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EXHIBIT 2.2
EXECUTION COPY
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STOCK PURCHASE AGREEMENT
AMONG
WEBGAIN, INC.,
TENDRIL SOFTWARE, INC.,
▇▇▇▇▇▇ ▇▇▇▇▇▇
AND
THE SHAREHOLDERS LISTED ON SCHEDULE 1 HERETO
DATED AS OF MARCH 7, 2000
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TABLE OF CONTENTS
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Page
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ARTICLE I
DEFINITIONS ............................................................... 1
ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.01. Purchase and Sale .......................................... 4
Section 2.02. Purchase Price and Earn-Out ................................ 5
Section 2.03. Payment of Purchase Price; Earn-Out ........................ 5
Section 2.04. Escrow Deposit ............................................. 6
Section 2.05. Options .................................................... 6
Section 2.06. Closing .................................................... 7
Section 2.07. Closing Deliveries ......................................... 7
Section 2.08. Further Assurances ......................................... 9
Section 2.09. Consummation of Closing .................................... 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE CONTROLLING SHAREHOLDER
Section 3.01. Corporate Existence and Power .............................. 9
Section 3.02. Corporate Authorization and Authority ...................... 10
Section 3.03. Governmental Authorization ................................. 10
Section 3.04. Effect of Agreement on the Company ......................... 10
Section 3.05. Capitalization ............................................. 10
Section 3.06. Subsidiaries ............................................... 11
Section 3.07. Financial Statements ....................................... 11
Section 3.08. Absence of Certain Changes ................................. 12
Section 3.09. No Undisclosed Material Liabilities ........................ 13
Section 3.10. Related Party Transactions ................................. 14
Section 3.11. Material Contracts ......................................... 14
Section 3.12. Litigation ................................................. 16
Section 3.13. Compliance with Laws and Court Orders; No Defaults ......... 16
Section 3.14. Properties ................................................. 16
Section 3.15. Products ................................................... 17
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Section 3.16. Intellectual Property...................................... 18
Section 3.17. Insurance Coverage......................................... 21
Section 3.18. Licenses and Permits....................................... 21
Section 3.19. Inventories................................................ 22
Section 3.20. Loans, Notes, Accounts Receivable and Accounts Payable..... 22
Section 3.21. Omitted.................................................... 22
Section 3.22. Finders' Fees.............................................. 22
Section 3.23. Employees.................................................. 22
Section 3.24. Labor Matters.............................................. 23
Section 3.25. Environmental Matters...................................... 23
Section 3.26. Certain Practices.......................................... 23
Section 3.27. Records.................................................... 23
Section 3.28. No Indemnification Liabilities............................. 23
Section 3.29. Full Disclosure............................................ 24
Section 3.30. Disclosure Schedules....................................... 24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Section 4.01. Title to Securities and Shares............................. 24
Section 4.02. Shareholder Power and Authority............................ 25
Section 4.03. Effect of Agreement on the Shareholders.................... 25
Section 4.04. Litigation................................................. 25
Section 4.05. Shareholder Agreements..................................... 25
Section 4.06. Full Disclosure............................................ 26
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 5.01. Corporate Existence and Power.............................. 26
Section 5.02. Corporate Authorization and Authority...................... 26
Section 5.03. Governmental Authorization................................. 26
Section 5.04. Effect of Agreement on Buyer............................... 27
Section 5.05. Finders' Fees.............................................. 27
Section 5.06. Investment................................................. 27
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ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Best Efforts ........................................................... 27
Section 6.02. Certain Filings ........................................................ 27
Section 6.03. Public Announcements ................................................... 28
Section 6.04. Noncompetition; Nonsolicitation ........................................ 28
Section 6.05. Confidentiality ........................................................ 28
Section 6.06. No Negotiations ........................................................ 29
Section 6.07. Access to Company and the Stockholders ................................. 29
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
Section 7.01. Tax Definitions ........................................................ 29
Section 7.02. Tax Representations and Covenants ...................................... 30
ARTICLE VIII
EMPLOYEE BENEFITS
Section 8.01. Employee Benefits Definitions .......................................... 33
Section 8.02. Representations and Warranties Regarding the Plans ..................... 33
Section 8.03. Representations and Covenants Regarding No Third-Party Beneficiaries ... 35
ARTICLE IX
COVENANTS OF THE COMPANY
AND THE SHAREHOLDERS
Section 9.01. Cooperation ............................................................ 35
Section 9.02. Access ................................................................. 35
Section 9.03. Insurance .............................................................. 36
Section 9.04. Compliance with Laws ................................................... 36
Section 9.05. Keeping of Books and Records ........................................... 36
Section 9.06. Actions Prior to Closing ............................................... 37
Section 9.07. Notice of Changes; Updates ............................................. 39
Section 9.08. Preservation of Business ............................................... 39
Section 9.09. Litigation ............................................................. 39
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Section 9.10. Continued Effectiveness of Representations and Warranties.....39
Section 9.11. Obligations of Affiliates.....................................39
Section 9.12. Consents......................................................40
ARTICLE X
CONDITIONS TO CLOSING
Section 10.01. Conditions to Obligations of the Parties......................40
Section 10.02. Conditions to Obligation of Buyer.............................41
Section 10.03. Conditions to Obligation of the Company and the Shareholders..42
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. Survival......................................................43
Section 11.02. Indemnification Obligations...................................43
Section 11.03. Method of Asserting Claims, Etc. .............................44
Section 11.04. Arbitration...................................................46
Section 11.05. Payment.......................................................47
Section 11.06. No Contribution...............................................48
Section 11.07. Equitable Relief..............................................48
Section 11.08. The Representative............................................48
ARTICLE XII
TERMINATION
Section 12.01. Grounds for Termination.......................................50
Section 12.02. Effect of Termination.........................................50
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Notices.......................................................51
Section 13.02. Modifications and Amendments..................................52
Section 13.03. Waivers and Consents..........................................52
Section 13.04. Interpretation................................................52
Section 13.05. Reliance......................................................53
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Section 13.06. Expenses......................................................53
Section 13.07. Successors and Assigns........................................53
Section 13.08. Governing Law.................................................53
Section 13.09. Counterparts; Third Party Beneficiaries.......................53
Section 13.10. Entire Agreement..............................................54
Section 13.11. Specific Performance..........................................54
Section 13.12. Knowledge.....................................................54
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SCHEDULE 1 -- Tendril Software Shareholders
SCHEDULE 2.02 -- Technical Milestones
Exhibit A -- Form of Escrow Agreement
Exhibit B -- Form of Buyer Stock Option Agreement
Exhibit C -- Buyer's Officer's Certificate
Exhibit D -- ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP Opinion
Exhibit E -- ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Weiner, P.C. Opinion
Exhibit F -- Officer's Certificate
Exhibit G -- Offer Letters
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of March 7, 2000
("Effective Date") among WebGain, Inc., a Delaware corporation (the "Buyer"),
Tendril Software, Inc., a Delaware corporation (the "Company"), and ▇▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ (the "Controlling Shareholder") and those persons listed on Schedule 1
(such persons, including the Controlling Shareholder, being referred to herein
individually as a "Shareholder" and collectively as the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders own all of the outstanding shares of Common
Stock and Preferred Stock and all outstanding options ("Options") to purchase
shares of Common Stock of the Company with each Shareholder owning the number
and type of security set forth opposite such Shareholder's name in columns B, C
and D of Schedule 1; and
WHEREAS, Buyer is willing to buy and the Shareholders are willing to
sell the shares of Common Stock, including any shares of Common Stock underlying
the Preferred Stock or issuable upon exercise of the Options (collectively, the
"Shares"), set forth opposite the Shareholders' names in columns B, C and D of
Schedule 1 at Closing on the terms and conditions and in reliance on the
representations and warranties herein set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations and warranties set forth herein, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Accelerated Options" shall have the meaning set forth in Section 2.05.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; provided that no party to this Agreement shall be deemed to be an
Affiliate of any other party to this Agreement (including, without limitation,
the Company) solely by reason of its ownership of Common Stock.
"Balance Sheet" means the balance sheet of the Company as of December
31, 1999.
"Balance Sheet Date" means December 31, 1999.
"Cancelled Options" shall have the meaning set forth in Section 2.05.
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"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and any regulations promulgated
thereunder.
"Closing" shall have the meaning set forth in Section 2.06.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, $0.01 par value, of the Company.
"Company Intellectual Property Right" means any Intellectual Property
Right owned or licensed and used or held for use by the Company.
"Company Listed Intellectual Property Right" shall have the meaning set
forth in Section 3.16.
"Company Securities" shall have the meaning set forth in Section 3.05.
"Confidential Information" means any information relating to the assets,
prospects, products, services or operations of the Company, Buyer or any
Affiliate of the Company or Buyer that is not generally known, is proprietary to
the Company, Buyer or such Affiliate and is made known to a Person or learned or
acquired by such Person while such Person was an officer, director, employee or
independent contractor of the Company or Buyer.
However, Confidential Information shall not include information that (i)
has been publicly disclosed other than as a result of a breach of an obligation
herein or of any agreement between such Person and the Company; or (ii) such
Person received from a third party under no obligation to maintain such
information in confidence if the third party came into possession of such
information other than as a result of a breach of a confidentiality obligation.
"Controlling Shareholder" means ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇.
"Earn-Out" shall have the meaning set forth in Section 2.02.
"Earn-Out Period" shall have the meaning set forth in Section 2.02.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, now in effect,
relating to human health, the environment or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances or wastes into the
environment, including without limitation ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport
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or handling of pollutants, contaminants Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"Environmental Liabilities" means any and all liabilities of or relating
to the Company (including any entity which is, in whole or in part, a
predecessor of the Company), whether vested or unvested, contingent or fixed,
actual or potential, known or unknown, which (a) arise under or relate to
matters covered by Environmental Laws and (b) relate to actions occurring or
conditions existing on or prior to the Closing Date.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of governmental authorities required by any
Environmental Laws to be obtained by the Company or relating to any
Environmental Law and necessary or proper for the business of the Company as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulation promulgated thereunder.
"Escrow" shall have the meaning set forth in Section 2.04.
"Escrow Agent" shall have the meaning set forth in Section 2.04.
"Escrow Agreement" shall have the meaning set forth in Section 2.04.
"Escrow Amount" shall have the meaning set forth in Section 2.04.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Hazardous Substances" means any toxic, radioactive, corrosive or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics, including, without limitation,
any substance regulated under any Environmental Laws.
"Immediate Family Member" means, with respect to any Person, such
Person's spouse, parents, children and siblings.
"Intellectual Property Right" means any trademark, copyright, service
▇▇▇▇, trade name, net lists, patents (including any registrations or
applications for registration of any of the foregoing), or trade secrets
including, but not limited to any such legal rights included in any schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form) and in other tangible or intangible information or
material.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, encumbrance or other adverse claim of any kind in
respect of such asset. For the
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purposes of this Agreement, a Person shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Material Adverse Effect" means any material adverse change in, or
material adverse effect on, the business, assets, prospects, results of
operations, value or financial or other condition of the Company or the Buyer,
as the case may be, or any event or circumstance that could reasonably be
expected to have any such effect or that could reasonably be expected to
prevent, hinder or delay the consummation of any of the transactions
contemplated by this Agreement or any of the Transaction Documents.
"Material Agreement" shall have the meaning set forth in Section 3.11.
"Options" shall have the meaning set forth in the recitals to this
Agreement.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Plan" shall mean Buyer's 2000 Stock Incentive Plan, as such plan may be
amended from time to time.
"Preferred Stock" means the Series A Preferred Stock, $0.01 par value,
of the Company.
"Purchased Options" shall have the meaning set forth in Section 2.05.
"Purchase Price" shall have the meaning set forth in Section 2.02.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shares" shall have the meaning set forth in the recitals to this
Agreement.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly beneficially owned by the Company.
"Technical Milestones" shall have the meaning set forth in Section 2.02.
"Transaction Documents" means this Agreement, the Escrow Agreement, the
Employment Agreements and any other document contemplated hereby or thereby.
ARTICLE II
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PURCHASE AND SALE OF THE SHARES
Section 2.01 PURCHASE AND SALE. Upon the basis of the representations
and warranties herein contained and on the terms and subject to the conditions
of this Agreement, on the Closing Date and effective as of the Closing, each of
the Shareholders shall sell, convey, assign, transfer and deliver to Buyer and
Buyer shall purchase from each Shareholder, that number of Shares, each as set
forth opposite the name of such Shareholder in columns B, C and D of Schedule 1
hereto, free and clear of all Liens, in exchange for the Purchase Price set
forth opposite the name of such Shareholder in column F of Schedule 1 hereto
(subject to withholding of the Escrow Amount as provided in Section 2.04 and any
tax withholding as provided in Section 2.05(c)).
Section 2.02 PURCHASE PRICE AND EARN-OUT. The purchase price for the
Shares shall be $8,893,913 (the "Purchase Price). In addition, under the
provisions stated below, the Buyer shall pay the Shareholders an additional
amount up to $3,850,000 in cash (the "Earn-Out") to be paid as follows:
Technical Milestone. Buyer shall pay the Shareholders, pro rata
according to each Shareholder's proportionate interest set forth under
column E of Schedule 1, the amounts that correspond to the achievement
of each technical milestone (the "Technical Milestones") as are set
forth in the Technical Milestones Schedule (Schedule 2.02 hereto) within
30 days of the achievement of such Technical Milestone, which shall be
deemed achieved when the relevant component is released and incorporated
in a shipping product, but only if such Technical Milestone is achieved
during the 18 months following the Closing (the "Earn-Out Period").
Determination of the satisfaction of the Technical Milestones shall be
made by Buyer subject to reasonable consultation with the
Representative. Buyer agrees that during the Earn-Out Period it shall
cooperate with ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and Mr. ▇▇▇▇▇▇
▇▇▇▇▇▇▇ (the "TM Employees") to facilitate their work on the Technical
Milestones (it being understood that the TM Employees shall have other
duties as employees of Buyer). Buyer agrees that during the Earn-Out
Period:
(a) Buyer shall not sell, transfer or otherwise dispose of the
Software (as defined in Section 3.15) other than to Affiliates of Buyer;
(b) Buyer shall not terminate the employment of the TM Employees
without Cause (as defined in the Plan); and
(c) Buyer shall provide or make available reasonably adequate
technical and personnel resources to the TM Employees and the business unit of
Buyer tasked with the achievement of the Technical Milestones. It is
acknowledged and agreed that the provision of 2080 man hours (which shall
include any man hours of the TM Employees that are expended on Technical
Milestones) during the Earn-Out Period shall be deemed satisfaction of this
subsection (c)
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Section 2.03 PAYMENT OF PURCHASE PRICE; EARN-OUT. The Purchase Price and
the Earn-Out, if any, shall be payable as follows:
(a) The $8,893,913 Purchase Price (subject to withholding of the
Escrow Amount as provided in Section 2.04 and any tax withholding as provided in
Section 2.05(c)) shall be paid by wire transfer to ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇,
P.C. at the Closing, and shall be disbursed by ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Weiner in
accordance with column K of Schedule 1 hereto. The Earn-Out shall be paid as
stated in Section 2.02. All amounts are payable in U.S. dollars.
