SCHEDULE
14A
(RULE
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a)
of
the Securities Exchange Act of 1934
Filed
by
the Registrant ý
Filed
by
a Party other than the Registrant ྑ
Check
the
appropriate box:
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ý Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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o Definitive
Proxy
Statement
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o Definitive
Additional
Materials
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ý Soliciting
Material Under Rule 14a-12
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SBE,
INC.
(Name
of
Registrant as Specified In Its Charter)
Not
applicable
(Name
of
Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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o
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No
fee required.
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ý Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction applies: Common
Stock,
par value $0.001 per share, of the Registrant (the “Common
Stock”).
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(2)
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Aggregate
number of securities to which transaction applies: N/A
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11: N/A
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(4)
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Proposed
maximum aggregate value of transaction: $3,000,000
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(5)
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Total
fee paid: $600
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o
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Fee
paid previously with preliminary materials.
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o
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
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(1)
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Amount
previously paid: N/A
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(2)
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Form,
Schedule or Registration Statement No.: N/A
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(3)
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Filing
Party: N/A
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(4)
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Date
Filed: N/A
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[SBE
letterhead]
January
__,
2007
Dear
Stockholder:
You
are
cordially invited to attend the Special Meeting of Stockholders of SBE, Inc.
to
be held on February __,
2007 at
SBE’s offices located at 4000 Executive Parkway, Suite 200, San Ramon,
California 94583. The meeting will begin promptly at 8:00 a.m., Pacific
Standard Time.
The
items
of business to be considered at the meeting are listed in the following Notice
of Special Meeting and are more fully addressed in the proxy statement included
with this letter. The items you will be asked to approve at the meeting relate
to the proposed sale of our embedded business to One Stop Systems, Inc.
Our
board
of directors carefully considered the proposed sale of our embedded business
and
recommends that you vote in favor of this transaction. Our management team
is
excited about the sale of our embedded business and believes it is an essential
step in maximizing value for our stockholders.
Whether
or not you plan to attend the special meeting in person, it is important that
your shares be represented and voted at the meeting.
Please
date, sign, and return your proxy card promptly in the enclosed envelope to
ensure that your shares will be represented and voted at the special meeting,
even if you cannot attend. If you attend the special meeting, you may vote
your
shares in person even though you have previously signed and returned your
proxy.
On
behalf
of your board of directors, thank you for your investment in and continued
support of SBE, Inc.
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Sincerely,
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/s/
Greg Yamamoto
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Greg
Yamamoto
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Chief
Executive Officer and President
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SBE,
INC.
NOTICE
OF SPECIAL
MEETING
OF STOCKHOLDERS
To
Be Held On February __,
2007
To
the
Stockholders of SBE, Inc.:
You
are
cordially invited to attend a Special Meeting of Stockholders of SBE, Inc.,
a
Delaware corporation (the “Company”). The meeting will be held on February
__,
2007 at
8:00 a.m., local time, at SBE’s offices located at 4000 Executive Parkway,
Suite 200, San Ramon, California 94583, for the following
purposes:
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(1) To
approve the sale of our embedded business pursuant to an asset purchase
agreement between us and One Stop Systems, Inc. pursuant to which
One Stop
would acquire our embedded business for $2,200,000 in cash and assume
our
obligations under the lease of our corporate headquarters building
and
certain equipment leases; and
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(2) To
transact such other business as may properly come before the meeting
or
any adjournment thereof.
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These
items of business are more fully described in the Proxy Statement accompanying
this Notice.
The
record date for the Annual Meeting is January __,
2007.
Only stockholders of record at the close of business on that date may vote
at
the meeting or any adjournment thereof.
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By
Order of the Board of Directors,
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/s/
David W. Brunton
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David
W. Brunton
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Secretary
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San
Ramon, California
January
__,
2007
YOU
ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH DOES
NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES,
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING. EVEN IF YOU
HAVE
VOTED BY PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR
OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED
IN
YOUR NAME FROM THAT RECORD HOLDER IN ORDER TO VOTE IN
PERSON.
Table
of Contents
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Page
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1
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WHERE
YOU CAN FIND MORE INFORMATION
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1
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QUESTIONS
ABOUT THE SALE OF ASSETS
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2
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SUMMARY
TERM SHEET FOR THE SALE OF EMBEDDED BUSINESS
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6
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RISK
FACTORS
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Risk
Relating to the Transaction
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THE
COMPANIES
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11
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SBE
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11
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One
Stop
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THE
ASSET SALE
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12
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Background
of the Asset Sale
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Reasons
for the Asset Sale
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Recommendation
of Our Board of Directors
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Opinion
of Our Financial Advisor
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PROPOSAL
-- APPROVAL OF THE SALE OF SBE’S EMBEDDED BUSINESS
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General
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Effective
Time of the Asset Sale
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Representations
and Warranties
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Certain
Covenants
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Conditions
Precedent
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Termination
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Restriction
on Competition
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Indemnification
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Waivers
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Amendments
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Fees
and Expenses
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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OTHER
MATTERS
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Annex
A
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Agreement
for Purchase and Sale of Assets, dated January 11, 2007, between
SBE, Inc.
and One Stop Systems, Inc.
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Annex
B
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Opinion
of Samuel Seidman & Co., dated January 12,
2007
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-i-
Except
as
otherwise specifically noted, “SBE,” “we,” “our,” “us” and similar words in this
proxy statement refer to SBE, Inc. and its subsidiaries. References to “One
Stop” shall mean One Stop Systems, Inc.
FORWARD-LOOKING
STATEMENTS
The
information in this proxy statement contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements
that are not historical in nature, including statements about beliefs and
expectations, are forward-looking statements. Words such as “may,” “will,”
“should,” “estimates,” “predicts,” “believes,” “anticipates,” “plans,”
“expects,” “intends” and similar expressions are intended to identify these
forward-looking statements, but are not the exclusive means of identifying
such
statements. Such statements are based on currently available operating,
financial and competitive information and are subject to various risks and
uncertainties. You are cautioned that these forward-looking statements reflect
management's estimates only as of the date hereof, and we assume no obligation
to update these statements, even if new information becomes available or other
events occur in the future. Actual future results, events and trends may differ
materially from those expressed in or implied by such statements depending
on a
variety of factors, including, but not limited to those set forth under “Risk
Factors” and elsewhere in this proxy statement. Important factors that might
cause or contribute to such a discrepancy include, but are not limited
to:
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the
timing and success of the proposed sale of our embedded business
and any
subsequent acquisition by us of a larger operating business in a
stock-for-stock merger or exchange transaction, which we refer to
as a
reverse merger, or liquidation;
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the
effect of the transaction on our market
price;
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the
factors discussed under “Risk Factors,” beginning on page ___;
and
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other
risks referenced from time to time in our filings with the Securities
and
Exchange Commission, or SEC.
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WHERE
YOU CAN FIND MORE INFORMATION
We
are a
reporting company and file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, proxy statements or other information that we file at the SEC’s public
reference room at 100 F Street N.E., Room 1580, Washington, D.C., 20549. You
can
also request copies of these documents by writing to the SEC and paying a fee
for the copying costs. Please call the SEC at 1-800-SEC-0330 for more
information about the operation of the public reference room. Our public filings
with the SEC are also available on the web site maintained by the SEC
at
http://www.sec.gov.
We
have
supplied all information in this proxy statement relating to SBE. One Stop
has
supplied all information in this proxy statement relating to One Stop. Samuel
Seidman & Co. has supplied the information regarding its fairness
opinion.
-1-
SBE,
INC.
4000
Executive Parkway, Suite 200
San
Ramon, California 94583
PROXY
STATEMENT
FOR
THE SPECIAL
MEETING
OF STOCKHOLDERS
To
Be Held On February __,
2007
The
Special Meeting of Stockholders of SBE, Inc. will be held on February
__,
2007,
at 4000 Executive Parkway, Suite 200, San Ramon, California 94583, beginning
promptly at 8:00 a.m., local time. The enclosed proxy is solicited by our board
of directors. It is anticipated that this proxy statement and the accompanying
proxy card will be first mailed to holders of our common stock on or about
January __,
2007.
QUESTIONS
ABOUT THE SALE OF ASSETS
Why
am I receiving this proxy statement and proxy card?
You
are
receiving a proxy statement and proxy card because you own shares of our common
stock. This proxy statement describes the issues on which we would like you,
as
a stockholder, to vote. It also gives you information on these issues so that
you can make an informed decision.
Who
can vote at the special meeting?
Only
stockholders of record at the close of business on January __,
2007
will be entitled to vote at the special meeting. On this record date, there
were
_____
shares
of common stock outstanding and entitled to vote.
Stockholder
of Record: Shares Registered in Your Name
If
on
January __,
2007
your shares were registered directly in your name with our transfer agent,
American Stock Transfer & Trust, then you are a stockholder of record. As a
stockholder of record, you may vote in person at the meeting or vote by proxy.
Whether or not you plan to attend the meeting, we urge you to fill out and
return the enclosed proxy card to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or Bank
If
on
January __,
2007 your
shares were held, not in your name, but rather in an account at a brokerage
firm, bank, dealer, or other similar organization, then you are the beneficial
owner of shares held in “street name” and these proxy materials are being
forwarded to you by that organization. The organization holding your account
is
considered to be the stockholder of record for purposes of voting at the special
meeting. As a beneficial owner, you have the right to direct your broker or
other agent on how to vote the shares in your account. You are also invited
to
attend the special meeting. However, since you are not the stockholder of
record, you may not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
What
am I voting on?
You
are
being asked to approve the sale of our embedded business pursuant to an asset
purchase agreement between us and One Stop Systems, Inc. pursuant to which
One
Stop would acquire our embedded business for $2,200,000 in cash and assume
our
obligations under the lease of our corporate headquarters building and certain
equipment leases.
How
do I vote?
For
the
matter to be voted on, you may vote “For” or “Against” or abstain from voting.
The procedures for voting are fairly simple:
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Stockholder
of Record: Shares Registered in Your Name
If
you
are a stockholder of record, you may vote in person at the special meeting
or
vote by proxy using the enclosed proxy card. Whether or not you plan to attend
the meeting, we urge you to vote by proxy to ensure your vote is counted. You
may still attend the meeting and vote in person if you have already voted by
proxy.
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To
vote in person, come to the special meeting and we will give you
a ballot
when you arrive.
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To
vote using the proxy card, simply complete, sign and date the enclosed
proxy card and return it promptly in the envelope provided. If you
return
your signed proxy card to us before the special meeting, we will
vote your
shares as you direct.
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Beneficial
Owner: Shares Registered in the Name of Broker or Bank
If
you
are a beneficial owner of shares registered in the name of your broker, bank,
or
other agent, you should have received a proxy card and voting instructions
with
these proxy materials from that organization rather than from us. Simply
complete and mail the proxy card to ensure that your vote is counted. To vote
in
person at the special meeting, you must obtain a valid proxy from your broker,
bank, or other agent. Follow the instructions from your broker or bank included
with these proxy materials, or contact your broker or bank to request a proxy
form.
How
many votes do I have?
On
each
matter to be voted upon, you have one vote for each share of common stock you
own as of January __,
2007.
How
are votes counted?
Votes
will be counted by the inspector of election appointed for the meeting, who
will
separately count “For” and “Against” votes, abstentions and broker non-votes.
Abstentions will be counted towards the vote total for the proposal and will
have the same effect as “Against” votes. Broker non-votes have no effect and
will not be counted towards the vote for the proposal.
If
your
shares are held by your broker as your nominee (that is, in “street name”), you
will need to obtain a proxy form from the institution that holds your shares
and
follow the instructions included on that form regarding how to instruct your
broker to vote your shares. If you do not give instructions to your broker,
the
shares will be treated as broker non-votes.
What
if I return a proxy card but do not make specific
choices?
If
you
return a signed and dated proxy card without marking any voting selections,
your
shares will be treated as broker non-votes and will have no effect.
Who
is paying for this proxy solicitation?
We
will
pay for the entire cost of soliciting proxies. In addition to these mailed
proxy
materials, our directors and employees may also solicit proxies in person,
by
telephone or by other means of communication. Directors and employees will
not
be paid any additional compensation for soliciting proxies. We may also
reimburse brokerage firms, banks and other agents for the cost of forwarding
proxy materials to beneficial owners.
What
does it mean if I receive more than one proxy card?
If
you
receive more than one proxy card, your shares are registered in more than one
name or are registered in different accounts. Please complete, sign and return
each
proxy
card to ensure that all of your shares are voted.
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Can
I change my vote after submitting my proxy?
Yes.
You
can revoke your proxy at any time before the final vote at the meeting. If
you
are the record holder of your shares, you may revoke your proxy in any one
of
three ways:
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You
may submit another properly completed proxy card with a later
date;
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You
may send a written notice that you are revoking your proxy to our
Secretary at 4000 Executive Parkway, Suite 200, San Ramon, California
94583; or
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You
may attend the special meeting and vote in person. However, simply
attending the special meeting will not, by itself, revoke your
proxy.
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If
your
shares are held by your broker or bank as a nominee or agent, you should follow
the instructions provided by your broker or bank.
When
do you expect the asset sale to be completed?
We
plan
to complete the asset sale as soon as possible after the special meeting,
subject to the satisfaction or waiver of certain conditions to the asset sale,
which are described in this proxy statement. We cannot predict when, or if,
these conditions will be satisfied or waived.
What
risks should I consider in evaluating the asset sale?
You
should consider the risks described under the heading “Risk Factors” beginning
on page __.
How
many votes are needed to approve the proposal?
To
be
approved, the proposal (to consider and vote on the proposed sale of assets)
must receive a “For” vote from the majority of our outstanding
shares.
What
is the quorum requirement?
A
quorum
is necessary to hold a valid meeting. A quorum will be present if a majority
of
the outstanding shares are represented either by stockholders present
at the meeting or by proxy. On the record date, there were _____
shares
of SBE common stock outstanding and entitled to vote. Thus, at least
_____
shares
must be represented either by stockholders present at the meeting or by proxy
in
order to have a quorum.
Your
shares will be counted towards the quorum only if you submit a valid proxy
(or
one is submitted on your behalf by your broker, bank or other nominee) or if
you
vote in person at the meeting. Abstentions and broker non-votes will be counted
towards the quorum requirement. If there is no quorum, a majority of the votes
present at the meeting may adjourn the meeting to another date.
Does
the board of directors recommend approval of the proposal at the special
meeting?
Yes.
After careful consideration, our board of directors recommends that our
stockholders vote FOR the proposal.
Who
can help answer my questions about the proposal?
If
you
have additional questions about the proposal, you should contact David Brunton,
our Secretary, at (925) 355-2000.
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How
can I find out the results of the voting at the special
meeting?
Preliminary
voting results may be announced at the special meeting. Final voting results
will be published in our quarterly report on Form 10-Q for the quarter in which
the special meeting occurs.
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SUMMARY
TERM SHEET
FOR
THE SALE OF EMBEDDED BUSINESS
The
following summary provides an overview of the proposed sale of our embedded
business discussed in this proxy statement. The summary also contains
cross-references to the more detailed discussions elsewhere in the proxy
statement. This summary may not contain all of the information that is important
to you. To understand the proposed asset sale fully, and for a more complete
description of the terms of the proposed asset sale, you should carefully read
this entire proxy statement and the attached annexes in their
entirety.
The
Companies (see page ___)
SBE
SBE,
Inc., headquartered in San Ramon, California, designs and provides iSCSI-based
storage networking solutions for an extensive range of business critical
applications, including Disk-to-Disk Back-up and Disaster Recovery. We deliver
an affordable, expandable, easy-to-use portfolio of software solutions designed
to enable optimal performance and rapid deployment across a wide range of next
generation storage systems. We
also
manufacture and sell hardware products, including wide area network and local
area network network interface cards and central processor units to original
equipment manufacturers that
embed
our hardware products into their products for the telecommunications
markets.
