EXHIBIT 4.6
SHARE PURCHASE AGREEMENT
by and among
▇▇▇▇▇▇▇▇.▇▇▇, Inc.,
▇▇▇▇▇▇▇▇.▇▇▇ Corporation
and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Dated as of April 2, 1999
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (the "Agreement") is made and entered into
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as of April 2, 1999 (the "Effective Date") by and among ▇▇▇▇▇▇▇▇.▇▇▇, Inc.
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("▇▇▇▇▇▇▇▇.▇▇▇"), a California corporation, ▇▇▇▇▇▇▇▇.▇▇▇ Corporation (the
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"Company"), a California corporation, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the sole shareholder
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of the Company ("Shareholder").
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RECITALS
WHEREAS, Shareholder owns all of the issued shares of capital stock of the
Company.
WHEREAS, ▇▇▇▇▇▇▇▇.▇▇▇ desires to acquire from Shareholder, and Shareholder
desires to sell to ▇▇▇▇▇▇▇▇.▇▇▇, the Company Shares (as hereinafter defined)
owned by Shareholder in exchange for the consideration specified herein and
subject to the terms and conditions hereof (such transaction hereinafter
referred to as the "Share Exchange").
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NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
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PURCHASE AND SALE OF COMPANY SHARES AND RIGHTS
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1.1. Purchase and Sale. Subject to the terms and conditions set forth in
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this Agreement, at the Share Exchange ▇▇▇▇▇▇▇▇.▇▇▇ shall purchase from
Shareholder, and Shareholder shall sell, assign, transfer and deliver to
▇▇▇▇▇▇▇▇.▇▇▇, or cause to be sold, assigned transferred and delivered, the
Company Shares owned by Shareholder free and clear of any pledge, lien, security
interest, encumbrance, claim or other equitable or third-party interest
(collectively, "Liens").
1.2. Acquisition Consideration; Exchange Ratio.
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(a) In reliance on the representations, warranties and covenants of
Shareholder and the Company contained herein, and in consideration of the
aforesaid sale, assignment, transfer and delivery of the Company Shares and
Company Rights, ▇▇▇▇▇▇▇▇.▇▇▇ shall (i) issue to Shareholder in exchange for all
Company Shares and the agreements of Shareholder and the Company made in
connection with the transactions contemplated hereby, 1,579,294 shares of
▇▇▇▇▇▇▇▇.▇▇▇ Common Stock (as hereinafter defined), and (ii) reserve 74,424
shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock for issuance upon exercise of all of the
Company Rights to be assumed by ▇▇▇▇▇▇▇▇.▇▇▇ pursuant to Section 1.5 hereof (all
such shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock referred to collectively the
"Acquisition Consideration"). The shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock to be
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issued to Shareholder are hereinafter referred to as the "Shareholder Common
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Stock" and the shares to be reserved for issuance for the Company Rights shall
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be referred to as the "Options Common Stock."
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(b) For purposes of this Agreement: (i) "▇▇▇▇▇▇▇▇.▇▇▇ Common Stock"
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shall mean shares of common stock of ▇▇▇▇▇▇▇▇.▇▇▇, no par value; (ii) "Company
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Shares" shall mean shares of common stock of the Company, no par value; (iii)
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"Company Rights" shall mean any options or warrants or other agreements or
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commitments to purchase Company Shares or any securities convertible into or
exchangeable for Company Shares; and (iv) "Exchange Ratio" shall mean the
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quotient obtained by dividing (x) the Acquisition Consideration by (y) the sum
of (A) the Company Shares outstanding as of the Exchange Date, and (B) the total
number of Company Shares of the Company reserved for issuance or otherwise
issuable upon exercise or conversion of the Company Rights outstanding as of the
Exchange Date.
1.3. Share Exchange. The Share Exchange shall occur at the offices of
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ located at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 8:00 a.m., local time, on the next business day following
the date all of the conditions set forth in Section 6 have been satisfied, or on
such other date as the parties hereto shall agree. The Share Exchange shall be
effected with the delivery of the Company Certificates (as hereinafter defined)
by Shareholder in accordance with Section 1.5(a) and the payment of the
Acquisition Consideration by ▇▇▇▇▇▇▇▇.▇▇▇ in accordance with Section 1.5(b). The
date on which the Share Exchange shall occur is referred to herein as the
"Exchange Date."
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1.4. Surrender of Company Certificates; Payment of Acquisition
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Consideration.
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(a) At the Share Exchange, Shareholder and the Company shall deliver
or cause to be delivered to ▇▇▇▇▇▇▇▇.▇▇▇ a certificate or certificates and/or
any other instrument (the "Company Certificates") representing all Company
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Shares owned by Shareholder, together with all necessary endorsements, transfers
or assignments required for the valid delivery thereof.
(b) Concurrent with the delivery of the Company Certificates by
Shareholder, ▇▇▇▇▇▇▇▇.▇▇▇ shall deliver to Shareholder as payment of the
applicable portion of the Acquisition Consideration in accordance with this
Article I, the Shareholder Common Stock in the name of Shareholder issued in
accordance with the Articles of Incorporation of ▇▇▇▇▇▇▇▇.▇▇▇; provided,
however, that ▇▇▇▇▇▇▇▇.▇▇▇ and Shareholder shall forthwith deposit ten percent
(10%) of the Shareholder Common Stock (the "Escrow Amount") into an escrow
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account pursuant to Section 7.3 below.
(c) If any share of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock is to be issued in a
name other than that in which the Company Certificate surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the
Company Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to ▇▇▇▇▇▇▇▇.▇▇▇ or any agent designated by it any transfer or other taxes
required by reason of the issuance of a share of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock in
any name other than that of the registered holder of the Company Certificate
surrendered, or established to the satisfaction of ▇▇▇▇▇▇▇▇.▇▇▇ or any agent
designated by it that such tax has been paid or is not payable.
1.5. Assumption of Company Rights.
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(a) Stock Options. On the Exchange Date, all Company Rights then
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outstanding under the Company's 1999 Stock Option Plan (the "Option Plan"), or
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otherwise, shall be assumed by ▇▇▇▇▇▇▇▇.▇▇▇ in accordance with following
provisions. Each Company Right so assumed by ▇▇▇▇▇▇▇▇.▇▇▇ under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option agreements
governing such Company Right immediately prior to the Exchange Date, except that
(A) such Company Right shall be exercisable for that number of whole shares of
▇▇▇▇▇▇▇▇.▇▇▇ Common Stock equal to the product of the number of Company Shares
that were issuable upon exercise of such Company Right immediately prior to the
Exchange Date multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock and (B) the per share
exercise price for the shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock issuable upon
exercise of such assumed Company Right shall be equal to the quotient determined
by dividing the exercise price per Company Share at which such Company Right was
exercisable immediately prior to the Exchange Date by the Exchange Ratio,
rounded up to the nearest whole cent.
(b) It is the intention of the parties that the Company Rights
assumed by ▇▇▇▇▇▇▇▇.▇▇▇ qualify following the Exchange Date as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986 to the
extent the Company Rights qualified as incentive stock options immediately prior
to the Exchange Date. Promptly following the Exchange Date, ▇▇▇▇▇▇▇▇.▇▇▇ will
issue to each holder of an outstanding Company Right a document evidencing the
foregoing assumption of such Company Right by ▇▇▇▇▇▇▇▇.▇▇▇.
1.6. No Further Ownership Rights in Company Shares. All shares of
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▇▇▇▇▇▇▇▇.▇▇▇ Common Stock issued in exchange for Company Shares in accordance
with the terms of this Agreement (including any cash paid in respect thereof)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Shares.
1.7. Lost, Stolen or Destroyed Company Certificates. In the event any
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Company Certificates evidencing Company Shares shall have been lost, stolen or
destroyed, ▇▇▇▇▇▇▇▇.▇▇▇ shall make payment, in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, of such shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock (subject to the
Escrow Amount) as may be required pursuant to Section 1.2; provided, however,
that ▇▇▇▇▇▇▇▇.▇▇▇ may, in its sole discretion and as a condition precedent to
the issuance thereof, require the owner of any such lost, stolen or destroyed
Company Certificates to deliver a bond in such sum as ▇▇▇▇▇▇▇▇.▇▇▇ may
reasonably direct as indemnity against any claim that may be made against
▇▇▇▇▇▇▇▇.▇▇▇ with respect to the Company Certificates alleged to have been lost,
stolen or destroyed.
1.8. Taking of Necessary Action; Further Action. If, at any time after
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the Share Exchange, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest ▇▇▇▇▇▇▇▇.▇▇▇ with full right, title
and possession to all assets, property, rights, privileges, powers and
franchises of the Company, the officers and directors of ▇▇▇▇▇▇▇▇.▇▇▇ and the
Company are hereby fully authorized in the names of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
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REPRESENTATIONS AND WARRANTIES
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OF SHAREHOLDER AND THE COMPANY
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Except as set forth in the Company Disclosure Schedule, Shareholder and
the Company hereby represent and warrant to ▇▇▇▇▇▇▇▇.▇▇▇ as follows:
2.1 Organization. The Company is a corporation duly incorporated and
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organized, and is validly existing and in good standing under the laws of the
state of California. The Company has the corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
registered, licensed or qualified as a foreign corporation and is in good
standing, under the laws of each jurisdiction in which the failure to be so
qualified could have a material adverse effect on the business, assets,
financial condition, results of operations or prospects of the Company (with
reference to either the Company or ▇▇▇▇▇▇▇▇.▇▇▇, as applicable, hereinafter
referred to as a "Material Adverse Effect"). The Company has delivered a true
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and correct officially certified copy of its Articles of Incorporation and
Bylaws, (together, the "Charter"), to ▇▇▇▇▇▇▇▇.▇▇▇.
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2.2 Capital Structure. The authorized stated capital of the Company
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consists of 10,000,000 Company Shares, of which 1,000,000 shares are issued and
outstanding. All issued and outstanding Company Shares have been duly authorized
and validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares, and are owned by Shareholder free and clear of any
Liens. Other than Company Shares owned by Shareholder, there are no other
outstanding interests, existing or contingent or direct or indirect, in Company
Shares. Immediately following the Share Exchange as provided in this Agreement,
the Company will be a wholly owned subsidiary of ▇▇▇▇▇▇▇▇.▇▇▇. Except as set
forth in Section 2.2 of the Company Disclosure Schedule, there are no Company
Rights of any character, written or oral, to which the Company or any
shareholder of the Company is a party or by which any of them is bound,
obligating the Company or any of its shareholders to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any Company Shares or obligating the Company or any of its
shareholders to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such Company Rights, including without
limitation in favor of employees of the Company.
2.3 Subsidiaries. The Company does not have and has never had any
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subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. The Company has all requisite corporate power and authority
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to enter into this Agreement and any Related Agreements (as hereinafter defined)
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and any Related
Agreements to which the Company is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate
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action on the part of the Company, and no further action is required on the part
of the Company to authorize the Share Exchange, the Agreement, any Related
Agreements to which it is a party and the transactions contemplated hereby and
thereby. This Agreement and any Related Agreements to which the Company is a
party have been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies. The "Related Agreements" shall mean all such ancillary
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agreements required in this Agreement to be executed and delivered in connection
with the transactions contemplated hereby, including the Employment Agreement
(as defined in Section 5.8 herein), the Escrow Agreement (as defined in Section
7.3) and the affiliate agreements required by Section 5.11.
