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STOCK PURCHASE AGREEMENT
by and between:
DIGITAL RIVER, INC.,
a Delaware corporation
and
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
an individual
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Dated as of April 1, 1999
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TABLE OF CONTENTS
PAGE
SECTION 1 DESCRIPTION OF TRANSACTION.........................................1
1.1 Conversion of Right; Deliveries at Closing.......................1
1.2 Earn-out.........................................................2
1.3 Resale Shelf.....................................................2
1.4 Further Action...................................................3
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE KEY
EMPLOYEE..................................................................3
2.1 Due Organization; Good Standing; No Subsidiaries.................3
2.2 Articles of Incorporation and Bylaws; Records....................3
2.3 Capitalization; Title to Shares..................................4
2.4 Financial Statements.............................................4
2.5 Absence of Changes...............................................5
2.6 Title to Assets..................................................6
2.7 Bank Accounts; Receivables.......................................7
2.8 Equipment; Leasehold.............................................7
2.9 Proprietary Assets...............................................7
2.10 Contracts........................................................9
2.11 Liabilities.....................................................10
2.12 Compliance with Legal Requirements..............................11
2.13 Governmental Authorizations.....................................11
2.14 Tax Matters.....................................................11
2.15 Employee and Labor Matters; Benefit Plans.......................13
2.16 Environmental Matters...........................................14
2.17 Insurance.......................................................15
2.18 Related Party Transactions......................................15
2.19 Legal Proceedings; Orders.......................................15
2.20 Customers.......................................................16
2.21 Material Relationships..........................................16
2.22 Sales Policies; Warranties......................................16
2.23 Brokers and Finders.............................................16
2.24 Authority; Binding Nature of Agreement..........................16
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE
2.25 Non-Contravention; Consents.....................................16
2.26 Full Disclosure.................................................18
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................18
3.1 SEC Filings; Financial Statements...............................18
3.2 Authority; Binding Nature of Agreement..........................18
3.3 Valid Issuance..................................................19
3.4 Brokers and Finders.............................................19
3.5 Full Disclosure.................................................19
SECTION 4 ADDITIONAL COVENANTS OF THE PARTIES...............................19
4.1 Filings and Consents............................................19
4.2 Public Announcements............................................19
SECTION 5 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER..................19
5.1 Accuracy of Representations.....................................19
5.2 Performance of Covenants........................................20
5.3 Consents........................................................20
5.4 Agreements and Documents........................................20
5.5 No Restraints...................................................20
5.6 No Legal Proceedings............................................20
SECTION 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE KEY EMPLOYEE...........21
6.1 Accuracy of Representations.....................................21
6.2 Performance of Covenants........................................21
6.3 Documents.......................................................21
6.4 No Restraints...................................................21
6.5 No Legal Proceedings............................................21
SECTION 7 INDEMNIFICATION...................................................21
7.1 Survival of Representations.....................................21
7.2 Indemnification by the Key Employee.............................22
7.3 Threshold; Ceiling..............................................23
7.4 Satisfaction of Indemnification Claim...........................23
7.5 No Contribution.................................................23
7.6 Defense of Third Party Claims...................................24
ii.
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.7 Exercise of Remedies by Indemnitees Other Than Purchaser........24
SECTION 8 MISCELLANEOUS PROVISIONS..........................................24
8.1 Further Assurances..............................................24
8.2 Fees and Expenses...............................................24
8.3 Attorneys' Fees.................................................25
8.4 Notices.........................................................25
8.5 Confidentiality.................................................25
8.6 Headings........................................................26
8.7 Counterparts....................................................26
8.8 Governing Law; Venue............................................26
8.9 Successors and Assigns..........................................26
8.10 Remedies Cumulative; Specific Performance.......................26
8.11 Waiver..........................................................26
8.12 Amendments......................................................27
8.13 Severability....................................................27
8.14 Entire Agreement................................................27
8.15 Construction....................................................27
iii.
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Escrow Agreement
Exhibit C - Form of Employment Agreement
Exhibit D - Investment Representation Letter
Exhibit E - Form of Release
Exhibit F - Form of Employee Proprietary Information Agreement
iv.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of
April 1, 1999, by and between DIGITAL RIVER, INC., a Delaware corporation
("Purchaser") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, a key employee (the "Key Employee") of
Maagnum Internet Group, Inc., a Connecticut corporation (the "Company").