(b) The obligations of the Shareholders under Section 2.01
hereof shall be several, and not joint; provided, however, that in addition to
other closing conditions set forth herein, Buyer shall not be obligated to
purchase the Shares or pay any Earn-Out unless and until each Shareholder,
tenders the stock certificate representing its Common Stock listed in column B
of Schedule 1, converts its Preferred Stock listed in column C of Schedule 1 and
tenders the stock certificate representing the Common Stock into which such
Preferred Stock was converted, and exercises the Options listed in column D of
Schedule 1 and tenders the stock certificate representing the Common Stock
resulting from the exercise of such Options, all in accordance with the terms
and provisions of this Agreement.
Section 2.04 ESCROW DEPOSIT. Notwithstanding the foregoing provisions of
Section 2.03 hereof and anything to the contrary contained in this Agreement, to
secure the indemnification obligations of the Shareholders hereunder Buyer shall
withhold an aggregate of $899,391 (the "Escrow Amount") from the respective
amounts payable to the Shareholders pursuant to Section 2.03 hereof, and Buyer
shall deposit the Escrow Amount into an account (the "Escrow"), to be governed
by the terms hereof and the terms of an Escrow Agreement substantially in the
form attached hereto as Exhibit A (the "Escrow Agreement" and the escrow agent
designated therein, the "Escrow Agent").
Section 2.05 OPTIONS.
(a) Prior to the Closing, the Company, the Controlling
Shareholder and each Shareholder, as applicable, shall (i) cancel any and all
outstanding and unexercised Options that are scheduled to vest after January 1,
2001 (the "Cancelled Options") so that the Cancelled Options shall cease to
represent a right to acquire shares of Common Stock, (ii) cause the acceleration
of the vesting of all the unexercised Options held by the Shareholders that are
scheduled to vest after the date hereof and on or before January 1, 2001 (the
"Accelerated Options") so that the Accelerated Options vest completely prior to
the Closing, and (iii) cause the Accelerated Options, and any and all other
vested options (together with the Accelerated Options, the "Purchased Options"),
to be exercised without payment of any exercise price (and all shares of Common
Stock required to be issued pursuant to such exercise to be validly issued,
fully paid and non-assessable shares) or terminated, such that, as of the
Closing, (x) no options, warrants or other rights to acquire any shares of the
Company's capital stock or any securities convertible into or exchangeable or
exercisable for shares of the Company's capital stock are outstanding, and (y)
no person other than the Shareholders shall have any right, title or interest in
or to the ownership of the Company or any securities issued by Company, all of
which holders
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shall have no such, right, title or interest in or to Company, other than their
ownership of the Common Stock.
(b) At the Closing, Buyer will replace the Cancelled Options
with options of the Buyer, at a strike price of $0.15 per share, in the amounts
set forth in column H of Schedule 1, which options shall be governed by the Plan
and each Shareholder receiving such options shall enter into a stock option
award agreement pursuant to such plan substantially in the form attached hereto
as Exhibit B.
(c) Notwithstanding the foregoing provisions of Section 2.03
hereof and anything to the contrary contained in this Agreement, to satisfy any
tax withholding obligations of the Shareholders arising out of the acceleration
and/or exercise of the Purchased Options (such amounts being set forth under the
columns entitled "28% Federal Withholding," "5.95% State Withholding," "6.2%
Employee FICA Withholding," and "1.45% Employee Medicare Tax" of Schedule
7.02(f), collectively, the "Option Withholding Obligations"), Buyer shall, in
lieu of making a payment directly to such Shareholder, withhold from the
respective amounts payable to the Shareholders pursuant to Section 2.03 hereof
the aggregate amounts set forth in said columns of Schedule 7.02(f) with respect
to such Shareholder and pay such amount directly to the Company. The Company
agrees to promptly file any required tax returns, and remit any required tax
withholding, in respect of the Option Withholding Obligations. The amounts set
forth in the columns entitled "6.2% Employer FICA Due" and "1.45% Employer
Medicare Tax" of Schedule 7.02(f) represent an obligation of the Company which
shall be paid by the Company as required under applicable law (without any
reduction in the Purchase Price). Schedule 2.05(c) contains a list of
obligations of the Company (including Employer FICA and Medicare withholding)
that will be paid by the Company post-closing in accordance with their terms or
otherwise as required under applicable law, without any reduction in Purchase
Price.
Section 2.06 CLOSING. Subject to the satisfaction or waiver of each of
the conditions set forth in Article X, the closing (the "Closing") of the
purchase and sale of the Shares hereunder shall take place at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, or
other mutually agreed location, on the first mutually agreeable business day
following the fulfillment or waiver of the conditions set forth in Article X,
but in any event not later than ten business days after such fulfillment or
waiver, or at such other time and place as the parties shall mutually agree
(such date and time being called the "Closing Date").
Section 2.07 CLOSING DELIVERIES. At the Closing on the terms and
subject to the conditions set forth herein and in reliance on the
representations, warranties, covenants and other agreements set forth herein,
the parties to this Agreement shall deliver the following:
(a) Buyer shall deliver to the Company, the Shareholders (or
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Weiner, P.C. on their behalf) or the Escrow Agent, as the case
may be:
(i) a copy of the escrow agreement, duly and validly
executed by an authorized officer of Buyer;
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(ii) 90% of the Purchase Price, such amounts to be paid (x) to
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. in an amount equal to the total set forth under
column K of Schedule 1 hereto, and (y) to the Company in an amount equal to the
total set forth on Schedule 7.02(f) to satisfy the Option Withholding
Obligations;
(iii) 10% of the Purchase Price to the Escrow Agent;
(iv) $100,000 to ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Weiner, P.C., for
distribution to the persons set forth on Schedule 13.06 in satisfaction of the
fees and expenses as provided in Section 13.06;
(v) $132,517.28 to the Company in an amount necessary to fund
the "▇▇ ▇▇▇▇▇▇" payable and "Employer Option Withholding" obligation set forth
on Schedule 2.05(c);
(vi) an officer's certificate substantially in the form attached
hereto as Exhibit C, duly executed by an executive officer of Buyer (the
"Buyer's Officer's Certificate");
(vii) an opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to Buyer,
dated as of the Closing Date, substantially in the form attached hereto as
Exhibit D (the "▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Opinion");
(viii) an executed original of each Transaction Document to
which the Buyer is a Party; and
(ix) such other agreements, instruments, certificates and other
documents as may be reasonably necessary or appropriate to effectuate completely
the transactions contemplated hereby and each of the Transaction Documents.
(b) Each Shareholder or the Representative, as the case may be, shall
deliver to Buyer:
(i) all certificates, transfer forms and other instruments, in
form and substance satisfactory to Buyer, evidencing (A) the exercise,
conversion or cancellation, as the case may be, of the Preferred Stock and the
Options and (B) the transfer, conveyance and sale of all the Shares to be sold
by such Shareholder to Buyer in accordance with the terms of this Agreement and
as set forth on Schedule 1 hereto;
(ii) a copy of the Escrow Agreement, duly and validly executed
by the Representative, on behalf of the Shareholders;
(iii) an executed original of each Transaction Document to which
such Shareholder is a Party; and
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(iv) such other agreements, instruments, certificates
and other documents as may be reasonably necessary or appropriate to effectuate
completely the transactions contemplated hereby and each of the Transaction
Documents.
(c) The Company shall deliver to Buyer the following:
(i) an opinion of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Weiner, P.C.,
counsel to the Company, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit E (the "▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. Opinion");
(ii) an officer's certificate, substantially in the form
attached hereto as Exhibit F, duly executed by an executive officer of the
Company (the "Officer's Certificate");
(iii) a copy of the countersigned offer letters,
substantially in the form attached hereto as Exhibit G, as applicable, duly and
validly executed by such employees of the Company as are designated by the Buyer
prior to Closing (the employment agreements and offer letters are referred to
herein as "Employment Agreements");
(iv) an executed original of each Transaction Document
to which the Company is a Party; and
(v) such other agreements, instruments, certificates and
other documents as may be reasonably necessary or appropriate to effectuate
completely the transactions contemplated hereby and each of the Transaction
Documents.
Section 2.08 FURTHER ASSURANCES. At any time and from time to time after
the Closing Date, at the request of Buyer and without further consideration,
each Shareholder (and, as and to the extent necessary or appropriate, the
Company or its officers) will execute and deliver such other instruments of
sale, transfer, conveyance, assignment and confirmation as may be reasonably
requested in order to more effectively transfer, convey and assign to the Buyer,
and to confirm the Buyer's title to, the Shares.
Section 2.09 CONSUMMATION OF CLOSING. All acts, deliveries and
confirmations comprising the Closing regardless of chronological sequence shall
be deemed to occur contemporaneously and simultaneously upon the occurrence of
the last act, delivery or confirmation of the Closing and none of such acts,
deliveries, or confirmations shall be effective unless and until the last of the
same shall have occurred.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE CONTROLLING SHAREHOLDER
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The Company and the Controlling Shareholder jointly and severally
represent and warrant to Buyer as of the date hereof and as of the Closing Date
as follows:
Section 3.01 CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and authority required
to carry on its business as now conducted and as contemplated, as of the
Closing, to be conducted by the Company. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where
failure to be so qualified, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. The Company has
heretofore delivered or, on or prior to the Closing Date, will deliver, to Buyer
true and complete copies of the Certificate of Incorporation and bylaws of the
Company as currently in effect.
Section 3.02 CORPORATE AUTHORIZATION AND AUTHORITY. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party. This Agreement, and the
other Transaction Documents to which it is a party, have been duly authorized
and approved by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and assuming that
it has been duly executed and delivered by Buyer, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Each of the Transaction Documents to which the Company is a party, when executed
and delivered in accordance with the terms hereof and assuming that each such
Transaction Document has been duly executed and delivered by the other parties
thereto, will constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by liquidation, conservatorship, bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
Section 3.03 GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
3.03, the execution, delivery and performance by the Company of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official.
Section 3.04 EFFECT OF AGREEMENT ON THE COMPANY. Except as set forth in
Schedule 3.04, neither the execution and delivery of this Agreement or the
Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) result in the acceleration,
material breach or termination of, or the creation in any party of the right to
accelerate, terminate, modify, cancel or require any notice under, any contract,
lease, license, instrument or other arrangement, or other obligation or
liability to which the Company is a party or is bound or to which the Company's
assets are subject, (ii) conflict with, violate or
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result in a breach of any provision of the Certificate of Incorporation or
bylaws of the Company, (iii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction or decree applicable to the Company or by
which any of its assets is bound or affected, except where such conflict or
violation could not reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect, or (iv) result in the creation of any Lien upon
the Shares or any assets, tangible or intangible, of the Company.
Section 3.05 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. As
of the date hereof, there were outstanding 5,300,000 shares of Common Stock and
850,000 shares of Preferred Stock. Each share of Preferred Stock converts into
one share of Common Stock. All of the issued and outstanding shares of Common
Stock and Preferred Stock are held of record by the Shareholders in the amounts
set forth opposite each Shareholders name in Schedule 1, and are, to the
knowledge of the Company, free and clear of all Liens. There are no shares of
Common Stock or Preferred Stock held in the corporate treasury.
(b) All issued and outstanding shares of Common Stock and
Preferred Stock of the Company have been duly authorized and validly issued, are
fully paid and non-assessable and, except as set forth in Schedule 3.05, the
holders thereof are not, or will not be, entitled to any preemptive or other
similar rights. Except as set forth in this Section 3.05 and except as set forth
in Schedule 3.05, there are no outstanding or authorized (i) shares of capital
stock or voting securities of the Company, (ii) securities of the Company
convertible into, exercisable for or exchangeable for shares of capital stock or
voting securities of the Company or (iii) options, warrants, purchase rights,
calls, commitments, subscription rights, conversion rights, exchange rights,
stock appreciation, phantom stock, profit participation, or similar rights to
acquire from the Company, or similar obligations of the Company to issue, any
capital stock, voting securities or securities convertible into, exercisable for
or exchangeable for capital stock or voting securities of the Company (the items
in clauses (i), (ii) and (iii) being referred to collectively as the "Company
Securities"). All issued and outstanding Company Securities were issued (i) in
transactions exempt from the registration provisions of the Securities Act, and
(ii) in compliance with or in transactions exempt from the registration
provisions of applicable state securities or "blue-sky" laws. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any Company Securities. There are no statutory or contractual
shareholders' rights relating to the acquisition (including, without limitation,
rights of first refusal, pre-emptive rights and anti-dilution rights),
disposition, registration under the Securities Act, as amended, or other similar
rights with respect to the Company Securities. There are no voting trusts,
proxies, or other agreements or understandings with respect to the voting of the
capital stock of the Company.
Section 3.06 SUBSIDIARIES. Except as set forth in Schedule 3.06, the
Company does not own, and has never owned, any interest in any corporation or
other business entity and, except as
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set forth in Schedule 3.06, the Company is not a participant, and has never been
a participant, in any partnership or any joint venture with any third party.
Section 3.07 FINANCIAL STATEMENTS. The Company has delivered to Buyer
(i) an unaudited (a) balance sheet as of December 31, 1999, (b) the related
statements of income and cash flows for each such fiscal year then ended, and
(c) all related notes and schedules, if any; and (ii)(a) an unaudited balance
sheet as of February 29, 2000, (b) the related statements of income, changes in
stockholders equity, and cash flows for the period then ended, and (c) all
related notes and schedules, if any (collectively, the "Financial Statements").
Except as set forth on Schedule 3.07, the Financial Statements present fairly in
all material respects the financial condition of the Company as of such dates
and the results of operations of the Company for such periods, include all
material adjustments that are necessary for a fair presentation of the
information shown, are correct and complete, and are consistent with the books
and records of the Company (which books and records are true and complete in all
material respects), provided that, the most recent Financial Statements are
subject to normal year-end adjustments and lack footnotes and other presentation
items, none of which are material. The Company has disclosed to Buyer all
material facts relating to the preparation of the Financial Statements.
