EXHIBIT 10.32
Execution Copy
AGREEMENT AND PLAN OF MERGER
among
NEON SYSTEMS, INC.,
SCALABLE SOFTWARE, INC.,
AND CERTAIN
STOCKHOLDERS OF SCALABLE SOFTWARE, INC.
June 26, 2002
TABLE OF CONTENTS
Page
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ARTICLE I
Definitions
ARTICLE II
Option
2.1 Grant of Option ............................................ 6
2.2 Consideration for Grant of Option .......................... 6
2.3 Option Term ................................................ 6
2.4 Exercise of Option ......................................... 7
2.5 Exercise Events ............................................ 7
2.6 Effect of Exercise of Option ............................... 8
2.7 Right of First Refusal With Respect to Scalable Software
Financings................................................. 8
ARTICLE III
Closing and Post Closing Matters
3.1 The Merger ................................................. 8
3.2 Merger Consideration ....................................... 9
3.3 Dissenting Shares .......................................... 11
3.4 Documents .................................................. 11
3.5 Scalable Software Options .................................. 11
3.6 Scalable Software Warrants ................................. 12
ARTICLE IV
Certain Representations and Warranties
of Scalable Software
4.1 Authority, Etc ............................................. 13
4.2 Organization, Etc .......................................... 13
4.3 Capitalization ............................................. 13
4.4 Subsidiaries ............................................... 14
4.5 No Violation ............................................... 14
4.6 Approvals .................................................. 14
4.7 Financial Statements; Absence of Certain Changes ........... 14
4.8 Corporate Action; Charter Documents ........................ 16
4.9 Litigation ................................................. 16
4.10 Compliance with Laws; Environmental Matters ................ 16
4.11 Title to Tangible Property ................................. 17
4.12 Intellectual Property ...................................... 17
4.13 Adequacy of Technical Documentation ........................ 20
4.14 Software Contracts ......................................... 20
4.15 Contracts .................................................. 20
4.16 Employee and Labor Matters and Plans ....................... 21
4.17 Insurance Policies ......................................... 23
4.18 No Undisclosed Indemnification Liabilities ................. 23
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4.19 Brokerage Fees ............................................. 23
4.20 Miscellaneous Other Information ............................ 23
4.21 No Illegal or Improper Transactions ........................ 24
4.22 Product Liability .......................................... 24
4.23 Transactions with Related Parties .......................... 24
4.24 Investment Company ......................................... 24
4.25 Inapplicability of Certain Statutes ........................ 24
4.26 No Misleading Statements ................................... 24
ARTICLE V
Tax Matters
5.1 Scalable Software Representations Regarding Taxes ......... 25
5.2 NEON Systems Representations Regarding Taxes .............. 26
ARTICLE VI
Representations and Warranties
of NEON Systems
6.1 Organization, Etc ......................................... 27
6.2 Authority, Etc ............................................ 27
6.3 Brokerage Fees ............................................ 27
6.4 No Violation .............................................. 28
6.5 Approvals ................................................. 28
6.6 SEC Documents ............................................. 28
6.7 Capitalization ............................................ 28
6.8 Financial Statements; Absence of Certain Changes .......... 29
6.9 No Litigation ............................................. 29
ARTICLE VII
Certain Covenants of Scalable Software
7.1 Access to Records ......................................... 29
7.2 Litigation and Claims ..................................... 29
7.3 Notice of Material Adverse Changes ........................ 29
7.4 Scalable Software Recapitalization ........................ 30
7.5 Principal Stockholders' Voting Agreements ................. 30
ARTICLE VIII
Conduct of Business by Scalable Software
8.1 Ordinary Course ........................................... 30
8.2 Dividends; Changes in Stock ............................... 30
8.3 Issuance of Securities .................................... 30
8.4 Governing Documents; Inconsistent Agreements .............. 30
8.5 Indebtedness .............................................. 31
8.6 Employees; Employee Contracts and Benefit Plans ........... 31
8.7 Prohibited Dispositions ................................... 31
8.8 Lines of Business and Capital Expenditures ................ 31
8.9 Accounting Methods, Etc ................................... 32
8.10 Software Programs ......................................... 32
8.11 Related Party Transactions ................................ 32
II
ARTICLE IX
Mutual Covenants
9.1 Regulatory Filing; Consents; Reasonable Efforts ........... 32
9.2 NEON Stockholders' Meeting; Proxy Statement ............... 33
9.3 Tax Treatment ............................................. 33
9.4 Further Assurances ........................................ 33
9.5 Satisfaction of Conditions Precedent ...................... 34
9.6 401(k) Plan Benefits ...................................... 34
ARTICLE X
Conditions of the Closing
10.1 Conditions to All Parties' Obligations .................... 34
10.2 Conditions to the Obligations of NEON Systems to Close .... 35
10.3 Conditions to the Obligations of Scalable Software to Close 35
ARTICLE XI
Termination
11.1 Termination ............................................... 36
11.2 Effect of Termination ..................................... 36
ARTICLE XII
Survival of Representations, Warranties,
Covenants and Agreements
ARTICLE XIII
Indemnification by Scalable Software and the Scalable Software Stockholders
13.1 Indemnification by Scalable Software and the
Scalable Software Stockholders ............................ 37
13.2 Procedures for Indemnification ............................ 37
13.3 Third Party Claims ........................................ 38
13.4 Subrogation ............................................... 40
13.5 Escrow Representative ..................................... 40
13.6 Remedies Partially Exclusive .............................. 41
13.7 Arbitration ............................................... 41
ARTICLE XIV
Indemnification by NEON Systems
14.1 Indemnification by NEON Systems ........................... 42
ARTICLE XV
General Provisions
15.1 Taking of Necessary Action ................................ 43
15.2 Assignment ................................................ 43
15.3 Entire Agreement; Third Party Beneficiaries ............... 43
15.4 Announcements ............................................. 44
15.5 Notices ................................................... 44
15.6 Counterparts .............................................. 44
15.7 Governing Law; Interpretation; Section Headings ........... 44
15.8 Expenses .................................................. 45
III
15.9 Waivers; Amendments ....................................... 45
15.10 Severability .............................................. 45
Exhibit A - Form of Escrow Agreement
Exhibit B - The Escrow Stockholders
Exhibit C - Form of Stockholder Letter
Exhibit D - Form of Registration Rights Agreement
IV
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of June ___, 2002 ("Agreement"),
is among NEON Systems, Inc., a Delaware corporation ("NEON Systems"), Scalable
Software, Inc., a Delaware corporation ("Scalable Software") and the persons
whose names are set forth on the signature pages hereto under the heading
"Principal Stockholders" (the "Principal Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto have agreed that in certain circumstances as
provided in this Agreement, NEON Systems will have the right and option to
effect a combination of Scalable Software and NEON Systems through a merger (the
"Merger") of Scalable Software with and into NEON Systems, with NEON Systems to
continue as the surviving corporation, upon the terms and conditions set forth
in this Agreement; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties, covenants and agreements made by each to the other in connection
with the transactions described in this Agreement, including certain additional
agreements related to the transactions contemplated hereby; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the Code;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
ARTICLE I
Definitions
(a) The following terms shall have the following respective meanings for
all purposes of this Agreement:
"AAA Rules" shall have the meaning set forth in Section 13.7.
"Acquisition Proposal" shall mean any offer or proposal for a merger,
consolidation, share exchange, recapitalization, liquidation or other business
combination involving Scalable Software.
"Affiliate" or "affiliate" shall mean, with respect to any Person, any
Person that, directly or indirectly, controls or is controlled by or is under
common control with such Person.
"Agreement" shall mean this Agreement and Plan of Merger, as it may be from
time to time amended.
"Approved Budget" shall have the meaning set forth in Section 8.7.
"Charter Documents" of any corporation shall mean the certificate or
articles of incorporation and bylaws of such corporation.
"Closing" shall have the meaning set forth in Section 3.1.
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"Closing Date" shall have the meaning set forth in Section 3.1.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Commission" shall mean the United States Securities and Exchange
Commission.
"Confidentiality Agreement" shall have the meaning set forth in Section
7.1.
"Covered Parties" shall have the meaning set forth in Section 14.1.
"Disclosure Schedule" means the Disclosure Schedule provided for under this
Agreement.
"DGCL" shall mean the Delaware General Corporation Law.
"Dissenting Shares" shall have the meaning set forth in Section 3.3.
"Effective Date" shall have the meaning set forth in Section 3.1.
"EPA" shall mean the United States Environmental Protection Agency.
"Equivalent Securities" shall mean: if, as a result of any merger,
consolidation or other business combination by NEON Systems with one or more
other persons, or as a result of any sale of all or substantially all the
property and assets of NEON Systems to one or more other persons or any exchange
offer or share exchange, consideration consisting of equity securities (other
than common equity securities of NEON Systems) is distributed to holders of NEON
Systems Common Stock for all or substantially all their equity interest in NEON
Systems, the same securities as would be payable for the Merger Consideration as
if the Merger Consideration was outstanding on the relevant date.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" shall mean the Escrow Agreement between NEON Systems,
the Escrow Representative and ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Bank, dated as of the Closing
Date, a form of which is attached to this Agreement as Exhibit A.
"Escrow Representative" shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Escrow Stock" shall have the meaning set forth in Section 3.2.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" shall mean, subject to adjustment pursuant to Sections
2.5(b) and 3.2, the quotient of (i) the Scalable Software Outstanding Equity
Value, divided by (ii) the number of Scalable Software Outstanding Common
Equivalents.
"Exercise Notice" shall have the meaning set forth in Section 3.4.
"GAAP" shall mean generally accepted accounting principles.
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"Governmental Entity" shall mean any court, administrative agency or
commission or other governmental authority or instrumentality.
"Indemnification Claim" shall have the meaning set forth in Section 13.1.
"Indemnified Liabilities" shall have the meaning set forth in Section 14.1.
"Indemnitee" shall have the meaning set forth in Section 13.1.
"Indemnitor" shall have the meaning set forth in Section 13.1.
"IRS" shall mean the United States Internal Revenue Service.
"Losses" shall include all claims, liabilities, demands, losses, damages,
costs and expenses (including, without limitation, interest (including
prejudgment interest in any litigated matter), penalties, court costs and
reasonable attorneys' fees and expenses).
"Merger" shall have the meaning set forth in the Recitals of this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section 3.2.
"NEON Entity" means NEON Systems or any of its subsidiaries.
"NEON Financial Statements" shall have the meaning set forth in Section
6.8.
"NEON Systems" shall mean NEON Systems, Inc., a Delaware corporation.
"NEON Systems Common Stock" shall mean the common stock, $.01 par value per
share, of NEON Systems.
"NEON Systems Shares" shall have the meaning set forth in Section 3.2.
"NEON Systems Stockholders Meeting" shall have the meaning set forth in
Section 9.2.
"Notice Date" shall have the meaning set forth in Section 2.4
"Option" shall mean the option granted by Scalable Software to NEON Systems
under the terms and conditions set forth in this Agreement.
"Option Term" shall have the meaning set forth in Section 2.3.
"Person" shall mean an individual, a corporation, a company, a partnership,
a joint venture, an association, a joint stock company, a trust, an
unincorporated organization, a government or any agency or political subdivision
thereof.
"Plan" or "plans" shall have the meanings set forth in Section 4.16(b).
"Principal Stockholder" shall mean any of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇, JMI, Inc., JMI Equity Fund IV, L.P., JMI Equity Fund
IV (Al), L.P., JMI Euro Equity Fund IV, L.P., and JMI Equity Side Fund, L.P.
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"Proceeding" shall have the meaning set forth in Section 14.1.
"Proxy Statement" shall have the meaning set forth in Section 9.2.
"Representative Indemnifying Party" shall have the meaning set forth in
Section 13.5.
"Required Vote" shall mean the approval of this Agreement and the
transactions contemplated hereby at a meeting of the stockholders of NEON
Systems by (i) the vote required by the Nasdaq National Market or successor
thereto, (ii) the Delaware General Corporation Law, (iii) the Certificate of
Incorporation and Bylaws of NEON Systems and (iv) the Special Committee.
"Scalable Software" shall mean Scalable Software, Inc., a Delaware
corporation.
"Scalable Software Common Stock" shall mean the common stock, par value
$0.01 per share, of Scalable Software.
"Scalable Software Financial Statements" shall have the meaning set forth
in Section 4.7.
"Scalable Software New Common Stock" shall mean the common stock, par value
$0.001 per share, of Scalable Software.
"Scalable Software Option Plan" shall mean the Scalable Software, Inc. 2000
Stock Option/Stock Issuance Plan.
"Scalable Software Options" shall mean all outstanding options to purchase:
(i) Scalable Software Common Stock prior to the effectiveness of the Scalable
Software Recapitalization; and (ii) Scalable Software New Common Stock from and
after the effectiveness of the Scalable Software Recapitalization.
"Scalable Software Outstanding Common Equivalents" shall mean the sum of
(i) all outstanding Scalable Software New Common Stock, plus (ii) the number of
shares of Scalable Software New Common Stock issuable upon conversion or
exchange of any equity security, other than the Scalable Software Options or the
Scalable Software Warrants, of Scalable Software.
"Scalable Software Outstanding Equity Value" shall mean the quotient of (i)
the difference between (a) $19,404,307 plus the aggregate purchase price paid on
the exercise of the Scalable Software Options and the Scalable Software Warrants
prior to Closing, less (b) the amount of Scalable Software indebtedness for
borrowed money in excess of $9,000,000, divided by (ii) 7.4074.
"Scalable Software Preferred Stock" shall mean the preferred stock, par
value $0.01 per share, of Scalable Software.
"Scalable Software Recapitalization" shall mean the reclassification,
pursuant to Section 242 of the DGCL, of (i) all outstanding shares of Scalable
Software Common Stock as Scalable Software New Common Stock and (ii) all
outstanding shares of Scalable Software Preferred Stock as Scalable Software New
Common Stock.
"Scalable Software Warrants" shall mean all outstanding warrants to
acquire: (i) Scalable Software Common Stock or Scalable Software Preferred Stock
prior to the effectiveness of the
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Scalable Software Recapitalization; and (ii) Scalable Software New Common Stock
from and after the effectiveness of the Scalable Software Recapitalization.
"SEC Documents" shall have the meaning set forth in Section 6.6.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Special Committee" shall mean the Special Committee of the Board of
Directors of NEON Systems.
"Stockholder Letter" shall mean the letter, in the form attached hereto as
Exhibit C, delivered by the stockholders of Scalable Software in connection with
the Merger.
"Superior Proposal" shall mean a bona fide written Acquisition Proposal to
acquire directly or indirectly all the capital stock of Scalable Software then
outstanding or all or substantially all of the assets of Scalable Software that
its board of directors concludes in good faith (based on, among other things,
the advice of its financial advisors and counsel), taking into account all
legal, financial, regulatory and other aspects of the proposal and the person
making such proposal, (i) would, if consummated, be more favorable to Scalable
Software's stockholders, from a financial point of view, than the Merger and
(ii) is reasonably likely to be consummated without undue delay.