Our
hardware products perform critical computing and input/output, or I/O, tasks
in
diverse markets such as high-end enterprise level computing servers, Linux
super-computing clusters, workstations, media gateways, routers and Internet
access devices. We refer to this hardware business in this proxy statement
as
our embedded business. Our products are distributed worldwide through a direct
sales force, distributors, independent manufacturers’ representatives and
value-added resellers.
One
Stop
One
Stop
Systems,
Inc. is
a manufacturer of industrial-grade computing systems and components, including
a
line of Peripheral Component Interconnect, or PCI, Express-based products.
One
Stop’s PCI Express-based products increase network bus speed up to 16 times
faster than 64-bit PCI and 80 times faster than Gigabit Ethernet. One Stop
offers over 400 standard products, including its MAX Express product line,
passive backplane, Virtual Machine Environment and custom and proprietary bus
structures. One Stop’s principal executive office is located at 2235 Enterprise
Street, Suite 110, Escondido, California 92029.
Overview
of the Transaction (see page ___)
We
have
entered into an asset purchase agreement with One Stop. Under the asset purchase
agreement, One Stop would acquire our embedded business for $2,200,000 in cash
and assume our obligations under the lease of our corporate headquarters
building and certain equipment leases. The asset purchase agreement is attached
to this proxy statement as Annex A.
Recommendation
of the Board of Directors (see page ___)
Our
board
of directors has determined that the asset sale is fair to, and in the best
interests of, us and our stockholders and recommends that our stockholders
vote
FOR the proposal to approve the sale of our embedded business to One
Stop.
To
review
the background and reasons for the asset sale in detail, see “Asset Sale —
Reasons for the Asset Sale” beginning on page ___.
Opinion
of Our Financial Advisor (see page ___)
In
connection with the proposed asset sale, our board of directors received a
written opinion from Samuel Seidman & Co. as to the fairness of the
consideration to be received by us, from a financial point of view and as of
the
date of the opinion. The full text of Samuel Seidman & Co.’s written opinion
is attached to this proxy statement as Annex B. You are encouraged to read
this
opinion carefully in its entirety for a description of the assumptions made,
matters considered and limitations on the review undertaken.
-6-
The
Asset Sale (see page ___)
General
On
January __,
2007,
we entered into an Agreement for Purchase and Sale of Assets with One Stop,
the
asset purchase agreement, pursuant to which we agreed to sell our embedded
business to One Stop for $2,200,000 in cash plus One Stop’s assumption of the
lease of our corporate headquarters building and certain equipment
leases.
Terms
of the Asset Purchase Agreement
The
asset
purchase agreement is attached to this proxy statement as Annex A. We
encourage you to read the asset purchase agreement carefully. Our board of
directors has approved the asset purchase agreement, and it is the binding
legal
agreement that governs the terms of the asset sale.
Conditions
Precedent
One
Stop’s obligation to complete the asset sale depends on the satisfaction or
waiver of a number of conditions, including conditions relating to:
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accuracy
of our representations on and as of the
closing;
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our
performance, satisfaction and compliance with all covenants, agreements
and closing conditions;
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no
material adverse change will have occurred with respect to the embedded
business;
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receipt
of an officer’s certificate executed by our chief executive officer
certifying that all closing conditions have been
fulfilled;
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absence
of litigation pertaining to the sale of the embedded
business;
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our
receipt of stockholder approval of the transaction;
and
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payment
of certain outstanding accounts payable attributable to our embedded
business.
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In
addition, our obligation to complete the asset sale is subject to satisfaction
or waiver of certain additional conditions, including conditions relating
to:
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accuracy
of One Stop’s representations on and as of the
closing;
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One
Stop’s performance, satisfaction and compliance with all covenants,
agreements and closing conditions;
and
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absence
of litigation pertaining to the
transaction.
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Termination
The
asset
purchase agreement may be terminated under the following
circumstances:
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by
mutual written consent of the parties, duly authorized by their respective
boards;
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the
closing has not occurred on or before April 30, 2007, unless the
party
terminating in this circumstance is at fault for the delay in
closing;
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any
proceeding is pending against either party that could prevent performance
of the asset sale; or
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any
governmental entity has issued an order, the effect of which is to
prohibit the asset sale.
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Restriction
on Competition
We
have
agreed that for four years following the closing of the asset sale, we will
not
directly or indirectly engage in the embedded business or have any interest
in
(whether as an employee, officer, director, agent, security holder, creditor,
consultant, or otherwise), any entity engaged in the embedded
business.
Indemnification
Each
party has agreed to indemnify the other party for damages arising for any breach
of any of the representations or warranties or covenants or obligations in
the
asset purchase agreement. In addition, we have agreed to indemnify One Stop
for
any liabilities attributable to operation of the embedded business prior to
the
closing. All representations, warranties and covenants expire on the first
anniversary of the closing. Our liability for indemnification claims made by
One
Stop pursuant to the asset purchase agreement is capped at $2,200,000 in the
aggregate.
Regulatory
Approvals
We
are
not aware of any federal or state regulatory requirements that must be complied
with or approvals that must be obtained to consummate the asset sale other
than
the filing of this proxy statement with the SEC. If any additional approvals
or
filings are required, we will use our commercially reasonable efforts to obtain
those approvals and make any required filings before completing the
transactions.
Dissenters’
Rights
Our
stockholders are not entitled to exercise dissenters’ rights in connection with
the asset sale.
Transactions
Following the Asset Sale
The
assets we propose to sell to One Stop comprise all of our embedded business.
After the closing of such sale, we expect our only remaining assets will be
cash, accounts receivable, fixed assets and the storage software business we
acquired in connection with our acquisition of PyX Technologies, Inc. in 2005.
SBE’s board of directors is currently evaluating a variety of strategic
alternatives that it believes may maximize stockholder value, including: the
acquisition of another business, including a business much larger than SBE
in a
“reverse merger” transaction; continued operation, sale or discontinuation of
our software business; and liquidation.
-8-
RISK
FACTORS
You
should consider carefully the following risk factors as well as other
information in this proxy statement and the documents incorporated by reference
herein or therein, including our annual report on Form 10-K for the year ended
October 31, 2005 and our quarterly reports on Form 10-Q for the quarters ended
January 31, 2006, April 30, 2006 and July 31, 2006, in voting on the proposal
relating to the asset sale. If any of the following risks actually occur, our
business, operating results and financial condition could be adversely affected.
This could cause the market price of our common stock to decline, and you may
lose all or part of your investment.
Risk
Relating to the Transaction
If
we are unable to complete the asset sale, our business will be adversely
affected.
If
the
asset sale is not completed, our business and the market price of our stock
will
be adversely affected. We currently anticipate that our available cash balances,
available borrowings and cash generated from operations will be sufficient
to
fund our operations only through May 2007. If we are unable to complete the
asset sale, we may be unable to find another buyer for our embedded business
or
another way to grow our business. Costs related to the transaction, such as
legal, accounting and financial advisor fees, must be paid even if the
transaction is not completed. In addition, even if we have sufficient funds
to
continue to operate our business but the transaction are not completed, the
current market price of our common stock may decline.
We
may be unable to complete other strategic transactions following the asset
sale.
After
the
closing of the proposed asset sale, we expect our only remaining assets will
be
cash, accounts receivable, fixed assets and the storage software business we
acquired in connection with our acquisition of PyX Technologies, Inc. in 2005.
SBE’s board of directors is currently evaluating a variety of strategic
alternatives that it believes may maximize stockholder value, including: the
acquisition of another business, including a business much larger than SBE
in a
“reverse merger” transaction; continued operation, sale or discontinuation of
our software business; and liquidation. We do not currently have any signed
agreement for any sale of our software business or acquisition transaction,
nor
do we believe that we can continue to operate our software business without
additional financing. We may be unable to reach agreement on any such
transactions on commercially acceptable terms or at all. The failure to effect
any such transactions would likely result in SBE’s liquidation.
If
we determine that it is necessary to liquidate following the asset sale, no
cash
may be available for distribution to our stockholders after satisfaction of
our
liabilities.
If
we
determine that it is necessary to liquidate following the asset sale, we may
not
have sufficient cash available to make a distribution to our stockholders after
we satisfy our liabilities. Under Delaware law, liquidation of a company occurs
three years following stockholder approval of a plan of dissolution. As a
result, even if we have a sufficient amount of cash remaining following
satisfaction of our liabilities to allow us to make a distribution to our
stockholders, it may be three years before our stockholders receive
distributions.
If
One Stop defaults on the assumed building and equipment leases, we will be
obligated, as guarantor of such leases, to make the lease
payments.
One
Stop
is assuming our headquarters building lease and engineering equipment lease
and
is obligated to make regularly scheduled lease payments through September 2010.
If One Stop defaults on the leases at any time prior to the lease termination
dates, we, as the guarantor of such leases, will be obligated to make the lease
payments. We may have insufficient funds and be unable to meet the lease
obligations.
-9-
We
may be obligated to indemnify One Stop pursuant to the asset purchase
agreement.
We
have
agreed to indemnify One Stop for any damages suffered by One Stop arising for
any breach of any of the representations or warranties or covenants or
obligations we have made in the asset purchase agreement. In addition, we have
agreed to indemnify One Stop for any liabilities attributable to operation
of
the embedded business prior to the closing. The terms of our indemnification
obligations are described elsewhere in this proxy statement. In the event we
are
required to indemnify One Stop, SBE’s financial condition may be materially
adversely affected and any value obtainable for SBE’s stockholders in connection
with an acquisition of another business, a sale of our software business or
liquidation may decrease.
-10-
THE
COMPANIES
SBE
We
design
and provide iSCSI-based storage networking solutions for an extensive range
of
business critical applications, including Disk-to-Disk Back-up and Disaster
Recovery. We deliver an affordable, expandable, and easy-to-use portfolio of
software solutions designed to enable optimal performance and rapid deployment
across a wide range of next generation storage systems We
also
design, manufacture and sell hardware products, including wide area network
and
local area network interface cards and central processor units, to original
equipment manufacturers that
embed
our hardware products into their products for the telecommunications
markets.
Embedded
networking technology is hardware or software that serves as a component within
a larger networking or storage device or system, such as a Gigabit Ethernet
or a
T-1/T-3 input/output network interface card, that plugs into an expansion slot
in a high-end computer or storage system. Our
embedded hardware products perform critical computing and I/O tasks in diverse
markets such as high-end enterprise level computing servers, Linux
super-computing clusters, workstations, media gateways, routers and Internet
access devices.
We
were
incorporated in 1961 as Linear Systems, Inc. In 1976, we completed our initial
public offering. In July 2000, we acquired LAN Media Corporation, a privately
held company, to complement and grow our WAN adapter product line from both
a
hardware and software perspective. In August 2003, we acquired the products
and
technologies of Antares Microsystems to increase the functionality of our PCI
product line. In 2005, we acquired PyX Technologies, Inc., a company engaged
in
the development implementation and sale of Internet Small Computer System
Interface software.
The
assets we propose to sell to One Stop comprise all of our embedded business.
After the closing of such sale, we expect our only remaining assets will be
cash, accounts receivable, fixed assets and the storage software business we
acquired in connection with our acquisition of PyX Technologies, Inc. in 2005.
SBE’s board of directors is currently evaluating a variety of strategic
alternatives that it believes may maximize stockholder value, including: the
acquisition of another business, including a business much larger than SBE
in a
“reverse merger” transaction; continued operation, sale or discontinuation of
our software business; and liquidation.
One
Stop
One
Stop
Systems,
Inc. is
a manufacturer of industrial-grade computing systems and components, including
a
line of PCI Express-based products. One Stop’s PCI Express-based products
increase network bus speed up to 16 times faster than 64-bit PCI and 80 times
faster than Gigabit Ethernet. One Stop offers over 400 standard products,
including its MAX Express product line, passive backplane, Virtual Machine
Environment and custom and proprietary bus structures. One Stop’s principal
executive office is located at 2235 Enterprise Street, Suite 110, Escondido,
California 92029.
-11-
THE
ASSET SALE
Background
of the Asset Sale
On
August
21, 2006, our board of directors held a regular meeting and discussed the
strategic direction of SBE. The board authorized our management to retain
investment banking advisors to seek alternative measures to increase stockholder
value.
On
September 8, 2006, we engaged Stratpoint Consulting LLC to assist us with the
sale of our embedded business.
On
September 21, 2006, our board of directors held a special meeting to discuss
the
strategic future of SBE, including the possible disposition of all of our
assets.
At that
meeting, our board of directors authorized
management to enter into discussions and negotiate term sheets for the
disposition of all or a portion of our assets, subject to final approval of
the
term sheet by the board of directors.
On
September 28, 2006, we met with Stratpoint Consulting LLC and finalized a list
of 22 prospective companies to contact regarding the potential purchase of
our
embedded business.
During
the week of October 2, 2006, Stratpoint Consulting LLC mailed inquiry letters
to
the list of prospective companies.
From
October 4, 2006 through October 24, 2006, we entered into nondisclosure
agreements with six companies that expressed an interest in purchasing our
embedded business and sent informational sales packages to each of the
companies.
On
October 10, 2006, John Reardon, a member of our board of directors and a member
of One Stop’s board of directors, introduced our Chief Financial Officer, David
Brunton, to One Stop’s Chief Executive Officer, Steve Cooper, to discuss the
potential acquisition of our embedded business by One Stop.
On
October 12, 2006, our board of directors formed a Strategic Transaction
Committee comprised of our independent board members to review and approve
all
strategic alternatives presented to the board for approval. Mr. Reardon recused
himself from all One Stop and SBE board discussions relating to the potential
acquisition of our embedded business by One Stop.
We
entered into a nondisclosure agreement with One Stop on October 24, 2006.
From
October 24, 2006 through November 10, 2006, we continued to have discussions
with two of the companies that received the informational sales packages related
to the sale of our embedded business. The other four potential bidders declined
to continue discussions.
During
the period from August 2006 through the execution of the asset purchase
agreement with One Stop, our Chief Executive Officer provided our board of
directors with frequent status updates on the potential divestiture of the
embedded business.
On
November 10, 2006, we had discussions with the two final purchaser candidates
and considered purchase offers submitted by both entities before accepting
the
superior offer from One Stop.
On
November 10, 2006, we signed a non-binding term sheet with One Stop pertaining
to the proposed sale of our embedded business.
On
November 13, 2006, our board of directors met to approve the term sheet and
instructed our management to move forward with the asset sale.
-12-
From
November 13, 2006 through December 31, 2006, One Stop performed a due diligence
investigation of our embedded business.
On
December 6, 2006, we received the initial draft of the asset purchase agreement
from One Stop and its counsel.
During
December 2006 through January 8, 2007, negotiations continued on the asset
purchase agreement.
On
December 13, 2006, we retained Samuel Seidman & Co., Inc. to analyze the
sale of our embedded business to One Stop and to determine the fairness of
the
proposed transaction, from a financial point of view, to our
stockholders.
On
January 9, 2007, at a meeting of our board of directors, Samuel Seidman &
Co. delivered its oral opinion to our board of directors that the consideration
to be received by SBE in the proposed asset sale is fair, from a financial
point
of view, to SBE’s stockholders. Thereafter, the board of directors, together
with management and SBE’s outside counsel, engaged in a full discussion of the
proposed transaction. After such discussion, the board of directors determined
that the transaction was advisable and in the best interests of SBE and its
stockholders, determined to recommend to SBE’s stockholders that they approve
the proposed transaction, and authorized SBE management to execute the asset
purchase agreement in the form in which it was presented to the board of
directors.
On
January 11, 2007, we and One Stop signed the asset purchase agreement. On the
same day, we announced via press release the execution of the agreement and
filed a corresponding Form 8-K with the Securities and Exchange
Commission.
