership, a California limited partnership (individually, a "Member" or,
------
collectively, the "Members").
-------
W I T N E S S E T H :
WHEREAS, Seller conducts a business (the "Business") that designs,
--------
manufactures and markets software known as Illuminaire and XP Library (including
without limitation, whether commercially available or under development,
Illuminaire Paint, Illuminaire Composition, Illuminaire Studio, Illuminaire Pro
and XP Library for all platforms, including without limitation Apple MacIntosh,
Microsoft Windows, Windows 95 and Windows NT, Silicon Graphics and DEC Alpha);
WHEREAS, Buyer desires to purchase substantially all of the assets of the
Business from Seller, and Seller desires to sell substantially all of the assets
of the Business to Buyer, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS-
1.01. DEFINITIONS. (a) The following terms, as used herein, have the
-----------
following meanings:
"$" means United States dollars.
"Affiliate" means, with respect to any Person, any Person directly or
---------
indirectly controlling, controlled by, or under common control with such other
Person; provided, however, the term "Affiliate" shall not include any publicly
--------- -------
traded entity as of the Closing Date of which any Member, directly or
indirectly, of record or beneficially owns over fifteen percent (15%) of the
outstanding securities as of the Closing Date.
<PAGE>
"Ancillary Agreements" means the Bill of Sale and General Assignment in
--------------------
the form set forth on Exhibit A, the Assignment of Copyrights in the form set
---------
forth on Exhibit B, the Assignment of Trademarks in the form set forth on
---------
Exhibit C, and Assignment and Assumption Agreement in the form set forth on
- ---------
Exhibit D.
- ---------
"Balance Sheet" means the unaudited balance sheet of the Business as of
-------------
May 31, 1997 found in Schedule 3.06.
-------------
"Balance Sheet Date" means May 31, 1997.
------------------
"Closing Date" means the date of the Closing.
------------
"Employment Agreements" means the employment agreements between Buyer and
---------------------
each of Marc Hawlitzeck, Martin Boyd and other Seller employees determined by
Buyer.
"Lien" means any mortgage, lien, pledge, charge, security interest,
----
restriction, option, right of first refusal, easement, charge, debenture, deed
of trust, right-of-way, encroachment, license, permit, encumbrance or other
limitation on the use of real or personal property or irregularities in title
thereto of any kind.
"Material Adverse Change" means a material adverse change in the
-----------------------
business, assets, operations, financial condition or results of operations or
prospects of the Business.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, assets, operations, financial condition or results of operations or
prospects of the Business.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
--------
rules and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, association,
------
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Proprietary Rights" means all (A) patents, patent applications, patent
------------------
disclosures and all related continuation, continuation-in-part, divisional,
reissue, re-examination, utility, model, certificate of invention and design
patents, patent applications, registrations and applications for registrations,
(B) trademarks, service marks, trade dress, logos, tradenames, service names and
corporate names and registrations and applications for registration thereof, (C)
copyrights and registrations and applications for registration thereof, (D) mask
works and registrations and applications for registration thereof, (E) computer
software, data and documentation, (F) trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists
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<PAGE>
and information, (G) other proprietary rights relating to any of the foregoing
(including without limitation associated goodwill and remedies against
infringements thereof and rights of protection of an interest therein under the
laws of all jurisdictions) and (H) copies and tangible embodiments thereof.
"Seller's Proprietary Rights" means all Proprietary Rights relating to
---------------------------
the Business that are owned by Seller or that are used in the operation of the
Business or necessary for the operation of the Business as currently conducted.
"Transferred Employee" means employees of Seller who accept and commence
--------------------
employment with Buyer.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
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TERM SECTION
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<S> <C>
Allocation Statement 2.06
Apportioned Obligations 8.03
Assumed Liabilities 2.03
Closing 2.07
Code 8.01
Contracts 2.01
Employee Plan 9.01
Environmental Laws 3.24
Environmental Liabilities 3.24
ERISA 9.01
ERISA Affiliate 9.01
Excluded Assets 2.02
Excluded Liabilities 2.04
Financial Statements 3.06
Guaranties 3.08
Hazardous Substance 3.24
Indemnified Party 11.03
Indemnifying Party 11.03
Loss 11.02
Multiemployer Plan 9.01
Non-Assumed Tax Liability 2.04
Other Consent 3.05
Permits 3.14
Permitted Liens 3.08
Petty Cash 2.01
Post-Closing Tax Period 8.01
Pre-Closing Tax Period 8.01
Purchased Assets 2.01
Purchase Price 2.06
</TABLE>
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<TABLE>
<S> <C>
Real Property 3.08
Release 3.24
Required Consent 3.05
Seller Employment Agreements 10.02
Tax 8.01
</TABLE>
ARTICLE II
PURCHASE AND SALE-
2.01. PURCHASE AND SALE. Upon the terms and subject to the conditions
-----------------
of this Agreement, Buyer agrees to purchase from Seller and Seller agrees to
sell, transfer, assign and deliver, or cause to be sold, transferred, assigned
and delivered, to Buyer at Closing, free and clear of all Liens other than
Permitted Liens, or as set forth on Schedule 3.10, all of the assets, properties
-------------
and business, other than the Excluded Assets, of every kind and description,
wherever located, real, personal or mixed, tangible or intangible, owned, held
or used in the conduct of the Business by Seller as the same shall exist on the
Closing Date, including all assets shown on the Balance Sheet and not disposed
of in the ordinary course of business, and all assets of the Business acquired
by Seller between the Balance Sheet Date and the Closing Date (the "Purchased
---------
Assets"), and including, without limitation, all right, title and interest of
- ------
Seller in, to and under such of the foregoing as are more specifically described
below:
(i) all real property and leases of, and other interests in, real
property, in each case together with Seller's interest in all buildings,
fixtures, and improvements erected thereon, including without limitation
the items listed on Schedule 3.08(a);
----------------
(ii) all personal property and interests therein of Seller, including
machinery, equipment, furniture, office equipment, communications
equipment, vehicles, storage tanks, spare and replacement parts, fuel and
other tangible property, including without limitation the items listed on
Schedule 3.08(b);
----------------
(iii) all raw materials, work-in-process, finished goods, supplies
and other inventories of Seller, wherever situated, a listing of which as
of a recent date is set forth on Schedule 3.17;
-------------
(iv) except to the extent provided in Section 2.02(iv) and 2.02(v),
all Seller's rights under all contracts, agreements, leases, licenses,
commitments, sales and purchase orders and other instruments, including
without limitation the items listed on Schedule 3.13 (collectively, the
-------------
"Contracts") and under the Seller Employment Agreements;
----------
(v) all accounts, notes and other receivables of Seller;
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<PAGE>
(vi) all prepaid expenses and deposits including without limitation ad
valorem taxes, leases and rentals;
(vii) all of Seller's cash and cash equivalents on hand and in banks,
including bank account no. 4708052535 at Wells Fargo Bank with a balance of
$3,445.61 as of the Closing net of $2,208.98 with respect to outstanding
checks as of the Closing and all petty cash located at operating facilities
of the Business ("Petty Cash");
(viii) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Purchased Assets,
including, without limitation, unliquidated rights under manufacturers' and
vendors' warranties;
(ix) all Proprietary Rights owned or licensed, or used in the
Business, by Seller, including without limitation the items listed on
Schedule 3.19;
-------------
(x) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, the Business,
including without limitation the items listed on Schedule 3.14;
-------------
(xi) all Seller's books, records, files and papers, whether in hard
copy or computer format, including, without limitation, engineering
information, sales and promotional literature, manuals and data, sales and
purchase correspondence, lists of present and former suppliers, lists of
present and former customers, personnel and employment records, and any
information relating to Tax imposed on the Purchased Assets;
(xii) all right, title and interest of Seller in or to any
prototypes, enhancements, improvements, or other tangible work product or
technology or process developed, created or otherwise acquired in
connection with the design, research and development, market research or
marketing of products of the Business; and
(xiii) all goodwill associated with the Business or the Purchased
Assets, together with the right to represent to third parties that Buyer is
the successor to the Business to the extent permitted by law.
2.02. EXCLUDED ASSETS. Buyer expressly understands and agrees that the
---------------
following assets and properties of Seller (the "Excluded Assets") shall be
---------------
excluded from the Purchased Assets:
(i) all automobiles, automobile leases and related lease deposits;
(ii) any Purchased Assets sold or otherwise disposed of in the
ordinary course of the operation of the Business and not in violation of
any provisions of this Agreement during the period from the date hereof
until the Closing Date;
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(iii) Seller bank account no. 4763395845 at Wells Fargo Bank;
(iv) rights under the contracts, agreements, leases, licenses and
commitments listed on Schedule 2.02(iv);
-----------------
(v) Seller's insurance policies; and
(vi) the rights of Seller to receive the Purchase Price.
2.03. ASSUMPTION OF LIABILITIES. Upon the terms and subject to the
-------------------------
conditions of this Agreement, Buyer agrees, effective at the time of Closing, to
assume the following liabilities (the "Assumed Liabilities"):
-------------------
(i) except as provided in Sections 2.04(i), 2.04(ii) and 2.04(vii),
all liabilities accrued on the Balance Sheet;
(ii) all liabilities arising out of or relating primarily to the
Business and incurred in the ordinary course of Business since the Balance
Sheet Date, but only to the extent listed on Schedule 2.03;
-------------
(iii) all liabilities and obligations of Seller arising under the
Contracts (other than liabilities or obligations attributable to any
failure by Seller to comply with the terms thereof except where such
failure has been consented to in writing by Buyer explicitly referencing
the applicable Contract);
(iv) all warranty claims or expenses of Seller in respect of products
sold or services rendered by the Business through the Closing Date, but
only to the extent of $25,000;
provided, however, that, except for the Assumed Liabilities referred to in
- -----------------
Section 2.03(iii), the foregoing Assumed Liabilities shall be in the aggregate
no greater than $2,209,520.