"Survival Period" shall have the meaning set forth in Article XIII.
"Tax" or "Taxes" shall mean any tax of any kind, including, without
limitation, income, profits, gross receipts, net proceeds, alternative or add-on
minimum, ad valorem, value added, turnover, sales, use, property, personal
property (tangible and intangible), environmental, stamp, leasing, lease, user,
excise, duty, franchise, capital stock, transfer, registration, license,
withholding, social security (or similar), unemployment, disability, payroll,
employment, fuel, excess profits, occupational, premium, windfall profit,
severance, estimated, or other taxes and assessments and governmental charges,
together with any interest, penalties, additions to tax, fines and other similar
amounts, imposed by any federal, state, local or foreign governmental authority.
"Tax Return" or "Tax Returns" shall mean all returns, declarations of
estimated tax, tax reports and information returns relating to any Tax,
including, any schedule or attachment thereto, and including any amendment
thereof.
"Term Loan" shall mean the loan of up to $9,000,000 granted by NEON Systems
to Scalable Software, with the terms and conditions as set forth in the Term
Loan Financing Documents.
"Term Loan Financing Documents" shall mean the documentation evidencing the
Term Loan from NEON Systems to Scalable Software.
"Third Party Claim" shall have the meaning set forth in Section 13.3.
"Trading Day" shall mean a day on which the principal national securities
exchange, if any, or the Nasdaq National Market or other NASDAQ market, or any
successor thereto, on which the NEON Systems Common Stock is listed or admitted
to trading is open for the transaction of business.
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"Trading Period" shall have the meaning set forth in Section 2.5.
"Transaction Document" shall mean this Agreement, the Escrow Agreement, the
Registration Rights Agreement and the Stockholder Letters.
(b) Except as this Agreement otherwise specifies, all references herein to
any statute defined or referred to herein are references to that statute or any
successor statute, as the same may have been amended or supplemented from time
to time, and any rules or regulations promulgated thereunder.
(c) This Agreement uses the words "herein," "hereof" and "hereunder" and
words of similar import to refer to this Agreement as a whole and not to any
provision of this Agreement, and the words "Article," "Section," "Schedule" and
"Exhibit" refer to Articles and Sections of, and Schedules and Exhibits to, this
Agreement unless it otherwise specifies.
(d) Whenever the context so requires, the singular number includes the
plural and vice versa, and a reference to one gender includes the other gender
and the neuter.
(e) The word "including" (and, with correlative meaning, the word
"include") means including, without limiting the generality of any description
preceding that word, and the words "shall" and "will" are used interchangeably
and have the same meaning.
(f) The phrase "to the knowledge of Scalable Software" or phrases with
similar wording, when used in this Agreement to qualify any representation or
warranty Article IV contains, means the collective knowledge, after reasonable
investigation, of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇.
ARTICLE II
Option
2.1 Grant of Option. Subject to the terms and conditions set forth herein,
Scalable Software hereby grants to NEON Systems an irrevocable option (the
"Option") to merge Scalable Software with and into NEON Systems (the "Merger")
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL").
2.2 Consideration for Grant of Option. In consideration of the grant of the
Option, all existing bridge loans from NEON Systems to Scalable Software shall
be converted into a term loan (the "Term Loan"), effective as of the date of
this Agreement and with the other terms and conditions set forth in the Term
Loan Financing Documents, and NEON Systems shall make available to Scalable
Software additional loans aggregating $5,500,000, which may be advanced to
Scalable Software in increments of $450,000 per month as described in the Term
Loan Financing Documents.
2.3 Option Term. The Option shall be exercisable at any time during a
two-year term from the date of this Agreement (the "Option Term"), subject to
the provisions set forth in Section 2.5. If the Option has not been exercised
prior to the expiration of the Option Term, then the rights and obligations set
forth in this Agreement shall expire and terminate.
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2.4 Exercise of Option. Subject to Section 2.5, if NEON Systems intends to
exercise the Option during the Option Term, it may do so only by delivery, prior
to the expiration of the Option Term, of a written notice (an "Exercise Notice")
(the date of which being herein referred to as the "Notice Date") to Scalable
Software specifying a date (as it may be extended from time to time, the
"Exercise Date") not earlier than 30 days from the Notice Date for the exercise
of the Option; provided, however, that NEON Systems shall have received the
approval of the Special Committee prior to exercising the Option. Upon delivery
of the Exercise Notice, Scalable Software may update the Disclosure Schedule.
NEON Systems may exercise the Option by delivery of an additional written notice
to Scalable Software on the date specified in the Exercise Notice.
2.5 Exercise Events.
(a) If the current price per share of the NEON Systems Common Stock on the
principal national securities exchange, if any, or the Nasdaq National Market or
other NASDAQ market, or any successor thereto, on which the NEON Systems Common
Stock is listed or admitted to trading exceeds $10.00 for 30 consecutive Trading
Days (the "Trading Period"), then within five Trading Days after the end of the
Trading Period, NEON Systems must deliver to Scalable Software an Exercise
Notice. If NEON Systems does not deliver an Exercise Notice within five Trading
Days after the end of the Trading Period, then the rights and obligations set
forth in this Agreement shall expire and terminate. The current price per share
of NEON Systems Common Stock for any Trading Day will be the closing price on
that day or, if no sale of NEON Systems Common Stock takes place on that day as
reported by the applicable exchange or market system, the average of the closing
bid and asked prices on that Trading Day as so reported.
(b) If, prior to the exercise of the Option, Scalable Software receives a
bona fide Acquisition Proposal that is not subject to any conditions (other than
the condition that Scalable Software's obligations pursuant to this Agreement
have been terminated) that the Board of Directors of Scalable Software has
determined to accept subject to Scalable Software's obligations under this
Agreement, then Scalable Software shall deliver a written notice to NEON
Systems. The written notice shall set forth the name and address of the
prospective acquiror and the per share purchase price offered by the prospective
acquiror. NEON Systems shall have 30 days after receipt of written notice that
the Board of Directors of Scalable Software has made such a determination to
elect to exercise the Option. NEON Systems shall have the choice, in its sole
discretion, to elect to exercise the Option at the same price as set forth in
the Acquisition Proposal. If NEON Systems does not deliver an Exercise Notice to
Scalable Software within 30 days after the date of receipt of the written notice
from Scalable Software, then the rights and obligations set forth in this
Agreement shall expire and terminate.
For purposes of Section 2.5(a): (i) the current price per share will be
adjusted for any recapitalizations, stock combinations, stock dividends, stock
splits and the like, (ii) references to the NEON Systems Common Stock at any
time also refer to any Equivalent Security theretofore issued, directly or
indirectly, in respect of the NEON Systems Common Stock then outstanding and
(iii) in the case of any Equivalent Security, the price per share thereof will
be equitably adjusted to reflect the exchange or other action by means of which
that Equivalent Security was exchanged, directly or indirectly, for NEON Systems
Common Stock.
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For purposes of Section 2.5(b), "conditions" do not include customary
closing conditions that Scalable Software has the right, power and ability to
satisfy.
2.6 Effect of Exercise of Option. Upon the exercise of the Option as
provided in this Article II, the parties shall proceed with the Merger in
accordance with Article III of this Agreement.
2.7 Right of First Refusal With Respect to Scalable Software Financings.
If, during the Option Term, Scalable Software receives a bona fide offer from a
third party for a financing of Scalable Software that the Board of Directors of
Scalable Software has determined to accept subject to Scalable Software's
obligations under this Agreement, then Scalable Software shall deliver a written
notice to NEON Systems. The written notice shall set forth the name and address
of the entity proposing the financing, as well as the terms of the financing.
NEON Systems shall have 30 days after receipt of the written notice that the
Board of Directors of Scalable Software has made such a determination to provide
financing to Scalable Software on the equal terms to the proposed financing from
the third party. If NEON Systems does not provide financing on equal terms to
Scalable Software within the 30-day period following receipt of the notice,
Scalable Software may accept the terms of the third party financing. This
provision shall not apply to financing obtained by means of the exercise of
options and warrants outstanding as of the date hereof or hereafter issued
consistent with the provisions of this Agreement.
ARTICLE III
Closing and Post Closing Matters
Upon the exercise of the Option as provided in Article II, the provisions
of this Article III shall become effective and binding on the parties hereto;
prior to such exercise, the provisions of this Article III shall have no force
or effect.
3.1 The Merger.
(a) In reliance upon the representations, warranties, covenants and
agreements of the parties set forth herein and upon the terms and subject to the
conditions of this Agreement, at the Closing, Scalable Software shall be merged
with and into NEON Systems in accordance with the DGCL, whereupon the separate
existence of Scalable Software shall cease, and NEON Systems shall be the
surviving corporation and, as such, will, all with the effect the DGCL provides,
possess all the properties and rights, and be subject to all the restrictions
and duties, of Scalable Software and NEON Systems and be governed by the laws of
the State of Delaware.
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, NEON Systems shall (i) file a
certificate of merger with the Secretary of State of the State of Delaware which
contains the information the DGCL requires to effect the Merger and (ii) make
all other filings or recordings required by the DGCL in connection with the
Merger. The Merger shall become effective upon the date stamped by the Secretary
of State of Delaware upon that certificate of merger (such date is referred to
as the "Effective Date"). On the Effective Date, by virtue of the Merger and
without any action on the part of the holders of capital stock of Scalable
Software or NEON Systems: (i) each share of capital stock of Scalable Software
which is issued and outstanding immediately prior to the Effective Date and
owned by Scalable Software shall automatically
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be canceled and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor; and (ii) each share of Scalable Software New
Common Stock which is issued and outstanding immediately prior to the Effective
Date, other than shares to be canceled pursuant to the preceding clause (i),
shall convert into the right to receive the Merger Consideration payable to the
holder thereof pursuant to Section 3.2.
(c) The certificate of incorporation and bylaws of NEON Systems, as in
effect immediately prior to the Effective Date, shall continue in full force and
effect as the certificate of incorporation and bylaws of NEON Systems, as the
surviving corporation in the Merger, until duly amended in accordance with their
terms and applicable law.
(d) The directors and officers of NEON Systems from and after the Effective
Date and until the earlier to occur of their death, removal, resignation or
retirement or the due election or appointment of their successors will be as set
forth on Section 3.1 of the Disclosure Schedule.
(e) The Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Code. Each party agrees that it will not take or assert
any position on any tax return, report or otherwise which is inconsistent with
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code. The provisions and representations contained or
referred to in this Section 3.1(e) shall survive until the expiration of the
applicable statute of limitations.
(f) Subject to the closing conditions set forth herein, the closing under
this Agreement (the "Closing") will take place as soon as practicable following
satisfaction or waiver by the applicable party of all conditions to Closing set
forth in Article X (the "Closing Date"), at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇
L.L.P., 2300 First City Tower, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, unless a different
date or place is agreed to in writing by the parties to this Agreement.
3.2 Merger Consideration.
(a) At the Effective Date, subject to the terms and conditions set forth in
this Agreement, including without limitation thereto the conditions to Closing
set forth in Article X hereof, each issued and outstanding share of Scalable
Software New Common Stock shall automatically be canceled and extinguished and
converted, without any action on the part of the holders thereof, into the right
to receive, subject to the terms and conditions of the Escrow Agreement and upon
the surrender of the certificate evidencing such share, a fraction of a fully
paid nonassessable share of issued and outstanding NEON Systems Common Stock
equal to the Exchange Ratio, which shall be appropriately adjusted for any
recapitalizations, stock combinations, stock dividends, stock splits and the
like that are effected with respect to the Scalable Software New Common Stock or
the NEON Systems Common Stock after the date of this Agreement and prior to the
Effective Date. The shares of NEON Systems Common Stock to be issued in
connection with the Merger are hereinafter referred to as the "NEON Systems
Shares" or the "Merger Consideration." No fractional NEON Systems Shares shall
be issued in the Merger. To the extent the application of the Exchange Ratio
would result in a fractional number of NEON Systems Shares being issued to a
holder of Scalable Software New Common Stock in the Merger, the number of NEON
9
Systems Shares issuable in the Merger shall be rounded down to the next whole
number. For purposes of determining whether a fractional share otherwise would
be issuable, the total number of NEON Systems Shares issuable to any former
holder of Scalable Software New Common Stock shall be determined on the basis of
the total number of shares of Scalable Software New Common Stock which were
registered in the name of that holder if represented by more than one stock
certificate. Payment of the Merger Consideration to all stockholders of Scalable
Software shall be made as set forth in Section 2.2(b); provided, however, that
10% of the whole NEON Systems Shares will be placed in escrow pursuant the
Escrow Agreement.
(b) After the Effective Date, each holder (other than holders of Dissenting
Shares, as defined and to the extent provided in Section 3.3) of an outstanding
certificate that prior thereto represented shares of Scalable Software New
Common Stock shall be entitled, upon surrender thereof to NEON Systems, to
receive in exchange therefor (i) a certificate or certificates representing the
number of whole shares of NEON Systems Common Stock into which the shares so
surrendered shall have been converted as described above, in such denominations
and registered in such names as such holder may request, less the shares of NEON
Systems Common Stock that will be issued and deposited for the account of such
person as Escrow Stock (as defined below), if any. On the Effective Date, NEON
Systems shall issue and deliver to ▇.▇. ▇▇▇▇▇▇ ▇▇▇▇▇ Bank (the "Escrow Agent")
and deposit pursuant to the Escrow Agreement, for the account and future
potential benefit of the Scalable Software stockholders whose names are set
forth on Exhibit B (the "Escrow Stockholders") a number of shares of NEON
Systems Common Stock equal to 10% of the aggregate number of NEON Systems Shares
(the "Escrow Stock"). In addition to the conditions set forth in the Escrow
Agreement, no Scalable Software stockholder shall be entitled to any
disbursements of Escrow Stock unless and until such stockholder surrenders the
certificates that prior to the Effective Date represented shares of Scalable
Software New Common Stock convertible into NEON Systems Shares in accordance
with the Exchange Ratio. Until surrendered, each outstanding certificate that,
prior to the Effective Date, represented shares of Scalable Software New Common
Stock shall be deemed from and after the Effective Date, for all corporate
purposes, other than the payment of earlier dividends and distributions, to
evidence the ownership of the number of full shares of NEON Systems Common Stock
into which such shares shall have been converted pursuant to this Section 3.2.
Unless and until any such outstanding certificates shall be surrendered, no
dividends or other distributions payable to the holders of NEON Systems Common
Stock, as of any time on or after the Effective Date, shall be paid to the
holders of such outstanding certificates which prior to the Effective Date
represented shares of Scalable Software New Common Stock; provided, however,
that, upon surrender and exchange of such outstanding certificates, there shall
be paid to the record holders of the certificates issued and exchanged therefor,
the amount, without interest thereon, of dividends and other distributions, if
any, that theretofore were declared and became payable since the Effective Date
with respect to the number of full shares of NEON Systems Common Stock issued to
such holders.