Certain capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. Purchaser and the Company intend to effect a merger of the Company
with and into Purchaser in accordance with the Agreement and Plan of Merger by
and among Purchaser, the Company and Cyrus Maaghul, the Sole Shareholder of the
Company (the "Sole Shareholder") dated of even date herewith (the "Merger
Agreement"), the Delaware General Corporation Law and the Connecticut Business
Corporation Act (the "Merger"). The Merger shall become effective at 11:59 p.m.
on the day that such documents are filed with the Secretary of State of the
State of Delaware and the Secretary of State of the State of Connecticut (the
"Effective Time"). Upon consummation of the Merger, the Company will cease to
exist, and Purchaser will continue as the surviving corporation (the "Surviving
Corporation").
B. The Key Employee has the right, pursuant to an oral agreement with the
Sole Shareholder, to share in the value of the sale of the Company (the
"Right"). In lieu of exercising the Right in connection with the Merger, the
Key Employee and the Purchaser have agreed that at the Effective Time the Right
will convert into the right to receive up to 220,215 shares of the Common Stock
(par value $0.01 per share) of Purchaser ("Purchaser Common Stock").
Contemporaneously with the execution and delivery of this Agreement, the Key
Employee is executing and delivering to Purchaser an Employment Agreement of
even date herewith.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 CONVERSION OF RIGHT; DELIVERIES AT CLOSING.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of Purchaser or the Key Employee, the Right shall be
converted into the right to receive 220,215 shares of Purchaser Common Stock
(the "Stock Consideration").
(b) Notwithstanding anything to the contrary contained in this
Agreement, 195,158 shares of Stock Consideration to which the Key Employee is
entitled pursuant to Section 1.1(a) shall be deposited by Purchaser in Escrow
pursuant to the Escrow Agreement substantially in the form attached hereto as
Exhibit B (rather than issued and delivered to the Key Employee) at the
Effective Time, of which 2,784 shares will be retained in Escrow to secure the
Key Employee's indemnification obligations pursuant to Section 7 and 192,374
shares will be retained in Escrow to satisfy Purchaser's earn-out obligations to
the Key Employee as set forth in Section 1.2. The parties acknowledge that the
value of the Company will be difficult to
1.
determine at the time of Closing. As a result, the parties agree to use the
performance criteria set forth on Schedule A attached hereto to determine such
value and calculate the Key Employee's earn-out.
(c) At the Closing, the documents, certificates and instruments
described in Sections 6 and 7 shall be executed and delivered to the applicable
party and, subject to the satisfaction or waiver, if permissible, of the
conditions set forth in Section 6, and subject to the provisions regarding
Escrow set forth in Section 1.1(b), Purchaser shall deliver 25,057 shares of the
Stock Consideration to the Key Employee.
(d) At the Effective Time, the Employment Agreement between the Key
Employee and the Company dated as of November 1, 1997 shall automatically
terminate and have no further force or effect.
1.2 EARN-OUT.
(a) Promptly following the public release of Purchaser's financial
statements for the first quarter ended after the six month anniversary of the
Effective Time, subject to Purchaser's right of offset as set forth in Section
7.4, Purchaser shall cause the Escrow Agent to release from Escrow to the Key
Employee that number of shares of Stock Consideration as calculated in
accordance with Schedule A (the "First Tranche Shares"); PROVIDED, HOWEVER, that
10% of the First Tranche Shares shall remain in Escrow to secure the Key
Employee's indemnification obligations pursuant to Section 7.
(b) Promptly following the public release of Purchaser's financial
statements for the first quarter ended after the one year anniversary of the
Effective Time, subject to Purchaser's right of offset as set forth in Section
7.4, Purchaser shall cause the Escrow Agent to release from Escrow to the Key
Employee that number of shares of Stock Consideration as calculated in
accordance with Schedule A
(c) Promptly following the public release of Purchaser's financial
statements for the first quarter ended after the two year anniversary of the
Effective Time, subject to Purchaser's right of offset as set forth in Section
7.4, Purchaser shall cause the Escrow Agent to release from Escrow to the Key
Employee that number of shares of Stock Consideration as calculated in
accordance with Schedule A.
1.3 RESALE SHELF.
(a) On or before August 18, 1999, Purchaser shall file a registration
statement on Form S-3 ("Registration Statement") with the SEC for the public
sale by the Key Employee of the Stock Consideration not placed in Escrow
pursuant to Section 1.1(b). If the SEC decides not to review the Registration
Statement, Purchaser shall use commercially reasonable efforts to cause the
Registration Statement to become effective not later than seven days following
the SEC's communication of such no-review to Purchaser. If the SEC does review
the Registration Statement, Purchaser shall use commercially reasonable efforts
to cause the Registration Statement to become effective as soon as possible and
in any event no later than 75 days after the date of filing and to remain
effective for a period of 90 days following such date of effectiveness.
Purchaser shall pay all expenses in connection with the preparation and filing
of the Registration
2.
