EXHIBIT 10.4
NETSCOUT SYSTEMS, INC.
STOCK PURCHASE AND REDEMPTION AGREEMENT
AS OF DECEMBER 31, 1998
NETSCOUT SYSTEMS, INC.
Stock Purchase and Redemption Agreement
As of December 31, 1998
PAGE
SECTION 1. PURCHASE AND SALE; REDEMPTION..........................................................................2
1.1 Description of Securities............................................................................2
1.2 Sale and Purchase; Redemption........................................................................2
1.3 Closing..............................................................................................2
1.4 Use of Proceeds by the Company; Repayment of Founder Notes...........................................3
1.5 Transfer Taxes.......................................................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS.............................3
2.1 Organization and Corporate Power.....................................................................3
2.2 Authorization and Non-Contravention..................................................................4
2.3 Corporate Records....................................................................................4
2.4 Capitalization.......................................................................................5
2.5 Subsidiaries; Investments............................................................................6
2.6 Financial Statements; Projections....................................................................6
2.7 Absence of Undisclosed Liabilities...................................................................6
2.8 Absence of Certain Developments......................................................................7
2.9 Accounts Receivable; Accounts Payable................................................................9
2.10 Transactions with Affiliates........................................................................9
2.11 Title to Properties.................................................................................9
2.12 Tax Matters........................................................................................10
2.13 Certain Contracts and Arrangements.................................................................11
2.14 Intellectual Property Rights; Employee Restrictions................................................12
2.15 Litigation.........................................................................................14
2.16 Labor Matters......................................................................................14
2.17 List of Certain Employees and Suppliers............................................................15
2.18 Permits; Compliance with Laws......................................................................15
2.19 Employee Benefit Programs..........................................................................16
2.20 Environmental Matters..............................................................................16
2.21 Insurance..........................................................................................17
2.22 Investment Banking; Brokerage......................................................................17
2.23 Customers; Relationship with CISCO Systems.........................................................17
2.24 Warranty and Related Matters.......................................................................18
2.25 Solvency...........................................................................................18
2.26 Year 2000 Compliance...............................................................................18
2.27 Information Supplied by the Company................................................................19
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.......................................................19
3.1 Investment Status...................................................................................19
[Stock Purchase and Redemption Agreement]
(i)
3.2 Authority...........................................................................................20
3.3 Investment Banking; Brokerage Fees..................................................................20
SECTION 4. REPRESENTATIONS OF THE SELLING STOCKHOLDERS TO THE COMPANY............................................20
4.1 Authorization and Non-Contravention.................................................................20
4.2 Title to and Validity of Redemption Shares..........................................................21
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS...............................................................21
5.1 Satisfaction of Conditions..........................................................................21
5.2 Opinion of Counsel..................................................................................21
5.3 Authorization.......................................................................................21
5.4 Charter Amendment...................................................................................21
5.5 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇...................................................................................21
5.6 Delivery of Documents...............................................................................22
5.7 Stockholders Agreement..............................................................................22
5.8 Amended and Restated Rights Agreement...............................................................22
5.9 Releases............................................................................................22
5.10 Non-Competition Agreements.........................................................................22
5.11 No Material Adverse Change.........................................................................23
5.12 All Proceedings Satisfactory.......................................................................23
5.13 Investors' Fees....................................................................................23
5.14 No Violation or Injunction.........................................................................23
5.15 Consents and Waivers...............................................................................23
5.16 Election of Directors..............................................................................23
SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING STOCKHOLDERS.....................................24
6.1 Representations; Warranties; Covenants..............................................................24
6.2 Certain Agreements..................................................................................24
6.3 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇...................................................................................24
6.4 Funding.............................................................................................24
6.5 Releases............................................................................................24
6.6 No Violation or Injunction..........................................................................24
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED...........................................................24
7.1 Termination.........................................................................................24
7.2 Effect of Termination...............................................................................25
7.3 Right to Proceed....................................................................................25
SECTION 8. SURVIVAL; INDEMNIFICATION............................................................................25
8.1 Survival of Representations; Warranties and Covenants; Assignability of
Rights.........................................................................................25
8.2 Transaction Related Indemnification.................................................................26
8.3 Indemnification for Vicarious Liability.............................................................27
8.4 Notice; Payment of Losses; Defense of Claims........................................................29
[Stock Purchase and Redemption Agreement]
(ii)
8.5 Exclusive Remedy....................................................................................31
SECTION 10. DEFINITIONS.........................................................................................31
SECTION 10. GENERAL.............................................................................................33
10.1 Amendments, Waivers and Consents...................................................................33
10.2 Legend on Securities...............................................................................33
10.3 Governing Law......................................................................................33
10.4 Section Headings and Gender........................................................................33
10.5 Counterparts.......................................................................................33
10.6 Notices and Demands................................................................................34
10.7 Dispute Resolution.................................................................................34
10.8 Remedies; Severability.............................................................................35
10.9 Integration........................................................................................35
10.10 Greylock Fees.....................................................................................36
10.11 Waivers...........................................................................................36
[Stock Purchase and Redemption Agreement]
(iii)
EXHIBITS
Exhibit A - Selling Stockholders and Stock Ownership
Exhibit B - Investors
Exhibit C - Form of Amended and Restated Certificate of Incorporation
Exhibit D - Opinion of ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
Exhibit E - Opinion of ▇▇▇▇ and ▇▇▇▇ LLP
Exhibit F - Form of Stockholders Agreement
Exhibit G - Form of Amended and Restated Rights Agreement
Exhibit H - Form of Release Agreement
Exhibit I - Form of Non-Competition Agreement
SCHEDULES
DISCLOSURE SCHEDULE
Section 2.1 - Foreign Qualification
Section 2.4 - Capitalization
Section 2.5 - Subsidiaries; Investments
Section 2.6 - Financial Matters
Section 2.7 - Undisclosed Liabilities
Section 2.8 - Certain Developments
Section 2.9 - Accounts Payable
Section 2.10 - Transactions with Affiliates
Section 2.11 - Properties
Section 2.12 - Tax Matters
Section 2.13 - Certain Contracts and Arrangements
Section 2.14 - Intellectual Property Rights; Employee Restrictions
Section 2.15 - Litigation
Section 2.16 - Labor Matters
Section 2.17 - List of Certain Employees and Suppliers
Section 2.19 - Employee Benefit Programs
Section 2.21 - Insurance
Section 2.23 - Customers
Section 2.26 - Product and Service Warranties
Section 2.26 - Information
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT is made as of this 31st
day of December, 1998, by and among NetScout Systems, Inc., a Delaware
corporation (together with any predecessors or successors thereto as the context
requires, the "Company"), ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ (each a "Founder" and
together, the "Founders"), Greylock Equity Limited Partnership ("Greylock"), the
persons listed under the heading "Other Selling Stockholders" on the signature
page hereto (collectively, the "Other Selling Stockholders" and each
individually, an "Other Selling Stockholder") and the investors named in
EXHIBIT B attached hereto (collectively, the "Investors" and each
individually, an "Investor"). The Founders, Greylock and the Other Selling
Stockholders shall be referred to herein collectively as the "Selling
Stockholders" and each individually as a "Selling Stockholder." Except as
otherwise indicated herein, capitalized terms used herein are defined in
Section 9 hereof.
WHEREAS, the Founders are the holders of shares of the Company's Voting
Common Stock, $0.001 par value per share (the "Voting Common");
WHEREAS, Greylock is the holder of shares of the Company's Series A
Preferred Stock, $0.001 par value per share (the "Series A Preferred"), which
are convertible at the option of such holder into shares of the Company's
Non-Voting Common Stock, $0.001 par value per share (the "Non-Voting Common"),
in accordance with the terms of the Company's Amended and Restated Certificate
of Incorporation as in effect on the date hereof;
WHEREAS, the Other Selling Stockholders are the holders of shares or
options to purchase shares of the Company's Non-Voting Common Stock;
WHEREAS, the Company has authorized the issuance and sale to the
Investors of 6,977,254 shares of Class B Convertible Common Stock, $0.001 par
value per share (the "Class B Common"), having the rights and preferences set
forth in EXHIBIT C attached hereto for an aggregate purchase price of
$44,571,054; and
WHEREAS, the Company has agreed to redeem and the Founders, Greylock
and the Other Selling Stockholders severally have agreed to sell to the Company
shares of Voting Common, shares of Series A Preferred and shares of Non-Voting
Common in accordance with the terms and conditions contained herein (such shares
shall be referred to herein collectively as the "Redemption Shares"), for an
aggregate purchase price of $44,571,054 in accordance with the terms and
conditions contained herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. PURCHASE AND SALE; REDEMPTION
1.1 DESCRIPTION OF SECURITIES. As of the Closing Date (as defined in
Section 1.3 hereof), the Company's authorized capital stock consists of Voting
Common, Non-Voting Common, Class B Common and Series A Preferred, with the
rights, preferences and other terms set forth in EXHIBIT C attached hereto. For
purposes of this Agreement, the shares of Class B Common to be acquired by the
Investors from the Company hereunder are referred to as the "Class B Common
Shares" and the shares of Voting Common issuable upon conversion of the Class B
Common Shares are referred to as the "Conversion Shares" and the Class B Common
Shares and the Conversion Shares are sometimes referred to herein together as
the "Securities." The Company has authorized and reserved, and covenants to
continue to reserve, a sufficient number of shares of its Voting Common
necessary to satisfy the rights of conversion of the holders of Class B Common
as set forth in EXHIBIT C.
1.2 SALE AND PURCHASE; REDEMPTION. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, at the Closing (as defined in Section 1.3 hereof) each of
the Investors shall purchase from the Company, and the Company shall issue and
sell to each of the Investors, the number of Class B Common Shares set forth
opposite the name of such Investor in EXHIBIT B for the purchase price of
$6.388051 per share, or an aggregate of 6,977,254 Class B Common Shares for an
aggregate purchase price of $44,571,054 (the "Purchase Price"). Concurrently
therewith, the Company shall acquire from each of the Selling Stockholders, and
each of the Selling Stockholders shall sell to the Company, the number of
Redemption Shares set forth opposite the name of such Selling Stockholder in the
section of EXHIBIT A relating to such Selling Stockholder for an aggregate
redemption price of $44,571,054 (the "Redemption Price").
1.3 CLOSING. The closing of the purchase and sale of the Class B
Common Shares hereunder (the "Closing") shall take place at the offices of
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, located at Exchange Place, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇, at 10:00 a.m., Boston time, on the date (the "Closing Date") that
is three (3) business days after all of the conditions to Closing set forth in
Sections 5 and 6 hereof are satisfied or, if applicable, waived, or as otherwise
mutually agreed to by the Company, the Investors, the Founders and Greylock;
PROVIDED, that such date shall not be earlier than January 7, 1999. At the
Closing, (i) the Company shall issue and deliver stock certificates representing
the applicable number of Class B Common Shares to be sold by the Company
hereunder to each of the Investors, free and clear of all liens, claims,
options, charges, pledges, security interests, voting agreements, trusts,
encumbrances, rights or restrictions of any nature, except as contemplated by
this Agreement ("Liens"), (ii) each of the Selling Stockholders shall deliver to
the Company a stock certificate or certificates representing the Redemption
Shares to be sold by such Selling Stockholder hereunder, duly endorsed in blank
or accompanied by duly executed stock transfer powers, together with such
signature guarantees and such other documents as may be required by the Company
to effect a valid transfer to the Company of good title to such Redemption
Shares, free and clear of all Liens, (iii) each of the Investors shall pay to
the Company the Purchase Price as set forth opposite such Investor's name under
the column entitled "Purchase Price Paid at Closing" in EXHIBIT B hereto and
(iv) the Company shall pay to each of the Selling Stockholders the Redemption
Price as set forth opposite such Selling
[Stock Purchase and Redemption Agreement]
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Stockholder's name under the column entitled "Redemption Price to be Paid at
Closing" in the section of EXHIBIT A hereto relating to such Selling
Stockholder. Each Selling Stockholder shall be entitled access to only that
section of EXHIBIT A which sets forth information regarding such Selling
Stockholder, and shall not be entitled to any information on EXHIBIT A with
respect to the other Selling Stockholders. All payments hereunder shall be made
by wire transfer of next day available funds.