Reasons
for the Asset Sale
In
reaching its decision to approve the asset sale and to recommend approval of
the
asset purchase agreement by our stockholders, our board of directors consulted
with our management team and advisors.
Prior
to
approving the asset sale, our board of directors considered various alternative
ways to maximize stockholder value. After such consideration, our board of
directors concluded that the asset sale presented the best course of action
for
us at this time.
The
material factors considered by our board of directors in making its
determination to pursue the asset sale included the following:
|
1.
|
the
amount and form of the consideration to be paid in the
transaction;
|
|
2.
|
the
belief that, after conducting an extensive review of our financial
condition, results of operations and business and earning prospects,
the
sale of the embedded business was likely to create greater value
for our
stockholders as compared to pursuing our existing course of business
or an
alternative business strategy; and
|
|
3.
|
the
extensive process conducted by our management in seeking potential
buyers
and the belief that the alternatives to the proposed transaction
were not
reasonably likely to provide equal or greater value to us and our
stockholders.
|
Recommendation
of Our Board of Directors
At
its
meeting held on January 9, 2007, our board of directors (1) determined that
the asset sale and the asset purchase agreement are fair to and in the best
interests of SBE and our stockholders and (2) determined to recommend that
our stockholders approve the proposal related to the transaction. Accordingly,
our board of directors recommends that our stockholders vote FOR the asset
sale
and the asset purchase agreement.
-13-
In
connection with the foregoing actions, our board of directors consulted with
our
management team, as well as our financial advisor and legal counsel, and
considered the following material factors:
|
1.
|
all
the reasons described above under “Reasons for the Asset
Sale”;
|
|
2.
|
the
judgment, advice and analyses of our senior management, including
their
favorable recommendation of the asset
sale;
|
|
3.
|
alternatives
to the asset sale;
|
|
4.
|
the
presentations by and discussions with our senior management and
representatives of our counsel and financial advisor regarding the
terms
and conditions of the asset
purchase;
|
|
5.
|
the
presentations by and discussions with our senior management and
representatives of our counsel regarding the terms and conditions
of the
asset purchase agreement and the asset sale;
and
|
|
6.
|
that
while the asset sale is likely to be completed, there are risks associated
with completing the transactions and, as a result of conditions to
the
completion of the transactions, it is possible that the transactions
may
not be completed even if approved by our
stockholders.
|
Our
board
of directors did not find it useful to, and did not attempt to, quantify, rank
or otherwise assign relative weights to these factors. Our board of directors
relied on the analysis, experience, expertise and recommendation of our
management team with respect to each of the transactions and relied on Samuel
Seidman & Co., our financial advisor, for analyses of the financial terms of
the asset sale. See “Opinion of Our Financial Advisor” on page ___.
In
addition, our board of directors did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to its ultimate determination,
but rather our board of directors conducted an overall analysis of the factors
described above, including discussions with our management team and legal,
financial and accounting advisors. In considering the factors described above,
individual members of our board of directors may have given different weight
to
different factors.
Opinion
of Our Financial Advisor
In
connection with the proposed asset sale, our board of directors received a
written opinion from Samuel Seidman & Co. as to the fairness of the
consideration to be received by us, from a financial point of view and as of
the
date of the opinion. The full text of Samuel Seidman & Co.’s written opinion
is attached to this proxy statement as Annex B. You are encouraged to read
this
opinion carefully in its entirety for a description of the assumptions made,
matters considered and limitations on the review undertaken.
-14-
PROPOSAL
APPROVAL
OF THE SALE OF SBE’S EMBEDDED BUSINESS
General
On
January 11, 2007, we entered into an asset purchase agreement with One Stop,
pursuant to which we agreed to sell our embedded business to One Stop for
$2,200,000 in cash plus One Stop’s assumption of the lease of our corporate
headquarters building and certain equipment leases.
The
asset
purchase agreement is attached to this proxy statement as Annex A. You
should read the asset purchase agreement carefully. It is the agreement that
governs the terms of the asset sale. The following information summarizes the
terms of the asset purchase agreement.
Effective
Time of the Asset Sale
The
asset
purchase agreement provides that the closing of the asset sale will take place
as soon as practicable after the conditions to closing set forth in the asset
purchase agreement are fulfilled. Completion of the asset sale could be delayed
if there is a delay in satisfying the closing conditions to the asset sale.
There can be no assurances as to whether, and on what date, the conditions
will
be satisfied or that the asset sale will be completed at all. If the asset
sale
is not completed on or before April 30, 2007, either we or One Stop may
terminate the asset purchase agreement, except that a party cannot terminate
the
agreement if that party’s failure to fulfill any of its obligations under the
asset purchase agreement was the cause of the asset sale not being completed
by
that date.
Representations
and Warranties
The
asset
purchase agreement contains representations and warranties made by us to One
Stop and by One Stop to us for purposes of allocating the risks associated
with
the asset sale. Our representations and warranties to One Stop in the asset
purchase agreement include, among other things:
|
•
|
our
organization, qualification and good
standing;
|
|
•
|
the
accuracy of our financial
statements;
|
|
•
|
the
absence of certain changes since July 31,
2006;
|
|
•
|
our
debts, obligations and liabilities;
|
|
•
|
the
assets of our business, including our real property, inventory, tangible
personal property, accounts receivable, intellectual property and
other
intangible property;
|
|
•
|
title
to and sufficiency of our assets;
|
|
•
|
our
customers and sales;
|
|
•
|
our
employment contracts and benefits;
|
|
•
|
insurance
policies;
|
|
•
|
our
compliance with laws and
regulations;
|
|
•
|
litigation;
|
|
•
|
necessary
authority and consents;
|
-15-
|
•
|
conflicts
of interest with our customers, suppliers or competitors;
and
|
|
•
|
personnel.
|
One
Stop’s representations and warranties to us include, among other
things:
|
•
|
organization,
qualification and good standing;
|
|
•
|
necessary
authority and consents; and
|
|
•
|
ability
to pay the purchase price.
|
Certain
Covenants
The
asset
purchase agreement provides that we must meet certain obligations with respect
to our embedded business prior to the closing of the asset sale:
|
•
|
provide
One Stop with access to all of our records and
documents;
|
|
•
|
conduct
our embedded business in the ordinary course and in substantially
the same
manner as conducted prior to the asset purchase
agreement;
|
|
•
|
preserve
our business and relationships;
|
|
•
|
maintain
our existing insurance;
|
|
•
|
not
make changes in compensation or benefits of our employees, sales
agents or
representatives;
|
|
•
|
not
enter into new contracts (i) not in the ordinary course or consistent
with
past practices, (ii) in the ordinary course for an amount in excess
of
$50,000, (iii) for the lease of capital equipment or property with
annual
lease charges in excess of $10,000 or (iv) for the sale of any capital
assets with a net book value in excess of
$10,000;
|
|
•
|
not
modify or terminate any of our existing contracts or agreements;
|
|
•
|
obtain
the written consent of certain third
parties;
|
|
•
|
upon
request, deliver to One Stop a description of our trade secrets,
processes
or business procedures;
|
|
•
|
obtain
written approval of our board of directors for the asset sale;
and
|
|
•
|
comply
with our confidentiality
obligations.
|
The
asset
purchase agreement provides that One Stop must meet certain obligations prior
to
the closing of the asset sale:
|
•
|
comply
with its confidentiality
obligations;
|
|
•
|
cooperate
in our efforts to obtain the consents of certain third
parties;
|
|
•
|
furnish
a resale certificate to comply with California sales and use tax
laws;
and
|
|
•
|
obtain
written approval of its board of directors for the purchase of
assets.
|
-16-
Conditions
Precedent
One
Stop’s obligation to complete the asset sale depends on the satisfaction or
waiver of a number of conditions, including conditions relating to:
|
•
|
accuracy
of our representations on and as of the
closing;
|
|
•
|
our
performance, satisfaction and compliance with all covenants, agreements
and closing conditions;
|
|
•
|
no
material adverse change will have occurred with respect to the embedded
business;
|
|
•
|
receipt
of an officer’s certificate executed by our chief executive officer
certifying that all closing conditions have been
fulfilled;
|
|
•
|
absence
of litigation pertaining to the sale of the embedded
business;
|
|
•
|
our
receipt of stockholder approval of the transaction;
and
|
|
•
|
payment
of certain outstanding accounts payable attributable to the embedded
business.
|
In
addition, our obligation to complete the asset sale is subject to satisfaction
or waiver of certain additional conditions, including conditions relating
to:
|
•
|
accuracy
of One Stop’s representations on and as of the
closing;
|
|
•
|
One
Stop’s performance, satisfaction and compliance with all covenants,
agreements and closing conditions;
and
|
|
•
|
absence
of litigation pertaining to the
transaction.
|
Termination
The
asset
purchase agreement may be terminated under the following
circumstances:
|
•
|
by
mutual written consent of the parties, duly authorized by their respective
boards;
|
|
•
|
the
closing has not occurred on or before April 30, 2007, unless the
party
terminating in this circumstance is at fault for the delay in
closing;
|
|
•
|
any
proceeding is pending against either party that could prevent performance
of the asset sale; or
|
|
•
|
any
governmental entity has issued an order, the effect of which is to
prohibit the asset sale.
|
Restriction
on Competition
We
have
agreed that for four years following the closing of the asset sale, we will
not
directly or indirectly engage in the embedded business or have any interest
in
(whether as an employee, officer, director, agent, security holder, creditor,
consultant, or otherwise), any entity engaged in the embedded
business.
Indemnification
Each
party has agreed to indemnify the other party for damages arising for any breach
of any of the representations or warranties or covenants or obligations in
the
asset purchase agreement. In addition, we have agreed to indemnify One Stop
for
any liabilities attributable to operation of the embedded business prior to
the
closing. All representations, warranties and covenants expire on the first
anniversary of the closing. Our liability for indemnification claims made by
One
Stop pursuant to the asset purchase agreement is capped at $2,200,000 in the
aggregate.
-17-
Waivers
Any
provision of the asset
purchase agreement
may be waived if the waiver is duly executed and delivered by the party against
whom the waiver is to be effective and will only be applicable in the specific
instance in which it is given.
Amendments
Any
provision of the asset purchase agreement may be amended if the amendment is
duly executed and delivered by us and One Stop.
Fees
and Expenses
We
and
One Stop will each pay our own respective fees, costs and expenses incurred
in
connection with the asset purchase agreement.
-18-
SECURITY
OWNERSHIP OF
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the ownership of our
common stock as of January 10, 2007 by: (i) each director and nominee for
director; (ii) each of our “named executive officers,” as defined in Item 402
under Regulation S-K promulgated by the Securities and Exchange Commission;
(iii) all executive officers and directors of SBE as a group; and (iv) all
those
known by us to be beneficial owners of more than five percent of its common
stock. The address for each of the persons and entities set forth below is
c/o
SBE, Inc., 4000 Executive Parkway, Suite 200, San Ramon, California 94583.
|
Beneficial
Ownership (1)
|
|||||||
|
Beneficial
Owner
|
Number
of Shares
|
Percent
of Total(2)
|
|||||
|
Mr.
Kenneth G. Yamamoto (3)(6)
|
853,031
|
7.7
|
%
|
||||
|
Mr.
Daniel Grey (3)
|
--
|
--
|
|||||
|
Mr.
William B. Heye, Jr. (3)(4)(5)
|
386,284
|
3.5
|
%
|
||||
|
Mr.
John Reardon (3)
|
75,545
|
0.07
|
%
|
||||
|
Mr.
Ronald J. Ritchie (3)
|
95,817
|
0.09
|
%
|
||||
|
Mr.
Marion M. (Mel) Stuckey (3)
|
75,545
|
0.07
|
%
|
||||
|
Mr.
John d’Errico (3)
|
70,863
|
0.06
|
%
|
||||
|
Mr.
David Brunton (3)
|
453,982
|
4.1
|
%
|
||||
|
Mr.
Kirk Anderson (3)
|
244,392
|
2.2
|
%
|
||||
|
Mr.
Nelson Abal (3)
|
132,271
|
1.2
|
%
|
||||
|
Mr.
Leo Fang (3)
|
354,251
|
3.2
|
%
|
||||
|
All
executive officers and directors as a group (11 persons) (3)
|
2,741,981
|
24.7
|
%
|
||||
* Less
than
one percent.
|
(1)
|
This
table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with
the
SEC. Unless otherwise indicated in the footnotes to this table and
subject
to community property laws where applicable, we believe that each
of the
stockholders named in this table has sole voting and investment power
with
respect to the shares indicated as beneficially
owned.
|
|
(2)
|
Applicable
percentages are based on 11,101,554 shares outstanding on January
10,
2007, adjusted as required by rules promulgated by the
SEC.
|
|
(3)
|
Includes,
445,000, 386,284, 45,000, 35,000, 45,000, 50,000, 320,000, 202,000,
110,000 and 255,000 shares that Messrs. Yamamoto, Heye, Reardon,
Ritchie,
Stuckey, d’Errico, Brunton, Anderson, Abal and Fang, respectively, have
the right to acquire within 60 days after the date of this table
under
outstanding stock options.
|
-19-
|
(4)
|
Includes
50 shares held by Joan G. Heye, the wife of Mr.
Heye.
|
|
(5)
|
Mr.
Heye resigned from the board of directors on October 31, 2006 and
has
until January 29, 2007 to exercise any vested stock options. Any
unexercised stock options as of January 30, 2007 will be
cancelled.
|
|
(6)
|
Includes
60,000 shares
held by UTMA as Custodian for Melanie Yamamoto and 60,000 shares
held by
UTMA as Custodian for Nicholas Yamamoto, the children of Mr.
Yamamoto.
|
-20-
OTHER
MATTERS
Accountants
Representatives
of BDO Seidman, LLP are not expected to be present at the Special Meeting and
will not be available to respond to appropriate questions.
|
|
|
|
|
By
Order of the Board of Directors,
|
|
|
|
|
|
|
|
|
/s/
David W. Brunton
|
|
|
|
|
|
David
W. Brunton
|
|
|
Secretary
|
San
Ramon, California
January
__,
2007
-21-
Annex
A
AGREEMENT
FOR PURCHASE AND SALE OF ASSETS
by
and between
ONE
STOP SYSTEMS, INC.
(“Buyer”)
and
SBE,
INC.
(“Corporation”)
January
11, 2007
This
document is not intended to create, and will not be deemed to create, a legally
binding or enforceable offer or agreement of any type or nature, unless and
until it is executed and delivered by each party hereto. Until so executed
and
delivered, this document is intended solely to facilitate discussions among
the
parties. The provisions contained herein are subject to change based on the
results of the Buyer’s ongoing due diligence review of the
Company.