2.5 No Conflict. The execution and delivery of this Agreement and any
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Related Agreements to which the Company is a party by the Company do not, and,
the consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Charter,
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(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which the Company is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on the ability of the Company to
consummate the transactions contemplated hereby and thereby.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
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registration, declaration or filing with, any court, administrative agency or
commission or other U.S. federal, state, province, county, local or other
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any agreement
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with the Company (so as not to trigger any Conflict), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement and any Related Agreements to which the Company is a party or the
consummation of the transactions contemplated hereby and thereby, except for
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings (i) as may be required under applicable securities
laws, (ii) as are set forth in Section 2.6 of the Company Disclosure Schedule,
and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on the ability of the Company to consummate the transactions contemplated
hereby and thereby.
2.7 Company Financial Statements.
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(a) Section 2.7(a) of the Company Disclosure Schedule includes the
Company's unaudited financial statements (balance sheets, income statements and
statements of cash flows) as of and for the fiscal years ending December 31,
1996, 1997 and 1998. Such financial statements are referred to collectively as
the "Financial Statements." The Financial Statements are complete and correct
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and have been or will be, as applicable, prepared in accordance with generally
accepted
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accounting principles in the United States ("GAAP"), applied on a basis
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consistent throughout the periods indicated. The Financial Statements present
fairly the financial condition and operating results of the Company as of the
dates and during the periods indicated therein. The balance sheet of the Company
as of December 31, 1998 is hereinafter referred to as the "December Balance
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Sheet." December 31, 1998 is hereinafter referred to as the "Balance Sheet
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Date." The balance sheet of the Company as of March 31, 1999 is hereinafter
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referred to as the "Closing Balance Sheet." There shall be no capitalized
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software development costs recorded in the Financial Statements, or the Closing
Balance Sheet. The December Balance Sheet does not, and the Closing Balance
Sheet will not, include any reserves, write-offs or non-recurring charges in an
amount that is not consistent with the Company's past practices. Shareholder
and/or the Company will deliver, or cause to be delivered, the Closing Balance
Sheet to ▇▇▇▇▇▇▇▇.▇▇▇ on or prior to the Exchange Date.
2.8 No Undisclosed Liabilities. Except as reflected or reserved against in
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the December Balance Sheet, as of the Balance Sheet Date, the Company did not
have any liability, indebtedness, obligation, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with GAAP), which in the aggregate exceeded
$10,000, nor has the Company incurred any such liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement since the
Balance Sheet Date, except for liabilities incurred in the ordinary course of
business that, in the aggregate, do not exceed $10,000.
2.9 No Changes. Since the Balance Sheet Date, except as set forth in
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Section 2.9 of the Company Disclosure Schedule, there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) capital expenditure or commitment for capital expenditure by the
Company, either individually or in the aggregate, exceeding $10,000;
(c) destruction of, damage to or loss of any material assets of the
Company (whether or not covered by insurance) or loss of any business or
customers of the Company that (i) accounted for $50,000 or more of the Company's
revenues for fiscal year 1998 or (ii) is projected to account for $100,000 or
more of the Company's projected revenue for fiscal year 1999;
(d) labor trouble or claim of wrongful discharge of which the
Company has received written notice or of which Shareholder is aware or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets, other than
depreciation as required by GAAP and reflected on the Closing Balance Sheet;
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(g) declaration, setting aside or payment of any dividends on or any
other distribution (whether in cash, stock or property) in respect of any
Company Shares or profits, or any split, combination or reclassification of
Company Shares or the issuance or authorization of the issuance of any of the
securities in respect of, in lieu of or in substitution for any share in the
stated capital of the Company, or the repurchase, redemption or other
acquisition, directly or indirectly, of any Company Shares (or options, warrants
or other rights exercisable therefor);
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company of a bonus or other additional salary or
compensation to any such person, except as made in the ordinary course of
business;
(i) sale, lease, license or other disposition of any of the assets
or properties of the Company, except sales of inventory in the ordinary course
of business;
(j) amendment or termination or violation of any distribution
agreement or any material contract, agreement or license to which the Company is
a party or by which it is bound, other than termination by the Company pursuant
to the terms thereof in the ordinary course of business;
(k) loan by the Company to any person or entity, other than advances
to its employees for travel and business expenses in the ordinary course of
business and consistent with past practices, or incurrence by the Company of any
indebtedness other than trade debt in the ordinary course of business consistent
with past practices, guaranty of the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others;
(l) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, exceeding $1,000 in the aggregate;
(m) commencement or notice, or to the knowledge of Shareholder or
the Company, threat of commencement, of any lawsuit or proceeding against or
investigation of the Company or its affairs;
(n) claim of ownership by a third party of any Intellectual Property
Right (as defined in Section 2.13 below) or, to the knowledge of Shareholder or
the Company, infringement by the Company of any third party's intellectual
property rights;
(o) issuance or sale by the Company of any Company Shares or Company
Rights or of any other securities of the Company;
(p) change in pricing or royalties set or charged by the Company
other than in the ordinary course of business;
(q) any event or condition of any character, that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
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(r) negotiation or agreement by the Company or any officer or
employees of the Company to do any of the things described in the preceding
clauses (a) through (q) (other than negotiations with ▇▇▇▇▇▇▇▇.▇▇▇ and its
representatives regarding the transactions contemplated by this Agreement and
acts otherwise permitted by such clauses (a) through (q)).
2.10 Tax Matters.
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(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
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or, collectively, "Taxes," means (i) any and all federal, state, province, local
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and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, goods and services, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; and (ii) any
liability for the payment of any amounts of the type described in clause (i) as
a result of any express or implied obligation to indemnify any other person or
as a result of any obligations under any agreements or arrangements with any
other person with respect to such amounts and including any liability for taxes
of a predecessor entity.
(b) Tax Returns and Audits.
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(i) The Company as of the Exchange Date will have prepared and
timely filed or made a timely request for extension for all required federal,
state, province, local and foreign returns, estimates, information statements
and reports ("Returns") relating to any and all Taxes concerning or attributable
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to the Company or its operations and such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) The Company is, and at all times since July 30, 1996 has
been, an S Corporation under and within the meaning of Section 1361 of the Code,
and under all applicable state Tax laws and regulations.
(iii) Shareholder as of the Exchange Date will have prepared
and timely filed or made a timely request for extension for all required Returns
relating to any and all Taxes concerning or attributable to Shareholder and such
Returns are true and correct and have been completed in accordance with
applicable law.
(iv) The Company and Shareholder as of the Exchange Date (A)
will have paid or accrued all Taxes it or he is required to pay or accrue as
shown on the Returns and (B) will have withheld and timely remitted all income
taxes and other Taxes required to be withheld and remitted.
(v) Neither the Company nor Shareholder has been delinquent in
the payment of any Tax nor is there any Tax deficiency or reassessment
outstanding, assessed, notified or, to the knowledge of Shareholder or the
Company, proposed against the Company or Shareholder, nor has the Company or
Shareholder executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
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(vi) No audit or other examination of any Return of the
Company or Shareholder is presently in progress, nor has the Company or
Shareholder been notified of any request for such an audit or other examination.
(vii) The Company does not have any liabilities for unpaid
federal, state, province, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the December Balance Sheet, whether
asserted or unasserted, contingent or otherwise.
(iiiii) The Company has made available to ▇▇▇▇▇▇▇▇.▇▇▇ or its
legal counsel, copies of all foreign, federal, state and province income and
sales and use Tax Returns (for both the Company and Shareholder) filed for all
years as to which any applicable statute of limitations has not expired.
(ix) There are no Liens of any sort on the assets of the
Company or Shareholder relating to or attributable to Taxes other than Liens for
taxes not yet due and payable.
(x) Neither Shareholder nor the Company has knowledge of any
basis for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any material assets of the
Company or Shareholder.
(xi) As of the Exchange Date, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company,
individually or collectively, which could give rise to the payment of any amount
that would not be deductible by the Company as an expense under applicable tax
law.
(xii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal and
provincial income tax deductions is accurately reflected on the Company's tax
books and records.
2.11 Restrictions on Business Activities. There is no agreement (noncompete
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or otherwise), commitment, judgment, injunction, order or decree to which
Shareholder, the Company or any of its employees is a party or otherwise binding
upon Shareholder, the Company or any of its employees that has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of the Company or any employee of the Company, any acquisition of
property (tangible or intangible) by the Company, the conduct of business by the
Company or the conduct of any business activities by Shareholder or any employee
of the Company.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
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Equipment.
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(a) Section 2.12(a) of the Company Disclosure Schedule sets forth a
list of all real property currently owned or leased by the Company and, in the
case of leased property, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and/or other fees payable
under any such lease. All such leases are in full force and effect, are valid
and effective
-9-
in accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets other than real property used or held for use in its
business, free and clear of any Liens, except as reflected in the Financial
Statements and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
(c) The equipment and other tangible personal property owned or
leased by the Company (i) is adequate for the conduct of its business as
currently conducted, (ii) is in good operating condition, subject to normal wear
and tear, and (iii) has been reasonably maintained.
(d) The Company owns or has valid and continuing rights to use all
of the properties and assets (including without limitation all Intellectual
Property Rights) necessary to conduct its business as currently conducted in all
material respects.
2.13 Intellectual Property.
---------------------
(a) Intellectual Property Assets. As used herein, the term
----------------------------
"Intellectual Property Assets" includes any rights, licenses, liens, security
interests, charges, encumbrances, equities, and other claims that the Company
may have to claim ownership, authorship or invention, to use, to object to or
prevent the modification of, to withdraw from circulation or control the
publication or distribution of any of the following worldwide:
(i) the name "▇▇▇▇▇▇▇▇.▇▇▇", the domain name "▇▇▇▇▇▇▇▇.▇▇▇",
all fictitious business names, trading names, corporate names, registered and
unregistered trademarks, service marks, and applications (collectively,
"Marks");
(ii) all patents, patent applications and business methods,
inventions and discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information,
customer lists, software (source code and object code), technical information,
data, process technology, plans, drawings, and blue prints (collectively, "Trade
Secrets").
(b) Agreements. Section 2.13(b) of the Company Disclosure Schedule
----------
contains a complete and accurate list of all material contracts relating to the
Intellectual Property Assets to which the Company is a party or by which the
Company is bound, except for any license for commonly available software
programs with a value of less than $10,000 under which the Company
-10-
is the licensee. There is no outstanding and, to the knowledge of Shareholder or
the Company, no threatened disputes or disagreements with respect to any such
agreement.
(c) Software. Section 2.13(c) of the Company Disclosure Schedule
--------
contains a complete and accurate list of all computer software developed by or
for the Company (collectively referred to as the "Software"). All Software is
owned by the Company free and clear of any Liens and no contractor, consultant
or other third party has any claim of ownership in or to the Software.
Shareholder represents that that any and all rights to the Software shall be
acquired by ▇▇▇▇▇▇▇▇.▇▇▇ at the Share Exchange.
(d) Originators, Programmers and Developers. Section 2.13(d) of the
---------------------------------------
Company Disclosure Schedule contains a complete and accurate list of all
originators, developers or programmers, whether employees, contractors or
agents, who have written any portion of or contributed to any development of the
Software (collectively referred to as the "Developers").
