This Amended and Restated Securities Purchase Agreement (the
"Agreement") is entered into as of September 1, 2003, by and among Trinity
Learning Corporation, a Utah corporation ("Acquirer") and the individuals
listed on Annex A hereto (each a "Shareholder" individually and,
collectively, "Shareholders").
RECITALS:
A. Acquirer and Shareholders executed a Securities Purchase
Agreement dated July 11, 2003 (the "Original Purchase Agreement") pursuant
to which Acquirer sought to purchase all of the outstanding capital stock
of TouchVision, Inc., a California corporation (the "'Company").
B. Subsequent to the execution of the Original Agreement, but
prior to the closing of the Original Agreement, holders of options to
purchase shares of the Company exercised their right to purchase shares of
the Company's common stock.
C. In order to enter into this Agreement, Acquirer requires the
new shareholders to become a party to this Agreement, such shareholders are
willing to become a party to this agreement.
D. Shareholders wish to sell to Acquirer, and Acquirer wishes
to purchase from Shareholders, all of the issued and outstanding capital
stock of the Company set forth opposite each such Shareholder's name on
Annex A (the "Shares") upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
respective representations, warranties, covenants, agreements and
conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
1.1 Sale and Delivery. Shareholders agree to sell and deliver
to Acquirer, and Acquirer agrees to purchase and accept from Shareholders,
free and clear of all Liens, on the terms and subject to the conditions set
forth in this Agreement, and for the purchase price described in Section
1.2, good and marketable title to the Shares. The Shares to be sold and
purchased pursuant to this Agreement will, as of the Closing Date,
constitute in the aggregate all of the outstanding capital stock of the
Company.
1.2 Purchase Price. The aggregate purchase price (the "Purchase
Price") for all of the Shares shall be 1,250,000 shares of the Common Stock
of Acquirer (such shares referred to herein as the "Acquirer Shares").
1.3 Escrow Agreement. Pursuant to an Escrow Agreement to be
entered into on or before the Closing Date (as defined in Section 8.1) in
the form attached as Exhibit 1.3 (the "Escrow Agreement"), among Acquirer,
Shareholders and the escrow agent (the "Escrow Agent"), Acquirer will
withhold from the Acquirer Shares and deposit into escrow an aggregate of
312,500 shares of the Acquirer Shares (the "Escrow Shares"). Promptly
after the Closing Date, Acquirer will deposit or cause to be deposited in
escrow pursuant to the Escrow Agreement, the Escrow Shares. The Escrow
Shares will be held in escrow as collateral for the indemnification
obligations of Shareholders under Section 12.2 below and will be released
from escrow pursuant to the Escrow Agreement.
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2. REPRESENTATIONS AND WARRANTIES CONCERNING SHAREHOLDERS
For purposes of the representations and warranties of Shareholders
contained herein, disclosure in any section of the Shareholders' Disclosure
Letter (defined below) relating to one representation and warranty shall
not be deemed to qualify or to serve as an exception to another
representation and warranty unless (i) the same disclosure or an
appropriate cross reference appears in the section of the Disclosure
Schedule relating to such other representation and warranty, or (ii) it is
clear from the reading of the disclosure that such disclosure is applicable
to such other representation or warranty. Each Shareholder hereby,
severally, and not jointly, represent and warrant that, except as disclosed
in the Shareholders' disclosure letter (the "Shareholders' Disclosure
Letter") delivered by Shareholders to Acquirer herewith as amended from
time to time prior to Closing:
2.1 Ownership of Shares. Such Shareholder owns, or as of the
Closing Date will own, of record and beneficially the Shares set forth
opposite such Shareholder's name on Annex A, and has, and at all times
prior to and as of the Closing such Shareholder will have, good and
marketable title to such Shares free and clear of all liens.
2.2 Delivery of Good Title. Upon delivery of the Shares to be
sold by such Shareholder hereunder, Acquirer will have good and marketable
title to the Shares, free and clear of all liens.
2.3 Execution and Delivery. All consents, approvals,
authorizations and orders necessary for the execution, delivery and
performance by Shareholders of this Agreement (including, without
limitation, the transfer and sale of the Shares to be sold by Shareholders
to Acquirer) have been duly and lawfully obtained, and such Shareholder
has, and at the Closing will have, full right, power, authority and
capacity to execute, deliver and perform this Agreement. This Agreement
has been duly executed and delivered by such Shareholder and constitutes a
legal, valid and binding agreement of such Shareholder enforceable against
such Shareholder in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) general
principles of equity, including limitations on the availability of specific
performance, injunctive relief or other equitable remedies.
2.4 No Conflicts. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not conflict with or result in a breach or violation of any term or
provision of, or (with or without notice or passage of time, or both)
constitute a default under, any indenture, mortgage, deed of trust, trust
(constructive and other), loan agreement or other agreement or instrument
to which such Shareholder is a party or by which such Shareholder or any of
the Shares are bound, or violate any Legal Requirement applicable to or
binding upon such Shareholder.
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2.5 No Brokers. No broker, finder or similar agent has been
employed by or on behalf of such Shareholder in connection with this
Agreement or the transactions contemplated hereby, and such Shareholder has
not entered into any agreement or understanding of any kind with any person
or entity for the payment of any brokerage commission, finder's fee or any
similar compensation in connection with this Agreement or the transactions
contemplated hereby.
2.6 Investment Intent.
(a) Purchase Entirely for Own Account. Such Shareholder is
acquiring the Acquirer Shares for investment purposes only, for its own
account, and not as a nominee or agent of any other Person, and not with a
view to or for resale in connection with any distribution thereof within
the meaning of the Securities Act, and such Shareholder has no present
intention of selling, granting any participation in, or otherwise
distributing the same. Except as set forth on Item 2.6 of the
Shareholders' Disclosure Schedule, such Shareholder further represents that
it does not presently have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participations to
such person or to any third person, with respect to any of the Acquirer
Shares.
(b) Disclosure of Information. Such Shareholder has had an
opportunity to discuss the business, management, financial affairs of
Acquirer and the terms and conditions of the offering of the Acquirer
Shares with the management of Acquirer. Such Shareholder understands that
such discussions, as well as the written information provided to such
Shareholder by Acquirer, were intended to describe the aspects of
Acquirer's business and financial condition which it believes to be
material.
(c) Restricted Securities. Such Shareholder understands that
the Acquirer Shares have not been, and will not be, registered under the
Securities Act, by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of such
Shareholder's representations as expressed herein. Such Shareholder
understands that the Acquirer Shares are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from Acquirer in a transaction not involving a public offering and
that under such laws and applicable regulations such the Acquirer Shares
may be resold without registration under the Securities Act only in certain
limited circumstances.
(d) Legends. Such Shareholder understands that the Acquirer
Shares, and any securities issued in respect thereof or exchange therefor,
may bear one or all of the following legends:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION
UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
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(ii) Any legend required by the securities laws of any
state to the extent such laws are applicable to the shares represented
by the certificate so legended.
3. REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
Each of ▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") and ▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇" and, together
with Roche the "Key Shareholders") hereby, jointly and severally,
represents and warrants that, except as disclosed in the relevant item of
the Shareholders' Disclosure Letter delivered by Shareholders to Acquirer
herewith as amended from time to time prior to Closing:
3.1 Organization and Good Standing. Except as disclosed in Item
3.1 of the Shareholders' Disclosure Schedule, the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, has the corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and
is qualified as a foreign corporation in each jurisdiction where the nature
of its business or location of its properties requires such qualification
except where the failure to so qualify would not result in a Material
Adverse Effect (as defined in Section 13.13.4 below) on the Company.
3.2 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date
hereof, the authorized capital stock of the Company consists of (i)
35,000,000 shares of Common Stock of which 11,970,400 shares are issued and
outstanding and (ii) 15,000,000 shares of Preferred Stock, none of which
are issued and outstanding. All issued and outstanding shares of the
Company capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to any right of rescission
and have been offered, issued, sold and delivered by the Company in
compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws, except where the failure to so qualify would not result in a Material
Adverse Effect on the Company. A list of all holders of the Company's
capital stock, and the number of shares and options held by each, in each
case as of the date hereof, has been delivered by Shareholders to Acquirer
herewith as Item 3.2. As of the date hereof, Shareholders are the sole
shareholders of the Company.
(b) Options/Rights. Except as disclosed in Section 3.2(a)
or on Item 3.2 of the Shareholders' Disclosure Schedule, there are no
options, warrants, calls, commitments, conversion privileges or preemptive
or other rights or agreements outstanding to purchase any of the Company's
authorized but unissued capital stock or any securities convertible into or
exchangeable for shares of the Company's capital stock or obligating the
Company to grant, extend, or enter into any such option, warrant, call,
right, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. Except as
described in Item 3.2 of the Shareholders' Disclosure Schedule, there are
no voting agreements, rights of first refusal or other restrictions (other
than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of the Company's outstanding securities.
Except as described in Item 3.2, the Company is not under any obligation to
register under the Securities Act any of its presently outstanding
securities or any securities that may be subsequently issued.
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3.3 Subsidiaries and Guaranties. Except as disclosed in Item
3.3 of the Shareholders' Disclosure Letter, the Company does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity. The Company is not a
guarantor of any obligation of a third party, whether or not such third
party is related to or affiliated with the Company.
3.4 No Violation of Existing Agreements or Laws. Except as
disclosed in Item 3.4 of the Shareholders' Disclosure Schedule, neither the
execution and delivery of this Agreement or any of the ancillary agreements
contemplated by this Agreement (the "Ancillary Agreements"), nor the
consummation of the transactions provided for herein or therein, will
conflict with, or (with or without notice or lapse of time, or both) result
in a termination, breach or violation of (a) any provision of the Articles
of Incorporation or Bylaws of the Company, as currently in effect, (b) any
instrument or contract to which the Company or Shareholder is a party or by
which the Company or Shareholder is bound or (c) any federal, state, local
or foreign judgment, writ, decree, order, statute, rule or regulation
applicable to Shareholder, the Company or any Subsidiary or their
respective assets or properties, other than, with respect to (a), (b) and
(c), any such conflict, termination, breach or violation that would not
have a Material Adverse Effect on the Company. The consummation of the
transactions contemplated herein and succession by Acquirer as the sole
shareholder of the Company will not require the consent of any third party,
except as disclosed in Item 3.4 of the Shareholders' Disclosure Schedule.
3.5 Litigation. Except as disclosed in Item 3.5 of the
Shareholders' Disclosure Schedule, there is no action, proceeding or claim
or investigation pending against the Company before any court or
administrative agency nor is there any basis therefor, nor has any party
threatened the same. Except as disclosed in Item 3.5 of the Shareholders'
Disclosure Schedule, there is no basis for any shareholder or former
shareholder of the Company, or any other person, firm, corporation or
entity to assert a claim against any Shareholder, the Company, or Acquirer
based upon: (a) ownership or rights to ownership of any Shares or other
securities, (b) any rights as a securities holder, including, without
limitation, any option or other right to acquire any the Company
securities, any preemptive rights or any rights to notice or to vote or (c)
any rights under any agreement between the Company and any the Company
securities holder or former the Company securities holder in such holder's
capacity as such. There is no action, suit, proceeding, claim, arbitration
or investigation pending or as to which any Shareholder has received any
notice of assertion against a Shareholder or the Company, which in any
manner challenges or seeks to prevent, enjoin, materially alter or
materially delay any of the transactions contemplated by this Agreement.
3.6 The Company Financial Statements. Shareholders have
delivered to Acquirer in Item 3.6(a) of the Shareholders' Disclosure
Schedule the Company's two-year comparative balance sheet as of the date of
its most recent fiscal year end (respectively, the "Company Balance Sheet"
and the "Balance Sheet Date") and unaudited balance sheet as of May 31,
2003 and the Company's income statements for the last two fiscal years and
unaudited income statement for the period since its most recent fiscal year
end to May 31, 2003 (collectively, the "Company Financial Statements").
Except as provided in Item 3.6(b) of the Shareholders' Disclosure Schedule,
the Company Financial Statements (a) are in accordance with the books and
records of the Company, and (b) fairly and accurately represent the
financial condition of the Company at the respective dates specified
therein and the results of operations for the respective periods specified
therein. Except as disclosed in Item 3.6 of the Shareholders' Disclosure
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Schedule, the Company has no debt, liability or obligation of any nature,
whether accrued, absolute or contingent, and whether due or to become due,
that would be required under generally accepted accounting principles
("GAAP") to be reflected on the liabilities column of a balance sheet,
prepared as of the date hereof in accordance with GAAP and is not
reflected, reserved against or disclosed in the Company Financial
Statements, except for those that may have been incurred after the Balance
Sheet Date in the ordinary course of business consistent with past practice
("Ordinary Course").
