Dharma Enterprises - Page 7

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          not prepare his own business plans.  Maitland also examined SMP's           
          financial information and met with SMP's customers and suppliers            
          and with industry experts to determine SMP's production capacity            
          and profitability.  SMP also trained petitioner's newly hired               
          employees.  Several months after SMP provided this assistance to            
          petitioner, a merger of petitioner and SMP was proposed.                    
               The merger occurred upon the termination of SMP's license              
          and rental agreements with DM.  Petitioner remained as the                  
          surviving corporation.  All of SMP's members became members of              
          petitioner, and three became directors of petitioner.  In                   
          addition, the majority of SMP's employees began working for                 
          petitioner.  Petitioner took over SMP's printing business and               
          completed SMP's work in progress.  Pursuant to the merger                   
          agreement, petitioner assumed all of SMP's assets and                       
          liabilities, including a $70,000 loan from Petranker.                       
               Petitioner and DM entered into a sales agreement for the               
          printing equipment in November 1987 and a license agreement in              
          December 1987 to become effective at the termination of SMP's               
          license and rental agreement.  The parties amended the license              
          agreement on two occasions.2  First, they amended the license in            
          1989 to list the licensed assets and clarify the terms of the               
          original license agreement.  Second, they amended the license in            

               2  The stipulation of facts provides that the license                  
          agreement was amended on three dates:  June 1, 1989, Jan. 25,               
          1990, and Feb. 1, 1990.  The Jan. 25, 1990, and Feb. 1, 1990,               
          amendments are similar in substantive terms, and both reduce the            
          royalty payments in equal amounts.  For our convenience in this             
          opinion, we refer to the Jan. 25, 1990, and Feb. 1, 1990,                   
          amendments as one amendment.                                                

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