Section 3.08 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.08, since the Balance Sheet Date, the Company has conducted its business in
the ordinary and usual course consistent with past practices and, except
pursuant to or as contemplated under any Transaction Documents, there has not
been any Material Adverse Effect and, to the knowledge of the Company, there is
no condition or development or contingency of any kind existing that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Without limiting the foregoing, except as set forth in
Schedule 3.08 and in the transactions contemplated by the Agreement, since the
Balance Sheet Date, there has not been, occurred or arisen, considered
individually or in the aggregate:
(a) any issuance or sale or authorization of the issuance or
sale of any shares of capital stock or other securities of the Company or
Company Securities relating to shares of capital stock or other securities of
the Company;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the Company,
or any direct or indirect repurchase, redemption, retirement, purchase or other
acquisition by the Company of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company;
(c) any amendment of any term of any outstanding security of the
Company;
(d) other than in the ordinary and usual course of business
consistent with past practices, any incurrence, assumption or guarantee by the
Company of any indebtedness in excess of $10,000 individually or $50,000 in the
aggregate for (i) borrowed money, for amounts drawn under a letter of credit, or
for the deferred purchase price of property or services for which the Company or
its assets is liable, (ii) unfunded amounts under a loan agreement, letter of
credit, or other credit facility for which the Company could be liable, if such
amounts were advanced
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under the credit facility, (iii) amounts to be paid as a guaranteed payment or a
preferred or special dividend, including any mandatory redemption of shares or
interests, (iv) obligations under leases that constitute capital leases, and (v)
interest rate swaps, caps, floors, collars and other interest hedge agreements,
in each case whether the Company is liable contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations the Company
otherwise assures a creditor against loss;
(e) any Lien on any asset of the Company;
(f) any making of any loan, advance or capital contributions to
or investment in any Person;
(g) any material damage, destruction or other casualty loss
affecting the business or assets of the Company not fully covered by insurance;
(h) any transaction or commitment made, or any contract or
agreement entered into, by the Company relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company of any contract or other right (direct or indirect, whether
alleged, contingent or otherwise), other than transactions and commitments in
the ordinary and usual course of business consistent with past practices;
(i) any sale, assignment, transfer or grant of any license or
sublicense with respect to any Intellectual Property Right or other intangible
asset used or useful in the business of the Company, except sales, assignments,
transfers or grants made in the ordinary course of business that are set forth
in Schedule 3.08(i);
(j) any incurrence or payment of any obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on the
Balance Sheet and current liabilities incurred since the Balance Sheet Date in
the ordinary and usual course of business consistent with past practices;
(k) any material change in any method of accounting or
accounting practice by the Company, except for any such change after the date
hereof required by reason of a concurrent change in GAAP;
(1) any (i) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director, officer or
employee of the Company (or any amendment to any such existing agreement), (ii)
grant of any severance or termination pay to any director, officer or employee
of the Company, or (iii) change in compensation or other benefits payable to any
director, officer or employee of the Company pursuant to any severance or
retirement plans or policies thereof;
(m) any labor dispute, other than routine individual grievances,
or any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company, which employees were not subject to a
collective bargaining agreement at the Balance
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Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats
thereof by or with respect to any employees of the Company;
(n) to the knowledge of the Company, any other occurrence,
event, incident, action, failure to act, or transaction outside the ordinary and
usual course of business consistent with past practices involving the Company
which could reasonably be expected to have a Material Adverse Effect; or
(o) the Company has not committed to enter into nor is it the
intention or expectation of the Company to enter into any of the foregoing.
Section 3.09 NO UNDISCLOSED MATERIAL LIABILITIES. There are no material
liabilities of the Company, considered individually or in the aggregate, of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than:
(a) liabilities provided for in the Balance Sheet or disclosed
in the notes thereto;
(b) liabilities disclosed on Schedule 3.09; and
(c) liabilities incurred for accounts payable and any accruals
of current liabilities since the Balance Sheet Date in each case in type and
amounts which are accrued in the ordinary and usual course of business
consistent with past practices.
Section 3.10 RELATED PARTY TRANSACTIONS. Schedule 3.10 contains a
complete list of all transactions and agreements between the Company, on the one
hand, and any Shareholders, suppliers, customers or other parties ("Related
Parties"), on the other hand, where an officer, director, employee or holder of
5% or more of the outstanding equity of such Related Party is, or is an
Immediate Family Member of, an officer, director, employee or holder of 5% or
more of the outstanding capital stock of the Company.
Section 3.11 MATERIAL CONTRACTS.
(a) Except for the agreements disclosed in Schedule 3.11 (which
agreements are referred to herein as "Material Agreements", and each a "Material
Agreement") and except pursuant to or as contemplated under any of the
Transaction Documents, the Company is not currently a party to or bound by:
(i) any lease (whether of real or personal property)
providing for annual rentals of $10,000 or more;
(ii) any agreement for the purchase of materials,
supplies, goods, services, equipment or other assets that provides for either
(A) annual payments by the Company of $10,000 or more or (B) aggregate payments
by the Company of $50,000 or more;
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(iii) any consulting services, sales, distribution or other
similar agreement providing for the sale by the Company of materials, supplies,
goods, services, equipment or other assets that provides for either (A) annual
payments to the Company of $10,000 or more or (B) aggregate payments to the
Company of $50,000 or more;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any agreement relating to the acquisition or disposition of
any business (whether by merger, sale of stock, sale of assets or otherwise);
(vi) any agreement relating to indebtedness for borrowed money
or the deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset), except any such agreement (A) with
an aggregate outstanding principal amount not exceeding $10,000 and (B) which
may be prepaid on not more than 30 days notice without the payment of any
penalty;
(vii) any license, franchise or similar agreement that provides
for either (A) annual payments to or from the Company of $10,000 or more or (B)
aggregate payments to or from the Company of $50,000 or more;
(viii) any agency, dealer, sales representative, marketing or
other similar agreement for that provides for either (A) annual payments by the
Company of $10,000 or more or (B) aggregate payments by the Company of $50,000
or more;
(ix) any agreement that limits the freedom of the Company to
compete in any line of business or with any Person or in any area or which could
so limit the freedom of the Company;
(x) any agreement with any other Person directly or indirectly
owning, controlling or holding with power to vote 5% or more of the outstanding
voting securities of any Affiliate;
(xi) any agreement with any director, officer or employee of the
Company or with any "associate" or any member of the "immediate family" (as such
terms are respectively defined in Rules 12b-2 and 16a-1 of the Exchange Act) of
any such director, officer or employee;
(xii) any other agreement, commitment, arrangement or plan not
made in the ordinary and usual course of business consistent with past
practices; or
(xiii) any agreement not otherwise disclosed in Schedule 3.11
under which the consequences of a default or termination could reasonably be
expected to have a Material Adverse Effect; provided, however, that with respect
to the Company's obligations under the IBM Agreement for Exchange of
Confidential Information dated January 11, 1999,
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neither the Company, its successors nor its assigns has made the "San Francisco
Know-How" generally available to the public.
(b) Except as set forth in Schedule 3.11 (b), the Company has
paid in full all amounts due and required to be paid as of the date hereof under
each Material Agreement required to be identified and will have satisfied in
full all of its liabilities, agreements and obligations thereunder due and
required to be paid prior to the Closing, except where such failure to not pay
or satisfy could not, individually or in the aggregate, be reasonably expected
to have a Material Adverse Effect. Except as set forth in Schedule 3.11 (b), all
of the Material Agreements listed are in full force and effect. Except as set
forth in Schedule 3.11 (b), the Company and each other party thereto have
performed all of the obligations required to be due, paid or performed by them
to date, have received no notice of default and are not in default (with due
notice or lapse of time or both) under any Material Agreement except where any
such failures to perform and defaults could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Neither the
Company nor the Controlling Shareholder has any present intention of not fully
performing or expectation of not being able to fully perform any of their
respective obligations under each Material Agreement, and neither the Company
nor the Controlling Shareholder has any knowledge of any breach or anticipated
breach by any other party to any contract or commitment to which the Company is
a party. Except as set forth in Schedule 3.11 (b), there exists no actual or
threatened termination, cancellation or limitation of the business relationship
of the Company with any party to any such Material Agreement.
(c) The Company has listed in Schedule 3.11 its ten largest
customers for the fiscal year ended December 31, 1999 (determined on the basis
of both revenues and bookings during such period), and the revenues and bookings
for each customer during those periods. Except as set forth on Schedule 3.11,
none of these customers has materially reduced or terminated, or has notified
the Company in writing that it intends to materially reduce or terminate, the
amount of its business with the Company.
Section 3.12 LITIGATION.
(a) There is no action, suit, investigation or proceeding
pending against or, to the knowledge of the Company, threatened against or
affecting, the Company or any of its assets before any court or arbitrator or
any governmental body, agency or official, nor, to the knowledge of the Company
is there any basis therefor. Neither the Company nor the Controlling Shareholder
has knowledge that any such action, suit, investigation or proceeding will be
brought against the Company.
(b) Except as disclosed on Schedule 3.12, no director, officer
or key employee of the Company has been convicted in a criminal proceeding, to
the knowledge of the Company is a named subject of a criminal proceeding which
is presently pending (excluding traffic violations and other minor offenses) or
is to the knowledge of the Company the subject of a criminal investigation.
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Section 3.13 COMPLIANCE WITH LAWS AND COURT ORDERS; NO DEFAULTS. The
Company is not in violation of, and has not since the Balance Sheet Date
violated, any provisions of any laws, statutes, ordinances, regulations,
administrative interpretations, judgements, injunctions, orders, policies or
decrees of any court or governmental or administrative authority that are
applicable to the Company or its assets, except for violations that have not had
and could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect.
Section 3.14 PROPERTIES.
(a) Except as set forth on Schedule 3.14, the Company has good
title to, or in the case of leased property has valid leasehold interests in,
all personal property and assets (whether tangible or intangible) reflected on
the Balance Sheet or acquired after the Balance Sheet Date, except for property
and assets sold since the Balance Sheet Date in the ordinary and usual course of
business consistent with past practices. The Company has a valid and insurable
fee simple title to, or in the case of leased real property has valid leasehold
interests in, all real property reflected on the Balance Sheet or acquired after
the Balance Sheet Date. None of such property or assets (whether real or
personal) is subject to any Liens, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes not yet due or being contested in
good faith (and for which adequate accruals or reserves have been established on
the Balance Sheet); or
(iii) Liens disclosed on Schedule 3.14.
(b) Except as set forth in Schedule 3.14, there are no
developments affecting any such property or assets (whether real or personal)
pending or, to the knowledge of the Company, threatened, which, individually or
in the aggregate, might materially detract from the value of such property or
assets, or materially interfere with the use of any such property or assets.
(c) Except as set forth in Schedule 3.14, the plant and
equipment owned by the Company has been maintained consistently with standards
generally followed in the industry (giving due account to the age and length of
use of same, ordinary wear and tear excepted) and are adequate and suitable for
their uses and, in the case of plants, buildings and other structures (including
the roofs thereof), are structurally sound.
(d) All real property has access to (i) public roads or valid
easements for ingress to and egress from such property and (ii) water supply,
storm and sanitary sewer facilities, telephone, gas and electrical connections,
fire protection, drainage and other public utilities, in each case as is
necessary for the conduct of the business of the Company and none of the
structures on any such owned or leased real property encroaches upon real
property of another person, and no structure of any other person substantially
encroaches upon any of such owned or leased real property.
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(e) Except as disclosed in Schedule 3.14, the property and
assets owned or leased by the Company, or which it otherwise has the right to
use, constitute all of the property and assets held for use or used in
connection with the business of the Company and are adequate to conduct such
business.
Section 3.15 PRODUCTS.
(a) Each of the products produced, developed or sold by the
Company, when used in accordance with applicable documentation, is and at all
times up to and including the sale thereof by the Company (a) has been in
compliance in all material respects with all applicable federal, state, and
local laws and regulations and (b) conforms in all material respects to any
promises or affirmations of fact made on the container or label for such product
or in connection with its sale, subject to returns, repairs, defects and
allowances consistent with past practice.
(b) The Company's software products are of commercially
reasonable quality, however the Company and the Controlling Shareholder do not
represent that there are no design defects (that is errors in logic) with
respect to any of such products. None of such product documentation contains any
warnings with respect to its contents and use, except as stated in Schedule
3.15(b).
(c) Schedule 3.15(c) contains a list of all proprietary software
products developed by the Company and currently licensed or distributed or used
by the Company in its business, and any and all third party software
incorporated therein, enhancements, upgrades, customizations, modifications and
maintenance thereof (the "Software"). The Software containing or calling on a
calendar function including, without limitation, functions that directly
accesses the CPU clock, if any, and any function providing specific dates or
days, or calculating spans of dates or days, records, stores, processes,
provides, and, where appropriate, accurately reproduces and processes correct
dates information provided to the Software, including, without limitation, dates
and date calculations in and between the 20th and 21st centuries. Other than
information that has been publicly made available by the vendor, to the
Company's knowledge, all third party hardware or software incorporated into or
used by the Software provides proper date information to the Software except
where the lack thereof could not reasonably be expected to have a Material
Adverse Effect.
(d) The Software is not error free and is likely to have
programming errors that impair or interrupt operation. The Software operates in
substantial conformity with its user documentation and other descriptions and
standards applicable thereto provided by the Company. The Company has used
reasonable measures, consisting of scanning by means of commercially available
scanning products to detect and remove any known virus. Except for "try-and-buy"
demonstration licensing and except as stated in Schedule 3.15(d), the Company
has not introduced into the Software any timer, clock, counter or other limiting
design, instruction or routine designed or intended by the Company to erase data
or programming or to cause a computer to become inoperable or otherwise
incapable of being used in the full manner for which
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it was designed. Neither have the Company nor the Controlling Shareholder been
informed that the non-proprietary software has any such problems.
Section 3.16 INTELLECTUAL PROPERTY.
(a) Schedule 3.16 contains a list of all Company Intellectual
Property Rights that consists of registered copyrights, unregistered and
registered trademarks, patents and patent applications ("Company Listed
Intellectual Property Rights"), specifying as to each, as applicable: (i) the
nature of such Intellectual Property Right; (ii) the owner of such Intellectual
Property Right; (iii) the jurisdictions, if any, by or in which such
Intellectual Property Right is recognized without regard to registration or has
been issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which any Person (other than
licensees of the Company's products) is authorized to use such Intellectual
Property Right, including the identity of all parties thereto, a description of
the nature and subject matter thereof, the applicable royalty and the term
thereof. The Company disclaims any obligation to list unregistered copyrights or
trade secrets.
(b) The Company does not know of any Intellectual Property
Rights not currently owned or licensed to the Company that are necessary for the
operation of the Company's business as presently conducted. The Company has not
performed any trademark search, and has not investigated any patent matters
except those related to its patent applications. To the Company's knowledge, the
Company Intellectual Property Rights will be owned or available for use by the
Company on identical terms and conditions immediately subsequent to the Closing
hereunder. No Company Intellectual Property Rights are involved in any
interference or re-examination or cancellation or opposition or abandonment
proceeding, and neither the Company nor the Controlling Shareholder has been
notified or alerted that any such proceeding will hereafter be commenced. Except
as set forth in Schedule 3.16, neither the Company nor any Shareholder, as to
itself, has, to the Company's or such Shareholder's knowledge, any basis for
provoking or initiating an interference or opposition proceeding with respect to
any Intellectual Property Rights held or used by others, and does not have any
knowledge that Company Intellectual Property Rights are being infringed by
others.
(c) Except for any suits or proceedings that have been filed
within 15 days hereof and of which the Company has no knowledge, the Company is
not, and has not been, a defendant in any action, suit, investigation or
proceeding relating to, and has not otherwise been notified of, any alleged
claim or allegation of infringement relating to the Company Intellectual
Property Rights, and (i) neither the Company nor the Company Intellectual
Property Rights have infringed or are infringing on the intellectual property of
any third party, and (ii) neither the Company nor the Controlling Shareholder
has any knowledge of any continuing infringement by any third party of any
Company Intellectual Property Right. Except as set forth on Schedule 3.16, the
Company has not entered into any agreement to indemnify any other Person against
any charge
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of infringement, misappropriation or other conflict with respect to any
Intellectual Property Right.