3.7 Taxes.
(a) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means any and all taxes, including without limitation
(i) any income, profits, alternative or add-on minimum tax, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, net
worth, premium, property, environmental or windfall profit tax, custom,
duty or other tax governmental fee or assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity responsible for the
imposition of any such tax (domestic or foreign) (a "Taxing Authority"),
(ii) any liability for the payment of any amounts of the type described in
clause (i) above as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period or as the
result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii)
above as a result of any express or implied obligation to indemnify any
other person.
(b) Except as disclosed in Item 3.7(b) of the Shareholders'
Disclosure Schedule, all Tax returns, statements, reports and forms
(including estimated Tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority on or before the
Closing, by or on behalf of the Company and each of its Subsidiaries
(collectively, the "Company Returns"), have been or will be filed when due
(including any extensions of such due date), and all amounts shown to be
due thereon on or before the Closing have been or will be paid on or before
such date. The Company Financial Statements fully accrue all actual
liabilities for Taxes with respect to all periods through the dates thereof
and to the Knowledge of Shareholders, the Company does not have any
contingent liabilities for Taxes except as disclosed in Item 3.7 of the
Shareholders' Disclosure Schedule. The Company Balance Sheet fully accrues
consistent with past practices all actual liabilities for Taxes (i) with
respect to all periods through the Balance Sheet Date, and (ii) with
respect to all transactions and events occurring on or prior to such date.
Except as disclosed in Item 3.7(b) of the Shareholders' Disclosure
Schedule, all information set forth in the notes to the Company Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects.
(c) No Tax liability since May 31, 2003 has been incurred
other than in the ordinary course of business, and adequate provision has
been made for all Taxes since that date in accordance with past practices
on a timely basis. Except as disclosed in Item 3.7(c) of the Shareholders'
Disclosure Schedule, the Company has timely withheld and paid to the
applicable financial institution or Taxing Authority all amounts required
to be withheld. Except as disclosed in Item 3.7(c) of the Shareholders'
Disclosure Schedule, none of the Company Returns have been audited. Except
as disclosed in Item 3.7(c) of the Shareholders' Disclosure Schedule, the
Company has not granted any extension or waiver of the limitation period
applicable to any the Company Returns.
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(d) There is no claim, audit, action, suit, proceeding, or
investigation now pending or, to the Knowledge of Shareholders, threatened
against or with respect to the Shares, the Company or any Subsidiary in
respect of any Tax, nor to the Knowledge of Shareholders is there any basis
therefor. There are no liabilities for Taxes with respect to any notice of
deficiency or similar document of any Tax Authority received by the Company
or any Subsidiary which have not been satisfied in full (including
liabilities for interest, additions to tax and penalties thereon and
related expenses). Neither the Company nor any Subsidiary nor any person
on behalf of the Company has entered into or will enter into any agreement
or consent pursuant to Section 341(f) of the Code. There are no liens for
taxes upon the assets of the Company or any Subsidiary except liens for
current Taxes not yet due. Except as disclosed in Item 3.7(d) of the
Shareholders' Disclosure Schedule, the Company has not been and will not be
required to include any adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(e) There is no contract, agreement, plan or arrangement,
including without limitation the provisions of this Agreement and the
Employment Agreements (as that term is defined in Section 9.7, below),
covering any employee, director or independent contractor or former
employee, director or independent contractor of the Company that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code (as determined without regard to Section 280G(b)(4)). Other than
pursuant to this Agreement, the Company or any Subsidiary is not a party to
or bound by (or will prior to the Closing become a party to or bound by)
any tax indemnity, tax sharing or tax allocation agreement. The Company
has previously provided or made available to Acquirer true and correct
copies of all the Company Returns, and, as reasonably requested by
Acquirer, prior to or following the date hereof, presently existing
information statements, reports, work papers, Tax opinions and memoranda
and other Tax data and documents.
The Company has not been at any time within the past five
years, and will not be prior to the Closing, a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code.
3.8 Title to Properties. Except as disclosed in Item 3.8 of the
Shareholders' Disclosure Schedule, the Company has good and marketable
title to all of its material assets and properties (including but not
limited to those shown on the balance sheet as of the Balance Sheet Date
included in the Company Financial Statements), free and clear of all liens,
charges or encumbrances (other than ( i ) liens for taxes not yet due and
payable; (ii) liens or obligations reflected or disclosed on the Balance
Sheet as of the Balance Sheet Date; (iii) liens which are not material in
character, amount or extent, and which do not materially detract from the
value or materially interfere with the use of the property subject thereto
or affected thereby; and (iv) contractor's liens and liens with respect to
taxes that are not yet due and payable (the foregoing (i), (ii), (iii) and
(iv), "Permitted Liens"). The machinery and equipment included in such
assets are in good condition and repair, normal wear and tear excepted, and
all leases of real or personal property to which the Company or any
Subsidiary is a party are fully effective and afford the Company or the
Subsidiary peaceful and undisturbed possession of the subject matter of the
lease. Neither the Company nor any Subsidiary is in violation of any
zoning, building, safety or environmental ordinance, regulation or
requirement or other law or regulation applicable to the operation of owned
or leased real property which would have a Material Adverse Effect on the
Company, and neither the Company nor any Subsidiary has received any notice
of such violation with which it has not complied or had waived.
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3.9 Absence of Certain Changes. Since the Balance Sheet Date,
the Company has carried on its business in the Ordinary Course
substantially in accordance with the procedures and practices in effect on
the Balance Sheet Date. Except as disclosed in Item 3.9 of the
Shareholders' Disclosure Schedule or in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements, since the
Balance Sheet Date there has not been with respect to the Company:
(a) any change in the financial condition, properties,
assets, liabilities, business, material rights relating to Intellectual
Property (as defined below), results of operations, which change by itself
or in conjunction with all other such changes, whether or not arising in
the Ordinary Course, have had or is reasonably likely to have a Material
Adverse Effect on the Company;
(b) any contingent liability incurred thereby as guarantor
or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the
assets or properties thereof (other than Permitted Liens);
(d) any obligation or liability incurred thereby other than
in the Ordinary Course, which obligations or liabilities do not exceed in
the aggregate $25,000;
(e) any purchase, license, sale or other disposition, or
any agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties, assets or goodwill of the Company
other than in the Ordinary Course;
(f) any damage, destruction or loss, whether or not covered
by insurance, that has had a Material Adverse Effect on the Company;
(g) any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the
capital stock thereof, any split, stock dividend, combination or
recapitalization of the capital stock thereof, any direct or indirect
redemption, purchase or other acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor practices,
any change in the compensation payable or to become payable to any of its
officers, employees or agents (other than pursuant to existing agreements
set out on Item 3.9(h) of the Shareholders' Disclosure Schedule or, in the
case of non-officers, in the Ordinary Course), or any bonus payment or
arrangement made to or with any of such officers, employees or agents other
than amounts paid pursuant to Employee Plans, as that term is defined in
Section 3.14.3, disclosed in Item 3.14.3 of the Shareholders' Disclosure
Schedule or bonuses in an aggregate amount not to exceed $25,000 for all
persons to whom bonuses are paid;
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(i) any loss of key executive, management or development
personnel thereof;
(j) any payment or discharge of a lien or liability
thereof, which lien or liability was not either (i) shown on the balance
sheet as of the Balance Sheet Date included in the Company Financial
Statements or (ii) incurred in the Ordinary Course after the Balance Sheet
Date;
(k) any obligation or liability incurred thereby to any of
its officers, directors, shareholders or affiliates, or any loans or
advances made thereby to any of its officers, directors, shareholders or
affiliates, except normal compensation and expense allowances payable to
officers and employees;
(l) any loss on or prior to the date of this Agreement of
one or more Material Customers (as defined in Section 3.22) or such number
of customers which together represent a material amount of business or any
indication that such a loss is, or losses are, reasonably likely;
(m) any amendment or change in the Articles of
Incorporation or the Bylaws of the Company;
(n) any issuance or sale of any debt or equity securities
(including but not limited to stock) thereby or of any options or other
rights to acquire from the Company, directly or indirectly, any debt or
equity securities (including but not limited to stock) thereof; or
(o) any termination, or any extension, amendment,
relinquishment, expiration or non-renewal that, to the Knowledge of
Shareholders, resulted from third party dissatisfaction with the Company's
services or contract performance, of any contract to which the Company is a
party, or any written request received by the Company for or to effect any
of the foregoing, other than, in each such case, where any such action or
requested action would not have a Material Adverse Effect on the Company.
3.10 Agreements and Commitments. As of the date hereof, except
as disclosed in Item 3.10 of the Shareholders' Disclosure Schedule
delivered by Shareholder to Acquirer herewith, or as disclosed in Item
3.11, Item 3.14.3 or Item 3.14.6 of the Shareholders' Disclosure Schedule
as required by Section 3.11, Section 3.14.3 or Section 3.14.6, as the case
may be, on the date of this Agreement the Company is not a party or subject
to any oral or written executory contract or, to the extent expressly
enumerated in paragraphs below, commitment, that is material to the
Company, its financial condition, business or prospects, including but not
limited to the following:
(a) Any contract, commitment, letter agreement or purchase
order providing for payments by or to the Company in an aggregate amount of
(i) $25,000 or more in the Ordinary Course or (ii) $5,000 or more not in
the Ordinary Course;
(b) Any license agreement under which the Company is
licensor (except for any nonexclusive software license granted by the
Company to customers in the Ordinary Course); or under which the Company is
licensee (except for standard "shrink wrap" licenses for off-the-shelf
software products with a license fee or purchase price of under $5,000 per
copy or seat);
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(c) Any material agreement by the Company to encumber,
transfer or sell rights in or with respect to any material item of the
Company Intellectual Property (as defined in Section 3.11 hereof),
excluding non-exclusive software licenses;
(d) Any agreement for the sale or lease of real or tangible
personal property involving more than $25,000 per year;
(e) Any dealer, distributor, sales representative, original
equipment manufacturer, value-added remarketer or other agreement for the
distribution of the Company's products;
(f) Any franchise agreement;
(g) Any stock redemption or agreement obligating the
Company to purchase its capital stock;
(h) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the
payment of royalties to any other person, excluding non-exclusive software
licenses;
(i) Any instrument evidencing indebtedness for borrowed
money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee or otherwise, except for trade
indebtedness or any advance to any employee of the Company incurred or made
in the Ordinary Course, and except as disclosed in the Company Financial
Statements;
(j) Any contract containing covenants purporting to limit
the Company's freedom to compete in any line of business, market or
industry and/or in any geographic area; or
(k) Any contract for the employment of any officer,
employee or consultant of the Company or any other type of contract or
commitment with any officer, employee or consultant of the Company that is
not immediately terminable by the Company without cost or other liability.
Except as noted in Item 3.4 of the Shareholders' Disclosure
Schedule, all agreements, obligations and commitments disclosed in Item
3.10, Item 3.11, Item 3.14.3 or Item 3.14.6 of the Shareholders' Disclosure
Schedule as required by Section 3.10, Section 3.11, Section 3.14.3 or
Section 3.14.6, as the case may be, are valid and in full force and effect,
except where the failure to be such would not have a Material Adverse
Effect on the Company. Except as noted on Item 3.10 of the Shareholders'
Disclosure Schedule, neither the Company nor to the Knowledge of
Shareholders any other party is in breach of or default under any material
term of any such agreement, obligation or commitment nor has such other
party threatened such a breach or default. The Company is not a party to
any contract or arrangement that Shareholder believes will have a Material
Adverse Effect on the Company. The Company does not have liability for
renegotiation of government contracts or subcontracts that can reasonably
be expected to have a Material Adverse Effect on the Company.
10
3.11 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined
patents, revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof, regardless of country or
formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications"
and, with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works,
semiconductor topography and mask work rights, including all rights of
authorship, use, publication, reproduction, distribution, performance,
transformation, moral rights and rights of ownership of copyrightable
works, semiconductor topography works and mask works, and all rights to
register and obtain renewals and extensions of registrations, together with
all other interests accruing by reason of international copyright,
semiconductor topography and mask work conventions (collectively,
"Copyrights");
(iv) trademarks, registered trademarks, applications
for registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names
(collectively, "Trademarks");
(v) all technology, ideas, inventions, designs,
proprietary information, manufacturing and operating specifications, know-
how, formulae, trade secrets, technical data and proprietary processes;
(vi) all databases and all collected data and all
rights therein throughout the world;
(vii) all computer software, including all source code,
object code firmware, development tools, files, records and data and all
media on which any of the foregoing is recorded; and
(viii) all Web addresses, rights and domain names and
all rights under all Web cross-linking agreements.