1.4 USE OF PROCEEDS BY THE COMPANY; REPAYMENT OF FOUNDER NOTES.
Subject to the terms and conditions contained herein, the proceeds from the sale
of the Class B Common Shares hereunder shall be used by the Company to
repurchase the Redemption Shares from the Selling Stockholders as set forth in
Sections 1.2 and 1.3 hereof. Immediately following the repurchase by the Company
of the Redemption Shares held by the Founders, the Founders shall use a portion
of the proceeds from such repurchase to pay in full the outstanding amounts due
to the Company under the promissory notes dated June 28, 1996 in the aggregate
original principal amount of $2,000,000.
1.5 TRANSFER TAXES. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Class B
Common Shares under this Agreement will be borne and paid by the Company and the
Company shall promptly reimburse the Investors for any such tax, fee or duty
which any of them is required to pay under applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING STOCKHOLDERS
In order to induce the Investors to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Company and each of
the Selling Stockholders hereby severally and not jointly makes to the Investors
as of the date hereof the representations and warranties contained in this
Section 2; provided, however, that (i) the Selling Stockholders identified with
an asterisk in EXHIBIT A attached hereto shall not make the representations and
warranties contained in Sections 2.4(a) and 2.17(a) hereof and (ii) Greylock
shall only make the representations and warranties contained in Sections 2.2 and
2.4(b) hereof (which representations of Greylock shall apply solely to Greylock
and not to the Company, any other Selling Stockholder or any other Person or
entity). Such representations and warranties are subject to the qualifications
and exceptions set forth in the disclosure schedule delivered to the Investors
pursuant to this Agreement (the "Disclosure Schedule"); PROVIDED, HOWEVER, that
any information set forth in a Section of the Disclosure Schedule shall not be
incorporated (unless by specific reference) to any other Section of the
Disclosure Schedule. For purposes hereof unless otherwise indicated, all
references to the Company shall include all Subsidiaries of the Company.
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and is duly qualified or registered to do business as a foreign
corporation (a) in each jurisdiction listed in SECTION 2.1 OF THE DISCLOSURE
SCHEDULE and (b) in each jurisdiction in which the failure to be so qualified or
registered would have a Material Adverse Effect. The Company has all required
corporate power and authority to carry on its business as presently conducted,
to enter into and perform this
[Stock Purchase and Redemption Agreement]
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Agreement and the agreements contemplated hereby to which it is a party and to
carry out the transactions contemplated hereby and thereby. The copies of the
Amended and Restated Certificate of Incorporation and By-laws of the Company, as
amended to date (the "Certificate of Incorporation" and "By-laws,"
respectively), which have been furnished to the Investors by the Company, are
correct and complete at the date hereof, and the Company is not in violation of
any term of its Certificate of Incorporation or By-laws.
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
(a) This Agreement and all documents executed pursuant hereto
are valid and binding obligations of the Company and, if applicable, such
Selling Stockholder, as the case may be, enforceable in accordance with their
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditor's rights generally, and as limited
by laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in Section 8.3 or in the Rights Agreement may be limited by
applicable federal or state securities laws, or public policy considerations.
The execution, delivery and performance of this Agreement and all agreements,
documents and instruments contemplated hereby, the sale and delivery of the
Class B Common Shares and, upon conversion of the Class B Common Shares, the
Conversion Shares, have been duly authorized by all necessary corporate or other
action of the Company. Such Selling Stockholder has full authority, power and
capacity to enter into this Agreement and all agreements, documents and
instruments contemplated hereby which are to be executed by such Selling
Stockholder.
(b) The execution of this Agreement, the sale and delivery of
the Class B Common Shares and, upon conversion of the Class B Common Shares, the
issuance of the Conversion Shares, and the performance of any transaction
contemplated hereby will not (i) violate, conflict with or result in a default
under any material contract or obligation to which the Company or such Selling
Stockholder is a party or by which the Company or such Selling Stockholder or
their assets are bound, or any provision of the Amended Charter or By-laws of
the Company, or cause the creation of any encumbrance upon any of the material
assets of the Company or such Selling Stockholder; (ii) violate or result in a
violation of, or constitute a default (whether after the giving of notice, lapse
of time or both) under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by any court or other governmental agency
applicable to the Company or such Selling Stockholder except for violations
which, individually or in the aggregate, would not have a Material Adverse
Effect; (iii) except as contemplated by Sections 5.4 and 5.5 hereof, require
from the Company any notice to, declaration or filing with, or consent or
approval of any governmental authority or other third party other than pursuant
to state securities or blue sky laws; or (iv) accelerate any obligation under,
or give rise to a right of termination of, any material agreement, permit,
license or authorization to which the Company or such Selling Stockholder is a
party or by which the Company or such Selling Stockholder is bound.
2.3 CORPORATE RECORDS. The corporate record books of the Company
accurately record all corporate action required by law to be taken by its
stockholders and board of directors
[Stock Purchase and Redemption Agreement]
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and committees. The copies of the corporate records of the Company, as made
available to the Investors or their counsel for review, are true and complete
copies of the originals of such documents.
2.4 CAPITALIZATION.
(a) As of the Closing and after giving effect to the
transactions contemplated hereby, the authorized capital stock of the Company
will consist of (i) 51,178,872 shares of Common Stock, of which (A) 33,589,436
shares shall be designated as Voting Common, of which 11,250,502 shares will be
issued and outstanding and 4,749,498 shares shall be held in treasury, (B)
10,612,182 shares shall be designated as Non-Voting Common, of which 2,901,220
shares will be issued and outstanding and 964,600 shares shall be held in
treasury, and (C) 6,977,254 shares shall be designated as Class B Common, all of
which will be issued and outstanding, and (ii) 631,579 shares of Series A
Preferred, of which 315,790 shares will be issued and outstanding and 315,789
shares shall be held in treasury. The outstanding shares of Voting Common,
Non-Voting Common and Series A Preferred are held beneficially and of record by
the persons identified in SECTION 2.4 OF THE DISCLOSURE SCHEDULE in the amounts
indicated thereon. SECTION 2.4 OF THE DISCLOSURE SCHEDULE sets forth the name of
each holder of options for Non-Voting Common, the number of shares that such
options are exercisable for with respect to each holder and the applicable
exercise price. Except as otherwise disclosed in SECTION 2.4 OF THE DISCLOSURE
SCHEDULE, there are no outstanding subscriptions, options, warrants,
commitments, preemptive rights, agreements, arrangements or commitments of any
kind for or relating to the issuance, or sale of, or outstanding securities
convertible into or exchangeable for, any shares of capital stock of any class
or other equity interests of the Company. Except as set forth in the Amended
Charter, the Company has no obligation to purchase, redeem, or otherwise acquire
any of its capital stock or any interests therein. As of the Closing, and after
giving effect to the transactions contemplated hereby, all of the outstanding
shares of capital stock of the Company will have been duly and validly
authorized and issued and will be fully paid and non-assessable and will have
been offered, issued, sold and delivered in compliance with applicable federal
and state securities laws and not subject to any preemptive rights which have
not been otherwise waived. The Company has duly and validly authorized and
reserved 6,977,254 shares of Voting Common for issuance upon conversion of the
Class B Common and the shares of Voting Common so issued will, upon conversion
as provided in the Amended Charter, be validly issued, fully paid and
non-assessable. As of the Closing, the relative rights, preferences and other
provisions relating to the Class B Common will be as set forth in EXHIBIT C
attached hereto. Except as otherwise disclosed in SECTION 2.4 OF THE DISCLOSURE
SCHEDULE, as of the Closing and after giving effect to the transactions
contemplated hereby, other than rights set forth herein or in the Amended
Charter or in the Rights Agreement or in the Stockholders Agreement, there are
(i) no preemptive rights, rights of first refusal, put or call rights or
obligations or anti-dilution rights imposed by or through the Company with
respect to the issuance, sale or redemption of the Company's capital stock, (ii)
no rights imposed by or through the Company to have the Company's capital stock
registered for sale to the public in connection with the laws of any
jurisdiction, and (iii) there are no documents, instruments or agreements,
relating to the voting of the Company's voting securities or restrictions on the
transfer of the Company's capital stock to which the Company is a party.
[Stock Purchase and Redemption Agreement]
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(b) Such Selling Stockholder is the sole legal and beneficial
owner of, and has good, valid and marketable title to, the shares of Voting
Common, Non-Voting Common and Series A Preferred, as applicable, set forth
opposite his or its name on the applicable section of EXHIBIT A attached hereto,
free and clear of any Liens.
2.5 SUBSIDIARIES; INVESTMENTS. Except as disclosed in SECTION 2.5 OF
THE DISCLOSURE SCHEDULE, the Company does not have and has not had any direct or
indirect Subsidiaries. Except as disclosed in SECTION 2.5 OF THE DISCLOSURE
SCHEDULE, neither the Company nor either of the Founders has a strategic
partnership or similar relationship with or owns or has any direct or indirect
interest in or control over any corporation, partnership, joint venture or other
entity of any kind, except for passive investments of less than 2% in
publicly-traded companies. The term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
2.6 FINANCIAL STATEMENTS; PROJECTIONS. Included in SECTION 2.6 OF THE
DISCLOSURE SCHEDULE are the following financial statements of the Company, all
of which statements (including the footnotes and schedules thereto) were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods covered thereby (subject, in the case of
unaudited financial statements, to normal, recurring adjustments that would be
made in the course of an audit and the absence of footnotes) and fairly present
the financial condition of the Company on the dates of such statements and the
results of their operations and cash flows for the periods covered thereby: (a)
audited balance sheets as of March 31, 1996, 1997 and 1998 and the related
statements of income and cash flows for the fiscal years then ended, certified
by the independent certified public accountants of the Company (the audited
balance sheet as of March 31, 1998 is hereafter referred to as the "Base Balance
Sheet"); and (b) an unaudited balance sheet as of October 31, 1998 (the "Most
Recent Balance Sheet") and the related statements of income and cash flows for
the period ended October 31, 1998 certified by the Vice President of Finance or
the Chief Financial Officer of the Company. The Company recognized all revenue
reflected in the financial statements with respect to fiscal years 1996 and 1997
relating to its software products in accordance with SOP 91-1 and with respect
to fiscal year 1998 relating to its software products in accordance with SOP
97-2. Nothing has come to the attention of the Company or such Selling
Stockholder since such respective dates which would indicate that such financial
statements were not true and correct in all material respects as of the date
thereof. Included in SECTION 2.6 OF THE DISCLOSURE SCHEDULE are projections for
fiscal years ending March 31, 1999 and 2000, which represent management's good
faith estimates of the Company's future financial performance based on
assumptions which are set forth therein and which management in good faith
believes were reasonable when made and continue to believe to be reasonable as
of the date hereof; PROVIDED, HOWEVER, that the foregoing is not a guarantee of
the future financial performance of the Company and actual financial performance
may vary significantly from such projections.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown (including, without
limitation, liabilities as guarantor or otherwise
[Stock Purchase and Redemption Agreement]
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with respect to obligations of others, or liabilities for Taxes due or then
accrued or to become due, regardless of whether claims in respect thereof had
been asserted as of such date), except liabilities or obligations (i) stated or
adequately reserved against in the Most Recent Balance Sheet or not required
under GAAP to be stated or reserved, (ii) incurred in the ordinary course of
business of the Company since the date of the Most Recent Balance Sheet and
which have not had a Material Adverse Effect or (iii) incurred as a result of or
arising out of the transactions contemplated under this Agreement.