(e) Toolkits, Reused Code and Third-Party Software. Section 2.13(e)
----------------------------------------------
of the Company Disclosure Schedule contains a complete and accurate list of all
code incorporated into the Software that was not specifically written or
developed for use in the Software (the "Preexisting Code"). This list includes
code from a toolkit, from preexisting code written by the Developers and/or from
third-party software that Developers utilized to write or otherwise contribute
to the development of any of the Software. Upon consummation of the Share
Exchange, ▇▇▇▇▇▇▇▇.▇▇▇ shall have at least a non-exclusive right to use any such
Preexisting Code and there are no third-party rights to such Preexisting Code
that will materially interfere with ▇▇▇▇▇▇▇▇.▇▇▇'s ownership and use. Company
and Shareholder further warrant that they will obtain written agreements from
each Developer to assign all rights to the Preexisting Code written by such
Developer, or at least grant a non-exclusive right to use all of the Preexisting
Code written by such Developer to ▇▇▇▇▇▇▇▇.▇▇▇ and to assure ▇▇▇▇▇▇▇▇.▇▇▇ that
there are no third-party claims to the Preexisting Code written by such
Developer.
(f) Know-How Necessary for the Business
-----------------------------------
(i) The Intellectual Property Assets are all those necessary
for the operation of the Company's businesses as currently conducted and as
expected to be conducted in the future. The Company is the owner of all right,
title, and interest in and to each of the Intellectual Property Assets, free and
clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims, and has the right to use without payment to a third party
all of the Intellectual Property Assets.
(ii) Except as set forth in Section 2.13(f) of the Company
Disclosure Schedule, all former and current employees of the Company have
executed written agreements with the Company that assign to the Company all
rights to any inventions, improvements, discoveries or information relating to
the business of the Company. No employee of the Company has entered into any
agreement that restricts or limits in any way the scope or type of work in which
the employee may be engaged or requires the employee to transfer, assign, or
disclose information concerning his work to anyone other than the Company.
-11-
(g) Patents
-------
(i) Section 2.13(g) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Patents.
The Company is the owner of all right, title, and interest in and to each of the
Patents, free and clear of all liens, security interests, charges, encumbrances,
entities, and other adverse claims.
(ii) None of the products manufactured and sold, nor any
process or know-how used, by the Company infringes or is alleged to infringe any
patent issued prior to the Effective Date or other proprietary right of any
third party. As of the Effective Date, there is no issued patent of any third
party that interferes or would be likely to interfere with the Company's use of
any Intellectual Property Asset.
(h) Trademarks
----------
(i) Section 2.13(h) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Marks. The
Company is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All Marks that have been registered with the United
States Patent and Trademark Office or with a corresponding state office are
currently in compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after the Exchange Date.
(iii) No ▇▇▇▇ has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of Shareholder or the
Company, no such action is threatened with the respect to any of the Marks.
(iv) To knowledge of Shareholder or the Company, there is no
potentially interfering trademark or trademark application of any third party.
(v) No ▇▇▇▇ is infringed or, to knowledge of Shareholder or
the Company, has been challenged or threatened in any way. None of the Marks
used by the Company infringes or is alleged to infringe any trade name,
trademark, or service ▇▇▇▇ of any third party.
(vi) All products and materials containing a ▇▇▇▇ ▇▇▇▇ the
proper legal notice where permitted by law.
(i) Copyrights
----------
(i) Section 2.13(i) of the Company Disclosure Schedule
contains a complete and accurate list and summary description of all Copyrights.
The Company is the owner of all right,
-12-
title, and interest in and to each of the Copyrights, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims.
(ii) All the Copyrights that have been registered are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Exchange Date.
(iii) No Copyright is infringed or, to knowledge of
Shareholder or the Company, has been challenged or threatened in any way. None
of the subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based on the
work of a third party.
(iv) All works encompassed by the Copyrights have been marked
with the proper copyright notice.
(j) Trade Secrets
-------------
(i) Shareholder and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality and value of the Trade
Secrets.
(ii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not
part of the public knowledge or literature, and, to knowledge of Shareholder or
the Company, have not been used, divulged, or appropriated either for the
benefit of any third party or to the detriment of the Company. No Trade Secret
is subject to any adverse claim or has been challenged or threatened in any way.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth in Section 2.14(a) of the Company
Disclosure Schedule, the Company does not have any continuing obligations under,
is not a party to or is not bound by:
(i) any collective bargaining agreements, or any contract
with or commitment to any trade unions, employee bargaining agent or affiliated
bargaining agent (collectively, "labor representatives") and the Company has not
---------------------
conducted any negotiations with respect to any such future contracts or
commitments,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations or is otherwise
required by statute or case law to provide any of the foregoing,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
-13-
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation,
any stock option plan, share appreciation rights plan or share purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, except as provided herein,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having annual lease
payments individually in excess of $ 2,000,
(viii) any agreement of indemnification or guaranty, other
than intellectual property indemnification to customers in the ordinary course
of business,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $2,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials, other than purchase orders made in the ordinary course of business
and involving not more than $2,000
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement,
(xvi) any agreement, contract or commitment with any customer
which accounted for, or is expected to account during the Company's current
fiscal year, for more than 5% of the Company's revenue, or
-14-
(xvii) any other agreement, contract or commitment that
involves $2,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except as noted in Section 2.14(b) of the Company Disclosure
Schedule, the Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the material
terms or conditions of (i) any agreement, contract or commitment required to be
set forth in Section 2.14(a) of the Company Disclosure Schedule, or (ii) any
other material agreement, contract or commitment to which it is a party or by
which it is bound (any such agreement, contract or commitment referenced in the
preceding clauses (i) and (ii), a "Contract"), nor is either Shareholder or the
--------
Company aware of any event that would constitute such a breach, violation or
default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and, except as otherwise disclosed in Section 2.14(b) of
the Company Disclosure Schedule, is not subject to any default thereunder, of
which Shareholder or the Company is aware, by any party obligated to the Company
pursuant thereto. The Company has obtained, or will obtain prior to the Exchange
Date, all necessary consents, waivers and approvals of parties to any Contract
as are required thereunder in connection with the Share Exchange or to remain in
effect without modification after the Share Exchange.
2.15 Interested Party Transactions. No officer, director, employee or
-----------------------------
holder of Company Shares (or any spouse or member of the immediate family of any
of such persons, or any trust, partnership or corporation in which any of such
persons has or has had a material interest), has or has had directly or
indirectly, (i) an interest in any entity which furnished or sold, or furnishes
or sells, services or products that the Company furnishes or sells, or proposes
to furnish or sell, or (ii) any interest in any entity that purchases from or
sells or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Section 2.14 of the Company
Disclosure Schedule; provided, that passive ownership of no more than five
percent (5%) of the outstanding stock of a corporation shall not be deemed an
"interest in any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the Company Disclosure
--------------------------
Schedule accurately lists each material consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (a) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (b) which is required for the operation of its business or the
holding of any such interest (herein collectively called "Authorizations"). All
--------------
Authorizations are in full force and effect and constitute all Authorizations
required to permit the Company to operate or conduct its business or hold any
interest in its properties or assets.
2.17 Litigation. There is no action, suit, claim, proceeding or
----------
arbitration of any nature pending or, to the knowledge of Shareholder or the
Company, threatened against the Company or any of its properties or any of its
officers, directors or shareholders in respect of the Company. There is no
investigation pending or, to the knowledge of Shareholder or the Company,
threatened against the Company, its properties or any of its officers, directors
or shareholders in respect of the Company by or before any Governmental Entity.
No Governmental Entity has at any time challenged or questioned the legal right
of the Company to manufacture, offer or sell any of its products in the present
manner or style thereof.
-15-
2.18 Accounts Receivable; Inventory.
------------------------------
(a) Set forth in Section 2.18(a) of the Company Disclosure Schedule
is a list of all accounts receivable of the Company reflected on the December
Balance Sheet ("Accounts Receivable") along with a range of days elapsed since
-------------------
invoice as of the date of the December Balance Sheet. All Accounts Receivable of
the Company (i) arose in the ordinary course of business, (ii) represent bona
----
fide indebtedness incurred by the applicable account debtors in the amounts
----
invoiced by the Company and stated on its books and records, subject to
collection, (iii) are carried at values determined in accordance with GAAP,
consistently applied, and (iv) are not subject to any defenses, counterclaims or
claims for set off. The reserves against the Accounts Receivable have been
established in accordance with GAAP, and based upon a review of such Accounts
Receivable, Shareholder and the Company reasonably believe such reserves to be
adequate. No person has any Lien on any of such Accounts Receivable and no
request or agreement for deduction or discount has been made with respect to any
of such Accounts Receivable. Neither Shareholder or the Company has any
knowledge that any of such Accounts Receivable is owed by a person or entity
that has sought the protection of any bankruptcy or insolvency law or is the
subject of any dispute as to payment.
(b) All of the inventories of the Company reflected on the December
Balance Sheet and the Company's books and records on the date hereof were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company. The reserves against such inventory
have been established in accordance with GAAP. The presentation of inventory on
the December Balance Sheet conforms to GAAP.
2.19 Minute Books. The minute books of the Company made available to
------------
▇▇▇▇▇▇▇▇.▇▇▇ or counsel for ▇▇▇▇▇▇▇▇.▇▇▇ are the only minute books of the
Company and contain an accurate summary of all meetings of directors (and
committees thereof) and shareholders or actions by written consent since the
formation of the Company.
2.20 Brokers' and Finders' Fees. The Company has not incurred, nor will
--------------------------
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.21 Employees; Employee Benefit Plans and Compensation.
--------------------------------------------------
(a) For purposes of this Section 2.21, the following terms shall
have the meanings set forth below:
(i) "Employee Plan" shall refer to any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be
-16-
contributed to, by the Company for the benefit of any "Employee" (as defined
below), and pursuant to which the Company has or may have any material
liability, contingent or otherwise;
(ii) "Employee" shall mean any current, former, or retired
--------
employee, consultant, independent contractor, sales representative, officer, or
director of the Company;
(iii) "Employee Agreement" shall refer to each employment,
------------------
severance, consulting or similar agreement or contract, whether written or oral,
between the Company and any Employee;
(b) Section 2.21(b) of the Company Disclosure Schedule contains an
accurate and complete list of each Employee Plan and each Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to ▇▇▇▇▇▇▇▇.▇▇▇ in writing,
or as required by this Agreement), or to enter into any Employee Plan or
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) The Company has provided to ▇▇▇▇▇▇▇▇.▇▇▇ (i) correct and
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto and copies of all forms of agreement
and enrollment used therewith; (ii) the most recent annual actuarial valuations,
if any, prepared for each Employee Plan; (iii) if an Employee Plan is funded,
the most recent annual and periodic accounting of such Employee Plan assets; and
(iv) all communications material to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any material liability to the Company.
(d) The Company has performed all obligations required to be
performed by it under each Employee Plan and each Employee Plan has been
established and maintained in accordance with its terms and in compliance with
all applicable laws, statutes, orders, rules and regulations; (ii) there are no
actions, suits or claims pending, or, to the knowledge of Shareholder or the
Company, threatened (other than routine claims for benefits) against any
Employee Plan or against the assets of any Employee Plan; and (iii) each
Employee Plan can be amended, terminated or otherwise discontinued after the
Exchange Date in accordance with its terms, without liability to the Company or
▇▇▇▇▇▇▇▇.▇▇▇ (other than ordinary administration expenses typically incurred in
a termination event).