(b) With respect to each item of Intellectual Property
incorporated into any product of the Company or used in connection with any
service offered or provided by the Company or otherwise used in the
business of the Company and in each case owned by the Company or licensed
to the Company (except "off the shelf" or other software widely available
through regular commercial distribution channels at a cost not exceeding
$5,000 per copy or seat or CPU on standard, non-negotiated terms and
conditions) ("Company Intellectual Property"), the Shareholders'
Disclosure Letter lists as of the date of this Agreement at Item 3.11:
11
(i) all Patents, all registered Trademarks, and all
registered Copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed.
(ii) the following agreements relating to the products or
service offerings or capabilities of the Company, including products or
service offerings or capabilities currently under development (collectively
the "Company Services") or other Company Intellectual Property: all
(A) agreements granting any right to distribute or sublicense any of the
Company Services on any exclusive basis, (B) any exclusive licenses of
Intellectual Property to or from the Company, (C) projects under agreements
pursuant to which the amounts actually paid or payable individually under
firm commitments to or by the Company are $25,000 or more, (D) joint
development agreements, (E) any agreement by which the Company grants any
ownership right to any Intellectual Property owned by the Company other
than nonexclusive software licenses entered into with customers in the
Ordinary Course, (F) any option relating to any Company Intellectual
Property, and (G) agreements pursuant to which any party is granted any
rights to access source code or to use source code to create derivative
works of Company Intellectual Property.
(c) the Shareholders' Disclosure Letter contains an accurate
list as of the date of this Agreement of all licenses, sublicenses and
other agreements to which the Company is a party and pursuant to which the
Company is authorized to use any Intellectual Property owned by any third
party (except "off the shelf" or other software widely available through
regular commercial distribution channels at a cost not exceeding $5,000 per
copy or seat or CPU on standard non-negotiated terms and conditions and any
rights implied by law) ("Third Party Intellectual Property").
(d) To the Knowledge of Shareholders, there is no unauthorized
use, disclosure, infringement or misappropriation of any Company
Intellectual Property, including any Third Party Intellectual Property, by
any employee of the Company and the Company has not received actual notice
that any former employee or any other third party has made any unauthorized
use, disclosure, infringement or misappropriation of any Company
Intellectual Property, including any Third Party Intellectual Property.
The Company has not entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in sales or services
agreements arising in the ordinary course of business, copies of which have
been delivered to Acquirer or its counsel. There are no royalties, fees or
other payments payable by the Company to any Person, under any written or
oral contract or understanding or otherwise, by reason of the ownership,
use, sale or disposition of any Intellectual Property.
(e) The Company is not in breach of any license, sublicense or
other agreement relating to Company Intellectual Property or Third Party
Intellectual Property Rights. Except as disclosed in Item 3.11(e) of the
Shareholders' Disclosure Schedule, neither the execution, delivery or
performance of this Agreement or any Ancillary Agreement contemplated
hereby nor the consummation of any of the transactions contemplated by this
Agreement will contravene, conflict with or result in any violation of
Acquirer's right to own or use any Company Intellectual Property, including
any Third Party Intellectual Property.
12
(f) All registered Trademarks and registered service marks held
by the Company are valid and subsisting. Except for such as are not past
due, all maintenance and annual fees have been fully paid and all fees paid
during prosecution and after issuance of any patent comprising or relating
to such item have been paid in the correct entity status amounts. The
Company has not infringed, misappropriated or made unlawful use of, is not
currently infringing, misappropriating or making unlawful use of, and has
not received any written notice or written communication alleging or
relating to any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Intellectual Property or other
proprietary right or asset owned or used by any third party. Without
limiting the foregoing, the offering and sale of the Company Services by
the Company does not, and the offering and sale of the Company Services
immediately after the Closing will not, and the business of the Company as
conducted as of the date hereof does not, and the Company's use of
Intellectual Property as of the date hereof does not, to the Knowledge of
Shareholders, infringe or violate any Intellectual Property of any other
person. There is no proceeding pending or threatened, nor has any written
claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of Company Intellectual Property or
Third Party Intellectual Property. The Company has not brought a
proceeding alleging infringement of Company Intellectual Property or breach
of any license or agreement involving Intellectual Property against any
third party.
(g) Except as disclosed in Item 3.11(g) of the Shareholders'
Disclosure Schedule, all current and former officers and managerial and
technical employees and employees engaged in development of the Company
have executed and delivered to the Company an agreement (containing no
exceptions or exclusions from the scope of its coverage other than as set
forth in the standard form supplied to Acquirer) regarding the protection
of proprietary information and the assignment to the Company of any
Intellectual Property arising from services performed for the Company by
such persons, the form of which has been supplied to Acquirer. Except as
disclosed in Item 3.11(g) of the Shareholders' Disclosure Schedule, all
current and former consultants and independent contractors to the Company
involved in the development, modification, marketing and servicing of the
Company's products, and/or Company Intellectual Property have executed and
delivered to the Company an agreement (containing no exceptions or
exclusions from the scope of its coverage other than as set forth in the
standard form) regarding the protection of proprietary information and the
assignment to the Company of any Intellectual Property arising from
services performed for the Company by such persons except where the failure
to obtain such agreements from former employees and independent contractors
would not have a Material Adverse Effect on the Company. To the Knowledge
of Shareholders, no employee or independent contractor of the Company is in
violation of any term relating to Intellectual Property of any patent
disclosure agreement or employment contract or any other contract or
agreement relating to the relationship of any such employee or independent
contractor with the Company or of any other term of any such agreements or
contracts. Other than with respect to Third Party Intellectual Property
that is not used in connection with the Company Services, no current or
former officer, director, shareholder, employee, consultant or independent
contractor has any right, claim or interest in or with respect to any
Company Intellectual Property. To the best Knowledge of Shareholders, the
Company is not using any trade secrets, and to the Knowledge of
Shareholders, the Company is not using any other confidential information,
of any former employer of any past or present employees.
(h) Shareholders have disclosed in Item 3.11(h) of the
Shareholders' Disclosure Schedule all measures and precautions taken to
protect and maintain the confidentiality of all Company Intellectual
Property. Except as disclosed in Item 3.11(h) of the Shareholders'
13
Disclosure Schedule, the Company has taken all commercially reasonable and
customary measures and precautions necessary to maintain and protect the
full value of all Intellectual Property it owns except where such failure
to protect and maintain would not have a Material Adverse Effect on the
Company. All use, disclosure or appropriation of confidential and
proprietary information of any third party ("Confidential Information")
has, to the Knowledge of Shareholders, been pursuant to the terms of a
written agreement between the Company and the owner of such Confidential
Information, or is otherwise lawful.
(i) No product liability claims have been communicated in
writing to or, to the Knowledge of Shareholders, threatened against the
Company.
(j) A complete list of each of the principal the Company
Services, together with a brief description of each, is set forth in
Item 3.11(j) of the Shareholders' Disclosure Schedule. The Company
Services, including the performance and results thereof, conform in all
material respects with any published specification, published documentation
or written performance standard provided with respect thereto by the
Company.
(k) The Company is not subject to any proceeding or outstanding
decree, order, judgment, or stipulation which may affect the validity, use
or enforceability of any Company Intellectual Property or restricting in
any manner the use, transfer, or licensing thereof by the Company. The
Company is not subject to any agreement which restricts in any material
respect the use, transfer, or licensing by the Company of Company
Intellectual Property or the Company Services, excluding agreements
relating to Third Party Intellectual Property.
(l) The Company owns all right, title and interest in, or has
the right to use, all Intellectual Property that is material to or
reasonably necessary to the conduct of its business as presently conducted
("Material Company Intellectual Property"). Shareholders have no Knowledge
of any loss, cancellation, termination or expiration of any Patent or
Patent Application, registered Trademark, or registered Copyright relating
to any Company Intellectual Property. Copies of all forms of nondisclosure
or confidentiality agreements currently utilized by the Company to protect
Company Intellectual Property have been provided to Acquirer. Except as set
out in Item 3.11 of the Shareholders' Disclosure Schedule, the Company has
not granted any reseller, distributor, sales representative, original
equipment manufacturer, value added reseller or other third party any right
to reproduce, manufacture, sell, license, furnish or distribute any the
Company Services in any market segment or geographic location.
3.12 Compliance with Laws. Except for noncompliance that would
not result in a Material Adverse Effect on the Company, the Company has
complied, or prior to the Closing Date (as defined in Section 8.1 hereof)
will have complied, and is or will be at the Closing Date in full
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards,
judgments and decrees, applicable to the Company or to the assets,
properties and business thereof, including, without limitation: (a) all
applicable federal and state securities laws and regulations except as
disclosed in Item 3.2 of the Shareholders' Disclosure Schedule, (b) all
applicable federal, state and local laws, ordinances and regulations, and
all orders, writs, injunctions, awards, judgments and decrees, pertaining
to (i) the sale, licensing, leasing, ownership or management of owned,
leased or licensed real or personal property, products or technical data,
14
(ii) employment or employment practices, terms and conditions of
employment, or wages and hours and (iii) safety, health, fire prevention,
environmental protection (including toxic waste disposal and related
matters described in Section 3.20 hereof), building standards, zoning or
other similar matters, (c) the Export Administration Act and regulations
promulgated thereunder and other laws, regulations, rules, orders, writs,
injunctions, judgments or decrees applicable to the export or re-export of
controlled commodities or technical data, (d) the Immigration Reform and
Control Act and (e) all governmental and nongovernmental regulations
related to the operation and use of the Internet. Except as disclosed in
Item 3.4 of the Shareholders' Disclosure Schedule, the Company has received
all permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary
to the conduct of its business as presently conducted except where the
failure to receive such permit or approval or make such filing would not
have a Material Adverse Effect on the Company.
3.13 Certain Transactions and Agreements. No person who is an
officer of the Company nor any member of their immediate families, has any
direct or indirect ownership interest in or any employment or consulting
agreement with any firm or corporation that competes with the Company
(except with respect to any interest in less than 1% of the outstanding
voting shares of any corporation whose stock is publicly traded). Except
as disclosed in Item 3.13 of the Shareholders' Disclosure Schedule, none of
said officers or any directors of the Company or any member of their
immediate families, is directly or indirectly interested in any contract
with the Company, including, but not limited to, any loan agreements
(excluding travel advances), except for normal compensation for services as
an officer (disclosed in Item 3.14.3), director or employee of the Company
and except for the normal rights of a shareholder, warrant holder or option
holder. Except as disclosed in Item 3.13 of the Shareholders' Disclosure
Schedule, none of such officers or directors or family members has, except
for the normal rights of a shareholder or an option holder, any interest in
any (a) Company Intellectual Property or (b) any interest in any property
(other than Company Intellectual Property) used in the business of the
Company, whether such property is real or personal, tangible or intangible.
3.14 Employees.
3.14.1 Except as disclosed in Item 3.14.1 of the
Shareholders' Disclosure Schedule, the Company does not have any employment
contract or consulting agreement currently in effect that is not terminable
at will without penalty or payment of compensation by the Company (other
than agreements with the purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.14.2 The Company (a) has not ever been or is now subject
to a union organizing effort, (b) is not subject to any collective
bargaining agreement with respect to any of its employees, (c) is not
subject to any other material contract, written or oral, with any trade or
labor union, employees' association or similar organization or (d) does not
have has any current labor dispute. The Company has good labor relations,
and to the Knowledge of Shareholders there are no facts indicating that the
consummation of the transactions provided for herein (other than any
contemplated reductions in force associated therewith) will have a Material
Adverse Effect on the Company and none of Company's key development or
other employees intends to leave its employ where such departure would
reasonably be expected to have a Material Adverse Effect on the Company.
15
3.14.3 Item 3.14.3 of the Shareholders' Disclosure Letter
contains a list of all severance agreements, pension, retirement,
disability, medical, dental or other health plans, life insurance or other
death benefit plans, profit sharing, deferred compensation agreements,
stock, option, bonus or other incentive plans, vacation, sick, holiday or
other paid leave plans, severance plans or other similar employee benefit
plans maintained by the Company or any trade or business which is treated
as a single employer with the Company within the meaning of Code Section
414(b), (c), (m) or (o) (each an "ERISA Affiliate") or in which any
employees of the Company participate (the "Employee Plans"), including
without limitation all "employee benefit plans" as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") as well as all employment and consulting agreements to which the
Company is a party. Except as disclosed in Item 3.14.3 of the
Shareholders' Disclosure Schedule, each of the Employee Plans, and its
operation and administration, is in compliance in all material respects
with each of the respective Employee Plans' terms and with all applicable,
federal, state, local and other governmental laws and ordinances, orders,
rules and regulations, including the requirements of ERISA and the Code.
