| 3.7
|
| Authorization
|
| 20
|
|
|
|
| Page
|
|
3.8
|
|
All Proceedings Satisfactory
|
|
20
|
| 3.9
|
| Investors Fees
|
| 20
|
| 3.10
|
| Consents and Waivers
|
| 20
|
| 3.11
|
| [Intentionally Omitted]
|
| 20
|
| 3.12
|
| Release
|
| 20
|
| 3.13
|
| Key Person Insurance
|
| 21
|
| 3.14
|
| Senior Financing
|
| 21
|
| 3.15
|
| Investment Banking Fees
|
| 21
|
| 3.16
|
| No Material Adverse Change
|
| 21
|
| 3.17
|
| Delivery of Documents
|
| 21
|
| 3.18
|
| License Agreements
|
| 22
|
| SECTION 3A.
|
| CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE FOUNDER
|
| 22
|
| SECTION 4.
|
| POST-CLOSING COVENANTS
|
| 22
|
| 4.1
|
| Financial Statements and Budgetary Information; Inspection
|
| 23
|
| 4.2
|
| Indemnification; Insurance
|
| 23
|
| 4.3
|
| Key Person Insurance
|
| 23
|
| 4.4
|
| Payment of Taxes; Compliance with Laws. etc
|
| 23
|
| 4.5
|
| Enforcement of Rights
|
| 23
|
| 4.6
|
| Affiliate Transactions
|
| 24
|
| 4.7
|
| Duty Reimbursement
|
| 24
|
| SECTION 4A.
|
| CERTAIN TAX MATTERS
|
| 24
|
| 4A.1
|
| Section 338(h)(10) Election
|
|
|
| SECTION 5.
|
| SURVIVAL; INDEMNIFICATION
|
| 25
|
| 5.1
|
| Survival of Representations and Warranties
|
| 25
|
| 5.2
|
| Indemnification by the Founder
|
| 25
|
| 5.3
|
| Limitations on Indemnification by the Founder
|
| 26
|
| 5.4
|
| Indemnification by Buyer
|
| 27
|
| 5.5
|
| Notice; Defense of Claims
|
| 27
|
| 5.6
|
| Recoveries
|
| 28
|
| 5.7
|
| Tax Effect of Indemnification
|
| 28
|
| 5.8
|
| Satisfaction of Indemnification Obligations
|
| 29
|
| SECTION 6.
|
| GENERAL
|
|
|
| 6.1
|
| Amendments. Waivers and Consents
|
| 29
|
| 6.2
|
| Indemnification from the Company
|
| 29
|
| 6.3
|
| Legend on Securities
|
| 31
|
| 6.4
|
| Governing Law
|
| 32
|
| 6.5
|
| Section Headings and Gender
|
| 32
|
| 6.6
|
| Counterparts
|
| 32
|
| 6.7
|
| Notices and Demands
|
| 32
|
| 6.8
|
| Dispute Resolution
|
| 32
|
| 6.9
|
| Remedies; Severability
|
| 33
|
| 6.10
|
| Integration
|
| 33
|
| 6.11
|
| Binding Agreement
|
| 33
EXHIBITS
| Exhibit A
|
| —
|
| Amended and Restated Articles of Incorporation
|
| Exhibit B
|
| —
|
| By-laws
|
| Exhibit C
|
| —
|
| Employment Agreement
|
| Exhibit D
|
| —
|
| Consulting Agreement
|
| Exhibit E
|
| —
|
| Form of Non-Competition Agreement
|
| Exhibit F
|
| —
|
| Form of Technology and Trademark License Agreement
|
| Exhibit G
|
| —
|
| Form of Stockholders' Agreement
|
| Exhibit H
|
| —
|
| Form of Subordinated Note
|
| Exhibit I
|
| —
|
| form of Founder Warrant
|
| Exhibit J
|
| —
|
| Form of Indemnification Agreement
|
| Exhibit K
|
| —
|
| Opinion of Counsel
|
| Exhibit L
|
| —
|
| [Intentionally Omitted]
|
| Exhibit M
|
| —
|
| [Intentionally Omitted]
|
| Exhibit N
|
| —
|
| Form of Release
SCHEDULES
| Schedule 1.4(d)
|
| —
|
| Employee Bonuses
|
| Disclosure Schedule
|
|
|
|
|
| Schedule 5.2(e)
|
| —
|
| Special Indemnification Matters
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT (the "Agreement") is made and entered into as of this 18th day of February, 1998, by and among Fargo
Electronics, Inc., a Minnesota corporation (the "Company"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "Founder") and Fargo Electronics Holdings, Inc., a Delaware corporation ("Buyer").
WHEREAS,
the Founder owns beneficially and of record 34,498 shares of Common Stock of the Company ("Common Stock"), which shares constitute all of the issued and outstanding shares of
capital stock of the Company;
WHEREAS,
Buyer wishes to purchase from the Founder 10,513.69 shares of Common Stock of the Company (such shares, the "Purchased Shares" and, the purchase of the Purchased Shares, the
"Stock Purchase").
WHEREAS,
Buyer has proposed, and the Founder and the Company have agreed, that the Company arrange for certain financing in order to consummate the Redemption (as defined below) and
provide working capital.
WHEREAS,
the parties desire that, contemporaneously with the Stock Purchase, the Company shall redeem from the Founder 21,355.94 shares of Common Stock (the "Redeemed Shares") in
return for the Redemption Price (as defined below) (the "Redemption").
WHEREAS,
in connection with the Stock Purchase and the Redemption, (i) the Company will amend and restate its articles of incorporation in substantially the form attached
hereto as Exhibit A and amend and restate its bylaws in substantially the form attached hereto asExhibit B, (ii) Mr. ▇▇▇▇ ▇▇▇▇▇▇▇ will
enter into an Employment Agreement with the Company in substantially the form attached hereto
as Exhibit C, (iii) the Company will approve and adopt the Option Plan (as defined below), (iv) the Company and the Founder will
enter into a Consulting Agreement in substantially the form attached hereto as Exhibit D (the "Consulting Agreement), (v) the Founder and
the Company will enter into a non-competition agreement in substantially the form attached hereto as Exhibit E (the
"Non-Competition Agreement"), and (vi) Primera (as defined below) and the Company will enter into a Technology and Trademark License Agreement in substantially the form attached
hereto as Exhibit F (the "License Agreement").