Statement, but in no event will Purchaser be obligated to pay the Key Employee's
underwriting discounts, if any.
(b) Notwithstanding the foregoing, Purchaser's obligation to file or
maintain the effectiveness of the Registration Statement shall be suspended for
a period of up to 60 days if Purchaser furnishes to the Key Employee a
certificate signed by the Chief Executive Officer of Purchaser stating that in
the good faith judgment of Purchaser it would be materially harmful to Purchaser
for such Registration Statement to be filed or maintained effective at such
time; PROVIDED, HOWEVER, that if the Registration Statement shall have already
been declared effective, then Purchaser shall maintain the effectiveness of the
Registration Statement for an additional period equal to the number of days
during which the effectiveness was suspended.
(c) During the effective period of the Registration Statement,
Purchaser agrees that the shares of Stock Consideration to be registered thereby
will be exempted from Purchaser's standard policies regarding restrictions on
employees' sale of Purchaser's securities as in effect at such time; PROVIDED,
HOWEVER, that the Key Employee will be subject to any restrictions on sale
imposed by applicable securities laws.
1.4 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Purchaser to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Purchaser
with full right, title and possession of and to all rights and property of the
Company, the officers and directors of the Surviving Corporation and Purchaser
shall be fully authorized to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE KEY EMPLOYEE
Except as set forth in the Disclosure Schedule with respect to
specifically identified subsections of this Section 2, the Key Employee
represents and warrants, to and for the benefit of the Purchaser Parties, as
follows:
2.1 DUE ORGANIZATION; GOOD STANDING; NO SUBSIDIARIES.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Connecticut and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Company Contracts.
(b) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction.
(c) The Company has no subsidiaries and the Company has never owned,
beneficially or otherwise, any shares or other securities of, or any direct or
indirect interest of any nature, in any entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Purchaser accurate and complete copies of: (a) the Company's
articles of incorporation and
3.
bylaws, including all amendments thereto; (b) the stock records of the Company;
and (c) the minutes and other records of the meetings and other actions or
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the shareholders of the Company, the board of directors of the
Company and all committees of the board of directors of the Company. There have
been no annual or special meetings or other actions or proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. The books of account, stock records, minute
books and other records of the Company are accurate, up-to-date and complete in
all material respects, and have been maintained in accordance with prudent
business practices.
2.3 CAPITALIZATION; TITLE TO SHARES.
(a) The authorized capital stock of the Company consists of 1,000
shares of Common Stock (par value $1.00 per share), of which 1,000 shares have
been issued and are outstanding and all of which shares are registered in the
name of the Sole Shareholder (the "Shares"). All of the Shares have been duly
authorized and validly issued, are fully paid and non-assessable and have been
issued in full compliance with all applicable securities laws and other
applicable legal requirements. The Sole Shareholder has, and at the Closing
will have, good and valid title to the Shares, and all of such Shares are free
and clear of all liens and other Encumbrances and legends (other than customary
securities law legends). The Sole Shareholder has delivered to Purchaser
accurate and complete copies of the stock certificate(s) representing such
shares.
(b) Except for the transactions contemplated by this Agreement, there
is no: (i) outstanding subscription, option, call, warrant or right (whether or
not currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; or (iii) Contract under which
the Company is or may become obligated to sell or otherwise issue any shares of
its capital stock or any other securities. The Company has never repurchased,
redeemed or otherwise reacquired any shares of capital stock or other securities
of the Company.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Purchaser the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The unaudited balance sheets of the Company as of December
31, 1997 and 1998, and the related unaudited income statements, statements of
shareholders' equity and statements of cash flows of the Company for the years
then ended, together with the notes thereto; and
(ii) the unaudited balance sheet of the Company as of
February 28, 1999 (the "Balance Sheet"), and the related unaudited income
statement of the Company for the two months then ended.
4.
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
the respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 2.4(a)(i)) cash flows of the
Company for the periods covered thereby. The Company Financial Statements have
been prepared in accordance with GAAP on a consistent basis throughout the
periods covered (except that the financial statements referred to in Section
2.4(a)(ii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate, be
material in magnitude).