2.04. EXCLUDED LIABILITIES. Notwithstanding any provision in this
--------------------
Agreement or any other writing to the contrary, Buyer is assuming pursuant to
Section 2.03 only the Assumed Liabilities and is not assuming any other
liability or obligation of Seller or any Affiliate of Seller (or any predecessor
owner of all or part of its business and assets) of whatever nature whether
presently in existence or arising or asserted hereafter. All such other
liabilities and obligations shall be retained by and remain obligations and
liabilities of Seller or its Affiliate (all such liabilities and obligations not
being assumed being herein referred to as the "Excluded Liabilities"). Without
--------------------
limiting the foregoing, none of the following shall be Assumed Liabilities for
the purposes of this Agreement:
(i) except to the extent provided in Section 8.03(c), any obligation
or liability for any Taxes of Seller or any of the Members (including, but
not limited to, obligations or liabilities for Taxes attributable to the
income, business, assets, properties or
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<PAGE>
operations of Seller for any period, or payable in connection with the
transactions contemplated by this Agreement) (each, a "Non-Assumed Tax
Liability");
(ii) any liabilities or obligations relating to employee benefits or
compensation arrangements existing as of the end of the day on the day
preceding the Closing Date, including, without limitation, any liabilities
or obligations under any of Seller's employee benefit agreements, plans or
other arrangements listed on Schedule 9.02 and any liabilities or
--------------
obligations under Paragraphs 2, 3, 4, 5, 6.3, 9, 11, 12.10 and 12.15 (and,
to the extent applicable to such paragraphs, Paragraph 1) of the Seller
Employment Agreements (such enumerated paragraphs to be terminated
effective at Closing);
(iii) any Environmental Liability;
(iv) except to the extent provided in Section 2.03(iv), any liability
or obligation for damages (whether based on negligence, breach of warranty,
strict liability or any other theory) caused by or arising out of or
resulting from, directly or indirectly, the sale by Seller or its
Affiliates of any products or services prior to the Closing Date;
(v) all liabilities and obligations relating to any claim, dispute or
litigation asserted or threatened or governmental proceeding or
investigation instituted or threatened, arising out of, or in connection
with, any alleged violation or noncompliance by Seller of, or failure to
perform any obligations imposed upon Seller in its conduct of the Business
under any statute, rule, regulation or ordinance pertaining to protection
of the environment (including any Environmental Law), employee or
occupational safety and health, wage and hour, Hazardous Substances, civil
rights, customs and export control and zoning, which alleged violation,
noncompliance or failure to perform occurred or existed on or prior to the
Closing Date, but only to the extent of such pre-existing violation,
noncompliance or failure to perform;
(vi) any liability or obligation relating to an Excluded Asset;
(vii) Seller's obligations to provide vacation time and vacation pay
to the Transferred Employees; and
(viii) except for the Assumed Liabilities referred to in Section
2.03(iii), Assumed Liabilities aggregating more than $2,209,520.
2.05. ASSIGNMENT OF CONTRACTS AND RIGHTS. In the case of any Contracts or
----------------------------------
Permits which are not by their terms assignable or transferable, Seller agrees
to use its best efforts to obtain the consent of the other parties to any such
Purchased Asset or claim or right or any benefit arising thereunder for the
assignment thereof to Buyer as Buyer may request. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
adversely affect the rights of Seller thereunder so that Buyer would not in fact
receive all such rights, Seller and Buyer will cooperate in a mutually agreeable
arrangement under which Buyer would obtain the benefits and assume the
obligations thereunder in accordance with this
-7-
<PAGE>
Agreement, including subcontracting, sub-licensing, or subleasing to Buyer, or
under which Seller would enforce for the benefit of Buyer, with Buyer assuming
Seller's obligations, any and all rights of Seller against a third party
thereto. Seller will promptly pay to Buyer when received all monies received by
Seller under any Purchased Asset or any claim or right or any benefit arising
thereunder, except to the extent the same represents an Excluded Asset.
2.06. PURCHASE PRICE; ALLOCATION OF PURCHASE PRICE. (a) The purchase
--------------------------------------------
price for the Purchased Assets (the "Purchase Price") is (i) $9,125,611 in cash,
--------------
and (ii) the assumption of the Assumed Liabilities, $659,146 of which shall be
paid at Closing by Buyer, but $37,896 of which is subject to Canadian tax
withholding of $3,790. The Purchase Price shall be paid as provided in Section
2.07.
(b) Prior to the Closing, Buyer and Seller shall mutually agree upon a
statement (the "Allocation Statement"), setting forth the value of the Purchased
--------------------
Assets and of the covenant not to compete described in Section 5.04 hereof,
which shall be used for the allocation of the Purchase Price (together with the
Assumed Liabilities) among the Purchased Assets and the covenant not to compete.
2.07. CLOSING. The closing (the "Closing") of the purchase and sale of
------- -------
the Purchased Assets and the assumption of the Assumed Liabilities hereunder
shall take place at the offices of Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, Massachusetts 02110 at a time and on a date
mutually agreeable to Buyer and Seller after satisfaction of the conditions set
forth in Article X, but in no event later than June 12, 1997, or at such other
time or place as Buyer and Seller may agree. At the Closing,
(a) Buyer shall make wire transfers to an account or accounts designated by
Seller, in the aggregate amount of $9,125,611 of the cash portion of the
Purchase Price.
(b) Buyer shall make wire transfers to an account or accounts designated by
Seller in the aggregate amount of $655,356, with $3,790 of Canadian tax
withholding to be remitted by Buyer to Revenue Canada.
(c) Seller and Buyer shall enter into the Ancillary Agreements and any
other consents, assignments and other good and sufficient instruments of
conveyance as the parties and their respective counsel shall deem necessary or
appropriate to vest in Buyer all of Seller's right, title and interest in and to
the Purchased Assets.
(d) Seller and Buyer shall also execute and deliver all such instruments,
documents and certificates as may be reasonably requested by the other party
that are necessary, appropriate or desirable for the consummation at the Closing
of the transactions contemplated by this Agreement.
-8-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to Article XI, Seller and each of the Members hereby, jointly and
severally, represent and warrant to Buyer that:
3.01. EXISTENCE AND POWER. Seller is a limited liability company, duly
-------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all powers and all governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted. Set
forth in Schedule 3.01 is an accurate and complete list of each jurisdiction in
-------------
which Seller is qualified or licensed to do business. Seller is duly qualified
to do business as a foreign limited liability company and is in good standing in
each jurisdiction set forth on Schedule 3.01, which are the only jurisdictions
-------------
where failure to be so qualified would, individually or in the aggregate, have a
Material Adverse Effect. Seller has heretofore delivered to Buyer true and
complete copies of its constitutional documents of Seller as currently in
effect, and no action has been taken or authorized to amend any of such
documents. Each Member who is not a natural person is a limited partnership,
duly organized, validly existing and in good standing as a partnership under
the laws of the State of California.
3.02. AUTHORIZATION. The execution, delivery and performance by Seller
-------------
and each Member of this Agreement and the consummation by Seller and each Member
of the transactions contemplated hereby are within the powers of Seller and
each Member and have been duly authorized by all necessary action of Seller and
by all necessary action of its Members. This Agreement constitutes a valid and
binding agreement of Seller and each Member.
3.03. GOVERNMENTAL AUTHORIZATION; CONSENTS. Except as set forth in
------------------------------------
Schedule 3.03(a), the execution, delivery and performance by Seller and each
- ----------------
Member of this Agreement and each of the Ancillary Agreements requires no action
by or in respect of, or filing with, any governmental body, agency, official or
authority.
3.04. NON-CONTRAVENTION. Except as set forth in Schedule 3.04, the
----------------- -------------
execution, delivery and performance by Seller and each Member of this Agreement
and each of the Ancillary Agreements do not and will not (i) contravene or
conflict with the constitutional documents of Seller or any Member who is not a
natural person, (ii) contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to Seller, any Member or the Business; (iii)
constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Seller or to a loss
of any benefit relating to the Business to which Seller is entitled under any
provision of any agreement, contract or other instrument binding upon Seller or
by which any of the Purchased Assets is or may be bound, or any Permit or (iv)
result in the creation or imposition of any Lien on any Purchased Asset, other
than Permitted Liens.
3.05. REQUIRED AND OTHER CONSENTS. (a) Schedule 3.05 sets forth each
--------------------------- -------------
agreement, contract or other instrument binding upon Seller or any Member or any
Permit requiring a
-9-
<PAGE>
consent as a result of the execution, delivery and performance of this Agreement
and the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby, except such consents as would not, individually
or in the aggregate, have a Material Adverse Effect if not received by the
Closing Date (each such consent, a "Required Consent").
----------------
(b) No other consent (each such consent, an "Other Consent") under such
-------------
agreements, contracts or other instruments or such Permits is necessary with
respect to the execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby.
3.06. FINANCIAL STATEMENTS. Seller has previously furnished Buyer with
--------------------
a true and complete copy of (i) the unaudited balance sheets of Seller as of
December 31, 1996 and the statements of operations and changes in members'
capital accounts of Seller for the respective fiscal years then ended, and (ii)
the unaudited balance sheets of Seller as of May 31, 1997 and the statements of
income and changes in members' capital accounts of Seller for the interim period
ended May 31, 1997 (collectively, and together with the footnotes thereto, the
"Financial Statements" which are attached hereto as Schedule 3.06). The
-------------------- -------------
Financial Statements have been prepared from the books and records of Seller and
the balance sheet as of May 31, 1997 fairly presents the financial position of
Seller at such date. The Financial Statements have not been reviewed by a
certified public accountant on behalf of Seller.
3.07. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, except
--------------------------
as reflected in the Financial Statements, Seller has conducted its business in
the ordinary course consistent with past practices and there has not been:
(a) any Material Adverse Change or any event, occurrence, development or
state of circumstances or facts which could reasonably be expected to result in
a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any Seller ownership interests;
(c) any incurrence, assumption or guarantee by Seller of any indebtedness
for borrowed money with respect to the Business;
(d) any creation or assumption by Seller of any Lien on any Purchased
Asset;
(e) any making of any loan, advance or capital contributions to or
investment in any Person;
(f) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the Business or Purchased Assets of Seller which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect;
-10-
<PAGE>
(g) any transaction or commitment made, or any contract or agreement
entered into, by Seller relating to its Business or Purchased Assets (including
the acquisition, license or disposition of any assets) or any relinquishment by
Seller of any contract or other right, in either case, material to Seller, other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement;
(h) any change in any method of accounting or accounting practice by
Seller;
(i) any (i) grant of any severance or termination pay to any member,
managing member, employee of Seller, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any member, managing member, or employee of Seller,
(iii) change in benefits payable under existing severance or termination pay
policies or employment agreements or (iv) change in compensation, bonus or other
benefits payable to directors, officers or employees of Seller;
(j) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representation thereof to organize
any employees of Seller, or any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to any employees of Seller; or
(k) any capital expenditure, or commitment for a capital expenditure, for
additions or improvements to property, plant or equipment.
3.08. TITLE TO PROPERTY; ENCUMBRANCES; CONDITION. (a) Seller owns,
------------------------------------------
leases or subleases all real property used in the Business. Schedule 3.08(a)
----------------
describes all real property used in the Business included in the Purchased
Assets (the "Real Property"), any title insurance policies and surveys with
-------------
respect thereto, and any Liens thereon, specifying in the case of leases or
subleases, the name of the lessor or sublessor, the lease term and basic annual
rent.
(b) Schedule 3.08(b) describes all personal property used in the Business
----------------
included in the Purchased Assets, including but not limited to machinery,
equipment, furniture, vehicles, storage tanks, spare and replacement parts, fuel
and other trade fixtures and fixed assets, and any Liens thereon, specifying in
the case of leases or subleases, the name of the lessor or sublessor, the lease
term and basic annual rent.
(c) (i) The Seller has good and marketable, indefeasible, fee simple
title to, or in the case of leased Real Property has valid leasehold
interests in, all Purchased Assets (whether real, personal, tangible or
intangible) reflected on the Balance Sheet or acquired after the Balance
Sheet Date, except for properties and assets sold since the Balance Sheet
date in the ordinary course of business consistent with past practices.