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Since the date of the Most Recent
Balance Sheet through the date of this Agreement, the Company has conducted its
business only in the ordinary course consistent with past practice and, except
as contemplated herein or as set forth in SECTION 2.8 OF THE DISCLOSURE
SCHEDULE, there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of the Company, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had a Material Adverse Effect;
(b) any material mortgage, encumbrance or lien placed on any
of the properties of the Company;
(c) any material purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any properties or assets by the Company, including any of its Intellectual
Property Rights, other than in the ordinary course of business;
(d) any damage, destruction or loss to the Company's property
or assets, whether or not covered by insurance, which has had a Material Adverse
Effect;
(e) any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its own capital stock;
(f) any labor trouble or claim of unfair labor practices
involving the Company, any change in the compensation payable or to become
payable by the Company to any of its officers or employees other than normal
merit increases in accordance with its usual practices, or any bonus payment or
arrangement made to or with any of such officers or employees or any
establishment or creation of any employment (other than customary at-will
employment), deferred compensation or severance arrangement or employee benefit
plan with respect to such persons or the amendment of any of the foregoing;
(g) any change in the executive officers of the Company or
material loss of personnel of the Company or change in the terms and conditions
of the employment of the Company's executive officers or key personnel;
[Stock Purchase and Redemption Agreement]
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(h) any payment or discharge of a material lien or liability
of the Company which was not shown on the Most Recent Balance Sheet or incurred
in the ordinary course of business thereafter;
(i) any contingent liability incurred by the Company as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or monetary claim owing to, or waiver of any
material payment right of, the Company, including any write-off or compromise of
any accounts receivable, other than in the ordinary course of business;
(j) any obligation or liability incurred by the Company to any
of its officers, directors, stockholders or employees, or any loans or advances
made by the Company to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to
officers, directors or employees and except for loans or advances made by the
Company to its employees which are less than $10,000 individually and $50,000 in
the aggregate;
(k) any change in accounting methods or practices, collection
policies, pricing policies or payment policies of the Company, other than
changes not materially adverse to the Company;
(l) any loss, or to the knowledge of the Company or such
Selling Stockholder, any development that is reasonably likely to result in a
loss, of any significant supplier, customer, distributor or account of the
Company;
(m) any amendment or termination of any material contract or
agreement to which the Company is a party or by which it is bound;
(n) any arrangements relating to any royalty, dividend or
similar payment based on the sales volume of the Company, whether as part of the
terms of the Company's capital stock or by any separate agreement, other than
transactions in the ordinary course of business;
(o) any agreement with respect to the endorsement of the
Company's products or services, other than transactions in the ordinary course
of business;
(p) any transaction or agreement involving fixed price terms
or fixed volume arrangements, other than transactions in the ordinary course of
business;
(q) any other material transaction entered into by the Company
other than transactions in the ordinary course of business; or
(r) any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (q) above.
[Stock Purchase and Redemption Agreement]
-8-
2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE..
(a) All of the accounts receivable of the Company are valid
and enforceable claims, are subject to no set-off or counterclaim, and are fully
collectable in the normal course of business, after deducting the allowance for
doubtful accounts stated in the Most Recent Balance Sheet in accordance with
GAAP. Since the date of the Base Balance Sheet, the Company has collected its
accounts receivable in the ordinary course and in a manner which is consistent
with past practices and has not accelerated any such collections. Except as set
forth in SECTION 2.9(a) OF THE DISCLOSURE SCHEDULE, as of the date hereof, the
Company does not have any accounts receivable from any Person which is known by
the Company to be affiliated with it or any of its directors, executive
officers, employees or stockholders, except for loans or advances to employees
which are less than $10,000 individually and $50,000 in the aggregate.
(b) Except as set forth in SECTION 2.9(b) OF THE DISCLOSURE
SCHEDULE, all accounts payable and notes payable of the Company arose in bona
fide arms' length transactions in the ordinary course of business and no such
account payable or note payable which is material to the Company is delinquent
by more than sixty (60) days in its payment. Since the date of the Base Balance
Sheet, the Company has paid its accounts payable in the ordinary course and in a
manner which is consistent with its past practices. Except as set forth in
SECTION 2.9(b) OF THE DISCLOSURE SCHEDULE, as of the date hereof, the Company
has no account payable in excess of $10,000 individually or $100,000 in the
aggregate to any Person which is known by the Company to be affiliated with it
or any of its directors, officers, employees or stockholders.
2.10 TRANSACTIONS WITH AFFILIATES. Except for their ongoing, regular
employment relationships with the Company, the transactions contemplated by this
Agreement and the agreements related hereto, and as set forth in SECTION 2.10 OF
THE DISCLOSURE SCHEDULE, there are no loans, leases or other continuing
transactions between the Company and such Selling Stockholder or any present or
former stockholder, director, officer or employee of the Company, or, to the
knowledge of the Company and such Selling Stockholder, any member of such
Selling Stockholder's, officer's, director's, employee's or stockholder's
immediate family, or any person controlled by such Selling Stockholder, officer,
director, employee or stockholder or his or her immediate family. Except as set
forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE, no director, executive officer
or employee of the Company, any of their respective spouses or immediate family
members, owns directly or indirectly on an individual or joint basis any
interest in, or serves as an officer or director or in another similar capacity
of, any competitor, customer or supplier of the Company, or any organization
which has a material contract or arrangement with the Company. Except as set
forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE, neither such Selling
Stockholder nor any of his spouse or immediate family members, owns directly or
indirectly on an individual or joint basis any interest in, or serves as an
officer or director or in another similar capacity of, any competitor, customer
or supplier of the Company, or any organization which has a material contract or
arrangement with the Company.
2.11 TITLE TO PROPERTIES. The Company does not own any real property.
SECTION 2.11 OF THE DISCLOSURE SCHEDULE sets forth the addresses and uses of all
real property that the Company leases or subleases. The Company has good, valid
and (if applicable) marketable title to all of its
[Stock Purchase and Redemption Agreement]
-9-
assets, free and clear of all liens, restrictions or encumbrances and none of
such assets is subject to any mortgage, pledge, lien or conditional sale
agreement. Such assets constitute all property which is necessary to the
business of the Company and all equipment included therein is in good condition
and repair (ordinary wear and tear excepted) and all leases of real or personal
property to which the Company is a party are fully effective and afford the
Company peaceful possession of the subject matter of the lease and true and
complete copies thereof have been delivered to the Investors or their counsel.
The Company is not in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties which violation would have a Material Adverse
Effect, nor has it received any notice of such violation. There are no defaults
by the Company, or, to the knowledge of the Company and such Selling
Stockholder, by any other party, which might curtail in any material respect the
present use of the property of the Company. The performance by the Company of
this Agreement and the transactions contemplated hereby will not result in the
termination of, or in any increase of any amounts payable under, any of its
leases for real property or material liens for personal property or will require
the consent or approval from any other parties to such leases.
2.12 TAX MATTERS. The Company has timely and properly filed all
federal, state, local and foreign tax returns required to be filed by it through
the date hereof, and, subject to the following sentence, has paid or caused to
be paid all Taxes required to be paid by it through the date hereof whether
disputed or not, except Taxes which have not yet accrued or otherwise become
due. The provisions for Taxes in the Most Recent Balance Sheet are sufficient as
of its date for the payment of any accrued and unpaid Taxes of any nature of the
Company. All Taxes and other assessments and levies which the Company was or is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities. Except as set forth in SECTION
2.12 OF THE DISCLOSURE SCHEDULE, (i) the Company has never received notice of
any audit or of any proposed deficiencies from the Internal Revenue Service (the
"IRS") or any other taxing authority (other than routine audits undertaken in
the ordinary course and which have been resolved on or prior to the date
hereof); (ii) there are in effect no waivers of applicable statutes of
limitations with respect to any Taxes owed by the Company for any year; (iii)
neither the IRS nor any other taxing authority is now asserting or, to the
knowledge of the Company and such Selling Stockholder, threatening to assert
against the Company any deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith in respect of the income or sales
of the Company; and (iv) the Company has never been a member of an affiliated
group of corporations filing a combined federal income Tax return nor does the
Company have any liability for Taxes of any other Person under Treasury
Regulations ss.1.1502-6 (or any similar provision of foreign, state or local
law) or otherwise. The Company is not a party to any Tax allocation or sharing
arrangement. The Company is not a party to any contract, agreement, plan or
arrangement covering any employee or former employee thereof, that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or 162 of the Code. The Company is not a
"foreign person" within the meaning of Section 145 of the Code and Treasury
Regulations Section 1.1445-2.
[Stock Purchase and Redemption Agreement]
-10-
2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in
SECTION 2.13 OF THE DISCLOSURE SCHEDULE (with true and correct copies delivered
to the Investors), the Company is not a party or subject to or bound by:
(a) any contract or agreement involving potential commitment
or payment by the Company in excess of $200,000 or which is otherwise
material and not entered into in the ordinary course of business,
except for the leases described in Section 2.11;
(b) any contract, lease or agreement involving potential
commitment or payment by the Company in excess of $25,000 which is not
cancelable by the Company without penalty on not less than 60 days
notice, except for the leases described in Section 2.11 and purchase
orders, contracts and agreements in the ordinary course of business;
(c) any contract containing covenants directly or explicitly
limiting in any material respect the freedom of the Company to compete
in any line of business or with any person or entity;
(d) any contract or agreement involving potential commitment
or payment by the Company in excess of $25,000 relating to the
licensing, distribution, development, purchase, sale or servicing of
its software and hardware products, except for purchase orders,
contracts and agreements in the ordinary course of business;
(e) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing by the Company
or any pledge or security arrangement by the Company;
(f) any employment contracts, noncompetition agreements or
other agreements with officers, directors, employees or stockholders of
the Company or Persons related to or affiliated with such persons;
(g) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company,
including without limitation any agreement with any stockholder of the
Company which includes, without limitation, anti-dilution rights,
registration rights, voting arrangements or operating covenants;
(h) any pension, profit sharing, retirement or stock options
plans;
(i) any royalty, dividend or similar arrangement based on the
revenues or profits of the Company or any contract or agreement
involving fixed price or fixed volume arrangements not executed in the
ordinary course of business;
(j) any joint venture, partnership, manufacturer, development
or supply agreement, except any manufacturer, development or supply
agreement executed in the ordinary course of business;
-11-
[Stock Purchase and Redemption Agreement]
(k) any acquisition, merger or similar agreement; or
(l) any other material contract not executed in the ordinary
course of business.