2.5 ABSENCE OF CHANGES. Since the date of the Balance Sheet (the "Balance
Sheet Date"):
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects and, to the Knowledge of the Company and the Sole Shareholder, no
event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security, (ii) any option or right to acquire any
capital stock or any other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other entity;
(g) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since the
Balance Sheet Date, exceeds $20,000;
(h) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(i) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or leased
or licensed, any right or
5.
other asset to any other Person, or (iii) waived or relinquished any right,
except for immaterial rights or other immaterial assets acquired, leased,
licensed or disposed of in the ordinary course of business and consistent with
the Company's past practices;
(j) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(m) the Company has not (i) established or adopted any employee
benefit Plans (as such term is defined in Section 2.15(a)), (ii) paid any bonus
or made any profit-sharing or similar payment to, or increased the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, or
(iii) hired any new employee;
(n) the Company has not changed any of its methods of accounting or
accounting practices in any respect except as requested by Purchaser;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(q)" above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good, valid and marketable title to,
all assets purported to be owned by it, including: (i) all assets reflected on
the Balance Sheet; (ii) all assets referred to in Parts 2.7(b) and 2.9 of the
Disclosure Schedule and all of the Company's rights under the Contracts
identified in Part 2.10 of the Disclosure Schedule; and (iii) all other assets
reflected in the Company's books and records as being owned by the Company. All
of such assets are owned by the Company free and clear of any liens or other
Encumbrances, except for (x) any lien for current Taxes not yet due and payable,
and (y) minor liens that have arisen in the ordinary course of business and that
do not (in any case or in the aggregate) materially detract from the value of
the assets subject thereto or materially impair the operations of the Company.
6.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule identifies each account
maintained by or for the benefit of the Company at any bank or other financial
institution and the names of each Person authorized to access such account.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete report showing all accounts receivable, notes receivable and other
receivables of the Company as of the Balance Sheet Date. All existing accounts
receivable of the Company (including those accounts receivable reflected on the
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since the Balance Sheet Date and have not yet been collected)
(i) represent valid obligations of customers of the Company arising from bona
fide transactions entered into in the ordinary course of business, and (ii) are
current and collectible in full, subject to the reserve on the Balance Sheet.
None of the Company's accounts receivable is subject to any Encumbrance, offset,
setoff or counterclaim and neither of the Company nor the Sole Shareholder has
any Knowledge of any facts or circumstances that would give rise to any
Encumbrance.
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair as of the Closing Date (ordinary wear and
tear excepted) and are adequate for the conduct of the Company's business in the
manner in which such business is currently being conducted.
(b) Part 2.8 of the Disclosure Schedule identifies all real property
owned or leased by the Company.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $10,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. The Company has good, valid and
marketable title to all of the Company Proprietary Assets identified in Parts
2.9(a)(i) and 2.9(a)(ii) of the Disclosure Schedule, free and clear of all liens
and other Encumbrances, and has a valid right to use all Proprietary Assets
identified in Part 2.9(a)(iii) of the Disclosure Schedule. Part 2.9(a)(iv) of
the Disclosure Schedule sets forth
7.
all obligations of the Company to make any payment to any Person for the use of
any Company Proprietary Asset. The Company has not developed jointly with any
other Person any Company Proprietary Asset with respect to which such other
Person has any rights.
(b) The Company has taken all measures and precautions reasonably
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Part 2.9(b) of the Disclosure Schedule
identifies all Persons to whom the Company has disclosed or delivered or
permitted the disclosure or delivery of: (i) the source code, or any portion or
aspect of the source code, of any Company Proprietary Asset, or (ii) the object
code, or any portion or aspect of the object code, of any Company Proprietary
Asset, other than pursuant to license agreements identified in Part 2.10 of the
Disclosure Schedule.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. The Company is
not infringing, misappropriating or making any unlawful use of, and the Company
has not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
Knowledge of the Company and the Sole Shareholder, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other Person infringes or conflicts with, any Company
Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of the Company; and (ii)
there has not been any written claim or, to the Knowledge of the Company and the
Sole Shareholder, any other claim, by any customer or other Person alleging that
any Company Proprietary Asset (including each version thereof that has ever been
licensed or otherwise made available by the Company to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, and, to the Knowledge of the Company and the Sole
Shareholder, there is no basis for any such claim.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Part 2.9(e) of the
Disclosure Schedule sets forth (i) any license by the Company of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) any covenant
not to compete or Contract limiting the Company's ability to exploit fully any
of its Proprietary Assets or to transact business in any market or geographical
area or with any Person.
(f) Each computer program and other item of software that has been
designed, developed, sold, licensed or otherwise made available to any person or
entity by the Company is Year 2000 Compliant. To the Knowledge of the Company
and the Sole Shareholder each computer, computer program and other item of
software (whether installed on a computer or on
8.
any other piece of equipment, including firmware) that is owned, licensed or
used by the Company for its internal business operations is Year 2000 Compliant
other than as set forth on Part 2.9(f) of the Disclosure Schedule. Except as set
forth on Part 2.9(f) of the Disclosure Schedule, the Company and the Sole
Shareholder have no Knowledge of any Year 2000 Compliance issues with the
Company.