(ii) The Real Property includes all real property, and only such real
property, as is used or held for use in connection with the conduct of the
business and operations of the Business as heretofore conducted and as
presently planned to be conducted by Buyer.
-11-
<PAGE>
(iii) All leases of Real Property or personal property are in good
standing and are valid, binding and enforceable in accordance with their
respective terms, and there does not exist under any such lease of real
property or personal property any material default or any event that, with
notice or lapse of time or both, would constitute a material default.
(iv) The plants, buildings, structures and equipment included in the
Purchased Assets have no material defects, are in good operating condition
and repair and have been reasonably maintained consistent with standards
generally followed in the industry (giving due account to the age and
length of use of same, ordinary wear and tear excepted), are suitable for
their present uses and, in the case of plants, buildings and other
structures (including without limitation, the roofs thereof), are
structurally sound.
(v) The plants, buildings and structures included in the Purchased
Assets currently have access to (A) public roads or valid easements over
private streets or private property for such ingress to an egress from all
such plants, buildings and structures and (B) water supply, storm and
sanitary sewer facilities, telephone, gas and electrical connections, fire
protection, drainage and other public utilities, as is necessary for the
conduct of the Business as it is presently conducted.
(vi) None of the material structures on the Real Property encroaches
upon real property of another person, and no structure of any other Person
substantially encroaches upon any Real Property.
(d) Except as set forth on Schedules 3.08(a) and 3.08(b), no Purchased
-----------------------------
Asset is subject to any Lien, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being contested in good faith (and
for which adequate accruals or reserves have been established on the
Balance Sheet); or
(iii) Liens that do not materially detract from the value of such
Purchased Asset as now used, or materially interfere with any present or
intended use of such Purchased Asset (clauses (ii) and (iii) are,
collectively, the "Permitted Liens").
---------------
(e) No violation of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to the Business or any Purchased
Asset currently exists or has existed at any time since December 31, 1995,
except for violations that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. There are no
developments affecting any of the Purchased Assets pending or, to the knowledge
of Seller threatened, which might materially detract from the value of such
Purchased Assets, materially interfere with any present or intended use of any
such Purchased Assets or materially adversely affect the marketability of such
Purchased Assets.
-12-
<PAGE>
(f) Schedule 3.08(f) sets forth all guaranties of Members relating in any
----------------
way to Seller or the Business (the "Guaranties"), other than guaranties of
Members relating to the Excluded Assets.
3.09. SUFFICIENCY OF PURCHASED ASSETS. Except as set forth in Schedule
------------------------------- --------
3.09, the Purchased Assets and the Excluded Assets together constitute, and on
- ----
the Closing Date will constitute, all of the assets or property used or held for
use in the Business.
3.10. TITLE TO PURCHASED ASSETS. Except as set forth in Schedule 3.10,
------------------------- -------------
upon consummation of the transactions contemplated hereby, Buyer will have
acquired good and marketable title in and to, or a valid leasehold interest in,
each of the Purchased Assets, free and clear of all Liens, except for Permitted
Liens.
3.11. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in
-----------------------------------
Schedule 3.11, there are no liabilities, claims, indebtedness or obligations
- -------------
of the Business of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, including, without limitation, any
foreign or domestic Tax liabilities or deferred Tax liabilities in respect of or
measured by Seller's income, and there are no liabilities, claims, indebtedness
or obligations related to or arising out of any act, omission, transaction, sale
of goods or services, or existing condition, situation or set of circumstances
which occurred or existed on or before the date hereof, whether or not then
known, due or payable, other than:
(i) liabilities disclosed or provided for on the Balance Sheet; and
(ii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which in the
aggregate are not material to Seller.
3.12. LITIGATION. There is no action, suit, investigation or proceeding
----------
(or any basis therefor) pending against, or to the knowledge of Seller or
Sellers, threatened against or affecting, the Business or any Purchased Assets,
or the transactions contemplated hereby, before any court or arbitrator or any
governmental body, agency, official or authority.
3.13. MATERIAL CONTRACTS. (a) Except for the Contracts disclosed in
------------------
Schedule 3.13 or any other Schedule to this Agreement, with respect to the
-------------
Business, Seller is not a party to or subject to:
(i) any lease providing for annual rental;
(ii) any contract or the purchase of materials, supplies, goods,
services, equipment or other assets;
(iii)any sales, distribution or other similar agreement providing
for the sale by Seller of materials, supplies, goods, services, equipment
or other assets;
-13-
<PAGE>
(iv) any partnership, joint venture or other similar contract
arrangement or agreement;
(v) any contract relating to indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed
or secured by an asset), except contracts relating to indebtedness incurred
in the ordinary course of business;
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by Seller;
(vii) any agency, dealer, sales representative or other similar
agreement;
(viii)any agreement, contract or commitment that substantially
limits the freedom of Seller to compete in any line of business or with any
Person or in any area or to own, operate, sell, transfer, pledge or
otherwise dispose of or encumber any Purchased Asset or that would so limit
the freedom of the Buyer after the Closing Date;
(ix) any agreement, contract or commitment which is or relates to an
agreement with or for the benefit of any Affiliate of Seller; or
(x) any other agreement, contract or commitment not made in the
ordinary course of business which is material to the Business taken as a
whole.
(b) Each Contract disclosed in any Schedule to this Agreement or required
to be disclosed pursuant to Section 3.13(a) is valid and binding agreement of
Seller and is in full force and effect, and neither Seller nor, to the knowledge
of Seller, any other party thereto is in default in any material respect under
the terms of any such Contract, nor, to the knowledge of Seller, has any event
or circumstance occurred that, with notice or lapse of time or both, would
constitute any event of default thereunder.
3.14. LICENSES AND PERMITS. Schedule 3.14 correctly described each
-------------------- -------------
license, franchise, permit or other similar authorization affecting, or relating
in any way to, the Business as conducted by Seller on the Closing Date, together
with the name of the government agency or entity issuing such license or permit
(the "Permits"). Except as set forth on the Schedule 3.14, such Permits are
------- -------------
valid and in full force and effect and, assuming the related Required Consents
and Other Consents have been obtained prior to the Closing Date, are
transferable by Seller and will not be terminated or impaired or become
terminable as a result of the transactions contemplated hereby. Upon
consummation of such transactions, Buyer will, assuming the related Required
Consents and Other Consents have been obtained prior to the Closing Date, have
all of the right, title and interest in all the Permits.
3.15. INSURANCE COVERAGE. Seller has furnished to Buyer a list of, and
------------------
true and complete copies of, all insurance policies and fidelity bonds covering
the Purchased Assets, the business and operations of the Business and its
employees. There is no claim by Seller pending
-14-
<PAGE>
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and Seller is otherwise
in full compliance with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) have been in effect since December 6,
1995 and remain in full force and effect.
3.16. COMPLIANCE WITH LAWS. Except as set forth in Schedule 3.16, Seller
-------------------- -------------
is not in violation of, has not violated, and to Seller's knowledge is not under
investigation with respect to and has not been threatened to be charged with or
given notice of any violation of, any law, rule, ordinance or regulation, or
judgment, order or decree entered by any court, arbitrator or governmental
authority, domestic or foreign, applicable to the Purchased Assets or the
conduct of the Business, except for violations that have not had and could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
3.17. INVENTORIES. The inventories set forth in the Balance Sheet were
-----------
properly stated therein at the lesser of cost or fair market value. Since the
Balance Sheet Date, the inventories related to the Business have been maintained
in the ordinary course of business. All such inventory is owned free and clear
of all Liens. All of the inventory recorded on the Balance Sheet consists of,
and all inventory related to the Business on the Closing Date will consist of,
items usable or salable in the normal course of Business consistent with past
practices and are and will be in a quantity sufficient for the normal operation
of the Business in accordance with past practice.
3.18. RECEIVABLES. Except as set forth in Schedule 3.18, all accounts,
----------- -------------
notes receivable and other receivables (other than receivables collected since
the Balance Sheet Date) reflected on the Balance Sheet are, and all accounts and
notes receivable arising from or otherwise relating to the Business at the
Closing Date will be, valid, genuine and fully collectible within 120 days from
the date of its creation in the aggregate amount thereof, subject to normal and
customary trade discounts, less any reserves for doubtful accounts recorded on
the Balance Sheet. All accounts, notes receivable and other receivables arising
out of or relating to the Business at the Closing Date will be included in the
Balance Sheet set forth in Schedule 3.06, subject to changes in the ordinary
-------------
course of business.
3.19. PROPRIETARY RIGHTS. (a) Schedule 3.19 contains a "certificate of
------------------ -------------
originality" relating to Seller's software products and a list of all of the
following that are included in Seller's Proprietary Rights: (i) patents and
patent applications; (ii) trademarks, tradenames and service marks and
registrations thereof and applications therefor; and (iii) registered copyrights
and applications for copyright registration; as well as licenses relating to any
of the foregoing. Schedule 3.19 identifies the owner of each item listed
-------------
thereon and, in the case of registrations and applications, the application or
registration number and date.
(b) Seller owns or has the right to use all of Seller's Proprietary
Rights. Upon execution and delivery by Seller to Buyer of the instruments
of conveyance contemplated by this Agreement, each item of Seller's
Proprietary Rights will be owned or available for
-15-
<PAGE>
use by Buyer on identical terms and conditions immediately following the
Closing, except as otherwise indicated on Schedule 3.19. Seller has taken
-------------
reasonable measures to protect the proprietary nature of Seller's
Proprietary Rights and to maintain in confidence the trade secrets and
confidential information that it owns or uses in the Business. To Seller's
knowledge, no other Person has any rights to any item of Seller's
Proprietary Rights or has any rights to any of the Seller's Proprietary
Rights, except that the items of Seller's Proprietary Rights identified on
Schedule 3.19 as licensed to Seller are owned by the respective owners
-------------
identified on Schedule 3.19, and, to Seller's knowledge, no other Person
-------------
is infringing, violating or misappropriating any of Seller's Proprietary
Rights, except as otherwise indicated on Schedule 3.19.
-------------
(c) Except as set forth in Schedule 3.19, to Seller's knowledge, none
-------------
of the activities or business presently conducted by the Business or
conducted by the Business infringes or violates, or constitutes a
misappropriation of, any Proprietary Rights of any other person or entity.
The Seller has not received any complaint, claim or notice alleging any
such infringement, violation or misappropriation.
(d) With respect to each item of Seller's Proprietary Rights:
(i) Seller possesses all right, title and interest in and to such
item;
(ii) such item is not subject to any outstanding judgment, order,
decree, stipulation or injunction; and
(iii)Seller has not agreed, except in the ordinary course of
business consistent with past practices in conjunction with product sales,
to indemnify any person or entity for or against any infringement,
misappropriation or other conflict with respect to such item.