(d) The Company has delivered to Buyer correct and complete
copies of all Company patents, patent applications, certificates of
registration, applications for trademark or copyright registration, licenses,
agreements, and permissions (as amended to date) relating to Company's Listed
Intellectual Property Rights and has made available to Buyer correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such Company Intellectual Property Right.
With respect to each Company Intellectual Property Right:
(i) all patents, and registered copyrights, if any,
included in the Company Listed Intellectual Property Rights are outstanding and
not expired, and the Company knows of no grounds for invalidity of the same;
(ii) the Company has no knowledge that use of trademarks
included in the Company Listed Intellectual Property Rights, infringe any third
party rights;
(iii) the Company's patent applications have been
prosecuted in good faith;
(iv) subject to license grants listed in this Agreement,
the Company possesses the full ownership interest in and to the item;
(v) the item is not subject to any outstanding judgment,
order, decree, stipulation, or injunction;
(vi) there is no complaint, action, suit, proceeding,
hearing, investigation, claim, or demands pending or threatened which challenges
the legality, validity, enforceability, use, or ownership of the Intellectual
Property Right; and
(vii) the item is not subject to any lien, security
interest or other encumbrance.
(e) The Company has set forth on Schedule 3.16(e) and has
supplied Buyer with correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date) granted to or from
any third party with respect to such Intellectual Property Right. With respect
to such licenses, sublicenses, agreements and permissions (as amended to date)
to third parties:
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect unless it has been terminated or has expired in accordance with its terms
as indicated on Schedule 3.16(e)(i);
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(ii) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in full force and
effect and the Closing will not affect its validity;
(iii) the Company has no knowledge that a party to the
license, sublicense, agreement, or permission is in breach or default, or that
any event has occurred which with notice or lapse of time could constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(iv) the Company has no knowledge that a party to the
license, sublicense, agreement, or permission has repudiated any provision
thereof;
(v) with respect to each sublicense, the representations
and warranties set forth in subsections (i) through (iv) above are true and
correct in all material respects with respect to the underlying license;
(vi) the underlying item of the Intellectual Property
Right is not subject to any outstanding judgment, order, decree, stipulation,
injunction, or charge; and
(vii) no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand is pending or threatened which
challenges the legality, validity, or enforceability of the underlying item of
the Intellectual Property Right.
(f) The Company owns the United States copyrights to the
Software, except for the components licensed from third patties as listed on
Schedule 3.16(f) attached hereto. The Company has not transferred or encumbered
such copyrights. The Company's software products do not infringe third party
trade secret rights under United States laws. The Company knows of no patent or
trademark infringement arising from the Software and has not been notified of
the same.
(g) The Company has obtained non-disclosure agreements with all
persons and entities (including without limitation, employees and customers of
the Company) to whom the Company has disclosed or provided access to the
Company's Confidential Information, under which such parties have agreed to hold
such information in confidence and not disclose the same, directly or
indirectly, to any person not having authorized access to such information,
without the express authorization of the Company.
(h) The Company has taken all actions reasonably necessary or
desirable to protect the Company Intellectual Property Rights, except that the
Company has not registered any copyrights or trademarks and has made no non-US
patent filings.
Section 3.17 INSURANCE COVERAGE. Schedule 3.17 correctly describes each
insurance policy and fidelity bond relating to the assets, business, operations,
employees, officers or directors of the Company. Except as disclosed in Schedule
3.17, there is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned,
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denied or disputed by the underwriters of such policies or bonds or in respect
of which such underwriters have reserved their rights. All premiums payable
under all such policies and bonds have been paid and the Company has otherwise
complied in all material respects with the terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies and
bonds providing substantially similar insurance coverage) are in full force and
effect. Such policies and bonds are of the type and in amounts customarily
carried by Persons conducting businesses similar to those of the Company. Except
as disclosed in Schedule 3.17, there is no (a) to the knowledge of the Company,
threatened termination of, (b) premium increase with respect to, or (c) material
alteration of coverage under, any of such policies or bonds. Except as disclosed
in Schedule 3.17, the Company shall after the Closing continue to have coverage
under such policies and bonds with respect to events occurring prior to the
Closing.
Section 3.18 LICENSES AND PERMITS.
(a) Schedule 3.18 correctly describes each license, franchise,
permit, consent and other similar authorization and all approvals of
governmental or regulatory authorities affecting, or relating in any way to, the
assets or business of the Company which are material to the Company (the
"Permits") together with the name of the government agency or entity issuing
such Permit. Except as set forth on Schedule 3.18, such Permits are valid and in
full force and effect and none of the Permits will be terminated or impaired or
become terminable, in whole or in part, as a result of the transactions
contemplated hereby.
(b) The Company has all Permits and all approvals of
governmental or regulatory authorities as are required to operate its business
as presently conducted and as presently proposed to be conducted in each state
of the United States where it is engaged in such activity.
Section 3.19 INVENTORIES. Except as listed on Schedule 3.19, all of the
inventory of the Company reflected on the Balance Sheet or thereafter acquired
(and not subsequently sold in the ordinary and usual course of business
consistent with past practices) consists of items of a quality and quantity
useable or saleable in the ordinary and usual course of business consistent with
past practices, subject to appropriate reserves for inventory write-down which
are set forth on the face of the Balance Sheet, at prices having a value equal
to the amounts reflected on the Balance Sheet or, with respect to after-acquired
inventory, at least equal to the cost thereof plus markups consistent with past
practices. Each item of such inventory is valued on the Balance Sheet at the
lower of cost (on a first-in-first-out basis) or market, in accordance with
GAAP. Except as listed on Schedule 3.19, all items of inventory are located on
premises owned or leased by the Company. The inventories and supplies of the
Company are on the date hereof, at normal and adequate levels for the
continuation of such business in the ordinary and usual course of business
consistent with past practices.
Section 3.20 LOANS, NOTES, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.
Schedule 3.20 provides an accurate and complete breakdown and aging of all
accounts receivable, notes receivable and other receivables of the Company as of
the Balance Sheet Date. Except as set forth on Schedule 3.20 and except for any
receivables payable by Buyer, all receivables (a) have arisen only from bona
fide transactions in the ordinary and usual course of business consistent
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with past practices, (b) represent valid obligations, (c) are current and
collectible in the aggregate face amounts thereof without any counterclaim or
set-off when due, except to the extent of the normal allowance for doubtful
accounts with respect to accounts receivable that are computed in a manner
consistent with past practices and are reflected in the Balance Sheet or with
respect to receivables arising subsequent to the Balance Sheet Date, in a manner
consistent with the books and records of the Company, and (d) are owned by the
Company free of all Liens. No discount or allowance from any receivable has been
made or agreed to (other than customary payment discounts in the ordinary and
usual course of business consistent with past practices), and none represents
▇▇▇▇▇▇▇▇ prior to actual sale of goods or provision of services. Accounts
payable of the Company reflected on the Balance Sheet and all accounts payable
arising after the Balance Sheet Date arose, and have arisen, from bona fide
transactions.
Section 3.21 OMITTED.
Section 3.22 FINDERS' FEES. No investment banker, broker, finder or
other intermediary is entitled to any fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 3.23 EMPLOYEES. Schedule 3.23 sets forth a true and complete
list of the names, titles, annual salaries and other compensation of all
officers of the Company and all other employees of the Company, and except as
disclosed on Schedule 3.23, none of such employees has provided notice, written
or oral, to the Company or the Controlling Shareholder that he or she intends to
resign or retire as a result of the transactions contemplated by this Agreement
or otherwise within three years after the Closing Date. Except as disclosed on
Schedule 3.23, to the knowledge of the Company, no employee of the Company is
subject to any secrecy or noncompetition agreement or any agreement or
restriction of any kind that could impede in any material way the ability of
such employee to carry out fully all activities of such employee in furtherance
of the business of the Company as currently operated after the Closing Date. No
third party has claimed that any person employed by or affiliated with the
Company has violated or may be violating any of the terms or conditions of his
past employment, noncompetition or nondisclosure agreement with such third
party, or disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party or
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees.
Section 3.24 LABOR MATTERS. The Company is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice, failure to comply with which or engagement in which, as the case
may be, could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect. There is no unfair labor practice complaint pending
or threatened against the Company before the National Labor Relations Board.
Section 3.25 ENVIRONMENTAL MATTERS. The Company is not in violation of
any federal, state, or local Environmental Laws applicable to it or its
properties, or any material limitations, restrictions, conditions, standards,
obligations or timetables contained in any Environmental
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Law. No notice or action alleging such violation is pending or, to the knowledge
of the Company, threatened, and, except as disclosed on Schedule 3.25, no past
or present condition or practice of the businesses conducted by the Company
would prevent continued compliance with any Environmental Permits or give rise
to any common law or statutory liability or otherwise from the basis of any
claim, action or proceeding with respect to the Company involving any Hazardous
Substances. To the Company's knowledge, the Company has no Environmental
Liability.
Section 3.26 CERTAIN PRACTICES. Neither the Company nor any of its
directors, officers or, to the knowledge of the Company, employees has, directly
or indirectly, given or agreed to give any significant rebate, gift or similar
benefit to any supplier, customer, governmental employee or other person who
was, is or may be in a position to help or hinder the Company (or assist in
connection with any actual or proposed transaction).
Section 3.27 RECORDS. The minute books of the Company, as previously
made available to the Buyer, accurately reflect all formal corporate action of
the stockholders and the board of directors of the Company and the stock
certificate books and stock transfer ledgers are complete and correct in all
respects with respect to the matters set forth therein.
Section 3.28 NO INDEMNIFICATION LIABILITIES. To the knowledge of the
Company, there are no existing liabilities that require the Company to indemnify
its officers or directors for acts or omissions by such persons acting on behalf
of the Company or, except for the Company's Certificate of Incorporation and
bylaws, existing agreements to provide indemnification for such liabilities.
Section 3.29 FULL DISCLOSURE. No representation or warranty of the
Company or the Controlling Shareholder made in this Agreement or any of the
Transaction Documents, including any schedules or exhibits hereto or thereto,
nor any written statement furnished to Buyer pursuant hereto, or in connection
with the transactions contemplated hereby, furnished to Buyer by the Company or
the Controlling Shareholder, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements or facts contained herein or therein not misleading. There is no
fact or information known to the Company which the Company has not disclosed to
the Buyer in writing which the Company presently believes has or could have a
Material Adverse Effect other than any changes in the prospects of the Company
which result from developments affecting general economic or industry
conditions.
Section 3.30 DISCLOSURE SCHEDULES. Nothing in the Disclosure Schedules
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, unless the Disclosure Schedule identifies the exception
sufficiently for the relevance and substance of the exception to be reasonably
apparent to a reasonable person. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself or the nature and relevance of
the exception would be reasonably apparent to a reasonable person on the
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basis of the information included in the Schedule). The Disclosure Schedule will
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
in this Section 3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby severally represents and warrants to
Buyer, as to himself or herself only, as of the date hereof and as of the
Closing Date, as follows:
Section 4.01 TITLE TO SECURITIES AND SHARES. Each Shareholder owns the
securities set forth opposite its name in columns B, C and D of Schedule 1
hereto (which in the aggregate represent all of the issued and outstanding
shares of capital stock of the Company) free and clear of any Lien, restriction
on sale or transfer (other than restrictions imposed by applicable securities
laws, the Company's Certificate of Incorporation, and the shareholder agreements
to which such shareholder is a party which are listed on Schedule 4.01),
preemptive right, limitations on voting rights or options and has the authority
to dispose of such the securities set forth opposite its name in columns B, C
and D of Schedule 1 and the Shares pursuant to this Agreement.
Section 4.02 SHAREHOLDER POWER AND AUTHORITY. Each Shareholder has the
legal capacity and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which such Shareholder is a party. This
Agreement has been duly executed and delivered by each Shareholder and
constitutes the legal, valid and binding obligation of such Shareholder,
enforceable against the Shareholder in accordance with its terms, except as
enforcement thereof may be limited by liquidation, conservatorship, bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion. Each of the Transaction
Documents to which such Shareholder is a party, when executed and delivered in
accordance with the terms hereof, will constitute the legal, valid and binding
obligation of the Shareholder, enforceable against the Shareholder in accordance
with its terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Section 4.03 EFFECT OF AGREEMENT ON THE SHAREHOLDERS. Except as
disclosed in Schedule 4.03, neither the execution and delivery of this Agreement
nor the Transaction Documents to which each Shareholder is a party nor the
consummation of the transactions contemplated hereby or thereby will (i) result
in the acceleration, breach or termination of, or the creation in any party of
the right to accelerate, terminate, modify, cancel or require any notice under,
any contract, lease, license, instrument or other arrangement, or other
obligation or liability to which such Shareholder is a party or is bound or to
which the Shareholder's assets are
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subject, (ii) conflict with or violate any law, rule, regulation, ordinance,
order, writ, injunction or decree applicable to the Shareholder by which any of
its respective properties or assets is bound or affected, or (iv) result in the
creation of any Lien upon (A) any of the securities set forth opposite each
Shareholder's name in columns B, C, and D of Schedule 1 hereto, (B) the Shares,
or (C) any assets, tangible or intangible, of each such Shareholder.
Section 4.04 LITIGATION. There are no claims, actions, suits,
arbitrations, grievances, proceedings or investigations pending or, to the
knowledge of such Shareholder, threatened against such Shareholder, at law, in
equity or before any federal, state, municipal or other governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign that could reasonably be expected to have
an adverse effect on such Shareholder's ability to transfer the Shares to Buyer,
or the value of such Shares or such Shareholder's ability or to consummate the
transactions contemplated hereby.
Section 4.05 SHAREHOLDER AGREEMENTS. Except as set forth on Schedule
4.05, there are no agreements, written or oral, between the Company and any
Shareholder or between any Shareholders, relating to the acquisition (including,
without limitation, rights of first refusal, pre-emptive rights and
anti-dilution rights), disposition, registration under the Securities Act, as
amended, or other similar rights with respect to the Company Securities. Except
as set forth on Schedule 4.05, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Company.
Section 4.06 FULL DISCLOSURE. No representation or warranty of the
Shareholders made in this Agreement, nor any written statement furnished to
Buyer pursuant hereto, or in connection with the transactions contemplated
hereby, heretofore furnished to Buyer by the Shareholders, contains or will
contain any statement which constitutes an untrue statement of a material fact
or fails or will fail to state a material fact which was necessary to make the
statements or facts contained herein or therein not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the Shareholders
as follows:
Section 5.01 CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted and as contemplated to be conducted by Buyer.
Buyer is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
Section 5.02 CORPORATE AUTHORIZATION AND AUTHORITY. Buyer has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party. This Agreement, and the
other Transaction Documents to which it is a party, have been duly authorized
and approved by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer, and assuming that it
has been duly executed and delivered by the Company and the Shareholders,
constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms, except as enforcement thereof may be
limited by liquidation, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally from time to time in effect and except that equitable remedies are
subject to judicial discretion. Each of the Transaction Documents to which Buyer
is a party, when executed and delivered in accordance with the terms hereof and
assuming that each such Transaction Document has been duly executed and
delivered by the other parties thereto, constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforcement thereof may be limited by liquidation, conservatorship,
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally from time to time in effect and
except that equitable remedies are subject to judicial discretion.