2.10 CONTRACTS.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, (C) to sell
any product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (D)
develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a
Contract with a Governmental Body;
(xi) any other Company Contract that has a term of more than
60 days and that may not be terminated by the Company (without penalty) within
60 days after the delivery of a termination notice by the Company; and
9.
(xii) any other Company Contract that contemplates or involves
(A) the payment or delivery of cash or other consideration in an amount or
having a value in excess of $10,000 in the aggregate, or (B) the performance of
services having a value in excess of $10,000 in the aggregate.
Contracts in the respective categories described in clauses "(i)" through
"(xii)" above are referred to in this Agreement as "Material Contracts."
(b) The Company has made available to Purchaser for inspection and
copying accurate and complete copies of all written Contracts identified in
Part 2.10 of the Disclosure Schedule, including all amendments thereto. The
Company has no material oral Contracts. Each Contract identified in Part 2.10 of
the Disclosure Schedule is valid and in full force and effect and, to the
Knowledge of the Company and the Sole Shareholder, is enforceable by the Company
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) to the Knowledge of the Company and the Sole Shareholder,
the Company has not violated or breached, or committed any default under, any
Company Contract, and, to the Knowledge of the Company and the Sole Shareholder,
no other Person has violated or breached, or committed any default under, any
Company Contract;
(ii) to the Knowledge of the Company and the Sole Shareholder,
no event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to,
(A) result in a violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Company Contract, (C) give any Person the right to accelerate
the maturity or performance of any Company Contract, or (D) give any Person the
right to cancel, terminate or modify any Company Contract;
(iii) to the Knowledge of the Company and the Sole Shareholder,
since December 31, 1996, the Company has not received any notice or other
communication regarding any actual or possible material violation or breach of,
or default under, any Company Contract; and
(iv) the Company has not knowingly waived any of its material
rights under any Material Contract.
2.11 LIABILITIES. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with GAAP, and whether due
or to become due), except for: (a) liabilities identified as such in the
"liabilities" column of the Balance Sheet; (b) accounts payable or accrued
salaries that have been incurred by the Company since the Balance Sheet Date in
the ordinary course of business and consistent with the Company's past
practices; (c) liabilities under the Company Contracts identified in Part 2.10
of the Disclosure Schedule, to the extent the nature and magnitude of such
liabilities can be specifically ascertained by
10.
reference to the text of such Company Contracts; and (d) tax liabilities
accruing in the ordinary course of business after the Balance Sheet Date.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. To the Knowledge of the Company
and the Sole Shareholder, (a) the Company is, and has at all times since
December 31, 1996 been, in compliance with all applicable Legal Requirements,
except where the failure to comply with such Legal Requirements has not had and
will not have a Material Adverse Effect on the Company and (b) except as set
forth in Part 2.12 of the Disclosure Schedule, since December 31, 1996, the
Company has not received any notice or other communication from any Governmental
Body regarding any actual or possible violation of, or failure to comply with,
any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Purchaser accurate and complete copies of all
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
The Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. To
the Knowledge of the Company and the Sole Shareholder, the Company is, and at
all times since December 31, 1996 has been, in substantial compliance with the
terms and requirements of the respective Governmental Authorizations identified
in Part 2.13 of the Disclosure Schedule. Since December 31, 1996, the Company
has not received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Purchaser accurate and complete copies of all Company
Returns filed since December 31, 1996 that have been requested by Purchaser.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. The Company will establish, in the ordinary
course of business and consistent with its past practices, reserves adequate for
the payment of all Taxes for the period from the Balance Sheet Date through the
Closing Date, and the Company will disclose the dollar amount of such reserves
to Purchaser on or prior to the Closing Date.
11.
(c) Part 2.14 of the Disclosure Schedule identifies all examinations
or audits of any Company Return. The Company has delivered to Purchaser
accurate and complete copies of all audit reports and similar documents (to
which the Company has access) relating to the Company Returns. Part 2.14 of the
Disclosure Schedule sets forth any extension or waiver of the limitation period
applicable to any of the Company Returns that has been granted to the Company or
has been requested by the Company.
(d) To the Knowledge of the Company and the Sole Shareholder: (i) no
claim or Legal Proceeding is pending or has been threatened against or with
respect to the Company in respect of any Tax; (ii) there are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document that are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established); (iii) there are
no liens for Taxes upon any of the assets of the Company except liens for
current Taxes not yet due and payable; (iv) the Company has not entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code;
and (v) the Company has not been, and the Company will not be, required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) To the Knowledge of the Company and the Sole Shareholder, there
is no agreement, plan, arrangement or other Contract covering any employee or
independent contractor or former employee or independent contractor of the
Company that, considered individually or considered collectively with any other
such Contracts, will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code. To the Knowledge of the Company and
the Sole Shareholder, the Company is not, and has never been, a party to or
bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract.