Shareholders have delivered to Acquirer a true and complete copy of, to the
extent applicable, (a) all Employee Plans as well as all employment and
consulting agreements to which the Company is a party as amended, (b) the
Company's three most recent annual reports (Form 5500s), (c) each trust
agreement related to such Employee Plans, (d) most recent summary plan
description for each Employee Plan for which a description is required, (e)
the most recent Internal Revenue Service determination letter issued with
respect to any Employee Plan, and (f) any material contract regarding the
funding arrangement for any Employee Plan. Except as disclosed in Item
3.15.3 of the Shareholders' Disclosure Letter, all such Employee Plans
that are "employee pension benefit plans" (as defined in Section 3(2) of
ERISA) which are intended to qualify under Section 401(a) of the Code have
received favorable determination opinion, notification or advisory letters
with respect to such plans that such plans comply with the Tax Reform Act
of 1986 or have remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and
make any amendments necessary to obtain a favorable determination as to the
qualified states of each such Employee Plan. In addition, neither the
Company nor any Subsidiary has ever been a participant in any "prohibited
transaction," within the meaning of Section 406 of ERISA with respect to
any employee pension benefit plan (as defined in Section 3(2) of ERISA)
which the Company or any Subsidiary sponsors as employer or in which the
Company or any Subsidiary participates as an employer, which would impose a
material penalty on the Company or any Subsidiary or which was not
otherwise exempt under Section 408(a) of ERISA (including, but not limited
to, any individual exemption granted under Section 408(a) of ERISA), or
which could result in an excise tax under the Code. The group health
plans, as defined in Section 4980B(g) of the Code, that benefit employees
of the Company or any Subsidiary are in compliance in all material respects
with the continuation coverage requirements of subsection 4980B of the
Code. There are no outstanding violations of Section 4980B of the Code
with respect to any Employee Plan, covered employees or qualified
beneficiaries. Except as set forth in Item 3.14.3, no Employee Plans will
be subject to any surrender fees or service fees upon termination other
than the normal and reasonable administrative fees associated with the
termination of benefit plans. Except as disclosed in Item 3.14.3 of the
Shareholders' Disclosure Schedule, no employee of the Company or any
Subsidiary and no person subject to any Company or any Subsidiary health
plan has made medical claims through such health plan during the twelve
months preceding the date hereof for more than $5,000 in the aggregate.
16
3.14.4 To the Knowledge of Shareholders, no employee of the
Company is in violation of any term of any employment contract, patent or
trade secret disclosure agreement or noncompetition agreement or any other
contract or agreement, or any restrictive covenant, relating to the right
of any such employee to be employed by the Company or to use trade secrets
or proprietary information of others, and the employment of any employee of
the Company does not subject the Company to any material liability to any
third party.
3.14.5 Except as disclosed in Item 3.14.3 of the
Shareholders' Disclosure Letter, the Company is not a party to any
(a) agreement with any employee of the Company (i) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company in the nature of any of
the transactions contemplated by this Agreement (ii) providing any term of
employment or compensation guarantee or (iii) providing severance benefits
or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment other than as
required by law, or (b) agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase
plan, any of the benefits of which will be materially increased, or the
vesting of benefits of which will be materially accelerated, by the
occurrence of any of the transactions contemplated by this Agreement.
3.14.6 A list of all employees of the Company and their
current base compensation as of the date of this Agreement is disclosed on
Item 3.14.6 of the Shareholders' Disclosure Schedule. Copies of all offer
letters and other documents reflecting bonus arrangements of any Company
officer, director or employee have been delivered to Acquirer.
3.14.7 All contributions due from the Company with respect
to any of the Employee Plans through the Balance Sheet Date have been made
or accrued on the Company's financial statements.
3.15 Corporate Documents. Shareholders have made available to
Acquirer for examination all documents and information disclosed in Items
3.1 through 3.25 of the Shareholders' Disclosure Letter or other exhibits
called for by this Agreement which have been reasonably requested by
Acquirer' legal counsel, including, without limitation, the following: (a)
copies of the Company's Articles of Incorporation and Bylaws as currently
in effect; (b) the Company's minute book containing all records of all
proceedings, consents, actions and meetings of the Company's directors and
shareholders; (c) the Company's stock ledger, journal and other records
reflecting all stock issuances and transfers; and (d) all permits, orders
and consents issued by any regulatory agency with respect to the Company,
or any securities of the Company, and all applications for such permits,
orders and consents.
3.16 No Brokers. Except as disclosed in Item 3.16 of the
Shareholders' Disclosure Letter, none of the Shareholders nor the Company
is obligated for the payment of fees or expenses of any investment banker,
broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any transaction provided for herein or
therein.
3.17 Books and Records. The books, records and accounts of the
Company (a) are in all material respects true and complete, and (b) have
been maintained in accordance with reasonable business practices except
where failure to maintain such books, records and accounts in accordance
with reasonable business practices will not have a Material Adverse Effect
on anyone relying on such books, record and accounts.
17
3.18 Environmental Matters.
3.18.1 To the Knowledge of Shareholders, during the period
that the Company has leased or owned its properties or leased, owned or
operated any facilities, there have been no disposals, releases or
threatened releases of Hazardous Materials (as defined below) on, from or
under any such properties or facilities that would have a Material Adverse
Effect on the Company. Shareholders have no Knowledge of any presence,
disposals, releases or threatened releases of Hazardous Materials on, from
or under any of such properties or facilities, which may have occurred
prior to the Company or any Subsidiary having taken possession of any of
such properties or facilities which might reasonably be expected to have a
Material Adverse Effect on the Company. For purposes of this Agreement,
the terms "disposal," "release," and "threatened release" have the
definitions assigned thereto by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as
amended ("CERCLA"). For the purposes of this Section 3.18, "Hazardous
Materials" mean any hazardous or toxic substance, material or waste which
is or becomes prior to the Closing Date, regulated under, or defined as a
"hazardous substance," "pollutant," "contaminant," "toxic chemical,"
"hazardous material," "toxic substance" or "hazardous chemical"; under (i)
CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; (iii) the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq.; (iv) the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq.; (v) the Occupational Safety and Health
Act of 1970, 29 U.S.C. Section 651 et seq.; (vi) regulations promulgated
under any of the above statutes; or (vii) any other applicable federal,
state or local statute, ordinance, rule or regulation that has a scope or
purpose similar to those identified above.
3.18.2 To the Knowledge of Shareholders, none of the
properties or facilities currently leased or owned by the Company or any
properties or facilities previously leased or owned by the Company is in
violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not limited
to, soil and ground water condition which violation would have a Material
Adverse Effect on the Company.
3.18.3 During the Company's occupancy of any properties or
facilities owned or leased at any time by the Company, neither the Company,
nor to the Knowledge of Shareholders, any third party, has used, generated,
manufactured, released or stored on, under or about such properties and
facilities or transported to or from such properties and facilities any
Hazardous Materials that would have or is reasonably likely to have a
Material Adverse Effect on the Company.
3.18.4 During the time that the Company has owned or leased
the properties and facilities currently occupied by it or any properties
and facilities previously occupied by the Company, there has been no
material litigation, proceeding or administrative action brought or
threatened against the Company, or any material settlement reached by the
Company with, any party or parties alleging the presence, disposal, release
or threatened release of any Hazardous Materials on, from or under any of
such properties or facilities.
18
3.19 Government Contracts. All representations, certifications
and disclosures made by the Company to any Government Contract Party (as
defined below) have been in all material respects current, complete and
accurate at the times they were made. There have been no acts, omissions
or noncompliance with regard to any applicable public contracting statute,
regulation or contract requirement (whether express or incorporated by
reference) relating to any of the Company's contracts with any Government
Contract Party in either case that have led to or is reasonably likely to
lead to, either before or after the Closing Date, (a) any material claim or
dispute involving the Company, and/or Acquirer as successor in interest to
Shareholders and any Government Contract Party or (b) any suspension,
debarment or contract termination, or proceeding related thereto. There
has been no act or omission that relates to the marketing, licensing or
selling to any Government Contract Party of any of the Company's technical
data, computer software, products and services and that has led to or is
reasonably likely to lead to, either before or after the Closing Date, any
cloud on any of the Company's rights in and to its technical data, computer
software, products and services. There is currently no dispute between the
Company and any Government Contract Party. For purposes of this Section
3.19, the term "Government Contract Party" means any independent or
executive agency, division, subdivision, audit group or procuring office of
the federal, state, territorial, provincial, county, local or municipal
government, including any prime contractor of the federal government and
any higher level subcontractor of a prime contractor of the federal
government, and including any employees or agents thereof, in each case
acting in such capacity.
3.20 Warranties, Guarantees and Indemnities. Except as disclosed
in Item 3.20 of the Shareholders' Disclosure Schedule or in the agreements
or contract listed herein, the Company has not provided to its customers or
any third parties (i) any warranties or guarantees regarding the Company
Services; (ii) any rights to obtain refunds with respect to the Company
Services or (iii) any indemnities with respect to intellectual property
infringement.
3.21 No Shareholder Claims. No shareholder of the Company has
claimed in writing any interest in any additional shares of the Company's
capital stock, or any options, warrants or other securities of the Company,
except for the number of Shares such person is shown to be the owner of on
Item 3.2 of the Shareholders' Disclosure Schedule, and no third party who
is not disclosed on Item 3.2 of the Shareholders' Disclosure Schedule has
made in writing, any claim of entitlement to receive any shares of the
capital stock of the Company, any warrants or other rights to acquire any
capital stock of the Company or any other securities of the Company, and to
the Knowledge of Shareholders no such claim has been made orally.
3.22 Customer Relationships. The Company has good commercial
working relationships with its customers. Except as disclosed in Item 3.22
of the Shareholders' Disclosure Letter, no customer accounting for more
than 5% of the Company's revenues in any month during the last twelve (12)
calendar months (a "Material Customer") has canceled or otherwise
terminated its relationship with the Company, decreased or limited
materially the amount of product or services ordered from the Company or
threatened in writing (or to the Knowledge of Shareholders orally) to take
any such action.
3.23. Product and Service Quality. All services provided by the
Company to customers on or prior to the Closing Date conform to applicable
contractual commitments, implied warranties not disclaimed, express
warranties, product specifications and quality standards published by the
Company in all material respects, and the Company does not have any
material liability (and the Company is not aware of any basis for any
19
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Company giving rise to any
liability) for replacement or repair thereof, or for the taking of any
remedial action with respect thereto or other damages in connection
therewith. All material complaints received since January, 2001 from
customers regarding the Company's services are set out in Item 3.23 of the
Shareholders' Disclosure Letter in detail reasonably sufficient to
understand the nature of the complaint and the resolution or lack of
resolution thereof.
3.24 Insurance. The Company maintains the insurance coverage
disclosed on Item 3.24 of the Shareholders' Disclosure Letter. Item 3.24
of the Shareholders' Disclosure Letter sets forth all claims made under
such insurance policies since the Company's inception and the premiums that
apply with respect to such insurance policies as of the date of this
Agreement.
3.25 Disclosure. To the Knowledge of Shareholders, Shareholders
have not failed to disclose any information known to it that is material to
a decision to consummate the transactions contemplated herein. This
Agreement (including Schedules and Exhibits) and the certificates and
instruments delivered pursuant to this Agreement at the Closing by or on
behalf of Shareholders, to the Knowledge of Shareholders, do not contain
any untrue statement of material fact or omit to state a material fact
necessary to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made.
4. REPRESENTATIONS AND WARRANTIES OF ACQUIRER
Acquirer hereby represents and warrants, that, except as
disclosed on the Acquirer disclosure letter delivered to Shareholders
herewith as amended from time to time in non-material respects prior to
Closing:
4.1 Organization and Good Standing. Acquirer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Utah. Acquirer has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now
conducted and as proposed to be conducted.
4.2 Power, Authorization and Validity; Adverse Changes.
4.2.1 Acquirer has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement, and under the Escrow Agreement and each other agreement to be
entered by Acquirer in connection (the "Acquirer Ancillary Agreements").
This Agreement has been duly executed and delivered by Acquirer and the
Acquirer Ancillary Agreements have been or will be duly executed and
delivered by Acquirer (as applicable). The execution, delivery and
performance of this Agreement and the Acquirer Ancillary Agreements have
been duly and validly approved and authorized by Acquirer's Board of
Directors and shareholders, as applicable, and no other corporate approvals
or proceedings on the part of Acquirer are necessary to authorize this
Agreement and the transactions contemplated hereby.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary or required to be made or obtained to enable
Acquirer to enter into, and to perform its obligations under, this
Agreement and the Acquirer Ancillary Agreements, except for such filings as
may be required to comply with federal and state securities laws.
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4.2.3 This Agreement is and the Acquirer Ancillary
Agreements are, or when executed and delivered by Acquirer and the other
parties thereto will be, valid and binding obligations of Acquirer,
enforceable against Acquirer in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable
remedies; and (c) the enforceability of provision requiring indemnification
in connection with the offering, issuance or sale of securities.
4.2.4 Since March 31, 2003, there has not been with respect to Acquirer any
Material Adverse Change.