Section 5.03 GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
5.03, the execution, delivery and performance by Buyer of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official, except for those previously made or which will be made
prior to Closing.
Section 5.04 EFFECT OF AGREEMENT ON BUYER. Except as set forth in
Schedule 5.04, neither the execution and delivery of this Agreement nor the
Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) conflict with, violate or
result in a breach of any provision of the certificate of incorporation or
bylaws of Buyer, (ii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction or decree applicable to Buyer or by which any
of its assets is bound or affected which
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could reasonably be expected to have a Material Adverse Effect, or (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, or create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject which could
reasonably be expected to have a Material Adverse Effect.
Section 5.05 FINDERS' FEES. Except as previously disclosed by Buyer to
the Company, no investment banker, broker, finder or other intermediary is
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by Buyer.
Section 5.06 INVESTMENT. The Buyer is not acquiring the Shares with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties will use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Each of the parties agrees to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this Agreement. Each
of the parties agrees that it shall not take any action that is intended or
could reasonably be expected to cause such party to fail to perform and fulfill
all conditions and obligations to be fulfilled or performed by such party
hereunder, or that is intended or could reasonably be expected to cause the
transactions contemplated hereby not to be fully and timely consummated.
Section 6.02 CERTAIN FILINGS. Each of the parties shall cooperate with
one another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 6.03 PUBLIC ANNOUNCEMENTS. Each of the parties acknowledges the
importance of appropriate disclosures in positioning the relationship between
the two companies to the distribution channel, the press, customers and others.
The Company and the Shareholders agree
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to make no press releases or other public announcements regarding this Agreement
without Buyer's prior written consent.
Section 6.04 NONCOMPETITION; NONSOLICITATION. In order that Buyer may
have and enjoy the benefit of the acquisition of the Company, none of the
Shareholders who are officers, directors or employees of the Company shall
directly or indirectly, for a period of two years commencing on the Closing
Date, (a) engage (as owner, stockholder, partner or otherwise, except as a
holder of fewer than 5% of the outstanding shares or other equity interests of a
company whose shares or other equity interests are publicly traded) in any
business which competes with the business of the Company as a developer and
marketer of software products as such business is conducted by the Company at
the time of the Closing; (b) solicit work from, or perform work for, any Person
know by such Shareholder to be a customer of the Company for work substantially
similar to work performed by the Company for the customer; (c) induce any
employee of the Company to engage in any activity in which such Shareholder is
prohibited from engaging by clause (a) or to terminate his or her employment
with the Company or Buyer and will not knowingly directly or indirectly employ
or offer employment to any person who was employed by the Company unless such
person shall have been terminated without cause or ceased to be employed by the
Company or the Buyer for a period of at least six months; or (d) make any
statement or take any action intended to impair the goodwill or the business
reputation of the Company or the Buyer, or to be otherwise detrimental to the
interests of the Company or the Buyer, including any action or statement
intended, directly or indirectly, to benefit a competitor of the Company or the
Buyer. It is expressly understood and agreed that although the Shareholders and
Buyer consider the restrictions contained in this Section 6.04 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time and territory or any other restriction contained in this Section
6.04 is an unenforceable restriction against any Shareholder, the provisions of
this Section 6.04 shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such maximum extent as such
court may judicially determine or indicate to be enforceable. Alternatively, if
any court of competent jurisdiction finds that any restriction contained in this
Section 6.04 is unenforceable, and such restriction cannot be amended so as to
make it enforceable, such finding shall not affect the enforceability of any of
the other restrictions contained herein. Notwithstanding any other provision of
this Section 6.04, the obligations of the Shareholders under this Section 6.04
shall terminate immediately if Buyer materially breaches its obligation to make
the Earn-Out payments described in Article II and the Schedules relating
thereto, which Buyer, after notification of such breach, has not promptly cured.
Section 6.05 CONFIDENTIALITY. Each Shareholder will treat and hold as
such all Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Company or destroy, at the request and option of the Company, all tangible
embodiments (and all copies) of the Confidential Information which are in his or
its possession. In the event that any Shareholder is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, that Person will promptly notify the
Company of the request or
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requirement so that the Company may seek an appropriate protective order or
waive compliance with the provisions of this Section 6.05. If, in the absence of
a protective order or the receipt of a waiver hereunder, any Shareholder is, on
the advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Person may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
Person shall use his or her best efforts to obtain, at the request of the Buyer,
an order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate.
Section 6.06 NO NEGOTIATIONS. Until the termination of this Agreement in
accordance with its terms: neither the Company nor any Shareholder shall
initiate discussions with, engage in negotiations with, or provide any
information to any corporation, partnership, person or other entity or group
involving the possible sale, directly or indirectly, transfer or joint venture
with the Company, its business or assets, or the capital stock of the Company to
any person or entity other than Buyer.
Section 6.07 ACCESS TO COMPANY AND THE SHAREHOLDERS. Until the Closing,
the Buyer shall:
(a) furnish to the Company and the Shareholders and their
representatives during such period all such information regarding the Buyer as
such Persons may reasonably request;
(b) promptly make full disclosure to the Company of all material
facts that come to Buyer's attention including, without limitation, material
facts relating to Buyer's efforts to obtain additional equity or other funding,
that could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Buyer's business, both prior to and after the
Closing.
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
The Company and the Controlling Shareholder jointly and severally
represent, warrant and covenant to Buyer as of the date hereof and as of the
Closing Date as follows:
Section 7.01 TAX DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Pre-Closing Tax Period" means any Tax period ending on or before the
close of business on the Closing Date or, in the case of any Tax period which
includes, but does not end on, the Closing Date, the portion of such period up
to and including the Closing Date.
"Tax" means (a) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding,
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payroll, employment, excise, corporate excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition-to-tax or additional amount
imposed by any governmental authority (domestic or foreign) responsible for the
imposition of any such tax (a "Taxing Authority"), (b) any liability of the
Company for the payment of any amount of the type described in clause (a) above
as a result of being a member of an affiliated, consolidated, combined or
unitary group, and (c) any liability of the Company for the payment of any
amount as a result of being party to any Tax Sharing Agreement or with respect
to the payment of any amounts of the type described in clauses (a) or (b) above
as a result of any express or implied obligation to indemnify any other Person.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax, credit, charitable deduction carryover or any other
credit or tax attribute which could reduce Taxes (including, without limitation,
credits or other tax attributes which could reduce alternative minimum Taxes).
"Tax Sharing Agreement" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Company and any other
agreement or arrangement (including any arrangement required or permitted by
law) which (a) requires the Company to make any Tax payment to or for the
account of any other person, (b) affords any other person to utilize any Tax
Asset of the Company to reduce such other person's Taxes, (c) affords the
Company the right to utilize any Tax Asset of any other person to reduce any
Taxes of the Company, (d) requires or permits the transfer or assignment of
income, revenues, receipts, or gains, or (e) requires or permits the Company to
determine its Tax liability by taking into account or by reference to the Tax
liability, income, revenues, receipts or gains of any other person.
Section 7.02 TAX REPRESENTATIONS AND COVENANTS.
(a) Except as set forth in on Schedule 7.02(a).
(i) all Tax returns, statements, reports and forms (including
estimated tax or information returns and reports) required to be filed with any
Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of
the Company (collectively, the "Returns") have been or will be timely filed when
due in accordance with all applicable laws, except where the failure to file
would not subject the Company to any liabilities (including any interest,
penalties or addition-to-tax);
(ii) as of the time of filing, the Returns correctly reflected
(and, as to any Returns not filed as of the date hereof, will correctly reflect)
in all material respects the facts regarding the income, business, assets,
operations, activities and status of the Company and any other information, as
required to be shown therein;
(iii) all Taxes due and payable (whether shown on or reportable
on the Returns) have been timely paid, or withheld and remitted to the
appropriate Taxing Authority;
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(iv) the charges, accruals and reserves for Taxes with respect
to the Company for any Pre-Closing Tax Period (including any Pre-Closing Tax
Period for which no Return has yet been filed) reflected on the Balance Sheet
(excluding any provision for deferred income taxes), as adjusted for operations
and transactions in the ordinary and usual course of business consistent with
past practices since the date of the Balance Sheet, are adequate to cover such
Taxes;
(v) the Company is not delinquent in the payment of any Tax nor
has it requested any extension of time within which to file any Return, which
Return has not yet been filed;
(vi) the Company has not granted any extension or waiver of the
statute of limitations period applicable to any Return, which period (after
giving effect to such extension or waiver) has not yet expired;
(vii) there is no claim, audit, action, suit, proceeding, or
investigation now pending or, to the knowledge of the Company, threatened
(including, any issues that, to the knowledge of the Company and the Controlling
Shareholder, may be raised by any Taxing Authority) against or with respect to
the Company in respect of any Tax or Tax Asset;
(viii) the Company has not filed any request for ruling or
determination of any Taxing Authority in respect of any Tax which has been
denied during the past five years or which is pending;
(ix) the Company does not own any interest in real property in
the State of New York or in any other jurisdiction in which a Tax is imposed on
the transfer of a controlling interest in an entity that owns any interest in
real property;
(x) the Company has not been a member of an affiliated,
consolidated, combined or unitary group and is not liable for the taxes of any
other Person;
(xi) all information set forth in the notes to the Balance Sheet
relating to Tax matters is true and complete;
(xii) the Company is not a party to any Tax Sharing Agreement or
is otherwise under any obligation to pay any third party an amount with respect
to any Tax;
(xiii) since the Balance Sheet Date, neither the Company nor any
Affiliate of the Company has, to the extent it may affect or relate to the
Company, made or changed any tax election, changed any annual tax accounting
period, adopted or changed any method of tax accounting, filed any amended
Return, entered into any closing agreement, settled any Tax claim or assessment,
surrendered any right to claim a Tax refund, or consented to any extension or
waiver of the limitation period applicable to any Tax claim or assessment, if
any
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such action would have the effect of increasing the Tax liability or decreasing
any Tax Asset of the Company;
(xiv) since the Balance Sheet Date, the Company has not reserved
any amount for or made any payment of Taxes to any other person or any Taxing
Authority except for such Taxes as were due or payable to the Taxing Authority
or had been properly estimated in accordance with applicable law as applied in a
manner consistent with past practices of the Company; and
(xv) the Company is not and has not been a United States real
property holding corporation with the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code
and Buyer is not required to withhold tax on the purchase of the Shares of the
Company by reason of Section 1445 of the Code. The Company is not a "consenting
corporation" under Section 341(f) of the Code. The Company has not entered into
any compensatory agreements with respect to the performance of services which
payment thereunder would result in a nondeductible expense pursuant to Section
162(m) or 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. The Company has not been the "distributing
corporation" (within the meaning of Section 355(c)(2) of the Code) with respect
to a transaction described in Section 355 of the Code within the 3-year period
ending as of the date of this Agreement. The Company has not agreed, nor is it
required to make, any adjustment under Code Section 481(a) by reason of a change
in accounting method or otherwise. The Company is not a party to any joint
venture, partnership or other agreement, contract or arrangement (either in
writing or verbally, formally or informally) which could be treated as a
partnerships for federal income tax purposes. The Company is in compliance with
the terms and conditions of any applicable Tax exemptions, Tax agreements or Tax
orders of any government to which it may be subject or which may have claimed,
and the transactions contemplated by this Agreement will not have any adverse
effect on such compliance.
(b) Schedule 7.02(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by the Company.
(c) Schedule 7.02(c) contains an accurate description of current
audit issues relating to any Tax, and Schedule 7.02(c) contains copies of
revenue agent's or similar reports furnished by any Taxing Authority to the
Company for any taxable year.
(d) The Company has no net operating losses or other tax attributes
presently subject to limitation under Code Sections 382, 383, or 384.
(e) The Company has furnished Buyer with true and complete copies of
all federal and state income or franchise tax returns for all periods ending on
and after December 31, 1995.
(f) The amounts set forth on Schedule 7.02(f) reflect, with respect
to each holder of a Purchased Option, the correct amounts of (i) income Tax
withholding, (ii) other amounts
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required to be withheld, including FICA and FUTA, and (iii) Company employment
Taxes, in connection with the exercise of the Purchased Options.
ARTICLE VIII
EMPLOYEE BENEFITS
The Company and the Controlling Shareholder jointly and severally
represent, warrant and covenant to Buyer as of the date hereof and as of the
Closing Date as follows:
Section 8.01 EMPLOYEE BENEFITS DEFINITIONS. The following terns, as used
herein, shall have the following meanings:
"Benefit Arrangement" means each employment, severance or other similar
contract, arrangement or policy or any plan or arrangement (whether or not
written) providing for severance benefits, insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, pension or retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which is entered into, maintained or
contributed to, as the case may be, by the Company or any of its ERISA
Affiliates.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, that is maintained, administered or contributed to by the Company
or any of its ERISA Affiliates. Benefit Arrangements and Employee Plans are
sometimes referred to herein as a "Plan" or "Plans."
"ERISA Affiliate" means each trade or business, whether or not
incorporated, which would be treated as a single employer with the Company under
Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
Section 8.02 REPRESENTATIONS AND WARRANTIES REGARDING THE PLANS.
Schedule 8.02 sets forth a complete list of all Plans. Neither the Company nor
any ERISA Affiliate contributes or have ever contributed to any "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA, and the Company has not
incurred any material liability under Sections 4062, 4063 or 4201 of ERISA. Any
Plan maintained by the Company which is intended to be qualified under either
Section 401(a) or 501(c)(9) of the Code is so qualified. The Internal Revenue
Service has issued a determination letter confirming the qualified status of
each such Plan and the tax-exempt status of the related trust, and nothing has
occurred since the date of such favorable determination letter that could
adversely affect the qualification of the Plan and its related trust. Each Plan
has been administered in all material respects in accordance with the terms of
such Plan and the provisions of any and all applicable statutes, orders or
governmental rules or regulations, including without limitation ERISA and the
Code, and nothing has been done or omitted to be done with respect to any Plan
that would result in any material liability on the part
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of the Company under ERISA or the Code. All reports required to be filed with
respect to all Plans have been timely filed, except where the failure to so file
could not have, individually or in the aggregate, a Material Adverse Effect.