WHEREAS,
on the date immediately following the Closing Date (as defined below), (a) Buyer shall exchange the Purchased Shares for 8,000 shares of Convertible Participating
Preferred Stock, par value $.01 per share, of the Company ("Convertible Preferred Stock") (as defined below) with an aggregate value of $8,000,000 and 24,000 shares of Series A 8% Redeemable
Preferred Stock, par value $.01 per share, of the Company ("Redeemable Preferred Stock") with an aggregate value of $24,000,000 and (b) the Founder shall exchange all of his remaining 2,628.37
shares of Common Stock for 1,787.5 shares of Common Stock with an aggregate value of $1,787,500 and 5,362.5 shares of Redeemable Preferred Stock with an
aggregate value of $5,362,500, a warrant to purchase additional shares of Common Stock under certain circumstances set forth therein, and an additional 212.5 shares of Common Stock and 637.5 shares of
Redeemable Preferred Stock shall be issued to certain employees of the Company designated by the Founder in satisfaction of outstanding bonus obligations of the Company (collectively, the "Bonus
Shares");
WHEREAS,
on February 17, 1998, the Company transferred to Primera Technology, Inc., a Minnesota corporation wholly-owned by the Founder ("Primera"), certain assets
relating to the Company's current sign, decal and CD printer products and certain other assets (the "Asset Spin-off'), as set forth in that certain Asset Transfer Agreement dated as of
February 17, 1998 (the "Asset Transfer Agreement") by and between the Company and Primera;
WHEREAS,
in connection with and as a condition precedent to the consummation of the transactions contemplated hereby the Founder, the Company, Buyer and the Stockholders of Buyer will
enter into a
Stockholders' Agreement in substantially the form attached hereto as Exhibit G (the "Stockholders' Agreement"); and
WHEREAS,
the parties hereto desire to set forth certain of the terms of their ongoing relationship in connection with the Company.
NOW
THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION
1.1. Stock Purchase.
(a) At
or prior to Closing (as defined in Section 1.5), the Company will have authorized (i) 10,000 shares of Convertible Preferred Stock (the
"Convertible Preferred Shares"), having the rights, preferences and other terms to be set forth in the Amended and Restated Articles of Incorporation of the Company in substantially the form attached
hereto as Exhibit A (the "Articles of Incorporation"), which shares will be convertible into Shares of the Company's authorized but unissued
shares of Common Stock and (ii) 30,000 shares of Redeemable Preferred Stock (the "Redeemable Preferred Shares") having the rights, preferences and other terms set forth in the Articles of
Incorporation. At or prior to Closing, the Company will have authorized and reserved, and covenants to continue to reserve, a sufficient number of shares of its Common Stock to satisfy the rights of
conversion of the holders of the Convertible Preferred Shares.
(b) Upon
the terms and subject to the conditions herein, and in reliance on the representations and warranties set forth in Section 2, Buyer hereby agrees to
purchase from the Founder, and the Founder hereby agrees to issue and sell to Buyer, at the Closing the Purchased Shares free and clear of any and all liens, claims, options, charges, encumbrances,
rights or restrictions of any nature ("Claims"), for an aggregate cash purchase price of $32,000,000 (the "Base Purchase Price") payable in the form of a promissory note issued to the Founder by Buyer
on the Closing Date (the "Buyer Note").
1.2. Stock Redemption. Subject to and in reliance upon the terms, provisions and conditions of this
Agreement, the Company and the Founder agree that on the Closing Date the Company shall redeem the Redeemed Shares from the Founder free and clear of any and all liens, claims, options, charges,
encumbrances, rights or restrictions of any nature ("Claims") for an aggregate purchase price (the "Redemption Price") of $65,000,000 of which (i) $55,000,000 shall be payable in the form of a
promissory note issued to the Founder by the Company on the Closing Date (the "Fargo Note"), and (ii) $10,000,000 shall be payable by the issuance of a subordinated promissory note of the
Company in the form attached hereto as Exhibit H (the "Subordinated Note").
1.3. Delivery of Shares and Purchase Price. On the Closing Date:
(i) The
Founder shall deliver to Buyer a certificate or certificates for the Purchased Shares duly endorsed in blank, or accompanied by stock powers duly executed in
blank, in proper form for transfer;
(ii) Buyer
shall issue to the Founder the Buyer Note;
(iii) the
Founder shall surrender to the Company the certificate or certificates representing the Redeemed Shares, whereupon the Company shall cancel such Redeemed
Shares, which shall thereafter
cease to be issued and outstanding; and
(iv) in
consideration for the Redemption of the Redeemed Shares, the Company shall pay to the Founder the Redemption Price by (i) the issuance to the Founder of
the Fargo Note and (ii) the issuance to the Founder of the Subordinated Note.
1.4. Closing Financial Statements; Purchase Price Adjustments
(a) As
soon as practicable following the Closing but in no event later than 30 days following the Closing Date, the Company shall prepare or cause to be prepared
and delivered to Buyer and the Founder a statement setting forth the Adjusted Net Worth (as defined below) of the Company as of but not including the Closing Date at a time immediately preceding the
Closing and the transactions to be consummated in connection therewith (the "Adjusted Net Worth Statement"). The Adjusted Net Worth Statement shall be prepared in accordance with generally accepted
accounting principles applied on a consistent basis in accordance with the past practices of the Company and shall be reviewed and, if requested by Buyer, audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP. On the basis
of the Adjusted Net Worth Statement, subject, however, to the rights of the Founder as provided in Section 1.4(b) and (c), (i) if the
Adjusted Net Worth exceeds $6,879,732, the Company shall pay to the Founder the Adjustment Amount (as defined below), or (ii) if the Adjusted Net Worth is less than $6,879,732, the Founder
shall pay to the Company the Adjustment Amount. The "Adjustment Amount" shall be either (i) the amount (if any) by which the Adjusted Net Worth is greater than $6,879,732, or (ii) the
amount (if any) by which the Adjusted Net Worth is less than $6,879,732.
(b) Upon
receipt of the Adjusted Net Worth Statement, the Founder and the Founder's advisers shall be permitted during the succeeding 30-day period to
examine the work papers and all back-up materials and memoranda used or generated in connection with the preparation of the Adjusted Net Worth Statement and such other documents as the
Founder or the Founder's advisers may reasonably request in connection with their review of the Adjusted Net Worth Statement; provided that such advisors shall enter into confidentiality agreements
reasonably satisfactory to Buyer prior to their examination of any such materials. Within 30 days after the Company's delivery of the Adjusted Net Worth Statement, the Founder may deliver
written notice (the "Protest Notice") to Buyer and the Company of any objections, and the basis therefor, which the Founder may have to the Adjusted Net Worth Statement. The failure of the Founder to
deliver such Protest Notice within the prescribed time period will constitute the Founder's acceptance of the Adjusted Net Worth Statement as delivered by the Company. During the 10 days
following Buyer's receipt of the Protest Notice, Buyer and the Founder shall attempt to resolve any disagreement with respect to the Adjusted Net Worth Statement and the appropriateness thereof. If at
the end of such 10-day period, the Investors and the Founder shall have failed to resolve the disagreement specified in the Protest Notice, the items in dispute shall be referred to
Coopers & ▇▇▇▇▇▇▇ L.L.P. or such other accounting firm of national reputation as may be agreed to by the parties (the "Arbitrator") for final determination within 30 days. This provision
for arbitration shall be specifically enforceable by the parties, and the determination of the Arbitrator in accordance with the provisions hereof shall be final and binding upon Buyer and the
Founder, with no right of appeal therefrom consistent with the provisions of Section 7.8 hereof. The fees and expenses of the Arbitrator shall be split by the parties as follows: 50% to be paid
by the Company and 50% to be paid by the Founder.