(e) No Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by statute, and the Company has not represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by statute.
-17-
(f) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(g) The Company (i) is in compliance in all material respects with
all applicable laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(h) No work stoppage or labor strike against the Company is pending
or, to the knowledge of Shareholder or the Company, threatened. The Company is
not involved in or threatened with any labor dispute, grievance or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. The Company has not
engaged in any unfair labor practices which could, individually or in the
aggregate, directly or indirectly result in a liability to the Company. The
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement, contract with or commitment to any labor
representatives (as defined in Section 2.14(a)(i)) and the Company has not
conducted negotiations with respect to any such future contracts or commitments;
no labor representatives hold bargaining rights with respect to any employees of
the Company; and there are no current or, to the knowledge of Shareholder or the
Company, threatened attempts to organize or establish any trade union or
employee association with respect to the Company.
(i) Section 2.21 (i) of the Company Disclosure Schedule sets forth
each Employee, such Employee's date of hire and such Employee's compensation for
the past three fiscal years, to the extent applicable.
2.22 Insurance. Section 2.22 of the Company Disclosure Schedule lists all
---------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. Such
insurance policies are customary for similarly situated companies and reasonably
satisfactory to ensure the Company against the risks associated with its
business. There is no claim by the Company pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise in material
compliance with the terms of such policies and bonds (or other policies and
bonds providing
-18-
substantially similar insurance coverage). Neither Shareholder nor the Company
has any knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
2.23 Environmental and Safety Laws. Neither Shareholder nor the Company
-----------------------------
has any knowledge that the Company is in violation of any applicable statute,
law or regulation relating to the environment or occupational health and safety,
or that the Company is or will be required to make any material expenditure in
order to comply with any such existing statute, law or regulation.
2.24 Compliance with Laws. The Company has complied in all material
---------------------
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any foreign, federal, state,
province or local statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business, assets or properties.
2.25 Complete Copies of Materials. The Company has delivered to
----------------------------
▇▇▇▇▇▇▇▇.▇▇▇ true and complete copies of each agreement, contract, commitment or
other document (or summaries of same) that is referred to in the Company
Disclosure Schedule or that has been requested by ▇▇▇▇▇▇▇▇.▇▇▇ or its counsel.
2.26 Agreement.
---------
(a) Each of this Agreement and the Related Agreements has been duly
and validly executed and delivered by Shareholder and, assuming due
authorization, execution and delivery by the other parties hereto and thereto,
constitutes a valid and binding obligation of Shareholder, enforceable against
Shareholder in accordance with its terms.
(b) Neither the execution and delivery of each of this Agreement and
the Related Agreements nor the performance by Shareholder of his obligations
hereunder and thereunder, violate, conflict with, or constitute a default under
any agreement or commitment to which Shareholder is a party, or violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or other Governmental Entity applicable to Shareholder that would preclude
Shareholder from entering into this Agreement and any Related Agreement, or
consummating the transactions contemplated hereby and thereby.
(c) No consent, waiver, approval, order or authorization of, or
declaration, filing or registration with, any Governmental Entity or any third
party is required to be made or obtained by Shareholder in connection with the
execution and delivery by Shareholder of each of this Agreement and the Related
Agreements or the performance by Shareholder of any of their respective
obligations hereunder and thereunder or the consummation by Shareholder of the
transactions contemplated herein or therein.
(d) Shareholder has the sole right to transfer Company Shares owned
by him to ▇▇▇▇▇▇▇▇.▇▇▇. Upon delivery of the Company Certificates representing
such Company Shares to ▇▇▇▇▇▇▇▇.▇▇▇, together with a duly executed transfer
instrument, ▇▇▇▇▇▇▇▇.▇▇▇ will receive good title to such Company Shares, free
and clear of all Liens.
-19-
(e) Shareholder has had an opportunity to review with his tax
advisors the tax consequences to Shareholder of the Share Exchange and the
transactions contemplated by this Agreement or the Related Agreements.
Shareholder understands that he must rely solely on his advisors and not on any
statements or representations by ▇▇▇▇▇▇▇▇.▇▇▇, the Company or any of their
agents. Shareholder understands that he (and not ▇▇▇▇▇▇▇▇.▇▇▇ or the Company)
shall be responsible for his own tax liability that may arise as a result of the
Share Exchange or any other transactions contemplated by this Agreement or the
Related Agreements.
(f) Shareholder will have sufficient assets, after sale of the
Company Shares owned by Shareholder as contemplated hereby, to satisfy all of
Shareholder's obligations to his creditors, as the same become due and payable.
2.27 Securities Exemption Representations.
------------------------------------
(a) Shareholder has substantial knowledge and experience in
financial and business matters so that he is capable of evaluating the merits
and risks of his investment in ▇▇▇▇▇▇▇▇.▇▇▇, has the capacity to protect his own
interests, and either is an accredited investor within the meaning of Rule 501
of Regulation D under the Securities Act of 1933, as amended (the "Securities
----------
Act") or has a pre-existing business or close personal relationship with
---
▇▇▇▇▇▇▇▇.▇▇▇ or any of its officers, directors or controlling persons.
Shareholder has had an opportunity to discuss ▇▇▇▇▇▇▇▇.▇▇▇'s management,
business and financial condition with ▇▇▇▇▇▇▇▇.▇▇▇'s management.
(b) Shareholder is acquiring the shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock
for investment for his own account, and not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution thereof.
Shareholder understands that the shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock 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, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Shareholder's representations as
expressed herein.
(c) Shareholder acknowledges that the Shareholder Common Stock must
be held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Shareholder is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the securities, the availability of certain current
public information about ▇▇▇▇▇▇▇▇.▇▇▇, the resale occurring not less than one
year after a party has acquired and given full consideration for the security to
be acquired, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" and the number of securities being
sold during any three-month period not exceeding specified limitations.
(d) Shareholder acknowledges that the securities of ▇▇▇▇▇▇▇▇.▇▇▇
offered hereby have not been registered under the Securities Act and may only be
offered, sold, pledged or otherwise transferred pursuant to an effective
registration statement as to the securities under the Securities Act
-20-
or an opinion of counsel satisfactory to ▇▇▇▇▇▇▇▇.▇▇▇ that registration under
the Securities Act is not required.
2.28 Representations Complete. None of the representations or warranties
------------------------
made in this Article II (as modified by the Company Disclosure Schedule), nor
any statement made in any schedule or certificate furnished by the Company or
Shareholder pursuant to this Agreement contains, as of the date hereof, any
untrue statement of a material fact, or omits, as of the date hereof, to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
There is no event, fact or condition that materially and adversely affects the
business, assets, financial condition or results of operations of the Company,
or that reasonably could be expected to do so, that has not been set forth in
this Agreement or in the Company Disclosure Schedule.
For purposes of this Agreement, "Company Disclosure Schedule" shall mean
---------------------------
the disclosure schedule attached hereto as Schedule 1 supplied by Shareholder
----------
and the Company to ▇▇▇▇▇▇▇▇.▇▇▇ and certified by Shareholder and the Company.
Shareholder shall have the opportunity to update the Company Disclosure Schedule
prior to the Exchange Date, provided that any such updates shall not modify or
restrict ▇▇▇▇▇▇▇▇.▇▇▇'s rights under Section 6.2(l).
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇▇▇.▇▇▇
----------------------------------------------
Except as disclosed in the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure Schedule attached
hereto as Schedule 2, ▇▇▇▇▇▇▇▇.▇▇▇ represents and warrants to Shareholder and
the Company as follows:
3.1 Organization and Standing; Articles of Incorporation and Bylaws.
---------------------------------------------------------------
▇▇▇▇▇▇▇▇.▇▇▇ is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California and is in good standing under
such laws. ▇▇▇▇▇▇▇▇.▇▇▇ has the requisite corporate power and authority to own
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. ▇▇▇▇▇▇▇▇.▇▇▇ is qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
where the failure to be so qualified would have a Material Adverse Effect on the
business, assets (including intangible assets), financial condition, results of
operations or prospects of ▇▇▇▇▇▇▇▇.▇▇▇. ▇▇▇▇▇▇▇▇.▇▇▇ has furnished to
Shareholder or the Company or its counsel upon request copies of its Articles of
Incorporation, as amended, and Bylaws, as amended. Said copies are true, correct
and complete and contain all amendments through the Effective Date.
3.2 Corporate Power. ▇▇▇▇▇▇▇▇.▇▇▇ has obtained or will have obtained at
---------------
the Exchange Date all requisite legal and corporate power and authority to
execute and deliver the Agreements, to sell and issue the Common Shares
hereunder, and to carry out and perform its obligations under the terms of this
Agreement and the Related Agreements.
-21-
3.3 Subsidiaries. Except as set forth on the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure
------------
Schedule, ▇▇▇▇▇▇▇▇.▇▇▇ has no subsidiaries or affiliated companies and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association or business entity. ▇▇▇▇▇▇▇▇.▇▇▇ is not a participant
in any joint venture, partnership or similar arrangement.
3.4 Capitalization. As of the Exchange Date, the authorized capital stock
--------------
of ▇▇▇▇▇▇▇▇.▇▇▇ will consist of (i) 60,000,000 shares of common stock, of which
27,203,026 shares are now issued and outstanding, and (ii) 6,332,378 shares of
preferred stock, of which 1,587,302 have been designated as Series A Preferred
and are now issued and outstanding, of which 1,789,279 shares have been
designated as Series B Preferred and are now issued and outstanding, of which
1,329,781 shares have been designated as Series C Preferred and are now issued
and outstanding and of which 1,626,016 shares will be designated as Series D
Preferred and may be issued. All such shares will as of the Exchange Date have
been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. ▇▇▇▇▇▇▇▇.▇▇▇ has also
reserved 10,500,000 shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock for issuance to
employees, directors and consultants pursuant to ▇▇▇▇▇▇▇▇.▇▇▇'s 1995 Stock
Option Plan, as amended and restated, of which options covering 7,515,649 shares
of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock (the "Options") are outstanding as of the Effective
-------
Date. Except for the Options, an additional option to purchase 1,000,000 shares
of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock and warrants to purchase (i) 798,942 shares of
▇▇▇▇▇▇▇▇.▇▇▇ Common Stock at an exercise price of $4.15 per share and (ii)
67,961 shares of ▇▇▇▇▇▇▇▇.▇▇▇ Common Stock at an exercise price of $5.15 per
share, and as set forth on the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure Schedule, there are no
other options, warrants, calls, rights (including conversion or preemptive
rights or rights of first refusal), commitments or agreements of any character
to which ▇▇▇▇▇▇▇▇.▇▇▇ is a party or by which it is bound obligating ▇▇▇▇▇▇▇▇.▇▇▇
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of ▇▇▇▇▇▇▇▇.▇▇▇
or obligating ▇▇▇▇▇▇▇▇.▇▇▇ to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
3.5 Authorization. All corporate action on the part of ▇▇▇▇▇▇▇▇.▇▇▇, its
-------------
directors and shareholders necessary for the authorization, execution, delivery
and performance of the Agreements by ▇▇▇▇▇▇▇▇.▇▇▇, the authorization, sale,
issuance and delivery of the Shareholder Common Stock and the performance of all
of ▇▇▇▇▇▇▇▇.▇▇▇'s obligations hereunder and thereunder has been taken or will be
taken prior to the Exchange Date. This Agreement and the Related Agreements,
when executed and delivered by ▇▇▇▇▇▇▇▇.▇▇▇, shall constitute valid and binding
obligations of ▇▇▇▇▇▇▇▇.▇▇▇, enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. The Shareholder Common Stock, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances, other than
any liens or encumbrances created by or imposed upon Shareholder or the Company
through no action of ▇▇▇▇▇▇▇▇.▇▇▇; provided, however, that the Shareholder
Common Stock may be subject to restrictions on transfer under state and/or
federal securities laws. The Shareholder Common Stock,
-22-
will not upon issuance be subject to any preemptive rights or rights of first
refusal.