None of the Plans is a pension plan subject to Title IV of ERISA. The Plans have
no unfunded benefit liabilities, and all contributions to the Plans under the
minimum funding requirements of Section 412 of the Code have been made. Except
as disclosed in Schedule 8.02, all claims for welfare benefits incurred by
employees on or before the Closing are or will be fully covered by third-party
insurance policies or programs. Except as disclosed in Schedule 8.02, and except
for continuation of health coverage to the extent required under Section 4980B
of the Code or as otherwise set forth in this Agreement, there are no
obligations under any Benefit Arrangement providing health or other welfare
benefits after termination of employment. Except as disclosed in Schedule 8.02,
there has been no amendment to employee participation or coverage under any
Benefit Arrangement which would increase materially the expense of maintaining
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the most recent fiscal year. All reports, forms
and other documents required to be furnished to employees, former employees or
beneficiaries with respect to any Plan have been timely filed and furnished and
are accurate, except where the failure to so furnish could not have,
individually or in the aggregate, a Material Adverse Effect. All contributions
for all periods ending prior to the Closing Date (including periods from the
first day of the current plan year to the Closing Date) have been made, or will
be made prior to the Closing Date, by the Company or an ERISA Affiliate. All
insurance premiums have been paid in full, or will be paid in full prior to the
Closing Date, subject only to normal retrospective adjustments in the ordinary
course, with regard to the Plans for plan years ending on or before the Closing
Date. With respect to each Plan:
(1) no prohibited transactions (as defined in Section 406 or
407 of ERISA or Section 4975 of the Code) have occurred for which a statutory
exemption is not available;
(2) no action or claims (other than routine claims for
benefits made in the ordinary course of Plan administration for which Plan
administrative review procedures have not been exhausted) are pending, or, to
the knowledge of the Company, threatened or imminent against or with respect to
the Plan, any employer who is participating (or who has participated) in any
Plan or any fiduciary (as defined in Section 3(21) of ERISA), of the Plan;
(3) neither the Company nor any fiduciary has any knowledge
of any facts that could give rise to any such action or claim; and
(4) it provides that it may be amended or terminated at any
time and, except for benefits protected under Section 411(d) of the Code, all
benefits payable to current, terminated employees or any beneficiary may be
amended or terminated by the Company or the relevant ERISA Affiliate at any time
without liability.
Neither the Company nor any ERISA Affiliate has any liability or is
threatened with any liability (whether joint or several) (i) for any excise tax
imposed by Sections 4971, 4975, 4976,
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4977 or 4979 of the Code, or (ii) to a fine under Section 502 of ERISA. All of
the Plans, to the extent applicable, are in compliance with the continuation of
group health coverage provisions contained in Section 4980B of the Code and
Sections 601 through 608 of ERISA. True, correct and complete copies of all
documents creating or evidencing any Plan have been delivered to the Buyer, and
true, correct and complete copies of all reports, forms and other documents
required to be filed with any governmental entity or furnished to employees,
former employees or beneficiaries (including, without limitation, summary plan
descriptions, Forms 5500 and summary annual reports for all plans subject to
ERISA, but excluding individual account statements and tax forms) have been
delivered to the Buyer. There are no negotiations, demands or proposals which
are pending or have been made which concern matters now covered, or that would
be covered, by the type of agreements required to be listed in Schedule 8.02.
All expenses and liabilities relating to all of the Plans have been fully and
properly accrued on the Company's books and records and disclosed in accordance
with generally accepted accounting principles and in Plan financial statements.
All expenses and liabilities for all periods prior to the Closing Date relating
to all of the Plans that are maintained by or contributed to by the Company
shall have been fully paid as of the Closing Date.
Section 8.03 REPRESENTATIONS AND COVENANTS REGARDING NO THIRD PARTY
BENEFICIARIES. No provision of this Article VIII shall create any third-party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company in respect of continued
employment (or resumed employment) with the Company and no provision of this
Article VIII shall create any such rights in any such Persons in respect of any
benefits that may be provided, directly or indirectly, under any Benefit
Arrangement or any plan or arrangement that may be established by the Company
after the Closing Date. No provision of this Agreement shall constitute a
limitation on rights to amend, modify or terminate after the Closing Date any
Plan of the Company.
ARTICLE IX
COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders (or certain of them, as applicable)
covenant and agree with Buyer that at all times prior to the Closing or
termination of this Agreement (or after the Closing in the case of Section
9.02(b)).
Section 9.01 COOPERATION. The Shareholders shall use their best efforts
in good faith to perform and fulfill and to cause the Company to perform and
fulfill, all conditions and obligations to be fulfilled or performed by them
hereunder to the end that the transactions contemplated hereby will be fully and
timely consummated. The Shareholders shall not take any action that is intended
or could reasonably be expected to cause the Company or any Shareholder to fail
to perform and fulfill all conditions and obligations to be fulfilled or
performed by the Company or any shareholder hereunder, OR that is intended or
could reasonably be expected to cause the transactions contemplated hereby not
to be fully and timely consummated. Each Shareholder shall use its best efforts
in good faith to satisfy, perform and fulfill all conditions and
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obligations to be fulfilled or performed it hereunder, to the end that the
transactions contemplated hereby will be fully and timely consummated. Each
Shareholder agrees to vote and shall vote in favor of or consent to any and all
actions required to be approved by it in order to consummate the transactions
contemplated hereby.
Section 9.02 ACCESS.
(a) Until the Closing, the Shareholders shall:
(i) give and shall cause the Company to give Buyer, its
attorneys, accountants and other authorized representative complete access, upon
reasonable notice and at reasonable times, to the Company's offices, assets,
properties, customers, suppliers, employees, products, technology, business and
financial records, contracts, business plans, budgets and projections,
agreements, commitments and other documents and information concerning the
Company and persons employed by or doing business with the Company;
(ii) furnish and cause the Company to furnish Buyer and its
representatives during such period all such information as such representatives
may reasonably request;
(iii) cooperate and cause the officers, employees, consultants,
agents, accountants and attorneys of the Company to cooperate with the
representatives of Buyer in connection with such review and examination; and
(iv) promptly make full disclosure to Buyer of all facts that
come to any Shareholder's attention that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) At or promptly following the Closing, if requested by Buyer, the
Shareholders shall deliver or shall cause to be delivered to Buyer all records
relating to the Company that are in any Shareholder's possession or in the
possession of any Shareholder's accountants, attorneys and other third parties.
Section 9.03 INSURANCE. The Company shall maintain with its current
insurers or with other financially sound insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated.
Section 9.04 COMPLIANCE WITH LAWS. The Company shall conduct its
business in compliance, in all material respects, with all laws, rules,
regulations, statutes, ordinances and other legal requirements.
Section 9.05 KEEPING OF BOOKS AND RECORDS. The Company shall keep and
maintain adequate records and books of account, in which complete entries will
be made in accordance with the Company's past practices consistently applied,
reflecting all financial transactions and
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in which all proper reserves for depreciation, depletion, obsolescence,
amortization, Taxes, bad debts and other purposes in connection with its
business shall be made.
Section 9.06 ACTIONS PRIOR TO CLOSING. Except as consented to in writing
by Buyer, the Company shall conduct its business pending the Closing only in the
ordinary and usual course of business consistent with past practices. Except as
expressly contemplated by this Agreement or as consented to in writing by Buyer,
from the Effective Date to the Closing Date:
(a) no Shareholder shall sell, transfer or pledge, or authorize or
propose the sale, transfer or pledge, of any of the securities set forth
opposite its name in columns B, C and D of Schedule 1 hereto, the Shares, or
other equity interests relating to such securities or consent to such securities
becoming subject to any Lien;
(b) Except in accordance with Schedule 9.06(b) or as otherwise
contemplated by this Agreement, the Company shall not take any action to cause,
and shall not:
(i) issue, sell, transfer or pledge, or authorize or propose the
issuance, sale, transfer or pledge, of (A) shares of capital stock of any class
(including the Common Stock), or other securities relating to the capital stock
or other securities of the Company, or (B) any other securities in respect of,
in lieu of or in substitution for the Shares except for employee options granted
in the ordinary and usual course of business consistent with past practices;
(ii) redeem, repurchase or otherwise reacquire any of its
outstanding securities (including the Common Stock);
(iii) delete, add, amend or alter any term of any outstanding
security of the Company;
(iv) declare, accrue, set aside, make or pay any dividend or
distribution (whether in cash, stock or property) on or in respect of any share
of capital stock or other securities of the Company;
(v) make any acquisition of assets or securities, any
disposition of assets or securities, or any change in its capitalization, or
enter into any contract or release or relinquish any contract or other rights
other than (A) in the ordinary course of business consistent with past practices
and (B) where such action could not reasonably be expected to have a Material
Adverse Effect;
(vi) incur, assume or guarantee any indebtedness for borrowed
money other than in the ordinary and usual course of business consistent with
past practices exceeding $10,000, individually or in the aggregate, or permit
the Company's assets to become subject to any Lien;
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(vii) propose or adopt any amendments or restatements to the
Certificate of Incorporation or bylaws of the Company;
(viii) enter into, consummate or become a party to any
transaction for the merger or consolidation of or by the Company with any other
corporation or entity, or any acquisition by it of all or any part of the stock
or the business or assets, other than inventory or equipment in the ordinary and
usual course of business consistent with past practices, of any other natural
person, firm, association, corporation or other entity or business organization;
(ix) enter into, consummate or become party to any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(x) create or take any action relating to the creation of, any
subsidiary or purchase or take any action relating to the purchase of any equity
interest in any other entity;
(xi) enter into, consummate or become party to any transaction
or series of transactions calling for the expenditure of $50,000 or more;
(xii) execute, amend or modify any contract, agreement,
franchise, permit, or license other than (A) in the ordinary course of business
consistent with past practices and (B) where such action could not reasonably be
expected to have a Material Adverse Effect;
(xiii) waive any right or rights of the Company (alleged,
contingent or otherwise), or fail to satisfy when due any liability of the
Company other than (A) in the ordinary course of business consistent with past
practices and (B) where such action could not reasonably be expected to have a
Material Adverse Effect;
(xiv) enter into, amend, restate or modify in any respect any
employment agreement or adopt, amend, restate or modify in any respect any
employee benefit plans or suffer any ERISA Affiliate to adopt, amend, restate or
modify in any respect any employee benefit plan;
(xv) loan or advance to, enter into, or amend any agreement,
arrangement or transaction with, any of the officers, directors, consultants, or
employees (or to or with any of their Immediate Family Members) of the Company
or its Affiliates, or any business or entity in which any of their officers,
directors, consultants, agents or employees (or any Immediate Family Member) has
any direct or indirect interest in excess of 5%, except for compensations at
rates not exceeding the rates of compensation in effect as of the date hereof
and advances made to officers, directors, consultants, agents or employees of
the Company for ordinary and customary business expenses in reasonable amounts;
(xvi) except as required by law or GAAP after notification to
and consultation with Buyer, change any of its accounting methods, principles or
practices or change any depreciation or amortization policies or rates;
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(xvii) except as required by law after notification to and
consultation with Buyer, make any Tax election; or
(xviii) agree in writing or orally to take any of the foregoing
actions or any other action which could cause any representation or warranty in
this Agreement to be untrue.
Section 9.07 NOTICE OF CHANGES; UPDATES.
(a) Until the Closing, the Company and the Shareholders shall notify
Buyer in writing of any change in the business of the Company that could have a
Material Adverse Effect as soon as it becomes apparent to any of such parties
that any such change has occurred or could reasonably be expected to occur.
(b) The Company and the Shareholders shall give Buyer prompt written
notice if the Company or any Shareholder becomes aware of any event, condition,
fact or circumstance: (i) that occurred or existed on or prior to the date of
this Agreement and that caused or constitutes a material inaccuracy in or a
material breach of any representation, warranty or covenant made by the Company
or any Shareholder under this Agreement and which was unknown to the Company or
any Shareholder on the date of this Agreement; or (ii) that occurs or arises or
exists after the date of this Agreement and that causes a material inaccuracy in
or a material breach of any representation, warranty or covenant made by the
Company or any Shareholder in this Agreement.
Section 9.08 PRESERVATION OF BUSINESS. Until the Closing, the Company
and the Shareholders will use their best efforts to preserve the Company's
business organization intact, and to preserve its goodwill. Without limiting the
generality of the foregoing or any other covenant contained herein, the Company
will timely perform all obligations required of the Company under the contracts
and permits listed or required to be listed on the schedules to this Agreement
except to the extent that non-performance could reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Effect.
Section 9.09 LITIGATION. The Company and the Shareholders will promptly
notify the Buyer in writing of any lawsuits claims, proceedings or
investigations which are threatened or commenced against or by the Company or
against any employee, consultant or director of the Company or against the
Shareholders or their Affiliates in connection with their ownership of the
securities set forth opposite its name in columns B, C and D of Schedule 1
hereto, the Shares or the transactions contemplated hereby.
Section 9.10 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
From the date hereof up to and including the Closing Date or the termination of
this Agreement: (a) the Company shall conduct its business in a manner such that
the representations and warranties contained herein shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date, except for changes and the consequences of events arising in the ordinary
and usual course of business consistent with past practices after the date
hereof or which
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are permitted or contemplated in this Article IX and none of which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; and (b) the Shareholders will advise Buyer promptly in writing
of any condition or circumstance occurring from the date hereof up to and
including the Closing Date which could cause any representation or warranty of
the Company or the Shareholders to become untrue.
Section 9.11 OBLIGATIONS OF AFFILIATES. Except as specifically set forth
in this Agreement on or before the Closing Date, each Shareholder shall cause
the Company to and each Shareholder (severally and jointly) will and will cause
its Affiliates to: (a) cause all debts owed by any Shareholder or of its
Affiliates to the Company, to be paid or discharged in full; and (b) terminate
any ongoing agreements (except indemnification obligations of the Company to its
officers and directors pursuant to its bylaws or Certificate of Incorporation)
between the Company on the one hand and such Shareholder and its Affiliates on
the other, all without any expense to the Company (or any reduction in the gross
assets reflected on the Balance Sheet or acquired since the date thereof), so
that following the Closing Date the Company shall have no obligations of any
kind or nature to any Shareholders or their Affiliates except for those
specified in this Agreement. Moreover, the Shareholders hereby release and
forever discharge the Company, and its directors, officers, employees, agents,
successors and assigns from and against any and all claims, demands,
liabilities, obligations, damages, costs, expenses, actions and causes of
action, in law or in equity, known or unknown, which the Shareholders ever had
or now have against the Company as of the date hereof. Notwithstanding the
foregoing, the Shareholders do not release the Company from (i) claims directly
resulting from the Company's willful misconduct or fraud; (ii) covenants,
obligations, or liabilities explicitly set forth in this Agreement; (iii) the
Company's obligations under any agreement to which it is a party, which is
intended to remain in effect after the Closing; or (iv) the Shareholders' rights
under this Agreement, any other Transaction Document or any agreement,
certificate or undertaking of the Company delivered expressly pursuant thereto.
Section 9.12 CONSENTS. The Company shall use its best efforts to obtain
the consents to the transactions contemplated by this Agreement as required by
the agreements listed or required to be listed on Schedule 3.04.
ARTICLE X
CONDITIONS TO CLOSING
Section 10.01 CONDITIONS TO OBLIGATIONS OF THE PARTIES. The obligations
of each of the parties to consummate the Closing shall be conditioned upon the
satisfaction or waiver (in whole or in part) of each of the following conditions
concurrently with or prior to Closing:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this agreement
or any of the Transaction Documents shall be in effect, nor shall
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any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending: nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
sales contemplated hereby, which makes the consummation of such sales unlawful,
void, voidable or unenforceable under applicable law, rules and regulations of
any governmental authority, domestic or foreign.