All such contracts, agreements, leases and instruments are valid and
are in full force and effect and constitute legal, valid and binding obligations
of the Company, and are enforceable in accordance with their respective terms.
Neither the Company nor such Selling Stockholder has any knowledge of any notice
or threat to terminate any such contracts, agreements, leases or instruments
which termination would have a Material Adverse Effect. The Company is not in
violation of any term or provision of, or in default in complying with any
provisions of, any such contract, agreement, lease or instrument, and no
condition or event or fact exists which, with notice, lapse of time or both
would constitute a default thereunder on the part of the Company, except for any
such violation, default, condition, event or fact that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
2.14 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS. SECTION 2.14
OF THE DISCLOSURE SCHEDULE sets forth a complete list and brief description of
all Intellectual Property Rights owned by or registered in the name of the
Company or of which the Company is the licensor or licensee or in which the
Company has any material right (other than with respect to "off-the-shelf"
software which is generally commercially available).
Except as set forth in SECTION 2.14 OF THE DISCLOSURE SCHEDULE:
(a) The Company has exclusive ownership of, free and clear of
claims or rights of any other person, with full right to use, sell, license,
sublicense, dispose of, and bring actions for infringement of, or possesses
exclusive licenses or other rights to use, all Intellectual Property Rights
listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE, which rights are sufficient
for the conduct of its business as presently conducted or proposed to be
conducted (other than with respect to "off-the-shelf" software which is
generally commercially available). All Intellectual Property Rights that are
used or incorporated into the Company's products or products actively under
development and which are proprietary to the Company were developed by or for
the Company by the current or former employees, consultants or independent
contractors of the Company or its predecessors in interest or purchased by the
Company or its predecessors in interest and are owned exclusively by the
Company, free and clear of claims and rights of any other Person.
(b) The business of the Company as presently conducted and the
production, marketing, licensing, use and servicing of any products or services
of the Company do not infringe or conflict with any patent, trademark,
copyright, trade secret rights of any third parties or any other Intellectual
Property Rights of any third parties and the Company has not received written
notice from any third party asserting that any Intellectual Property Rights
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company and, to the knowledge of the
Company and such Selling Stockholder there is no valid basis for any such claim
(whether or not pending or threatened).
[Stock Purchase and Redemption Agreement]
-12-
(c) No claim is pending or, to the knowledge of the Company
and such Selling Stockholder, threatened against the Company or such Selling
Stockholders nor has the Company or such Selling Stockholder received any
written notice or other written claim from any Person asserting that any of the
Company's present or contemplated activities infringe or may infringe any
Intellectual Property Rights of such Person nor, to the knowledge of the Company
and such Selling Stockholder, is there a valid basis for any such claim (whether
or not pending or threatened), and neither the Company nor such Selling
Stockholder is aware of any infringement by any other Person of any rights of
the Company under any Intellectual Property Rights.
(d) All licenses or other agreements under which the Company
is granted Intellectual Property Rights (excluding licenses to use off-the-shelf
software utilized in the Company's internal operations and which is generally
commercially available) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE.
All such licenses or other agreements are in full force and effect, to the
knowledge of the Company and such Selling Stockholder, there is no material
default by any party thereto and, except as set forth in SECTION 2.14 OF THE
DISCLOSURE SCHEDULE, to the knowledge of the Company and such Selling
Stockholder, all of the rights of the Company thereunder are freely assignable.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to the Investors and neither the Company
nor such Selling Stockholder has any reason to believe that the licensors under
such licenses and other agreements do not have and did not have all requisite
power and authority to grant the Intellectual Property Rights purported to be
conferred thereby.
(e) All currently outstanding licenses or other agreements
involving amounts in excess of $200,000 or which are otherwise material under
which the Company has licensed Intellectual Property Rights to OEMs or has
licensed or made available source code to others (including all end-user
agreements) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE. All of said
licenses or other agreements are in full force and effect and, to the knowledge
of the Company and such Selling Stockholder, there is no material default by any
party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been made available to the
Investors or their counsel.
(f) To the knowledge of the Company and such Selling
Stockholder, the Company is not making unlawful use of any Intellectual Property
Rights of any other Person, including, without limitation, any former employer
of any past or present employees of the Company. Except as disclosed in SECTION
2.14 OF THE DISCLOSURE SCHEDULE, to the knowledge of the Company and such
Selling Stockholder, neither the Company nor any of its employees or consultants
has any agreements or arrangements with former employers of such employees or
consultants relating to any Intellectual Property Rights of such employers,
which materially interfere or conflict with the performance of such employee's
or consultant's duties for the Company or results in any former employers of
such employees and consultants having any rights in, or claims on, the Company's
Intellectual
[Stock Purchase and Redemption Agreement]
-13-
Property Rights. To the knowledge of the Company and such Selling
Stockholder, the activities of the Company's employees and consultants do not
violate any agreements or arrangements which any such employees have with former
employers which has had a Material Adverse Effect. The Company has taken steps
required in accordance with sound business practices to establish and preserve
its ownership of all of its Intellectual Property Rights; except as set forth in
SECTION 2.14 OF THE DISCLOSURE SCHEDULE, each current or former employee,
independent contractor or consultant of the Company who had or has
responsibility for coding the Company's products or who had or has access to
source code or other proprietary product information of a similar nature has
executed an agreement regarding confidentiality, proprietary information and
assignment of inventions and copyrights to the Company, and the Company has not
received notice that any employee, consultant or independent contractor is in
violation of any agreement or in breach of any agreement or arrangement with
former or present employers relating to proprietary information or assignment of
inventions. Without limitation of any of the foregoing and except as otherwise
expressly disclosed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE: (i) the Company
has taken all security measures required in accordance with sound business
practices to guard against unauthorized disclosure or use of any of its
Intellectual Property Rights; and (ii) neither the Company nor such Selling
Stockholder has any reason to believe that any Person (including, without
limitation, any former employee of the Company) has unauthorized possession of
any of its Intellectual Property Rights, or any part thereof, or that any Person
has obtained unauthorized access to any of its Intellectual Property Rights.
2.15 LITIGATION. Except as set forth in SECTION 2.15 OF THE DISCLOSURE
SCHEDULE, there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company and such Selling
Stockholder, threatened against the Company or affecting the properties or
assets of the Company, or, as to matters related to the Company, against any
officer, director or stockholder or key employee of the Company, nor, to the
knowledge of the Company and such Selling Stockholder, has there occurred any
event nor does there exist any condition on the basis of which any such valid
claim may be asserted; except in each case for litigation, proceedings,
investigations or claims which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. Since March 31, 1997,
no valid claim has been asserted against the Company for renegotiation or price
redetermination of any business transaction, except for any business transaction
involving less than $25,000. SECTION 2.15 OF THE DISCLOSURE SCHEDULE includes a
description of all known litigation, material claims, governmental proceedings
or governmental investigations involving the Company or any of its officers,
directors, stockholders or key employees in connection with the business of the
Company occurring, arising or existing during the past three (3) years.
2.16 LABOR MATTERS. As of the date hereof, the Company employs
approximately 195 full-time employees and five part-time employees and has
contracts with five independent contractors. The Company is not delinquent in
payments to any of its employees or independent contractors for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees or independent contractors. Except as set forth in SECTION 2.16 OF THE
DISCLOSURE SCHEDULE or as required by law, upon termination of the employment of
any of such employees or independent contractors, no severance or other payments
will become due. Except as set forth in SECTION 2.16 OF THE DISCLOSURE SCHEDULE,
the Company has no policy, practice, plan or program of paying severance pay or
any form of severance compensation in connection with the termination of
employment or services. The Company is and for the past three (3) years has been
in compliance in all material respects with all applicable laws and regulations
respecting labor,
[Stock Purchase and Redemption Agreement]
-15-
employment, fair employment practices, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination, sexual
harassment or unfair labor practices except as set forth in SECTION 2.16 OF THE
DISCLOSURE SCHEDULE, nor are there any strikes, slowdowns, stoppages of work, or
any other concerted interference with normal operations existing, pending or, to
the knowledge of the Company and such Selling Stockholder, threatened against or
involving the Company. There are no union organizing activities pending, or, to
the knowledge of the Company and such Selling Stockholder, threatened with
respect to the Company and no question concerning representation exists
respecting the employees of the Company. To the knowledge of the Company and
such Selling Stockholder, there are no grievances, complaints or charges that
have been filed under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might reasonably be expected to have a
Material Adverse Effect. No arbitration or similar proceeding is pending and, to
the knowledge of the Company and such Selling Stockholder, no claim therefor has
been asserted against the Company. To the knowledge of the Company and such
Selling Stockholder, no collective bargaining agreement is in effect or is
currently being or is about to be negotiated by the Company. The Company is, and
at all times the Company has been, in compliance in all material respects with
the requirements of the Immigration Reform Control Act of 1986. There are no
changes pending or, to the knowledge of the Company and such Selling
Stockholder, threatened with respect to (including, without limitation, the
resignation of senior management or any key employee or independent contractors
of the Company nor has the Company received any notice or information concerning
any prospective change with respect to such senior management, key employees or
independent contractors.
2.17 LIST OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) The Company has provided the Investors with a list of all
managers, employees, consultants, independent contractors, brokers and sales
persons of the Company who, individually, have received compensation for the
fiscal year ended March 31, 1998 in excess of $100,000, including the current
job title and aggregate annual compensation of each such individual.
(b) SECTION 2.17 OF THE DISCLOSURE SCHEDULE sets forth a list
of all suppliers and vendors of the Company to whom during the fiscal year ended
March 31, 1998 the Company made payments aggregating $250,000 or more, showing,
with respect to each, the name, address and dollar volume involved. Since March
31, 1997, no such supplier or vendor has canceled or otherwise terminated or
materially reduced its business with the Company or materially and adversely
modified its relationship with the Company nor to the knowledge of the Company
and such Selling Stockholder does any such supplier or vendor have any plan or
intention to do so.
2.18 PERMITS; COMPLIANCE WITH LAWS. The Company has all Permits
necessary to permit it to own its property and to conduct its business as it is
presently conducted or proposed to be conducted and all such Permits are valid
and in full force and effect, except where the failure to obtain such a Permit
would not have a Material Adverse Effect. No Permit is subject to termination as
a result of the execution of this Agreement or consummation of the transactions
[Stock Purchase and Redemption Agreement]
-15-
contemplated hereby. The Company is not in violation of any term or provision of
any judgment, decree, order, statute, rule or government regulation applicable
to it or to which it is a party and is now and has heretofore been in compliance
with all applicable statutes, ordinances, orders, rules and regulations
promulgated by any federal, state, municipal or other governmental authority,
which apply to the conduct of its business, except for violations which,
individually or in the aggregate, or where the failure to so comply, would not
have a Material Adverse Effect. The Company has never entered into or been
subject to any judgment, consent decree, compliance order or administrative
order with respect to any aspect of the business, affairs, properties or assets
of the Company or received any material request for information, notice, demand
letter, administrative inquiry or formal or informal complaint or claim from any
regulatory agency with respect to any aspect of the business, affairs,
properties or assets of the Company.