TABLE
OF CONTENTS
|
RECITALS
|
1
|
|
|
ARTICLE
1. DEFINITIONS
|
1
|
|
|
ARTICLE
2. PURCHASE AND SALE OF ASSETS
|
2
|
|
|
2.1
|
Sale
and Transfer of Assets
|
2
|
|
2.2
|
Excluded
Assets
|
3
|
|
2.3
|
Consideration
from Buyer at Closing
|
4
|
|
2.4
|
Assumption
of Liabilities
|
4
|
|
2.5
|
Purchase
Price and Allocation
|
4
|
|
2.6
|
Excise
and Property Taxes
|
4
|
|
2.7
|
Possible
Purchase Price Adjustment for Inventory
|
4
|
|
2.8
|
Escrow
Reserve and Payment
|
5
|
|
ARTICLE
3. WARRANTIES OF CORPORATION
|
5
|
|
|
3.1
|
Organization,
Standing, and Qualification of Corporation
|
5
|
|
3.2
|
Financial
Statements
|
6
|
|
3.3
|
Absence
of Changes in Corporation
|
6
|
|
3.4
|
Claims
and Liabilities
|
7
|
|
3.5
|
Assets
of Business
|
7
|
|
3.6
|
Title
to Assets; Sufficiency of Assets
|
10
|
|
3.7
|
Customers
and Sales
|
11
|
|
3.8
|
Employment
Contracts and Benefits
|
11
|
|
3.9
|
Insurance
Policies
|
11
|
|
3.10
|
Other
Contracts
|
11
|
|
3.11
|
Compliance
with Laws
|
12
|
|
3.12
|
Litigation
|
12
|
|
3.13
|
Agreement
Will not Cause Breach or Violation
|
12
|
|
3.14
|
Authority
and Consents
|
12
|
|
3.15
|
Interest
in Customers, Suppliers, and Competitors
|
12
|
|
3.16
|
Personnel
|
13
|
|
3.17
|
Full
Disclosure
|
13
|
|
ARTICLE
4. BUYER’S WARRANTIES
|
13
|
|
|
4.1
|
Organization,
Standing and Qualification
|
13
|
|
4.2
|
Authority
and Consents
|
13
|
|
4.3
|
Full
Disclosure
|
13
|
|
4.4
|
Financial
Wherewithal
|
13
|
|
ARTICLE
5. CORPORATION’S OBLIGATIONS BEFORE CLOSING
|
13
|
|
|
5.1
|
Buyer’s
Access to Premises and Information
|
13
|
|
5.2
|
Conduct
of Business in Normal Course
|
14
|
|
5.3
|
Preservation
of Business and Relationships
|
14
|
|
5.4
|
Maintenance
of Insurance
|
14
|
|
5.5
|
Employees
and Compensation
|
14
|
|
5.6
|
New
Transactions
|
14
|
|
5.7
|
Existing
Agreements
|
15
|
|
5.8
|
Consents
of Others
|
15
|
i
|
5.9
|
Corporate
Approval
|
15
|
|
5.10
|
Information
to Be Held in Confidence
|
15
|
|
ARTICLE
6. BUYER’S OBLIGATIONS BEFORE CLOSING
|
15
|
|
|
6.1
|
Information
to Be Held in Confidence
|
15
|
|
6.2
|
Cooperation
in Securing Consents of Third Parties
|
16
|
|
6.3
|
Resale
Certificate
|
16
|
|
6.4
|
Bulk
Sales Law
|
16
|
|
6.5
|
Corporate
Approval
|
16
|
|
ARTICLE
7. CONDITIONS PRECEDENT TO BUYER’S PERFORMANCE
|
16
|
|
|
7.1
|
Accuracy
of Corporation’s Representations and Warranties
|
16
|
|
7.2
|
Performance
by Corporation
|
16
|
|
7.3
|
No
Material Adverse Change
|
16
|
|
7.4
|
Certification
by Corporation
|
17
|
|
7.5
|
Absence
of Litigation
|
17
|
|
7.6
|
Shareholder
Approval
|
17
|
|
7.7
|
Approval
of Documentation and Delivery
|
17
|
|
7.8
|
Payment
of Accounts Payable
|
17
|
|
ARTICLE
8. CONDITIONS PRECEDENT TO CORPORATION’S PERFORMANCE
|
17
|
|
|
8.1
|
Accuracy
of Buyer’s Representations and Warranties
|
17
|
|
8.2
|
Buyer’s
Performance
|
17
|
|
8.3
|
Absence
of Litigation
|
17
|
|
8.4
|
Approval
of Documentation and Delivery
|
18
|
|
8.5
|
Shareholder
Approval
|
18
|
|
ARTICLE
9. THE CLOSING
|
18
|
|
|
9.1
|
Time
and Place
|
18
|
|
9.2
|
Corporation’s
Obligations at Closing
|
18
|
|
9.3
|
Buyer’s
Obligation at Closing
|
19
|
|
ARTICLE
10. OBLIGATIONS AFTER CLOSING
|
19
|
|
|
10.1
|
Shareholder’s
Competition
|
19
|
|
10.2
|
Further
Assurances
|
19
|
|
10.3
|
Corporate
Liabilities
|
20
|
|
10.4
|
Accounts
Payable and Accounts Receivable
|
20
|
|
ARTICLE
11. NATURE AND SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS
|
20
|
|
|
11.1
|
Representations
and Warranties
|
21
|
|
11.2
|
Survival
|
21
|
|
11.3
|
Indemnification
and Reimbursement by Corporation
|
21
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|
11.4
|
Indemnification
and Reimbursement by Corporation--Environmental Matters
|
21
|
|
11.5
|
Indemnification
and Reimbursement by Buyer
|
22
|
|
11.6
|
Time
Limitations
|
22
|
|
11.7
|
Limitations
on Corporation’s
Indemnity
|
22
|
|
11.8
|
Knowledge
of Breach.
|
22
|
|
11.9
|
Indemnification
Claims.
|
22
|
ii
|
11.10
|
Defense
of Third Party Actions.
|
23
|
|
11.11
|
Subrogation.
|
24
|
|
11.12
|
Exclusivity.
|
24
|
|
ARTICLE
12. PUBLICITY
|
24
|
|
|
ARTICLE
13. COSTS
|
24
|
|
|
13.1
|
Finder’s
or Broker’s Fees
|
24
|
|
13.2
|
Expenses
|
24
|
|
ARTICLE
14. FORM OF AGREEMENT
|
25
|
|
|
14.1
|
Effect
of Headings
|
25
|
|
14.2
|
Word
Usage
|
25
|
|
14.3
|
Entire
Agreement; Modification; Waiver
|
25
|
|
14.4
|
Counterparts;
Facsimile Delivery
|
25
|
|
ARTICLE
15. PARTIES
|
26
|
|
|
15.1
|
Parties
in Interest
|
26
|
|
15.2
|
Assignment
|
26
|
|
ARTICLE
16. REMEDIES
|
26
|
|
|
16.1
|
Arbitration
|
26
|
|
16.2
|
Specific
Performance and Waiver of Rescission Rights
|
26
|
|
16.3
|
Recovery
of Litigation Costs
|
26
|
|
16.4
|
Termination
|
27
|
|
ARTICLE
17. NOTICES
|
28
|
|
|
ARTICLE
18. GOVERNING LAW
|
28
|
|
|
ARTICLE
19. SEVERABILITY
|
28
|
|
iii
This
Agreement for Purchase and Sale of Assets (“Agreement”) is made as of January
11, 2007, at Escondido, California, between One
Stop
Systems, Inc. (“Buyer”),
a California corporation, having its principal office at 2235 Enterprise
Street,
Suite 110, Escondido, California 92029; and SBE,
Inc.
(“Corporation”), a Delaware corporation, having its principal office at 4000
Executive Parkway, Suite 200, San Ramon, California 94583.
RECITALS
WHEREAS,
Buyer desires to purchase from Corporation and Corporation desires to sell
to
Buyer, on the terms and subject to the conditions of this Agreement, all
the
assets, business, and properties of the Embedded Business in exchange for
the
cash and other consideration of Buyer described in this Agreement; Shareholder
desires this transaction to be consummated. In consideration of the mutual
covenants, agreements, representations, and warranties contained in this
Agreement, the parties agree as follows:
AGREEMENT
ARTICLE
1. DEFINITIONS
As
used
in this Agreement, the following defined terms have the following
meanings:
1.1 “Embedded
Business”
means the
WAN,
LAN, Carrier, Storage Hardware, Encryption, DSP and legacy product lines
of
Corporation.
1.2 “Encumbrance”
means
any lien, pledge, hypothecation, charge, mortgage, deed of trust, security
interest, encumbrance, claim, infringement, option, right of first refusal,
preemptive right, community property interest, or restriction of any nature
on
any asset;
1.3 “Entity”
means a
Person other than an individual;
1.4 “Governmental
Authority”
means
any federal, state, local, or foreign court, administrative agency or
commission, or other governmental authority or instrumentality;
1.5 “Intellectual
Property Rights”
means,
collectively, all of the following worldwide intangible legal rights, acquired
by ownership, license, or other legal operation: (i) all patents, patent
applications, and patent rights, including all continuations,
continuations-in-part, divisions, reissues, reexaminations, and extensions
of
them, (ii) all trademarks, trade names, logos, and service marks,
registered or not; (iii) all rights associated with works of authorship,
including copyrights (registered or not), copyright applications, copyright
registrations, moral rights, mask work rights, mask work applications, and
mask
work registrations; (iv) all inventions (patentable or not), know-how,
show-how, formulas, processes, techniques, confidential business information,
trade secrets, and other proprietary information, technology, and intellectual
property rights, and (v) all rights to sue or make any claims for any past,
present, or future misappropriation or unauthorized use of any of the foregoing
rights and the right to receive income, royalties, damages, or payments that
are
now or will later become due with regard to the foregoing rights.
Agreement
for Purchase and Sale of Assets
1.6 “Person”
means
any individual, corporation, partnership, estate, trust, company (including
any
limited liability company), firm, or other enterprise, association,
organization, or Governmental Authority;
1.7 “Proceeding”
means
any claim, action, suit, investigation, or administrative or other proceeding
before any Governmental Authority or any arbitration or mediation;
1.8 “Taxes”
means
any and all federal, state, local, or foreign taxes, assessments, and other
governmental charges, duties, impositions, and liabilities relating to taxes
of
any kind, together with all interest, penalties, and additions imposed with
respect to such amounts.
ARTICLE
2. PURCHASE AND SALE OF ASSETS
2.1 Sale
and Transfer of Assets.
Subject
to the terms and conditions set forth in this Agreement, at the Closing,
Corporation will sell, convey, transfer, assign, and deliver to Buyer, and
Buyer
will purchase from Corporation, all rights and title to, and interest in,
the
assets, properties, and business of Corporation used in the Embedded Business
of
every kind, character, and description, whether tangible, intangible, real,
personal, or mixed, and wherever located (all of which are sometimes
collectively referred to as the Assets), free and clear of all Encumbrances,
including the following (provided however, notwithstanding the foregoing,
the
Assets will not include the items set forth at Paragraph 2.2).
(a) All
inventory, finished goods, supplies, materials, and works in process for
the
Embedded Business;
(b) All
equipment, machinery, furniture, and motor vehicles used by the Corporation
for
the Embedded Business;
(c) All
real
property, and all buildings, fixtures and improvement thereon;
(d) All
claims and rights under leases, contracts, insurance policies, notes, evidences
of indebtedness, and purchase and sales orders for the Embedded
Business;
(e) All
software programs and software code for the Embedded Business;
(f) All
copies and tangible embodiments of the software programs and software code
(in
source and object code form), together with all documentation related to
such
programs and code for the Embedded Business;
(g) All
Intellectual Property Rights exercisable or available in any jurisdiction
of the
world, and the exclusive right for Buyer to hold itself out to be the successor
to the business of Corporation for the Embedded Business (provided, however,
that Corporation will retain the SBE name, logo and associated Intellectual
Property Rights and Buyer will be able to use such name and logo as may be
reasonably agreed in writing by Corporation);
2
Agreement
for Purchase and Sale of Assets
(h) All
licenses to assets and properties of third parties (including licenses with
respect to Intellectual Property Rights owned by third parties) for the Embedded
Business;
(i) Claims,
causes of actions, royalty rights, deposits, and rights and claims to refunds
(excluding Tax refunds) and adjustments of any kind (including rights to
set-off
and recoupment), and insurance proceeds for the Embedded Business;
(j) All
Internet domain names and registrations that are held or owned by Corporation
for the Embedded Business other than www.sbei.com;
(k) All
franchises, permits, licenses, agreements, waivers, and authorizations from,
issued, or granted by any Governmental Authority for the Embedded
Business;
(l) True
and
complete copies of all Corporation’s business records, including general and
financial records, marketing and sale information, and plans, pricing, and
customer lists for the Embedded Business; and
(m) All
goodwill associated with Corporation’s business and the Assets for the Embedded
Business.
2.2 Excluded
Assets.
The
following assets of the Embedded Business will not be purchased by Buyer
from
Corporation, nor will Corporation sell to Buyer will any of the
following:
(a) Cash
and
cash equivalents;
(b) Accounts
receivable;
(c)
Assets
including software and hardware associated with the Corporation’s Oracle
financial accounting system and stock option tracking programs;
(d)
Assets
including software, hardware, and any form of Intellectual Property associated
with the Corporation’s Storage Software Business including but not limited to
Source Code, Test Equipment and Test Software;
(e) all
minute books, stock records and corporate seals of Corporation;
(f) the
shares of capital stock of Corporation held in treasury;
(g) all
insurance policies and rights thereunder;
(h) all
of
the contracts of Corporation other than those listed in Schedule
2.4;
(i) all
personnel records and other records that Corporation is required by law to
retain in its possession;
(j) all
claims for refund of Taxes and other governmental charges of whatever nature;
3
Agreement
for Purchase and Sale of Assets
(k) all
rights in connection with and assets of Corporation’s employee benefit plans;
and
(l) all
rights of Corporation under this Agreement.
2.3 Consideration
from Buyer at Closing.
As
full
payment for the transfer of the Assets to Buyer, Buyer will deliver to
Corporation at the Closing, in accordance with the provisions of this Agreement
and subject to Paragraph 2.7, the following (collectively, the “Purchase
Price”):
(a) a
bank
cashier’s check or wire transfer, payable to the order of Corporation, in the
amount of One Million Seven Hundred Thousand Dollars ($1,700,000);
and
(b)
a
bank
cashier’s check or wire transfer, payable to the order of the Escrow Holder per
Paragraph 2.8 in the amount of Five Hundred Thousand Dollars
($500,000).
2.4 Assumption
of Liabilities.
From
and
after the Closing, Buyer will assume all of Corporation’s rights and obligations
arising after the Closing under those contracts (and only those contracts)
listed and marked with an asterisk in Exhibit 2.4; provided, Buyer will not
be
obligated to assume any such contract for which assignment to Buyer requires
the
consent of the other party to such contract unless such consent has been
obtained in writing and delivered to Buyer on or before the Closing. Corporation
will remain liable for all obligations arising under such contracts before
the
Closing. Corporation will have the right to require Buyer to complete any
sales
order not assumed by Buyer in that exhibit for Corporation’s account at a price
to Corporation equal to Buyer’s cost. It is expressly understood and agreed that
Buyer will not be liable for any of the debts, obligations, or liabilities
of
Corporation of any kind other than those specifically assumed by Buyer under
this paragraph and that Corporation will remain liable and responsible for
any
and all of its debts, obligations, and liabilities not expressly assumed
by
Buyer under this Agreement.
2.5 Purchase
Price and Allocation.
The
Purchase Price will be as allocated among the Assets as set forth at Exhibit
2.5. Each of the parties agrees to report the transactions contemplated by
this
Agreement for all Tax purposes (including in Tax returns) in a manner that
is
consistent with the foregoing allocation of the purchase price and not to
take
any position inconsistent with such allocation in any Tax return, refund
claim,
or any litigation relating to Taxes.
2.6 Excise
and Property Taxes.
Corporation
will pay all sales, use, and similar Taxes arising from the transfer of the
Assets (other than Taxes on a party’s income). Buyer will reimburse Corporation
for all such Taxes paid by Corporation within thirty (30) days after receiving
an invoice. Buyer will not be responsible for any other business, occupation,
withholding, property or similar Tax, or any Taxes of any kind incurred by
Corporation related to any period before the Closing.
2.7
Possible
Purchase Price Adjustment for Inventory.
2.7.1 Possible
Adjustment.
Corporation agrees the book value of the Inventory per Paragraph 3.5.2 at
Closing will be at least Six Hundred Eighty Thousand Dollars ($680,000).
If the
Inventory at Closing is less than Six Hundred Eighty Thousand Dollars
($680,000), the Purchase Price will be reduced by the amount of the deficiency.