(c) The
Founder and Buyer agree that within 5 days after the final determination of the Adjustment Amount as provided in this Section 1.4 the Founder
shall pay to the Company or the Company shall pay to the Founder, as the case may be, the Adjustment Amount. If the Adjustment Amount (exclusive of the Arbitrator's fees and expenses) exceeds $50,000,
interest shall accrue thereon, and shall be
payable therewith, compounded daily from the date of the Closing to the day preceding the date of payment at the annual rate of 8% compounded annually.
(d) For
purposes of this Agreement, the term "Adjusted Net Worth" shall mean the stockholders' equity of the Company, as determined in accordance with generally
accepted accounting principles
consistently applied in accordance with the past practices of the Company, without giving effect to the Asset Spin-off or the transactions contemplated hereby (including the financing
transactions to be effected in connection herewith), including cash and cash equivalents and marketable securities and any closing related accruals for bonuses or other amounts to employees of the
Company as of the Closing Date in connection with the transactions contemplated hereby including, without limitation, amounts set forth on
Schedule 1.4(d) attached hereto (but not including any such accruals satisfied through the issuance of the Bonus Shares pursuant to Section 1.6 below) but not
reduced by any other fees and expenses incurred or payable by the Company (other than fees and expenses described in Section 3.15 below) in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses described in Section 3.9 or 3A(d) below.
1.5. Closing. The closing of the purchase and sale of the Purchased Shares and the redemption of the
Redeemed Shares, as contemplated by Sections 1.1, 1.2 and 1.3 (the "Closing") shall take place at 10:00 a.m. on the date hereof at the offices of ▇▇▇▇▇▇▇, Procter &
▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ or such other date, place and time as shall be agreed upon by the parties hereto (the "Closing Date").
1.6. Exchange of Shares.
(a) The
Company and Buyer hereby agree that Buyer shall exchange, on the date immediately following the Closing Date, the Purchased Shares acquired by Buyer at the
Closing for a total of 8,000 Convertible Preferred Shares with an aggregate value of $8,000,000 and 24,000 Redeemable Preferred Shares with an aggregate value of $24,000,000 and the Company shall
issue such Convertible Preferred Shares and Redeemable Preferred Shares to Buyer in exchange for such Purchased Shares. Upon such exchange, Buyer shall surrender to the Company all certificates for
the Purchased Shares so exchanged.
(b) The
Company and the Founder hereby agree that the Founder shall exchange, on the date immediately following the Closing Date, all of the 2,628.37 shares of Common
Stock then held by the Founder after giving effect to the Stock Purchase and the Redemption (the "Founder Remaining Shares") for a total of (i) 1,787.5 shares of Common Stock with an aggregate
value of $1,787,500, (ii) 5,362.5 Redeemable Preferred Shares with an aggregate value of $5,362,500, (iii) a warrant to purchase additional shares of the Common Stock of the Company, in
the form attached hereto as Exhibit I (the "Founder Warrant"), and (iv) the issuance to those employees set forth in
Schedule 1.4(d) as recipients of bonuses payable in stock of up to 212.5 shares of Common Stock with an aggregate value of $212,500 and 637.5
Redeemable Preferred Shares with an aggregate value of $637,500, and the Company shall issue such shares of Common Stock, Redeemable Preferred Shares and the Founder Warrant to (or as designated by)
the Founder in exchange for such Founder Remaining Shares. Upon such exchange, the Founder shall surrender to the Company all certificates for the Founder Remaining Shares so exchanged.
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce Buyer to enter into this Agreement, the Company and the Founder jointly and severally represent and warrant to the Investors that the
statements contained in this Article 2 are correct and complete as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 2), except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in sections corresponding to the sections contained in this Article 2 and, where applicable,
will set forth the information specified in such sections; provided, however, that any event, fact or circumstance described in any numbered section of
the Disclosure Schedule shall be deemed to be a disclosure for purposes of all other numbered sections of the Disclosure Schedule to the extent that it is reasonably apparent that
such disclosure is applicable thereto. Notwithstanding the foregoing, the representations set forth in Sections 2.2(b) and 2.2(c) are made by the Founder and not the Company.
For
purposes of this Agreement: (a) the term "Material Adverse Effect" shall mean a material adverse effect on the assets, financial condition, business or results of
operations of the Company, which results in or would be reasonably likely to result in a liability, loss, damage or obligation in excess of $100,000; and (b) the term "knowledge of the Company"
shall mean (i) the actual knowledge of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Upin, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ and (ii) such knowledge as any of the foregoing individuals
would reasonably be expected to have in the diligent exercise of his or her duties.
2.1. Organization and Corporate Power. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota, and is qualified to do business as a foreign corporation in each jurisdiction in which the failure to be so qualified would be reasonably
likely to have a Material Adverse Effect. The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the
agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Securities and the redemption of the Redeemed
Shares. The copies of the Certificate of Incorporation and By-laws of the Company, as amended and restated to date (the "Certificate of Incorporation" and the "Bylaws," respectively), and
of the minute book of the Company, which have been furnished to the Investors by the Company, are correct and complete in all material respects at the date hereof. The Company is not in violation of
any material term of its Certificate of Incorporation or By-laws.
2.2. Authorization and Non-Contravention; Ownership of Capital Stock.
(a) The
execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the
Company as contemplated hereby and the issuance and delivery of the Securities and, upon the conversion of the Convertible Preferred Shares the Conversion Shares have been duly authorized by all
necessary corporate and other action of the Company. This Agreement and all documents executed by the Company pursuant hereto are valid and binding obligations of the Company, enforceable in
accordance with their terms. The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as
contemplated hereby and the issuance and delivery of the Securities and, upon the conversion of the Convertible Preferred Shares, the Conversion Shares do not and will not: (A) violate,
conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which the Company is a party or by which it or its assets are
bound, or any provision of the Certificate of Incorporation or By-laws or cause the creation of any encumbrance upon any of the assets of the Company; (B) violate or result in a
violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of any court or governmental agency applicable to the Company; (C) require from the
Company any notice to, declaration or filing with, or consent or approval of any governmental authority or third party; or (D) accelerate any obligation under, or give rise to a right of
termination of, any agreement, permit, license or authorization to which the Company is a party or by which the Company is bound except, in the case of clause (A) or (D) above, where
such circumstance would not reasonably be expected to have a Material Adverse Effect.