(c) As of the Effective Date, all shares of Scalable Software New Common
Stock (other than shares to be canceled in accordance with Section 3.1) issued
and outstanding immediately prior to the Effective Date shall cease to be
outstanding and shall automatically be canceled and cease to exist, and each
holder of any such shares shall cease to have any
10
rights with respect thereto or arising therefrom (including without limitation
the right to vote), except the right to receive the Merger Consideration upon
surrender of the certificate representing such shares in accordance with this
Section 3.2, and until so surrendered, each such certificate shall represent for
all purposes only the right to receive the Merger Consideration.
3.3 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Scalable Software New Common Stock ("Dissenting Shares")
that are held by stockholders who have not consented in writing pursuant to
Section 228 of the DGCL to the Merger and the adoption of this Agreement and
who, within 20 days after the mailing of the notice informing such stockholders
of their appraisal rights, have delivered to the surviving corporation a written
notice of their intention to dissent from approval of the Merger and the
Agreement and obtain payment for their shares, and who have delivered to the
surviving corporation a written demand for payment of the fair value of such
shares and deposited certificates representing such shares, each in the manner
provided in Section 262 of the DGCL, shall not be converted into the right to
receive, or be exchangeable for the Merger Consideration set forth in Section
3.2 hereof, but shall instead entitle the holders thereof to payment of the fair
value of such shares as determined by the surviving corporation, with interest
if any has accrued, as determined in accordance with Section 262 of the DGCL,
which fair value may be challenged by such stockholder by a timely demand for an
appraisal as provided in Section 262 of the DGCL.
3.4 Documents. On the Closing Date, NEON Systems, Scalable Software and
each of the Principal Stockholders shall execute and deliver all appropriate
documents and instruments to effectuate the transactions as set forth in this
Agreement and the other Transaction Documents.
3.5 Scalable Software Options.
(a) At the Effective Date, automatically and without any action on the part
of the holder thereof, each Scalable Software Option (whether or not then
exercisable) granted under the Scalable Software Option Plan, which remains as
of such time unexercised in whole or in part, shall be assumed by NEON Systems
and become an option (an "Assumed Option") to purchase that number of shares of
NEON Systems Common Stock obtained by multiplying the number of shares of
Scalable Software New Common Stock issuable upon the exercise of such Scalable
Software Option by the Exchange Ratio at an exercise price per share equal to
the per share exercise price of such Scalable Software Option divided by the
Exchange Ratio. If the foregoing calculation results in an Assumed Option being
exercisable for a fraction of a share of NEON Systems Common Stock, the number
of shares of NEON Systems Common Stock subject to such Assumed Option shall be
rounded down to the nearest whole number of shares, and the total exercise price
for such Assumed Option shall be reduced by the exercise price of the fractional
share. The Assumed Option (i) shall provide the optionee with the same vesting
and other rights that he had under the Scalable Software Option before such
assumption and (ii) shall not give the optionee additional vesting or other
rights that he did not have under the Scalable Software Option before such
assumption.
(b) As soon as practicable after the Effective Date, NEON Systems shall
deliver to the holders of the Scalable Software Options appropriate agreements
evidencing NEON Systems' assumption of such options.
11
(c) At the Effective Date, NEON Systems shall assume the Scalable Software
Option Plan with such amendments thereto as may be required to reflect the
Merger, including, without limitation, the substitution of NEON Systems Common
Stock for Scalable Software New Common Stock thereunder. Scalable Software
hereby assigns to NEON Systems, and NEON Systems hereby assumes from Scalable
Software, in each case effective as of the Effective Date, all Scalable
Software's repurchase rights under the Scalable Software Option Plan.
(d) The Board of Directors of Scalable Software (or a duly appointed
committee thereof responsible for the administration of the Scalable Software
Option Plan in accordance with the terms of such plan) shall, prior to or as of
the Effective Date, take all necessary actions, pursuant to and in accordance
with the terms of the Scalable Software Option Plan and the instruments
evidencing the Scalable Software Options, to provide (i) for the conversion of
the Scalable Software Options into the Assumed Options in accordance with
subparagraph (a) above and (ii) that no consent of the holders of the Scalable
Software Options is required in connection with such conversions.
(e) Within 30 days of the Closing, NEON Systems shall deliver to the
holders of Scalable Software Options an option agreement duly executed by it for
each Assumed Option.
(e) As soon as practicable following the Effective Date, NEON Systems shall
file with the Commission under the Securities Act a registration statement on
Form S-8 to register the shares of NEON Systems Common Stock issuable on the
exercise of the Assumed Options and thereafter shall maintain the effectiveness
of such registration statement under the Securities Act.
3.6 Scalable Software Warrants. At the Effective Date, automatically and
without any action on the part of the holder thereof, each Scalable Software
Warrant that remains as of such time unexercised in whole or in part shall be
assumed by NEON Systems and become a warrant (an "Assumed Warrant") to purchase
that number of shares of NEON Systems Common Stock obtained by multiplying the
number of shares of Scalable Software New Common Stock issuable upon the
exercise of such Scalable Software Warrant by the Exchange Ratio at an exercise
price per share equal to the per share exercise price of such Scalable Software
Warrant divided by the Exchange Ratio. If the foregoing calculation results in
an Assumed Warrant being exercisable for a fraction of a share of NEON Systems
Common Stock, the number of shares of NEON Systems Common Stock subject to such
Assumed Warrant shall be rounded down to the nearest whole number of shares, and
the total exercise price for such Assumed Warrant shall be reduced by the
exercise price of the fractional share.
ARTICLE IV
Certain Representations and Warranties
of Scalable Software
Subject to the exceptions contained in the applicable sections of the
Disclosure Schedule, Scalable Software represents, warrants and covenants to
NEON Systems as follows:
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4.1 Authority, Etc.. Scalable Software has the requisite corporate power
and authority to enter into this Agreement and each other Transaction Document
to which it is or will be a party and to effect the Merger and the other
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and each other Transaction Document to which it is
or will be a party and the effectuation of the Merger and the other transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Scalable Software and, as of the Closing, will have been duly
authorized by the stockholders of Scalable Software. No other corporate act or
proceeding on the part of Scalable Software is necessary for the due and valid
authorization of this Agreement or the transactions contemplated hereby. This
Agreement and each of the other Transaction Documents to which it is or will be
a party have been duly executed and delivered by Scalable Software, and
constitute the valid and binding obligations of Scalable Software, enforceable
against Scalable Software in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity, whether
applied in a court of law or a court of equity, and by bankruptcy, insolvency
and similar laws affecting creditor's rights and remedies generally.
4.2 Organization, Etc. Scalable Software is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and has full
corporate power and authority to conduct its business as it is now being
conducted and to own, operate or lease the properties and assets it currently
purports to own, operate or hold under lease. Scalable Software is duly
qualified or licensed to do business and is in good standing in each
jurisdiction where the character of its business or the nature of its properties
makes such qualification or licensing necessary.
4.3 Capitalization. After giving pro forma effect to the Scalable Software
Recapitalization: (i) the authorized capitalization of Scalable Software
consists of 25,000,000 shares of Scalable New Common Stock, of which 19,404,307
shares are outstanding as of the date of this Agreement and an additional
3,020,000 shares were reserved for issuance as of the date of this Agreement on
the exercise or conversion of the Scalable Software Options and the Scalable
Software Warrants; (ii) the Scalable Software Options provide for the issuance
by Scalable Software of up to 2,500,000 shares of Scalable Software New Common
Stock; (iii) the Scalable Software Warrants provide for the issuance of up to
520,000 shares of Scalable Software New Common Stock; (iv) all of such
outstanding shares of Scalable Software New Common Stock will have been validly
issued and will be fully paid and nonassessable, and none of those shares were
issued in violation of any preemptive rights of any stockholder or, except for
such violations as shall have been effectively waived prior to the Closing, in
violation of any federal, state or local securities laws. Section 4.3 of the
Disclosure Schedule sets forth, after giving pro forma effect to the Scalable
Software Recapitalization, a complete list as of the date of this Agreement of
(i) each stockholder of Scalable Software New Common Stock and the number of
shares of Scalable Software New Common Stock owned by such stockholder and (ii)
all outstanding options, warrants or obligations of any kind to issue any shares
of capital stock of Scalable Software, the owners thereof and the amounts owned.
Other than as set forth on Section 4.3 of the Disclosure Schedule, there are no
outstanding options, warrants, convertible or exchangeable securities or
obligations, calls, rights, commitments, preemptive rights or agreements or
instruments or understandings of any character, to which Scalable Software is a
party or by which Scalable Software is bound, obligating Scalable Software to
issue, deliver or sell, or cause to be issued, delivered or sold, shares of
capital stock of Scalable Software or any securities or obligations convertible
into or exchangeable for such shares or to grant, extend or enter into any such
option, warrant, convertible security or obligation, call, right,
13
commitment, preemptive right or agreement. There are no outstanding obligations
of Scalable Software to purchase or otherwise acquire any capital stock of
Scalable Software.
4.4 Subsidiaries. Scalable Software has no subsidiaries.
4.5 No Violation. Except as provided in Section 4.5 of the Disclosure
Schedule, the execution, delivery and performance of this Agreement by Scalable
Software does not, and the consummation by Scalable Software of the agreements
and transactions contemplated by this Agreement and the other Transaction
Documents will not, (i) conflict with, or result in any violation of or default
or loss of any benefit under, any provision of the incorporation and
organizational documents of Scalable Software; (ii) violate any permit,
concession, grant, franchise, law, rule or regulation, or any judgment, decree
or order of any Governmental Entity to which Scalable Software is a party or to
which Scalable Software or any of its property is subject; or (iii) conflict
with, or result in a breach or violation of, or accelerate the performance
required by, the terms of any agreement, contract, indenture or other instrument
to which Scalable Software is a party or to which any of its property is
subject, or constitute a default or loss of any right thereunder or an event
which, with the lapse of time or notice or both, might result in a default or
loss of any right thereunder or the creation of any lien, charge or encumbrance
upon any of the assets or properties of Scalable Software.
4.6 Approvals. The execution and delivery of this Agreement and the
consummation of the agreements and transactions contemplated by this Agreement
and the other Transaction Documents will not require the consent, approval,
order or authorization of any Governmental Entity or regulatory authority or any
other person under any permit, license, agreement, indenture or other instrument
to which Scalable Software is a party or to which any of its properties are
subject, and, except for the filing of the certificate of merger necessary to
effect the Merger, no declaration, filing or registration with any Governmental
Entity or regulatory authority is required by Scalable Software in connection
with the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of such agreements and transactions.
4.7 Financial Statements; Absence of Certain Changes.
(a) Scalable Software has delivered to NEON Systems true and complete
copies of the audited balance sheet of Scalable Software as of December 31,
1999, December 31, 2000, and December 31, 2001 and the related statements of
operations and cash flows for the period from inception (January 29, 1999)
through December 31, 1999, the year ended December 31, 2000, and the year ended
December 31, 2001 (collectively, the "Scalable Software Financial Statements").
(b) The Scalable Software Financial Statements have been prepared in
accordance with GAAP, applied on a consistent basis (except as may be indicated
therein or in the notes thereto), from the books and records of Scalable
Software and present fairly the financial position of Scalable Software. Section
4.7 of the Disclosure Schedule lists all present liabilities or obligations of
any nature (whether accrued, absolute, fixed, contingent, liquidated or
unliquidated or otherwise and whether due or to become due) of Scalable Software
which (i) exceed or reasonably could be expected to exceed $10,000 and (ii)
either had been incurred prior to September 30, 2001, but are not reflected on
the December 31,
14
2001 balance sheet included in the Scalable Software Financial Statements, or
were incurred after December 31, 2001 other than in the ordinary course of
business.
(c) Other than as set forth in Section 4.7 of the Disclosure Schedule,
since December 31, 2001 and as of the date of this Agreement, there has not
been:
(i) any adverse change in the condition (financial or otherwise) or in
the properties, assets or liabilities or business or prospects of Scalable
Software;
(ii) any change in the accounting methods or practices followed by
Scalable Software or change in the depreciation or amortization policies or
rates of Scalable Software theretofore adopted;
(iii) any incurrence of any debts, obligations or liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due by
Scalable Software, other than in the usual and ordinary course of business
consistent with past practice;
(iv) any discharge or satisfaction of any liens or payment of any
obligation or liability of Scalable Software, other than in the usual and
ordinary course of business consistent with past practice;
(v) any mortgage, pledge or lien, on any of the assets, tangible or
intangible of Scalable Software;
(vi) any sale, transfer or lease as lessor or sublessor of any assets
of Scalable Software, other than in the usual and ordinary course of
business;
(vii) any cancellation, compromise or release of any debt or claim of
Scalable Software, other than in the usual and ordinary course of business;
(viii) any physical damage, restriction or loss (whether or not
covered by insurance) which materially adversely affects the properties,
business or prospects of Scalable Software;
(ix) any declaration or payment of any dividends or other
distributions with respect to its outstanding capital stock;
(x) except for (A) the Scalable Software Recapitalization to be
effected prior to the Effective Date, (B) any issuance of shares of its
capital stock on the exercise or conversion of the Scalable Software
Options or the Scalable Software Warrants and (C) the Scalable Software
Warrants issued to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, any issuance by Scalable Software of
any shares of its capital stock, or any repurchase or redemption by it of
any shares of its capital stock;
(xi) any merger or consolidation of Scalable Software with any other
Person or any acquisition by Scalable Software of the stock or business
(including by purchase of all or substantially all of the assets) of any
other Person;
15
(xii) the execution of any employment, consulting, severance,
indemnification or other compensation agreement between Scalable Software
and any of its employees, officers or directors or execution of any
collective bargaining agreement or incurrence of any other obligation to
any labor organization or employee;
(xiii) any increase in the compensation or benefits of any employee of
Scalable Software other than scheduled increases in the ordinary course of
business;
(xiv) any payment by Scalable Software to any director, officer,
shareholder, partner or employee, or any Affiliate (other than any NEON
Entity) of the foregoing except regular compensation and usual benefits
payments consistent with established compensation and incentive plans and
the repayment of a loan made to it by ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇; or
(xv) any actual, pending, or to the knowledge of Scalable Software,
threatened change that might reasonably be expected to result in a material
deterioration in the relationship of Scalable Software with any material
customer, supplier, distributor or sales representative thereof.
4.8 Corporate Action; Charter Documents. Scalable Software has heretofore
delivered to NEON Systems true and complete copies of its Charter Documents as
in effect on the date hereof. Scalable Software has heretofore delivered to NEON
Systems true and complete copies of the minute books and stock records of
Scalable Software. Prior to the Closing, Scalable Software will have obtained
the requisite approval by written consent of its stockholders of this Agreement,
the other Transaction Documents and the transactions contemplated hereby and
thereby.