(e) Schedule 3.19 identifies each item of Seller's Proprietary Rights
-------------
used in the operation of the Business that is owned by a party other than
Seller. All licenses or other agreements pursuant to which Seller uses
such items are listed on Schedule 3.19. Except as set forth in Schedule
------------- --------
3.19, with respect to each such item:
----
(i) the license or other agreement, covering such item is legal,
valid, binding, enforceable and in full force and effect with respect to
Seller, and, to Seller's knowledge, with respect to every other party
thereto;
(ii) except as set forth in Schedule 3.19, each such license or other
-------------
agreement to which Seller is a party is assignable by Seller to Buyer
without the consent or approval of or any payment to any party, and all
such licenses and other agreements will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior
to the Closing, and the consummation of the transactions contemplated
herein will not conflict with, result in a violation or breach of or
constitute a default under (or would result in a
-16-
<PAGE>
violation, breach or default with the giving of notice or the passage of
time or both) any such license or other agreement;
(iii) except as set forth in Schedule 3.19, neither Seller, nor, to
-------------
Seller's knowledge, any other party is in breach or default under any such
license or other agreement, and no event has occurred which, with notice
and/or lapse of time, would constitute such a breach or default or permit
termination, modification or acceleration thereunder;
(iv) to Seller's knowledge, the underlying item of Seller's
Proprietary Rights is not subject to any outstanding judgment, order,
decree, stipulation or injunction; and
(v) Seller has not agreed, except in the ordinary course of
business consistent with past practices in conjunction with product sales,
to indemnify any Person for or against any interference, infringement,
misappropriation or other conflict with respect to such item.
3.20. EMPLOYEES. Schedule 3.20 sets forth a true and complete list of the
--------- -------------
name, current rate of compensation and any vacation, holiday or sick pay, and
any other compensation arrangements (including, but not limited to, severance
arrangements) or benefits of each current employee and independent contractor of
the Seller. No employee of the Business has indicated to Seller that he intends
to resign or retire as a result of the transactions contemplated by this
Agreement or otherwise.
3.21. PRODUCTS. Except as set forth in Schedule 3.21, each of the
-------- -------------
products produced or sold by Seller in connection with the Business (i) is, and
at all times has been, in compliance in all material respects with all
applicable federal, state, local and foreign laws and regulations and (ii) is,
and at all relevant times following commercial release, has been, fit for the
ordinary purposes for which it is intended to be used and conforms in all
material respects to any promises or affirmation of fact made on the container
or label for such products or in connection with its sale, however the Seller
makes no representation regarding the revenue potential of the Products. There
is no design defect with respect to any of such products, and each of such
products contains adequate warnings, presented in a reasonably prominent manner,
in accordance with applicable laws and current industry practice with respect to
its contents and use.
3.22. FINDERS' FEES. There is no investment banker, broker, finder or
-------------
other intermediary which has been retained by or is authorized to act on behalf
of Seller who might be entitled to any fee or commission from Buyer or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
3.23. OTHER INFORMATION. Except as set forth in Schedule 3.23, none of
----------------- -------------
the documents or information delivered to Buyer taken as a whole in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein not
misleading.
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<PAGE>
3.24. ENVIRONMENTAL COMPLIANCE.
------------------------
(a) Environmental Definitions. The following terms, as used herein,
-------------------------
have the following meanings:
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended.
"Environment" means any and all environmental media, including without
-----------
limitation ambient air, surface water, ground water, drinking water supply, land
surface or subsurface strata, and also means any indoor location.
"Environmental Laws" means any and all federal, state, local and
------------------
foreign statutes, laws (including common or case law), regulations, ordinances,
rules, judgments, judicial decisions, orders, decrees, codes, plans,
injunctions, Environmental Permits, or governmental restrictions relating to the
protection of human health or safety or the Environment or to emissions,
discharges or Releases of any Hazardous Substance into the Environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Substance or the
containment, removal or remediation thereof.
"Environmental Liabilities" means any and all liabilities arising in
-------------------------
connection with or in any way relating to Seller's business, whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters governed by Environmental Laws or arise in
connection with or relate to any matter disclosed or required to be disclosed in
Schedule 3.24 and (ii) arise from or relate in any way to actions occurring or
- -------------
conditions existing before the Closing Date.
"Environmental Permits" means any and all governmental permits,
---------------------
licenses, concessions, grants, franchises, agreements, authorizations,
registrations or other governmental approvals issued or required under any
Environmental Laws.
"Hazardous Substance" means any and all pollutants and contaminants,
-------------------
and any and all toxic, caustic, radioactive or otherwise hazardous materials,
substances or wastes that are regulated under any Environmental Laws, and
includes, without limitation, petroleum and its derivatives and by-products, and
any other hydrocarbons.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment (including, without limitation, the abandonment or discarding of
barrels, containers, and other closed receptacles containing any Hazardous
Substance).
(b) Environmental Representations and Warranties. Except as disclosed
--------------------------------------------
in Schedule 3.24:
-------------
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<PAGE>
(i) Seller has complied in all material respects with all
Environmental Laws.
(ii) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending, or to
Seller's knowledge, threatened by any governmental or other entity with
respect to any (A) alleged violation by Seller of any Environmental Law, or
any liability thereunder, (B) alleged failure by Seller to have any
Environmental Permit, or (C) the use, generation, treatment, storage,
recycling, transportation or disposal by Seller of any Hazardous Substance.
(iii) Seller has not handled any Hazardous Substance, other than as a
generator, on any property now or previously owned or leased by Seller; no
urea formaldehyde or polychlorinated biphenyls are or have been present at
any property now or previously owned or leased by Seller; no asbestos or
asbestos-containing materials are or have been present at any property now
or previously owned or leased by Seller; there are and have been no
underground storage tanks or related piping for Hazardous Substances,
active or abandoned, at any property now or previously owned or leased by
Seller; no Hazardous Substance has been Released at, on or under any
property now or previously owned or leased by Seller and no Hazardous
Substance has been Released or is present, in a reportable or threshold
planning quantity, where such a quantity has been established by any
Environmental Law, at, on or under any property now or previously owned or
leased by Seller.
(iv) Seller has not transported or arranged for the transportation
(directly or indirectly) of any Hazardous Substance to any location which
is (A) listed or proposed for listing on the National Priorities List
promulgated pursuant to CERCLA or on any similar state list of sites
requiring investigation or clean-up or (B) the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against Seller for any Environmental Liabilities including, without
limitation, clean-up costs, remedial work, damages to natural resources or
for personal injury claims, and claims under CERCLA.
(v) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of Seller and no property now or
previously owned or leased by Seller is listed or, to Seller's knowledge,
proposed for listing, on the National Priorities List promulgated pursuant
to CERCLA or on any similar state list of sites requiring investigation or
clean-up.
(vi) No notice, lien or other restriction relating to the presence
of Hazardous Substances or otherwise arising under and Environmental Law
has been placed on any property or facility now or previously owned or
leased by Seller, and no governmental actions have been taken or are in
process that could subject any such property or facility to such a notice,
lien or other restriction. Seller would not be required to place any such
notice, lien or other restriction relating to the presence of Hazardous
Substances or
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<PAGE>
otherwise arising under any Environmental Law at any property used in
connection with the operation of its business or in any deed to such
property.
(vii) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for Seller, or
which are in Seller's possession, in relation to any property or facility
now or previously owned or leased by Seller, which have not been delivered
to Buyer.
(viii) Seller has applied for and received all Environmental Permits
required in connection with its business. Schedule 3.24 sets forth a list
-------------
of all such Environmental Permits, each of which is in full force and
effect. No suspension or cancellation is threatened and there is no basis
for believing that any such Environmental Permit will not be renewable upon
expiration. Except as set forth in Schedule 3.24, each such Environmental
-------------
Permit will continue to be in full force and effect immediately following
the Closing in accordance with the terms thereof as in effect immediately
prior to the Closing, and the consummation of the transactions contemplated
herein will not conflict with, result in a violation or breach of or
constitute a default under (or would result in a violation, breach or
default with the giving of notice or the passage of time or both) any such
Environmental Permit.
3.25. REPRESENTATIONS. The representations and warranties of Seller
---------------
contained in this Agreement as modified by the corresponding Schedules hereto,
disregarding all qualifications and exceptions contained therein expressly
relating to materiality or Material Adverse Effect, are true and correct with
only such exceptions as would not in the aggregate reasonably be expected to
have a Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warranties to Seller and Members that:
4.01. ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
--------------------------
incorporated, validly existing and in good standing under the laws of Canada and
has all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
4.02. CORPORATE AUTHORIZATION. The execution, delivery and performance
-----------------------
by Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement and constitutes a valid and binding agreement of Buyer.
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<PAGE>
4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance
--------------------------
by Buyer of this Agreement require no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
4.04. NON-CONTRAVENTION. The execution, delivery and performance by Buyer
-----------------
of this Agreement do not and will not, with or without the giving of notice or
the lapse of time or both: (i) contravene or conflict with the corporate charter
or bylaws of Buyer, or (ii) contravene or conflict with any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Buyer. Except as disclosed in Schedule 4.04, payments of the
Purchase Price will not be subject to any Canadian tax withholding obligations.
4.05. FINDERS' FEES". There is no investment banker, broker, finder,
--------------
agent or other intermediary which has been retained by or is authorized to act
on behalf of Buyer who might be entitled to any fee or commission from Seller or
any or any Affiliate thereof upon consummation of the transactions contemplated
by this Agreement.
4.06. FINANCING. Buyer has sufficient funds available to purchase the
---------
Purchased Assets.
ARTICLE V
COVENANTS OF SELLER
Seller and each Member jointly and severally covenant and agree as follows
(provided; however, that with respect to Sections 5.04, 5.05 and 5.09 each
-------- -------
Member shall be liable for acts or omissions of itself or himself and Seller,
but not for acts or omissions of any other Member):
5.01. CONDUCT OF SELLER. From the date hereof until the Closing Date,
-----------------
Seller shall conduct its businesses in the ordinary
course consistent with past practices and use their best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of their present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the Closing
Date, Seller will not:
(a) adopt or propose any change in its constitutional documents;
(b) merge or consolidate with any other Person or acquire a material amount
of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments and (ii) in
the ordinary course consistent with past practices;
(d) declare, set aside or pay any dividend or make any other distribution
of assets of any kind whatsoever with respect to any Seller ownership interests;
or
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<PAGE>
(e) agree or commit to do any of the foregoing.
Seller will not (i) take or agree or commit to take any action that would make
any representation and warranty of Seller under this Agreement on the date of
its execution and delivery inaccurate in any respect at, or as of any time prior
to, the Closing Date or (ii) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any respect at any such time.
5.02. ACCESS TO INFORMATION. From the date hereof until the Closing
---------------------
Date, Seller (a) will give, Buyer, its counsel, financial advisors, financing
sources, auditors and other authorized representatives full access to the
offices, properties, books and records of Seller, (b) will furnish to Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to Seller as such
Persons may reasonably request, and (c) will instruct the employees, counsel and
financial advisors of Seller to cooperate with Buyer in its investigation of
Seller; provided that no investigation pursuant to this Section shall affect
--------
any representation or warranty given by Seller hereunder.