If the Inventory at Closing is greater than Eight Hundred Thousand Dollars
($800,000), the Purchase Price will be increased by the amount of the
excess.
4
Agreement
for Purchase and Sale of Assets
2.7.2 Procedure
to Determine Amount.
Within
two (2) days prior to Closing, Corporation will provide Buyer with an estimate
of the amount of the Inventory. Within five (5) days after Closing, Corporation
will prepare and deliver to Buyer the calculations of the Inventory as of
the
Closing Date based on a physical inventory conducted within ten (10) days
prior
to the Closing. The Inventory amount will be prepared by Corporation in good
faith and in accordance with generally accepted accounting principles applied
on
a basis consistent with Corporation’s prior calculations of inventory value
except as otherwise provided in this Agreement. Buyer and its representatives
will be provided with reasonable access to the books, records, work papers
and
other information of the Corporation’s Embedded Business necessary to review the
Inventory amount. The Inventory amount, when delivered by Corporation to
Buyer,
will be deemed conclusive and binding on the parties unless Buyer notifies
Corporation in writing within five (5) days after receipt of the Inventory
amount from Corporation, of Buyer’s disagreement therewith (which notice will
state with reasonable specificity the reasons for any disagreement and the
amounts in dispute). If there is disagreement, and such disagreement cannot
be
resolved by Buyer and Corporation within fifteen (15) days following receipt
of
the Inventory amount by Buyer, the items in dispute will be submitted to
a firm
of independent auditors acceptable to both Buyer and Corporation, and the
determination by such independent auditing firm will be binding and conclusive
upon the parties. Buyer and Shareholders will each pay one-half of the cost
of
the fees and expenses of such independent auditing firm.
2.7.3 Payment.
Payment
of the deficiency, if any, will be made by Escrow Holder to Buyer upon receipt
by Escrow Holder of the written determination by the independent auditing
firm.
2.8 Escrow
Reserve and Payment.
From
the
Purchase Price, Buyer will withhold and deposit into an interest bearing
escrow
account at First
American Title Insurance Company
(“Escrow
Holder”), the sum of Five Hundred Thousand Dollars ($500,000) as a reserve
(“Reserve”) for amounts, if any, owed by the Corporation to Buyer regarding (i)
Inventory per Paragraph 2.6, (ii) Suppliers, vendors, personnel, sales
representatives and distributors per Paragraph 10.3 and (iii) Indemnification
obligations in this Agreement. The amount of the Reserve does not limit the
Corporation’s obligations herein. The provisions of the Reserve are set forth in
Exhibit ___ entitled “Escrow”. The term of the Escrow will be no more than sixty
(60) days.
ARTICLE
3. WARRANTIES OF CORPORATION
Except
as
set forth in the Disclosure Schedules attached, Corporation
warrants:
3.1 Organization,
Standing, and Qualification of Corporation.
Corporation
is a corporation duly organized, validly existing, and in good standing under
the laws of Delaware and has all necessary corporate powers to own its
properties and operate its business as now owned and operated by it. Neither
the
ownership of its properties nor the nature of its business requires the Embedded
Business to be qualified to do business as a foreign corporation in any other
jurisdiction.
5
Agreement
for Purchase and Sale of Assets
3.2 Financial
Statements.
Corporation
has filed with the Securities and Exchange Commission consolidated balance
sheets of the Corporation as of October 31, 2004, and October 31, 2005, and
the
related statements of income, for the two years ending on those dates, audited
by Corporation’s independent public accountants, whose opinions with respect to
those financial statements are included in such filings. Corporation has
filed
with the Securities and Exchange Commission the unaudited consolidated balance
sheet of the Corporation as of July 31, 2006, and together with related
unaudited statement of income, for the nine (9) month period ending on that
date, certified by the chief financial officer of Corporation as accurately
reflecting the financial condition of the Corporation for the period. The
financial statements in Schedule 3.2 are referred to as the financial
statements. The financial statements (i) have been prepared in accordance
with the books and records of Corporation, (ii) have been prepared in
accordance with generally accepted accounting principles consistently applied
by
Corporation throughout the periods indicated (except that unaudited financial
statements are subject to normal year-end audit adjustments and do not contain
all footnotes required by generally accepted accounting principles), and
(iii) fairly present the financial position of Corporation as of the
respective dates of the balance sheets included and the results of its
operations for the respective periods indicated.
3.3 Absence
of Changes in Corporation.
Since
July 31, 2006 regarding the Embedded Business, except as may have been described
in Corporation’s filings with the Securities and Exchange Commission since
January 1, 2006 (the “SEC Filings”), there has not been any:
(a) Transaction
by Corporation except in the ordinary course of business as conducted on
that
date;
(b) Material
adverse change in the financial condition, liabilities, assets, business,
results of operations, or prospects of the Embedded Business;
(c) Destruction,
damage, or loss of any asset of the Embedded Business (insured or uninsured)
that materially and adversely affects the financial condition, business,
results
of operations, or prospects of Corporation;
(d) Change
in
accounting methods or practices (including any change in depreciation,
amortization policies, or rates) by Corporation;
(e) Revaluation
or write-down by Corporation of any assets of Embedded Business;
(f) Increase
or decrease in the salary or other compensation payable or to become payable
by
Corporation to any of the Embedded Business employees or declaration, payment,
or obligation of any kind for payment, by Corporation, of a bonus or other
additional salary or compensation to any such employee;
(g) Sale
or
transfer of any asset of Embedded Business, except in the ordinary course
of
business;
(h) Amendment
or termination of, or any release or waiver granted with respect to, any
contract, agreement, or license of Embedded Business to which Corporation
is a
party, except in the ordinary course of business;
6
Agreement
for Purchase and Sale of Assets
(i) Encumbrance
of any asset or property of Embedded Business;
(j) Waiver
or
release of any material right or claim of Embedded Business, except in the
ordinary course of business;
(k) Commencement
of, or notice or threat of commencement of, any Proceeding against Embedded
Business or its business, assets, or affairs;
(l) Agreement
by Corporation to do any of the things described in the preceding clauses
(a)
through (i); or
(m) Other
event or condition of any character that has or might reasonably be expected
have a material adverse effect on the financial condition, business, results
of
operation, assets, liabilities, or prospects of the Embedded
Business.
3.4 Claims
and Liabilities.
3.4.1 Debts,
Obligations, and Liabilities.
Schedule
3.4 to this Agreement contains a complete and accurate list, description,
and
schedule of all of the outstanding debts, liabilities, and pecuniary obligations
of the Embedded Business. The Embedded Business has no other debts, liabilities,
or obligations of any nature, whether accrued, absolute, contingent, or
otherwise, and whether due or to become due, that are not set forth in Schedule
3.4.
3.5 Assets
of Business.
3.5.1 Real
Property.
(a) List.
Schedule 3.5.1 to this Agreement is a complete list of all real property
owned
by, leased to, or occupied and used by the Embedded Business (“Current
Premises”).
(b) Hazardous
Materials.
Corporation is not in violation of any Environmental Law (as defined below),
with regard to disposal of Hazardous Materials (as defined below) or the
environmental conditions on or under such properties or facilities, including
soil and groundwater conditions. During the time Corporation or its
predecessors-in-interest have leased or occupied the Current Premises,
Corporation has not used, generated, manufactured, or stored on or under,
or
transported to or from, any part of the Current Premises, any Hazardous
Materials (as defined below) in violation of any Environmental Law, nor has
there been any storage, use, processing, treatment, manufacture, disposal,
spillage, discharge, release, or threatened release of any Hazardous Material
on, from, or under any part of the Premises. There is no reasonable basis
to
believe the Corporation’s business has been conducted or is being conducted in
violation of any Environmental Law. There is not pending against the Corporation
any Proceeding that asserts liability against any of such Persons, or seeks
an
injunction or decree against any of such Persons, under any Environmental
Law.
Corporation is not presently obligated under any judgment, order, or decree
of
any Governmental Authority that relates to Environmental Laws.
7
Agreement
for Purchase and Sale of Assets
“Environmental
Law” means all federal, state, local, and foreign laws and regulations, relating
to pollution, the protection of human health, or the environment, including
ambient air, surface water, ground water, land surface, or subsurface strata,
including those regulations relating to the emission, discharge, release
or
threatened release, manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of Hazardous Materials.
“Hazardous
Material” means any pollutant, contaminant, toxic, hazardous, or noxious
substance or waste that is, or becomes before Closing, regulated by any
Governmental Authority under any Environmental Law, including (i) oil or
petroleum compounds, flammable substances, explosives, radioactive materials,
or
other materials that pose a hazard to human beings or cause any real property
to
be in violation of any Environmental Law; (ii) to the extent regulated, asbestos
and asbestos-containing materials; (iii) any materials regulated under the
Toxic Substance Act (15 USC §2601), (iv) any materials designated as
“hazardous substances” under the Clean Water Act (33 USC §1251), or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42
USC §9601), and (v) any “hazardous waste” under Resource Conservation and
Recovery Act (42 USC §6901).
To
Corporation’s knowledge, there are no underground storage tanks located on the
real property described in Schedule 3.5.1 in which any Hazardous Material,
as
defined below, is being or has been in the past five (5) years stored, nor
has
there been any spill, disposal, discharge, or release of any Hazardous Material
into, on, from, or over that real property or into or on ground or surface
water
on that real property and currently there are no Hazardous Materials on or
in
the land occupied by or groundwater under, the Current Premises. There are
no
asbestos-containing materials incorporated into the buildings or interior
improvements that are part of that real property, or into other assets of
Corporation, and there is no electrical transformer, fluorescent light fixture
with ballasts, or other equipment containing PCBs on that real
property.
3.5.2 Inventory.
The
Embedded Business’s inventories of raw materials, work in process, and finished
goods (collectively called inventories) shown on the Corporation’s balance sheet
as of July 31, 2006, included in the financial statements, consist of items
of a
quality and quantity usable and salable in the ordinary course of business
by
Corporation, except for obsolete and slow-moving items and items below standard
quality, all of which have been written down on the books of Corporation
to net
realizable market value or have been provided for by adequate reserves. All
items included in the inventories are the property of Corporation, except
for
sales made in the ordinary course of business since the date of the balance
sheet. For each of these sales, either the purchaser has made full payment
or
the purchaser’s liability to make payment is reflected in the books of
Corporation as a receivable. No item included in the inventories is subject
to
any Encumbrance or is held by Corporation on consignment from others. The
inventories shown on all the consolidated balance sheets included in the
financial statements are based on quantities determined by physical count
or
measurement, taken within the preceding twelve (12) months, and are valued
at
the lower of cost (determined on a first-in, first-out basis) or market value
and on a basis consistent with that of prior years.
3.5.3 Other
Tangible Personal Property.
Schedule
3.5.3 to this Agreement is a complete and accurate schedule describing and
specifying the location of all trucks, automobiles, vehicles, machinery,
equipment, furniture, fixtures, supplies, tools, dies, rigs, molds, patterns,
drawings, and all other tangible personal property owned by, in the possession
of, or used by the Embedded Business in connection with its business,
except inventories of raw materials, work in process, and finished goods.
The
property listed in Schedule 3.5.3 constitutes all such tangible personal
property necessary for the conduct by the Embedded Business of its
business as
now
conducted.
8
Agreement
for Purchase and Sale of Assets
Except
as
stated in Schedule 3.5.3, no personal property used by the Embedded Business
in
connection with its business is held under any lease or subject to any
Encumbrance, is held by Corporation on consignment from others, or is located
at
any location other than one in the direct and actual possession of
Corporation.
3.5.4 Accounts
Receivable.
All
accounts receivable of the Embedded Business shown on the balance sheet of
Corporation as of July 31, 2006, and all accounts receivable of Corporation
created after that date, arose from valid sales in the ordinary course of
business.
3.5.5 Intellectual
Property.
(a) Corporation
owns, or has the right to use under license, all Intellectual Property Rights
necessary for the operation of the Embedded Business as presently conducted
and
as currently proposed to be conducted. Each Intellectual Property Right owned,
licensed to, or used by the Embedded Business immediately before the Closing
will be owned, licensed to, or available for use by Buyer on identical terms
and
conditions immediately after the Closing.
(b) The
past
conduct by the Embedded Business of its business and the use of the Assets
by
Corporation in the conduct of the business do not infringe on, misappropriate,
or otherwise conflict with any Intellectual Property Right of any third party
and no third party has asserted or threatened to assert against Corporation
any
claim of infringement or misappropriation of any Intellectual Property Rights.
The transfer of the Assets to Buyer will not infringe on any Intellectual
Property Right of any third party. To the best knowledge of Corporation,
no
third party has interfered with, infringed on, or misappropriated any
Intellectual Property Rights of the Embedded Business.
(c) Regarding
the Embedded Business of the Corporation, Schedule 3.5.5 identifies: (i)
each
patent, copyright, mask work, trademark, or service mark (or registration
of
such) that has been granted or registered and issued to Corporation in any
jurisdiction, (ii) each pending patent application and each application for
registration of a copyright, mask work, trademark, service mark, or similar
right that Corporation has made in any jurisdiction together with all associated
filing or serial numbers, (iii) all unregistered copyrights, (iv) all
unregistered trademarks, trade names, or service marks used by Corporation
in
connection with the business or the Assets, and (v) each license, Agreement,
or
other permission that Corporation has granted to any third party with respect
to
any of its Intellectual Property Rights or any of the Assets, none of which
grants any third party any exclusive rights with respect to any of such
Intellectual Property Rights or any of the Assets. Corporation has delivered
to
Buyer true, correct, and complete copies of all such registrations and all
such
applications and licenses, agreements, and permissions. For each Intellectual
Property Rights, license agreement, or other permission required to be
identified on Schedule 3.5.5: (i) Corporation possesses all right and title
to,
and interest in, such Intellectual Property Right, license, agreement, or
permission free and clear of any Encumbrance; (ii) such Intellectual Property
Right, license, agreement, or permission is not subject to any outstanding
judgment, order, or charge; and (iii) no proceeding is pending or, to
Corporation’s knowledge, threatened that challenges the legality, validity,
enforceability, use, or ownership of such Intellectual Property Rights, license,
agreement, or permission.
9
Agreement
for Purchase and Sale of Assets
(d) Schedule
3.5.5 sets forth and summarizes each Intellectual Property Right that a third
party owns and that the Embedded Business uses under a license, agreement,
or
other permission, and Corporation has delivered to Buyer, true, correct,
and
complete copies of all such licenses, agreements, and permissions from third
parties. For each Intellectual Property Right required to be identified in
Schedule 3.5.5: (i) the license, agreement, or permission covering the item
is
legal, valid, binding, enforceable, and in full force and effect and will
continue to be legal, valid, binding, enforceable, and in full force and
effect
on identical terms to Buyer’s benefit immediately following the Closing; (ii)
all consents to the assignment of each such license, agreement, or permission
required to assign it to Buyer under this Agreement without breach or violation
of any agreement binding on Corporation and without infringing any Intellectual
Property Rights of any third party have been obtained; (iii) the license,
agreement, or permission does not restrict Corporation’s ability to do business
in any geographic territory or with respect to any market or industry; (iv)
Corporation is not in breach or default of, and to Corporation’s knowledge, no
other party to any such license, agreement, or permission is in breach or
default of, and no event has occurred that, with notice or lapse of time
or
both, would constitute a breach or default of, or permit termination,
modification, or acceleration of, any such license, agreement, or permission;
and (v) no proceeding is pending or, to Corporation’s knowledge, threatened that
challenges the legality, validity, or enforceability of any such license,
agreement, or permission or any Intellectual Property Right governed by
it.