4.9 Litigation. Scalable Software is not subject, and since its inception,
Scalable Software has not been subject, to any judicial, governmental or
administrative order, judgment, injunction or decree, other than those of
general application. Except as set forth on Section 4.9 of the Disclosure
Schedule, no suits, actions, audits or proceedings of any character whatsoever
are pending, or, to the knowledge of Scalable Software, threatened against
Scalable Software or any of its properties, assets or business, and, to the
knowledge of Scalable Software, there is no basis for any such actions, audits
or proceedings.
4.10 Compliance with Laws; Environmental Matters.
(a) The business of Scalable Software is not currently conducted in
violation of any law or any ordinance or regulation of any Governmental Entity.
Scalable Software has not since its inception conducted its business in
violation of any law or any ordinance or regulation of any Governmental Entity.
No investigation or review by any Governmental Entity (including without
limitation any audit or similar review by any federal, state or local taxing
authority) with respect to Scalable Software is pending or, to the knowledge of
Scalable Software, threatened, nor has any Governmental Entity indicated to
Scalable Software, to the knowledge of Scalable Software, an intention to
conduct the same.
(b) Except as provided in Section 4.10(b) of the Disclosure Schedule,
Scalable Software has all licenses, permits and certifications (federal, state,
foreign and local) required
16
by law to conduct its business in the cities, states and countries in which it
conducts its business, and such licenses, permits and certifications are in full
force and effect. Since its date of organization, Scalable Software has not had
any such licenses, permits or certifications suspended or revoked. No proceeding
is pending or, to the knowledge of Scalable Software, threatened, seeking the
revocation or limitation of any of such licenses, permits and certifications.
(c) Specifically, without limiting the representations contained in Section
4.10(a) hereof, Scalable Software and its properties are in compliance with all
applicable published rules and regulations (and applicable standards and
requirements) of the EPA and of all similar national, state and local agencies
in which Scalable Software owns assets or conducts business. There is no suit,
claim, action or proceeding now pending before any court, governmental agency or
board or, to the knowledge of Scalable Software, threatened by any person or
entity for noncompliance by Scalable Software (or by any other Person with
respect to any of its properties) with any environmental law, rule or
regulation. Scalable Software does not have, and its properties are not subject
to, any liability, contingent or otherwise, arising out of or resulting from the
release, discharge, spillage, storage, burying or other disposal, whether on its
own premises or through other persons, of any pollutant, toxic or hazardous
material or waste of any kind. There are no citations, fines or penalties
heretofore assessed against Scalable Software or with respect to any of its
properties under any national, state or local law that remain unpaid, nor has
Scalable Software received any notices or any other communications expressly
addressed to it from the EPA, the Occupational Safety and Health Administration
or any other national, state or local agency or other Governmental Entity with
respect to any violations or alleged violations of any national, state or local
law or regulation.
4.11 Title to Tangible Property. Section 4.11 of the Disclosure Schedule
identifies all of the rights and interests in leasehold estates used by Scalable
Software as of the date hereof. Scalable Software does not own any real
property. Scalable Software has valid leasehold estates identified and reflected
in Section 4.11 of the Disclosure Schedule and good and valid title to all
tangible personalty of any kind or nature purported to be owned or used by
Scalable Software in its business, free and clear of all liens, encumbrances or
claims whatsoever except for (i) liens, encumbrances, defects or irregularities
of title identified in Section 4.11 of the Disclosure Schedule, (ii) liens for
non-delinquent ad valorem Taxes and non-delinquent statutory liens arising other
than by reason of default and (iii) customary rights of way and easements that
may affect the properties identified in Section 4.11 of the Disclosure Schedule
and that do not detract from or materially interfere with the present use or
value of the properties subject thereto. The tangible property and assets
identified in Section 4.11 of the Disclosure Schedule constitute all of the
material tangible property and assets (real, personal and fixed) used in or
necessary to conduct the business operations of Scalable Software as conducted
prior to the date of this Agreement and necessary to enable Scalable Software to
carry on such business as presently conducted. Scalable Software does not own or
lease any property or asset (i) which is not used in its business and is used by
any other Person or (ii) which is used in its business but use of which is made
available to other persons for matters unrelated to the business of Scalable
Software.
17
4.12 Intellectual Property.
(a) Ownership. Section 4.12(a) of the Disclosure Schedule accurately
identifies all software programs currently being marketed by Scalable Software
and all software products or programs actively under development by Scalable
Software but not currently marketed (collectively, the "Software Programs").
Scalable Software owns full and unencumbered right and good and valid title to
(i) the Software Programs listed in Section 4.12(a) of the Disclosure Schedule
and (ii) all patents, trademarks, service marks, trade names, domain names and
copyrights (including registrations and applications pertaining thereto and
extensions, continuations, renewals or divisions of any such registrations or
applications) and all other intellectual property rights, trade secrets,
processes, formulas, know-how and other confidential or proprietary information,
processes and formulae used in its businesses or otherwise necessary for the
conduct of its businesses (the "Intellectual Property"), free and clear of all
mortgages, pledges, liens, security interests, conditional sales agreements,
encumbrances or charges of any kind. Section 4.12(a) of the Disclosure Schedule
contains a complete list of all registered trademarks and service marks, all
reserved trade names, all registered copyrights and all filed patent
applications and issued patents owned by, assigned to or licensed to Scalable
Software.
(b) Protection. Scalable Software's trade secret protection practices are
set forth in Section 4.12(c) of the Disclosure Schedule. To the knowledge of
Scalable Software, there has been no violation of such practices by any person
or entity that has resulted, or would result, in the loss of protection of any
trade secret of Scalable Software.
(c) Personnel. All personnel who now, or since Scalable Software's
inception have been employees, agents, consultants and contractors of Scalable
Software, who have contributed to or participated in the conception and
development of the Software Programs, technical documentations, or Intellectual
Property on behalf of Scalable Software have executed nondisclosure agreements
in form provided by Scalable Software and either (i) have been a party to a
"work-for-hire" arrangement or agreements with Scalable Software in accordance
with applicable national and state law that has accorded Scalable Software full,
effective, exclusive and original ownership of all tangible and intangible
property thereby arising, or (ii) have executed appropriate instruments of
assignment in favor of Scalable Software as assignee that have conveyed to
Scalable Software, effective, and exclusive ownership of all tangible and
intangible property thereby arising. Section 4.12(c) of the Disclosure Schedule
accurately identifies all employees, agents, consultants and contractors that
have contributed to or participated in the conception and development of the
Software Programs, technical documentations or Intellectual Property on behalf
of Scalable Software.
(d) No Infringement.
(i) Neither the existence nor the sale, license, lease, transfer, use,
reproduction, distribution, modification or other exploitation by Scalable
Software of any Software Program or Intellectual Property, as such Software
Program or Intellectual Property, as the case may be, is or was, or is
currently contemplated to be, sold, licensed, leased, transferred, used or
otherwise exploited by such persons, does, did or will (1) infringe on any
copyright of any person, (2) to the knowledge of Scalable Software,
infringe on any trademark, patent right or other right of any person, (3)
constitute a misuse or misappropriation of any trade secret, know-how,
18
process, proprietary information or other right of any other person, or (4)
entitle any other person to any interest therein, or right to compensation
from Scalable Software, its successors or assigns.
(ii) Scalable Software has not received any notice of any lawsuit,
claim, demand, proceeding, threat or allegation or otherwise has notice of
any lawsuit, claim, demand, proceeding or investigation involving matters
of the type contemplated by the immediately preceding sentence.
(iii) Scalable Software does not know of any infringement,
misappropriation or other violation of any Software Programs or
Intellectual Property, and no lawsuit, claim, demand, proceeding or
investigation brought by Scalable Software with respect to the Software
Programs and Intellectual Property is pending against any third party.
(e) Integrity. Except with respect to demonstration or trial copies, no
portion of the Software Programs currently being marketed by Scalable Software
contains any "back door," "time bomb," "Trojan horse," "worm," "drop dead
device," "virus" or other software routines or hardware components intentionally
included in the Software Programs by Scalable Software and designed to permit
unauthorized access, to disable or erase software, hardware, or data or to
perform any other such actions.
(f) Contract Performance. Scalable Software has observed all material
provisions of, and performed all of their material obligations under, the
Licenses, including, but not limited to, the performance of its product
maintenance obligations. Scalable Software has not taken any action that could
cause, or failed to take any action, the failure of which could cause, (i) any
material source code, trade secret or other Intellectual Property relating to
the Software Programs to be released from an escrow or otherwise made available
to any person or entity other than those persons described in Section 4.12(c),
dedicated to the public or otherwise placed in the public domain or (ii) any
other material adverse affect to the protection of the Software Programs under
trade secret, copyright, patent or other intellectual property laws.
(g) Third-Party Rights-In General. Other than the Licenses and the
Marketing Agreements, no person other than Scalable Software has any right or
interest of any kind or nature in or with respect to the Software Programs, the
Technical Documentation or the Intellectual Property.
(h) No Royalties. Other than the Licenses and the Marketing Agreements, the
sale, license, lease, transfer, use, reproduction or distribution by Scalable
Software of any Software Programs does not and will not obligate Scalable
Software or its successors or assigns to pay any royalty, fee or other
compensation to any other person.
(i) Third-Party Components in Software Programs. The Software Programs and
Technical Documentation contain no programming or materials in which any third
party may claim superior, joint or common ownership, including any right or
license, and no derivative works of any programming or materials not owned in
their entirety by Scalable Software.
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(j) Third-Party Tools. Section 4.12(j) of the Disclosure Schedule contains
a complete list of material software libraries, compilers and other third-party
software used in the development of the Software Programs. Section 4.12(j) of
the Disclosure Schedule lists all license agreements for the use of all such
software and, if any such software is not licensed, the basis of the use of such
software by Scalable Software. All use of each of such Software Programs by
Scalable Software has been in full compliance with the respective license
agreement or other rights of use listed in Section 4.12(j) of the Disclosure
Schedule.
4.13 Adequacy of Technical Documentation. The technical documentation of
the Software Programs (the "Technical Documentation") includes (i) the source
code (with comments) for all such Software Programs, as well as any pertinent
comments or explanation that may be necessary to render such materials
understandable and usable by a trained computer programmer and (ii) any programs
(including compilers), "workbenches," tools and higher level (or "proprietary")
languages necessary for the development, maintenance and implementation of such
Software Programs.
4.14 Software Contracts.
(a) End-User Agreements. Section 4.14(a) of the Disclosure Schedule sets
forth a complete list of all licenses and sublicenses of the Software Programs
and of all customer trial agreements for such Software Programs granted by
Scalable Software to other parties (the "Licenses"). All contracts identified in
Section 4.14(a) of the Disclosure Schedule constitute only end-user agreements,
each of which grants the end user thereunder principally the nonexclusive right
and license to use an identified Software Program and related user
documentation, for internal purposes only and only in the form of software
object code. Section 4.14(a) of the Disclosure Schedule sets forth the general
product licensing and pricing policies of Scalable Software by categories of
Software Programs.
(b) Marketing Agreements. Section 4.14(b) of the Disclosure Schedule sets
forth a complete list of all contracts, agreements, licenses, or other
commitments or arrangements in effect with respect to the marketing,
remarketing, distribution, licensing or promotion of (i) the Software Programs
or any Technical Documentation or the Intellectual Property by any independent
salesperson, distributor, sublicensor or other remarketer or sales organization
or (ii) any third party's software products by Scalable Software (the "Marketing
Agreements").
4.15 Contracts. Section 4.15 of the Disclosure Schedule contains a complete
list of all (i) employment contracts of Scalable Software which may not be
immediately terminated without penalty (or any augmentation or acceleration of
benefits); (ii) leases, sales contracts and other agreements with respect to any
property, real or personal, of Scalable Software in excess of $10,000; (iii)
contracts or commitments for capital expenditures or acquisitions in excess of
$10,000 for one project or set of related projects; (iv) agreements, contracts,
indentures or other instruments relating to the borrowing of money, or the
guarantee of any obligation for the borrowing of money; (v) contracts or
agreements providing for any covenant not to compete by or otherwise restricting
in any way Scalable Software's engaging in any business activity; (vi) contracts
or agreements relating to franchisees, consultancies, professional retentions,
agency, sales or distributorship arrangements pertaining to Scalable Software or
its products or activities; (vii) contracts relating to the disposal of any
pollutant, toxic or hazardous material or waste generated by or relating to
Scalable Software or
20
any of its properties; (viii) contracts, agreements, arrangements,
understandings or commitments between Scalable Software and any employee,
officer, director or stockholder of Scalable Software; (ix) contracts between
Scalable Software and any of its customers; and (x) contracts, agreements,
arrangements or commitments, other than the foregoing, which are material to the
business, assets, earnings, properties, operations or condition, financial or
otherwise, of Scalable Software, excluding, in all cases, those contracts listed
in Sections 4.14(a) and 4.14(b) of the Disclosure Schedule.
True and complete copies of all the written documents listed in Section
4.15 of the Disclosure Schedule have been made available to NEON Systems.
All such agreements, arrangements or commitments purporting to be valid and
binding obligations are valid and subsisting, and Scalable Software has duly
performed its obligations thereunder in all material respects to the extent such
obligations have accrued, and no breach or default thereunder by Scalable
Software or, to the knowledge of Scalable Software, any other party thereto has
occurred that impairs the ability of Scalable Software to enforce any material
rights thereunder.
To the knowledge of Scalable Software, no customers or suppliers of
Scalable Software with which Scalable Software has an ongoing relationship
intend to cease purchasing from, selling to, renting from, or dealing with it,
and, to such knowledge, no customer or supplier with which Scalable Software has
an ongoing relationship intends to decrease in any respect the amount of such
purchases, sales or the extent of dealings with Scalable Software or to decrease
in any respect such purchases, sales, rentals or dealings in the event of the
consummation of the transactions contemplated hereby.
4.16 Employee and Labor Matters and Plans.
(a) Section 4.16 of the Disclosure Schedule includes a true and complete
list or description of all welfare and pension plans as defined in Sections 3(1)
and 3(2) of ERISA and all other pension plans, welfare plans, profit-sharing
plans, deferred compensation plans, stock option plans, severance pay plans,
bonus plans, incentive compensation plans, employment agreements, change of
control agreements and other similar plans, agreements, contracts, policies and
arrangements that are currently in effect, or have been approved before the date
hereof, for the benefit of directors, officers or employees or former employees
(or beneficiaries thereof) of Scalable Software or with respect to which
Scalable Software or any Affiliate has any liability, including, without
limitation, with respect to any terminated plans, agreements, contracts,
policies or arrangements (collectively, the "Plans"). Scalable Software has
delivered to NEON Systems, as to each such Plan, a true and complete copy of (i)
such Plan, (ii) the most recent annual report (one of the series of Form 5500,
including attachments) for each Plan that is required to file that form with the
IRS, (iii) each trust agreement and group annuity contract relating thereto,
(iv) the most recent actuarial report or valuation relating thereto that was
delivered to Scalable Software by the actuary for all pension plans, (v) the
most current summary plan description for each Plan required to have such a
description and (vi) the most recent IRS notification, opinion or determination
letter, if any, for each Plan that is intended to be qualified under Section
401(a) of the Code. All reports and disclosures relating to such Plans required
to be filed prior to the Effective Date with or furnished to Governmental
Entities, plan participants or plan beneficiaries have been or will be filed or
furnished in accordance with applicable law in a timely manner, and
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each Plan has been administered in accordance with its governing documents and
applicable law.