5.03. NOTICES OF CERTAIN EVENTS. Seller will promptly notify Buyer of:
-------------------------
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting Seller disclosed pursuant to Section 3.11 or that
relate to the consummation of the transactions contemplated by this
Agreement.
5.04. NONCOMPETITION. (a) Seller and each Member agrees that for a
--------------
period of three (3) full years commencing from the Closing Date, neither
it nor any of its Affiliates shall:
(i) anywhere in the world, directly or indirectly, manage, operate,
control, be employed or retained by or participate in the ownership (except
for (1) the ownership of up to five percent (5%) of the outstanding
securities of any entity, where it or he is not directly or indirectly an
employee, officer, director or principal of such entity, or (2) any passive
investment in a venture capital fund or other investment fund over which it
or he exercises no control or decision-making authority), management,
operation or control of any business which engages in engineering, research
or development efforts with respect
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<PAGE>
to paint, composition, editing, design, imaging and/or effects software
products for use with video, film and/or HDTV;
(ii) knowingly solicit, for competitive purposes, for itself or any
Person other than Buyer, the business of any Person which is a consultant
or subcontractor of Seller, or was a consultant or subcontractor of Seller
within three (3) years prior to the date of this Agreement;
(iii) persuade or attempt to persuade (other than through general
business or human resources advertising or marketing efforts) any employee
of Buyer or any Person who is an employee of Buyer after the date hereof,
to leave Buyer's employ, or to become employed by any Person other than
Buyer without Buyer's prior written consent;
(iv) employ, hire or retain the individuals listed on Schedule
--------
5.04(a); or
-----------
(v) engage in any practice the purpose of which is to evade the
provisions of this Section 5.04.
(b) If any provision contained in this Section shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section, but this
Section shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. It is the intention of the parties
that if any of the restrictions or covenants contained herein is held to cover a
geographic area or to be for a length of time which is not permitted by
applicable law, or in any way construed to be too broad or to any extent
invalid, such provision shall not construed to be null, void and of no effect,
but to the extent such provision would be valid or enforceable under applicable
law, a court of competent jurisdiction shall construe and interpret or reform
this Section to provide for a covenant having the maximum enforceable geographic
area, time period and other provisions (not greater than those contained herein)
as shall be valid and enforceable under such applicable law. Seller
acknowledges that Buyer would be irreparably harmed by any breach of this
Section and that there would be no adequate remedy at law or in damages to
compensate Buyer for any such breach. Seller agrees that Buyer shall be
entitled to injunctive relief requiring specific performance by Seller of this
Section, and Seller consents to the entry thereof.
5.05. CONFIDENTIALITY. Seller and each Member will hold, and will use
---------------
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning Buyer
furnished to Seller or a Member in connection with the transactions contemplated
by this Agreement, and (after the Closing Date) all confidential documents and
information concerning Seller, except to the extent that such information can be
shown to have been (i) previously known on a nonconfidential basis by Seller,
(ii) in the public domain through no fault of Seller or (iii) later lawfully
acquired by Seller from sources other than Seller or Buyer; provided that Seller
--------
may disclose such information to their respective officers,
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<PAGE>
directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such persons are informed by Seller of the confidential nature of such
information and are directed by Seller to treat such information confidentially.
The obligation of Seller and each Member to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information but in no event less than a reasonable degree of care. If
this Agreement is terminated, Seller and each Member will, and will use their
best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or deliver to
Buyer, upon request, all documents and other materials, and all copies thereof,
obtained by Seller or a Member, or on their behalf from Buyer in connection with
this Agreement that are subject to such confidence.
5.06. TRADEMARKS; TRADENAMES. As soon as practicable after the Closing
----------------------
Date, Seller shall eliminate the use of all of the trademarks, tradenames,
service marks and service names used in the Business, in any of their forms or
spellings, on all advertising, stationery, business cards, checks, purchase
orders and acknowledgments, customer agreements and other contracts and business
documents. Seller shall change the business name of Seller so as to bear no
resemblance to current name of Seller.
5.07. NO NEGOTIATIONS WITH THIRD PARTIES. From the date hereof until the
----------------------------------
Closing, Seller agrees not to, directly or indirectly, through agent,
representative, stockholder or otherwise: (i) solicit or entertain offers from,
negotiate with or in any manner encourage, discuss, accept or consider, any
proposal of any third party relating to an investment in Seller or the
acquisition of Seller, its capital stock, its assets (or rights thereto) or its
business, in whole or in part, whether its through direct purchase, merger,
consolidation or business combination or licensing transaction (all such
transactions being referred to herein as "Acquisition Proposals"); (ii)
---------------------
disclosed to any third party any non-published information concerning Seller,
its business, or financial condition in connection with an acquisition or
investment in Seller or (iii) withdraw its intention to engage in a transaction
with Buyer. If Seller or any of its employees, stockholders, agent, or
representatives receive any unsolicited inquiry (however preliminary), offer or
proposal, Seller shall promptly notify Buyer and promptly provide or cause its
employees, stockholders, agents or representatives to promptly provide a copy of
any written letter or other material constituting a or accompanying such
inquiry, offer or proposal to Buyer.
5.08. SUPPLEMENT TO SCHEDULES. Seller may, prior to the Closing Date, by
-----------------------
written notice in accordance with this Agreement, supplement each of the
schedules hereto to reflect any change or event that occurs after the date of
this Agreement which, if not disclosed, would constitute a breach of the related
representation or warranty made as of the Closing Date contained herein. Any
such supplements to the schedules hereto shall be provided by Seller as promptly
as reasonably practicable after the occurrence of any such change or event. No
such supplemental schedules shall be deemed to cure any breach of any such
representation or warranty for purposes of Section 10.02(a)(ii) or for any other
--------------------
purpose if the Closing does not occur. If, however, the Closing occurs, any
such supplemental Schedules will be effective to cure and correct any breach of
any representation or warranty made as of the Closing Date which
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<PAGE>
would have existed by reason of Sellers not having made such supplement. Prior
to Closing, Seller agrees to provide Buyer a complete copy or fully executed
version of any contract identified on a schedule hereto and identified by Buyer
or its counsel within five business days of the date hereof as a contract of
which a complete copy or fully executed version was not previously provided to
Buyer.
5.09. USE OF PROPRIETARY RIGHTS. Seller and each Member shall not use any
-------------------------
source materials (any source code, algorithms, computer program designs,
subroutines, system specifications and other technical information relating to
the development and architecture of the software included in the Purchased
Assets and the design, configuration, programming or protocol relating to such
software) transferred as part of the Purchased Assets for its own benefit, or
for the benefit of others, except, in the case of any Member who is a natural
person, for inadvertent and incidental uses as may be due to memories related to
aspects of such source materials.
ARTICLE VI
COVENANTS OF BUYER
Buyer agrees that:
6.01. CONFIDENTIALITY. Prior to the Closing Date and after any
---------------
termination of this Agreement in the event the Closing does not occur, Buyer and
its Affiliates will hold, and will use their best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning the Business or Seller
furnished to Buyer or its Affiliates in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by Buyer,
(ii) in the public domain through no fault of Buyer or (iii) later lawfully
acquired by Buyer from sources other than Seller; provided that Buyer may
--------
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the transactions
contemplated by this Agreement so long as such persons are informed by Buyer of
the confidential nature of such information and are directed by Buyer to treat
such information confidentially. The obligation of Buyer and its Affiliates to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Buyer and its Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Seller, upon request,
all documents and other materials, and all copies thereof, obtained by Buyer or
its Affiliates or on their behalf from Seller in connection with this Agreement
that are subject to such confidence.
6.02. ACCESS. On and after the Closing Date, Buyer will afford promptly
------
to Seller, its Members and its agents reasonable access to its properties,
books, records, employees and
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<PAGE>
auditors to the extent necessary to permit Seller to determine any matter
relating to its rights and obligations hereunder or to any period ending on or
before the Closing Date; provided, however, that any such access by Seller
------------------
shall not unreasonably interfere with the conduct of the business of Buyer;
provided, further, that Seller may retain copies of Seller personnel and
- -------- -------
employment records and any information relating to Tax imposed on the Purchased
Assets.
6.03. EARLY PAYMENT OF CERTAIN ASSUMED LIABILITIES. In the event that the
--------------------------------------------
personal guaranty, dated October 23, 1996, of Sam Khulusi guarantying Seller's
obligation to Wells Fargo Bank, National Association ("Wells Fargo") under the
Wells Fargo Bank Revolving Line of Credit Agreement, dated October 23, 1996,
which is to be assumed by Buyer hereunder, is not released by August 31, 1997,
then Buyer will immediately pay to Wells Fargo all amounts due thereunder that
have been assumed by Buyer.
ARTICLE VII
COVENANTS OF BOTH PARTIES
The parties hereto agree that:
7.01. BEST EFFORTS; FURTHER ASSURANCES. (a) Subject to the terms and
--------------------------------
conditions of this Agreement, each party will use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Seller and Buyer each agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement and to vest in Buyer good and marketable title to the Purchased
Assets.
(b) Seller hereby constitutes and appoints, effective as of the Closing
Date, Buyer and its successors and assigns as the true and lawful attorney of
Seller with full power of substitution in the name of Buyer or in the name of
Seller, but for the benefit of Buyer (i) to collect for the account of Buyer any
items of Purchased Assets and (ii) to institute and prosecute all proceedings
which Buyer may in its sole discretion deem proper in order to assert or enforce
any right, title or interest in, to or under the Purchased Assets, and to defend
or compromise any and all actions, suits or proceedings in respect of the
Purchased Assets. Buyer shall be entitled to retain for its account any amounts
collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof.
7.02. CERTAIN FILINGS. Seller and Buyer shall cooperate with one another
---------------
(a) in determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement and (b) in taking such actions
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<PAGE>
or making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals or
waivers.
7.03. SOFTWARE DELIVERY AND RECEIPT PROCEDURES. In order to provide for
----------------------------------------
secure transfer from Seller to Buyer of the source code and object code and
software forming a part of the Purchased Assets, Buyer and Seller shall each
comply with its respective software delivery and receipt procedures set forth on
Schedule 7.03.
- -------------
ARTICLE VIII
TAX MATTERS
8.01. TAX DEFINITIONS. The following terms, as used herein, have the
---------------
following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Post-Closing Tax Period" means any Tax period (or portion thereof) ending
-----------------------
after the Closing Date.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
----------------------
on or before the close of business on the date preceding the Closing Date.
"Tax" means any net income, alternative or add-on minimum tax, gross
---
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, greenmail, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes filed with or required to be
filed with a governmental authority, including any schedule or attachment
thereto, and including any amendment thereof.
8.02. TAX MATTERS. Seller and each of the Members hereby jointly and
------------
severally represent and warrant to Buyers that:
(a) Seller has timely filed all Tax Returns required to be filed and has
paid all Taxes owed (whether or not shown as due on such returns), including,
without limitation, all Taxes which the Company is obligated to withhold for
amounts owing to employees, creditors and third parties. All such Tax Returns
were complete and correct in all respects, and such Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status
-27-
<PAGE>
and other matters of Seller and any other information required to be shown
thereon. No issues have been raised (and are currently pending) by any Tax
authority in connection with any of such Tax Returns. Seller is not currently
the beneficiary of any extension of time within which to file any Tax Return,
and Seller has not waived any statute of limitation with respect to any Tax or
agreed to any extension of time with respect to a Tax assessment or deficiency.