(f) At all times since the Company's inception through the Closing
Date, the Company has been an S corporation within the meaning of Section
1361(a)(1) of the Code and has used December 31 as its taxable year. The
Company and the Sole Shareholder have not taken any action that has or shall
result in the termination of the Company's status as an S corporation within the
meaning of Section 1361(a)(1) of the Code or imposition of a tax on the Company
under the provisions of Section 1374of the Code. The Company has not conducted
any business in any state or political subdivision in which the disposition of
any of its assets including goodwill in a transaction in which gain or income
would be realized would result in the imposition by that state or political
subdivision of a corporate level tax. The Company does not conduct any business
which is a historic business of, a continuation of, or successor to any business
which was previously conducted by another corporation or any other entity which
was subject to a United States corporate level tax on its gain or income
including a tax imposed by reason of the provisions of Section 1374 and 1375 of
the Code, or any predecessor provisions thereto. The Company has never acquired
any asset, including goodwill, the basis of which was determined in whole or in
part by reference to the basis of the asset in the hands of a C
12.
corporation within the meaning of Section 1361(a)(2) of the Code or S
corporation subject to the provisions of Section 1374 of the Code or
predecessor provisions thereto. The Company has no accumulated earnings and
profits. The Company's status as an S corporation will continue to be in effect
immediately prior to the time of the consummation of the transactions
contemplated hereby and the Sole Shareholder shall not take, and shall not cause
or permit the Company to take, any action inconsistent with the foregoing.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15 of the Disclosure Schedule lists each salary, bonus,
employee pension, profit sharing, deferred compensation, severance, cafeteria,
stock option, stock purchase, incentive, golden parachute, group or individual
medical and health benefits, welfare, insurance or other employee benefit plan,
program or arrangement regardless of whether such plan is described in Section 3
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(the "Plans") that is maintained by the Company or to which the Company is
required to contribute on behalf of employees of the Company, and the basis of
the Company's contributions. The Company's 401(k) Plan, and any other retirement
plan sponsored or contributed to by the Company that is intended to be a
qualified plan, is a qualified plan under Section 401(a) of the Code, has
received a current favorable determination letter from the Internal Revenue
Service or for which the Company has made application for a favorable
determination letter within the applicable time limits of Section 401(b) of the
Code, complies in all respects with ERISA and has been administered in
compliance with ERISA and the Code. With respect to each Plan listed in Part
2.15 of the Disclosure Schedule, the Company does not have any liability for any
failure to comply with ERISA or the Code or for any action or failure to act in
connection with the administration of such Plan. The Company does not sponsor
any Plan that is subject to Section 412 of the Code or Title IV of ERISA or is a
multiemployer plan, and no reportable event (as defined in Section 4043 of
ERISA) has occurred with respect to any Plan and no proceeding by the Pension
Benefit Guaranty Corporation ("PBGC") has been commenced to terminate any Plan.
The Company does not participate in, sponsor or contribute to a multiple
employer welfare arrangement ("MEWA"). No liability under the Plans exists
that, on or after the Closing Date, could subject the Company or the Surviving
Corporation to any liability or have any material adverse effect on the assets
of the Company or the Surviving Corporation, and no event has occurred which
might give rise to any such liability or which could subject the Company or the
Surviving Corporation to any such liability or have any material adverse effect
on the business, financial condition or results of operations of the Company or
the Surviving Corporation.
(b) In addition to, but not in limitation of, the foregoing, to the
Knowledge of the Company and the Sole Shareholder, (i) the Company has complied
in all respects with the continuation coverage rules of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA"); (ii) no nonexempt prohibited
transactions under the Code or ERISA have occurred with respect to any Plan; and
(iii) there are no current investigations or audits of any of the Plans by any
governmental agency, nor has the Company been notified in writing or orally of
such a pending investigation or audit. The Company has the power to amend or
terminate any of the Plans, or any contracts, related to the Plans, at any time
and with no penalty. No claim under ERISA has been filed with respect to any
Plan. The Company has made available to Purchaser copies of all Plan documents
and amendments thereto, trust agreements, contracts relating to the
13.
Plan administration, determination letter or, if none, application to the
Internal Revenue Service for a determination letter, all Form 5500s for the last
three years, including schedules and attachments, the most recent summary plan
descriptions and summaries of material modifications and the most recent annual
report.
(c) Except as set forth in Part 2.15(c) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former employee, consultant or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(d) Part 2.15(d) of the Disclosure Schedule contains a list of all
salaried employees and all consultants of the Company as of the date of this
Agreement, and correctly reflects, in all material respects, their salaries, any
other compensation payable to them (including compensation payable pursuant to
bonus, deferred compensation or commission arrangements), their dates of hire
and their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union or similar organization involving
any of its employees. All of the Company's employees are "at will" employees.