(b) Except as set forth in Section 4.16 of the Disclosure Schedule, neither
Scalable Software nor any member of a controlled group (with the meaning of
Section 414(b), (c), (m) or (o) of the Code) in which Scalable Software is a
member prior to the Effective Date: (i) has ever maintained, established,
sponsored, participated in, contributed to, or is obligated to contribute to, or
otherwise incurred any obligation or liability (including, without limitation,
any contingent liability) under any "multiemployer plan" (as defined in Section
3(37) of ERISA) or to any "pension plan" (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code or to any employee
benefit plan described in Section 501(c)(9) of the Code, or has any actual or
potential withdrawal liability (including, without limitation, any contingent
liability for any complete or partial withdrawal (as defined in Sections 4203
and 4205 of ERISA) from any multiemployer plan; (ii) all plans defined in
Section 3(3) of ERISA maintained or contributed to by Scalable Software
(hereinafter referred to as "ERISA plan" and collectively as the "ERISA plans")
intended to be qualified under Section 401(a) of the Code are so qualified and
have received or have filed a timely application for a favorable determination
letter from the IRS or are not yet required to have filed such a determination
letter; (iii) with respect to the ERISA plans, there has been no "prohibited
transaction" (as such term is defined in Section 406 of ERISA and Section
4975(c) of the Code) that will result in any Tax on or liability to Scalable
Software; and (iv) Scalable Software has made or will make all required
contributions to its Plans required to be made by it prior to the Effective Date
or accrued therefor.
(c) There are no labor disputes or disruptions to which Scalable Software
is a party. Scalable Software is not a party to or bound by any contract,
agreement or understanding with any labor union. Scalable Software has not
received and has no reasonable basis from which to expect to receive notice from
any union or employees setting forth demands for representation, elections or
for present or future changes in wages, terms of employment or working
conditions. Scalable Software is in compliance with all laws, contracts and
agreements relating to employment, employment practices, wages, hours and terms
and conditions of employment.
(d) Except as set forth in Section 4.16 of the Disclosure Schedule, there
are no claims, pending or, to Scalable Software's knowledge, threatened,
involving any Plans by a current or former employee (or beneficiary thereof) of
Scalable Software, other than routine claims for benefits.
(e) Scalable Software does not provide employee post-retirement medical or
health coverage, except as may be required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), or other applicable statute.
(f) There are no suits or claims, pending or, to Scalable Software's
knowledge, threatened, that adversely affect or will adversely affect the assets
of any employee benefit plan.
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(g) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not (i) require Scalable Software to
make a larger contribution to, or pay greater benefits or provide other rights
under, any Plan than it otherwise would, whether or not some other subsequent
action or event would be required to cause such payment or provision to be
triggered, or (ii) create or give rise to any additional vested rights or
service credits under any such Plan.
(h) In connection with the consummation of the transactions contemplated by
this Agreement, no payments of money or other property, acceleration of
benefits, or provisions of other rights have or will be made hereunder, under
any agreement contemplated herein, or under the Plans that would be reasonably
likely to result in the imposition on Scalable Software of the sanctions imposed
under Sections 280G and 4999 of the Code, whether or not some other subsequent
action or event would be required to cause such payment, acceleration, or
provision to be triggered.
(i) Except as set forth in Section 4.16 of the Disclosure Schedule, each
Plan may be unilaterally amended or terminated by Scalable Software at any time
in its entirety without liability except as to benefits accrued thereunder prior
to such amendment or termination.
4.17 Insurance Policies. Section 4.17 of the Disclosure Schedule to this
Agreement contains a true and complete list of all insurance policies of
Scalable Software covering or relating to Scalable Software and its business,
properties or assets, any employees or other agents of Scalable Software or any
assets of Scalable Software. Each such policy is in full force and effect, and
is in an amount, and against such losses and risks, as are generally maintained
for comparable business and properties.
4.18 No Undisclosed Indemnification Liabilities. There are no pending
claims for indemnification by any person against Scalable Software under any law
or agreement or pursuant to its incorporation and organization documents and,
Scalable Software does not know of any existing facts or circumstances that will
give rise to such a claim against Scalable Software thereunder.
4.19 Brokerage Fees. Except as set forth in Section 4.19 of the Disclosure
Schedule, Scalable Software has not retained any financial advisor, broker,
agent or finder or paid or agreed to pay any financial advisor, broker, agent or
finder on account of this Agreement or any transaction contemplated hereby.
4.20 Miscellaneous Other Information. Section 4.20 of the Disclosure
Schedule sets forth the following information:
(a) the name and current annual salary and benefits of each present
officer, employee and agent of Scalable Software, and any employment agreement
with respect to each such person, and the name and compensation of each person
to whom Scalable Software has paid consulting fees since December 31, 2001; and
(b) the name of each bank in which Scalable Software has an account or safe
deposit box, the number of any such accounts, the name in which the account or
box is held and the names of all persons authorized to draw thereon or to have
access thereto.
23
4.21 No Illegal or Improper Transactions. Scalable Software has not, nor
has any director, officer or employee of Scalable Software, directly or
indirectly used funds or other assets of Scalable Software, or made any promise
or undertaking in such regards, for: (i) illegal contributions, gifts,
entertainment or other expenses relating to political activity; (ii) illegal
payments to or for the benefit of governmental officials or employees, whether
domestic or foreign, (iii) illegal payments to or for the benefit of any person,
firm, corporation or other entity, or any director, officer, employee, agent or
representative thereof; (iv) gifts, entertainment or other expenses that
jeopardize the normal business relations between Scalable Software and any of
its customers; (v) the establishment or maintenance of a secret or unrecorded
fund; or (vi) participated in or co-operated with an international boycott as
defined in Section 999 of the Code; and there have been no knowingly false or
fictitious entries made in the books or records of Scalable Software.
4.22 Product Liability. Scalable Software has not given or made any
warranties to third parties with respect to any products rented or sold by them,
except for the warranties imposed by the provisions of the Licenses and
applicable commercial codes. Scalable Software has no knowledge of any state of
facts or the occurrence of any event forming the basis of any present claim
against Scalable Software not fully covered by insurance for product liability
on account of any express or implied warranty.
4.23 Transactions with Related Parties. All amounts paid (or deemed for
accounting purposes to have been paid) by Scalable Software to, or received by
Scalable Software from, any Stockholder or Affiliate of any Stockholder since
the beginning of its last fiscal year for products or services (including any
charge for administrative, purchasing, financial or other services) have been no
more favorable to Scalable Software than those available in arm's-length
transactions. No products, services or benefits (excluding employment and/or
consulting services for which an employee and/or consultant received customary
compensation), including the charge therefor, have been received by Scalable
Software from any Stockholder or any Affiliate of any Stockholder since the
beginning of its last fiscal year without a corresponding charge equal to the
fair market value of such products, services or benefits.
4.24 Investment Company. Scalable Software is not an "investment company,"
or "promoter" or "principal underwriter" of an "investment company," as those
terms are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act").
4.25 Inapplicability of Certain Statutes. Scalable Software is not subject
to any state takeover law that applies to the Merger or any of the other
transactions contemplated by this Agreement.
4.26 No Misleading Statements. This Agreement, the information and
schedules referred to herein and the information contained in the Financial
Statements that have been furnished to NEON Systems in connection with the
transactions contemplated by this Agreement, when taken together, do not include
any untrue statement of a material fact and do not and will not omit to state
any material fact necessary to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading.
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ARTICLE V
Tax Matters
5.1 Scalable Software Representations Regarding Taxes. Except as set forth
in Section 5.1 of the Disclosure Schedule, Scalable Software represents,
warrants and covenants to NEON Systems as of the date hereof and at and as of
the Closing, as follows:
(a) (i) all Tax Returns of or with respect to any Tax which is
required to be filed on or before the Closing Date by or with respect to
Scalable Software have been or will be duly and timely filed, (ii) such Tax
Returns are complete and accurate in all material respects and currently
reflect the Tax Liability required to be reported thereon, (iii) all Taxes
which have become or will become due prior to the Closing Date will not be
overdue on the Closing Date, (iv) all Tax withholding and deposit
requirements imposed on or with respect to Scalable Software which Scalable
Software is required to satisfy prior to the Closing Date have been or will
be satisfied in full in all respects, and (v) no penalty, interest or other
charge has become due with respect to the late filing of any such Tax
Return or late payment of any such Tax.
(b) Section 5.1 of the Disclosure Schedule lists all foreign,
national, state and local income Tax Returns filed with respect to Scalable
Software since January 1999. None of such Tax Returns of Scalable Software
are now or have been at any time under audit or examination by any foreign,
national, state or local authority and there are no agreements, waivers or
other arrangements providing for an extension of time with respect to the
assessment or collection of any Tax or deficiency of any nature against
Scalable Software or with respect to any such Tax Return, or any suits or
other actions, proceedings, investigations or claims now pending or, to the
knowledge of Scalable Software, threatened against Scalable Software with
respect to any Tax, or any matters under discussion with any foreign,
national, state or local authority relating to any Tax, or any claims for
any additional Tax asserted by any such authority.
(c) No claim has ever been made against Scalable Software by an
authority in a jurisdiction where Scalable Software does not file Tax
Returns that it is or may be subject to taxation in that jurisdiction.
(d) Notwithstanding anything to the contrary herein, any franchise Tax
paid or payable with respect to Scalable Software shall be allocated to the
taxable period during which the income, operations, assets or capital
comprising the base of such Tax is measured, regardless of whether the
right to do business for another taxable period is obtained by the payment
of such franchise Tax.
(e) Except for statutory liens for Taxes not yet overdue or for Taxes
that Scalable Software is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, no liens for Taxes exist upon the assets of Scalable
Software.
(f) Scalable Software has not made an election under Section 341(f) of
the Code.
25
(g) None of the assets of Scalable Software is held in an arrangement
that is classified as a partnership for Tax purposes, and Scalable Software
does not own any interest in any controlled foreign corporation (as defined
in Section 957 of the Code), foreign personal holding company (as defined
in Section 552 of the Code), passive foreign investment company (as defined
in Section 1297 of the Code) or other entity the income of which is or
could be required to be included in the income of Scalable Software.
(h) None of the assets of Scalable Software is subject to a
safe-harbor lease (pursuant to Section 168(f)(8) of the Internal Revenue
Code of 1954 as in effect after the Economic Recovery Tax Act of 1981 and
before the Tax Reform Act of 1986) or is "tax-exempt use property" (within
the meaning of Section 168(h) of the Code) or "tax-exempt bond financed
property" (within the meaning of Section 168(g)(5) of the Code).
(i) Scalable Software will not be required to include any amount in
income for any taxable period beginning after the Closing Date as a result
of a change in accounting method for any taxable period ending on or before
the Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
(j) Scalable Software has not taken or agreed to take any action that
would prevent the Merger from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code.
(k) Prior to and in connection with the Merger, (i) none of the
Scalable Software Common Stock or Scalable Software Preferred Stock will be
redeemed, (ii) no extraordinary distribution will be made with respect to
the Scalable Software Common Stock or Scalable Software Preferred Stock,
and (iii) none of the Scalable Software Common Stock or Scalable Software
Preferred Stock will be acquired by any person related (as defined in
Treas. Reg. (S)1.368-1(e)(3) without regard to Treas. Reg.
(S)1.368-1(e)(3)(i)(A)) to Scalable Software.
(l) Except as set forth in Section 15.8, Scalable Software will pay
its expenses, if any, incurred in connection with the Merger.
(m) Scalable Software is not under the jurisdiction of a court in a
title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(n) Scalable Software is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(o) Scalable Software has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that would not be
deductible under Section 280G of the Code.
(p) At the time of the Merger, the fair market value of the assets of
Scalable Software will exceed the sum of its liabilities to which such
assets are subject.
5.2 NEON Systems Representations Regarding Taxes. NEON Systems represents
and warrants to Scalable Software as follows:
26
(a) NEON Systems has not taken or agreed to take any action that would
prevent the Merger from constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code. NEON Systems is not an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(b) In connection with the Merger, none of the Scalable Software
Common Stock will be acquired by NEON Systems or a person related (as
defined in Treas. Reg. (S)1.368-1(e)(3)) to NEON Systems for consideration
other than NEON Systems Common Stock except for any cash received in lieu
of fractional share interest in NEON Systems Common Stock.
(c) Following the Merger, the surviving corporation will continue the
historic business of NEON Systems or use a significant portion of its
assets in a business, within the meaning of Treas. Reg. (S)1.368-1(d).
(d) NEON Systems does not own, nor has it owned during the past five
years, any shares of stock of Scalable Software.
ARTICLE VI
Representations and Warranties
of NEON Systems
Subject to the exceptions contained in the applicable sections of the
Disclosure Schedule, NEON Systems represents and warrants to Scalable Software
as follows:
6.1 Organization, Etc. NEON Systems is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently purports to own, operate or hold under lease.
6.2 Authority, Etc. NEON Systems has the requisite corporate power and
authority to enter into this Agreement and each other Transaction Document to
which it is or will be a party and to effect the Merger and the other
transactions contemplated hereby and thereby. The execution, delivery and
performance by NEON Systems of this Agreement and each other Transaction
Document to which it is or will be a party and the effectuation of the Merger
and the other transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of NEON Systems and no other corporate
proceedings on NEON Systems' part are necessary to authorize this Agreement and
the transactions contemplated hereby, and this Agreement and each other
Transaction Document to which it is or will be a party constitutes the valid and
binding obligation of NEON Systems enforceable against it in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity, whether applied in a court of law or a court of equity,
and by bankruptcy, insolvency and similar laws affecting creditor's rights and
remedies generally.
6.3 Brokerage Fees. Neither NEON Systems nor any of its subsidiaries has
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby.
27
6.4 No Violation. The execution, delivery and performance by NEON Systems
of this Agreement and each other Transaction Document to which it is or will
become a party will not, and the consummation by NEON Systems of the agreements
and transactions contemplated by this Agreement will not: (i) conflict with, or
result in any violation of or default or loss of any benefit under, any
provision of the Charter Documents of any NEON Entity; (ii) violate any material
permit, concession, grant, franchise, law, rule or regulation, or any judgment,
decree or order of any Governmental Entity to which any NEON Entity is a party
or to which any of its property is subject; or (iii) conflict with, or result in
a breach or violation of, or accelerate the performance required by, the terms
of any material agreement, contract, indenture or other instrument to which any
NEON Entity is a party or to which any of its property is subject, or constitute
a default or loss of any right thereunder or an event which, with the lapse of
time or notice or both, might result in a default or loss of any right
thereunder or the creation of any material lien, charge or encumbrance upon any
of the assets or properties of any NEON Entity.