All deficiencies asserted or assessments made as a result of any examinations
have been fully paid. No claim has ever been made by a Tax authority in a
jurisdiction where Seller does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction. There are no Liens for Taxes upon the
Purchased Assets. Seller does not have, and has not had, a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States and such foreign country. Seller does not
have any liability for the Taxes of any Person (other than the Seller) under
Treasury Regulation Section 1.1502-6 (or any corresponding provision of state,
local or foreign Tax law), as a transferee or successor, by contract, or
otherwise.
(b) Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, member or other third party.
(c) Except as set forth on Schedule 8.02(c), Seller has been taxable as a
----------------
partnership for Tax purposes at all times since inception of Seller through the
Closing Date. Except as set forth on Schedule 8.02(c), no state of facts exists
----------------
or has existed that would constitute grounds for the assessment against Buyer,
whether by reason of transferee liability or otherwise, of any liability for any
Non-Assumed Tax Liability.
(d) Each of the Members (and any person owning an interest in a
partnership, grantor trust, or S corporation (each, a "Flow-Through Entity")
that owns an interest in a Member, directly or indirectly through a Flow-Through
Entity) has timely filed all Tax Returns with respect to Taxes required to be
paid attributable to items of income, gain, deduction, loss and credit of
Seller, and has timely paid all such Taxes (whether or not shown on such
Returns). There has not been any audit of any Tax Return filed by any such
person with respect to, or which may relate to, items of income, gain,
deduction, loss, expense or credit of Seller and no such audit of any such
Person is in progress. No Member has been notified by any governmental
authority that any such audit is contemplated or pending.
(e) Seller shall timely withhold and pay all Taxes required to be withheld
and paid in connection with the portion of the Purchase Price paid by Buyer on
the Closing Date on behalf of Seller to Marc Hawlitzeck and Martin Boyd payable
by Seller as compensation pursuant to their respective Seller Employment
Agreement.
(f) Within ten (10) business days after filing of all applicable Tax
Returns relating to Seller's covenants set forth in Section 8.02(e), Seller
shall deliver to Buyer copies of such Tax Returns and within ten (10) business
days of payment of Seller of Taxes required to be paid pursuant to Section
8.02(e), Seller shall deliver to Buyer proof of such payment reasonably
satisfactory to Buyer.
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<PAGE>
8.03. TAX COOPERATION; ALLOCATION OF TAXES. (a) Buyer and Seller agree
------------------------------------
to furnish or cause to be furnished to each other, upon request, as promptly as
practicable, such information and assistance relating to the Purchased Assets
and the Business as is reasonably necessary for the filing of all Tax Returns,
and making of any election related to Taxes, the preparation for any audit by
any governmental authority, and the prosecution or defense of any claim, suit or
proceeding relating to any Tax Return. Seller and Buyer shall cooperate with
each other in the conduct of any audit or other proceeding related to Taxes
involving the Business and each shall execute and deliver such powers of
attorney and other documents as are necessary to carry out the intent of this
paragraph (a) of Section 8.03.
(b) All real property taxes, personal property taxes and similar ad valorem
-- -------
obligations levied with respect to the Purchased Assets for a taxable period
which includes (but does not end on) the Closing Date (collectively, the
"Apportioned Obligations") shall be apportioned between Seller and Buyer as of
- ------------------------
the Closing Date based on the number of days of such taxable period included in
the Pre-Closing Tax Period and the number of days of such taxable period
included in the Post-Closing Tax Period. Seller shall be liable for the
proportionate amount of such taxes that is attributable to the Pre-Closing Tax
Period. Within 90 days after the Closing, Seller and Buyer shall present a
statement to the other setting forth the amount of reimbursement to which each
is entitled under this Section 8.03(b) together with such supporting evidence as
is reasonably necessary to calculate the proration amount. The proration amount
shall be paid by the party owing it to the other within 10 days after delivery
of such statement. Thereafter, Seller shall notify Buyer upon receipt of any
bill for real or personal property taxes relating to the Purchased Assets, part
or all of which are attributable to the Post-Closing Tax Period, and shall
promptly deliver such bill to Buyer who shall pay the same to the appropriate
governmental authority, provided that if such bill covers the Pre-Closing Tax
Period, Seller shall also remit prior to the due date of assessment to Buyer
payment for the proportionate amount of such bill that is attributable to the
Pre-Closing Tax Period. If either Seller or Buyer shall thereafter make a
payment for which it is entitled to reimbursement under this Section 8.03(b),
the other party shall make such reimbursement promptly but in no event later
than 30 days after the presentation of a statement setting forth the amount of
reimbursement to which the presenting party is entitled along with such
supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section and not made within 10
days of delivery of the statement shall bear interest at the rate per annum
determined, from time to time, under the provisions of Section 6621(a)(2) of the
Code for each day until paid.
(c) Any transfer, documentary, sales, use or other Taxes assessed upon or
with respect to the transfer of the Purchased Assets to Buyer and any recording
or filing fees with respect thereto shall be the responsibility of Seller,
except that Buyer shall be responsible for $18,250.00 of such Taxes.
(d) If requested by Buyer on or after the Closing Date, Seller shall
provide Buyer with a clearance certificate or similar document(s) which may be
required by any governmental authority in order to relieve Buyer of any
obligation to withhold any portion of the Purchase Price. No new elections with
respect to Taxes, or any changes in current elections with respect to
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Taxes, affecting the Purchased Assets shall be made after the date of the this
Agreement without the prior written consent of Buyer, which consent shall not be
unreasonably withheld.
(e) Buyer, Seller and each of the Members shall file all Tax Returns
consistent with the Allocation Statement and shall not make any inconsistent
written statements or take any inconsistent position on any Tax Return, in any
refund claim, during the course of any U.S. Internal Revenue Service ("IRS")
audit or other tax audit, for any financial or regulatory purpose, in any
litigation or investigation or otherwise. Each party shall notify the other
parties if it receives notice that the IRS or other governmental agency proposes
any allocation different than that set forth in the Allocation Statement.
ARTICLE IX
EMPLOYEE BENEFITS
9.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used herein,
-----------------------------
having the following meanings:
"Benefit Arrangement" means an employment, severance or similar contract,
-------------------
arrangement or policy and each plan or arrangement providing for severance,
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, pension or retirement benefits or for deferred compensation, profit-
sharing, bonuses, stock options, stock appreciation rights or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
that (i) is not an Employee Plan and (ii) is maintained or contributed to by
Seller or any of its ERISA Affiliates.
"Employee Plan" means each "employee benefit plan", as such term is defined
-------------
in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA and (ii)
is maintained or contributed to by Seller or any of its ERISA Affiliates, as the
case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of any entity means any other entity that, together with
---------------
such entity, would be treated as a single employer under Section 414 of the
Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
------------------
as defined in Section 3(37) of ERISA.
9.02. ERISA REPRESENTATIONS. Seller hereby represents and warrants to
---------------------
Buyer that:
(a) Schedule 9.02 lists each Employee Plan and each Benefit Arrangement
-------------
that covers any employee or former employee of the Business, copies or
descriptions of all of which have previously been made available or furnished to
Buyer. With respect to each Employee Plan,
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Seller has provided the most recently filed Form 5500 and an accurate summary
description of such plan.
(b) No Employee Plan is an "employee pension benefit plan" as that term is
-----------------------------
defined in Section 3(2) of ERISA.
(c) Neither the Company nor any ERISA Affiliate maintains or has ever
maintained or contributed to any Multiemployer Plan or Employee Plan subject to
Title IV of ERISA.
(d) None of the Employee Plans or other Benefit Arrangements listed on
Schedule 9.02 covers any non-United States employee or former employee of the
Business.
(e) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan;
(f) Each Benefit Arrangement has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Employee Plan or Benefit Arrangement.
(g) All contributions and payments accrued under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent (i) reflected on the Closing Balance Sheet or (ii) retained
by Seller. Except as disclosed in writing to Buyer prior to the date hereof,
there has been no amendment to, written interpretation of or announcement
(whether or not written) by Seller or any of its ERISA Affiliates relating to,
or change in employee participation or coverage under, any Employee Plan or
Benefit Arrangement that would increase materially the expense of maintaining
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended prior to the date hereof.
(h) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Business that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(i) No tax under Section 4980B of the Code has been incurred in respect of
any Employee Plan that is a group health plan, as defined in Section 5000(b)(1)
of the Code. Seller shall comply with the notice and coverage requirements of
Section 4980B of the Code with respect to any Transferred Employees, as defined
below.
(j) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
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(k) No employee of the Business will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
9.03. SELLER'S EMPLOYEE BENEFIT PLANS. (a) Seller shall retain all
-------------------------------
obligations and liabilities under the Employee Plans and Benefit Arrangements in
respect of each employee or former employee (including any beneficiary thereof)
who is not a Transferred Employee. Except as expressly set forth herein, Seller
or its designated Affiliate shall retain all liabilities and obligations in
respect of benefits accrued as of the Closing Date by Transferred Employees
under the Employee Plans and Benefit Arrangements, and neither Buyer nor any of
its Affiliates shall have any liability with respect thereto. Except as
expressly set forth herein, no assets of any Employee Plan or Benefit
Arrangement shall be transferred to Buyer or any of its Affiliates or to any
plan of Buyer or any of its Affiliates. Accrued benefits or account balances of
Transferred Employees under the Employee Plans and Benefit Arrangements shall be
fully vested as of the Closing Date.
(b) With respect to the Transferred Employees (including any beneficiary or
dependent thereof), Seller shall retain (i) all liabilities and obligations
arising under any group life, accident, medical, dental or disability plan or
similar arrangement (whether or not insured) to the extent that such liability
or obligation relates to contributions or premiums accrued (whether or not
payable), or to claims incurred (whether or not reported), on or prior to the
Closing Date, (ii) all liabilities and obligations arising under any worker's
compensation arrangement to the extent such liability or obligation relates to
the period prior to the Closing Date, including liability for any retroactive
workman's compensation premiums attributable to such period and (iii) all other
liabilities and obligations arising under the Employee Plans and the Benefit
Arrangements to the extent any such liability or obligation relates to the
period prior to the Closing Date, including proportional accruals from May 31,
1997 through the Closing Date and including, without limitation, liabilities and
obligations in respect of accruals through the Closing Date under any bonus plan
or arrangement, and any vacation plans, arrangements and policies.