The Company has delivered to Purchaser accurate and complete copies of all
employee manuals and handbooks, policy statements and other materials relating
the employment of the Company's employees.
(e) Part 2.15(e) of the Disclosure Schedule identifies each employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(f) To the Knowledge of the Company and the Sole Shareholder, the
Company is in compliance in with all applicable Legal Requirements and Contracts
relating to employment, employment practices, wages, bonuses and terms and
conditions of employment, including employee compensation matters.
(g) Except as set forth in Part 2.15(g) of the Disclosure Schedule,
the Company and the Sole Shareholder believe that the Company has good labor
relations, and neither the Company nor the Sole Shareholder has any reason to
believe that (i) the consummation of the Merger or any of the other transactions
contemplated by this Agreement will have a Material Adverse Effect on the
Company's labor relations, or (ii) any of the Company's employees intends to
terminate his or her employment with the Company.
2.16 ENVIRONMENTAL MATTERS. To the Knowledge of the Company and the Sole
Shareholder, (a) the Company is in compliance in all material respects with all
applicable Environmental Laws, which compliance includes the possession by the
Company of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof, and (b) the Company has not received any notice or other communication
(in writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance with
14.
any Environmental Law, and, (c) there are no circumstances that may prevent or
interfere with the Company's compliance with any Environmental Law in the
future. To the Knowledge of the Company and the Sole Shareholder, no current or
prior owner of any property leased or controlled by the Company has received any
notice or other communication (in writing or otherwise), whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the
Company pursuant to Environmental Laws are identified in Part 2.16 of the
Disclosure Schedule.
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Purchaser accurate and complete copies of the insurance policies
identified on Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since December 31, 1996, the Company has not received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1996 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company;
(b) no Related Party is, or has at any time since December 31, 1996 been,
indebted to the Company; (c) since December 31, 1996, no Related Party has
entered into, or has had any direct or indirect financial interest in, any
material Contract, transaction or business dealing involving the Company; (d) no
Related Party is competing, or has at any time since December 31, 1996 competed,
directly or indirectly, with the Company; and (e) no Related Party has any claim
or right against the Company (other than rights to receive compensation for
services performed as an employee of the Company).
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the Knowledge of
the Company and the Sole Shareholder) no Person has threatened to commence any
Legal Proceeding: (i) that involves the Company or any of the assets owned or
used by the Company or any Person whose liability the Company has or may have
retained or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the Knowledge of the Company and the Sole
Shareholder, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) No Legal Proceeding has ever been commenced by or, to the
knowledge of the Company and the Sole Shareholder, has ever been pending against
the Company.
15.
(c) To the Knowledge of the Company and the Sole Shareholder, (i)
there is no order, writ, injunction, judgment or decree to which the Company, or
any of the assets owned or used by the Company, is subject and (ii) the Sole
Shareholder is not subject to any order, writ, injunction, judgment or decree
that relates to the Company's business or to any of the assets owned or used by
the Company. To the Knowledge of the Company and the Sole Shareholder, no
officer or other employee of the Company is subject to any order, writ,
injunction, judgment or decree that prohibits such officer or other employee
from engaging in or continuing any conduct, activity or practice relating to the
Company's business.
2.20 CUSTOMERS. Part 2.20 of the Disclosure Schedule sets forth the names
and amounts of the respective purchases for the twelve-month period ended on the
Balance Sheet Date for each of the 10 largest customers of the Company. Neither
the Company nor the Sole Shareholder is aware nor has any reason to believe that
any of the customers listed on Part 2.20 of the Disclosure Schedule has reduced
materially or terminated, or intends to reduce materially or to terminate, the
amount of its business with the Company. Part 2.20 of the Disclosure Schedule
lists the Company's order backlog as of the Balance Sheet Date.
2.21 MATERIAL RELATIONSHIPS. No supplier to or customer or distributor of
the Company has notified the Company of an intention to terminate or
substantially alter its existing business relationship with the Company, and
neither the Company nor the Sole Shareholder has any reason to believe that such
termination or alteration of the relationship with the Company is likely to
occur.
2.22 SALES POLICIES; WARRANTIES. Part 2.22 of the Disclosure Schedule
lists all sales or product fitness warranty policies of the Company. To the
Knowledge of the Company and the Sole Shareholder, no person or entity has
asserted or threatened to assert a claim for a breach of any such warranty
policy.