(b) The
Founder has full right, authority, power and capacity to enter into this Agreement and each agreement, document and instrument to be executed and delivered by
or on behalf of the Founder pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and
instrument executed and delivered by the Founder pursuant to or as contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of the
Founder enforceable
in accordance with their respective terms. The execution, delivery and performance by the Founder of this Agreement and each such other agreement, document and instrument, and the performance by the
Founder of the transactions contemplated hereby and thereby do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both)
under any contract or obligation to which the Founder or the Company is a party or by which the Founder's or the Company's assets are bound, or any provision of the Certificate of Incorporation or
By-laws of the Company, or cause the creation of any encumbrance upon any of the assets of the Founder or the Company; (B) violate or result in a violation of, or constitute a
default under, any provision of any law, regulation or rule, or any order of any court or other governmental agency applicable to the Company or the Founder; (C) require from the Founder or the
Company any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party; or (D) accelerate any obligation under, or give rise to a right of
termination of, any agreement, permit, license or authorization to which the Founder or the Company is a party or by which the Founder or the Company is bound except, in the case of clause (A)
or (D) above, where such circumstance would not reasonably be expected to have a Material Adverse Effect.
(c) The
Founder owns beneficially and of record all of the Purchased Shares and all of the Redeemed Shares free and clear of any and all Claims. Upon delivery to the
Company at the Closing of certificates representing the Purchased Shares and the Redeemed Shares owned by the Founder duly endorsed in blank for transfer or with stock powers attached duly executed in
blank, against delivery of the purchase price therefor, good, valid and marketable title thereto shall be transferred to Buyer and the Company, respectively, in each case free and clear of any and all
Claims.
2.3. Capitalization. As of the Closing, and after giving effect to the transactions contemplated
hereby, the authorized capital stock of the Company will consist of 15,000,000 shares of Common Stock, of which 2,000 shares will be issued and outstanding, 10,000 shares of Convertible Preferred
Stock, of which 8,000 shares will be issued and outstanding, and 30,000 shares of Redeemable Preferred Stock, of which 30,000 shares will be issued and outstanding. In addition, the Company has
authorized and reserved for issuance upon conversion of the outstanding shares of Convertible Preferred Stock up to 8,000 shares of Common Stock and has reserved for issuance upon exercise of options
under the Company's 1998 Stock Option and Incentive Plan (the "Option Plan") 1,111 shares of Common Stock (subject in each case to adjustments for stock splits, stock dividends and the like). A copy
of the Option Plan is included in Section 2.3 of the Disclosure Schedule. Except for the 8,000 shares of Common Stock issuable upon conversion of the Convertible Preferred Shares, the Company
has not issued or agreed to issue and is not obligated to issue any outstanding warrants, options or other rights to purchase or acquire any shares of its capital stock, nor any outstanding securities
convertible into such shares or any warrants, options or other rights to acquire any such convertible securities. As of the Closing, and after giving effect to the transactions contemplated hereby,
all of the outstanding shares of capital stock of the Company (including, without limitation, the Convertible Preferred Shares and the Redeemable Preferred Shares) will have been duly and validly
authorized and issued and will be fully paid and
nonassessable and will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws and not subject to any preemptive rights. The Conversion Shares
issuable upon conversion of the Convertible Preferred Shares will, upon issuance, be duly and validly authorized and issued, fully paid and nonassessable and not subject to any preemptive rights and
will be issued in compliance with applicable federal and state securities laws. The relative rights, preferences and other provisions relating to the Convertible Preferred Stock and the Redeemable
Preferred Stock are as set forth in the Certificate of Incorporation. There are no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights
with respect to the issuance, sale or redemption of the Company's capital stock other than rights to which the Investors (as defined in the Stockholders' Agreement), the Founder and the Investors are
entitled as set forth in this Agreement, the Stockholders' Agreement and the Certificate of Incorporation. Except as set forth in the Stockholders' Agreement, there are no rights to have the Company's
capital stock registered for
sale
to the public under the laws of any jurisdiction, no agreements relating to the voting of the Company's voting securities, and no restrictions on the transfer of the Company's capital stock.
Immediately after giving effect to the transactions contemplated hereby, the outstanding shares of the Company's capital stock will be held beneficially and of record by the persons identified in
Section 2.3 of the Disclosure Schedule in the amounts indicated thereon.
2.4. Subsidiaries; Investments. The Company has no subsidiaries or equity interest in or loans to any
corporation, joint venture, partnership, limited liability company, business trust or other entity or the Founder.
2.5. Financial Statements and Matters. Attached hereto as Section 2.5 of the Disclosure Schedule
are copies of the Company's audited financial statements as of and for the year ended December 31, 1997. Such financial statements were prepared in conformity with generally accepted accounting
principles applied on a consistent basis, are in all material respects complete, correct and consistent with the books and records of the Company and fairly and accurately present in all material
respects the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods shown therein (subject in the case of the unaudited
statements to the absence of footnotes and immaterial year-end adjustments).
2.6. Absence of Undisclosed Liabilities. Except as and to the extent reflected or reserved against in
the audited balance sheet of the Company at December 31, 1997 contained in the financial statements referred to in Section 2.5 (the "Base Balance Sheet") and except for
(i) liabilities under agreements, contracts, leases, licenses and other arrangements which have been listed in Section 2.12 of the Disclosure Schedule or are not required to be listed
therein under Section 2.12 below, (ii) liabilities to unaffiliated trade creditors which have arisen in the ordinary course of business consistent with past practices and which are not
past due, (iii) liabilities which would not have a Material Adverse Effect and (iv) liabilities set forth in Section 2.6 of the Disclosure Schedule, the Company does not have and
is not subject to any liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown; provided, however,that this representation shall
not govern matters specifically addressed by the representations contained in Sections 2.4, 2.5, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.16, 2.17,
2.18, 2.19, 2.23 and 2.24 of this Article 2.
2.7. Absence of Certain Developments. Since the date of the Base Balance Sheet, except as set forth in
Section 2.7 of the Disclosure Schedule and except for the transactions expressly contemplated by this Agreement and the other agreements contemplated thereby there has not been any:
(i) change in the Company's business which would have a Material Adverse Effect, (ii) affirmative waiver of any valuable right of the Company or cancellation of any material debt or
claim held by the Company, (iii) loss or destruction of or damage to any property which would be reasonably likely to have a Material Adverse Effect, whether or not insured,
(iv) acquisition or disposition of any material assets or other material transaction by the Company other than in the ordinary course of business, (v) material transaction or agreement
involving the Company and any officer, director, employee or stockholder of the Company, (vii) material increase, direct or indirect, in the compensation paid or payable to any officer,
director, employee or agent of the Company or any establishment or creation of any employment or severance agreement or employee benefit plan other than increases in the ordinary course of business
consistent with past practice, (vii) material loss of personnel of the Company, material change in the terms and conditions of the employment of the Company's key personnel or any material
labor trouble involving the Company, (viii) arrangements relating to any royalty, dividend or similar payment based on the sales volume of the Company, whether as part of the terms of the
Company's capital stock or by any separate agreement, (ix) loss or any development that is reasonably expected to result in a loss of any
significant customer, account or employee of the Company, (x) incurrence of indebtedness or any lien other than in the ordinary course of business but in no event greater than $100,000 in the
aggregate or (xi) any agreement or understanding, whether oral or in writing, with respect to any of the foregoing actions.