2.19 EMPLOYEE BENEFIT PROGRAMS..
(a) SECTION 2.19 OF THE DISCLOSURE SCHEDULE sets forth a list
of every Employee Program that has been maintained by the Company or to which
the Company has contributed at any time during the past three (3) years and (i)
is subject to ERISA, (ii) involves the issuance of options or other securities,
or (iii) is otherwise material.
(b) The terms and operation of each Employee Program comply in
all material respects with all applicable laws and regulations relating to such
Employee Program. There are no unfunded obligations of the Company under any
retirement, pension, profit-sharing, deferred compensation plan or similar
program. If required, each Employee Program which has been maintained by the
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code has received a favorable determination or opinion or
approval letter from the IRS regarding its qualification under such Section (or
an application for such a determination or opinion or approval letter is not yet
due to be filed with the IRS with respect to any "disqualifying provision"
within the meaning of Treasury Regulation, Section 1.401(b)-1 or has been timely
filed and is pending with the IRS) and has, in fact, been qualified under the
applicable Section of the Code from the effective date of such Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has occurred
which would cause any such Employee Program to lose its qualification under the
applicable Code section. The Company is not required to make any payments or
contributions to any Employee Program pursuant to any collective bargaining
agreement or any applicable labor relations law, and all Employee Programs are
terminable at the discretion of the Company without liability to the Company
upon or following such termination. The Company has never maintained or
contributed to any Employee Program providing or promising any health or other
nonpension benefits to terminated employees, other than as required by Code
Section 4980B.
2.20 ENVIRONMENTAL MATTERS. To the knowledge of the Company and such
Selling Stockholder, no hazardous wastes, substances or materials or oil or
petroleum products have been improperly generated, transported, used, disposed,
stored or treated by the Company and the Company has not caused any hazardous
wastes, substances or materials, or oil or petroleum products to have been
released, discharged, disposed, transported, placed or otherwise caused to
[Stock Purchase and Redemption Agreement]
-16-
enter the soil or water in, under or upon any real property owned, leased or
operated by the Company.
2.21 INSURANCE. The physical properties, assets, business, operations,
employees, officers and directors of the Company are insured by the Company, to
the extent disclosed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE. Except as set
forth in SECTION 2.21 OF THE DISCLOSURE SCHEDULE and claims for health care
benefits in the ordinary course, there is no material claim by the Company
pending under any such policies. Said insurance policies and arrangements are in
full force and effect, all premiums with respect thereto are currently paid, and
the Company is in compliance in all material respects with the terms thereof.
Said insurance is sufficient for compliance by the Company with all requirements
of applicable law and all agreements and leases to which it is a party and
otherwise is of the type and in amounts customarily carried by persons
conducting business similar to that conducted by the Company. Each such
insurance policy shall continue to be in full force and effect immediately
following consummation of the transactions contemplated by this Agreement. To
the knowledge of the Company and such Selling Stockholder, there is no
threatened termination of any such policies or arrangements.
2.22 INVESTMENT BANKING; BROKERAGE. There are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement payable by the Company or based
on any arrangement or agreement made by or on behalf of the Company or the
Selling Stockholders.
2.23 CUSTOMERS; RELATIONSHIP WITH CISCO SYSTEMS. SECTION 2.23 OF THE
DISCLOSURE SCHEDULE sets forth the name of each customer of the Company who
accounted for more than five percent (5%) of the revenues of the Company for the
fiscal year ended March 31, 1998 and for the seven month period ended October
31, 1998 (the "Customers"). To the knowledge of the Company and such Selling
Stockholder, the relationships of the Company with its Customers are good
commercial working relationships. Since March 31, 1997, except as set forth in
SECTION 2.23 OF THE DISCLOSURE SCHEDULE, no Customer of the Company has canceled
or otherwise terminated its relationship with the Company, or has decreased
materially its purchases of the services or products of the Company. No
Customer, has, to the knowledge of the Company and such Selling Stockholder, any
plan or intention to terminate, to cancel or otherwise materially and adversely
modify its relationship with the Company or to decrease materially or limit its
purchase or distribution of the services or products of the Company. To the
knowledge of the Company and such Selling Stockholder, as of the date hereof,
the Company has a good working commercial relationship with CISCO Systems, Inc.
("CISCO"). Since March 31, 1997, CISCO has not (i) canceled or otherwise
terminated its relationship with the Company, (ii) decreased in any material
manner its purchases of any of the Company's services or products or (iii)
otherwise renegotiated, modified or changed in any material and adverse manner
its relationship with the Company and the Company has no reasonable indication
that CISCO has any plan or intention to do any of the foregoing. Neither the
Company nor such Selling Stockholder makes any representation or warranty as to
the commercial relationship between the Company and CISCO after the date hereof.
[Stock Purchase and Redemption Agreement]
-17-
2.24 WARRANTY AND RELATED MATTERS. SECTION 2.24 OF THE DISCLOSURE
SCHEDULE sets forth a list of all outstanding product and service warranties and
guarantees on any of the products or services that the Company distributes,
services, markets, sells or produces for itself, a customer or a third party
(each such product or service shall be referred to herein as a "Company
Product"). There are no existing or, to the knowledge of the Company and such
Selling Stockholder, threatened in writing, product liability, warranty or other
similar claims against the Company alleging that any Company Product is
defective or fails to meet any product or service warranties except as set forth
in SECTION 2.24 OF THE DISCLOSURE SCHEDULE and to the extent of warranty
reserves. There are (a) no material inherent design defects or systemic or
chronic problems in any Company Product and (b) no liabilities for warranty or
other claims or returns with respect to any Company Product relating to any such
defects or problems.
2.25 SOLVENCY. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally.
2.26 YEAR 2000 COMPLIANCE. Except as set forth in SECTION 2.26 OF THE
DISCLOSURE SCHEDULE, to the knowledge of the Company and such Selling
Stockholder all computer software products that are (a) owned by the Company,
(b) exclusively licensed to the Company (other than "off-the-shelf" software
which is generally commercially available) or (c) currently licensed, sold or
otherwise distributed to others by the Company and embedded in the Company's
products (as opposed to products for which the Company is a reseller or a
distributor) (collectively, "Software") are Year 2000 Compliant, except to the
extent any failure has not had and could not reasonably be expected to have a
Material Adverse Effect. As used herein, "Year 2000 Compliant" shall mean with
respect to any such Software, the ability of such Software to perform the
following date-related functions: (i) consistently handle date information
before, during and after January 1, 2000, including, but not limited to,
accepting date input, providing date output and performing calculations on dates
or portions of dates; (ii) function accurately in accordance with the
documentation relating to the applicable software and without interruption
before, during and after January 1, 2000, without any change in operations
associated with the advent of the new century; (iii) respond to two-digit date
input in a way that resolves any ambiguity as to the century; and (iv) store and
provide output of date information in ways that are unambiguous as to century.
[Stock Purchase and Redemption Agreement]
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2.27 INFORMATION SUPPLIED BY THE COMPANY.
(a) This Agreement, the Disclosure Schedule and the
certificates and statements furnished pursuant to this Agreement by or on behalf
of the Company or such Selling Stockholder, together with all other information
provided by the Company and such Selling Stockholder to the Investors in
connection with the transactions contemplated hereby, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in the light of the
circumstances under which they were made. To the knowledge of the Company and
such Selling Stockholder, there is no material fact directly relating to the
business, operations or condition of the Company (other than facts which relate
to general economic or industry trends or conditions) that materially adversely
affects the same that has not been set forth in this Agreement or in the
Disclosure Schedule. To the knowledge of the Company or such Selling
Stockholder, except as disclosed in SECTION 2.27 OF THE DISCLOSURE SCHEDULE,
neither such Selling Stockholder nor any of the executive officers or directors
of the Company has been (a) subject to voluntary or involuntary petition under
the federal bankruptcy laws or any state insolvency law or the appointment of a
receiver, fiscal agent or similar officer by a court for his business or
property; (b) convicted in a criminal proceeding or named as a subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (c) subject to any order, judgment, or decree (not subsequently
reversed, suspended or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining him from, or otherwise imposing limits or
conditions on his, engaging in any securities, investment advisory, banking,
insurance or other type of business or acting as an officer or director of a
public company; or (d) found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state commodities, securities
or unfair trade practices law, which such judgment or finding has not been
subsequently reversed, suspended, or vacated.
(b) The Company or such Selling Stockholder has provided to,
or made available for inspection and copying by, the Investors and their counsel
true, correct and complete copies of all documents referred to in this Section 2
or in the Disclosure Schedule.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
As a material inducement to the Company and the Selling Stockholders to
enter into this Agreement and consummate the transactions contemplated hereby,
each Investor hereby makes to the Company and the Selling Stockholders the
representation and warranties contained in this Section 3.
3.1 INVESTMENT STATUS. Each Investor represents that it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "Securities Act"). Each Investor represents to the
Company that it is purchasing the Class B Common Shares for its own account, for
investment only and not with a view to, or any present intention of, effecting a
distribution of such securities or any part thereof except pursuant to a
registration or an available exemption under applicable law. Each such Investor
acknowledges that the Class
[Stock Purchase and Redemption Agreement]
-19-
B Common Shares have not been registered under the Securities Act or the
securities laws of any state or other jurisdiction and cannot be disposed of
unless they are subsequently registered under the Securities Act and any
applicable state laws or exemption from such registration is available.
3.2 AUTHORITY. Each Investor represents that it has full right,
authority and power under its charter, by-laws or governing partnership
agreement, as applicable, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action
required by law under such Investor's charter, by-laws or governing partnership
agreement, as applicable. This Agreement and each agreement, document and
instrument executed and delivered by each Investor pursuant to or as
contemplated by this Agreement constitute, or when executed and delivered will
constitute, valid and binding obligations of each of the Investors enforceable
in accordance with their respective terms.
3.3 INVESTMENT BANKING; BROKERAGE FEES. No Investor has incurred or
become liable for any broker's or finder's fee, banking fees or similar
compensation relating to or in connection with the transactions contemplated
hereby.
SECTION 4. REPRESENTATIONS OF THE SELLING STOCKHOLDERS TO THE COMPANY
In order to induce the Company to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Selling
Stockholders hereby severally and not jointly makes to the Company the
representations and warranties contained in this Section 4.
4.1 AUTHORIZATION AND NON-CONTRAVENTION. Such Selling Stockholder has
the legal power, right and authority to enter into and perform this Agreement
and all documents executed pursuant hereto to which such Selling Stockholder is
a party, and to perform each of his or its obligations hereunder. All action on
such Selling Stockholder's part required for the lawful execution and delivery
of this Agreement and all documents executed pursuant hereto to which such
Selling Stockholder is a party have been or will have been taken prior to the
Closing. The execution, delivery and performance by such Selling Stockholder of
this Agreement and all documents executed pursuant hereto to which such Selling
Stockholder is a party (a) require no action by or in respect of, or filing
with, or consent of, any governmental body, agency or official or any other
entity or individual on such Selling Shareholder's part and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Selling Stockholder. This Agreement and all
documents executed pursuant hereto to which the Selling Stockholder is a party
have been duly executed and delivered by such Selling Stockholder and constitute
a valid and binding obligation of such Selling Stockholder, enforceable in
accordance with their terms.