(e) All
employees, contractors, and consultants of Corporation or any other third
parties who have been involved in the development of any Intellectual Property
Rights owned by the Embedded Business, have executed invention assignment
and
confidentiality agreements in the form delivered to Buyer’s counsel, and all
employees and consultants of Corporation who have access to confidential
information or trade secrets related to or comprising the Intellectual Property
Rights owned by the Embedded Business or the Assets have executed appropriate
nondisclosure agreements in the form delivered to Buyer’s counsel. Corporation
has taken reasonable steps, consistent with industry standards, to protect
the
secrecy and confidentiality of all and Intellectual Property Rights owned
by the
Embedded Business. To Corporation’s knowledge, no third party is in possession
of any confidential information pertaining to any of the Assets, except under
a
written confidentiality agreement in a form disclosed in writing to
Buyer.
3.5.6 Other
Intangible Property.
Schedule
3.5.6 to this Agreement is a complete and accurate list of all intangible
assets, other than those specifically referred to elsewhere in this Agreement,
relating to the Embedded Business.
3.6 Title
to Assets; Sufficiency of Assets.
Corporation
has good and marketable title to all of the Assets, whether real, personal,
mixed, tangible, or intangible, that constitute all the assets and interests
in
assets that are used in the Embedded Business. All of the Assets are free
and
clear of any Encumbrances except for (i) those disclosed in Corporation’s
balance sheet as of October 31, 2006, or in Schedules attached hereto; and
(ii)
possible minor matters that, in the aggregate, are not substantial in amount
and
do not materially detract from or interfere with the present or intended
use of
any of these Assets or materially impair business operations. Corporation
is
not in
default or in arrears in any material respect under any lease or license.
All
real property and tangible personal property of the Embedded Business
is in
good
operating condition and repair, ordinary wear and tear excepted. Corporation
is
in possession of all premises leased to them from others. The Embedded Business
does not occupy any real property in violation of any law, regulation, or
decree. The Assets constitute all assets, properties, rights, and Intellectual
Property Rights that are necessary or required to enable Buyer, following
the
Closing, to own, conduct, operate, and maintain the Embedded Business’s business
as historically conducted or as proposed to be conducted without (i) the
need
for Buyer to acquire or license any other asset, property, or Intellectual
Property Right, (ii) the breach or violation of any contract or commitment
to
which the Corporation is bound or to which any of the Assets is subject,
or
(iii) infringement of any Intellectual Property Right of any other
person.
10
Agreement
for Purchase and Sale of Assets
3.7 Customers
and Sales.
Schedule
3.7 to this Agreement is a correct and current list of all customers of the
Embedded Business with which Corporation has consummated sales of at least
Ten
Thousand Dollars ($10,000) in the aggregate in the one year before the date
of
this Agreement together with summaries of the sales made to each customer
during
the Corporation’s most recent fiscal year. Except as indicated in Schedule 3.7,
Corporation has no information, nor is aware of any facts, indicating any
of
these customers intends to cease doing business with the Embedded Business
or
materially alter the amount of the business such customer is presently doing
with the Embedded Business.
3.8 Employment
Contracts and Benefits.
Schedule
3.8 to this Agreement is a list of all the Embedded Business’s employment
contracts, collective bargaining agreements, and pension, bonus, profit-sharing,
stock option plans, or other agreements providing for employee remuneration
or
benefits. To the best of Corporation’s knowledge, Corporation is not in default
under any of these agreements, nor has any event occurred that with notice,
lapse of time, or both, would constitute a default by Corporation under any
of
these agreements.
3.9 Insurance
Policies.
Corporation
has maintained and now maintains (i) insurance on all its assets and Embedded
Business of a type customarily insured, covering property damage and loss
of
income by fire or other casualty, and (ii) adequate insurance protection
against
all liabilities, claims, and risks against which it is customary to insure.
Corporation is not in default with respect to payment of premiums on any
such
policy. Except as set forth in Schedule 3.9, no claim is pending under any
such
policy.
3.10 Other
Contracts.
The
Embedded Business is not a
party
to, nor is its property bound
by,
any distributor’s or manufacturer’s representative or agency agreement; any
output or requirements agreement; any agreement not entered into in the ordinary
course of business; any indenture, Encumbrance, or lease; or any agreement
that
is unusual in nature, duration, or amount (including any agreement requiring
the
performance by Corporation of any obligation for a period of time extending
beyond one year from Closing or calling for consideration of more than Ten
Thousand Dollars ($10,000)); except the agreements listed in Schedule 3.10,
copies of which have been furnished or made available to Buyer. There is
no
default or event that, with notice or lapse of time or both, would constitute
a
default by the Corporation to any of these agreements. Corporation has not
received notice that any party to any of these agreements intends to cancel
or
terminate any of these agreements or to exercise or not exercise any options
under any of these agreements. Corporation is not a party to, or the property
bound by, any agreement that is materially adverse to the business, properties,
or financial condition of the Embedded Business.
11
Agreement
for Purchase and Sale of Assets
3.11 Compliance
with Laws.
To
the
knowledge of Corporation, the Embedded Business has complied in all material
respects with all federal, state, and local statutes, laws, and regulations.
Corporation has not received any notice asserting any violation of any statute,
law, or regulation that has not been remedied before the date of this
Agreement.
3.12 Litigation.
There
is
no pending, or,
to
the best knowledge of Corporation, threatened Proceeding
against
or affecting the Embedded Business or any of its assets or financial condition.
There is not pending against the Embedded Business, any judgment, order,
writ,
injunction, or decree of any federal, state, local, or foreign Governmental
Authority. The Embedded Business is not in
default with respect to, nor has an event occurred that, with notice, lapse
of
time, or both, would be a default under, any judgment, order, writ, injunction,
or decree of any federal, state, local, or foreign court, or Governmental
Authority. Except as set forth in Schedule 3.12, Corporation is not presently
a
party to any Proceeding instituted by it, nor does it have any plans to
institute any Proceeding against any other Person.
3.13 Agreement
Will not Cause Breach or Violation.
The
execution, delivery, and performance of this Agreement by Corporation and
the
consummation of the transactions contemplated by this Agreement will not
result
in or constitute any of the following: (i) a breach of any term or provision
of
this Agreement; (ii) a default or an event that, with notice, lapse of time,
or
both, would be a default, breach, or violation of the articles of incorporation
or bylaws of Corporation or any lease, license, promissory note, conditional
sales contract, commitment, indenture, or other agreement, instrument, or
arrangement to which Shareholder, Corporation, is a party or by which any
of
them or any assets or properties of any of them is bound; (iii) an event
that
would permit any party to terminate any agreement to which Corporation is
a
party or is bound or to which any of its assets
is
subject or to accelerate the maturity of any indebtedness or other obligation
of
Corporation; or (iv) the creation or imposition of any Encumbrance on any
of the
properties of Corporation.
3.14 Authority
and Consents.
Corporation has the right, power, legal capacity, and authority to enter
into
and perform its respective obligations under this Agreement (including the
sale
of the Assets to Buyer), and no approvals or consents of any governmental
authority are necessary in connection with the sale of the Assets to Buyer
and
the performance by Corporation of its obligations under this Agreement. The
execution, delivery, and performance of this Agreement by Corporation and
the
consummation of the transactions contemplated have been duly authorized by
all
necessary corporate action on the part of Corporation.
3.15 Interest
in Customers, Suppliers, and Competitors.
Except
as
set forth in Schedule 3.15, neither Corporation, nor, to the knowledge of
Corporation, any officer, director, or employee of Corporation, nor any spouse
or child of any of them, has any direct or indirect interest in any competitor,
supplier, or customer of the Embedded Business or in any entity from whom
or to
whom Corporation leases any real or personal property, or in any other entity
with whom Corporation is doing business.
12
Agreement
for Purchase and Sale of Assets
3.16 Personnel.
Schedule
3.16 is a list of the names and addresses of all officers, directors, employees,
agents, and manufacturer’s representatives of the Embedded Business, stating the
rates of compensation payable to each.
3.17 Full
Disclosure.
None
of
the representations and warranties made by Corporation in this Agreement
(including the Schedules to this Agreement and the certificate delivered
pursuant to Paragraph 7.4) contains or will contain any untrue statement
of a
material fact, or omits to state a material fact necessary to prevent the
statements from being misleading.
ARTICLE
4. BUYER’S WARRANTIES
Buyer
warrants the following:
4.1 Organization,
Standing and Qualification.
Buyer is
a corporation duly organized, existing, and in good standing under the laws
of
California. The execution and delivery of this Agreement and the consummation
of
this transaction by Buyer have been duly authorized, and no further corporate
authorization is necessary on the part of Buyer.
4.2 Authority
and Consents.
Buyer
has the right, power, legal capacity, and authority to enter into and perform
its obligations under this Agreement (including the purchase of the Assets
from
Corporation), and no approvals or consents of any governmental authority
are
necessary in connection with the purchase of the Assets by Buyer and the
performance by Buyer of its obligations under this Agreement. The execution,
delivery, and performance of this Agreement by Buyer and the consummation
of the
transactions contemplated have been duly authorized by all necessary corporate
action on the part of Buyer.
4.3 Full
Disclosure.
None
of
the representations and warranties made by Buyer in this Agreement contains
or
will contain any untrue statement of a material fact, or omits to state a
material fact necessary to prevent the statements from being
misleading.
4.4 Financial
Wherewithal. Buyer
will not render itself insolvent.
ARTICLE
5. CORPORATION’S OBLIGATIONS BEFORE CLOSING
Corporation
agrees from the date of this Agreement until the earlier to occur of the
Closing
or the termination of this Agreement in accordance with its terms:
5.1 Buyer’s
Access to Premises and Information.
Buyer
and
its counsel, accountants, and other representatives will have reasonable
access
during normal business hours to all properties, books, accounts, records,
contracts, and documents of or relating to the Embedded Business. Corporation
will furnish or cause to be furnished to Buyer and its representatives all
data
and information concerning the business, finances, and properties of the
Embedded Business that may reasonably be requested. No information or knowledge
obtained by Buyer in any investigation under this paragraph will affect or
be
deemed to modify any representation or warranty of Corporation or the conditions
to the obligations of the Corporation to effect the Closing.
13
Agreement
for Purchase and Sale of Assets
5.2 Conduct
of Business in Normal Course.
Corporation
will carry on its Embedded
Business and activities diligently, in the ordinary course, and in substantially
the same manner as they previously have been carried out and will not make
or
institute any unusual or novel methods of manufacture, purchase, sale, lease,
management, accounting, collections, payments, or operation that vary materially
from those methods used by Corporation on the date of this Agreement.
Corporation will not ship nor bill customers in an accelerated manner which
exceeds its practices for the period January 1, 2006 through October 31,
2006.
5.3 Preservation
of Business and Relationships.
Corporation
will use its best efforts to preserve its Embedded Business intact, to keep
available Embedded Business’s present employees, and to preserve its Embedded
Business’s present relationships with suppliers, customers, and others having
business relationships with it.
5.4 Maintenance
of Insurance.
Corporation
will continue to carry its Embedded Business’s existing insurance.
5.5 Employees
and Compensation.
Regarding
the Embedded Business, Corporation
will not
do,
or agree to do, any of the following acts: (i) increase any compensation
payable, or to become payable, to any employee, sales agent, or representative;
(ii) increase any benefits payable to any officer, employee, sales agent,
or
representative under any bonus or pension plan or other contract or commitment;
or (iii) modify any collective bargaining agreement to which it is a party
or by
which it may be bound.
5.6 New
Transactions.
Corporation
will not, without Buyer’s written consent, do or agree to do any of the
following acts regarding the Embedded Business:
(a) Enter
into any contract, commitment, or transaction not in the usual and ordinary
course of its business or not consistent with its past practices;
(b) Enter
into any contract, commitment, or transaction in the usual course of business
involving an amount exceeding Fifty Thousand Dollars ($50,000)
individually;
(c) Enter
into any leases of capital equipment or property under which the annual lease
charge is in excess of Ten Thousand Dollars ($10,000);
(d) Sell
or
dispose of any capital assets with a net book value exceeding Ten Thousand
Dollars ($10,000) individually, or place or allow to be imposed any Encumbrance
on any of the Assets;
(e) Sell
or
dispose of any inventory with a value exceeding Ten Thousand Dollars
($10,000);
(f) Ship
any
orders with a value exceeding Ten Thousand Dollars ($10,000) except as set
forth
on Schedule 5.6; or
(g) Hire
any
personnel.
14
Agreement
for Purchase and Sale of Assets
5.7 Existing
Agreements.
Regarding
the Embedded Business, Corporation
will not modify, amend, cancel, or terminate any of its existing contracts
or
agreements, or agree to do any of those acts.
5.8 Consents
of Others. As
soon
as reasonably practicable after the execution and delivery of this Agreement,
and in any event on or before the Closing, Corporation will obtain the written
consent of the Persons described in Schedule 5.8 to this Agreement and will
furnish to Buyer executed copies of those consents. Buyer will exercise its
best
efforts and promptly execute and deliver any documents and instruments that
may
be reasonably required to assist Corporation in obtaining such consents;
provided, however, Buyer will not be obligated under this paragraph to execute
any guaranty, assumption of liability, or other document or instrument requiring
it to assume obligations not contemplated in this Agreement.
5.9 Corporate
Approval.
Corporation
will deliver to Buyer, on or before the Closing, a written consent or minutes
of
a meeting of its Board of Directors authorizing and approving the Corporation’s
execution, delivery, and performance of its obligations under this Agreement
(including the sale of all of Embedded Business’s assets to Buyer under this
Agreement).
5.10 Information
to Be Held in Confidence.
From
and
after the Closing, Corporation and its respective
officers, directors, and other representatives will each hold in strict
confidence all information of a confidential nature and not generally known
to
the public with respect to the Embedded Business or the Assets except when
that
disclosure of such information may be required by law by any Governmental
Authority or in any proceeding. If the Corporation believes that such disclosure
is required (other than with respect to Corporation’s reporting requirements
under the Securities Exchange Act of 1934,), it will give Buyer advance notice
of the disclosure and the basis for it, and permit Buyer a reasonable
opportunity to eliminate the need for or to narrow such disclosure.
ARTICLE
6. BUYER’S OBLIGATIONS BEFORE CLOSING
6.1 Information
to Be Held in Confidence.
Unless
and until the Closing has been consummated, Buyer and its officers, directors,
and other representatives will hold in strict confidence, and will not use
to
the detriment of Corporation, all data and information with respect to the
business of Corporation obtained in connection with this transaction or
agreement, except when that data and information may be required by law to
be
included in Buyer’s proxy statement in connection with a meeting of its
stockholders, required by the Securities Exchange Act of 1934 and the general
rules and regulations issued under that act, or unless disclosure of such
information is otherwise compelled by law by any Governmental Authority or
in
any Proceeding. If Buyer believes that such disclosure is required, either
under
the Securities Exchange Act of 1934 or otherwise, it will give Corporation
advance notice of its disclosure and the basis for it, and permit Corporation
a
reasonable opportunity to eliminate the need for or narrow such disclosure.
If
the transactions contemplated by this Agreement are not consummated, Buyer
will
return to Corporation all that data and information that Corporation may
reasonably request, including worksheets, test reports, manuals, lists,
memoranda, and other documents prepared by or made available to Buyer in
connection with this Agreement and the transaction contemplated.
15
Agreement
for Purchase and Sale of Assets
6.2 Cooperation
in Securing Consents of Third Parties.
Buyer
will use its reasonable efforts to assist Corporation in obtaining the consent
of all necessary Persons to the assignment and transfer to Buyer of properties,
assets, and agreements to be assigned and transferred under the terms of
this
Agreement, provided, however, this provision will not impose on Buyer any
obligation to pay for any default or perform any obligation of Corporation
under
any such agreements or relieve Corporation from any failure to obtain such
consent.
6.3 Resale
Certificate.
Buyer
will furnish any resale certificate or other documents reasonably requested
by
Corporation to comply with the provisions of the sales and use Tax laws of
the
State of California.