2.8. Ordinary Course. Since the date of the Base Balance Sheet, the Company has conducted its business
only in the ordinary course and consistent with its prior practices.
2.9. Accounts Receivable; Inventory.
(a) All
of the accounts receivable of the Company shown or reflected on the Base Balance Sheet represent bona fide completed sales of products or services made in the
ordinary course of business, are valid and enforceable claims, subject to no express or assented set-offs or counterclaims, and are, in the reasonable judgment of the Company, fully
collectible in the normal course of business subject to the reserve set forth in the Base Balance Sheet.
(b) Except
where appropriate provisions have been made on the Base Balance Sheet for items that are obsolete or below standard quality or items that are unusable or
slow-moving given the current state of operation of the Company, are damaged or fail to meet applicable specifications, all inventory items of the Company are of a quality salable in the
ordinary course of its business. Since the date of the Base Balance Sheet, no material inventory items have been sold or disposed of except through sales in the ordinary course of business.
2.10. Title to Properties. Section 2.10 of the Disclosure Schedule sets forth the addresses and
general uses of all real property that the Company owns, leases or subleases. The Company has good, valid and marketable title to all of its owned assets including without limitation those assets
reflected on the Base Balance Sheet or acquired by it after the date thereof (except for properties disposed of since that date in the ordinary course of business), free and clear of all liens, claims
or encumbrances of any nature except for Permitted Liens. All equipment included in such properties which is necessary to the business of the Company is in working condition and repair (ordinary wear
and tear excepted) sufficient for their current use and all leases of real or personal property to which the Company is a party are fully effective and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. After giving effect to the Asset Spin-off, the property and equipment of the Company are sufficient for the conduct of its business as
presently conducted (other than with respect to the business transferred pursuant to the Asset Spin-off). The Company is not in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation of its owned or leased properties, which violation would be reasonably likely to have a Material Adverse Effect, nor
has the Company received any notice of any such violation. There are no defaults by the Company or to the knowledge of the Company and the Founder, by any other party, which might curtail in any
material respect the present use of the Company's leased real property. The performance by the Company of this Agreement will not result in the termination of, or in any increase of any amounts
payable under, any of its real property leases under the terms of such leases.
For
purposes of this Agreement, the term "Permitted Liens" means: (a) any lien, charge, claim or other encumbrance ("Liens")
securing the payment of Taxes, and other government charges, either not yet due or the validity of which is being contested in good faith before appropriate proceedings, and as to which the Company
shall have set aside on its books adequate reserves to the extent required by generally accepted accounting principles; (ii) deposits under worker's compensation, unemployment insurance and
social security laws; (iii) Liens of mechanics, materialmen, landlords, warehousemen, and carriers and other similar Liens, securing obligations which are not past due for more than sixty
(60) days or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established; (iv) Liens, deposits or pledges to secure the
performance of bids, tenders, contracts (other than contracts for the payment of indebtedness), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or
other similar obligations arising in the ordinary course of business; (v) purchase money Liens and Liens securing payments under capital lease obligations not in excess of the value of the
collateral; (vi) judgment and other similar Liens arising in connection with court proceedings set forth in the Disclosure Schedule, provided that the execution or other enforcement of such
Liens is effectively stayed and the claims
secured thereby are being actively contested in good faith and by appropriate proceedings; (vii) Liens against the fee interest in real property leased by the Company; and (viii) Liens
arising or resulting from the actions of the Investors or the Company in connection with the transactions contemplated by this Agreement.
2.11. Tax Matters.
(a) The
Company and the Founder (it being understood that all representations made in this Section 2.11 relating to the Founder are made only to the extent they
relate to disclosure and payment of income taxes of the Company) have paid or caused to be paid all material federal, state, local, foreign, and other taxes, including without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise taxes, employment and payroll-related taxes, withholding taxes, transfer taxes; and all deficiencies, or other
additions to tax, interest, fines and penalties owed by the Company (collectively, "Taxes"), required to be paid by it through the date hereof whether disputed or not. All material taxes and other
assessments and levies which the Company is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities. The Company has, in
accordance with applicable law, timely and properly filed all federal, state, local and foreign tax returns required to be filed by it through the date hereof, all such returns correctly and
accurately set forth in all material respects the amount of any Taxes relating to the applicable period and any deductions from, or credits against any Taxes or taxable income relating to such returns
are valid and proper items of deduction or credit.
(b) Neither
the Internal Revenue Service nor any other governmental authority is now asserting or, to the knowledge of the Company, threatening to assert against the
Company any deficiency or claim for additional Taxes. No claim has been made in writing since December 31, 1991 by an authority in a jurisdiction where the Company does not file reports and
returns that the Company is or may be subject to taxation by that jurisdiction. There are no security interests on any of the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Taxes. The Company is not currently a party or subject to or bound by a closing agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Company is not and never has been a "personal holding company" as defined under Section 541 of the Code. There has not been any audit of any tax return filed by the Company,
no such audit is in progress, and neither the Company nor the Founder has been notified by any tax authority that any such audit is contemplated or pending. No extension of time with respect to any
date on which a tax return was or is to be filed by the Company is in force, and no waiver or agreement by the Company is in force for the extension of time for the assessment or payment of any Taxes.
The Company is not now and has never been a member of an affiliated group filing a consolidated federal income tax return. The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For
purposes of this Agreement, all references to Sections of the Code shall include any predecessor provisions to such Sections.
(d) The
Company has, at all times since December 31, 1991 until immediately prior to and other than as a result of the consummation of the transactions
contemplated by this agreement, qualified as an entity properly taxable as a subchapter S corporation (as defined in Section 1361 of the Code) or as a qualified subchapter S Subsidiary (as
defined in Section 1361 of the Code).