3.6 Financial Statements. ▇▇▇▇▇▇▇▇.▇▇▇ has delivered to Shareholder or the
--------------------
Company ▇▇▇▇▇▇▇▇.▇▇▇'s audited financial statements as of and for the period
from inception (October 3, 1994) to September 30, 1995 (prior to merger with
Accordance Corporation), its audited financial statements for the years ended
December 31, 1996 and 1997, and its unaudited financial statements for the year
ended December 31, 1998 (collectively referred to as the "Financial
Statements"), which are complete and correct in all material respects and were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis. The Financial Statements accurately set out and describe the
financial condition and operating results of ▇▇▇▇▇▇▇▇.▇▇▇ as of the respective
dates and for the respective periods indicated.
3.7 Employees. To the best of ▇▇▇▇▇▇▇▇.▇▇▇'s knowledge, no employee of
---------
▇▇▇▇▇▇▇▇.▇▇▇ nor any consultant with whom ▇▇▇▇▇▇▇▇.▇▇▇ has contracted is in
violation of any term of any employment contract, patent disclosure agreement or
any other contract or agreement relating to the relationship of such employee or
consultant with ▇▇▇▇▇▇▇▇.▇▇▇ or any other party because of the nature of the
business conducted or to be conducted by ▇▇▇▇▇▇▇▇.▇▇▇. Each employee of
▇▇▇▇▇▇▇▇.▇▇▇ with access to confidential or proprietary information has executed
▇▇▇▇▇▇▇▇.▇▇▇'s standard form of Employee Confidential Information Agreement.
▇▇▇▇▇▇▇▇.▇▇▇ is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with ▇▇▇▇▇▇▇▇.▇▇▇, nor does
▇▇▇▇▇▇▇▇.▇▇▇ have a present intention to terminate the employment of any
officer, key employee or group of key employees.
3.8 Governmental Consent, etc. No consent, approval or authorization of or
-------------------------
designation, declaration or filing with any governmental authority on the part
of ▇▇▇▇▇▇▇▇.▇▇▇ is required in connection with the valid execution and delivery
of the Agreements, the offer, sale or issuance of the Shareholder Common Stock
or the consummation of any other transaction contemplated hereby or thereby,
except the qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the
Shareholder Common Stock under applicable Blue Sky laws, which qualifications,
if required, will be accomplished in a timely manner.
3.9 Changes. Since December 31, 1998, there has not been:
-------
(a) Any change in the assets, liabilities, financial condition or
operation of ▇▇▇▇▇▇▇▇.▇▇▇ from that reflected in the Financial Statements, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a Material Adverse Effect on
▇▇▇▇▇▇▇▇.▇▇▇;
(b) Any material change, except in the ordinary course of business,
in the contingent obligations of ▇▇▇▇▇▇▇▇.▇▇▇ by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of ▇▇▇▇▇▇▇▇.▇▇▇;
-23-
(d) Any waiver by ▇▇▇▇▇▇▇▇.▇▇▇ of a valuable right or of a material
debt owed to it;
(e) Any debt, obligation or liability incurred, assumed or
guaranteed by ▇▇▇▇▇▇▇▇.▇▇▇, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(f) Any change in any material agreement to which ▇▇▇▇▇▇▇▇.▇▇▇ is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
▇▇▇▇▇▇▇▇.▇▇▇, including compensation agreements with ▇▇▇▇▇▇▇▇.▇▇▇'s employees;
or
(g) Any other event or condition of any character that, either
individually or cumulatively, has had a Material Adverse Effect on ▇▇▇▇▇▇▇▇.▇▇▇.
3.10 Brokers or Finders; Other Offers. ▇▇▇▇▇▇▇▇.▇▇▇ has not incurred, and
--------------------------------
will not incur, directly or indirectly, as a result of any action taken by
▇▇▇▇▇▇▇▇.▇▇▇, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement.
3.11 No Material Liabilities. ▇▇▇▇▇▇▇▇.▇▇▇ does not have any material
-----------------------
liabilities or obligations, other than: (a) liabilities and obligations
disclosed in the Financial Statements; (b) liabilities incurred after December
31, 1998 in the ordinary course of business; (c) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which are not in any case material to the financial condition or
operating results of ▇▇▇▇▇▇▇▇.▇▇▇; and (d) leases for the operating headquarters
and branches of ▇▇▇▇▇▇▇▇.▇▇▇.
3.12 Registration Rights. Except as provided in (i) the Amended and
-------------------
Restated Registration Rights Agreement dated as of February 10, 1997, as amended
by the First Amendment thereto dated as of August 14, 1998 and by the Second
Amendment thereto to be entered into by and among ▇▇▇▇▇▇▇▇.▇▇▇ and the holders
of the Series A, Series B, Series C and Series D Preferred Stock of
▇▇▇▇▇▇▇▇.▇▇▇; and (ii) the Registration Rights Agreement dated as of June 1,
1996 by and among ▇▇▇▇▇▇▇▇.▇▇▇ and certain holders of Common Stock, as amended
by (a) First Amendment to Registration Rights Agreement dated June 26, 1996, (b)
Second Amendment to Registration Rights Agreement dated September 27, 1996, (c)
Third Amendment to Registration Rights Agreement dated February 3, 1997, (d)
Fourth Amendment to Registration Rights Agreement dated September 12, 1997 (e)
Fifth Amendment to Registration Rights Agreement dated August 4, 1998 and (f)
Sixth Amendment to Registration Rights Agreement dated March 29, 1999 (the
"Common Registration Rights Agreement"), ▇▇▇▇▇▇▇▇.▇▇▇ is not obligated to
------------------------------------
register under the Securities Act of 1933, as amended (the "Securities Act"),
--------------
any of its presently outstanding securities or any of its securities that may
subsequently be issued.
3.13 No Conflict with Other Instruments. The execution, delivery and
----------------------------------
performance of this Agreement and the Related Agreements and the issuance of the
Shareholder Common Stock will not result in any violation of, be in conflict
with, or constitute a default under, with or without
-24-
the passage of time or the giving of notice: (i) any provision of ▇▇▇▇▇▇▇▇.▇▇▇'s
Articles of Incorporation, as amended, or ▇▇▇▇▇▇▇▇.▇▇▇'s Bylaws, as amended;
(ii) any material provision of any judgment, decree or order to which
▇▇▇▇▇▇▇▇.▇▇▇ is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which ▇▇▇▇▇▇▇▇.▇▇▇ is a party or by which it is
bound; or (iv) to ▇▇▇▇▇▇▇▇.▇▇▇'s knowledge, any material statute, rule or
governmental regulation applicable to ▇▇▇▇▇▇▇▇.▇▇▇.
3.14 Litigation. There are no actions, suits or proceedings pending or to
----------
▇▇▇▇▇▇▇▇.▇▇▇'s knowledge threatened, or any verdicts or judgments entered into,
against ▇▇▇▇▇▇▇▇.▇▇▇, or any investigations of ▇▇▇▇▇▇▇▇.▇▇▇ pending before any
court or governmental agency. There is no action, suit, proceeding or
investigation by ▇▇▇▇▇▇▇▇.▇▇▇ currently pending or which ▇▇▇▇▇▇▇▇.▇▇▇ intends to
initiate.
3.15 Title to Properties; Liens and Encumbrances. ▇▇▇▇▇▇▇▇.▇▇▇ has good
-------------------------------------------
and marketable title to all of its properties (both real and personal) and
assets, and has good title to all its leasehold interests, in each case subject
to no mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge.
3.16 Franchises, Permits and Licenses to Conduct Business. ▇▇▇▇▇▇▇▇.▇▇▇
----------------------------------------------------
has all franchises, permits, licenses and other similar authority necessary for
the conduct of its business, the lack of which would have a Material Adverse
Effect, and it is not in default in any material respect under any of such
franchises, permits, liens or other similar authority.
3.17 Patents and Other Proprietary Rights. To the best of ▇▇▇▇▇▇▇▇.▇▇▇'s
------------------------------------
knowledge, ▇▇▇▇▇▇▇▇.▇▇▇ possesses all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, trade secrets,
including knowhow and other proprietary rights ("Proprietary Information")
-----------------------
necessary to conduct its business as now being conducted and as proposed to be
conducted without conflict with or infringement upon any valid rights of others
and the lack of which would have a Material Adverse Effect on ▇▇▇▇▇▇▇▇.▇▇▇, and
▇▇▇▇▇▇▇▇.▇▇▇ has not received any notice of infringement upon or conflict with
the asserted rights of others. Except as disclosed in the ▇▇▇▇▇▇▇▇.▇▇▇
Disclosure Schedule, there are no material outstanding options, licenses or
agreements of any kind relating to ▇▇▇▇▇▇▇▇.▇▇▇'s Proprietary Information, nor
is ▇▇▇▇▇▇▇▇.▇▇▇ bound by or a party to any material options, licenses or
agreements with respect to the Proprietary Information of any other person or
entity other than licenses or agreements arising from the purchase of "off the
shelf" or standard products. ▇▇▇▇▇▇▇▇.▇▇▇ is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
▇▇▇▇▇▇▇▇.▇▇▇ or that would conflict with ▇▇▇▇▇▇▇▇.▇▇▇'s business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of ▇▇▇▇▇▇▇▇.▇▇▇'s business by the employees of ▇▇▇▇▇▇▇▇.▇▇▇, nor the
conduct of ▇▇▇▇▇▇▇▇.▇▇▇'s business as proposed, will, to ▇▇▇▇▇▇▇▇.▇▇▇'s
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. ▇▇▇▇▇▇▇▇.▇▇▇ does not
believe it is or will be necessary for ▇▇▇▇▇▇▇▇.▇▇▇ to utilize any Proprietary
Information of any of its employees made prior to their employment by
▇▇▇▇▇▇▇▇.▇▇▇, except for
-25-
Proprietary Information that has been assigned to ▇▇▇▇▇▇▇▇.▇▇▇.
3.18 Taxes. All federal, state, local and foreign tax returns required by
-----
law to be filed by ▇▇▇▇▇▇▇▇.▇▇▇ have been filed, or if such returns have not yet
been filed ▇▇▇▇▇▇▇▇.▇▇▇ has been granted extensions of the filing dates which
have not expired, and all taxes, assessments, fees and other governmental
charges upon ▇▇▇▇▇▇▇▇.▇▇▇, or upon any of its properties, income or franchises,
shown in such returns and on assessments received by ▇▇▇▇▇▇▇▇.▇▇▇ to be due and
payable have been paid, or adequate reserves therefor have been set up; or if
any of such tax returns have not been filed or if any such taxes have not been
paid or so reserved for, the failure so to file or to pay would not in the
aggregate constitute a Material Adverse Effect on ▇▇▇▇▇▇▇▇.▇▇▇. ▇▇▇▇▇▇▇▇.▇▇▇
knows of no proposed additional tax assessment that is not adequately provided
for in the Financial Statements. ▇▇▇▇▇▇▇▇.▇▇▇ has not been advised (i) that any
of its returns, federal, state or other, have been or are being audited as of
the date hereof, or (ii) of any deficiency in assessment or any proposed
judgment relating to its federal, state or other taxes.