4.3 No Violations. Neither the execution nor delivery of this
Agreement or any Acquirer Ancillary Agreement, nor the consummation of the
transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination,
breach or violation of (a) any provision of the Certificate of
Incorporation or Bylaws of Acquirer, as currently in effect or (b) any
instrument or contract to which Acquirer is a party or by which Acquirer is
bound, or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Acquirer or its respective
assets or properties, other than, with respect to (a), (b) and (c), any
such, conflict, termination, breach or violation that would not have a
Material Adverse Effect on Acquirer.
4.4 Disclosure. Acquirer has furnished Shareholder with
Acquirer's most recent annual report on Form 10-K (the "Form 10-K") for the
year ended September 30, 2002 and all other reports or documents required
to be filed by Acquirer pursuant to Section 13(a) or 15(d) of the 1934 Act
since the filing of the Form 10-K through the date hereof and, hereafter,
through the Closing Date, in each case as may be amended (the "Acquirer
Disclosure Package"). The items in the Acquirer Disclosure Package,
(including, without limitation, any financial statement or schedules
included therein) (i) were prepared in substantial compliance with the
requirements of the Securities Act, or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations thereunder,
as the case may be, and (ii) to Acquirer's Knowledge, did not at the time
of filing (or if amended, supplemented or superseded by a filing prior to
the date hereof, on the date of that filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Acquirer
has filed all forms, reports and documents required to be filed with the
SEC in the last twelve (12) months under the Securities Act, or the
Exchange Act, and the rules and regulations thereunder.
4.5 Duly Issued Shares. The Acquirer Shares to be issued
pursuant to this Agreement have been reserved for such issuance and, when
issued and delivered in accordance with this Agreement will be duly and
validly issued, fully paid and nonassessable.
4.6 Litigation. There is no litigation, suit, action, or
proceeding pending, or to the Knowledge of Acquirer, threatened against
Acquirer, nor is there, to the Knowledge of Acquirer, any basis therefore.
21
4.7 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date
hereof, the authorized capital stock of Acquirer consists of 100,000,000
shares of Common Stock, no par value, of which 13,419,774 shares are issued
and outstanding and 1,000,000 shares of Preferred Stock, no par value, of
which no shares are issued and outstanding. All issued and outstanding
shares of Acquirer capital stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to any right of
rescission and have been offered, issued, sold and delivered by Acquirer in
compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws, except where the failure to so qualify would not result in a Material
Adverse Effect on Acquirer.
(b) Options/Rights. Except as disclosed in Item 4.7(b),
there are no options, warrants, calls, commitments, conversion privileges
or preemptive or other rights or agreements outstanding to purchase any of
Acquirer's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Acquirer capital stock or
obligating Acquirer to grant, extend, or enter into any such option,
warrant, call, right, commitment, conversion privilege or other right or
agreement, and there is no liability for dividends accrued but unpaid.
There are no voting agreements, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of Acquirer's
outstanding securities.
5. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Closing the each of the Shareholders, jointly and severally, covenant to
and agree with Acquirer as follows:
5.1 Advice of Changes. Shareholders will promptly advise
Acquirer in writing (a) of any event occurring subsequent to the date of
this Agreement and before the Closing that would render any representation
or warranty of the Company contained in this Agreement, if made on or as of
the date of such event or the Closing Date, untrue or inaccurate in any
material respect (however, no advisory need be provided regarding any event
or action contemplated or permitted under this Agreement and (b) of the
occurrence of any Material Adverse Change with respect to the Company.
5.2 Maintenance of Business. The parties hereto understand
and acknowledge that it is their intent to work closely together during the
period from the date hereof until the Closing Date. Shareholders will use
commercially reasonable efforts to carry on and preserve the Company's
business and its relationships with customers, suppliers, employees and
others in substantially the same manner as it has prior to the date hereof.
If any Shareholder becomes aware of a material deterioration in the
Company's relationship with any material customer, supplier or key
employee, such Shareholder will promptly bring such information to the
attention of Acquirer in writing and, if requested by Acquirer, will use
commercially reasonable efforts to restore the relationship.
5.3 Conduct of Business. Shareholders will cause the
Company to continue to conduct its business and maintain its business
relationships in the Ordinary Course and will not, without the prior
written consent of the Chief Executive Officer or Chief Financial Officer
of Acquirer, not to be unreasonably withheld, conditioned or delayed:
22
(a) borrow any money other than pursuant to existing lines
of credit;
(b) enter into any capital expenditure by the Company in
excess of $10,000 (in the case of transactions or commitments which are
neither made in the Ordinary Course nor contemplated by the Company's
current capital expenditure budget) or $25,000 (in the case of transactions
or commitments made in the Ordinary Course);
(c) encumber or permit to be encumbered any of its assets
except in the Ordinary Course;
(d) dispose of any of its assets except in the Ordinary
Course;
(e) enter into any lease or contract for the purchase or
sale of any property, real or personal, tangible or intangible, except in
the Ordinary Course or enter into any agreement of the types described in
Section 3.10 to the extent involving amounts in excess of $10,000;
(f) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained
to the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary (except for
annual increases in the Ordinary Course and disclosed to Acquirer in
writing and approved by Acquirer, such approval not to unreasonably be
withheld) or special remuneration to any officer, employee or consultant
(except pursuant to existing arrangements heretofore disclosed in writing
to Acquirer) or enter into any new employment or consulting or severance
agreement with any such person, or enter into any new agreement or plan of
the type described in Section 3.14.3;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital stock, or, except as contemplated
in this Agreement, redeem or otherwise acquire any of its capital stock
excluding repurchases of unvested shares upon employee termination;
(j) amend or terminate or settle any disputes under any
contract, agreement or license to which it is a party of a nature required
to be disclosed in Section 3.11;
(k) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the Ordinary Course
and which are not material in amount, which travel and expenses shall be
reasonably documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation except
for the endorsement of checks and other negotiable instruments in the
Ordinary Course and which are not material in amount;
(m) waive or release any material right or claim except in
the Ordinary Course;
23
(n) issue or sell any shares of its capital stock of any
class or any other of its securities, or issue, grant, modify or create any
warrants, obligations, subscriptions, options, convertible securities,
stock appreciation rights or other commitments to issue shares of capital
stock or accelerate the vesting of any outstanding option or other
security;
(o) split or combine the outstanding shares of its capital
stock of any class or enter into any recapitalization affecting the number
of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) merge, consolidate or reorganize with, or acquire any
entity;
(q) amend its Articles of Incorporation or Bylaws;
(r) agree to any audit assessment by any tax authority or
file any federal or state income or franchise tax return unless copies of
such returns have been delivered to Acquirer;
(s) license any of its technology or any Company
Intellectual Property, except in the Ordinary Course;
(t) change or terminate any insurance coverage;
(u) terminate the employment of any key employee disclosed
in Item 3.9 of the Shareholders' Disclosure Schedule; or
(v) agree to do any of the things described in the
preceding clauses 5.3(a) through 5.3(u).
5.4 Certain Agreements. Shareholders will cause all present
employees and consultants of the Company engaged in development activity
who have not previously executed the Company's forms of assignments of
copyright and other intellectual property rights to the Company to execute
such forms.
5.5 Regulatory Approvals. Shareholders will execute and file,
or join in the execution and filing, of any application or other document
that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign, which
may be reasonably required, or which Acquirer may reasonably request, in
connection with the consummation of the transactions provided for in this
Agreement. Shareholders will use commercially reasonable efforts to obtain
or assist Acquirer in obtaining all such authorizations, approvals and
consents.
5.6 Necessary Consents. Shareholders will use commercially
reasonable efforts to obtain such written consents and waivers (including
waivers of any applicable refusal or co-sale rights that may apply to the
transactions hereby contemplated) and take such other actions as may be
necessary or appropriate for Shareholders to facilitate and allow the
consummation of the transactions provided for herein and to facilitate and
allow Acquirer to carry on the Company's business after the Closing Date.
24
5.7 Litigation. Shareholders will notify Acquirer in writing
promptly after learning of any material action, suit, proceeding or
investigation by or before any court, board or governmental agency,
initiated by or against the Company or any Subsidiary or threatened against
it or any Subsidiary.
5.8 No Other Negotiations. In consideration of the time and
effort to be devoted to the transactions contemplated by this Agreement,
each Shareholder agrees not to engage in discussions concerning a potential
financing or an acquisition of the Company with any third party for a 45-
day period beginning on the date of this Agreement.
5.9 Access to Information. Until the Closing Date, Shareholders
will cause the Company to provide Acquirer and its agents with reasonable
access to the files, books, records and offices of the Company, including,
without limitation, any and all information relating to the Company taxes,
commitments, contracts, leases, licenses, real, personal and intangible
property and financial condition. Shareholders will cause the Company's
accountants to cooperate with Acquirer and its agents in making available
all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all
financial statements prepared or audited by such accountants.
5.10 Satisfaction of Conditions Precedent. Shareholders will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 10, and Shareholders
will use commercially reasonable efforts to cause the transactions provided
for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order
to effect the transactions provided for herein.
5.11 Blue Sky Laws. Shareholders shall use commercially
reasonable efforts to assist Acquirer to the extent necessary to comply
with the securities and Blue Sky laws of all jurisdictions applicable in
connection with the transactions contemplated herein. Acquirer shall be
responsible for the payment of all costs of such compliance, including
qualification or exemption, if applicable; provided such costs are approved
by Acquirer prior to being incurred.
5.12 Notification of Employee Problems. Shareholders will
promptly notify Acquirer if any of the Company's officers becomes aware
that any of its key employees intends to leave its employ.
5.13 Benefit Plans; Cash Compensation. As soon as practicable
after the execution of this Agreement, Acquirer and Shareholders shall
confer and work together in good faith to agree upon mutually acceptable
employee benefit, superanuation, and compensation arrangements for the
Company's employees following the Closing. Shareholders shall take such
actions as are necessary to terminate its participation in such Employee
Plans as is requested by Acquirer, provided that Acquirer shall take such
steps as are commercially and administratively reasonable to ensure that
(i) those of the Company's employees who are eligible to participate in
each such Employee Plan shall be entitled to participate in employee
benefit plans maintained by Acquirer effective immediately following the
Closing.
25
5.14 Sale of Shares Pursuant to Regulation D or Section 4(2).
The parties hereto acknowledge and agree that the Acquirer Shares issuable
pursuant to Section 1 hereof shall constitute "restricted securities"
within the meaning of the Securities Act. The certificates representing
the Acquirer Shares shall bear the legends set forth in Section 2. It is
acknowledged and understood that Acquirer is relying on certain written
representations made by Shareholders. Shareholders will execute and
deliver to Acquirer an Investor Representation Certificate in the form
attached hereto as Exhibit 5.15.
5.15 Closing Deliverables. Prior to Closing, Shareholders shall
deliver to Acquirer true and accurate copies of the following items: (i)
the Company's Articles of Incorporation and Bylaws, as amended to date; and
(ii) a Certificate of Good Standing from the California Secretary of State,
of recent date.
6. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Closing, or such later time as provided herein, Acquirer covenants to and
agrees with Shareholders as follows:
6.1 Access to Information. Until the Closing Date, Shareholders
will have reasonable access to Acquirer's management and officers and
material information regarding Acquirer, including without limitation,
material information relating to Acquirer's business and financial
condition. Acquirer's accountants will cooperate with Shareholders'
accountants in making available all financial information reasonably
requested to evaluate Acquirer's financial statements.
6.2 Satisfaction of Conditions Precedent. Acquirer will use all
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 9, and Acquirer will
use all commercially reasonable efforts to cause the transactions provided
for in this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order
to effect the transactions provided for herein.
6.3 Regulatory Approvals. Acquirer will execute and file, or
join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent
of any governmental body, federal, state, local or foreign, which may be
reasonably required, or which Shareholders may reasonably request, in
connection with the consummation of the transactions provided for in this
Agreement. Acquirer will use all reasonable efforts to obtain all such
authorizations, approvals and consents.
6.4 Indemnification. From and after the Closing, Acquirer
agrees to indemnify and hold harmless each current and former director and
officer of the Company against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of matters existing or occurring at or prior to the Closing,
asserted or claimed after the Closing, to the fullest extent that the
Company would have been permitted under its organizational documents and
applicable law in effect on the date hereof to indemnify such person (and
in connection therewith Acquirer shall advance expenses as incurred to the
fullest extent provided for under Acquirer's organizational documents and
applicable law as from time to time in effect, provided the person to whom
26
expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to
indemnification). Shareholder represents that there is no current basis
for any indemnity claim under this Section 6.4, except as set out in Item
6.4 of the Shareholders' Disclosure Letter.
6.5 Cooperation in Obtaining Necessary Consents. Acquirer
will cooperate with Shareholders as reasonably requested by Shareholders in
order to assist Shareholders to obtain such written consents as are
contemplated by Section 5.6 hereof.