6.5 Approvals. The execution and delivery of this Agreement and the
consummation of the agreements and transactions contemplated by this Agreement
will not require the consent, approval, order or authorization of any
Governmental Entity or regulatory authority or any other person under any
permit, license, agreement, indenture or other instrument to which any NEON
Entity is a party or to which any of its properties are subject, and no
declaration, filing or registration with any Governmental Entity or regulatory
authority is required to be made by any NEON Entity in connection with the
execution and delivery of this Agreement and the consummation of such agreements
and transactions.
6.6 SEC Documents. Since March 1999, NEON Systems has filed with the
Commission all forms, reports, statements and other documents (including all
exhibits, amendments and supplements thereto and, collectively, the "SEC
Documents") required to be filed by NEON Systems under the Exchange Act, all of
which (i) complied in all material respects with the applicable requirements of
the Exchange Act and the Commission and (ii) have been made available to
Scalable Software and its stockholders.
6.7 Capitalization. The authorized capitalization of NEON Systems consists
of 30,000,000 shares of NEON Systems Common Stock, of which, as of the date of
this Agreement, 8,682,691 shares are issued and outstanding, and 10,000,000
shares of preferred stock, par value $0.01 per share, none of which are
outstanding on the date of this Agreement. All the NEON Systems Shares to be
issued will, when issued in accordance with this Agreement, have been duly
authorized and validly issued in accordance with the DGCL and the Charter
Documents of NEON Systems and be fully paid and nonassessable. None of the NEON
Systems Shares will, when so issued, have been issued in violation of any
preemptive rights of any stockholder. As of December 31, 2001, options to
acquire 2,058,932 shares of NEON Systems Common Stock were issued and
outstanding and, except for those options and this Agreement, there are no
outstanding options, warrants, convertible or exchangeable securities or
obligations, calls, rights, commitments, preemptive rights or agreements or
instruments or understandings of any character, to which NEON Systems is a party
or by which NEON Systems is bound, obligating NEON Systems to issue, deliver or
sell, or cause to be issued, delivered or sold, shares of capital stock of NEON
Systems or any securities or obligations convertible into or exchangeable for
such shares or to grant, extend or enter into any such option, warrant,
convertible or exchangeable security or obligation, call, right, commitment,
preemptive right or agreement.
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6.8 Financial Statements; Absence of Certain Changes.
(a) The consolidated financial statements of NEON Systems and its
subsidiaries for the fiscal year ended March 31, 2001 and for the nine months
ended December 31, 2001 have been made available to Scalable Software and were
prepared in accordance with GAAP, applied on a consistent basis (except as may
be indicated therein or in the notes thereto), from the books and records of the
NEON Entities and present fairly the consolidated financial position of NEON
Systems as of the dates thereof and the consolidated results of operations and
consolidated cash flows of NEON Systems for the periods then ended.
(b) Since December 31, 2001 and as of the date of this Agreement, there has
not been:
(i) any material adverse change in the condition (financial or
otherwise), properties, assets or liabilities or business or prospects of
the NEON Entities considered as a single enterprise; or
(ii) any change in the accounting methods or practices followed by
NEON Systems or change in the depreciation or amortization policies or
rates of NEON Systems theretofore adopted.
(c) None of the NEON Entities is or has been a debtor in any voluntary or
involuntary case under the United States Bankruptcy Code.
6.9 No Litigation. No litigation is pending or, to the knowledge of NEON
Systems, threatened to which NEON Systems is or may become a party which (i)
questions or involves the validity or enforceability of NEON Systems under any
Transaction Document, (ii) seeks (or reasonably may be expected to seek) (A) to
prevent or delay consummation by NEON Systems of the transactions contemplated
by this Agreement or (B) damages from NEON Systems in connection with any such
consummation.
ARTICLE VII
Certain Covenants of Scalable Software
7.1 Access to Records. Scalable Software and NEON Systems will furnish each
other information subject to the provisions of the letter agreement between them
that is dated July 17, 2001 and is captioned "Re: Confidentiality Agreement"
(the "Confidentiality Agreement"), which shall remain in full force and effect.
7.2 Litigation and Claims. After the date of this Agreement and prior to
the Closing, Scalable Software shall promptly inform NEON Systems in writing of
any litigation, or of any claim or controversy or contingent liability that may
become the subject of litigation, against Scalable Software or affecting any of
its business, properties or assets.
7.3 Notice of Material Adverse Changes. After the date of this Agreement
and prior to the Closing, Scalable Software shall promptly inform NEON Systems
in writing upon becoming aware of any change that shall have occurred or shall
have been threatened in the financial condition,
29
results of operations, business or assets of Scalable Software that is or will
become materially adverse to Scalable Software.
7.4 Scalable Software Recapitalization. Prior to the Closing Date, Scalable
Software will file with the Secretary of State of the State of Delaware an
amendment to its certificate of incorporation as in effect on the date of this
Agreement which effects the Scalable Software Recapitalization.
7.5 Principal Stockholders' Voting Agreements. Each of the Principal
Stockholders hereby covenants and agrees to vote in favor of the adoption and
approval of this Agreement and the Merger.
ARTICLE VIII
Conduct of Business by Scalable Software
Scalable Software and NEON Systems agree (unless NEON Systems shall
otherwise consent in writing) that after the date of this Agreement and prior to
the Closing:
8.1 Ordinary Course. Except as provided in this Agreement, Scalable
Software shall (i) carry on its business in the usual, regular and ordinary
course in a manner consistent with its past practices and in compliance with all
applicable laws, rules and regulations and (ii) preserve its business
organization, maintain its rights and franchises, keep available the services of
its officers and preserve the goodwill and its relationships with customers,
suppliers and others having business dealings with them. Scalable Software shall
preserve in full force and effect all material leases, operating agreements,
permits, licenses, contracts and other material agreements which relate to the
business, properties or assets of Scalable Software (other than those expiring
by their terms) and perform or cause to be performed all of its material
obligations in or under any of such leases, agreements and contracts relating to
such assets.
8.2 Dividends; Changes in Stock. Except for the Scalable Software
Recapitalization, Scalable Software shall not (i) declare or pay any dividend on
or make any other distribution in respect of any of its capital stock, (ii)
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 shares of, its capital stock, (iii) purchase, redeem or otherwise acquire
any shares of its capital stock, or (iv) take any preliminary action with
respect to the foregoing.
8.3 Issuance of Securities. Except for the Scalable Software
Recapitalization, the issuance of Scalable Software Preferred Stock, Scalable
Software Common Stock or Scalable Software New Common Stock on the exercise or
conversion of Scalable Software Options and Scalable Software Warrants, the
issuance of Scalable Software Warrants to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and the conversion
of the Scalable Software Preferred Stock, Scalable Software shall not issue any
equity securities that are not convertible into or exchangeable for Scalable
Software New Common Stock.
8.4 Governing Documents; Inconsistent Agreements. Except to effect the
Scalable Software Recapitalization or as disclosed in Section 8.4 of the
Disclosure Schedule, Scalable Software shall not amend its Certificate of
Incorporation or Bylaws or enter into any agreement or incur any obligation, the
terms of which would be violated by the consummation of the transactions
contemplated by this Agreement.
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8.5 Indebtedness. Except for indebtedness incurred or debt securities
issued in accordance with Section 2.7, Scalable Software shall not incur any
indebtedness for borrowed money, or guarantee any such indebtedness or issue or
sell any debt securities of Scalable Software or guarantee any debt securities
of others, or, other than in the ordinary course of business or in connection
with the transactions contemplated by this Agreement, including the retention of
advisors and professionals, (i) incur any account payable or any liability or
obligation for Taxes or (ii) enter into or modify any contract, agreement,
commitment or arrangement with respect to the foregoing.
8.6 Employees; Employee Contracts and Benefit Plans. Except as contemplated
by Section 3.5, Scalable Software shall not adopt or amend any compensation or
employee benefit plan or enter into any employment, severance or similar
contract with any person (including, without limitation, contracts with
management of Scalable Software that might require that payments be made upon
the consummation of the transactions contemplated hereby) or amend any such
existing contracts to increase any amounts payable thereunder or benefits
provided thereunder. Scalable Software shall not grant any increase in
compensation to any of its non-executive officer or sales employees, or pay any
bonus, which would cause such employee's annual compensation to exceed the
compensation range as set forth in Section 8.6 of the Disclosure Schedule, as
indicated. Scalable Software shall not (i) grant any increase in compensation to
any of its executive officers or (ii) make more materially favorable (to the
employee) any of its variable compensation plans for its executive officers.
Neither Scalable Software nor any plan (including welfare and pension plans
defined by Sections 3(1) and 3(2) of ERISA, if applicable), and any trust
created thereunder, shall (i) engage in any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of the Code) which
is not exempt under Section 4975 of the Code or Section 408 of ERISA, (ii) incur
any "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA) whether or not waived, (iii) terminate any plan in a manner that could
result in the imposition of a lien on any property of Scalable Software pursuant
to Section 4068 of ERISA, or (iv) take any action that could adversely affect
the qualification of any plan or its compliance with the applicable requirements
of ERISA or other applicable law or that might result in any "reportable event"
(as such term is defined in Section 4043(c) of ERISA). Scalable Software shall
file, on a timely basis, all reports and forms required by regulations of any
Governmental Entity with respect to any employee benefit plan or agreement
described in any schedule hereto. Without the consent of NEON Systems, Scalable
Software shall not terminate any employee other than for cause in accordance
with its established policies.
8.7 Prohibited Dispositions. Other than sales and transfers of products in
the ordinary course of business and consistent with present practice, and other
than those contemplated sales and transfers reflected in the annual budget of
Scalable Software which has been delivered to NEON Systems or as otherwise
agreed to by NEON Systems (collectively, the "Approved Budget"), Scalable
Software shall not sell, lease or otherwise dispose of, or become obligated to
sell, lease or otherwise dispose of, any of its assets having a book or market
value in excess of $10,000 in the aggregate or that are otherwise material,
individually or in the aggregate, to the business, results of operations,
financial condition or assets of Scalable Software.
8.8 Lines of Business and Capital Expenditures. Scalable Software shall
not: (i) enter into any new lines of business; (ii) incur or commit to any
capital expenditures or obligations or liabilities in connection therewith,
other than capital expenditures, obligations or liabilities reflected in the
Approved Budget or, if not so reflected, that, on a basis after giving effect to
such acquisition or expenditure, individually or in the aggregate taken with all
other such expenditures obligations or
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liabilities not so reflected, exceeds $10,000; (iii) acquire or agree to acquire
by merging or consolidating with, or acquire or agree to acquire by purchasing
any assets of, or in any manner, any person in a transaction that would be
material to Scalable Software; or (iv) otherwise, except as to the acquisition
of materials and supplies for its products and activities in the ordinary course
of business, acquire or agree to acquire any assets for a total consideration
that, on a basis after giving effect to such acquisition or expenditure,
individually or in the aggregate taken with all other such expenditures,
obligations or liabilities, exceeds $10,000.
8.9 Accounting Methods, Etc. Scalable Software shall not change its methods
of accounting or tax elections in effect as of the date of this Agreement, or
change materially any of its methods of accounting or tax elections for federal
or state income Tax purposes from those employed in the preparation of the
federal and state income Tax Returns of Scalable Software for the taxable year
ended December 31, 2000, except as required by changes in law.
8.10 Software Programs. Scalable Software shall use its best efforts to
prevent any material adverse effect upon the Software Programs or the
Intellectual Property.
8.11 Related Party Transactions. Scalable Software shall not enter into any
transaction with any stockholder or Affiliates of any stockholder for products
or services (including any charge for administrative, purchasing, financial or
other services) that are less favorable to Scalable Software than those
available in arm's-length transactions.
ARTICLE IX
Mutual Covenants
9.1 Regulatory Filing; Consents; Reasonable Efforts. Subject to the terms
and conditions of this Agreement, following the exercise of the Option, Scalable
Software and NEON Systems shall use their respective reasonable best efforts to
(i) obtain all consents, waivers, approvals, authorizations and orders required
in connection with the authorization, execution and delivery of this Agreement
and the consummation of the Merger; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable.
Scalable Software and NEON Systems shall promptly file such materials as
are required with respect to the transactions contemplated hereby and shall
cooperate with the other party to the extent necessary to assist the other party
in the preparation of such filings. Without limiting the generality of the
foregoing, Scalable Software and NEON Systems agree to (i) promptly provide all
information requested by any governmental entity in connection with the Merger
or any of the other transactions contemplated by this Agreement; (ii) give the
other party prompt notice of the commencement of any investigation, action or
legal proceeding by or before any governmental entity with respect to the Merger
or any of the other transactions contemplated by this Agreement; (iii) keep the
other party informed as to the status of any such investigation, action or legal
proceeding; and (iv) promptly inform the other party of any communication to or
from the Federal Trade Commission, the Department of Justice or any other
governmental entity regarding the Merger. Scalable Software and NEON Systems
will consult and cooperate with the other party and will consider in good faith
the views of the other party in connection with any analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal made or submitted
in connection
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with any investigation, action or legal proceeding under or relating to any
federal or state or foreign antitrust, competition or fair trade law. In
addition, except as may be prohibited by any governmental entity or by any law,
rule or regulation, in connection with any investigation, action or legal
proceeding under or relating to any federal or state or foreign antitrust,
competition or fair trade law or any other similar investigation, action or
legal proceeding, Scalable Software and NEON Systems will permit authorized
representatives of the other party to be present at each meeting or conference
relating to any such investigation, action or legal proceeding and to have
access to and be consulted in connection with any document, opinion or proposal
made or submitted to any governmental entity in connection with any such
investigation, action or legal proceeding.
9.2 NEON Stockholders' Meeting; Proxy Statement.
(a) Following the exercise of the Option, NEON Systems shall take all
action reasonably necessary in accordance with the DGCL and its Charter
Documents to convene a meeting of its stockholders (the "NEON Systems
Stockholders Meeting") to consider and vote upon the adoption and approval of
this Agreement and the transactions contemplated hereby. This Agreement and the
transactions contemplated hereby shall be approved by the Required Vote. Subject
to its fiduciary duties, the Board of Directors of NEON Systems (i) shall
recommend at such meeting that the stockholders of NEON Systems vote to adopt
and approve this Agreement and the transactions contemplated hereby; (ii) shall
use its best efforts to solicit from NEON Systems stockholders proxies in favor
of such adoption and approval; and (iii) shall take all other action reasonably
necessary to secure a vote of its stockholders in favor of the adoption and
approval of this Agreement and the transactions contemplated hereby.