3.19 No Defaults, Violations or Conflicts. ▇▇▇▇▇▇▇▇.▇▇▇ is not in
------------------------------------
violation of any term or provision of its charter or bylaws, or any material
term or provision of any indebtedness, mortgage, indenture, contract, agreement,
judgment, or to ▇▇▇▇▇▇▇▇.▇▇▇'s knowledge, any material decree, order, statute,
rule or regulation.
3.20 Insurance. ▇▇▇▇▇▇▇▇.▇▇▇ has in effect insurance covering risks
---------
associated with its business in such amounts as are customary in its industry.
3.21 Distributions. There has been no declaration or payment by
-------------
▇▇▇▇▇▇▇▇.▇▇▇ of any dividend, nor any distribution by ▇▇▇▇▇▇▇▇.▇▇▇ of any assets
of any kind, to any of its shareholders in redemption or as the purchase price
of any of ▇▇▇▇▇▇▇▇.▇▇▇'s securities.
3.22 Employee Compensation Plans. Except as set forth on the ▇▇▇▇▇▇▇▇.▇▇▇
---------------------------
Disclosure Schedule, ▇▇▇▇▇▇▇▇.▇▇▇ is not a party to or bound by any currently
effective employment contracts, deferred compensation agreements, bonus plans,
incentive plans, profit sharing plans, retirement agreements or other employee
compensation agreements. Subject to applicable law and except as set forth on
the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure Schedule, the employment of each officer and
employee of ▇▇▇▇▇▇▇▇.▇▇▇ is terminable at the will of ▇▇▇▇▇▇▇▇.▇▇▇.
3.23 Material Contracts. All material contracts, agreements and
------------------
instruments to which ▇▇▇▇▇▇▇▇.▇▇▇ is a party are valid, binding, and in full
force and effect in all material respects, and, to ▇▇▇▇▇▇▇▇.▇▇▇'s knowledge, are
enforceable by ▇▇▇▇▇▇▇▇.▇▇▇ in accordance with their respective terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors and (ii) rules of law governing specific performance,
injunctive relief or other equitable remedies. Each such contract, agreement and
instrument has been listed on the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure Schedule. True and
complete copies of such contracts, agreements, and instruments have been made
available for inspection by Shareholder or the Company upon request.
3.24 Environmental and Safety Laws. To its knowledge, ▇▇▇▇▇▇▇▇.▇▇▇ is not
-----------------------------
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and
-26-
safety, and to its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
3.25 Agreements with Affiliates. Except for agreements explicitly
--------------------------
contemplated hereby and agreements between ▇▇▇▇▇▇▇▇.▇▇▇ and its employees with
respect to the sale of ▇▇▇▇▇▇▇▇.▇▇▇'s Common Stock, and except as set forth on
the ▇▇▇▇▇▇▇▇.▇▇▇ Disclosure Schedule, there are no agreements, understandings or
proposed transactions between ▇▇▇▇▇▇▇▇.▇▇▇ and any of its officers, directors,
affiliates or any affiliate thereof.
3.26 Offering Valid. Assuming the accuracy of the representations and
--------------
warranties of Shareholder and the Company contained in Article II hereof, the
offer, sale and issuance of the Common Shares will be exempt from the
registration requirements of the Securities Act and will when issued have been
registered or qualified (or will be exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws. Neither ▇▇▇▇▇▇▇▇.▇▇▇ nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person so as to bring the
sale of such Shares by ▇▇▇▇▇▇▇▇.▇▇▇ within the registration provisions of the
Securities Act.
ARTICLE IV
----------
CONDUCT PRIOR TO THE EXCHANGE DATE
----------------------------------
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Exchange Date, the Company and Shareholder agree (except to the
extent that ▇▇▇▇▇▇▇▇.▇▇▇ shall otherwise consent in writing) to carry on the
Company's business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted, to pay its debts and Taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Exchange Date. Shareholder
shall promptly notify ▇▇▇▇▇▇▇▇.▇▇▇ of any event or occurrence not in the
ordinary course of business of the Company, and any event which could reasonably
be expected to have a Material Adverse Effect on the Company. Without limiting
the generality of the foregoing and except as expressly contemplated by this
Agreement or disclosed in Section 4.1 of the Company Disclosure Schedule, the
Company and Shareholder shall not, without the prior written consent of
▇▇▇▇▇▇▇▇.▇▇▇:
(a) Enter into any commitment or transaction not in the ordinary
course of business;
(b) Transfer to any person or entity any rights to Intellectual
Property Rights (other than pursuant to end-user licenses in the ordinary course
of business);
-27-
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Disclosure Schedule;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for Company Shares, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of its capital stock (or options, warrants or
other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Charter;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees, except as consistent with the ordinary
course of the Company consistent with past practice (provided that the price per
share of any equity participation in the Company shall be agreed in advance by
▇▇▇▇▇▇▇▇.▇▇▇);
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
-28-
(o) Pay, discharge or satisfy, in an amount in excess of $2,500 (in
any one case) or $10,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the December Balance Sheet or that
arose in the ordinary course of business subsequent to the Balance Sheet Date or
expenses consistent with the provisions of this Agreement incurred in connection
with any transaction contemplated hereby;
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any other action that
would prevent Shareholder or the Company from performing or cause Shareholder or
the Company not to perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the date of termination of
---------------
this Agreement pursuant to the provisions of Section 8.1 hereof or June 13,
1999, neither Shareholder nor the Company will (nor will Shareholder or the
Company permit any of the Company's officers, directors, agents, representatives
or affiliates to) directly or indirectly, take any of the following actions with
any party other than ▇▇▇▇▇▇▇▇.▇▇▇ and its designees:
(a) Solicit, conduct discussions with or engage in negotiations with
any corporation, partnership, limited liability company, individual or other
third party business entity (any such entity referred to as a "Person"),
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets;
(b) Provide information with respect to the Company to any Person,
other than ▇▇▇▇▇▇▇▇.▇▇▇, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its capital stock or assets;
(c) Enter into an agreement with any Person, other than
▇▇▇▇▇▇▇▇.▇▇▇, providing for the acquisition of the Company (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets; or
(d) Make or authorize any statement, recommendation or solicitation
in support of any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets by any Person, other than by
▇▇▇▇▇▇▇▇.▇▇▇.
In addition to the foregoing, if the Company or Shareholder receives
prior to the Exchange Date or the termination of this Agreement any offer or
proposal relating to any of the above, the Company or Shareholder, as the case
may be, shall promptly notify ▇▇▇▇▇▇▇▇.▇▇▇ thereof, including
-29-
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as ▇▇▇▇▇▇▇▇.▇▇▇ may reasonably
request.
Notwithstanding the foregoing, on prior written notice to
▇▇▇▇▇▇▇▇.▇▇▇ and after April 15, 1999, Shareholder may engage in discussions
with third party venture capital investors with respect to a potential minority
investment in the Company.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
---------------------
5.1 Access to Information. The Company shall afford ▇▇▇▇▇▇▇▇.▇▇▇ and its
---------------------
accountants, counsel and other representatives (collectively, the
"Representatives") reasonable access during normal business hours upon
---------------
reasonable notice during the period prior to the Exchange Date to all of the
properties, books, contracts, commitments, records and all other information
concerning the business, properties and personnel (subject to restrictions
imposed by applicable law) of the Company as ▇▇▇▇▇▇▇▇.▇▇▇ may reasonably
request, including without limitation access upon reasonable request to
employees, customers and vendors of the Company for due diligence inquiry. The
Company shall provide to ▇▇▇▇▇▇▇▇.▇▇▇ and its Representatives copies of internal
financial statements, business plans and projections promptly upon request. No
information or knowledge obtained in any investigation pursuant to this Section
5.1 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
transactions contemplated hereby.
5.2 Expenses. All fees and expenses incurred in connection with the Share
--------
Exchange, including all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties incurred by a party in connection
with the negotiation of the terms and conditions of this Agreement and the
consummation of the transactions contemplated hereby ("Third Party Expenses"),
--------------------
shall be the obligation of the respective party incurring such fees and
expenses. Notwithstanding the foregoing, ▇▇▇▇▇▇▇▇.▇▇▇ agrees that after the
Share Exchange it will pay or cause the Company to pay legal and accounting
Third Party Expenses of the Company and Shareholder up to an aggregate amount of
$20,000; provided, however, that if such expenses exceed $20,000 the excess
shall be borne by Shareholder.
5.3 Public Disclosure. Upon execution and delivery of this Agreement by
-----------------
the parties hereto, if not already publicly announced and if ▇▇▇▇▇▇▇▇.▇▇▇ so
elects, ▇▇▇▇▇▇▇▇.▇▇▇ and the Company shall release a jointly prepared
announcement describing the Share Exchange. Except as aforesaid, prior to the
Exchange Date no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by ▇▇▇▇▇▇▇▇.▇▇▇ prior to release.
5.4 Consents and Approvals. ▇▇▇▇▇▇▇▇.▇▇▇ and the Company shall promptly
----------------------
apply for or otherwise seek, and use their respective best efforts to obtain,
all consents and approvals required to be obtained by it for the consummation of
the Share Exchange, and the Company shall use its best efforts
-30-
to obtain all consents, waivers and approvals under any of the Company's
agreements, contracts, licenses or leases in order to preserve its rights and
benefits thereunder.
5.5 Legal Requirements. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to (i) consummate and make effective the
transactions contemplated hereby, (ii) to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and, (iii)
to remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that ▇▇▇▇▇▇▇▇.▇▇▇ shall not be required
to agree to any divestiture by ▇▇▇▇▇▇▇▇.▇▇▇ or the Company or any of
▇▇▇▇▇▇▇▇.▇▇▇'s subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of ▇▇▇▇▇▇▇▇.▇▇▇ or its subsidiaries or affiliates
or the Company or its affiliates, or the imposition of any material limitation
on the ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
5.6 Notification of Certain Matters. The Company and Shareholder shall
-------------------------------
give prompt notice to ▇▇▇▇▇▇▇▇.▇▇▇, and ▇▇▇▇▇▇▇▇.▇▇▇ shall give prompt notice to
the Company and Shareholder, of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which may cause any representation or
warranty of Shareholder, the Company or ▇▇▇▇▇▇▇▇.▇▇▇, respectively, contained in
this Agreement to be untrue or inaccurate at the Exchange Date and (ii) any
failure of ▇▇▇▇▇▇▇▇.▇▇▇, the Company and Shareholder, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it or them hereunder; provided, however, that the delivery of
any notice pursuant to this Section 5.6 shall not limit or otherwise affect any
remedies available to the party receiving such notice.
5.7 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.8 Employment Agreement. On or prior to the Exchange Date, ▇▇▇▇▇▇▇▇.▇▇▇,
--------------------
the Company and Shareholder, shall enter into an employment agreement (the
"Employment Agreement") in substantially the form attached hereto as Exhibit
-------------------- -------
5.8. Shareholder agrees to use his best reasonable efforts to cause such other
---
employees of the Company as ▇▇▇▇▇▇▇▇.▇▇▇ may designate to enter into similar
employment arrangements.