(c) With respect to any Transferred Employee (including any beneficiary or
dependent thereof) who enters a hospital or is on short-term disability under
any Benefit Arrangement on or prior to the Closing Date and continues in a
hospital or on short-term disability after the Closing Date, Seller shall be
responsible for claims and expenses incurred both before and after the Closing
Date in connection with such Person, to the extent that such claims and expenses
are covered by a Benefit Arrangement, until such time, (if any) that, in the
case of a Transferred Employee, such Person resumes full-time employment with
Buyer or one of its Affiliates and, in the case of any beneficiary or dependent
of a Transferred Employee, such Person's hospitalization has terminated. With
respect to any Benefit Arrangements covering medical expenses and other costs
relating to pregnancies and maternity leave, Seller shall be responsible for all
claims (whether or not reported) and expenses incurred during the period prior
to and ending on the Closing Date, and Buyer or one of its Affiliates shall be
responsible for such Benefit Arrangements covering such pregnancies and
maternity leave for the period subsequent to the Closing Date.
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9.04. BUYER BENEFIT PLANS. Buyer or one of its Affiliates will recognize
-------------------
all service of the Transferred Employees with Seller or any of its Affiliates,
only for purposes of eligibility to participate in those employee benefit plans,
within the meaning of Section 3(3) of ERISA, in which the Transferred Employees
are enrolled by Buyer or one of its Affiliates immediately after the Closing
Date.
9.05. CONTINUATION OF CERTAIN ADMINISTRATIVE SERVICES AND INSURANCE
-------------------------------------------------------------
COVERAGE. To the extent requested by Buyer in writing prior to the Closing
- --------
Date, Seller agrees to continue (i) to provide certain administrative services
in respect of the Transferred Employees as reasonably necessary for Buyer to
conduct the Business, including but not limited to payroll services, record
keeping services and claims processing services and (ii) to cover Transferred
Employees under the Employee Plans and Benefit Arrangements which provide for
insurance coverage and to provide claims processing services in respect to the
Transferred Employees in both cases for the period ending six months after the
Closing Date or, in either case, until such earlier time as Buyer or its
designated Affiliate can assume responsibility for such insurance and
administrative services in an orderly manner. Buyer agrees to reimburse Seller
for Seller's costs reasonably incurred in continuing to provide such insurance
and administrative services. Such continuation of insurance and administrative
services shall not affect the allocation of liabilities and obligations as set
forth in this Article IX. Buyer shall use all reasonable efforts to arrange for
such administrative services and insurance coverage as promptly as promptly as
possible in order to avoid using Seller's services under this section.
9.06. NO THIRD PARTY BENEFICIARIES. No provision of this Article shall
----------------------------
create any third party beneficiary or other rights in any employee or former
employee (including any beneficiary or dependent thereof) of Seller or of any of
its subsidiaries in respect of continued employment (or resumed employment) with
either Buyer or the Business or any of their Affiliates and no provision of this
Article IX shall create any such rights in any such Persons in respect of any
benefits that may be provided, directly or indirectly, under any Employee Plan
or Benefit Arrangement or any plan or arrangement that may be established by
Buyer or any of its Affiliates. No provision of this Agreement shall constitute
a limitation on rights to amend, modify or terminate after the Closing Date any
such plans or arrangements of Buyer or any of its Affiliates.
ARTICLE X
CONDITIONS TO CLOSING
10.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
-------------------------------------------
Buyer and Seller to consummate the Closing are subject to the satisfaction, or
waiver by each of Buyer and Seller respectively, of the following conditions:
(a) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been
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instituted by any Person before any court, arbitrator or governmental body,
agency or official and be pending.
(b) Each other party shall have executed and delivered each of the
Ancillary Agreements and Employment Agreements to be entered into by it at
Closing, in each case substantially in the form attached as an exhibit to this
Agreement.
(c) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(d) All actions by or in respect of or filings with any governmental body,
agency, official or authority required to permit the consummation of the Closing
shall have been obtained.
(e) Each party shall have approved the Allocation Statement.
10.02. CONDITIONS TO OBLIGATIONS OF BUYER.
----------------------------------
The obligation of Buyer to consummate the Closing is subject to the satisfaction
or waiver by Buyer of the following further conditions:
(a)(i) Seller shall have performed in all material respects all of his or
its obligations hereunder required to be performed on or prior to the Closing
Date, (ii) the representations and warranties of Seller contained in this
Agreement at the time of its execution and delivery and in any certificate or
other writing delivered by Seller pursuant hereto, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect, shall be true at and as of the Closing Date, as if made
at and as of such date with only such exceptions as would not in the aggregate
reasonably be expected to have a Material Adverse Effect and (iii) Buyer shall
have received a certificate signed by the Manager of Seller to the foregoing
effect.
(b) No court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or regulation,
restraining the effective operation by Buyer of the business of Seller after the
Closing Date, and no proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.
(c) Buyer shall have received an opinion of Seller counsel, dated the
Closing Date, in such form and substance as Buyer may reasonably request.
(d) Buyer shall have received executed copies of Employment Agreements with
each of Marc Hawlitzeck and Martin Boyd and executed Agreements on
Confidentiality and Intellectual Property from each of the other Transferred
Employees each in form and substance reasonably satisfactory to Buyer.
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(e) Seller shall have received all consents, authorizations or approvals
from the governmental agencies referred to in Section 3.03(a), in each case in
form and substance reasonably satisfactory to Buyer, and no such consent,
authorization or approval shall have been revoked.
(f) Seller shall execute and deliver to Buyer the Ancillary Agreements.
(g) Seller shall have received all Required Consents and all consents,
authorizations or approvals from the governmental agencies referred to in
Section 3.05, in each case in form and substance reasonably satisfactory to
Buyer, and no such consent, authorization or approval shall have been withdrawn.
(h) Buyer and Seller shall receive assignments from Centaur Development
Inc. ("Centaur") and assignments from such other third parties as shall be
reasonably requested by Buyer to Centaur, each in form and substance reasonably
satisfactory to Buyer. In addition, Buyer shall receive a covenant from such
third party to Centaur assignable to Buyer in form and substance reasonably
satisfactory to Buyer.
(i) Buyer shall receive certificates of originality with regard to
Proprietary Rights of Seller in form and substance reasonably satisfactory to
Buyer.
(j) Buyer shall have received all other closing documents specified in
Section 2.07 of this Agreement and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to Buyer.
(k) Paragraphs 2, 3, 4, 5, 6.3, 9, 11, 12.10 and 12.15 (and, to the extent
applicable to such paragraphs, Paragraph 1) of those certain Agreements, dated
as of January 22, 1997 and as amended by the letter agreement dated June 12,
1997, by and between Seller and each of Marc Hawlitzeck and Martin Boyd (the
"Seller Employment Agreements") shall have been terminated and Messrs.
Hawlitzeck and Boyd shall acknowledge that no further amounts, benefits or
obligations of any nature are due them thereunder.
(l) The source code and object code and software forming a part of the
Purchased Assets shall have been delivered to Buyer's designee in accordance
with the procedures set forth on Schedule 7.03.
-------------
10.03. CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller
----------------------------------
to consummate the Closing is subject to the satisfaction or waiver by Seller of
the following further conditions:
(a)(i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained in this
Agreement at the time of its execution and delivery and in any certificate or
other writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date and
(iii) Seller shall have received a certificate signed by an officer of Buyer to
the foregoing effect.
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(b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.
(c) Seller shall have received all consents, authorizations or approvals
from governmental agencies referred to in Section 4.03, in each case in form and
substance reasonably satisfactory to Seller, and no such consent, authorization
or approval shall have been revoked.
(d) Seller shall have received all items specified in Section 2.07 of this
Agreement and all other closing documents that they may reasonably request, all
in form and substance reasonably satisfactory to them.
(e) Buyer shall have assumed the liabilities and obligations of the Members
under the Guaranties but only insofar as, and to the extent of, the underlying
liabilities and obligations of Seller assumed by Buyer pursuant to this
Agreement.
(f) Seller shall have received from the ultimate parent of Buyer a guaranty
of the obligations of Seller to be assumed by Buyer set forth in Schedule
--------
10.03(f).
- --------
ARTICLE XI
SURVIVAL; INDEMNIFICATION-
11.01. SURVIVAL. All actions, claims, judgments, demands, causes of
--------
action and suits under or arising out of this Agreement shall be governed by and
made solely in accordance with and subject to this Article XI. The covenants,
agreements, representations and warranties of the parties hereto contained in
this Agreement or in any certificate or other writing delivered pursuant hereto
or in connection herewith shall survive until the date that audited financial
statements of Discreet Logic Inc. for the fiscal year ending June 30, 1998 are
released (but no later than December 31, 1998), except that (i) the
representations in Article VII, Article VIII and Section 6.03 hereof shall
expire upon the expiration of all statutes of limitation applicable thereto,
(ii) the representations and warranties in Section 3.10, 3.19 and 3.24 and the
covenants and agreements in Section 5.09 shall survive until the tenth
anniversary of the date of Closing, (iii) the covenants and agreements in
Section 5.04 shall survive for the period set forth therein, and (iv) the
covenants and agreements in Section 5.05, 6.01 and 6.02 shall survive until the
tenth anniversary of the Closing. Upon expiration of any applicable section, all
rights thereunder shall expire except with respect to, and to the extent of, any
claim of which written notice specifying in reasonable detail, the nature and
amount of the claim has been given to the Indemnifying Party (as defined below)
prior to such expiration. Nothing in this Article XI shall affect or limit any
party's right to institute and prosecute proceedings in any court of competent
jurisdiction seeking specific performance of this Agreement or an order
enjoining Seller or any Member from activities in violation of this Agreement.
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11.02. INDEMNIFICATION"11.02. INDEMNIFICATION" . Subject to the terms of
-----------------------------------------
Sections 11.01 and 11.03:
(a) Seller and each Member hereby jointly and severally indemnify Buyer
and its directors, officers, stockholders and Affiliates against and agrees to
hold each of them harmless from any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) (collectively, "Loss") incurred or suffered by Buyer or any of its
----
directors, officers, stockholders and Affiliates arising out of (i) any
misrepresentation or breach of warranty, covenant or agreement made or to be
performed by Seller or a Member pursuant to this Agreement (whether or not
discovered by Buyer prior to closing, unless such discovery was intentionally
concealed from Seller by Buyer); and (ii) the failure of Seller to assume full
responsibility for any Excluded Liability or any obligation or liability of the
Business relating to the Excluded Assets; provided, however, that:
-------- --------
1. all claims shall first be made against the defaulting party;
2. except in connection with Losses related to Section 5.09 and Section
8.02(e): (1) Seller and each Member shall not be liable under Section
11.02(a)(i) unless the aggregate amount of Loss with respect to all matters
referred to in Section 11.02(a)(i) exceeds $50,000 and (2) the maximum aggregate
liability of Seller and Members under Section 11.02(a)(i) shall not exceed
$4,800,000; provided, however, the maximum liability of each Member under
-------- -------
Section 11.02(a)(i) shall not exceed such Member's pro rata portion of
$4,800,000 (less amounts Seller has paid) as determined by such Members'
respective proportion of the total membership interests of Seller as reflected
on the signature pages of this Agreement; and
3. in connection with Losses related to Section 5.09: the individual
aggregate maximum liability for Seller and each Member under Section 11.02(a)(i)
shall not exceed $11,334,131 (acknowledging that the liability between Seller,
on the one hand, and the Members, on the other hand, shall be joint and several,
but the liability among the Members themselves shall be several but not joint).