2.12. Certain Contracts and Arrangements. The Company is not a party or subject to or bound by:
(a) any
plan, contract or governmental order providing for collective bargaining or the like, or any contract or agreement with any labor union;
(b) any
contract, lease or agreement creating any obligation of the Company to pay to any third party $100,000 or more with respect to any single such contract or
agreement (other than purchase orders made in the ordinary course of business);
(c) any
contract or agreement for the sale, license, lease or disposition of products or services by the Company in excess of $100,000 (other than purchase orders made
in the ordinary course of business);
(d) any
contract containing covenants limiting the freedom of the Company to compete in any line of business or with any person or entity in any material manner;
(e) any
material license agreement (as licensor or licensee);
(f) any
lease of real property;
(g) any
contract or agreement for the purchase of any leasehold improvements, equipment or fixed assets for a price in excess of $100,000;
(h) any
indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $100,000 or any pledge or security
arrangement;
(i) any
material joint venture, partnership, manufacturing, development or supply agreement;
(j) any
endorsement or any other advertising, promotional or marketing agreement;
(k) any
contracts for employment with respect to any individual who received total compensation in 1997 in excess of $100,000 or who has an annual base compensation for
1998 in excess of $100,000 or other agreements with officers, directors, employees or stockholders of the Company or persons or organizations related to or affiliated with any such persons including,
without limitation, contracts or other agreements granting any such person any equity, phantom equity or similar interest in the Company;
(l) any
stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company, including without limitation any
agreement with any stockholder of the Company which includes without limitation, those providing for anti-dilution rights, registration rights, voting arrangements, operating covenants or
similar provisions;
(m) any
pension, profit sharing, retirement, stock option, phantom stock or other equity incentive, bonus or commission plans;
(n) any
material royalty, dividend, distribution or sales representative agreement or similar arrangement (including without limitation agreements or arrangements with
employees or marketing directors) based in whole or in part on the sales volume, revenue, net income or other operating results of the Company;
(o) any
material acquisition, merger or similar agreement;
(p) any
material contract with a governmental body under which the Company may have an obligation for renegotiation;
(q) any
material agreement or arrangement providing for the indemnification of others against, or the sharing of, the liability of others for Taxes;
(r) material
agreements for the purchase of any commodity or material for the performance of the executory portion of which shall extend over a period of more than one
year or involve consideration in excess of $100,000, except purchase orders in the ordinary course of business; or
(s) any
other material contract not executed in the ordinary course of business.
All
of the Company's written contracts and commitments constitute legal, valid and binding obligations of the Company, and, to the knowledge of the Founder and the Company, the other
parties thereto and are enforceable in accordance with their respective terms, except where any failure to be valid, binding and enforceable would not have a Material Adverse Effect. Neither the
Company nor the Founder knows of any notice or threat of or basis for the termination, expiration or modification of any such agreements within one year from the date hereof, which termination,
expiration or modification is reasonably likely to have a Material Adverse Effect. Neither the Company, nor, to the knowledge of the Company and the Founder, any other party is in default thereunder
(nor, to the knowledge of the Company and the Founder, has any event occurred which with notice, lapse of time or both would constitute a default thereunder), except to the extent that any such
default would not have a Material Adverse Effect, and neither the Company nor the Founder has received notice of any alleged default under any such contract, agreement, understanding or commitment.
2.13. Proprietary Rights; Employee Restrictions. Set forth in Section 2.13 of the Disclosure
Schedule is a list of all patents, patent applications, trademark registrations, trademark applications, service marks, service ▇▇▇▇ applications, trade names and copyrights owned by or registered in
the name of the Company, or of which the Company is a licensor or licensee (other than "off-the-shelf" software which is available to the general public at retail) or in which
the Company has any right. The Company owns or possesses the right of license (other than with respect to "off-the-shelf" software which is available to the general public at
retail) to use, free and clear of claims or rights of any other Person, all patents, patent applications, trademarks, trademark applications, service marks, service ▇▇▇▇ applications, trade names,
copyrights, manufacturing processes, programming processes and software, algorithms, formulae, trade secrets and know how (collectively "Intellectual Property") presently used in the conduct of its
business. To the knowledge of the Company and the Founder there are no claims of infringement by any other Person of any rights of the Company under any Intellectual Property. No claim is pending or,
to the knowledge of the Company and the Founder, threatened against the Company nor has the Company or the Founder received any notice from any other Person, to the effect that any Intellectual
Property owned or licensed by the Company, or which the Company otherwise has the right to use, or the operation, products or services of the Company infringes upon or conflicts with the asserted
rights of any other Person with respect to any Intellectual Property, and, to the knowledge of the Company and the Founder, there is no basis for any such claim (whether or not pending or threatened).
No
claim is pending or, to the knowledge of the Company and the Founder, threatened against the Company, nor has the Company or the Founder received any notice from any other Person, to the effect that
any Intellectual Property owned or licensed by the Company, or which the Company otherwise has the right to use, is invalid or unenforceable.
All
licenses or other agreements under which the Company is granted rights by others in Intellectual Property (excluding end-user agreements) are listed in
Section 2.13 of the Disclosure Schedule (other than with respect to "off-the-shelf" software which is available to the general public at retail). All such licenses or
other agreements are in full force and effect, to the knowledge of the Company and the Founder, there is no material default by any party thereto, and, except as set forth in Section 2.13 of
the Disclosure Schedule, to the knowledge of the Company and the Founder, all of the rights of the Company thereunder are freely assignable. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to The Investors and, neither the Company nor the Founder has any reason to believe that the licensors under the licenses and other
agreements under which the Company is granted rights and has granted rights to others do not have and did not have all requisite power and authority to grant the rights purported to be conferred
thereby.
All
licenses or other agreements under which the Company has granted rights to others in Intellectual Property (excluding all end user agreements on standard forms of the Company) are
listed in Section 2.13 of the Disclosure Schedule. All of said licenses or other agreements are in full force
and effect, to the best knowledge of the Company and the Founder, there is no material default by any party thereto. True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been made available to the Investors.
To
the knowledge of the Company and the Founder, neither the Company nor any of its employees, officers has any agreements or arrangements with former employers or consultants of such
employees, officers or consultants relating to any Intellectual Property of such employers, officers or consultants, which materially interfere or conflict with the performance of such employee's
duties for the Company or results in any former employers of such employees, officers and consultants having any rights in, or claims on, the Intellectual Property used in the conduct of the Company's
business. To the knowledge of the Company and the Founder, the activities of the Company's employees, officers and consultants do not violate any agreements or arrangements which any such employees,
officers and consultants have with former employers.
The
Company has taken commercially reasonable steps required to establish and preserve its ownership of all of the Intellectual Property used in the conduct of the Company's business;
the Founder and, to the knowledge of the Founder and the Company, each current employee and officer of the Company, each former employee and officer of the Company who was employed by the Company at
any time after April 1, 1997 and each of the Company's current and former consultants and independent contractors involved in development of any of the Intellectual Property used in the conduct
of the Company's business has executed an agreement regarding confidentiality, proprietary information and assignment of inventions to the Company, and the Founder is not and, to the knowledge of the
Company and the Founder, none of such employees, consultants and independent contractors are, in violation of such agreements.