6.6 Closing Deliverables. Prior to Closing, Acquirer shall
deliver to Shareholders true and accurate copies of the following items:
(i) Acquirer's Articles of Incorporation, as amended to date; (ii) a
Certificate of Good Standing from the Division of Corporations and
Commercial Code of the Utah Department of Commerce, of recent date,
regarding Acquirer; (iii) a certified copy of the resolutions of the
Acquirer's Board of Directors approving this Agreement and the issuance of
the Acquirer Shares hereby contemplated; and (iv) a certificate of the
transfer agent of Acquirer of recent date reflecting the number of
outstanding shares of capital stock of Acquirer.
7. ACQUIRER POST-CLOSING OBLIGATIONS
7.1 Reports Under the 1934 Act. With a view to making available
to Shareholder the benefits of Rule 144 promulgated under the Securities
Act of 1933 ("SEC Rule 144") and any other rule or regulation of the SEC
that may at any time permit Shareholders to sell shares of Acquirer Common
Stock to the public without registration, Acquirer shall:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and
other documents required of Acquirer under the Act and the Securities
Exchange Act of 1934, as amended;
(c) furnish to Shareholders forthwith upon request so long
as Shareholders hold any shares of Acquirer Common Stock, whenever
applicable (i) a written statement by Acquirer that it has compiled with
its reporting requirements under SEC Rule 144, the Securities Act of 1933
(the "1933 Act"0, and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of Acquirer and such other reports and documents filed
by Acquirer with the SEC, and (iii) such other information as may be
reasonably requested in availing Shareholder of any current rule or
regulation of the SEC (or any future rule or regulation containing issuer
information requirements comparable to or less burdensome than current SEC
Rule 144) which permits the selling of any such securities without
registration; and
(d) in the event that at any time after the first
anniversary of the Closing, Shareholders request to transfer any Acquirer
Common Stock in accordance with the provisions of SEC Rule 144, Acquirer
will advise its transfer agent that the holding period for such shares, as
determined pursuant to Rule 144(d), commenced on the Closing Date, and,
assuming that all other conditions to SEC Rule 144 are met, that such
shares will be transferable by Shareholders pursuant to SEC Rule 144 from
and after one year from such date.
27
7.2 Piggyback Rights.
(a) Acquirer Registration. If (but without any obligation
to do so) Acquirer proposes to register (including for this purpose a
registration effected by Acquirer for shareholders other than Shareholders)
any of its stock or other securities under the 1933 Act in connection with
the public offering of such securities (other than a registration relating
solely to the sale of securities to participants in an Acquirer stock plan,
a registration relating to a corporate reorganization or other transaction
under Rule 145 of the 1933 Act, a registration on any form that does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities, or a registration in which the only Acquirer Common Stock being
registered is Common Stock issuable upon conversion of debt securities that
are also being registered), Acquirer shall, at such time, promptly give
each Shareholder written notice of such registration. Upon the written
request of each Shareholder given within twenty (20) days after mailing of
such notice by Acquirer, Acquirer shall, subject to the provisions of
Section 7.2(c), use reasonable efforts to cause to be registered under the
1933 Act all of the Acquirer Shares that each such Shareholder has
requested to be registered.
(b) Right to Terminate Registration. Acquirer shall have
the right to terminate or withdraw any registration initiated by it under
this Section 7.2 prior to the effectiveness of such registration whether or
not any Shareholder has elected to include securities in such registration.
The expenses of such withdrawn registration shall be borne by Acquirer.
(c) Underwriting Requirements. In connection with any
offering involving an underwriting of shares of Acquirer's capital stock,
Acquirer shall not be required under this Section 7.2 to include any of
Shareholders' securities in such underwriting unless they accept the terms
of the underwriting as agreed upon between Acquirer and the underwriters
selected by it (or by other persons entitled to select the underwriters)
and enter into an underwriting agreement in customary form with an
underwriter or underwriters selected by Acquirer, and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by Acquirer. If the total amount of
securities, including the Acquirer Shares, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than
by Acquirer that the underwriters determine in their sole discretion is
compatible with the success of the offering, then Acquirer shall be
required to include in the offering only that number of such securities,
including Acquirer Shares, that the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling Shareholders
according to the total amount of securities entitled to be included therein
owned by each selling Shareholder or in such other proportions as shall
mutually be agreed to by such selling Shareholders). For purposes of the
preceding parenthetical concerning apportionment, for any selling
shareholder that is a holder of Acquirer Shares and that is a partnership
or corporation, the partners, retired partners and shareholders of such
holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons
shall be deemed to be a single "selling Shareholder," and any pro rata
reduction with respect to such "selling Shareholder" shall be based upon
the aggregate amount of Acquirer Shares owned by all such related entities
and individuals.
(d) Information from Shareholders. It shall be a condition
precedent to the obligations of Acquirer to take any action pursuant to
this Section 7.2 with respect to the Acquirer Shares of any selling
28
Shareholder that such Shareholder shall furnish to Acquirer such
information regarding itself, the Acquirer Shares held by it, and the
intended method of disposition of such securities as shall be required to
effect the registration of such Shareholder's Acquirer Shares.
7.3 Working Capital. In the twelve (12) month period following
the Closing, Acquirer will loan working capital to the Company in the
amount of not less than $20,000 per month and the use of such capital shall
be based upon the Company's financial projections as determined by the
Company's Board; provided however, that Acquirer shall have no obligation
to make such loans if the Shareholders are in material breach of this
Agreement or Key Shareholders are in breach of the Employment Agreements.
Loans made pursuant to this Section 7.3 shall be made in the form of
promissory notes executed by the Company (the "Notes").
7.4 Personal Guaranties. Acquirer shall replace and/or remove
personal guaranties and collateral guaranties identified in Item 7.3 of the
Shareholder Disclosure Letter (the "Guaranties") on or before the first
anniversary of the date of this Agreement. Acquirer agrees to indemnify
Key Shareholders and hold Key Shareholders harmless from costs, expenses,
or obligations of any and every description that Key Shareholders may
suffer, arising directly under or in connection with the Guaranties;
provided, however, such costs, expenses and/or obligations shall be capped
at the amount of the principal and accrued interest under the loans secured
by the Guaranties on the date hereof Key Shareholders will notify Acquirer
promptly upon the filing or taking of any action to which this indemnity
applies, and Acquirer within 10 days of notice shall assume the defense and
control of any such action with Key Shareholders' consent which shall not
be unreasonably withheld and Acquirer may dispose of such action as it
determines in its reasonable discretion (other than by admitting or
consenting to any matter that adversely affects Key Shareholders). Key
Shareholders shall have the right to participate in any such defense of a
claim with advisory counsel of its own choosing, at its own expense. If
the Acquirer fails to defend within a reasonable time after notice of any
such claim, the Key Shareholders shall have the right to undertake the
defense, compromise, or settlement of such a claim on behalf and for the
account of the Acquirer at Acquirer's expense and risk. Notwithstanding
anything to the contrary contained in this Section 7.4, Acquirer shall have
a right of setoff of its obligations under this Section 7.4 if Key
Shareholders are in material breach of this Agreement. Neither Acquirer
nor Key Shareholders shall increase the obligations of any Key Shareholders
under any Guaranties.
7.5 Private Placement Offering. Acquirer shall use commercially
reasonable efforts to facilitate and cooperate in a private placement
offering by Acquirer to raise additional working capital for its
subsidiaries. Acquirer is not obligated to consummate any private
placement offering and it need not be successful if there is insufficient
participation or such an offering is not legally or economically possible
as determined by Acquirer.
7.6 Breach of Post Closing Obligations. In the event that
Acquirer (i) after receiving written notice from any of the Key
Shareholders of Acquirer's failure to provide a loan (working capital) to
Company pursuant to Section 7.3 within fifteen (15) days of such failure,
does not cure such failure within thirty (30) days of receipt of such
notice, or (ii) does not obtain the replacement or removal of the
Guaranties as provided in Section 7.4 (each an "Event of Default") then,
during a period beginning on the Closing and ending upon the earlier of (i)
the date the Guaranties are released or replaced pursuant to Section 7.4 or
(ii) the first anniversary of the Closing, the Shareholders may reacquire
the Shares pursuant to the following terms and conditions:
29
7.6.1 Terms of Reacquisition.
Upon the occurrence of an Event of Default, the Shareholders,
collectively and not individually, may elect to reacquire the Shares in
exchange for (i) the Acquirer Shares and (ii) cancellation of the Notes ten
(10) business days after delivering notice of such election to Acquirer
(the "Reaquisition Notice"). Each of the Shareholders and Acquirer shall
use commercially reasonable efforts to cause such reacquisition of the
Shares to be a tax-free reorganization.
7.6.2. Closing of Reacquisition. On the tenth (10th)
business day following the Reacquisition Notice:
(a) Acquirer shall deliver to Shareholders (i) the debt
instruments evidencing the loans made to the Company pursuant to Section
7.3 each of which shall be marked cancelled, and (ii) certificates
representing all of the Shares together with stock powers duly endorsed in
blank by Shareholders and the resignations of any directors or other
officers of the Company appointed by or affiliated with the Acquirer;
(b) the Shares shall be free of all mortgages, encumbrances,
charges, liens and/or other interests whatsoever at completion (other than
any such restrictions imposed by applicable state and federal securities
laws) and Acquirer shall deliver free and unencumbered title to
Shareholders;
(c) Shareholders shall deliver to Acquirer certificates
representing all of the Acquirer Shares together with stock powers duly
endorsed in blank by Shareholders;
(d) the Acquirer Shares shall be free of all mortgages,
encumbrances, charges, liens and/or other interests whatsoever at
completion (other than any such restrictions imposed by applicable state
and federal securities laws) and Shareholders shall deliver free and
unencumbered title to Acquirer, .
7.6.3 Power of Attorney. If Shareholders deliver a
Reacquisition Notice to Acquirer and Acquirer and/or Shareholder fail to
execute any documents required for the reacquisition of the Shares or the
Acquirer Shares, then Acquirer and Shareholder each hereby irrevocably
appoints the other as its attorney to complete any such documents in
relation to the reacquisition of the Shares and/or the Acquirer Shares
pursuant to this Section 7.5.
7.6.4 Restrictions on Acquirer's Use of Shares. During
the period beginning on the Closing and ending upon the earlier of (i) the
date the Guaranties are released or replaced pursuant to Section 7.4 or
(ii) the first anniversary of the Closing, Acquirer shall not exercise a
vote of any of the Shares of the Company or execute any proxy agreement or
approve any action or resolution by the Company's board of directors (the
"Board") that in a way results in a transfer, sale, lease, encumbrance or
hypothecation of all or substantially all of the assets of the Company
outside of the Company's ordinary course of business unless such action is
specifically approved of and agreed to by Roche or ▇▇▇▇▇. Acquirer's
Shares in Company shall contain a restrictive legend stating that the
transfer of the Shares are restricted pursuant to the terms of this
Agreement.
30
8. CLOSING MATTERS
8.1 The Closing. Subject to termination of this Agreement as
provided in Section 11 below, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of ▇▇▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m.,
Mountain Time on the first business day following the last to be satisfied
of the conditions to closing or such other date as the parties agree (the
"Closing Date"). At the Closing:
(a) Shareholders shall deliver or cause to be delivered to
Acquirer, against payment by Acquirer to Shareholders of the consideration
set forth in Sections 1.2:
(i) a certificate or certificates representing the Shares
being sold by Shareholders hereunder duly endorsed for transfer, or
accompanied by duly executed assignments separate from certificate,
transferring to Acquirer good and marketable title to such Shares, free and
clear of all liens;
(ii) all of the documents, certificates and instruments
required to be delivered, or caused to be delivered, by such Shareholders
pursuant to Section 10 hereof; and
(iii) all records, documents and files of the Company, or
copies thereof including without limitation, all minute books, stock
records and internal accounting records. Shareholders may retain copies of
and shall be provided reasonable access after the Closing to all such
records, documents and files.
(b) Against delivery of Shareholders shall deliver or cause to
be delivered to Acquirer a certificate or certificates representing the
Shares being sold by Shareholders hereunder duly endorsed for transfer, or
accompanied by duly executed assignments separate from certificate,
transferring to Acquirer good and marketable title to such Shares, free and
clear of all liens:
(i) Acquirer shall cause a certificate or certificates
representing the Acquirer Shares to be delivered to the registered holder
or placed in escrow with the Escrow Agent, as applicable; and
(ii) Acquirer shall deliver all of the documents,
certificates and instruments required to be delivered, or caused to be
delivered, by such Shareholders pursuant to Section 9 hereof.