5.9 Accounting Matters. Each of the parties shall conduct themselves so
------------------
that the Share Exchange may be accounted for as a "pooling of interests"
pursuant to Accounting Principles Board ("APB") Opinion No. 16.
5.10 Officers and Directors. Shareholder hereby acknowledges and agrees
----------------------
that in consideration of the agreements set forth in this Agreement and to
induce ▇▇▇▇▇▇▇▇.▇▇▇ to consummate the transactions contemplated hereby,
Shareholder will have resigned from his position as an officer
-31-
and director of the Company on or prior to the Exchange Date, and any employment
contract or arrangement, whether written or oral, between Shareholder and the
Company, and any notice or severance payment or any other benefit due thereunder
or required by any law, shall be terminated and waived, as the case may be.
5.11 Affiliates.
----------
(a) Prior to the Exchange Date, Shareholder shall cause to be
delivered to ▇▇▇▇▇▇▇▇.▇▇▇ a certificate of an officer of the Company on behalf
of the Company identifying all persons who are "affiliates" (as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act) of the
Company (collectively, the "Company Affiliates"). Prior to the Exchange Date,
------------------
▇▇▇▇▇▇▇▇.▇▇▇ shall cause to be delivered to the Company a certificate of an
officer of ▇▇▇▇▇▇▇▇.▇▇▇ on behalf of ▇▇▇▇▇▇▇▇.▇▇▇ identifying all persons who
were, in ▇▇▇▇▇▇▇▇.▇▇▇'s view, immediately prior to the Exchange Date,
"affiliates" (as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act) of ▇▇▇▇▇▇▇▇.▇▇▇ (the "▇▇▇▇▇▇▇▇.▇▇▇ Affiliates" and, together
-----------------------
with the Company Affiliates, the "Affiliates").
----------
(b) Prior to the Exchange Date, Shareholder and the Company shall
cause each Company Affiliate to execute and deliver a written agreement in the
form attached as Exhibit 5.11A, that he or she will not sell, offer to sell, or
-------------
otherwise dispose of any of the Common Shares issued to him or her pursuant to
the Share Exchange, except in compliance with Rule 144 or another exemption for
the registration requirements of the Securities Act. Prior to the Exchange Date,
the Company and ▇▇▇▇▇▇▇▇.▇▇▇ shall cause each Affiliate to execute and deliver a
written agreement, in the form attached as Exhibit 5.11A and Exhibit 5.11B,
------------- -------------
respectively, that he or she will not thereafter sell or in any other way reduce
his or her risk relative to any Common Shares owned by him or her until such
time as financial results (including combined sales and net income) covering at
least thirty days of post-Exchange Date operations have been published, except
as permitted by Staff Accounting Bulletin No. 76 issued by the SEC and as
approved by ▇▇▇▇▇▇▇▇.▇▇▇. As soon as is reasonably practicable, but in no event
later than thirty (30) days after the end of the first fiscal quarter of
▇▇▇▇▇▇▇▇.▇▇▇ ending at least thirty (30) days after the Exchange Date (or no
later than ninety (90) days after the end of the first fiscal quarter of
▇▇▇▇▇▇▇▇.▇▇▇ ending at least thirty (30) days after the Exchange Date, if such
fiscal quarter is the fourth fiscal quarter of a fiscal year), ▇▇▇▇▇▇▇▇.▇▇▇ will
publish results including at least thirty (30) days of combined operations of
▇▇▇▇▇▇▇▇.▇▇▇ and the Company as referred to in the written agreements provided
for by this Section 5.11.
5.12 Proprietary Information Agreement. Shareholder and the Company shall
---------------------------------
cause each Employee to execute and deliver ▇▇▇▇▇▇▇▇.▇▇▇'s standard form
proprietary information and confidentiality agreement (the "▇▇▇▇▇▇▇▇.▇▇▇
------------
Proprietary Agreement") on or prior to the Exchange Date.
---------------------
5.13 Lock-Up Agreement. Shareholder hereby agrees that if so requested by
-----------------
▇▇▇▇▇▇▇▇.▇▇▇ and/or the representative for any underwriter's selected by
▇▇▇▇▇▇▇▇.▇▇▇, Shareholder shall not sell or otherwise transfer any Shareholder
Common Stock or other securities of ▇▇▇▇▇▇▇▇.▇▇▇ for a period specified by the
Company or the underwriter's representative not to exceed one hundred eighty
(180) days following the effective date of a Registration Statement of
▇▇▇▇▇▇▇▇.▇▇▇ filed under the Securities
-32-
Act; provided that (a) such agreement shall apply only to ▇▇▇▇▇▇▇▇.▇▇▇'s initial
public offering and the next underwritten registration, and (b) all officers and
directors of ▇▇▇▇▇▇▇▇.▇▇▇ shall have entered into similar agreements.
Shareholder hereby agrees that in connection with such agreement, ▇▇▇▇▇▇▇▇.▇▇▇
may issue stop transfer orders to the transfer agent for ▇▇▇▇▇▇▇▇.▇▇▇ with
respect to the shares held by Shareholder for such period. Notwithstanding the
foregoing, Shareholder acknowledges and agrees that any shares of Shareholder
Common Stock constituting all or a portion of the Escrow Amount shall not be
eligible for sale or transfer until such shares have been released to
Shareholder under the terms of the Escrow Agreement.
5.14 Tax Matters. ▇▇▇▇▇▇▇▇.▇▇▇ shall cause the Company to prepare and file
-----------
all income Tax Returns of the Company required to be filed after the Exchange
Date and Shareholder shall be responsible for the payment of all Taxes of the
Company for any taxable period ending on or prior to the Exchange Date, whenever
incurred or assessed. Such Tax Returns shall be made available to Shareholder no
less than 21 calendar days prior to the filing thereof for review by
Shareholder. From and after the date hereof, the Company and Shareholder shall
make available to ▇▇▇▇▇▇▇▇.▇▇▇, as reasonably requested, all information,
records or documents relating to the Tax liabilities of the Company for all
periods ending on or prior to the date hereof, and will preserve such
information, records or documents until the expiration of any applicable statute
of limitations or extensions thereof.
ARTICLE VI
----------
CONDITIONS TO THE SHARE EXCHANGE
--------------------------------
6.1. Conditions to Obligations of Shareholder. The obligations of the
----------------------------------------
Company and Shareholder to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Exchange Date of each of the following conditions, any of which may
be waived, in writing, by Shareholder:
(a) The representations and warranties of ▇▇▇▇▇▇▇▇.▇▇▇ in this
Agreement shall be true and correct in all material respects (except for
representations and warranties already subject to a materiality qualifier which
shall be true and correct in all respects) on and as of the Exchange Date as
though such representations and warranties were made on and as of such time;
▇▇▇▇▇▇▇▇.▇▇▇ shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Exchange Date; and Shareholder shall have been
provided with a certificate, dated the Exchange Date and executed on behalf of
▇▇▇▇▇▇▇▇.▇▇▇ by its Chief Executive Officer or any Vice President to such
effect.
(b) There shall not be in effect any order of a court of competent
jurisdiction preventing consummation of the Share Exchange, nor shall there have
been taken any action, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Share Exchange by a
Governmental Entity that makes consummation of the Share Exchange illegal.
-33-
(c) The form, scope and substance of all legal matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to the counsel for Shareholder.
(d) The issuance of the Acquisition Consideration in connection with
the Share Exchange shall be exempt from registration under Section 4(2) of the
Securities Act.
(e) ▇▇▇▇▇▇▇▇.▇▇▇ shall have delivered the Acquisition Consideration
subject to, and in accordance with, the terms of this Agreement.
(f) ▇▇▇▇▇▇▇▇.▇▇▇ and Shareholder shall have entered into the
Employment Agreement.
6.2. Conditions to the Obligations of ▇▇▇▇▇▇▇▇.▇▇▇. The obligations of
---------------------------------------------
▇▇▇▇▇▇▇▇.▇▇▇ to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Exchange Date of each of the following conditions, any of which may be waived,
in writing, by ▇▇▇▇▇▇▇▇.▇▇▇:
(a) The representations and warranties of Shareholder and the
Company in this Agreement shall be true and correct in all material respects
(except for representations and warranties already subject to a materiality
qualifier which shall be true and correct in all respects) on and as of the
Exchange Date as though such representations and warranties were made on and as
of such time; the Company and Shareholder shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Exchange
Date; and ▇▇▇▇▇▇▇▇.▇▇▇ shall have been provided with a certificate, dated the
Exchange Date and executed on behalf of the Company by its President and by
Shareholder to such effect.
(b) All consents, waivers, and approvals listed on the Company
Disclosure Schedule or as otherwise may be required to be obtained in order to
enable the Company to continue to enjoy all of its material rights and benefits
following consummation of the Share Exchange shall have been obtained.
(c) ▇▇▇▇▇▇▇▇.▇▇▇ shall have received the legal opinion of Fenwick &
West, counsel to the Company and Shareholder, in substantially the form attached
hereto as Exhibit 6.2(c).
--------------
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition challenging the Share Exchange or
the other transactions contemplated by the terms of this Agreement or limiting
or restricting ▇▇▇▇▇▇▇▇.▇▇▇'s conduct or operation of the business of the
Company (or its own business) following the Share Exchange shall be in effect,
nor shall any proceeding brought by any Governmental Entity seeking any of the
foregoing be pending.
(e) No action, suit, claim or proceeding of any nature shall be
pending or threatened against the Company, its properties or any of its officers
or directors, arising out of, in any way
-34-
connected with, or seeking to prevent the Share Exchange or the other
transactions contemplated by the terms of this Agreement.
(f) From the date hereof through the Exchange Date, there shall not
have occurred any Material Adverse Effect to the Company.
(g) ▇▇▇▇▇▇▇▇.▇▇▇ and Shareholder shall have entered into Employment
Agreement.
(h) The Escrow Agreement shall have been duly executed and delivered
by parties thereto and shall be in full force and effect.
(i) ▇▇▇▇▇▇▇▇.▇▇▇ shall have received a letter, dated as of the
Exchange Date, from Ernst & Young, in form and substance satisfactory to
▇▇▇▇▇▇▇▇.▇▇▇, regarding the appropriateness of pooling of interest accounting
treatment for the Share Exchange under APB Opinion No. 16 if closed and
consummated in accordance with this Agreement.
(j) Shareholder shall have transferred and delivered to ▇▇▇▇▇▇▇▇.▇▇▇
the Company Certificates representing all issued and outstanding Company Shares.
(k) All key contracts of the Company shall have been assigned to
▇▇▇▇▇▇▇▇.▇▇▇, if and to the extent required in judgment of ▇▇▇▇▇▇▇▇.▇▇▇'s
counsel. All employment contracts or arrangements between the Company and each
of its executive officers shall have been terminated in accordance with all
applicable notice provisions and legal requirements.
(l) On or prior to the Exchange Date, ▇▇▇▇▇▇▇▇.▇▇▇ shall be
satisfied in the course of its due diligence investigation that the business and
financial condition (including without limitation ownership and sufficiency of
Intellectual Property Assets) of the Company are acceptable and satisfactory to
▇▇▇▇▇▇▇▇.▇▇▇.
(m) All regulatory approvals which are, in ▇▇▇▇▇▇▇▇.▇▇▇'s judgment,
necessary or desirable shall have been obtained to ▇▇▇▇▇▇▇▇.▇▇▇'s satisfaction.