(b) Following the exercise of the Option, Scalable Software shall cooperate
with NEON Systems in the preparation of a proxy statement (the "Proxy
Statement"), and shall provide to NEON Systems any information (including
financial statements) reasonably requested by NEON Systems in connection with
the preparation of the Proxy Statement and the filing of the Proxy Statement
with Securities and Exchange Commission for the purpose of soliciting the
approval of the stockholders at the NEON Systems Stockholders Meeting. Such
information provided by Scalable Software will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. Scalable
Software will advise NEON Systems promptly in writing if prior to the Closing
Date it should obtain knowledge of any facts that would make it necessary to
amend the Proxy Statement in order to render the statements therein not
misleading or to comply with applicable law.
9.3 Tax Treatment. All parties intend the Merger to be a tax-free
reorganization within the meaning of Section 368(a) of the Code, and agree to
use their respective reasonable best efforts to take all action required or
appropriate to facilitate such tax treatment.
9.4 Further Assurances. After the date of this Agreement and prior to the
Closing Scalable Software will, and after the date of this Agreement and prior
to and following the Closing, NEON Systems will cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to
give such further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
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9.5 Satisfaction of Conditions Precedent. Following the exercise of the
Option, NEON Systems will use its reasonable best efforts to satisfy or cause to
be satisfied all of the conditions precedent which are set forth in Section
10.1(b) through (e) or Section 10.3; Scalable Software will use its reasonable
best efforts to satisfy or cause to be satisfied all of the conditions precedent
which are set forth in Sections 10.1(b) through (e) and 10.2; and NEON Systems
and Scalable Software will each use their reasonable best efforts to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part, respectively, in order to effect the transactions contemplated hereby.
9.6 401(k) Plan Benefits. After the Effective Date of the Merger, NEON
Systems shall provide, or cause to be provided to, the employees of Scalable
Software an employer matching contribution formula under a 401(k) plan that is
at least as favorable as that provided under the Scalable Software, Inc. 401(k)
Plan immediately prior to the Closing. However, nothing herein shall prevent
NEON Systems from changing such contribution formula after the transition period
provided by Section 410(b)(6)(C) of the Code, provided that the employer
contribution formula thereafter applicable to the employees of Scalable
Solutions is not less favorable than that applicable to the employees of NEON
Systems.
ARTICLE X
Conditions of the Closing
10.1 Conditions to All Parties' Obligations. The obligations of all the
parties to this Agreement to consummate the transactions described in this
Agreement shall be subject to the fulfillment of the following conditions:
(a) NEON Systems shall have exercised the Option.
(b) As of the Closing, no temporary restraining order, preliminary or
permanent injunction or other order or restraint issued by any court of
competent jurisdiction, no order, decree, restraint or pronouncement by any
Governmental Entity, and no other legal restraint or prohibition that would
prevent or have the effect of preventing the consummation of the
transactions described in this Agreement shall be in effect.
(c) As of the Closing, the permits, approvals, filings and consents
required to be obtained or made prior to the consummation of the
transactions described in this Agreement under applicable federal laws of
the United States or applicable laws of any foreign jurisdiction or state
having jurisdiction over the transactions described in this Agreement shall
have been obtained or made, as the case may be, and all such regulatory
approvals shall be in full force and effect.
(d) The Required Vote of NEON Systems' stockholders shall have been
obtained at the NEON Stockholders Meeting in accordance with applicable
laws and regulatory requirements.
(e) The parties to the Escrow Agreement shall have duly executed and
delivered such agreement.
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10.2 Conditions to the Obligations of NEON Systems to Close. The
obligations of NEON Systems under this Agreement to consummate the transactions
described in this Agreement are subject to the fulfillment at or prior to the
Closing of the following conditions, any of which may be waived by NEON Systems
in writing; provided, however, NEON Systems' election to proceed with the
Closing of the transactions contemplated herein shall not be deemed a waiver of
any breach of any representation, warranty or covenant herein, whether or not
known to NEON Systems or existing on the Closing Date.
(a) The representations and warranties of Scalable Software shall be
true and correct in all material respects as of the date when made and as
of the Closing.
(b) Scalable Software shall have duly performed and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed by or complied with by it prior to or at the
Closing.
(c) Scalable Software shall have effected the Scalable Software
Recapitalization.
(d) There shall not have occurred any material adverse change in the
business or prospects of Scalable Software, other than the personnel
changes identified on Section 10.2 of the Disclosure Schedule.
(e) The Special Committee shall not have withdrawn its approval of the
Merger.
(f) Certain key employees of Scalable Software identified by NEON
Systems in writing prior to the date of this Agreement shall have entered
into two-year non-competition and non-solicitation agreements with NEON
Systems, which agreements shall be in form and substance acceptable to NEON
Systems.
(g) The holders of no more than 10% of the shares of Scalable Software
New Common Stock shall have delivered to Scalable Software a written demand
for the appraisal of their shares of Scalable Software New Common Stock.
(h) NEON Systems shall have received a letter (the "Stockholder
Letter"), in the form attached hereto as Exhibit C, from a number of
stockholders of Scalable Software such that the aggregate number of
stockholders who either (i) return the Stockholder Letter but are not
accredited investors or (ii) do not return the Stockholder Letter, is less
than 35.
10.3 Conditions to the Obligations of Scalable Software to Close. The
obligations of Scalable Software under this Agreement to consummate the
transactions described in this Agreement are subject to the fulfillment of the
following conditions at or prior to the Closing or, if an earlier date is
expressly provided below, at or prior to such earlier date, of the following
conditions, any of which may be waived by Scalable Software in writing;
provided, however, Scalable Software's election to proceed with the Closing of
the transactions contemplated herein shall not be deemed a waiver of any breach
of any representation, warranty or covenant herein, whether or not known to
Scalable Software or existing on the Closing Date.
(a) NEON Systems shall have duly performed and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
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(b) NEON Systems shall have duly executed and delivered the
Registration Rights Agreement a form of which is attached hereto as
Exhibit D.
ARTICLE XI
Termination
11.1 Termination. This Agreement may be terminated prior to the Closing:
(a) by mutual consent of the parties to this Agreement;
(b) by either NEON Systems or Scalable Software if:
(i) the Option has not been exercised prior to the expiration of
the Option Term;
(ii) the Closing shall not have occurred on or before 180 days
from the date of the exercise of the Option by NEON Systems, or such
later date as the parties may agree in writing; provided, however,
that such 180-day period may be extended if additional time is need as
a result of the time take to receive clearance from the Securities and
Exchange Commission; or
(iii) the Required Vote is not received at the NEON Systems
Stockholders Meeting;
(c) by NEON Systems if (i) since the date of this Agreement there has
been a material adverse change in the business, operations or financial
condition of Scalable Software or (ii) there has been a material breach of
any representation or warranty set forth in this Agreement by Scalable
Software which breach has not been cured within ten business days following
receipt by Scalable Software of notice of such breach; or
(d) by Scalable Software if NEON Systems becomes a debtor in any
voluntary or involuntary case under the United States Bankruptcy Code.
11.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 11.1 hereof, this Agreement shall, except as provided
herein, forthwith become void and there shall not be any liability or obligation
with respect to the terminated provisions of this Agreement on the part of NEON
Systems, Scalable Software or the Principal Stockholders, except and to the
extent such termination results from the willful breach by a party of any of its
representations, warranties or agreements hereunder.
ARTICLE XII
Survival of Representations, Warranties,
Covenants and Agreements
All statements of fact contained in any written statement (including
financial statements), certificate, instrument or document delivered by or on
behalf of Scalable Software pursuant to this Agreement shall be deemed
representations and warranties of Scalable Software. The several representations
and warranties of the parties to this Agreement shall survive the Closing Date
for a period of one year from the Closing Date (the period during which the
representations and warranties
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shall survive being referred to herein with respect to such representations and
warranties as the "Survival Period"), and shall be effective with respect to any
inaccuracy therein or breach thereof (and a claim for indemnification under
Article XIII or Article XIV hereof may be made thereon) if a written notice
asserting the claim shall have been given within the Survival Period with
respect to such matter. Any claim for indemnification made during the Survival
Period shall be valid and the representations and warranties relating thereto
shall remain in effect for purposes of such indemnification notwithstanding such
claim may not be resolved within the Survival Period. The agreements and
covenants set forth herein shall survive without limitation. All
representations, warranties, covenants and agreements made by the parties shall
not be affected by any investigation heretofore or hereafter made by and on
behalf of either of them and shall not be deemed merged into any instruments or
agreements delivered in connection with this Agreement or otherwise in
connection with the transactions contemplated hereby.
ARTICLE XIII
Indemnification by Scalable Software and the Scalable Software Stockholders
13.1 Indemnification by Scalable Software and the Scalable Software
Stockholders.
(a) Subject to the terms and conditions of this Article XIII, Scalable
Software and each stockholder of Scalable Software, (each, an "Indemnitor")
shall indemnify, defend and hold harmless NEON Systems and its respective
directors, officers, employees and controlled and controlling persons (each, an
"Indemnitee") from and against all Losses asserted against, imposed upon, or
incurred by, paid or suffered by any Indemnitee, directly or indirectly, by
reason of, arising out of, or resulting from the inaccuracy or breach of any
representation or warranty of Scalable Software contained in or made pursuant to
this Agreement.
(b) No Indemnitee will be entitled to, and shall not seek, indemnification
from any Indemnitor pursuant to this Article XIII on the basis of any
representation and warranty of Scalable Software unless such Indemnitee shall
have delivered to the Escrow Representative prior to the first anniversary of
the Effective Date a written claim for such indemnification based on such
representation and warranty (an "Indemnification Claim"). Any Indemnification
Claim so delivered prior to such first anniversary shall remain enforceable
under this Article XIII notwithstanding that it may not be resolved prior to
such first anniversary.
(c) Except as set forth in Section 13.6, the aggregate liability of the
Indemnitors under this Section 13.1 shall be limited to the Escrow Stock, and
the only recourse of the Indemnitees to such indemnification shall be the Escrow
Stock under the terms of the Escrow Agreement.
(d) Notwithstanding Section 13.1(a), no Indemnitee shall be entitled to
make any Indemnification Claim against any Indemnitor unless and until the
aggregate amount of all Losses in respect of which all Indemnitees shall have
made Indemnification Claims timely under Section 13.1(b) exceeds $100,000 and,
in such event, only to the extent that such aggregate amount exceeds $100,000.
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13.2 Procedures for Indemnification.
(a) An Indemnification Claim must specify in reasonable detail the basis on
which indemnification is sought and the amount of asserted Losses and, in the
case of a Third Party Claim (as hereinafter defined), contain (by attachment or
otherwise) such other information as the Indemnitee making such Indemnification
Claim shall have concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 13.3 shall be observed by the Indemnitee and the
Escrow Representative.
(c) If the Indemnification Claim involves a matter other than a Third Party
Claim, the Escrow Representative shall have 30 days to object to such
Indemnification Claim by delivery of a written notice of such objection to such
Indemnitee specifying in reasonable detail the basis for such objection. Failure
to timely so object shall constitute a final and binding acceptance of the
Indemnification Claim by the Escrow Representative on behalf of all Indemnitors,
and the Indemnification Claim shall be paid in accordance with subsection (d)
hereof. If an objection is timely interposed by the Escrow Representative and
the dispute is not resolved by such Indemnitee and the Escrow Representative
within such 30-day period, such dispute shall be resolved by arbitration as
provided in Section 13.7.
(d) Upon determination of the amount of an Indemnification Claim, whether
by agreement between the Escrow Representative and the Indemnitee or by an
arbitration award or by any other final adjudication, the Indemnitee may set off
the amount of such Indemnification Claim against the Escrow Stock in accordance
with the Escrow Agreement within 10 days of the date such amount is determined.
13.3 Third Party Claims. The obligations and liabilities of the parties
hereunder with respect to any action, arbitration, cause of action, claim,
complaint, criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding relating to or
affecting a party or its business or assets, or this Agreement or the
transactions contemplated hereby, in each case that is instituted against an
Indemnitee by a person or entity other than an Indemnitor and which, if
prosecuted successfully, would result in Losses for which such Indemnitee is
entitled to indemnification pursuant to Section 13.1 (each a "Third Party
Claim") shall be subject to the following provisions of this Section 13.3.
(a) The Indemnitee shall give the Escrow Representative written notice of a
Third Party Claim promptly after receipt by the Indemnitee of notice thereof,
and the Escrow Representative, on behalf of the Indemnitors, may undertake the
defense, compromise and settlement thereof by representatives of its own
choosing reasonably acceptable to the Indemnitee. The failure of the Indemnitee
to notify the Escrow Representative of such claim shall not relieve the
Indemnitors of any liability that they may have with respect to such claim
except to the extent the Escrow Representative demonstrates that the defense of
such claim is materially prejudiced by such failure. The assumption of the
defense, compromise and settlement of any such Third Party Claim by the Escrow
Representative shall be an acknowledgement of the obligation of the Indemnitors
to indemnify the Indemnitee with respect to such claim hereunder, unless the
Indemnitor give written notice to the Indemnitee within 30 days after receipt of
the Indemnitee's notice that it disputes its liability to Indemnitee with
respect to such Third Party Claim notwithstanding its assumption of the defense
thereof. If the Indemnitee desires to participate in, but not control, any such
defense,
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compromise and settlement, it may do so at its sole cost and expense. If,
however, the Escrow Representative fails or refuses to undertake the
defense of such Third Party Claim within 30 days after written notice of
such claim has been given to the Escrow Representative by the Indemnitee,
the Indemnitee shall have the right to undertake the defense, compromise
and settlement of such claim with counsel of its own choosing. In the
circumstances described in the preceding sentence, the Indemnitee shall,
promptly upon its assumption of the defense of such claim, be deemed to
have made an Indemnification Claim as specified in this Section 13.3 which
is not a Third Party Claim for the purposes of the procedures set forth
herein.
(b) If, in the reasonable opinion of the Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue or matter
which could reasonably have a material adverse effect on the financial
condition, business, assets, results of operations or prospects of the
Indemnitee, the Indemnitee shall have the right to control the defense,
compromise and settlement of such Third Party Claim undertaken by the
Escrow Representative, and the reasonable fees, costs and expenses of any
attorney representing the Indemnitee in connection therewith, together with
the reasonable fees, costs and expenses of any consultant, accountant or
other party retained by such Indemnitee in connection with the
aforementioned defense, compromise and settlement, shall be paid by the
Indemnitors and all other Losses paid, suffered or incurred by the
Indemnitee resulting from, based upon or arising out of such Third Party
Claim shall be included as part of the indemnification obligations of the
Indemnitors hereunder. If the Indemnitee shall elect to exercise such
right, the Escrow Representative shall have the right to participate in,
but not control, the defense, compromise and settlement of such Third Party
Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitors under Section 13.1 shall be made without the
prior written consent by or on behalf of the Escrow Representative, which
consent shall not be unreasonably withheld or delayed. Consent shall be
deemed to have been given where the Escrow Representative has not responded
within 30 business days of notice of a proposed settlement. If the Escrow
Representative assumes the defense of such Third Party Claim, (i) no
compromise or settlement thereof may be effected by the Escrow
Representative without the Indemnitee's consent unless (A) there is no
finding or admission of any violation of law or any violation of the rights
of any Person and no effect on any other claim that may be made against the
Indemnitee, (B) the sole relief provided is damages that are paid in full
by the Indemnitors with Escrow Stock, and (C) the compromise or settlement
includes, as an unconditional term thereof, the giving by the claimant or
the plaintiff to the Indemnitee of a release, in form and substance
satisfactory to the Indemnitee, from all liability in respect of such Third
Party Claim, and (ii) the Indemnitee shall have no liability with respect
to any compromise or settlement thereof effected without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties shall execute such powers of attorney as may
reasonably be necessary or appropriate to permit participation of counsel
selected by any party and, as may reasonably be related to any such claim
or action, shall provide access to the counsel, accountants and other
representatives or each party during normal business hours to all
properties, personnel, books, tax records, contracts, commitments and all
other business records of such other party
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and will furnish to such other party copies of all such documents as may
reasonably be requested (certified, if requested).