9. CONDITIONS TO OBLIGATIONS OF SHAREHOLDER
Obligations hereunder are subject to the fulfillment or satisfaction,
on and as of the Closing, of each of the following conditions (any one or
more of which may be waived by Shareholders):
9.1 Accuracy of Representations and Warranties. The
representations and warranties of Acquirer set forth in Section 4 shall be
accurate in all material respects and Shareholders shall have received a
certificate to such effect executed on behalf of Acquirer by its Chief
Executive Officer and its Chief Financial Officer.
31
9.2 Covenants. Acquirer shall have performed and complied in
all material respects with all of its covenants contained in Section 6 on
or before the Closing Date, and Shareholders shall have received a
certificate to such effect executed on behalf of Acquirer by its Chief
Executive Officer or Chief Financial Officer.
9.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency or threat thereof, or any other
fact or circumstance, which would prohibit or render illegal the
transactions contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other actions, as may be required to consummate the
transactions contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein proposed to be
taken, including but not limited to satisfaction of all requirements under
applicable federal and state securities laws.
9.5 No Litigation. No litigation or proceeding initiated by a
party other than Shareholders shall be pending which will have the probable
effect of enjoining or preventing the consummation of any of the
transactions provided for in this Agreement.
9.6 Requisite Approvals. The principal terms of this Agreement
shall have been approved and adopted by Acquirer, as required by applicable
law and by its Board of Directors.
9.7 Employment Agreements. Each of Roche and ▇▇▇▇▇ shall have
entered into employment agreements mutually agreeable to the parties (the
"Employment Agreements").
9.8 Escrow Agreement. Acquirer and Escrow Agent shall have
executed and delivered to Shareholder the Escrow Agreement.
9.9 Release of Guaranties. As of the Closing, (i) with respect
to the Guaranties for which Key Shareholders have granted an interest in
certain collateral (such as a deed of trust), such collateral shall have
been released by the lenders (s) or replaced by Acquirer, and (ii) with
respect to Guaranties for which no collateral has been provided, Key
Shareholders shall have received an agreement from Acquirer, in a form and
on terms acceptable to Key Shareholders, that Key Shareholders personal
liability will be released or replaced within 12 months of the Closing.
9.10 Form of Notes. Key Shareholders shall have approved and
accepted the form of Notes to be issued by the Company to Acquirer in
connection with funds loaned pursuant to Section 7.3, which approval shall
not be unreasonably withheld.
10. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Acquirer):
32
10.1 Accuracy of Representations and Warranties. The
representations and warranties of Shareholder set forth in Sections 2 and 3
shall be accurate in all material respects and Acquirer shall have received
a certificate to such effect executed on behalf of Shareholder.
10.2 Covenants. Shareholder shall have performed and complied in
all material respects with all of its covenants contained in Section 5 on
or before the Closing and Acquirer shall have received a certificate to
such effect signed by Shareholder.
10.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency in effect that would prohibit or
render illegal the transactions provided for in this Agreement.
10.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations, and there shall
have been taken such other action, as may be required to consummate the
transactions contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein proposed to be
taken, including but not limited to satisfaction of all requirements under
applicable federal and state securities laws.
10.5 Consents. Acquirer shall have received all written
consents, assignments, waivers, authorizations or other certificates
necessary to provide for the continuation in full force and effect of any
and all contracts and leases of the Company which if not continued would
have a Material Adverse Effect on the Company.
10.6 Absence of Material Adverse Change. Since the Balance Sheet
Date, there shall not have been any Material Adverse Change with respect to
the Company.
10.7 Requisite Approvals. The principal terms of this Agreement
shall have been approved and adopted by Acquirer's Board of Directors.
10.8 No Litigation. No litigation or proceeding shall be
threatened or pending which will have the probable effect of enjoining or
preventing the consummation of any of the transactions provided for in this
Agreement or which have had or could reasonably be expected to have
Material Adverse Effect on the Company.
10.9 Escrow. Acquirer shall have received the Escrow Agreement,
executed by Shareholders and the Escrow Agent, which agreement provides for
the escrow of the Escrow Shares on the terms and conditions of the Escrow
Agreement.
10.10 Employment Agreements. Each of Roche and ▇▇▇▇▇ shall
have entered into the Employment Agreements.
10.11 Investor Representation Certificate. Each Shareholder
shall have executed and delivered to Acquirer an Investor Representation
Certificate in the form attached hereto as Exhibit 5.15.
10.12 Escrow Agreement. Shareholder and Escrow Agent shall
have executed and delivered to Acquirer the Escrow Agreement.
33
10.13 Company Approval. The Board of Directors of the
Company shall have approved the principal terms of this Agreement and the
transactions contemplated hereby.
10.14 Acceleration of Debt. Acquirer, in its reasonable
discretion, shall have determined that this Agreement and the consummation
of the transactions contemplated hereby shall not result in the
acceleration of any of the Company's debt obligations
10.15 Termination of Stock Plan. The Company's stock option
plan shall have been terminated in accordance with California Law.
11. TERMINATION OF AGREEMENT
11.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual written consent of Acquirer and
Shareholders;
(b) Upon notice by either party, if the Closing shall not
have been consummated on or before September 2, 2003 (the "Final Date")
other than as the result of a breach of this Agreement by the terminating
party;
(c) by Shareholders, if there has been a breach by Acquirer
of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Acquirer which has or can reasonably be expected
to have a Material Adverse Effect on Acquirer and which Acquirer fails to
cure within a reasonable time, not to exceed thirty (30) days, after
written notice thereof (except that no cure period will be provided for a
breach by Acquirer which by its nature cannot be cured);
(d) by Acquirer, if there has been a breach by Shareholders
of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of Shareholders which have or can reasonably be
expected to have a Material Adverse Effect on the Company and which
Shareholders fail to cure within a reasonable time not to exceed thirty
(30) days after written notice thereof (except that no cure period will be
provided for a breach by Shareholder which by its nature cannot be cured);
(e) by Acquirer, if Shareholders breach their obligations
under Section 5.8 or Section 5.14; or
(f) by either party, if a permanent injunction or other
order by any federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the transactions contemplated by
this Agreement will have been issued and will have become final and
nonappealable.
Any termination of this Agreement under this Section 11.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
11.2 Certain Continuing Obligations. Following any termination
of this Agreement pursuant to this Section 11, the parties hereto will
continue to perform their respective obligations under Sections 13.11 and
13.18 but will not be required to continue to perform their other covenants
under this Agreement, except as provided in Section 11.1(c) and (d).
34
12. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION
AND REMEDIES, CONTINUING COVENANTS
12.1 Survival of Representations. The representations and
warranties of the parties hereto contained in this Agreement or in any
writing delivered pursuant hereto or thereto or at the Closing shall
survive the Closing and the consummation of the transactions contemplated
hereby and thereby (and any examination or investigation by or on behalf of
any party hereto) until the first anniversary of the Closing Date (the
"Indemnification Period"); provided, that the Indemnification Period for
representations and warranties contained in Sections 2.1, 2.2, 2.3, 2.4,
3.4, 3.21 and 4.5 of this Agreement shall not terminate but shall continue
indefinitely. Notwithstanding the foregoing, each Subparagraph under this
Section 12 shall not be so limited and shall survive until any claims under
this Agreement are resolved in accordance with this Agreement. The
covenants contained in Section 7 shall survive in accordance with their
terms.
12.2 Shareholders Indemnification.
(a) Each Key Shareholder shall, jointly and severally, indemnify
and hold harmless Acquirer and its officers, shareholders, directors,
agents, affiliates and employees (the "Acquirer Indemnified Parties"),
against and in respect of all actions, damages, claims, losses, liabilities
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred by an Acquirer Indemnified Party (all such amounts
being hereinafter sometimes referred to as "Damages") arising out of or
related to (i) any misrepresentation or breach of any warranty made by any
Shareholder pursuant to Section 2 or Section 3 of this Agreement, (ii) the
nonperformance or breach of any covenant, agreement or obligation of the
Company or Shareholders contained in this Agreement, or (iii) any failure
of any Shareholders to have good, valid and marketable title to the issued
and outstanding shares of the Company's Common Stock, free and clear of
all liens, claims, pledges, options, adverse claims, assessments and
charges of any nature whatsoever, or to have the full right, capacity and
authority to vote said shares of the Company's Common Stock. There shall
be no liability for indemnification under this Section 12.2, unless the
aggregate amount of Damages hereunder (excluding legal fees) exceeds Ten
Thousand Dollars ($10,000), and then only to the extent such aggregate
amount of Damages exceeds $10,000. The liability of Key Shareholders for
Damages hereunder shall be satisfied first from the Escrow Shares, and such
liability is subject to the right of setoff for any Damages owed by the
Acquirer Indemnified Party . The value of the Acquirer Shares for purposes
of this Article 12 shall be the Fair Market Value (as defined in Section
12.5). In no event shall Key Shareholders' indemnification obligations
under this Section 12 exceed the Fair Market Value of the Acquirer Shares.
(b) If an Acquirer Indemnified Party believes it has incurred
any Damages which are subject to indemnification under Section 12.2, it
shall promptly provide written notice thereof to Shareholders.
(c) With respect to claims or demands by third parties, whenever
an Acquirer Indemnified Party shall have received notice that such a claim
or demand has been asserted or threatened, which, if true, would result in
indemnification under Section 12.2, the Acquirer Indemnified Party shall as
soon as reasonably practicable, and in any event within thirty (30) days of
receipt of such notice, notify Shareholders' Representative of such claim
or demand and of all relevant facts within its knowledge which relate
thereto. Shareholders' Representative shall then have the right to
undertake the defense of any such claims or demands utilizing counsel they
select and approved by Acquirer, which approval shall not be unreasonably
35
withheld, conditioned or delayed; provided however, that Shareholders'
Representative shall not settle or otherwise compromise any such action
without the prior written consent of the Acquirer Indemnified Party unless
such settlement affords the Acquirer Indemnified Party a full release or a
dismissal of any action with prejudice. In the event that Shareholders'
Representative shall fail to give notice of their intention to undertake
the defense of any such claim or demand within twenty (20) business days
after receiving notice that it has been asserted or threatened, the
Acquirer Indemnified Party shall have the right to satisfy and discharge
the same by payment, compromise or otherwise. For purposes of this
Agreement, "Shareholders' Representative" shall mean ▇▇▇▇ ▇▇▇▇▇.
(d) If an Acquirer Indemnified Party believes it has incurred
any Damages which are subject to indemnification under Section 12.2(a) and
such Damages do not involve a third party claim or demand described in
Section 12.2(d), it shall forward notice thereof to Shareholders'
Representative and shall state therein the amount of Damages it believes it
has suffered, and shall provide, in reasonable detail the facts alleged as
the basis for such claim and the section or sections of this Agreement
alleged to have been violated (a "Damages Notice"). No later than thirty
(30) days after receipt of a Damages Notice from an Acquirer Indemnified
Party, Shareholders' Representative shall deliver to Acquirer either a
notice accepting such claim for Damages or a notice that Shareholders
dispute the claim for Damages. A failure to provide the Acquirer
Indemnified Party with notice disputing a claim for Damages within thirty
(30) days of receipt of a Damages Notice from an Acquirer Indemnified Party
shall be deemed acceptance of such claim. Notwithstanding any provision
herein to the contrary, the failure of Acquirer Indemnified Party to give
any notice required by this section shall not constitute a waiver of
Acquirer Indemnified Party's right to indemnification or a defense to any
claim by Shareholders unless such failure results in material prejudice to
the Shareholders.
12.3 Acquirer Indemnification.
(a) Acquirer shall indemnify and hold harmless
Shareholders, their heirs and assigns (the "Shareholder Indemnified
Parties"), against and in respect of all actions, damages, claims, losses,
liabilities and expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by a Shareholder Indemnified
Party within the Indemnification Period, arising out of or related to (i)
any misrepresentation or breach of any warranty made by Acquirer pursuant
to Section 4 of this Agreement, or (ii) the nonperformance or breach of any
covenant, agreement or obligation of Acquirer contained in this Agreement.
There shall be no liability for indemnification under this Section 12.3
unless the aggregate amount of Damages hereunder exceeds Ten Thousand
Dollars ($10,000), and then only to the extent such aggregate amount of
Damages exceeds $10,000, and such liability is subject to the right of
setoff for any Damages owed by the Shareholder Indemnified Party. In no
event shall Acquirer's indemnification obligations under this Section 12
exceed the Fair Market Value of the Acquirer Shares.
36
(b) If a Shareholder Indemnified Party believes it has
incurred any Damages that are subject to indemnification under Section
12.3, it shall promptly provide written notice thereof to Acquirer.