Without
limitation of any of the foregoing: (a) the Company has taken reasonable security measures to guard against unauthorized disclosure or use of any Intellectual Property
used by the Company in conducting its business; and (b)the Company has no reason to believe that any Person (including
without limitation any former employee of the Company) has unauthorized possession of any such Intellectual Property, or any part thereof, or that any Person has obtained unauthorized access to any
such Intellectual Property.
2.14. Litigation There is no litigation or governmental proceeding or investigation pending or, to the
best knowledge of the Company and the Founder, threatened against the Company or affecting any of its properties or assets or against any officer, director or key employee of the Company in his or her
capacity as an officer, director or employee of the Company, which litigation, proceeding or investigation is reasonably likely to have a Material Adverse Effect, or which may call into question the
validity or hinder the enforceability of this Agreement or any other agreements or transactions contemplated hereby; nor to the best knowledge of the Company and the Founder has there occurred any
event nor does there exist any condition on the basis of which any litigation, proceeding or investigation should reasonably be anticipated to be properly instituted or commenced which litigation,
proceeding or investigation would be reasonably likely to have a Material Adverse Effect.
2.15. Employee Benefit Plans. The Company does not maintain or contribute to any employee benefit plan,
stock option, bonus or incentive plan, severance pay policy or agreement, deferred compensation agreement, or any similar plan or agreement (an "Employee Benefit Plan") other than the Employee Benefit
Plans identified and described in Section 2.15 of the Disclosure Schedule and the Option Plan. The terms and operation of each Employee Benefit Plan comply in all material respects with all
applicable laws and regulations relating to such Employee Benefit Plans. There are no unfunded obligations of the Company under any retirement, pension, profit-sharing or deferred compensation plan or
similar program. The Company is not required to make any payments or contributions to any Employee Benefit Plan pursuant to any collective bargaining agreement or, to the knowledge of the Company and
the Founder, any applicable labor relations law, and all Employee
Benefit Plans are terminable at the discretion of the Company without liability under Title IV of ERISA upon or following such termination. The Company has never maintained or contributed to any
Employee Benefit Plan providing any health or other welfare benefits to terminated employees, except as required pursuant to Part 6 of Subtitle B of Title I of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or similar state law.
2.16. Labor Laws. The Company generally enjoys good employer-employee relationships. The Company is not
delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it as of the date hereof or amounts required to
be reimbursed to such employees. The Company is in compliance in all material respects with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and
conditions of employment, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work or any other concerted interference
with normal operations existing, pending or, to the knowledge of the Company and the Founder, threatened against or involving the Company. To the knowledge of the Company and the Founder, no question
concerning representation exists respecting any group of employees of the Company. There are no claims or charges relating to or alleging violations of any federal, state or local employment laws,
including without limitation laws relating to discrimination, harassment, family leave or wage payments, existing, pending or, to the knowledge of the Founder and the Company, threatened against the
Company which claim is reasonably likely to have a Material Adverse Effect nor, to the knowledge of the Company and the Founder, has there occurred any event or does there exist any condition on the
basis of which any such claim is reasonably likely to be asserted which claim would be reasonably likely to have a Material Adverse Effect.
2.17. Employees and Suppliers.
(a) Section 2.17
of the Disclosure Schedule contains a list of all managers, employees and consultants of the Company who, individually, have received
compensation from the Company for the fiscal year of the Company ended December 31, 1997 in excess of $100,000 as well as the current job title, years of service with the Company and aggregate
annual compensation and benefits of each such individual. To the knowledge of the Company and the Founder, no key employee of the Company has any plan or intention to terminate his or her employment
with the Company. The Company has complied in all material respects with the immigration laws of the United States with respect to the hiring, employment and engagement of all of its employees and
consultants who are not United States citizens, and, to the best knowledge of the Company and the Founder, the immigration or residency status of each of such employees and consultants is sufficient
to allow such employees and consultants to remain lawfully employed or engaged by the Company. The Company has no unpaid or accrued liabilities for payments due to any employee, as a result of the
transactions contemplated hereby or otherwise except as set forth on Schedule 1.4(d) and except as set forth on the Base Balance Sheet.
(b) Section 2.17
of the Disclosure Schedule sets forth a list of all suppliers of the Company to whom during the fiscal year ended December 31, 1997 the
Company made payments aggregating $1,000,000 or more, showing, with respect to each, the name, address and dollar volume involved. To the knowledge of the Company and the Founder, no such supplier has
any plan or intention to terminate or reduce its business with the Company or to materially and adversely modify its relationship with the Company.
2.18. Environmental Matters.
(a) (i) The
Company has never generated, transported, used, stored, treated, disposed of, or managed any Hazardous Waste (as defined below) in a manner that
violated or gave rise to liability under any Environmental Law which violation or liability would be reasonably likely to have a Material Adverse Effect; (ii) no Hazardous Material (as defined
below) has ever been or is threatened to be spilled, released, or disposed of at any site presently or formerly owned, operated or leased by the
Company, or has ever come to be located in the soil or groundwater at any such site in a manner that violated or gave rise to liability under any Environmental Law, which violation or liability would
be reasonably likely to have a Material Adverse Effect; (iii) no Hazardous Material has ever been transported from any site presently or formerly owned, operated or leased by the Company for
treatment, storage, or disposal at any other place in a manner that violated or gave rise to liability under any Environmental Law which violation or liability would be reasonably likely to have a
Material Adverse Effect; (iv) the Company does not presently own, operate or lease, and has not previously owned, operated or leased any site on which underground storage tanks are or were
located during the period of time the Company owned, operated or leased such site; and (v) no lien has ever been imposed by any governmental agency on any property or facility, owned, operated
or leased by the Company in connection with the presence of any Hazardous Material during the period of time the Company owned, operated or leased such property or facility.
(b) (i) The
Company does not have any liability under, nor has the Company violated in any material respect, any Environmental Law (as defined below), which
liability or violation is reasonably likely to have a Material Adverse Effect; (ii) the Company has not entered into or been subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and safety matter or received any request for information, notice, demand letter, administrative inquiry, or formal or informal
complaint or claim with respect to any environmental or health and safety matter or the enforcement of any Environmental Law; and (iii) neither the Company, nor the Founder has any knowledge or
information that any of the items enumerated in clause (ii) of this paragraph will be forthcoming.
(c) To
the knowledge of the Company, no site currently owned, operated, leased, or used by the Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea formaldehyde foam insulation.
(d) The
Company has provided to the Investors copies of all reports and documents in its possession concerning any environmental, occupational or health and safety
matter that would be reasonably likely to have a Material Adverse Effect, whether generated by the Company or others.