[Stock Purchase and Redemption Agreement]
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4.2 TITLE TO AND VALIDITY OF REDEMPTION SHARES. Such Selling
Stockholder is the sole record and beneficial owner of, and has good, valid and
marketable title to, the Redemption Shares to be sold by such Selling
Stockholder to the Company hereunder, free and clear of any and all Liens. Such
Selling Stockholder has full right, power, capacity and authority to sell,
transfer and deliver the Redemption Shares hereunder. Upon payment of the
Redemption Price by the Company for the Redemption Shares, the Company will
acquire good title to such Selling Stockholder's Redemption Shares, free and
clear of any and all Liens, other than those that may be imposed under Federal
or state securities laws.
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS
Each Investor's obligation to purchase and pay for the Class B Common
Shares to be purchased by it shall be subject to compliance by the Company and
the Selling Stockholders with the agreements herein contained and to the
fulfillment to the Investors' satisfaction, or the waiver by the Investors, on
or before and at the Closing Date of the following conditions:
5.1 SATISFACTION OF CONDITIONS. The representations and warranties of
the Company and the Selling Stockholders contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date and each
of the conditions specified in this Section 5 shall have been satisfied or
waived in writing by the Investors.
5.2 OPINION OF COUNSEL. The Investors shall have received from ▇▇▇▇▇,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP an opinion dated as of the Closing Date substantially
in the form attached hereto as EXHIBIT D and from ▇▇▇▇ and ▇▇▇▇ LLP an opinion
dated as of the Closing Date substantially in the form attached hereto as
EXHIBIT E.
5.3 AUTHORIZATION. The Board of Directors and stockholders of the
Company shall have duly adopted resolutions in the form reasonably satisfactory
to the Investors and shall have taken all action necessary for the purpose of
authorizing the Company to consummate all of the transactions contemplated
hereby (including, without limitation, the issuance of the Class B Common Shares
as contemplated by Section 1.2 hereof).
5.4 CHARTER AMENDMENT. The Company shall have duly and properly
authorized and filed with the Delaware Secretary of State the Amended Charter
which shall create the Class B Common, and the Amended Charter shall be in
effect as of the Closing Date on the terms set forth in EXHIBIT C hereto. The
Company shall have delivered to the Investors a copy of the Company's Amended
Charter certified as of a recent date by the Delaware Secretary of State.
5.5 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. All required filings under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇") shall have
been made and the waiting period specified in the HSR Act, including any
extensions thereof, shall have expired or otherwise terminated, and none of the
Company, the Selling Stockholders or the Investors shall be subject to any
injunction or temporary restraining order against consummation of the
transactions contemplated hereby.
[Stock Purchase and Redemption Agreement]
-21-
5.6 DELIVERY OF DOCUMENTS. The Company shall have executed and/or
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate Persons) the following:
(a) Certificates for the Class B Common Shares;
(b) Certificates issued by (i) the Secretary of State of the
State of Delaware certifying that the Company has legal existence and is in good
standing; (ii) the Secretary of State (or similar authority) of such
jurisdictions in which the Subsidiaries are incorporated certifying that each
Subsidiary has legal existence and is in good standing; and (iii) the Secretary
of State (or similar authority) of each jurisdiction in which each of the
Company and its Subsidiaries has qualified to do business as a foreign
corporation (or is required to be so qualified) as to such foreign
qualification;
(c) Certificates executed by the Chief Executive Officer of
the Company and each of the Selling Stockholders to the effect that the
representations and warranties of the Company and such Selling Stockholder made
hereunder, are true and correct in all material respects on and as of the
Closing Date shall have been delivered to the Investors;
(d) A certificate of the Secretary of the Company which shall
certify (i) the resolutions adopted by the Board of Directors and stockholders
as contemplated in Section 5.3 hereof, (ii) the Company's By-laws and (iii) the
names of the officers of the Company authorized to sign this Agreement and the
other documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers; and
(e) Such other supporting documents and certificates as the
Investors may reasonably request and as may be required pursuant to this
Agreement.
5.7 STOCKHOLDERS AGREEMENT. The Company, the Investors, the Founders
and Greylock shall have entered into the Stockholders Agreement in substantially
the form attached hereto as EXHIBIT F.
5.8 AMENDED AND RESTATED RIGHTS AGREEMENT. The Company, the Investors,
the Founders and Greylock shall have entered into the Rights Agreement in
substantially the form attached hereto as EXHIBIT G.
5.9 RELEASES. Each of the Selling Stockholders shall have executed and
delivered a Release Agreement in substantially the form of EXHIBIT H attached
hereto.
5.10 NON-COMPETITION AGREEMENTS. Each of the Founders shall have
entered into an agreement containing non-competition, non-solicitation,
invention assignment and confidentiality provisions with the Company
substantially in the form of EXHIBIT I hereto (the "Non-Competition Agreement").
[Stock Purchase and Redemption Agreement]
-22-
5.11 NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the financial condition, properties, assets,
liabilities, business or operations of the Company or any of its Subsidiaries
taken as a whole, whether or not in the ordinary course of business, nor any
material adverse change in the United States or world financial markets.
5.12 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and instruments related
thereto, shall be reasonably satisfactory in form and substance to the Investors
and the issuance and sale of the Class B Common Shares shall be made in
compliance with applicable federal and state laws.
5.13 INVESTORS' FEES. The Company shall have paid $165,000 in legal
fees and related expenses incurred by the Investors in connection with the
transactions contemplated by this Agreement. In the event that the transactions
contemplated under this Agreement are not consummated due to factors which are
not attributable to the Investors, the Company shall be obligated to reimburse
the Investors such fees and expenses incurred by such Investors.
5.14 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
5.15 CONSENTS AND WAIVERS. The Company and the Selling Stockholders
shall have made all filings with and notifications of governmental authorities,
regulatory agencies and other entities required to be made prior to the Closing
by such parties in connection with the execution and delivery of this Agreement,
the performance of the transactions contemplated hereby and the continued
operation of the business of the Company and its Subsidiaries subsequent to the
Closing. The Company, the Selling Stockholders and the Investors shall have
received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to the Investors, including any and all
notices, consents and waivers required from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and its Subsidiaries subsequent to the Closing and
the consummation of the transactions contemplated by this Agreement, and to
avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of, or in
connection with, the execution and performance of this Agreement.
5.16 ELECTION OF DIRECTORS. The Company shall have taken proper
corporate action to fix the size of the Board of Directors at five (5) members,
the members of which shall be as set forth in the Amended Charter, and two
designees of the holders of Class B Common shall have been elected as directors
of the Company (the "Investors' Nominees") in accordance with the terms of the
Amended Charter.
[Stock Purchase and Redemption Agreement]
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SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING
STOCKHOLDERS
The obligation of the Company and Selling Stockholders to consummate
this Agreement and the transactions contemplated hereby is subject to the
fulfillment, prior to or at the Closing, of the following conditions precedent:
6.1 REPRESENTATIONS; WARRANTIES; COVENANTS. The representations and
warranties of the Investors contained in Section 3 and the Selling Stockholders
contained in Section 4 shall be true and correct in all material respects on and
as of the Closing Date as though made on and as of the Closing and each of the
conditions specified in this Section 6 shall have been satisfied or waived in
writing by the Company, the Founders and Greylock.
6.2 CERTAIN AGREEMENTS. On the Closing Date, the Investors shall have
executed and delivered the Stockholders Agreement and the Rights Agreement.
6.3 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. All required filings under the HSR Act shall
have been contemplated and the waiting period specified in the HSR Act,
including any extensions thereof, shall have expired or otherwise terminated,
and none of the Company, the Selling Stockholders or the Investors shall be
subject to any injunction or temporary restraining order against consummation of
the transactions contemplated hereby.
6.4 FUNDING. The Company shall have received the full purchase price
for the Class B Common Shares.
6.5 RELEASES. Each of the Selling Stockholders shall have executed and
delivered a Release Agreement in substantially the form of EXHIBIT H attached
hereto.
6.6 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED
7.1 TERMINATION. At any time prior to the Closing, this Agreement may
be terminated as follows:
(a) by mutual written consent of the Company, the Investors,
Greylock and the Founders;
(b) by the Company, the Founders and Greylock, provided that
none of the Company, the Founders or Greylock is in material breach of this
Agreement, (i) if the Investors are in material breach of this Agreement and
such breach shall remain uncured for a period of ten
[Stock Purchase and Redemption Agreement]
-24-
(10) business days after such parties shall have given written notice of such
breach to the Investors, or (ii) if the Closing has not occurred on or before
February 15, 1999; or
(c) by the Investors, provided that the Investors are not in
material breach of this Agreement, (i) if any of the Company, the Founders or
Greylock is in material breach of this Agreement and such breach shall remain
uncured for a period of ten (10) business days after the Investors shall have
given written notice of such breach to such parties, or (ii) if the Closing has
not occurred on or before February 15, 1999.
7.2 EFFECT OF TERMINATION. All obligations of the parties hereunder
shall cease upon any termination pursuant to Section 7.1; PROVIDED, HOWEVER,
that (i) the provisions of Section 5.13 and this Section 7 hereof shall survive
any termination of this Agreement; (ii) nothing herein shall relieve any party
from any liability for any willful, material breach of this Agreement; and (iii)
any party may proceed as further set forth in Section 7.3 below.
7.3 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, (i) if any of the conditions specified in Section 5 hereof have
not been satisfied, the Investors shall have the right to proceed with the
transactions contemplated hereby without waiving any of their rights hereunder,
and (ii) if any of the conditions specified in Section 6 hereof have not been
satisfied, the Company and the Selling Stockholders shall have the right to
proceed with the transactions contemplated hereby without waiving any of their
rights hereunder.
SECTION 8. SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS; WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS. All covenants, agreements, representations and
warranties of the Company, the Selling Stockholders and the Investors made
herein and in the certificates or schedules or other written information
delivered or furnished to any Investor pursuant hereto in connection herewith
(a) are material, shall be deemed to have been relied upon by the party or
parties to whom they are made and shall survive the Closing, provided that the
representations and warranties of the Company and the Selling Stockholders made
in Section 2 hereof and in the certificates or schedules or other written
information delivered or furnished to the Investors pursuant hereto shall
survive until September 30, 1999, except for the last sentence of Section 2.2(a)
and Sections 2.4(b) and 2.12 hereof, which shall survive for the period set
forth in Section 8.2(b)(i) hereof, and in respect of Litigation Claims (as
defined herein), which shall survive for the period set forth in Section
8.2(b)(i) hereof, regardless of any investigation on the part of such party or
its representatives, and (b) shall bind the parties' successors and assigns
(including, without limitation, any successor to the Company by way of
acquisition, merger or otherwise), whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to their transferees of Securities, whether so
expressed or not.