13.4 Subrogation. Upon payment in full of any Indemnification Claim,
whether such payment is effected by set-off or otherwise, or the payment of any
judgment or settlement with respect to a Third Party Claim, the Indemnitors
shall be subrogated to the extent of such payment to the rights of the
Indemnitee against any person or entity with respect to the subject matter of
such Indemnification Claim or Third Party Claim.
13.5 Escrow Representative.
(a) The Escrow Representative shall act as the true and lawful
attorney-in-fact to act for and on behalf of the Indemnitors in all matters
relating to or arising out of this Article XIII and the liability or asserted
liability for such Indemnitor hereunder, including specifically, but without
limitation, accepting and agreeing to the liability of such Indemnitor with
respect to any Indemnification Claim, objecting to any Indemnification Claim,
disputing the liability of such Indemnitor, or the amount of such liability,
with respect to any Indemnification Claim and prosecuting and resolving such
dispute as herein provided, accepting the defense, compromise and settlement of
any Third Party Claim on behalf of such Indemnitor or refusing to accept the
same, settling and compromising the Losses for such Indemnitor hereunder,
instituting and prosecuting such actions (including arbitration proceedings) as
the Escrow Representative shall deem appropriate in connection with any of the
foregoing, retaining counsel, accountants, appraisers and other advisers in
connection with any of the foregoing, all for the account of the Indemnitor,
such Indemnitor agreeing to be fully bound by the acts, decisions and agreements
of the Escrow Representative taken and done pursuant to the authority herein
granted.
(b) The Escrow Representative shall assume no responsibility or liability
whatsoever to any person other than to act in good faith on behalf of the
Indemnitors under this Agreement. Each of NEON Systems and Scalable Software
hereby agrees, and each Indemnitor, by such Indemnitor's receipt of any of the
Merger Consideration, will be deemed to have agreed (each of NEON Systems,
Scalable Software and such Indemnitor, a "Representative Indemnifying Party"),
to indemnify the Escrow Representative for and to hold the Escrow Representative
harmless against any losses, claims, damages or liabilities incurred on his part
arising out of or in connection with his acting as the Escrow Representative
pursuant hereto, as well as any legal or other expenses reasonably incurred in
connection with investigating and defending any such loss, claim, damage or
liability as such expenses are incurred, except to the extent any such loss,
claim, damage or liability is due to the gross negligence or willful misconduct
of the Escrow Representative. Each of the Representative Indemnifying Parties
agrees that the Escrow Representative may consult with counsel of his own
choice, and the Escrow Representative shall have full and complete authorization
and protection for any action taken or suffered by the Escrow Representative
hereunder in good faith and in accordance with the opinion or advice of such
counsel. Each of the Representative Indemnifying Parties understands and agrees
that the provisions of this Section 13.5(b) provide for indemnification by the
Representative Indemnifying Parties of the Escrow Representative for the
negligence of the Escrow Representative.
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(c) NEON Systems and Scalable Software shall pay all the costs and expenses
incurred by the Representative Indemnifying Parties under Section 13.5(b) and
shall be entitled to reimbursement of one-half of such costs and expenses out
of, but only out of, the Escrow Stock, which shall be the only recourse of NEON
Systems and Scalable Software.
13.6 Remedies Partially Exclusive. The remedies this Article XIII provide
to NEON Systems and the other Indemnitees shall be their sole and exclusive
remedies against each Indemnitor other than the Principal Stockholders, but
otherwise such remedies will not be exclusive of any rights or remedies
available to any party hereto, either at law or in equity.
13.7 Arbitration. If a party makes a good faith determination that a breach
(or potential breach) of this Agreement by the other party may result in damages
or consequences that will be immediate, severe, and incapable of adequate
redress after the fact, so that a temporary restraining order or other immediate
injunctive relief is necessary for a realistic and adequate remedy, that party
may seek immediate injunctive relief without first seeking relief through
arbitration. After the court has ruled on the request for injunctive relief, the
parties will thereafter proceed with arbitration of the dispute and stay the
litigation pending arbitration. Subject to the foregoing, any dispute arising
out of this Agreement, or its performance or breach, shall be resolved by
binding arbitration under the Commercial Arbitration Rules (the "AAA Rules") of
the American Arbitration Association (the "AAA"). This arbitration provision is
expressly made pursuant to and shall be governed by the Federal Arbitration Act,
9 U.S.C. Sections 1-13. The parties hereto agree that pursuant to Section 9 of
the Federal Arbitration Act, a judgment of the United States District Courts for
the Southern District of Texas shall be entered upon the award made pursuant to
the arbitration. A single arbitrator, who shall have the authority to allocate
the costs of any arbitration initiated under this paragraph, shall be selected
according to the AAA Rules within ten days of the submission to the AAA of the
response to the statement of claim or the date on which any such response is
due, whichever is earlier. The arbitrator shall conduct the arbitration in
accordance with the Federal Rules of Evidence. The arbitrator shall decide the
amount and extent of pre-hearing discovery which is appropriate. The arbitrator
shall have the power to enter any award of monetary and/or injunctive relief
(including the power to issue permanent injunctive relief and also the power to
reconsider any prior request for immediate injunctive relief by either of the
parties and any order as to immediate injunctive relief previously granted or
denied by a court in response to a request therefor by either of the parties),
including the power to render an award as provided in Rule 43 of the AAA Rules;
provided, however, that the arbitrator shall not have the power to award
punitive damages under any circumstances (whether styled as punitive, exemplary,
or treble damages, or any penalty or punitive type of damages) regardless of
whether such damages may be available under applicable law, the parties hereby
waiving their rights to recover any such damages. The arbitrator shall award
costs and reasonable attorney's fees as it deems just and equitable. Any
arbitration shall be held in Houston, Texas, for any claim brought by any party
under this Agreement. In addition to the above courts, the arbitration award may
be enforced in any court having jurisdiction over the parties and the subject
matter of the arbitration. With respect to any request for immediate injunctive
relief, the state and federal courts in Houston, Texas, shall have nonexclusive
jurisdiction and venue over any such disputes.
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ARTICLE XIV
Indemnification by NEON Systems
14.1 Indemnification by NEON Systems.
(a) For a period of six years after the Effective Date, NEON Systems shall
indemnify and hold harmless, and provide advancement of expenses to individuals
who at any time prior to the Effective Date were directors or officers of
Scalable Software to the same extent such individuals are indemnified or have
the right to advancement of expenses pursuant to the provisions with respect to
indemnification, exculpation and advancement of expenses set forth in the
Charter Documents of Scalable Software as in effect on the date of this
Agreement in respect of actions or omissions occurring at or prior to the
Effective Date (including the transactions contemplated by this Agreement),
unless such modification is required by law.
(b) From and after the Effective Date, NEON Systems shall indemnify, defend
and hold harmless each person who is now, or has been at any time prior to the
date hereof or who becomes prior to the Effective Date, an officer or director
of Scalable Software (the "Covered Parties") against all losses, claims,
damages, costs, expenses (including any Indemnification Claim or Third Party
Claim and reasonable attorneys' fees and expenses), liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld or delayed) incurred in
connection with any threatened or actual claim, action, suit, proceeding or
investigation (each, a "Proceeding") based in whole or in part on or arising in
whole or in part out of the fact that such person was a director or officer of
Scalable Software ("Indemnified Liabilities"), including all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
this Agreement or the transactions contemplated hereby, in each case to the full
extent that NEON Systems is permitted under applicable law to so indemnify;
provided, however, that any rights of the Covered Parties to indemnification
under this Section 14.1 shall not affect their indemnification obligations under
Article XIII. In the event any such Proceeding is brought against any Covered
Party, the indemnifying party shall assume and direct all aspects of the defense
thereof, including settlement, and the Covered Party shall cooperate in the
vigorous defense of any such matter. The Covered Party shall have a right to
participate in (but not control) the defense of any such matter with its own
counsel and at its own expense. Notwithstanding the right of the indemnifying
party to assume and control the defense of such Proceeding, such Covered Party
shall have the right to employ separate counsel and to participate in the
defense of such Proceeding, and the indemnifying party shall bear the fees,
costs and expenses of such separate counsel and shall pay such fees, costs and
expenses promptly after receipt of an invoice from such Covered Party if (i) the
use of counsel chosen by the indemnifying party to represent such Covered Party
would present such counsel with a conflict of interest, (ii) the defendants in,
or targets of, any such Proceeding shall have been advised by counsel that there
may be legal defenses available to it or to other Covered Parties which are
different from or in addition to those available to the indemnifying party, or
(iii) the indemnifying party shall not have employed counsel satisfactory to
such Covered Party, in the exercise of the Covered Party's reasonable judgment,
to represent such Covered Party within a reasonable time after notice of the
institution of such Proceeding. The indemnifying party shall not settle any such
matter unless (i) the Covered Party gives prior written consent, which shall not
be unreasonably
42
withheld or delayed, or (ii) the terms of the settlement provide that the
Covered Party shall have no responsibility for the discharge of any settlement
amount and impose no other obligations or duties on the Covered Party and the
settlement discharges all rights against Covered Party with respect to such
matter. In no event shall the indemnifying party be liable for any settlement
effected without its prior written consent. Any Covered Party wishing to claim
indemnification under this Section 14.1(b), on learning of any such Proceeding,
shall promptly notify NEON Systems and Scalable Software (but the failure so to
notify shall not relieve the indemnifying party from any liability which it may
have under this Section 14.1(b) except to the extent such failure materially
prejudices such indemnifying party), and shall deliver to NEON Systems and
Scalable Software all undertakings required under applicable law. The Covered
Parties as a group will be represented by a single law firm (plus no more than
one local counsel in any jurisdiction) with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Covered Parties. The
rights to indemnification under this Section 14.1(b) shall continue in full
force and effect for a period of six years from the Effective Date; provided,
however, that all rights to indemnification in respect of any Indemnified
Liabilities asserted or made within such period shall continue until the
disposition of such Indemnified Liabilities.
(c) In the event that NEON Systems or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors or assigns of NEON Systems shall succeed to the obligations
set forth in this Section 14.1.
ARTICLE XV
General Provisions
15.1 Taking of Necessary Action. Subject to the terms and conditions of
this Agreement, following the exercise of the Option, each of the parties hereto
agrees, subject to applicable laws, to use reasonable best efforts promptly to
take or cause to be taken all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, Scalable Software shall use its respective
reasonable best efforts to obtain and make all consents, approvals, assurances
and filings of or with third parties and Governmental Entities necessary or, in
the opinion of Scalable Software or NEON Systems, advisable for the consummation
of the transactions contemplated by this Agreement.
15.2 Assignment. No party hereto may assign this Agreement or any of its
rights, interests or obligations hereunder to any other Person.
15.3 Entire Agreement; Third Party Beneficiaries. This Agreement (including
the documents and instruments referred to herein) contains the entire agreement
among the parties hereto with respect to the transactions described in this
Agreement and neither this nor any document delivered in connection with this
Agreement confers upon any person not a party hereto (other than non-signing
stockholders of Scalable Software) any rights or remedies hereunder except as
provided in Sections 3.5, 3.6 and 9.6 and Articles XIII and XIV.
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15.4 Announcements. None of the parties shall without the approval of NEON
Systems and Scalable Software, make any press release or other public
announcement concerning any of the transactions contemplated by this Agreement,
except as and to the extent that such party shall be so obligated by law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange or securities quotation or trading system on which securities of that
party or an affiliate are listed, quoted or traded, in which case the other
parties shall be advised and the parties shall use their reasonable best efforts
to cause a mutually agreeable release or announcement to be issued.
15.5 Notices. All notices or other communications hereunder shall be in
writing or sent by facsimile transmission and shall be deemed to have been duly
given upon receipt, addressed as follows:
If to NEON Systems, to:
NEON Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, General Counsel
If to Scalable Software, to:
Scalable Software, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and Chief Executive Officer
Any party may change its address for notice by giving notice thereof under
this Section 15.5.
15.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.7 Governing Law; Interpretation; Section Headings. This Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of Delaware without reference to or application of any conflicts of
laws principles. The section headings contained herein are for purposes of
convenience only, and shall not be deemed to constitute a part of this Agreement
or to affect the meaning or interpretation of this Agreement in any way. The
provisions of this Agreement were negotiated by the parties hereto and this
Agreement shall be deemed to have been drafted by all the parties hereto.
44
15.8 Expenses. Except as provided otherwise in this Section 15.8 and
Articles XIII and XIV, each party to this Agreement agrees that it shall be
liable for all expenses that it has incurred or will incur in connection with
the negotiation, preparation and compliance with this Agreement, including,
without limitation, all legal and accounting fees and expenses. Upon Closing,
NEON Systems shall assume all reasonable expenses of Scalable Software incurred
in connection with the Merger.
15.9 Waivers; Amendments. The parties may, by mutual written agreement,
extend the time for the performance of any of the obligations or other acts of
any other party hereto, or waive such other party's performance of any of the
obligations set out in this Agreement or amend this Agreement. Any agreement on
the part of any party hereto for any such extension, waiver or amendment shall
be validly and sufficiently authorized for the purposes of this Agreement if it
is signed, if given by NEON Systems or Scalable Software, by a duly authorized
officer or representative of NEON Systems or Scalable Software, respectively.
15.10 Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
been written so as to be enforceable to the greatest extent legally possible.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
NEON SYSTEMS, INC.
By:
---------------------------------------
Name:
Title:
SCALABLE SOFTWARE, INC.
By:
---------------------------------------
Name:
Title:
PRINCIPAL STOCKHOLDERS
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
JMI, INC.
By:
---------------------------------------
Name:
Title:
JMI EQUITY FUND IV, L.P.
By:
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III
Title: General Partner
JMI EQUITY FUND IV (A1), L.P.
By:
----------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III
Title: General Partner
46
JMI EURO EQUITY FUND IV, L.P.
By:
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III
Title: General Partner
JMI EQUITY SIDE FUND, L.P.
By:
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ III
Title: General Partner
47