(e) For
purposes of this Section 2.18 of this Agreement, (i) "Hazardous Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant, or contaminant, as defined under any Environmental Law; (ii) "Hazardous Waste" shall mean and include any hazardous
waste as defined under any Environmental Law; (iii) "Environmental Law" shall mean any law, regulation, rule, ordinance, or by-law at the foreign, federal, state, or local level
existing as of the date hereof pertaining to the protection of the environment; and (iv) "Company" shall mean and include the Company, its respective predecessors and all other entities for
whose conduct the Company is or may be held responsible under any Environmental Law.
2.19. Business; Compliance with Laws. The Company has all franchises, permits, licenses and other
rights and privileges necessary to permit it to own its property and to conduct its business as it is presently conducted by the Company except where the failure to possess such rights and privileges
would not be reasonably likely to have a Material Adverse Effect. The Company is not in violation, in any respect, of any law, regulation, authorization or order of any public authority except for
violations which individually or in the aggregate would not be reasonably likely to have a Material Adverse Effect. The Company is in compliance, in all material respects, with all federal, state and
local laws and regulations (excluding any Environmental Laws addressed in Section 2.18) relating to its business as presently conducted, other than instances of non-compliance
which, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Neither the Company, the Founder nor, to the best knowledge of the Company and the Founder,
any of their respective affiliates has been: (a) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (b)subject to any order, judgment, or decree (not subsequently reversed, suspended or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining it or him from, or otherwise imposing limits or conditions on his, engaging in any securities, investment advisory, banking, insurance or other type of business or
acting as an officer or director of a public company; (c) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state commodities, securities or unfair trade practices law, which such judgment or finding has not been subsequently reversed, suspended, or
vacated; or (d) has had a petition under the Bankruptcy Reform Act of 1978, as amended, or any state insolvency law filed by or against any of them, or has had a receiver, fiscal agent or
similar officer appointed by a court for any of their business or property or any partnership in which any of them was a general partner at or within two years before the time of such filing, or any
corporation or business association of which any of them was an officer, director or stockholder at or within two years before the time of such filing.
2.20. Investment Banking; Brokerage. There are no claims for investment banking fees, brokerage
commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers, accountants and consultants) in connection with the transactions contemplated by this Agreement payable
by the Company or based on any arrangement or agreement made by or on behalf of the Company or the Founder.
2.21. Insurance. The Company has fire, casualty, product liability and other insurance policies which
are customary and reasonable in amount and scope for the businesses in which the Company is engaged or self-insures against customary risks in accordance with past practice. To the
knowledge of the Company, there is no default or event which could give rise to a default under any such policy.
2.22. Transactions with Affiliates. There are no loans, leases, contracts or other transactions between
the Company and the Founder, or any material loans, leases, contracts or other transactions between the Company and any officer, director or stockholder of the Company or any family member or
affiliate of the foregoing persons and there have been no such transactions within the past five (5) years.
2.23. Customers, Distributors and Suppliers. The Company believes that its relationships with its major
customers, distributors and suppliers are satisfactory commercial working relationships, and, within the last twelve months no customer or distributor that has paid the Company or is under contract to
pay the Company $250,000 or more and no supplier that the Company has paid or is under contract to pay $250,000 or more has canceled, materially modified, or otherwise terminated its relationship with
the Company, or materially decreased its services, supplies or materials to the Company or its usage or purchase of the services or products of the Company, nor to the knowledge of Company and the
Founder, does any customer, distributor or supplier have any plan or intention to do any of the foregoing in a manner which would be reasonably likely to have a Material Adverse Effect.
2.24. Product and Service Warranties. No product or service manufactured, sold, leased or delivered by
the Company is subject to any material guaranty, warranty, right of return or other indemnity other than the applicable standard terms and conditions that are set forth in Section 2.24 of the
Disclosure Schedule. The Company is not subject to any claims with respect to any guaranty, warranty, right of return or other indemnity in connection with any product or service manufactured, sold,
leased or delivered by the Company which individually or in the aggregate would be reasonably likely to have a Material Adverse Effect and, to the knowledge of the Company and the Founder, there is no
basis for the assertion of any such claims against the Company.
2.25. Disclosure. The representations and warranties made or contained in this Agreement and the
Disclosure Schedule hereto, when taken together, do not and shall not contain any untrue statement of a material fact and do not and shall not omit to state a material fact required to be stated
therein or necessary in order to make such representations or warranties not misleading in light of the circumstances in which they were made or delivered.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF BUYER
In order to induce the Company and the Founder to enter into this Agreement, Buyer represents and warrants to the Company and the Founder the following:
2A.1 Organization and Corporate Power. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Buyer has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement
and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby Buyer is not in violation of any term of its Certificate of
Incorporation or By-laws.
2A.2 Authorization and Non-Contravention. The execution, delivery and performance by Buyer
of this Agreement and all other agreements, documents and instruments to be executed and delivered by Buyer as contemplated hereby have been duly authorized by all necessary corporate and other action
of
the Company. This Agreement and all documents executed by Buyer pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their terms. The execution, delivery
and performance by Buyer of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby do not and will not:
(A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which Buyer is a party or by which it or its
assets are bound, or any provision of the Certificate of Incorporation or By-laws or cause the creation of any encumbrance upon any of the assets of Buyer; (B) violate or result in
a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to Buyer;
(C) require from Buyer any notice to, declaration or filing with, or consent or approval of any governmental authority or third party; or (D) accelerate any obligation under, or give
rise to a right of termination of, any agreement, permit, license or authorization to which Buyer is a party or by which Buyer is bound.
2A.3 Investment Representations. Buyer represents to the Company that it has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement and making an informed investment decision with
respect thereto. Buyer represents that it is an "accredited investor" as such term is defined in Rule 501 promulgated under the Securities Act of 1933 (the "Securities Act"). Buyer represents
to the Company that it is purchasing the Convertible Preferred Shares and the Redeemable Preferred Shares for its own account, for investment only and not with a view to, or any present intention of,
effecting a distribution of such securities or any part thereof except pursuant to a registration or an available exemption under applicable law. Buyer acknowledges that its respective Convertible
Preferred Shares and the Redeemable Preferred Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they
are subsequently registered under the Securities Act and any applicable state laws or exemption from such registration is available.
2A.4 Investment Banking; Brokerage. There are no claims for investment banking fees, brokerage
commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers, accountants and consultants) in connection with the transactions contemplated by this Agreement payable
by Buyer or based on any arrangement or agreement made by or on behalf of Buyer and Buyer has no claim against the Company for any such fees.
SECTION 3. CONDITIONS TO THE OBLIGATIONS OF BUYER
Buyer's obligation to purchase and pay for the Purchased Shares and to acquire the Convertible Preferred Shares and the Redeemable Preferred Shares in exchange
for the Purchased Shares shall be subject to compliance by the Company with its agreements herein contained and to the fulfillment to Buyer's satisfaction, or the waiver by Buyer, on or before and at
the Closing Date of the following conditions:
3.1. Satisfaction of Conditions. | | | |