[Stock Purchase and Redemption Agreement]
-25-
8.2 TRANSACTION RELATED INDEMNIFICATION.
(a) Each Selling Stockholder (other than Greylock) (on its
behalf and on behalf of its successors, executors, administrators, estate,
heirs, and assigns) (collectively, for the purposes of this Section 8, the
"Indemnifying Parties"), severally and not jointly, agrees to defend, indemnify
and hold the Investors, their affiliates and respective direct and indirect
partners (including partners of partners and stockholders and members of
partners), members, stockholders, directors, officers, employees, attorneys and
agents of each of the foregoing and each person who controls any of them within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (parties receiving the benefit of the indemnification agreement herein shall
be referred to collectively as "Indemnified Parties" and individually as an
"Indemnified Party") harmless from and against any and all damages, liabilities,
losses, obligations, deficiencies, actions, suits, proceedings, demands,
assessments, orders, judgments, fines, Taxes, penalties, costs and expenses
(including without limitation, reasonable fees of counsel, accountants or
consultants) of any kind or nature whatsoever ("Claims") (whether or not arising
out of third-party claims and including all amounts paid in defense or
settlement of the foregoing) which may be sustained or suffered by any such
Indemnified Party (a "Loss" or "Losses"), based upon, arising out of, by reason
of or otherwise in respect of (i) any inaccuracy in or breach of any
representation or warranty made by the Company and/or such Indemnifying Party in
this Agreement, or in any Schedule or certificate delivered by the Company or by
or on behalf of such Indemnifying Party as part of or pursuant to this
Agreement, or any claim, action or proceeding asserted or instituted or arising
out of any matter or thing covered by such inaccuracy in or breach of such
representations or warranties (collectively, the "Warranty Claims") or (ii) the
litigation matter described in Item 2 of SECTION 2.15 OF THE DISCLOSURE SCHEDULE
but only to the extent Losses related to such litigation matter exceed $200,000
(the "Litigation Claims"); PROVIDED, that Loss and Losses shall not include any
special, indirect, consequential or speculative damages. For purposes of
clarification, losses suffered or sustained by the Company shall not give rise
to indemnification hereunder unless to the extent the same results in a Loss to
an Indemnified Party.
(b) The right of Indemnified Parties to indemnification under
Section 8.2(a) shall be subject to the following provisions:
(i) Indemnification with respect to Warranty Claims
shall expire on September 30, 1999; PROVIDED, HOWEVER, that the
limitation of this clause (i) shall not apply to Warranty Claims
involving fraud or intentional misrepresentation or under the last
sentence of Section 2.2(a) and Sections 2.4(b) and 2.12 hereof
(collectively, the "Primary Warranty Claims"), for which the period for
making such claims shall expire on the date which is six (6) months
after the termination of the applicable statute of limitations relating
thereto. Following such respective dates, such representations and
warranties and, subject to the next sentence, Warranty Claims shall
expire. If prior to the relevant date of expiration a specific state of
facts shall have become known which may constitute or give rise to any
Warranty Claim as to which indemnity may be payable and an Indemnified
Party shall have given reasonable notice of such facts and Warranty
Claims to the Selling Stockholders then the right to indemnification
with respect thereto shall remain in effect solely to the extent stated
in the Warranty Claim without regard to when such matter shall
[Stock Purchase and Redemption Agreement]
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have been finally determined and disposed of, according to the date on
which notice of the applicable claim is given. Indemnification with
respect to Litigation Claims shall expire on the date which is six (6)
months after the date such Litigation Claims are finally settled in
writing or finally adjudicated and disposed of.
(ii) No indemnification shall be payable with respect
to Warranty Claims (other than Primary Warranty Claims) and/or
Litigation Claims unless the total of all Warranty Claims and/or
Litigation Claims exceeds $1,000,000 in the aggregate, whereupon the
full amount of such claims shall be recoverable in accordance with the
terms hereof.
(iii) No Indemnifying Party shall be obligated to
indemnify the Indemnified Parties for Warranty Claims (other than
Primary Warranty Claims) and/or Litigation Claims in an aggregate
amount which exceeds the lesser of (A) (x) the total amount received by
such Indemnifying Party pursuant to the redemption of such Indemnifying
Party's Redemption Shares as set forth in Sections 1.2 hereof less (y)
the sum of the aggregate amount of federal and state Taxes paid by such
Indemnifying Party with respect thereto and, in the case of ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ who have acquired or are
acquiring shares to be redeemed hereunder upon the exercise of stock
options, the aggregate exercise price thereof or (B) such Indemnifying
Party's pro rata share as set forth opposite such Indemnifying Party's
name in the section of EXHIBIT A relating to such Indemnifying Party
for such Warranty Claims (the aggregate amount payable under this
Section 8.2(b)(iii) shall be referred to as the "Maximum Warranty Claim
Amount").
(iv) The Indemnifying Parties identified with an
asterisk in EXHIBIT A attached hereto shall not be obligated to
indemnify the Indemnified Parties for Warranty Claims under Sections
2.4(a) and 2.17(a) hereof or with respect to Litigation Claims
hereunder.
(v) The amount of any Losses suffered, sustained,
incurred or required to be paid by any Indemnifying Party shall be
reduced (A) by the amount of any insurance proceeds paid as a result of
such Loss, (B) to take account of any Tax Benefit to the Indemnified
Party and (C) by the amount of any recoveries from third parties. As
used herein, the term "Tax Benefit" shall mean the Federal, state and
local tax savings that have resulted or will result from any tax
deduction or tax credit that (x) the Indemnified Party has claimed or
will claim on a Federal, state or local tax return and (y) is directly
attributable to such Loss.
8.3 INDEMNIFICATION FOR VICARIOUS LIABILITY.
(a) Without limitation of any other provision of this
Agreement but except with respect to matters governed by Section 8.2 hereof, the
Company agrees to defend, indemnify and hold each Investor and its direct and
indirect partners, members, agents and representatives (collectively, the
"Indemnitees" and individually an "Indemnitee") harmless from and against any
[Stock Purchase and Redemption Agreement]
-27-
and all losses, claims, damages, obligations, liens, assessments, judgments,
fines, liabilities, and other reasonable costs and expenses (including, without
limitation, interest, penalties and any reasonable legal and other expenses)
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted by any third party or governmental
agency based on so-called control person liability, including, without
limitation, in connection with any such third party or governmental action or
claim relating to any action taken or omitted to be taken or alleged to have
been taken or omitted to have been taken by any Indemnitee as director or
controlling person of the Company (including, to the extent not covered by the
Rights Agreement, any and all losses under the Securities Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise, which relates directly or indirectly to the registration, purchase,
sale or ownership of any securities of the Company or to any fiduciary
obligation owed with respect thereto); PROVIDED, HOWEVER, that the Company will
not be liable to the extent that such loss, claim, damage, obligation, lien,
assessment, judgment, fine, cost, expense or liability arises from and is based
on (A) an untrue statement or omission or alleged untrue statement or omission
in a registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company in an instrument
duly executed by or on behalf of such Indemnitee specifically stating that it is
for use in the preparation thereof, (B) a knowing and willful violation of the
federal securities laws by an Indemnitee, as finally determined by the
arbitrator selected pursuant to Section 10.7 hereof; (C) an Indemnitee's gross
negligence or willful misconduct as finally determined by the arbitrator
selected pursuant to Section 10.7 hereof; or (D) where an Indemnitee did not act
in good faith and in a manner in the best interests of the Company or, with
respect to a criminal matter, the Indemnitee's conduct was unlawful, in each
case as finally determined by the arbitrator selected pursuant to Section 10.7
hereof; and PROVIDED FURTHER, HOWEVER, that the Company shall have no
indemnification liability to the extent prohibited by law, including, without
limitation, the General Corporation Laws of Delaware.
(b) If the indemnification provided for in Section 8.3(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Investors in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations.
Each of the Company and the Investors agrees that it would not
be just and equitable if contribution pursuant to this Section 8.3(b) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be
[Stock Purchase and Redemption Agreement]
-28-
entitled to contribution from any person who was not found guilty of such
fraudulent misrepresentation.
(c) The indemnification and contribution provided for in this
Section 8.3 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnitees or any officer, director, partner,
member, employee, agent or controlling person of the Indemnitees. The Company
shall have the right to select counsel for the defense, subject to the consent
of a majority-in-interest of the Indemnitees, which consent shall not be
unreasonably withheld. If the Company assumes such defense in accordance with
the preceding sentence, it shall have the right, with the consent of a
majority-in-interest of the Indemnitees, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the Company's obligation to
indemnify such Indemnitees therefor will be fully satisfied by payment of money
by the Company and the settlement includes a complete release of such
Indemnitees. The Company shall provide such Indemnitees that information
regarding the status of the claim that is reasonably requested by such
Indemnitees. Notwithstanding anything herein stated, such Indemnitees shall at
all times have the right to reasonably participate in such defense at its own
expense directly or through counsel; PROVIDED, HOWEVER, if the named parties to
the action or proceeding include both the Company and the Indemnitees and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the reasonable expense of separate
counsel for such Indemnitees shall be paid by the Company to the extent
indemnification is required hereunder. If no such notice of intent to dispute
and defend is given by the Company, or if such diligent good faith defense is
not being or ceases to be conducted, such Indemnitees shall, at the expense of
the Company, undertake the defense of (with counsel selected by such
Indemnitees), and shall have the right to compromise or settle, such claim,
liability or expense. If such claim, liability or expense is one that by its
nature cannot be defended solely by the Company, then such Indemnitees shall
make available all information and assistance that the Company may reasonably
request and shall cooperate with the Company in such defense.
(d) The provisions of this Section 8.3 are in addition to and
shall supplement those set forth in the Rights Agreement.
(e) Except with respect to matters governed by Section 8.2
hereof, the Company agrees to pay and hold the Investors harmless against
liability for payment of all reasonable fees and disbursements of counsel in
connection with the enforcement, amendment, modification or waiver of this
Agreement and the agreements, documents and instruments contemplated hereby and
executed pursuant hereto.
8.4 NOTICE; PAYMENT OF LOSSES; DEFENSE OF CLAIMS.
(a) An Indemnified Party shall give written notice to the
Indemnifying Party promptly (with a copy to the Company), and in any event not
later than thirty (30) business days after assertion of any written claim by any
third party, specifying in reasonable detail the amount, nature and source of
the claim, and including therewith copies of any notices or other documents
received from third parties with respect to such claim; PROVIDED, HOWEVER, that
failure to give such
[Stock Purchase and Redemption Agreement]
-29-
notice shall not limit the right of an Indemnified Party to recover indemnity or
reimbursement except to the extent that the Indemnifying Party suffers any
prejudice as a result of such failure. The Indemnified Party shall also provide
the Indemnifying Party with such further information concerning any such claims
as the Indemnifying Party may reasonably request by written notice. In all
matters for which an Indemnified Party seeks indemnification under this
Agreement or defends, contests, settles or negotiates any related claim, such
Indemnified Party shall act in a manner consistent with that which a reasonably
prudent person with no access to indemnity would take to mitigate any Losses it
may suffer.