(n) The form, scope and substance of all legal matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to the counsel of ▇▇▇▇▇▇▇▇.▇▇▇.
ARTICLE VII
-----------
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNITY; ESCROW
-----------------------------
7.1. Survival of Representations and Warranties. All of Shareholder's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Disclosure Schedule)
shall survive the Exchange Date and continue until
-35-
5:00 p.m., California time, on (i) with respect to the representations set forth
in Section 2.7, the date which is the date of the auditor's report for the first
audit of ▇▇▇▇▇▇▇▇.▇▇▇ financial statements commenced after the Exchange Date and
(ii) with respect to all other representations and warranties, the date which is
one year following the Exchange Date. The representations and warranties of the
Company and ▇▇▇▇▇▇▇▇.▇▇▇ shall terminate in all respects as of the Exchange
Date. For purposes of this Agreement, the "Expiration Date" shall mean the date
---------------
which is one year following the Exchange Date.
7.2. Agreement to Indemnify. Shareholder agrees to indemnify and hold
----------------------
▇▇▇▇▇▇▇▇.▇▇▇ and its affiliates, officers, directors, employees and shareholders
(collectively, the "▇▇▇▇▇▇▇▇.▇▇▇ Indemnitees") harmless against any losses,
------------------------
claims, damages, costs, expenses or other liabilities (including reasonable
attorneys' fees and expenses) (collectively, "Damages") resulting from (i) any
-------
breach of or inaccuracy in any representations and warranties of Shareholder set
forth in this Agreement, (ii) any breach or default by Shareholder of any
covenant, obligation or other agreement of Shareholder under this Agreement or
under the Related Agreements, or (iii) any breach or default by the Company of
any covenant, obligation or other agreement of the Company to be performed on or
prior to the Exchange Date under this Agreement or under the Related Agreements
(each, a "▇▇▇▇▇▇▇▇.▇▇▇ Indemnifiable Claim"). This indemnification shall survive
--------------------------------
the Share Exchange for a period ending on the date one (1) year from the
Exchange Date (the "Indemnity Termination Date").
--------------------------
7.3. Escrow Arrangements; Limits of Liability. As partial security for the
----------------------------------------
obligations of Shareholder pursuant to this Article VII, the Escrow Amount shall
be deposited with an escrow agent and shall be controlled pursuant to the terms
of the escrow agreement (the "Escrow Agreement") in substantially the form
----------------
attached hereto as Exhibit 7.3. The liability of Shareholder for Damages
-----------
pursuant to this Article VII shall not be limited to or by the Escrow Amount,
but shall be limited to seventy-five percent (75%) of the shares of Shareholder
Common Stock received by Shareholder pursuant to the Share Exchange; provided,
however that ▇▇▇▇▇▇▇▇.▇▇▇ and Shareholder agree that with respect to any Damages
resulting from a breach of the representations and warranties of Shareholder set
forth in Section 2.13(g), Shareholder shall only be liable for forty percent
(40%) of such Damages.
7.4. Survival of Indemnity; Indemnification Procedures; Time Limits. The
--------------------------------------------------------------
indemnification obligations of Shareholder pursuant to Section 7.2 shall apply
only to those claims for indemnification as to which ▇▇▇▇▇▇▇▇.▇▇▇ has given
written notice thereof pursuant to the terms of the Escrow Agreement on or prior
to the Indemnity Termination Date; provided that the foregoing shall not limit
the liability of Shareholder for Damages resulting from a ▇▇▇▇▇▇▇▇.▇▇▇
Indemnifiable Claim incurred by ▇▇▇▇▇▇▇▇.▇▇▇ Indemnitees after the Indemnity
Termination Date as long as ▇▇▇▇▇▇▇▇.▇▇▇ Indemnitees have made claims prior to
the Indemnity Termination Date in respect of such Damages. ▇▇▇▇▇▇▇▇.▇▇▇ and
Shareholder and agree that the indemnification procedures set forth in the
Escrow Agreement shall apply to all claims for Damages resulting from a
▇▇▇▇▇▇▇▇.▇▇▇ Indemnifiable Claim.
ARTICLE VIII
------------
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
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8.1. Termination. This Agreement may be terminated at any time prior to
-----------
the Exchange Date:
(a) by mutual consent of all the parties hereto; or
(b) by any party hereto if the Share Exchange has not occurred by
April 30, 1999 other than due to the failure of the party seeking to terminate
this Agreement to perform its obligations under this Agreement which are
required to be performed at or prior to the Exchange Date; or
(c) by ▇▇▇▇▇▇▇▇.▇▇▇ if there shall be an order of a court of
competent jurisdiction in effect preventing consummation of the Share Exchange;
or there shall be any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Share Exchange by any
Governmental Entity which would (i) make the consummation of the Share Exchange
illegal; (ii) prohibit ownership or operation by ▇▇▇▇▇▇▇▇.▇▇▇ or the Company of
all or a material portion of the business of the Company; or (iii) compel
▇▇▇▇▇▇▇▇.▇▇▇ or the Company to dispose of all or a material portion of the
business or assets of ▇▇▇▇▇▇▇▇.▇▇▇ or the Company as a result of the Share
Exchange; or
(d) by ▇▇▇▇▇▇▇▇.▇▇▇ if it is not in material breach of its
obligations under this Agreement and there has been a breach of any material
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or Shareholder, as the case may be, provided that, if
such breach is curable by the Company or Shareholder, as the case may be, within
fifteen (15) days through the exercise of its reasonable best efforts, then for
so long as the Company or Shareholder, as the case may be, continues to exercise
such reasonable best efforts ▇▇▇▇▇▇▇▇.▇▇▇ may not terminate this Agreement under
this Section 8.1(e) unless such breach is not cured within such fifteen (15) day
period; or
(e) by the Company or Shareholder, as the case may be, if it is not
in breach of its obligations under this Agreement and there has been a breach of
any material representation, warranty, covenant or agreement contained in this
Agreement on the part of ▇▇▇▇▇▇▇▇.▇▇▇, provided that, if such breach is curable
by ▇▇▇▇▇▇▇▇.▇▇▇ within fifteen (15) days through the exercise of its reasonable
best efforts, then for so long as ▇▇▇▇▇▇▇▇.▇▇▇ continues to exercise such
reasonable best efforts the Company or Shareholder, as the case may be, may not
terminate this Agreement under this Section 8.1(f) unless such breach is not
cured within such fifteen (15) day period.
8.2. Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of ▇▇▇▇▇▇▇▇.▇▇▇, the Company or
Shareholder or their respective officers, directors or shareholders; provided,
however, that each party shall remain liable for any breaches of this Agreement
prior to its termination; and provided further that the provisions of Sections
5.2 and 5.3 and Articles VIII and IX of this Agreement shall remain in full
force and effect and survive any termination of this Agreement.
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8.3. Break-Up Fees. In the event of termination of this Agreement by
-------------
Shareholder or the Company as provided in Section 8.1(b) or 8.1(e), ▇▇▇▇▇▇▇▇.▇▇▇
shall make a loan to Shareholder for $100,000 to be repaid over 2 years.
8.4. Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed by or on behalf of each of
the parties hereto.
8.5. Extension; Waiver. At any time prior to the Exchange Date,
-----------------
▇▇▇▇▇▇▇▇.▇▇▇, on the one hand, and Shareholder, on behalf of himself and the
Company, on the other, may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations of the other party hereto, (b)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
9.1. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be delivered by hand or delivered by
overnight courier, freight prepaid, or sent via facsimile (with acknowledgment
of complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to ▇▇▇▇▇▇▇▇.▇▇▇, to: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company, to: ▇▇▇▇▇▇▇▇.▇▇▇ Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to: Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to Shareholder, to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective when received, and shall in any event be
deemed to have been received (i) when delivered, if delivered personally or sent
by telecopy and confirmed in writing or (ii) two (2) business days after the
business day of deposit with overnight courier, addressed and shipped as
aforesaid.
9.2. Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
Exhibits, such reference shall be an Exhibit to this Agreement unless otherwise
indicated. As used in this Agreement, the phrase "to the best of [a party's]
knowledge," "to [a party's] knowledge," "[a party] is not aware," and similar
phrases shall mean the knowledge of such party, or of the officers and directors
of such party, after careful consideration of the matters set forth in the
representation that is so qualified and a reasonably diligent review of all
files, documents, agreements and other materials in such person's possession or
subject to his or her control. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.3. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
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9.4. Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned, by
operation of law or otherwise, except as otherwise specifically provided and
except that ▇▇▇▇▇▇▇▇.▇▇▇ may assign its rights and delegate its obligations
hereunder to any wholly owned subsidiary, directly or indirectly, of
▇▇▇▇▇▇▇▇.▇▇▇, and to any party that acquires the Company or all or substantially
all of its assets from ▇▇▇▇▇▇▇▇.▇▇▇ or its subsidiaries. Without limiting the
generality of clause (b) of this Section 9.4, the transactions contemplated by
this Agreement shall not be deemed to constitute the purchase of all or
substantially all of the assets or any assumption of liabilities of the Company
or Shareholder and ▇▇▇▇▇▇▇▇.▇▇▇ shall not be liable to any creditor of the
Company or Shareholder by reason of the consummation of the Share Exchange or
any other transaction contemplated hereby.
9.5. Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the 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 void or 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 such void or unenforceable provision.
9.6. Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with,
and not exclusive of, any other remedy conferred hereby or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7. Specific Performance. The parties hereto acknowledge that damages
--------------------
would be an inadequate remedy for any breach of the provisions of this Agreement
and agree that the obligations of the parties hereunder shall be specifically
enforceable.
9.8. Arbitration. Except if any dispute arises with respect to this
-----------
Agreement, then any party (the "Demanding Party") may demand, by written notice
---------------
to each other party to the dispute (collectively, the "Responding Party"), that
----------------
such issue shall be settled by binding arbitration to be held in San Francisco,
California (an "Arbitration Demand"). All claims shall be settled by three
------------------
arbitrators in accordance with the Commercial Arbitration Rules then in effect
of the American Arbitration Association (the "Arbitration Rules"). The Demanding
-----------------
Party and the Responding Party shall each designate one (1) arbitrator within
fifteen (15) calendar days after the delivery of the Arbitration Demand. Such
designated arbitrators shall mutually agree upon and shall designate a third
arbitrator (the "third arbitrator"). The final decision of a majority of the
----------------
arbitrators shall be furnished to Demanding Party and the Responding Party in
writing and shall constitute a conclusive determination of the issue in
question, binding upon all parties and shall not be contested by any of them.
The non-prevailing party shall bear all costs and expenses associated with such
arbitration, including all arbitrators' fees and attorneys' fees.
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9.9. Governing Law; Jurisdiction; Venue. This Agreement shall be governed
----------------------------------
by and construed in accordance with the laws of the State of California, without
regard to applicable principles of conflicts of laws thereof.
9.10. Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[Remainder of this page left blank intentionally.]
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IN WITNESS WHEREOF, each party hereto has caused this Share Purchase
Agreement to be duly executed on its behalf, all as of the date first written
above.
▇▇▇▇▇▇▇▇.▇▇▇, INC.
By: __________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
▇▇▇▇▇▇▇▇.▇▇▇ CORPORATION
By: __________________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
By: __________________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
[Signature Page to Share Purchase Agreement]