6.4 Bulk
Sales Law.
Buyer
waives compliance with the provisions of Division 6 of the California Uniform
Commercial Code relating to bulk sale in connection with this sale of assets,
subject to the indemnities of Corporation contained in this Agreement. Nothing
in this paragraph will stop or prevent either Buyer or Corporation from
asserting as a bar or defense to any proceeding brought under the bulk sale
law
that such law does not apply to the sale contemplated under this
Agreement.
6.5 Corporate
Approval.
Buyer
will deliver to Corporation, on or before the Closing, a written consent
of its
board of directors authorizing and approving the Buyer’s execution, delivery,
and performance of its obligations under this Agreement.
ARTICLE
7. CONDITIONS PRECEDENT TO BUYER’S PERFORMANCE
The
obligations of Buyer to purchase the Assets under this Agreement are subject
to
the satisfaction, at or before the Closing, of all the conditions set out
below
in this Article 7. Buyer may waive any or all of these conditions in whole
or in
part in writing.
7.1 Accuracy
of Corporation’s Representations and Warranties.
All
representations and warranties by the
Corporation in this Agreement (including the Schedules to this Agreement
and the
certificate delivered pursuant to Paragraph 7.4) must be true and correct
in all
material respects on and as of the Closing, as though such representations
and
warranties were made on and as of that date.
7.2 Performance
by Corporation.
On
or
before the Closing, the Corporation will have performed, satisfied, and complied
with in all material respects all covenants, agreements, and conditions that
it
is required by this Agreement to perform, comply with, or satisfy, before
or at
the Closing.
7.3 No
Material Adverse Change.
During
the period from the execution of the Agreement to the Closing, there will
not
have been any material adverse change in the financial condition or the results
of operations of the Embedded Business, and Corporation will not have sustained
any material loss or damage to the Assets that materially affects its ability
to
conduct its Embedded Business or the value of the assets to be purchased
by
Buyer under this Agreement at the Closing.
16
Agreement
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7.4 Certification
by Corporation.
Buyer
will have received a certificate, dated the Closing, signed and verified
by
Corporation’s Chief Executive Officer, stating that the conditions specified in
this Agreement have been fulfilled.
7.5 Absence
of Litigation.
No
litigation pertaining to the transaction contemplated by this Agreement or
to
its consummation, or that could reasonably be expected to have a material
adverse effect on Buyer, its businesses, assets, or financial conditions,
or the
Assets will have been instituted or threatened before the Closing.
7.6 Shareholder
Approval.
The
execution, delivery, and performance of this Agreement by Corporation and
the
consummation of the transactions contemplated will have been duly authorized
by
all necessary corporate action by the stockholders of Corporation.
7.7 Approval
of Documentation and Delivery.
Corporation will
have
delivered to Buyer all documents and taken all actions required to be taken
by
such parties under Article 9 of this Agreement. The form and substance of
all
certificates, instruments, opinions, and other documents delivered to Buyer
under this Agreement must be satisfactory in all reasonable respects to Buyer
and its counsel.
7.8 Payment
of Accounts Payable.
On the
Closing, all Embedded Business accounts payable which are outstanding more
than
thirty (30) days will be paid.
ARTICLE
8. CONDITIONS PRECEDENT TO CORPORATION’S PERFORMANCE
The
obligations of Corporation to sell and transfer the Assets under this Agreement
are subject to the satisfaction, at or before Closing, of all the following
conditions. Corporation may waive any or all of these conditions in whole
or in
part in writing; provided, however, that no such waiver of a condition will
constitute a waiver by Corporation of any of its other rights or remedies,
at
law or in equity, if Buyer should be in default of any of its representations,
warranties, or covenants under this Agreement.
8.1 Accuracy
of Buyer’s Representations and Warranties.
All
representations and warranties by Buyer in this Agreement must be true in
all
material respects on and as of the Closing as though such warranties were
made
on and as of that date.
8.2 Buyer’s
Performance.
On
or
before the Closing, Buyer will have performed, satisfied, and complied with
in
all material respects all covenants, agreements, and conditions that it is
required by this Agreement to perform, comply with, or satisfy, before or
at the
Closing.
8.3 Absence
of Litigation.
No
Proceeding, pertaining to the transaction contemplated by this Agreement
or to
its consummation, will have been instituted or threatened on or before the
Closing.
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8.4 Approval
of Documentation and Delivery.
Buyer
will have delivered to Corporation
all
documents and taken all actions required to be taken by such parties under
Article 9 of this Agreement. The form and substance of all certificates,
instruments, opinions, and other documents delivered to Corporation under
this
Agreement must be satisfactory in all reasonable respects to it and
its
counsel.
8.5 Shareholder
Approval.
The
execution, delivery, and performance of this Agreement by Corporation and
the
consummation of the transactions contemplated will have been duly authorized
by
all necessary corporate action by the stockholders of Corporation.
ARTICLE
9. THE CLOSING
9.1 Time
and Place.
The
sale
and transfer of the Assets by Corporation to Buyer (the Closing) will take
place
at the offices of Alan
Rich
& Associates,
APLC,
5857
Owens Avenue, Carlsbad, California, 92084 at 10:00 a.m. local time, on the
date
that is the later of (i) February 28, 2007 or (ii) two (2) business days
after
approval by Corporation’s shareholders per Paragraph 8.5, or at such other time
and place, as the parties may agree to in writing (the date on which the
Closing
actually occurs, the Closing).
9.2 Corporation’s
Obligations at Closing.
At
the
Closing, Corporation must deliver or cause to be delivered to
Buyer:
(a) Assignment
and Assumption of the real property facility lease of the Embedded Business,
properly executed and acknowledged by Corporation, and accompanied by consent
of
lessor;
(b) Instruments
of assignment and transfer of all other property of the Embedded Business
of
every kind and description and wherever situated, including all its interest
in
claims enforceable by legal or equitable actions, rights under agreements,
trademarks, trade names, patents, patent applications, patent licenses,
copyrights, shop rights, and other tangible or intangible property including
the
assumption of the personal property lease associated with the oscilloscope
per
the lease agreement dated July 27, 2005 with Alexander
Properties Company
as
lessor, except as expressly excluded in an exhibit to this
Agreement;
(c) Resolutions
of Corporation’s board of directors, in form reasonably satisfactory to counsel
for Buyer, authorizing the execution and performance of this Agreement and
all
actions to be taken by Corporation under this Agreement;
(d) A
certificate executed by the president, certifying all Corporation’s
representations and warranties under this Agreement are true in all material
respects as of the Closing, as though each of those warranties had been made
on
that date; and
Simultaneously
with the consummation of the transfer, Corporation, through its officers,
agents, and employees, will put Buyer into full possession and enjoyment
of all
properties and assets to be conveyed and transferred by this
Agreement.
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Agreement
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9.3 Buyer’s
Obligation at Closing.
At
the
Closing, Buyer must deliver to Corporation the following instruments and
documents against delivery of the items specified in this
Agreement:
(a) A
bank
cashier’s check or wire transfer in the amount of One Million Seven Hundred
Thousand Dollars ($1,700,000);
(b) A
bank
cashier’s check or wire transfer, payable to the order of the Escrow Holder per
Paragraph 2.7 in the amount of Five Hundred Thousand Dollars
($500,000).
(c) Assignment
and Assumption of the real property facility lease of the Embedded Business,
properly executed and acknowledged by Buyer and accompanied by consent of
lessor;
(d) Resolutions
of Buyer’s board of directors, in form reasonably satisfactory to counsel for
Corporation, authorizing the execution and performance of this Agreement
and all
actions to be taken by Buyer under this Agreement; and
(e) A
certificate executed by the president of Buyer certifying all Buyer’s
representations and warranties under this Agreement are true in all material
respects as of the Closing, as though each of those warranties had been made
on
that date.
ARTICLE
10. OBLIGATIONS AFTER CLOSING
10.1 Shareholder’s
Competition.
In
consideration for the payment by Buyer of the Purchase Price, to be made
on the
Closing, Corporation will not, at any time within the four (4) year period
immediately following the Closing, directly or indirectly engage in, or have
any
interest in any Entity (whether as an employee, officer, director, agent,
security holder, creditor, consultant, or otherwise) that engages in any
activity in California, or in any other state or any country that is the
same
as, similar to, or competitive with any activity now (or since January 1,
2004)
engaged in by the Embedded Business in any of these states or
countries.
The
parties intend the covenant contained in the preceding portion of this section
be construed as a series of separate covenants, one for California and each
state and country referred to in the preceding paragraph. Except for geographic
coverage, each such separate covenant will be considered identical in terms
to
the covenant contained in the preceding paragraph. If, in any Proceeding,
a
court refuses to enforce any of the separate covenants included in this
paragraph, the unenforceable covenant will be considered eliminated from
these
provisions for the purpose of those Proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
Corporation
will not to divulge, communicate, use to the detriment of Buyer or for the
benefit of any other Person (except as may be required by law or legal process),
or misuse in any way, any confidential information or trade secrets of the
Embedded Business, including personnel information, secret processes, know-how,
customer lists, recipes, formulas, or other technical data.
10.2 Further
Assurances.
Corporation,
at any time on or after the Closing, will execute, acknowledge, and deliver
any
further deeds, assignments, conveyances, and other assurances, documents,
and
instruments of transfer, reasonably requested by Buyer, and will take any
other
action consistent with the terms of this Agreement that may reasonably be
requested by Buyer for the purpose of assigning, transferring, granting,
conveying, and confirming to Buyer, or reducing to possession, any or all
property to be conveyed and transferred under this Agreement. If requested
by
Buyer, corporation will prosecute or otherwise enforce in its own name for
the
benefit and under the direction of Buyer, any claims, rights, or benefits
that
are transferred to Buyer under this Agreement and that require prosecution
or
enforcement in Corporation’s name. Any prosecution or enforcement of claims,
right, or benefits under this paragraph will be solely at Buyer’s expense,
unless the prosecution or enforcement is made necessary by a breach of this
Agreement by the Corporation.
19
10.3 Corporate
Liabilities.
10.3.1 Payment.
Corporation, within thirty (30) days after the Closing, will have paid in
full
all the following obligations of the Embedded Business (“Liabilities”): (i)
Supplier and vendor payables, (ii) employee obligations including, but not
limited to wages, bonuses, fringe benefits, accrued vacation and sick leave,
payroll related taxes, etc. and (iii) sales representative and distributor
obligations including, but not limited to, commissions, bonuses and
royalties.
10.3.2 Procedure
to Determine Payment of Obligations.
Within
forty-five (45) days after the Closing, Corporation will prepare and deliver
to
the Buyer, a schedule of the Liabilities outstanding as of the Closing and
a
schedule of the Liabilities outstanding thirty (30) days after the Closing
(“Liabilities Schedules”). The Liabilities Schedules will be prepared by
Corporation in good faith and in accordance with generally accepted accounting
principles applied on a consistent basis except as otherwise provided in
this
Agreement. Buyer and its representatives will be provided with complete access
to the books, records, work papers and other information of the Corporation
necessary to review, audit and confirm the Liabilities Schedules. The
Liabilities Schedules, when delivered by the Corporation to the Buyer, will
be
deemed conclusive and binding on the parties unless the Buyer notifies
Corporation in writing within thirty (30) days after receipt of the Liabilities
Schedules from Corporation, of Buyer’s disagreement therewith (which notice will
state with reasonable specificity the reasons for any disagreement and the
amounts in dispute). If there is disagreement, and such disagreement cannot
be
resolved by Buyer and Corporation within thirty (30) days following receipt
of
the Obligations Schedules by Buyer, the items in dispute will be submitted
to a
firm of independent auditors acceptable to both Buyer and Corporation, and
the
determination by such independent auditing firm will be binding and conclusive
upon the parties. If the auditor’s determine there are outstanding Obligations,
Escrow will pay those outstanding Obligations within three (3) days of the
auditor’s determination. Buyer and Shareholders will each pay one-half of the
cost of the fees and expenses of such independent auditing firm.
10.4 Accounts
Payable and Accounts Receivable.
Corporation
and Buyer, on or immediately following the Closing, will establish a protocol
and procedures to redirect incorrect payables billed to Corporation or Buyer
(“Protocol”). The Protocol will also address redirecting accounts receivable
incorrectly received by Corporation or Buyer. Corporation and Buyer will
in good
faith follow in a timely manner the Protocol.
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Agreement
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ARTICLE
11. NATURE AND SURVIVAL OF REPRESENTATIONS
AND
OBLIGATIONS
11.1 Representations
and Warranties.
No
representations or warranties whatever are made by any party except as
specifically set forth in this Agreement or in an instrument or certificate,
provided for in this Agreement. All statements contained in any of these
instruments, certificates, or other writings will be considered to be warranties
under this Agreement.
11.2 Survival.
All
representations, warranties, covenants, and agreements of the parties will
survive the Closing until 5:00 p.m. California time on the first anniversary
of
the Closing (the “Expiration Time”).
11.3 Indemnification
and Reimbursement by Corporation.
Corporation will indemnify and hold harmless Buyer and its subsidiaries
(collectively, the “Buyer Indemnified Persons”), and will reimburse the Buyer
Indemnified Persons for any loss, Liability, claim, damage, expense (including
costs of investigation and defense and reasonable attorneys’ fees and expenses)
or diminution of value, whether or not involving a Third-Party Claim (as
defined
below) (collectively, “Damages”), arising from or in connection
with:
(a) any
breach of any representation or warranty made by Corporation in this Agreement
(including the Schedules to this Agreement and the certificate delivered
pursuant to Paragraph 7.4);
and
(b) any
breach of any covenant or obligation of Corporation in this Agreement (including
the Schedules to this Agreement and the certificate delivered pursuant to
Paragraph 7.4);
(c) any
liability arising out of the ownership or operation of the Assets prior to
the
Closing;
(d) any
product or component thereof manufactured by or shipped, or any services
provided by, Corporation, in whole or in part, prior to the
Closing.
11.4 Indemnification
and Reimbursement by Corporation - Environmental
Matters.
In
addition to the other indemnification provisions in this Article 11, Corporation
will indemnify and hold harmless Buyer and the other Buyer Indemnified Persons,
and will reimburse Buyer and the other Buyer Indemnified Persons, for any
Damages (including costs of cleanup, containment or other remediation) arising
from or in connection with:
(a) any
Environmental, Health and Safety Liabilities arising out of or relating to:
(i)
Corporation's ownership or operation at any time on or prior to the Closing
of
any of the Facilities, Assets or the business of Corporation, or (ii) any
Hazardous Materials or other contaminants that were present on the Facilities
or
Assets at any time on or prior to the Closing as a result of Corporation’s
activities; or
(b) any
bodily injury (including illness, disability and death, regardless of when
any
such bodily injury occurred, was incurred or manifested itself), personal
injury, property damage (including trespass, nuisance, wrongful eviction
and
deprivation of the use of real property) or other damage of or to any Person
or
any Assets in any way arising from or allegedly arising from any Hazardous
Activity conducted by Corporation with respect to the business of Corporation
or
the Assets prior to the Closing or from any Hazardous Material resulting
from
Corporation's activities that was (i) present or suspected to be present
on or
before the Closing on or at the Facilities (or present or suspected to be
present on any other property, if such Hazardous Material emanated or allegedly
emanated from any Facility and was present or suspected to be present on
any
Facility, on or prior to the Closing) or (ii) Released or allegedly Released
by
Corporation on or at any Facilities or Assets at any time on or prior to
the
Closing. Buyer will be entitled to control any Remedial Action, any Proceeding
relating to an Environmental Claim and, except as provided in the following
sentence, any other Proceeding with respect to which indemnity may be sought
under this Paragraph 11.4.
21
Agreement
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11.5 Indemnification
and Reimbursement by Buyer.