(b) Government Approvals. Buyer, the Company and the Shareholders
shall have obtained all other authorizations, consents, orders and approvals
required from or of, or declarations or filings with, or expirations of waiting
periods imposed by, any governmental authorities required for the consummation
of the transactions contemplated by this Agreement.
(c) Contractual Consents. The Company shall have given all notices
to, and obtained all consents, approvals or authorizations of or from, any
individual, corporation or other party which is necessary to permit the
consummation of the transactions contemplated hereby and by each of the
Transaction Documents including, without limitation, any consents required under
contracts and agreements listed on Schedule 3.11 to which the Company is a
party or by which it is bound, or which may be required to permit the change of
ownership of the Company; provided, however, that the Company and the
Shareholders may not invoke the terms of this Section 10.01(c) unless and until
each such party has used its best efforts to obtain such consents, approvals and
authorizations under any third party contracts to which the Company is a party
or by which its assets are or may become bound.
(d) Exhibits. Buyer, the Company and the Shareholders, as the case
may be, shall have delivered all Exhibits referred to herein required to be
provided to each other party, in such form as shall be reasonably acceptable to
the receiving party.
Section 10.02 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer
to consummate the Closing shall be conditioned upon the satisfaction or waiver
(in whole or in part) of each of the following conditions concurrently with or
prior to Closing:
(a) All issued and outstanding shares of Preferred Stock shall have
been converted into shares of Common Stock;
(b) Any and all stockholders agreements shall have been terminated;
(c) Any and all employment agreements between the Company and the
employees of the Company shall have been terminated;
(d) The Company and the Shareholders shall have performed and
complied with all of their obligations hereunder required to be performed or
complied with by them on or prior to the Closing Date, and the representations
and warranties of the Company and the Shareholders contained in this agreement
and in any certificate or other writing delivered by the Company pursuant
hereto, shall be true and correct as of the Closing Date;
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(e) Buyer shall have received the ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
Opinion;
(f) All requisite approvals from governmental agencies and consents
from third parties listed or required to be listed on Schedule 3.03 shall have
been obtained;
(g) The Company shall have title to the Software free and clear of
any Liens or other restrictions;
(h) Buyer shall have received the Officer's Certificate;
(i) Buyer shall have received a copy of the Employment Agreements,
duly and validly executed by such employees designated by Buyer;
(j) Buyer shall have received a certificate of good standing and a
copy of the Company's Certificate of Incorporation, each certified by the
Secretary of State of the State of Delaware, as of a date within five (5)
business days preceding the Closing Date;
(k) All of the Purchased Options shall have been fully vested and
exercised and all shares of Common Stock required to be issued pursuant to such
exercise shall have been validly and duly issued, fully paid and non-assessable
shares;
(1) The Cancelled Options shall have been cancelled and no longer
represent a right to acquire shares of Common Stock;
(m) Nothing shall have occurred or be threatened that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; and
(n) All actions, proceedings, consents, instruments and documents
required to be delivered by, at the behest or direction of, the Company and the
Shareholders hereunder or incident to its or their performance hereunder, and
all other related matters, shall be reasonably satisfactory as to form and
substance to Buyer and its counsel.
Section 10.03 CONDITIONS TO OBLIGATION OF THE COMPANY AND THE
SHAREHOLDERS. The obligation of the Company and the Shareholders to consummate
the Closing shall be conditioned upon the satisfaction or waiver (in whole or in
part) of each of the following conditions concurrently with or prior to Closing:
(a) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, and the representations and warranties of Buyer contained in this
Agreement and in any certificate or other writing delivered by Buyer pursuant
hereto shall be true and correct as of the Closing Date;
(b) The Company shall have received the Buyer's Officer's
Certificate;
(c) The Company shall have received the ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Opinion;
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(d) Buyer shall have delivered 90% of the Purchase Price as provided
in Article II of this Agreement;
(e) The Company shall have received evidence that Buyer has
delivered 10% of the Purchase Price to the Escrow Agent; and
(f) Nothing shall have occurred or be threatened that could
reasonably be expected to prevent the achievement of the Earn-Out or Buyer from
being able to pay the Earn-Out according to the terms of this Agreement.
(g) All actions, proceedings, consents, instruments and documents
required to be delivered by, at the behest or direction of, Buyer hereunder or
incident to its performance hereunder, and all other related matters, shall be
reasonably satisfactory as to form and substance to the Company and its counsel.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01 SURVIVAL. (i) The covenants, agreements, representations
and warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall, subject to Section 11.02(a)(ii), survive the Closing for a period from
the Closing Date through the one year anniversary of the Closing; (ii) the
covenants, agreements, representations and warranties contained in Sections 6.04
and 6.05 shall survive for the period of time specified therein; (iii) the
covenants, agreements, representations and warranties contained in Section 3.25
and Articles VII and VIII shall survive until expiration of the statute of
limitations applicable to the matters covered thereby (giving effect to any
waiver, mitigation or extension thereof); and (iv) the covenants, agreements,
representations and warranties contained in Sections 3.01, 3.02, 3.05, 4.01,
4.02, 5.01 and 5.02 shall survive indefinitely.
Section 11.02 INDEMNIFICATION OBLIGATIONS.
(a) Indemnification by the Shareholders.
(i) The Shareholders shall indemnify, defend and hold harmless
Buyer and its Affiliates (the "Indemnification Obligations") from, against and
in respect of any and all claims, damages, losses, deficiencies, liabilities,
assessments, judgments, costs, fees and expenses (including attorneys fees and
reasonable expenses) (collectively, "Damages") resulting from, relating to or
arising out of (A) any misrepresentation, inaccuracy in or breach of
representations or warranties of the Company or any Shareholder hereunder, (B)
any failure to perform, satisfy, or observe or the non-fulfillment of any
agreement or covenant on the part of the Company or any of the Shareholders
hereunder, (C) any claim by any former or other equity interest owner of the
Company for any prior transaction involving shares of capital stock or other
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equity interests of the Company or any predecessor entity, and (D) any and all
actions, suits, proceedings, demands, assessments, judgments, costs (including
attorneys' fees) and legal and other expenses incident to any of the foregoing
or to the enforcement of this Article XI; provided, however, that in no event
shall the Shareholders be liable to Buyer for any Damages incurred or suffered
by Buyer unless and until the amount of all such Damages incurred or suffered by
the Buyer, in the aggregate, exceed $150,000, in which event the Shareholders
shall indemnify the Buyer for and in respect of, and hold the Buyer harmless
from and against, any and all such Damages back to and including the first
dollar of such Damages, up to the amount held in the Escrow; and provided,
further, that for purposes of determining the amount of Damages for the breach
of any representation, warranty or covenant in this Agreement that contains a
materiality qualifier, such representation, warranty or covenant shall be deemed
breached where the Damages relating thereto, individually or in the aggregate,
are in excess of $25,000 (which Damages, once such $25,000 threshold has been
surpassed, shall be included in full in determining whether the aggregate amount
of Damages exceeds the $150,000 amount set forth in the next preceding proviso);
and provided, further, that in determining the amount of any indemnity, there
shall be taken into account any insurance proceeds or other similar recovery or
offset realized, directly or indirectly, by the indemnified party; and provided,
further, that the aggregate liability for all the Shareholders for any breaches
of this Agreement and the other Transaction Documents shall not exceed the
Escrow Amount, but nothing contained in this Section 11.02 shall be deemed to
limit or restrict in any manner (whether by time, amount, procedure or
otherwise) any remedy at law or in equity to which Buyer may be entitled as a
result of actual fraud by the Shareholders or the Company.
(ii) The Indemnification Obligations shall survive the Closing
as follows: (A) with respect to Section 11.01(i) for the period from the
Closing Date through the one year anniversary of the Closing; and (B) with
respect to 11.01(ii), (iii) and (iv) for the period of time specified therein;
provided, however, that the Indemnification Obligations shall survive the time
at which it would otherwise terminate under this Section 11.02(a)(ii) if notice
of the breach giving rise to the right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such time.
(b) The Shareholders acknowledge that their indemnification
obligations hereunder relate solely to their capacities as former Shareholders
of the Company, and accordingly, such indemnification obligations set forth in
this Article XI shall not entitle the Shareholders, or any current or former
officer, director or employee of the Company, to any indemnification from the
Company under the Company's Certificate of Incorporation or bylaws, this
Agreement, any of the other Transaction Documents, or any other agreement.
(c) Indemnification by Buyer. Buyer shall indemnify, defend and hold
harmless the Shareholders from, against and in respect of any and all Damages
resulting from, relating to or arising out of any (i) misrepresentation,
inaccuracy or breach of any representation or warranty of the Buyer hereunder,
(ii) any failure to perform, satisfy, or observe or the non-fulfillment of any
agreement or covenant of the Buyer hereunder, or (iii) any and all actions,
suits, proceedings, demands, assessments, judgments, costs (including attorneys'
fees) and legal and
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other expenses incident to any of the foregoing or to the enforcement of this
Article XI; provided that the Buyer's indemnification obligation shall not
exceed the Escrow Amount.
Section 11.03 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification under this Article XI shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an indemnifying
party would be liable to an indemnified party hereunder is asserted against or
sought to be collected by a third party, the indemnified party shall:
(i) promptly notify the indemnifying party of such claim or
demand, specifying the nature of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall not
be conclusive of the final amount of such claim or demand) (the "Claim Notice");
provided, however, that the failure of an indemnified party to give notice as
provided herein shall not relieve an indemnifying party of its obligations under
this Article XI, except to the extent the indemnifying party is materially
prejudiced thereby;
(ii) an indemnifying party shall have fifteen (15) calendar days
from its receipt of the Claim Notice (the "Notice Period") to notify the
indemnified ▇▇▇▇▇ (x) whether or not the indemnifying party disputes its
liability to the indemnified party hereunder with respect to such claim or
demand, and (y) if the indemnifying party does or does not dispute such
liability, whether or not the indemnifying party desires, at its sole cost and
expense, to defend the indemnified party against such claim or demand; provided,
however, that the indemnified party is hereby authorized prior to and during the
Notice Period to file any motion, answer or other pleading which it shall deem
necessary or appropriate to protect its interests;
(iii) in the event that the indemnifying party notifies the
indemnified party within the Notice Period that the indemnifying party desires
to defend against such claim or demand, then except as hereinafter provided, the
indemnifying party shall have the right to defend by appropriate proceedings,
which proceedings shall be promptly settled or diligently prosecuted to final
conclusion; provided, however, that the indemnifying party shall not, without
the consent of the indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the indemnified party of an unconditional
release from all liability in respect of such Damages or which requires action
on the part of such indemnified party or otherwise subjects the indemnified
party to any obligation or restriction to which it would not otherwise be
subject;
(iv) if the indemnified party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost and
expense; provided, however, that the indemnifying party shall pay such expense
if representation of the indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to material differing interests
between the indemnified party and any other party represented by such counsel in
such proceeding;
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(v) if, in the opinion of the indemnified party, any such claim
or demand involves an issue or matter which could have a Material Adverse Effect
on the indemnified party, or an Affiliate of the indemnified party, the
indemnified party shall have the right to control the defense or settlement of
any such claim or demand, and its costs and expenses thereof shall be included
as part of the indemnification obligations of the indemnifying party hereunder
and, with respect to subsections (iv) and (v) the indemnifying party shall make
available to the indemnified party any documents and materials in his or her
possession or control that may be necessary or useful to such defense; provided
that, the indemnifying party shall not be bound by any determination of a
settlement effected without its prior consent (which shall not be unreasonably
withheld) if such settlement does not relieve it of such liabilities under such
claim.
(vi) if the indemnifying party disputes the indemnifying party's
liability with respect to such claim or demand or elects not to defend against
such claim or demand, whether by not giving timely notice as provided above or
otherwise, then the amount of any such claim or demand, or, if the same be
contested by the indemnifying party or by the indemnified party (but the
indemnified party shall not have any obligation to contest any such claim or
demand), then that portion thereof as to which such defense is unsuccessful,
shall be conclusively deemed to be a liability of the indemnifying party
hereunder (subject, if the indemnifying party has timely disputed liability, to
a determination that the disputed liability is covered by these indemnification
provisions).
(b) In the event the indemnified party should have a claim against
the indemnifying party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
indemnified party shall promptly send a Claim Notice with respect to such claim
to the indemnifying party. If the indemnifying party does not notify the
indemnified party within the Notice Period that it disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
indemnifying party hereunder.
(c) Nothing herein shall be deemed to prevent any indemnified party
from making a claim hereunder for potential or contingent claims or demands
provided the Claim Notice sets forth the specific basis for any such potential
or contingent claim or demand and the estimated amount thereof to the extent
then feasible and the indemnified party has reasonable grounds to believe that
such a claim or demand will be made.
(d) A final determination of a disputed claim as to Damages shall be
(i) as to third party claims, a judgment of any court determining the validity
of a disputed claim, if no appeal is pending from such judgment or if the time
to appeal therefrom has elapsed, (ii) as between the Company, the Shareholders
and/or the Buyer an award of any arbitration determining the validity of such
disputed claim; (iii) a written agreement as to the termination of the dispute
with respect to such claim signed by all of the parties thereto or their
attorneys, (iv) a written acknowledgement of the indemnifying party that he or
it no longer disputes the validity of such
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claim, or (v) such other evidence of final determination of a disputed claim as
shall be acceptable to the parties.
Section 11.04 ARBITRATION. All disputes under this Article XI and all
other controversies or claims arising out of or relating to this Agreement, or
the breach thereof, not subject to a third-party claim, if not otherwise settled
without resort to litigation, shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association in New
York, New York. One independent arbitrator shall be selected by the indemnifying
party or parties, one independent arbitrator shall be selected by the
indemnified party, and the third arbitrator shall be chosen by the first two
arbitrators chosen. The cost and expense of arbitration shall be shared equally
by the parties to the arbitration, regardless of which party or parties prevail.
The arbitration shall be conducted in accordance with the following time
schedule unless otherwise mutually agreed to in writing by the parties: (i)
parties to the arbitration proceeding shall each appoint their respective
arbitrator within fifteen (15) business days after the end of the Notice Period;
(ii) within five (5) business days thereafter, such arbitrators shall appoint
the third arbitrator; (iii) within ten (10) business days after the appointment
of the third arbitrator, parties to the arbitration proceeding shall provide all
documents, records and supporting information reasonably necessary to resolve
the dispute; and (iv) within fifteen (15) business days after the date the above
records are due, the arbitrators shall render their decision. The decision or
award of the arbitrators shall be final and binding upon the parties hereto to
the same extent and to the same degree as if the matter had been adjudicated by
a court of competent jurisdiction and shall be enforceable under the Federal
Arbitration Act.
Section 11.05 PAYMENT.
(a) To secure the indemnification obligations of the Shareholders to
Buyer set forth in Section 11.02, ten percent (10%) of the Purchase Price shall
be deposited into the Escrow in accordance with Section 2.04 hereof and the
terms of the Escrow Agreement. In the event that any amounts are due and owing
to Buyer under the indemnification provisions of this Article XI, Buyer shall
(i) be entitled to offset such amounts against the Escrow Amount pursuant to the
terms and provisions of the Escrow Agreement, and (ii) not be entitled to seek
any indemnification amounts in excess of the Escrow Amount, except as otherwise
expressly permitted under the terms and provisions of this Agreement with
respect to claims of actual fraud by the Shareholders or the Company.