(b) Within forty-five (45) days after receiving notice of a
claim for indemnification or reimbursement, the Indemnifying Party shall, by
written notice to the Indemnified Party, either (1) concede or deny liability
for the claim in whole or in part, or (2) in the case of a claim asserted by a
third party, advise that the matters set forth in the notice are, or will be,
subject to contest or legal proceedings not yet finally resolved. If the
Indemnifying Party concedes liability in whole or in part, it shall, within ten
(10) business days of such concession, pay the amount of the claim to the
Indemnified Party to the extent of the liability conceded. Any such payment
shall be made in immediately available funds equal to the amount of such claim
so payable. If the Indemnifying Party denies liability in whole or in part or
advises that the matters set forth in the notice are, or will be, subject to
contest or legal proceedings not yet finally resolved, then the Indemnifying
Party shall make no payment until the matter is resolved in accordance with this
Agreement.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Indemnifying Party
or Parties give written notice to the Indemnified Party or Parties stating that
they would be liable under the provisions hereof for indemnity in the amount of
such indemnification claim if such indemnification claim were valid and that
they dispute and intend to defend against such indemnification claim, liability
or expense at their own cost and expense, then counsel for the defense shall be
selected by the Company or the Indemnifying Party or Parties (subject to the
consent of a majority-in-interest of the Indemnified Parties which consent shall
not be unreasonably withheld) and such Indemnified Party or Parties shall not be
required to make any payment with respect to such claim, liability or expense as
long as the Indemnifying Party or Parties are conducting a good faith and
diligent defense at their own expense; PROVIDED, HOWEVER, that the assumption of
defense of any such matters by the Indemnifying Party or Parties shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification and, PROVIDED, FURTHER, that the Indemnifying Party and the
Indemnified Party shall jointly control any claim which is reasonably likely to
involve damages or costs which are reasonably likely to cause the Maximum
Warranty Claim Amount to be exceeded. If the Indemnifying Party or Parties
assume such defense in accordance with the preceding sentence, they shall have
the right, with the consent of a majority-in-interest of the Indemnified
Parties, which consent shall not be unreasonably withheld, to settle all
indemnifiable matters related to claims by third parties which are susceptible
to being settled provided the Indemnifying Party or Parties' obligation to
indemnify such Indemnified Party or Parties therefor will be fully satisfied by
payment of money by the Indemnifying Party and the settlement includes a
complete release of such Indemnified Party or Parties. The Indemnifying Party or
Parties shall provide such Indemnified Party or Parties that information
regarding the
[Stock Purchase and Redemption Agreement]
-30-
status of the claim that is reasonably requested by the Indemnified Party or
Parties. Notwithstanding anything herein stated, such Indemnified Party or
Parties shall at all times have the right to reasonably participate in such
defense at its own expense directly or through counsel; PROVIDED, HOWEVER, if
the named parties to the action or proceeding include both the Indemnifying
Party or Parties and the Indemnified Party or Parties and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the reasonable expense of separate counsel for such
Indemnified Party or Parties shall be paid by the Indemnifying Party or Parties
to the extent indemnification is required hereunder. If no such notice of intent
to dispute and defend is given by the Indemnifying Party or Parties, or if such
diligent good faith defense is not being or ceases to be conducted, such
Indemnified Party or Parties shall, at the expense of the Indemnifying Party or
Parties, undertake the defense of (with counsel selected by such Indemnified
Party or Parties subject to the consent of the Indemnifying Party or Parties
which consent shall not be unreasonably withheld), and shall have the right to
compromise or settle, such claim, liability or expense (subject to the consent
of the Indemnifying Party or Parties which consent shall not be unreasonably
withheld). If such claim, liability or expense is one that by its nature cannot
be defended solely by the Indemnifying Party or Parties, then such Indemnified
Party or Parties shall make available all information and assistance that the
Indemnifying Party or Parties may reasonably request and shall cooperate with
the Indemnifying Party or Parties in such defense.
8.5 EXCLUSIVE REMEDY. The Indemnifying Parties and the Indemnified
Parties agree and acknowledge that subsequent to the Closing the indemnification
rights provided in this Section 8 shall be the exclusive remedy of the
Indemnified Parties against the Indemnifying Parties for breaches of this
Agreement and the schedules and certificates and other written information
delivered as part or pursuant to or in connection with this Agreement, and shall
be subject to the terms and conditions set forth herein, except with respect to
(a) Claims against any Selling Stockholder involving fraud or intentional
misrepresentations by such Selling Stockholder or (b) any equitable remedies to
which any party may be entitled hereunder. The Indemnifying Parties shall not
have any right of indemnity or contribution from the Company with respect to any
Claim hereunder.
SECTION 9. DEFINITIONS
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"AMENDED CHARTER" means the Company's Amended and Restated Certificate
of Incorporation in the form of EXHIBIT C hereto.
"CODE" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1979, as
amended, and the regulations promulgated thereunder.
[Stock Purchase and Redemption Agreement]
-31-
"EMPLOYEE PROGRAM" means any employee benefit or welfare plan, stock
option, bonus or incentive plan, severance pay policy or agreement, deferred
compensation agreement or any similar plan or agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property rights,
including all patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service ▇▇▇▇ applications, copyrights,
copyright applications, computer programs and other computer software
(including, without limitation, all source and object code, algorithms,
architecture, structure, display screens, layouts and development tools),
inventions, designs, samples, specifications, schematics, know-how, trade
secrets, proprietary processes and formulae, and development tools, promotional
materials, databases, customer lists, supplier, vendor and dealer lists and
marketing research, and all documentation and media constituting, describing or
relating to the foregoing, including without limitation, manuals, memoranda and
records.
"MATERIAL ADVERSE EFFECT" means any change or effect that is materially
adverse to the properties, assets, business, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries, taken as a whole.
"PERMITS" means any franchises, authorizations, approvals, orders,
consents, licenses, certificates, permits, registrations, qualifications or
other rights and privileges.
"PERSON" means any individual, corporation, partnership, joint venture,
trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"RIGHTS AGREEMENT" means the Amended and Restated Rights Agreement in
the form of EXHIBIT G hereto to be executed by the Company, the Founders,
Greylock and the Investors.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement in the form
of EXHIBIT F hereto to be executed by and among the Company, the Founders,
Greylock and the Investors.
"SUBSIDIARY" means any corporation more than 50% of the outstanding
voting securities of which, or any partnership, joint venture or other entity
more than 50% of the total equity interest of which, is directly or indirectly
owned by the Company or any other entity otherwise controlled by or under common
control with the Company; PROVIDED, that Frontier Software Development India
Pvt. Ltd. shall not be deemed to be a Subsidiary.
"TAXES" means any federal, state, local, foreign or other taxes,
including without limitation income taxes, estimated taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, employment and payroll
related taxes, withholding taxes, stamp taxes, transfer taxes and property
taxes, whether or not measured in whole or in part by net income.
[Stock Purchase and Redemption Agreement]
-32-
SECTION 11. GENERAL
11.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements executed pursuant hereto, no course of dealing
between or among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No provision hereof may be waived
otherwise than by a written instrument signed by the party or parties so waiving
such covenant or other provision. No amendment to this Agreement may be made
without the written consent of the Company, the Investors holding a majority of
the outstanding Class B Common Shares, the Founders and Greylock. Any actions
required to be taken or consents, approvals, votes or waivers required or
contemplated to be given by the Investors herein shall require a vote of a
majority of the Investors based on the relative holdings of capital stock of the
Company of the Investors as a group at the relevant time and any such action by
such percentage of Investors shall bind all of the Investors.
11.2 LEGEND ON SECURITIES. The Company, the Investors and the Selling
Stockholders acknowledge and agree that the following legend (or one
substantially similar thereto) shall be typed on each certificate evidencing any
of the securities issued hereunder held at any time by an Investor:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
11.3 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the
Commonwealth of Massachusetts, without giving effect to conflict of laws
principles thereof.
11.4 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
11.5 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
[Stock Purchase and Redemption Agreement]
-33-
11.6 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five (5) days after being sent
by certified or registered mail, postage and charges prepaid, return receipt
requested, or two (2) days after being sent by overnight delivery providing
receipt of delivery, to:
(a) if to the Company, c/o NetScout Systems, Inc., ▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other address designated
by the Company to the Investors and the other parties hereto in writing;
(b) if to the Selling Stockholders, at the mailing addresses
shown on EXHIBIT A attached hereto, or at such other address designated by a
Selling Stockholder to the Investors and the other parties hereto in writing;
and
(c) if to the Investors, at the mailing addresses as shown on
EXHIBIT B attached hereto, or at such other address designated by an Investor to
the Company and the Selling Stockholders in writing.
11.7 DISPUTE RESOLUTION. Except as provided below, any dispute
arising out of or relating to this Agreement or the breach, termination or
validity hereof shall be finally settled by binding arbitration conducted
expeditiously in accordance with the J.A.M.S./Endispute Comprehensive
Arbitration Rules and Procedures (the "J.A.M.S. Rules"). The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sections
1-16, and judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction thereof. The place of arbitration shall be
Boston, Massachusetts.
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(i) mandatory exchange of all relevant
documents, to be accomplished within
forty-five (45) days of the initiation of
the procedure;
(ii) no other discovery;
(iii) hearings before the neutral arbitrator which
shall consist of a summary presentation by
each side of not more than three (3) hours;
such hearings to take place on one or two
days at a maximum; and
(iv) decision to be rendered not more than ten
(10) days following such hearings.
[Stock Purchase and Redemption Agreement]
-34-
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 10.7 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court, and hereby waives and agrees not to seek any review by any court of
any other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its or his submission to
jurisdiction and its or his consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction.
11.8 REMEDIES; SEVERABILITY. Notwithstanding Section 10.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement, the Amended and Restated Co-Sale Agreement and the
Amended and Restated Rights Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
11.9 INTEGRATION. This Agreement, including the exhibits, documents
and instruments referred to herein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent dated November 8, 1998 between the Investors
and the Founders in respect of the transactions contemplated herein, other than
the "no-shop" provisions of such letter of intent that were extended by the
letter agreement, dated as of December 10, 1998, between the Investor and the
Founders, which such provisions and letter
[Stock Purchase and Redemption Agreement]
-35-
agreement shall survive the date of this Agreement until the earlier of the
Closing or termination of this Agreement.
11.10 GREYLOCK FEES. The Company shall pay the reasonable fees and
expenses of Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. and ▇▇▇▇ and ▇▇▇▇, LLP,
counsel to Greylock, in connection with the transactions contemplated by this
Agreement, provided that such fees and expenses shall not exceed $10,000 in the
aggregate.
11.11 WAIVERS. The Company hereby waives compliance by the Selling
Stockholders with any notice or other requirements under the Stockholders
Agreement dated as of January 1, 1994 with respect of the sale by the Selling
Stockholders of the Redemption Shares to the Company hereunder. Greylock hereby
waives compliance by the Company and the Selling Stockholders with any notice or
other requirements under the Series A Preferred Stock Purchase Agreement, the
Rights Agreement and the Co-Sale Agreement, each dated as of February 20, 1996.
[SIGNATURE PAGE FOLLOWS]
[Stock Purchase and Redemption Agreement]
-36-
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
and Redemption Agreement to be duly executed and delivered by their proper and
duly authorized representatives as of the day and year first above written.
THE COMPANY:
NETSCOUT SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, President
FOUNDERS:
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇
GREYLOCK:
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, General Partner
[Stock Purchase and Redemption Agreement]
-39-
OTHER SELLING STOCKHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
[Stock Purchase and Redemption Agreement]
-40-
INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC, its general
partner
By: TA Associates, Inc., its manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Principal
ADVENT ATLANTIC & PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P., its
general partner
By: TA Associates, Inc., its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Principal
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Principal
TA INVESTORS, LLC
By: TA Associates, Inc., its manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Principal
▇▇▇▇-MANAGED CAPITAL, L.P.
By: EMC Partners, L.P., its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, General Partner
[Stock Purchase and Redemption Agreement]
-41-