Buyer
will indemnify and hold harmless Corporation, and will reimburse Corporation,
for any Damages arising from or in connection with:
(a) any
Breach of any representation or warranty made by Buyer in this Agreement
;
and
(b) any
Breach of any covenant or obligation of Buyer in this Agreement.
11.6 Time
Limitations.
(a) If
the
Closing occurs, Corporation will have liability for indemnification hereunder
only if on or before the Expiration Time, Buyer delivers a Claim Notice (as
defined below) to Corporation.
(b) If
the
Closing occurs, Buyer will have liability for indemnification hereunder only
if
on or before the Expiration Time, Corporation delivers a Claim Notice to
Buyer.
11.7 Limitations
on Corporation’s Indemnity.
Corporation’s
liability under this Agreement will not, however, exceed the aggregate amount
of
Two Million Two Hundred Thousand Dollars ($2,200,000) absent fraud. Despite
any
other provision of this Agreement, Corporation will not be liable for
indemnification hereunder until such time as all claims of Damages cumulatively
exceed Twenty-Five Thousand Dollars ($25,000); if and when the aggregate
amount
of all such claims of Damages cumulatively exceed such amount, Corporation
will,
subject, to the above limitation on its maximum
aggregate liability, thereafter be liable in full for all claims of Damages
including the first Twenty-Five Thousand Dollars ($25,000).
11.8 Knowledge
of Breach.
For
purposes of this Paragraph 11, Corporation will not be deemed to have breached
any representation or warranty if Buyer had, on or prior to the Closing,
any
actual knowledge of the breach of, or of any facts or circumstances constituting
or resulting in a breach of, such representation or warranty.
11.9 Indemnification
Claims.
If
either party hereto (the “Claimant”) wishes to assert an indemnification claim
against the other party hereto, the Claimant will deliver to the other party
a
written notice (a “Claim Notice”) setting forth:
22
Agreement
for Purchase and Sale of Assets
(a) the
specific representation and warranty alleged to have been breached by such
other
party;
(b) a
detailed description of the facts and circumstances giving rise to the alleged
breach of such representation and warranty; and
(c) a
detailed description of, and a reasonable estimate of the total amount of,
the
Damages actually incurred or expected to be incurred by the Claimant as a
direct
result of such alleged breach.
11.10 Defense
of Third Party Actions.
If
either party hereto (the “Indemnitee”) receives notice or otherwise obtains
knowledge of any claim, demand, dispute, action, suit, examination, audit,
proceeding, investigation, inquiry or other similar matter (a “Matter”) or any
threatened Matter that may give rise to an indemnification claim against
the
other party hereto (the “Indemnifying Party”), then the Indemnitee will promptly
deliver to the Indemnifying Party a written notice describing such Matter
in
reasonable detail; provided,
however,
that for
the sole purpose of determining whether a Matter or threatened Matter may
give
rise to an indemnification claim against Seller within the meaning of this
sentence, the limitation set forth in Paragraph 11.9 will not be taken into
account. The timely delivery of such written notice by the Indemnitee to
the
Indemnifying Party will be a condition precedent to any liability on the
part of
the Indemnifying Party under this Paragraph 11.10 with respect to such
Matter. The Indemnifying Party will have the right, at its option, to assume
the
defense of any such Matter with its own counsel satisfactory to the Indemnitee.
If the Indemnifying Party elects to assume the defense of any such Matter,
then:
(a) notwithstanding
anything to the contrary contained in this Agreement, the Indemnifying Party
will be required to pay or otherwise indemnify the Indemnitee against any
attorneys’ fees or other expenses incurred on behalf of the Indemnitee in
connection with such Matter following the Indemnifying Party’s election to
assume the defense of such Matter;
(b) the
Indemnitee will make available to the Indemnifying Party all books, records
and
other documents and materials that are under the direct or indirect control
of
the Indemnitee or any of the Indemnitee’s Associates and that the Indemnifying
Party considers necessary or desirable for the defense of such
Matter;
(c) the
Indemnitee will execute such documents and take such other actions as the
Indemnifying Party may reasonably request for the purpose of facilitating
the
defense of, or any settlement, compromise or adjustment relating to, such
Matter;
(d) the
Indemnitee will otherwise fully cooperate as reasonably requested by the
Indemnifying Party in the defense of such Matter;
(e) the
Indemnitee will not admit any liability with respect to such Matter;
and
(f) the
Indemnifying Party will have the exclusive right to settle, adjust or compromise
such Matter, on such terms as it may deem appropriate, with the consent and
approval of the Indemnitee or any other Person.
23
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If
the
Indemnifying Party elects not to assume the defense of such Matter, then
the
Indemnitee will proceed diligently to defend such Matter with the assistance
of
counsel satisfactory to the Indemnifying Party; provided,
however,
that the
Indemnitee will not settle, adjust or compromise such Matter, or admit any
liability with respect to such Matter, without the prior written consent
of the
Indemnifying Party.
11.11 Subrogation.
To the
extent that either party hereto (the “Indemnitor”) makes or is required to make
any indemnification payment to the other party hereto (the “Indemnified Party”),
the Indemnitor will be entitled to exercise, and will be subrogated to, any
rights and remedies (including rights of indemnity, rights of contribution
and
other rights of recovery) that the Indemnified Party or any of the Indemnified
Party’s Associates may have against any other Person with respect to any
Damages, circumstances or Matter to which such indemnification payment is
directly or indirectly related. The Indemnified Party will permit the Indemnitor
to use the name of the Indemnified Party and the names of the Indemnified
Party’s Associates in any transaction or in any proceeding or other Matter
involving any of such rights or remedies; and the Indemnified Party will
take
such actions as the Indemnitor may reasonably request for the purpose of
enabling the Indemnitor to perfect or exercise the Indemnitor’s right of
subrogation hereunder.
11.12 Exclusivity.
Other
than with respect to claims of fraud or as specified in Paragraph 16.2, the
right of each party hereto to assert indemnification claims and receive
indemnification payments pursuant to this Paragraph 11 will be the sole and
exclusive right and remedy exercisable by such party with respect to any
breach
by the other party hereto of any representation or warranty.
ARTICLE
12. PUBLICITY
With
the
exception of Corporation’s reports filed with the Securities and Exchange
Commission, all notices to third parties and all other publicity concerning
the
transactions contemplated in this Agreement will be jointly planned and
coordinated by and between Buyer and Corporation. No
party
will act unilaterally in this regard without the prior written approval of
the
others; however, this approval will not be unreasonably withheld.
ARTICLE
13. COSTS
13.1 Finder’s
or Broker’s Fees.
Each
party represents and warrants to the other that, except as set forth in the
last
sentence of this Paragraph 13.1, it has dealt with no broker or finder in
connection with any transaction contemplated by this Agreement, and, as far
as
it knows, no broker or other Person is entitled to any commission or finder’s
fee in connection with any of these transactions. Corporation and Buyer each
indemnify and hold harmless one another against any Losses incurred by reason
of
any brokerage or other commission or finder’s fee alleged to be payable because
of any act, omission, or statement of the indemnifying party. Corporation
has
retained Stratapoint Consulting LLC to act as its broker in this transaction
and
will be responsible for payment of any fees or expenses payable to such
broker.
13.2 Expenses.
Each
party will pay all costs and expenses, including its attorney fees and expenses,
incurred or to be incurred by it in negotiating and preparing this Agreement
and
in Closing and carrying out the transactions contemplated in this
Agreement.
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Agreement
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ARTICLE
14. FORM OF AGREEMENT
14.1 Effect
of Headings.
The
subject headings of the paragraphs and subparagraphs of this Agreement are
included for convenience only and will not affect the construction or
interpretation of any of its provisions.
14.2 Word
Usage.
Unless
the context clearly requires otherwise:
(a) Plural
and singular numbers will each be considered to include the other;
(b) The
masculine, feminine, and neuter genders will each be considered to include
the
others;
(c) “Will,”
“must,” “agree,” and “covenants” are each mandatory;
(d) “May”
is
permissive;
(e) “Or”
is
not exclusive; and
(f) “Includes”
and “including” are not limiting.
(g) Reference
to any statute is a reference to that statute as amended to the date of this
Agreement.
(h) Reference
to any document is to that document, as amended to the date of this Agreement,
including all exhibits and schedules, if any.
(i) “Known
to” or “knowledge of” a party means, with respect to any fact, circumstance,
event, or other matter in question, the actual knowledge of it with respect
to
an individual, if knowledge refers to the knowledge of an individual, and
of an
officer or director of a party if knowledge refers to a party that is not
an
individual.
14.3 Entire
Agreement; Modification; Waiver.
This
Agreement constitutes the entire agreement between the parties pertaining
to the
subject matter contained in it and supersedes all prior and contemporaneous
agreements, representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement will be binding unless executed
in
writing by all the parties. No waiver of any of the provisions of this Agreement
will be considered, or will constitute, a waiver of any other provision,
and no
waiver will constitute a continuing waiver. No waiver will be binding unless
executed in writing by the party making the waiver.
14.4 Counterparts;
Facsimile Delivery.
This
Agreement may be executed in one or more counterparts, each of which will
be
considered an original, but all of which together will constitute one and
the
same instrument. This Agreement may be executed and delivered by facsimile
and
on such delivery, the facsimile signature will be deemed to have the same
effect
as if the original signature had been delivered to the other party. The original
signature copy must be delivered to the other party by express overnight
delivery. The failure to deliver the original signature copy or the nonreceipt
of the original signature copy will have no effect on the binding and
enforceable nature of this Agreement.
25
Agreement
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ARTICLE
15. PARTIES
15.1 Parties
in Interest.
Nothing
in this Agreement, whether express or implied, is intended to confer any
rights
or remedies under, or by reason of, this Agreement on any Persons other than
the
parties to it and their respective successors and assigns; nothing in this
Agreement is intended to relieve or discharge the obligation or liability
of any
third party to any party to this Agreement; and no provision will give any
third
party any right of subrogation or claim against any party to this
Agreement.
15.2 Assignment.
This
Agreement will be binding on, and will inure to the benefit of, the parties
to
it and their respective heirs, legal representatives, successors, and assigns,
provided that the Corporation may not assign its obligations
under this Agreement, and before the Closing, Buyer may not assign any of
its
rights under this Agreement except to a wholly owned subsidiary corporation
of
Buyer. No such assignment by Buyer to its wholly owned subsidiary will relieve
Buyer of any of its obligations or duties under this Agreement.
ARTICLE
16. REMEDIES
16.1 Arbitration.
Any
controversy or claim arising from or relating to this Agreement, or its making,
performance, or interpretation, will be settled by arbitration in San Diego,
California under the commercial arbitration rules of the American Arbitration
Association then existing. Judgment on the arbitration award may be entered
in
any court having jurisdiction over the subject matter of the controversy.
Arbitrators will be individuals experienced in negotiating, making, and
consummating acquisition agreements.
16.2 Specific
Performance and Waiver of Rescission Rights.
Each
party’s obligation under this Agreement is unique. If any party should default
in its obligations under this Agreement, the parties each acknowledge that
it
would be extremely impracticable to measure the resulting damages; accordingly,
the nondefaulting party or parties, in addition to any other available rights
or
remedies, may sue in equity for specific performance, and the parties each
expressly waive the defense that a remedy in damages will be adequate. Despite
any breach or default by any of the parties of any of their respective
representations, warranties, covenants, or agreements under this Agreement,
if
the purchase and sale contemplated by this Agreement will be consummated
at the
Closing, each of the parties waives any rights that they may have to rescind
this Agreement or the transaction consummated by it provided that this waiver
will not affect any other rights or remedies available to the parties under
this
Agreement or under the law.
16.3 Recovery
of Litigation Costs.
If
any
legal Proceeding is brought for the enforcement of this Agreement, or because
of
an alleged dispute, breach, default, or misrepresentation in connection with
any
of the provisions of this Agreement, the successful or prevailing party or
parties will be entitled to recover reasonable attorney fees and other costs
incurred in that Proceeding, in addition to any other relief to which they
may
be entitled.
26
Agreement
for Purchase and Sale of Assets
16.4 Termination.
16.4.1 Conditions
Permitting Termination.
This
Agreement may be terminated at any time before completion of the
Closing:
(a) by
mutual
written consent of the parties, duly authorized by the boards of directors
of
Buyer and Corporation; or
(b) by
either
party if the Closing has not occurred on or before April 30, 2007 (which
date
may be extended in accordance with Paragraph 2.7.2), for any reason, provided,
however, that the right to terminate this Agreement under this paragraph,
will
not be available to any party whose action or failure to act has 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.
16.4.2 Termination
for Governmental Prohibition.
This
Agreement may be terminated at any time before completion of
Closing:
(a) by
either
party if any bona fide Proceeding is pending against any party on the Closing
that could result in an unfavorable judgment, decree, or order that would
prevent or make unlawful the performance of this Agreement.
(b) by
either
party, if any Governmental Entity has issued an order, decree or ruling or
taken
any other action, in each case, having the effect of permanently restraining,
enjoining, or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling, or other action is final and
nonappealable.
16.4.3 Defaults
Permitting Termination.
If,
before the Closing, either Buyer or Corporation materially defaults in the
due
and timely performance of any of their covenants, or agreements under this
Agreement, or if any representation or warranty becomes materially untrue,
the
nondefaulting party or parties may terminate this Agreement, provided that,
if
the default or breach of the covenant or agreement, or untruth in the
representation, can be cured, termination will not be effective for thirty
(30)
days after delivery of written notice of intent to terminate, and if the
breach
is cured within that time, the nondefaulting party will have no right to
terminate this Agreement on account of that breach. In addition, no party
may
exercise any right to terminate under this paragraph if it is in material
breach
of this Agreement.
16.4.4 Effect
of Termination.
Any
proper termination of this Agreement in accordance with its terms will be
effective immediately on delivery of written notice by the terminating party
to
the other parties (unless a provision of this Agreement permits a party a
cure
period, and then on the expiration of that cure period without cure). In
the
event of termination of this Agreement as provided in Paragraph 16.4.1, then
this Agreement will be of no further force or effect, except Article 13;
and
nothing in this Agreement will relieve any party from liability for any willful
breach of any covenant of this Agreement or for any intentional or willful
act
or omission by a party that renders any representation or warranties of such
party untrue.
27
ARTICLE
17. NOTICES
All
notices, requests, demands, and other communications under this Agreement
must
be in writing and will be considered to have been duly given on the date
of
service if served personally on the party to whom notice is to be given,
or on
the second (2nd)
day
after mailing if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, and properly addressed
as
follows:
| To Corporation at: |
SBE,
Inc.
4000
Executive Parkway, Suite 200
San
Ramon, California 94583
Attention:
Greg Yamamoto, President/CEO
|
| To Buyer at: |
One
Stop Systems, Inc.
2235
Enterprise Street, Suite 110
Escondido,
California 92029
Attention:
Steve Cooper, President, CEO
|
Any
party
may change its address for purposes of this paragraph by giving the other
parties written notice of the new address in the manner set forth
above.
ARTICLE
18. GOVERNING LAW
This
Agreement will be construed in accordance with, and governed by, the laws
of the
State of California as applied to contracts that are executed and performed
entirely in California.
ARTICLE
19. SEVERABILITY
If
any
provision of this Agreement is held invalid or unenforceable by any court
of
competent jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed to remain fully valid, enforceable,
and binding on the parties.
IN
WITNESS WHEREOF, the parties to this Agreement have duly executed it on the
day
and year first above written.
|
BUYER
One
Stop Systems, Inc.
a
California corporation
By:/s/SteveCooper
Steve
Cooper,
President/CEO
|
CORPORATION
SBE,
Inc.
a
Delaware corporation
By:
/s/
Greg
Yamamoto
Greg
Yamamoto,
President/CEO
|
28
ANNEX
B