(c) With respect to claims or demands by third parties,
whenever a Shareholder Indemnified Party shall have received notice that
such a claim or demand has been asserted or threatened, which, if true,
would result in indemnification under Section 12.3, Shareholder Indemnified
Party shall as soon as reasonably practicable, and in any event within
thirty (30) days of receipt of such notice, notify Acquirer of such claim
or demand and of all relevant facts within its knowledge which relate
thereto. Acquirer shall then have the right to undertake the defense of
any such claims or demands utilizing counsel selected by it and approved by
Shareholder, which approval shall not be unreasonably withheld, conditioned
or delayed, provided however, that Acquirer shall not settle or otherwise
compromise any such action without the prior written consent of Shareholder
Indemnified Party unless such settlement affords Shareholder Indemnified
Party a full release. In the event that Acquirer shall fail to give notice
of its intention to undertake the defense of any such claim or demand
within twenty (20) business days after receiving notice that it has been
asserted or threatened, Shareholder Indemnified Party shall have the right
to satisfy and discharge the same by payment, compromise or otherwise.
Notwithstanding any provision herein to the contrary, the failure of
Shareholder Indemnified Party to give any notice required by this Section
shall not constitute a waiver of Shareholder Indemnified Party's right to
indemnification or a defense to any claim by Acquirer unless such failure
results in material prejudice to Acquirer.
(d) If a Shareholder Indemnified Party believes it has
incurred any Damages which are subject to indemnification under Section
12.3(a) and such Damages do not involve a third party claim or demand
described in Section 12.3(c), it shall forward a Damages notice to
Acquirer. No later than thirty (30) days after receipt of a Damages Notice
from a Shareholder Indemnified Party, Acquirer shall deliver to Shareholder
Indemnified Party either a notice accepting such claim for Damages or a
notice that Acquirer disputes the claim for Damages. A failure to provide
Shareholder Indemnified Party with notice disputing a claim for Damages
within thirty (30) days of receipt of a Damages Notice from a Shareholder
Indemnified Party shall be deemed acceptance of such claim.
12.4 Insurance Recoveries.
12.4.1 Shareholder Indemnified Party or Acquirer
Indemnified Party shall use commercially reasonable efforts to collect
insurance proceeds from applicable insurance policies held by such
Shareholder Indemnified Party or Acquirer Indemnified Party, as the case
may be. Nothing in this Section 12.4 shall require Shareholder Indemnified
Party or Acquirer Indemnified Party to obtain any insurance coverage. If
there is insurance that provides complete coverage of a defense for a claim
for which there is a right to indemnification, then an indemnifying party
may satisfy his or its liability by such insurance with the indemnified
party's prior written consent, which shall not be unreasonably withheld.
12.4.2 Any indemnity payment made by Shareholders to any
Acquirer Indemnified Party, on the one hand, or by Acquirer to any
Shareholder Indemnified Party, on the other hand, pursuant to this
Section 12 in respect of any claim (i) shall be net of an amount equal to
(x) any insurance proceeds realized by and paid to the respective
Shareholder Indemnified Parties or Acquirer Indemnified Parties minus (y)
any deductible actually paid.
37
12.5 Fair Market Value. For purposes of this Section 12, "Fair
Market Value" shall mean $0.50 per share.
13. MISCELLANEOUS
13.1 Governing Law. The internal laws of the State of Utah
(irrespective of its choice of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
13.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of the void or unenforceable
provision.
13.4 Counterparts. This Agreement may be executed in
counterparts, each of which will be an original as regards any party whose
name appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, bear the signatures of
all parties reflected hereon as signatories.
13.5 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by a writing signed by the party to
be bound thereby. The waiver by a party of any breach hereof or default in
the performance hereof will not be deemed to constitute a waiver of any
other default or any succeeding breach or default.
13.6 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of
the right to enforce any of the provisions hereof on any occasion will not
be construed to be a waiver of the right of such party to enforce such
provision on any other occasion.
13.7 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered personally or by mail or express delivery, postage prepaid, and
will be deemed given upon actual delivery or, if mailed by registered or
certified mail, on the third business day following deposit in the mails,
addressed as follows:
38
(i) If to Acquirer:
Trinity Learning Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇, Chief Executive Officer
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Esq.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to the Shareholders:
TouchVision, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & Small
e-mail: ▇▇▇▇▇@▇▇▇▇▇▇▇-▇▇▇.▇▇▇
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 13.7.
13.8 Construction of Agreement. The language hereof will not be
construed for or against any party based solely on that party being the
drafting party. A reference to an article, section or exhibit will mean an
article or section in, or an exhibit to, this Agreement, unless otherwise
explicitly set forth. The titles and headings in this Agreement are for
reference purposes only and will not in any manner limit the construction
of this Agreement. For the purposes of such construction, this Agreement
will be considered as a whole.
39
13.9 No Joint Venture. Nothing contained in this Agreement will
be deemed or construed as creating a joint venture or partnership between
the parties hereto. No party is by virtue of this Agreement authorized as
an agent, employee or legal representative of any other party. No party
will have the power to control the activities and operations of any other,
and the parties' status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself
out as having any authority or relationship in contravention of this
Section.
13.10 Further Assurances. Each party agrees to cooperate fully
with the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions
provided for herein and to carry into effect the intent of this Agreement.
13.11 Public Announcement. Acquirer and Shareholders will issue
a press release approved by all parties announcing this Agreement as soon
as practicable following the execution of this Agreement. Acquirer may
issue such press releases, and make such other disclosures regarding the
transactions contemplated by this Agreement, as it determines to be
required or appropriate under applicable securities laws. No Shareholder
will make any other public announcement or disclosure of the transactions
contemplated by this Agreement until such time as Acquirer has issued such
press releases, and made such other disclosures regarding this Agreement
required under applicable securities laws or the time period designated by
federal securities laws for making such disclosures has lapsed. Each
Shareholder will take all reasonable precautions to prevent any trading in
the securities of Acquirer by officers, directors, employees and agents of
each such Shareholder having knowledge of any material information
regarding Acquirer provided hereunder, including, without limitation, the
existence of the transactions contemplated by this Agreement (the "Acquirer
Material Information"), until the information in question has been publicly
disclosed. Shareholder agrees not to trade in the securities of Acquirer
until the Acquirer Material Information has been disclosed.
13.12 Time is of the Essence. The parties hereto acknowledge and
agree that time is of the essence in connection with the execution,
delivery and performance of this Agreement, and that they will each utilize
reasonable best efforts to satisfy all the conditions to Closing.
13.13 Certain Definitions.
13.13.1 "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust company (including any
limited liability company or joint stock company), firm or other
enterprise, association, organization or entity.
13.13.2 "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, municipal, foreign or
other government; or (c) governmental or quasi-government authority of any
nature (including any governmental division, department, agency,
commission, instrumentality, official, organization, unit body or Entity
and any court or other tribunal).
40
13.13.3 "Knowledge" shall mean actual knowledge after
reasonable investigation. For purposes of this definition, "reasonable
investigation" with respect to Shareholders shall include inquiry by each
of the Shareholders of the directors, executive officers and supervisory
employees and each of the other Shareholders of the Company.
13.13.4 "Legal Requirement" shall mean any statute,
law, ordinance, rule, regulation, permit, order, writ, judgment,
injunction, decree or award issued, enacted or promulgated by any local,
state, federal or foreign court, government, governmental department,
commission, agency board or instrumentality.
13.13.5 "Material Adverse Effect" and "Material
Adverse Change." For purposes of this Agreement, the terms "Material
Adverse Effect" and "Material Adverse Change" mean or refer to, with
respect to any entity, any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse changes,
circumstances and effects, is or is reasonably likely to be materially
adverse to the financial condition, properties, assets, liabilities,
material Intellectual Property rights, business, or operating results of
such entity, and its subsidiaries if any, taken as a whole, except for
those changes, circumstances or events that are caused by (i) general
business or economic conditions, (ii) conditions affecting the market in
which such entity competes, (iii) conditions resulting from the
announcement of this Agreement or the pendency of the consummation of the
transactions contemplated herein and (iv) conditions resulting from or
relating to the taking of any action contemplated by this Agreement or
otherwise agreed to by Acquirer.
13.13.6 "Person" shall mean any individual, Entity or
Governmental Body.
13.14 Expenses. All expenses incurred in connection
with this Agreement on behalf of Shareholders, including, but not limited
to, all accounting, legal and investment banking and other related fees,
shall be paid by Shareholders, and not by the Company or Acquirer;
provided, that in the event of closing of this Agreement, then Acquirer
will pay all reasonable and customary accounting and attorneys' fees and
expenses incurred by Shareholders and/or the Company in connection with the
transactions contemplated hereby, up to but not to exceed $25,000 in the
aggregate. The Company shall pay and hold Acquirer harmless from any such
fees and expenses incurred by Company in excess of $25,000.
13.15 Absence of Third Party Beneficiary Rights. No
provisions of this Agreement are intended, nor will be interpreted, to
provide or create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, partner or employee of any
party hereto or any other person or entity, except as specifically
otherwise provided to be for the benefit of officers, directors, employees
or shareholders of the Company in Sections 5.13 and 6.4 (as to officers and
directors), and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
13.16 Entire Agreement. This Agreement and the exhibits
hereto constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance or usage of trade inconsistent with any
of the terms hereof.
41
13.17 Sole Remedy. The parties' sole and exclusive
remedy for breach of any representation, warranty or covenant herein shall
be the indemnification provision of Article 12.
13.18 Arbitration. Any dispute arising out of this
Agreement under the Commercial Arbitration Rules (the "AAA Rules") of the
American Arbitration Association (the "AAA"). This arbitration provision
is expressly made pursuant to and shall be governed by the Federal
Arbitration Act, 9 U.S.C. Section 1-14. The Parties agree that pursuant
to Section 9 of the Federal Arbitration Act, a judgment of a United States
District Court of competent jurisdiction shall be entered upon the award
made pursuant to the arbitration. A single neutral arbitrator, who shall
have the authority to allocate the costs of any arbitration initiated under
this paragraph, shall be selected according to the AAA Rules within ten
(10) days of the submission to the AAA of the response to the statement of
claim or the date on which any such response is due, whichever is earlier.
The arbitrator shall be required to furnish to the parties to the
arbitration a preliminary statement of the arbitrator's decision that
includes the legal rationale for the arbitrator's conclusion and the
calculations pertinent to any damage award being made by the arbitrator.
The arbitrator shall then furnish each of the parties to the arbitration
the opportunity to comment upon and/or contest the arbitrator's preliminary
statement of decision either, in the discretion of the arbitrator, through
briefs or at a hearing. The arbitrator shall render a final decision
following any such briefing or hearing. The arbitrator shall conduct the
arbitration in accordance with the Federal Rules of Evidence and Federal
Rules of Civil Procedure. The arbitrator shall decide the amount and
extent of pre-hearing discovery in the event of any dispute. The
arbitrator shall have the power to enter any award of monetary and/or
injunctive relief (including the power to issue permanent injunctive relief
and also the power to reconsider any prior request for immediate injunctive
relief by any party and any order as to immediate injunctive relief
previously granted or denied by a court in response to a request therefor
by any party), including the power to render an award as provided in Rule
43 of the AAA Rules. The arbitrator shall have the power to award the
prevailing party its costs and reasonable attorneys' fees; provided,
however, that the arbitrator shall not award attorneys' fees to a
prevailing party if the prevailing party received a settlement offer unless
the arbitrator's award to the prevailing party is greater than such
settlement offer without taking into account attorneys' fees in the case of
the settlement offer or the arbitrator's award. In addition to the above
courts, the arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration. If
arbitration is not commenced within 30 days after notice by a party or for
any action that requires immediate injunctive relief based on irreparable
harm as set forth under FRCP then the parties may avail themselves of a
court of competent jurisdiction for the sole purpose of obtaining such
injunction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
42
ACQUIRER SHAREHOLDERS
TRINITY LEARNING CORPORATION
By:___________________________ By:___________________________
Name: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
By:___________________________
▇▇▇▇▇ ▇▇▇▇▇
By:___________________________
▇▇▇▇▇ ▇▇▇▇▇
By:___________________________
▇▇▇▇▇▇▇ ▇▇▇▇
By:___________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
By:___________________________
Name: ________________________
Title: Trustee, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust
By:___________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
By:___________________________
▇▇▇▇▇ ▇▇▇▇▇
By:___________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
43
By:___________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
By:___________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇
By:___________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT
44
Annex A
Shareholders No. of Shares
------------ -------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 5,415,000
▇▇▇▇▇ ▇. ▇▇▇▇▇ 5,415,000
▇▇▇▇▇ ▇▇▇▇▇ 400,000
▇▇▇▇▇▇▇ ▇▇▇▇ 385,400
▇▇▇▇▇▇ ▇▇▇▇▇▇ 350,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust 25,000
▇▇▇▇▇▇ ▇▇▇▇▇▇ 10,000
▇▇▇▇▇ ▇▇▇▇▇ 15,000
▇▇▇▇ ▇▇▇▇▇▇▇▇ 15,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 15,000
▇▇▇▇▇▇▇ ▇▇▇▇▇ 15,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 50,000