(b) Except as set forth in Section 11.05(a), in the event that any
party is required to make any payment under this Article XI, such party shall
promptly pay the indemnified party the amount so determined. If any Damages are
suffered by Buyer, its Affiliates or the Company, resulting in any insurance
recovery to such parties, Buyer hereby agreeing that Buyer, its Affiliates or
the Company shall pursue recovery from such insurance with all due diligence,
then the amount of such Damages payable by the Shareholders shall be limited, in
addition to the other limitations set forth herein, to the excess over and above
any insurance proceeds actually received by such parties. If there should be a
dispute as to the amount or manner of determination of any indemnity obligation
owed under this Article XI, the party from which
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indemnification is due shall nevertheless pay when due such portion, if any, of
the obligation as shall not be subject to dispute. The difference, if any,
between the amount of the obligation ultimately determined as properly payable
under this Article XI and the portion, if any, theretofore paid shall bear
interest as provided in Section 11.05(d). Upon the payment in full of any claim,
either by setoff or otherwise, the party or entity making payment shall be
subrogated to the rights of the indemnified party against any person, firm,
corporation or other entity with respect to the subject matter of such claim.
The Escrow Amount shall be placed in an interest bearing account, which interest
shall be payable, pro rata, to the party that receives the principal portion
relating thereto pursuant to the terms of this Agreement and the Escrow
Agreement.
(c) Subject to the provisions of Section 12.02 and 11.07, and
subject to the right of the Shareholders to seek money damages in excess of the
Escrow Amount in the event Buyer breaches its obligations to pay the Earn-Out,
the indemnification provisions of this Article XI are the sole and exclusive
remedy, at law or in equity, that any party may have against any other party for
breach of any representation, warranty, or covenant contained in this Agreement
or any other Transaction Document (excluding from such term, for purposes of the
limitation contained in this Section, any employment agreement, offer letter or
option agreement between Buyer and any Stockholder).
(d) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the indemnifying party or parties shall pay
the indemnified party or parties interest on the unpaid amount of the obligation
for each day from the date the amount became due until payment in full, payable
on demand, at the fluctuating rate per annum, which at all times shall be the
lowest rate of interest generally charged from time to time by the Bank of
America and publicly announced by such bank as its so-called "prime rate."
Section 11.06 NO CONTRIBUTION. Each Shareholder waives, and acknowledges
and agrees, that he, she, it and they will not have and will not exercise or
assert (or attempt to exercise or assert), any right of contribution, right of
subrogation, right of indemnity or other similar right or remedy against the
Company, with respect to any action or failure to act by the Company occurring
on or prior to the Closing or in connection with any actual or alleged breach of
any representation, warranty, covenant or other obligation or agreement set
forth in this Agreement or any certificate delivered in connection with this
Agreement.
Section 11.07 EQUITABLE RELIEF. In the event of a breach or threatened
breach by the Shareholders of Sections 6.04 or 6.05 hereof, regarding
noncompetition, nonsolicitation and restrictions on transfer, each Shareholder
hereby consents and agrees that Buyer shall be entitled to an injunction or
similar equitable relief restraining the breaching party from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by such Shareholder under any such
provision, without the necessity of showing any actual damage or that money
damages would not afford an adequate remedy and without the necessity of posting
any bond or other security. Other than as provided in this Agreement, nothing
herein shall be construed as prohibiting Buyer, the Company or the Shareholders
from pursuing any other remedies at law or in equity which it may have.
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Section 11.08 THE REPRESENTATIVE.
(a) With respect solely to the Escrow Agreement and the provisions
of this Article XI and the negotiations of the Technical Milestones pursuant to
Section 2.02, the Shareholders hereby authorize, direct and appoint ▇▇▇▇▇▇
▇▇▇▇▇▇ to act as the sole and exclusive agent, attorney-in-fact and
representative of the Shareholders (the "Representative"), and hereby further
authorize and direct the Representative (i) to take any and all actions
(including, without limitation, executing and delivering any and all agreements,
instruments, certificates and other documents, incurring any and all costs and
expenses for the account of the Shareholders (which costs and expenses shall
constitute Damages incurred or suffered by Buyer within the meaning of this
Article XI) and making any and all determinations which may be required or
permitted under this Article XI, Section 2.02 or the Escrow Agreement to be
taken by the Shareholders or the Representative, (ii) to exercise such other
rights, power and authority as are authorized, delegated and granted to the
Representative hereunder in connection with this Article XI, Section 2.02 and
the Escrow Agreement, and (iii) to exercise such rights, power and authority
as are incidental to the foregoing. Any such actions taken, exercises of rights,
power or authority, and any decision or determination made by the Representative
consistent therewith, shall be absolutely and irrevocably binding on each
Shareholder as if such Shareholder personally had taken such action, exercised
such rights, or authority or made such decision or determination in such
Shareholder's individual capacity. Notwithstanding anything to the contrary
contained in this Agreement, with respect to the specific matters set forth in
this Article XI and Section 2.02, (i) each Shareholder hereby irrevocably
relinquishes such Shareholder's right to act independently and other than
through the representative, except with respect to the removal of the
Representative or appointment of a successor Representative as provided in
Section 11.08(b) hereof, and (ii) no Shareholder shall have any right under this
Agreement or otherwise to institute any suit, action or proceeding against the
Company or the Buyer, with respect to any such matter, any such right being
irrevocably and exclusively delegated to the Representative. The Representative
hereby acknowledges and accepts the foregoing authorization and appointment and
agrees to serve as the Representative in accordance with the terms of this
Agreement.
(b) The Representative shall serve as Representative until his
resignation, removal from such position of responsibility, incapacity or death;
provided, however, that the Representative shall not have the right to resign
without (i) prior written notice to the Shareholders, and (ii) selecting a
successor representative reasonably satisfactory to the Buyer who shall serve
until a successor thereto is elected by the Shareholders. The Representative may
be removed at any time, and a successor representative reasonably satisfactory
to Buyer may be appointed pursuant to written action by the Shareholders who,
immediately prior to the Closing Date, held shares of Common Stock constituting
at least a majority of all such shares then outstanding. Any successor to the
Representative shall, for purposes of this Agreement, be deemed to be, from the
time of the appointment thereof in accordance with the terms hereof, the
Representative, and from and after such time, the term "Representative" as used
herein and therein shall be deemed to refer to such successor. No appointment of
a successor shall be
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effective unless and until such successor agrees in writing to be bound by the
terms of this Agreement.
(c) The Representative shall be permitted to independently retain
counsel, consultants and other advisors and shall promptly notify Buyer after
retaining any such person.
(d) The provisions of this Section 11.08 shall in no way impose any
obligations on the Buyer, and notwithstanding any notice received by Buyer to
the contrary (except any notice of the appointment of a successor Representative
approved by the Buyer in accordance with Section 11.08(b) hereof), Buyer (i)
shall be entitled to rely upon and shall be fully protected in relying upon, and
shall have no liability to the Shareholders with respect to, and shall, subject
to all of the provisions of this Article XI, be indemnified by the Shareholders
for, from and against any and all liability arising out of actions, decisions
and determination of the Representative, which liabilities shall constitute
Damages within the meaning of this Article XI, and (ii) shall be entitled to
assume that all actions, decisions and determinations of the Representative are
fully authorized by the Shareholders for all purposes.
(e) The Representative shall not be liable to the Shareholders for
the performance of any act, or the failure to act, provided the Representative
acted or failed to act in good faith and in a manner such Representative
reasonably believed to be in the scope of such Representative's authority under
this Agreement and for a purpose which such Representative reasonably believed
to be in the best interests of the Shareholders, considered together as a group.
ARTICLE XII
TERMINATION
Section 12.01 GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of the parties;
(b) by any party if the Closing shall not have been consummated on
or before March 15, 2000;
(c) by any party if there shall be any law or regulation that makes
consummation of the transactions contemplated hereby illegal or otherwise
prohibited or if consummation of the transactions contemplated hereby would
violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(d) by Buyer if there has been, since the date of this Agreement,
any Material Adverse Effect, or any development reasonably expected to result in
a prospective Material
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Adverse Effect in the business affairs or business prospects of the Company,
whether or not arising in the ordinary and usual course of business consistent
with past practices.
Section 12.02 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.01, termination shall be without liability of either
party (or any shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement. The
provisions of Sections 3.22, 5.05, 6.05 and the confidentiality provisions of
Buyer and BEA Systems, Inc. incorporated herein by the last sentence of Section
13.10 shall survive any termination hereof pursuant to Section 12.01.
Notwithstanding the foregoing, if this Agreement is terminated due to (i) the
willful failure by either party to fulfill a condition to the performance of the
obligations of the other party or (ii) the breach by either party in the
performance of such party's covenants or agreements hereunder, the party who has
failed to fulfill such condition or who has breached any such covenants or
agreement shall be fully liable for any and all Damages incurred or suffered by
the other party as a result of such failure or breach.
ARTICLE XIII
MISCELLANEOUS
Section 13.01 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be deemed to have been given if delivered personally, mailed by certified
mail (return receipt requested) or sent by cable, telegram, telecopier or
recognized overnight delivery service to the patties at the following addresses
or at such other addresses as, specified by the parties by like notice:
If to Buyer: WebGain, Inc.
Attention: General Counsel
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and with a copy to: BEA Systems, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
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Attention: General Counsel
If to the Company: Tendril Software, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, #▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholders Tendril Software, Inc.
or the Controlling ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, #▇▇▇
▇▇▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Notice so given shall be deemed given and received (i) if by mail on the fourth
calendar day after posting; (ii) by cable, telegram, telecopier, telex of
personal delivery on the date of actual transmission or (as the case may be)
personal or other delivery; and (iii) if by overnight courier, on the next
business day following the day such notice is delivered to the courier service.
Section 13.02 MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties affected by such amendment.
Section 13.03 WAIVERS AND CONSENTS. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. Subject to the
limitations set forth herein, the election of any remedy by a party hereto shall
not constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such
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notice or demand. The terms and provisions of this Agreement may be waived, or
consent for the departure therefrom granted, only by written document executed
by the party entitled to the benefits of such terms or provisions. No such
waiver or consent shall be deemed to be or shall constitute a waiver or consent
with respect to any other terms or provisions of this Agreement, whether or not
similar. Each such waiver or consent shall be effective only in the specific
instance and for the purpose for which it was given, and shall not constitute a
continuing waiver or consent.
Section 13.04 INTERPRETATION. The parties hereto acknowledge and agree
that: (a) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement (except with respect to the disclosure schedules,
which are the sole responsibility of the Company) and have contributed to its
revision; (b) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement; and (c) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
Section 13.05 RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement. The party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained in this Agreement and the certificates expressly
delivered hereby.
Section 13.06 EXPENSES. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated; provided, however, that Buyer shall pay the first
$100,000 of such fees and expenses and all such fees and expenses billed to or
incurred by the Company in connection with this Agreement in excess of such
$100,000 shall be borne by the Stockholders pro rata based upon their respective
proportionate interest set forth under column E of Schedule 1 hereto. The
aggregate of such fees and expenses of the Stockholders and the Company incurred
in connection with this Agreement are set forth on Schedule 13.06 hereto, which
fees and expenses shall be paid directly to such third parties by Buyer at the
Closing in accordance with the written instructions given to the Buyer by the
Company or the Representative at the Closing.
Section 13.07 SUCCESSORS ACRD ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that, no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto except that Buyer may transfer or
assign, in whole or, from time to time, in part, to one or more direct or
indirect subsidiaries or affiliates, any or all of its rights and obligations
under this Agreement, including but not limited to the right to purchase all or
a portion of the Shares, but no such transfer or assignment will relieve Buyer
of its obligations hereunder or adversely affect the
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Company or the timing of the transactions contemplated hereby. Any purported
assignment in violation of this Agreement shall be void.
Section 13.08 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of California, without regard
to the conflicts of law rules of such state.
Section 13.09 COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Signatures on this Agreement may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the same by
facsimile transmission. Counterparts with original signatures shall be provided
within seven (7) days of the applicable facsimile transmission, provided,
however, that the failure to provide the original counterpart shall have no
effect on the validity or the binding nature of the Agreement. If executed in
counterparts, the Agreement shall be effective as if simultaneously executed. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 13.10 ENTIRE AGREEMENT. This Agreement, together with all
appendices, schedules and exhibits identified in this Agreement, constitutes the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Neither this Agreement nor any provision hereof is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Notwithstanding, the first two sentences of this Section, Sections 6 and 7 of
the Letter of Intent dated December 16, 1999 shall survive and Buyer joins in
the covenants therein made by BEA Systems, Inc.
Section 13.11 SPECIFIC PERFORMANCE. Each of the parties hereto agrees
that any breach by it of any provision of this Agreement would irreparably
injure the other party and that money damages would be an inadequate remedy
therefore. Accordingly, each of the parties hereto agrees that the other party
shall be entitled to one or more injunctions enjoining any such breach or
requiring specific performance of this Agreement and consents to the entry
thereof, this being in addition to any other remedy to which the non-breaching
party is entitled hereunder.
Section 13.12 KNOWLEDGE. Whenever the term to the "knowledge" of the
Company, the Controlling Shareholder or the Shareholders, or a similar phrase,
is used in this Agreement, such phrase shall mean the (i) actual knowledge of
such persons, in addition to the knowledge of the Company's officers, directors
and employees with responsibility for the matters in question, which shall be
imputed to such persons, and (ii) knowledge that could have been obtained with
respect to those matters which would cause a reasonable person, in a similar
position, to investigate the matter further and which could have been obtained
from such investigation.
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
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OTHER SHAREHOLDERS:
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇
OTHER SHAREHOLDERS:
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ATTORNEY-IN-FACT
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
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▇▇▇▇▇▇ ▇▇▇▇▇▇
OTHER SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
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▇▇▇▇▇▇ ▇▇▇▇▇▇
OTHER SHAREHOLDERS:
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/s/ ▇▇▇ ▇▇▇▇▇
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
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▇▇▇▇▇▇ ▇▇▇▇▇▇
OTHER SHAREHOLDERS:
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
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IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
WEBGAIN, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
TENDRIL SOFTWARE, INC.
By
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▇▇▇▇▇▇ ▇▇▇▇▇▇, President
CONTROLLING SHAREHOLDER:
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▇▇▇▇▇▇ ▇▇▇▇▇▇
OTHER SHAREHOLDERS:
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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LIST OF SCHEDULES AND EXHIBITS*
SCHEDULE 1 - Tendril Software Shareholders
SCHEDULE 2.02 - Technical Milestones
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of Buyer Stock Option Agreement
Exhibit C - Buyer's Officer's Certificate
Exhibit D - Morrison & ▇▇▇▇▇▇▇▇ LLP Opinion
Exhibit E - ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇.▇. Opinion
Exhibit F - Officer's Certificate
Exhibit G - Offer Letters
* Omitted Schedules and Exhibits will be furnished supplementally to the
Commission upon request.