4. in connection only with any and all Losses related to Section 8.02(e):
Seller and each Member shall be liable under this Section 11.02(a) for the
entire amount of Losses attributable to a breach of the covenants set forth in
Section 8.02(e), without regard to the limitations and thresholds on liability
set forth in clauses 2 and 3 of this Section 11.02(a). Any amounts paid to
Buyer pursuant to this clause 4 shall not be treated as a Loss for purposes of
determining whether the aggregate amount of Loss incurred or suffered by Buyer
exceeds the $50,000 threshold and $4,800,000 limitation set forth in clause 2 of
this Section 11.02(a) and the $11,334,131 limitation set forth in clause 3 of
this Section 11.02(a).
(b) Buyer hereby indemnifies Seller, its Manager, Affiliates and each
Member against and agrees to hold it harmless from any and all Loss incurred or
suffered by Seller, its Manager, Affiliates and each Member arising out of (i)
any misrepresentation or breach of warranty,
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covenant or agreement made or to be performed by Buyer pursuant to this
Agreement and (ii) any obligation or liability of the Business arising after the
Closing in Buyer's (or its successor's) conduct thereof (except for obligations
and liabilities due to actions or inactions of Seller or any Member prior to the
Closing); provided, however, that Buyer shall not be liable under this Section
-------- -------
11.02(b)(i) (other than for nonpayment of the $9,125,611 cash portion of the
Purchase Price and the $659,146 of Assumed Liabilities to be paid at Closing)
unless the aggregate amount of Loss with respect to all matters referred to in
this Section 11.02(b)(i) exceeds $50,000 and Buyer's maximum liability under
this Section 11.02(b)(i) shall not exceed $1,600,000.
11.03. PROCEDURES; NO WAIVER. The party seeking indemnification under
---------------------
Section 11.02 (the "Indemnified Party") agrees to give prompt notice to the
-----------------
party against whom indemnity is sought (the"Indemnifying Party") within
------------------
thirty (30) days of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought under such
Section. The Indemnifying Party may, and at the request of the Indemnified Party
shall, participate in and control the defense of any third party suit, action or
proceeding at its own expense using counsel selected by any insurance company
insuring against any such claim and undertaking to defend such claim, or by
other counsel selected by it and approved by the Indemnified Party, which
approval shall not be unreasonably withheld or delayed. The Indemnified Party
shall use commercially reasonable efforts to minimize any liabilities, damages,
deficiencies, claims judgments, assessments, costs and expenses in respect of
which indemnity may be sought hereunder. The Indemnified Party shall consult
with the Indemnifying Party with respect to the payment, settlement or defense
of any claim, action, suit, proceeding or demand. The Indemnifying Party shall
keep the Indemnified Party apprised as to the status of defense. The
Indemnifying Party shall not be liable under Section 11.02 for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder. No waiver of a closing condition by
either Buyer or Seller shall limit its rights, if any, under Section 11.02.
ARTICLES XII
TERMINATION-
12.01. GROUNDS FOR TERMINATION"12.01. GROUNDS FOR TERMINATION". This
--------------------------------------------------------
Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent duly authorized by Buyer and the
managing members of Seller;
(b) by either Seller or Buyer, if the Agreement shall not have been
consummated by June 12, 1997; provided, however, that the right to terminate
-----------------
this Agreement under this Section 12.01(b) shall not be available to any party
whose action or failure to act has
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been a principal cause of or resulted in the failure of the Closing to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement;
(c) by either Seller or Buyer, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"), in any
-----
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the transaction contemplated hereunder, which order, decree or
ruling is final and nonappealable;
(d) by Buyer, if the required approvals of the Members of Seller
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote either upon a vote taken at a meeting of
Members duly convened therefor or at any adjournment thereof or by written
consent of the Members;
(e) by Buyer, if Seller shall have accepted an Acquisition Proposal or
if the managing members of Seller recommend an Acquisition Proposal to the
Members of Seller;
(f) by Buyer, if the managing members of Seller shall have withheld,
withdrawn or modified in a manner adverse to Buyer its recommendation in favor
of approving this Agreement and the consummation of the transaction contemplated
hereunder;
(g) by Buyer, if there shall have occurred any Material Adverse Change
in the financial condition, results of operations, business, properties, assets
or operations of Seller since the date of this Agreement;
(h) by Buyer, upon breach of any representation, warranty, covenant or
agreement on the part of Seller or Member set forth in this Agreement, or if any
representation or warranty of Seller or Member shall have become untrue, in
either case such that the conditions set forth in Section 10.02(a) would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in
representations and warranties of Seller or Member, or breach by Seller or
Member is curable by Seller or Member through the exercise of its commercially
reasonable efforts within five (5) days of the time such representation or
warranty shall have become untrue or such breach, then Buyer may not terminate
this Agreement under Section 12.01(h) during such five-day period provided
Seller or Member continues to exercise such commercially reasonable efforts;
(i) by Seller, upon a breach of any representation, warranty, covenant
or agreement on the part of Buyer set forth in this Agreement, or if any
representation or warranty of Buyer shall have become untrue, in either case
such that the conditions set forth in Section 10.03(a) would not be satisfied as
of the time of such breach or as of the time such representation or warranty
shall have become untrue, provided, that if such inaccuracy in Buyer's
representations and warranties or breach by Buyer is curable by Buyer through
the exercise of its commercially reasonable efforts within five (5) days of the
time such representation or warranty shall have become untrue or such breach,
then Seller may not terminate this Agreement under
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this Section 12.01(i) during such five-day period provided Buyer continues to
exercise such commercially reasonable efforts.
12.02. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination
--------------------------------------------
of this Agreement under Section 12.01 above will be effective immediately upon
the delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in Section
12.01, this Agreement shall be of no further force or effect, except (i) as set
forth in this Section 12.02, Section 12.03, 12.04 and Article XIII
(Miscellaneous), each of which shall survive the termination of this Agreement,
and (ii) nothing herein shall relieve any party from liability for any willful
breach of this Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Reciprocal Nondisclosure Agreement,
all of which obligations shall survive termination of this Agreement in
accordance with their terms.
12.03. PROCEDURE UPON TERMINATION. In the event of the termination
--------------------------
of this Agreement, Buyer or the managing Member of Seller so terminating may
direct its or their officers or representatives, respectively, not to consummate
the transaction contemplated by this Agreement, notwithstanding favorable action
by the Members of the Seller. In the event this Agreement is terminated, the
agreements of Seller and Buyer contained in Sections 5.05, 6.01, Article XI and
13.11 shall survive such termination.
ARTICLE XIII
MISCELLANEOUS-
13.01. NOTICES. All notices, requests and other communications to
-------
either party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be given,
if to Buyer, to:
3380491 Canada Inc.
c/o Discreet Logic Inc.
5005, boul. St.-Laurent, Suite 5200
Montreal, Quebec
Canada H2T 1S6
Attn: Chief Financial Officer
Telecopy: 514-272-9033
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<PAGE>
with a copy to:
Testa Hurwitz, & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn: Mark J. Macenka, Esq.
Telecopy: (617) 248-7100
if to Seller or Members, to:
c/o Sam Khulusi
c/o Centaur Software, Inc.
P.O. Box 3959
Torrance, CA 90570
Telecopy: (310) 375-4236
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, CA 92660-6441
Attn: Nicholas J. Yocca, Esq.
Telecopy: (714) 725-4100
or such other address or addresses as may be specified by written notice given
in accordance with the foregoing provision.
13.02. AMENDMENTS; NO WAIVERS. (a) Any provisions of this Agreement may
----------------------
be amended or waived prior to the Closing Date if, and only if, such amendment
or waiver is in writing and signed, in the case of an amendment, by the Buyer
and Seller, or in the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
13.03. EXPENSES. Except as otherwise provided herein, all costs and
--------
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
13.04. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE>
13.05. GOVERNING LAW. Notwithstanding that this Agreement may be executed
-------------
by certain parties outside of the Commonwealth of Massachusetts, this Agreement
shall be construed in accordance with and governed by the law of the
Commonwealth of Massachusetts, without regard to any conflicts of law rules.
13.06. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other party hereto.
13.07. ENTIRE AGREEMENT. This Agreement, the Ancillary Agreements, the
----------------
Reciprocal Nondisclosure Agreement dated as of May 22, 1997 between Seller and
Buyer, and paragraph 5 of the letter agreement, dated as of May 22, 1997,
between Buyer and Seller, as amended (which paragraph expires by its terms at
11:59 p.m. Boston time on June 12, 1997) constitute the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings and negotiations, both written and oral, between the
parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. None of
this Agreement, the Ancillary Agreements and the Reciprocal Nondisclosure
Agreement dated as of May 22, 1997 between Seller and Buyer, nor any provision
hereof or thereof, is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
13.08. BULK SALES LAWS. Buyer and Seller each hereby waive compliance by
---------------
Seller with the provisions of the "bulk sales", "bulk transfer" or similar laws
of any state. Seller agrees to indemnify and hold Buyer harmless against any
and all claims, losses, damages, liabilities (other than the Assumed
Liabilities), costs and expenses incurred by Buyer or any of its Affiliates as a
result of any failure to comply with any such "bulk sales", "bulk transfer" or
similar laws.
13.09. JURISDICTION. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the federal courts of the Commonwealth of
Massachusetts, and each of the parties hereby consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any obligation to venue laid therein. Process in any such
action or proceeding may be served on any party anywhere in the world, whether
within or without the Commonwealth of Massachusetts.
13.10. CAPTIONS. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
13.11. OTHER REMEDIES; SPECIFIC PERFORMANCE. Any and all remedies herein
------------------------------------
expressly conferred upon a party will be deemed cumulative and not exclusive of
any other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one
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<PAGE>
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
[REMAINDER OF THIS PAGE INTENTIONAL LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto here caused this Asset Purchase
Agreement to be duly executed by their respective authorized officers, in the
case of Buyer, and Manager, in the case of Seller, and each Member of Seller,
individually, as of the day and year first above written.
3380491 CANADA INC. DENIM SOFTWARE L.L.C.
By:/s/ Francois Plamondon By: /s/ Sam Khulusi
------------------------- -------------------------
Francois Plamondon Sam Khulusi
Vice President Manager
MEMBERS MEMBERSHIP INTEREST PERCENTAGE
/s/ Sam Khulusi
- ---------------------------- 37.5%
Sam Khulusi
/s/ Frank Khulusi
- ---------------------------- 37.5%
Frank Khulusi
WESTCO DENIM INVESTMENTS 12.5%
GROUP, LTD.,
a California limited partnership
By: /s/ Sam Khulusi
------------------------
Title: /s/ General Partner
---------------------
FRANK KHULUSI FAMILY LIMITED 12.5%
PARTNERSHIP,
a California limited partnership
By: /s/ Frank Khulusi
------------------------
Title: General Partner
---------------------