2.23 BROKERS AND FINDERS. None of the Company or any of its officers,
directors, employees or agents nor the Sole Shareholder has had dealings with
any broker or finder in such a way as to incur, or has otherwise incurred, any
liability for which the Company or the Surviving Corporation may ever be in any
way responsible with respect to any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
2.24 AUTHORITY; BINDING NATURE OF AGREEMENT. Each of the Company and the
Sole Shareholder has the absolute and unrestricted right, power and authority to
enter into and to perform its obligations under this Agreement; and the
execution, delivery and performance by the Company and the Sole Shareholder of
this Agreement has been duly authorized by all necessary corporate or other
action on the part of the Company and the Sole Shareholder, as applicable. This
Agreement constitutes the legal, valid and binding obligation of each of the
Company and the Sole Shareholder, enforceable against the Company and the Sole
Shareholder in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
2.25 NON-CONTRAVENTION; CONSENTS. To the Knowledge of the Company and the
Sole Shareholder, neither (1) the execution, delivery or performance of this
Agreement or any of the
16.
other agreements referred to in this Agreement, nor (2) the consummation of
the Merger or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's articles of incorporation or bylaws, or (ii) any
resolution adopted by the Sole Shareholder, the Company's board of directors or
any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract that is or
would constitute a Material Contract, or give any Person the right to
(i) declare a default or exercise any remedy under any such Company Contract,
(ii) accelerate the maturity or performance of any such Company Contract, or
(iii) cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as set forth in Part 2.25 of the Disclosure Schedule, to the knowledge of
the Company and the Sole Shareholder, the Company is not and will not be
required to make any filing with or give any notice to, or to obtain any Consent
from, any Person in connection with (x) the execution, delivery or performance
of this Agreement or any of the other agreements referred to in this Agreement,
or (y) the consummation of the Merger or any of the other transactions
contemplated by this Agreement.
17.
2.26 FULL DISCLOSURE. No representation or warranty by the Company or the
Sole Shareholder contained in this Agreement, and no statement contained in any
letter, certificate, schedule, exhibit, list or other writing furnished to
Purchaser by the Company or the Sole Shareholder in connection with the
transactions contemplated hereby contains any untrue statement of fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. All copies of all writings furnished to
Purchaser by the Company or the Sole Shareholder hereunder or in connection with
the transactions contemplated hereby are true and complete.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the Disclosure Schedule with respect to
specifically identified subsections of this Section 3, Purchaser represents and
warrants to the Key Employee as follows:
3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Purchaser has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Purchaser
with the SEC between January 1, 1998 and the date of this Agreement (the
"Purchaser SEC Documents"). As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the Purchaser SEC Documents complied in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act (as the case may be); and (ii) none of the Purchaser SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the Purchaser
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered, except as may be indicated in the notes to such financial
statements and (in the case of unaudited statements) as permitted by Form 10-Q
of the SEC, and except that unaudited financial statements may not contain
footnotes and are subject to year-end audit adjustments; and (iii) fairly
present the consolidated financial position of Purchaser and its subsidiaries as
of the respective dates thereof and the consolidated results of operations of
Purchaser and its subsidiaries for the periods covered thereby.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Purchaser has the absolute
and unrestricted right, power and authority to perform its obligations under
this Agreement; and the execution, delivery and performance by Purchaser of this
Agreement (including the contemplated issuance of the Stock Consideration in
accordance with this Agreement) has been duly authorized by all necessary action
on the part of Purchaser and its board of directors. No vote of Purchaser's
stockholders is needed to approve the Merger. This Agreement constitutes the
legal, valid and binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and
18.
the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.3 VALID ISSUANCE. The Stock Consideration to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
3.4 BROKERS AND FINDERS. None of Purchaser or any of its officers,
directors, employees or agents has had dealings with any broker or finder in
such a way as to incur, or has otherwise incurred, any liability for which the
Key Employee may ever be in any way responsible with respect to any brokerage
fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
3.5 FULL DISCLOSURE. No representation or warranty by Purchaser contained
in this Agreement, and no statement contained in any letter, certificate,
schedule, exhibit, list or other writing furnished to the Company or the Sole
Shareholder in connection with the transactions contemplated hereby contains any
untrue statement of fact or omits to state a material fact necessary in order to
make the statements contained herein or therein not misleading. All copies of
all writings furnished to the Company or the Sole Shareholder by Purchaser in
connection with the transactions contemplated by the Merger Agreement are true
and complete.
SECTION 4. ADDITIONAL COVENANTS OF THE PARTIES
4.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement.
4.2 PUBLIC ANNOUNCEMENTS. Neither the Company nor the Key Employee shall
(and the Company shall not permit any of its Representatives to) issue any press
release or make any public statement regarding this Agreement, the Merger
Agreement or the Merger, or regarding any of the other transactions contemplated
by this Agreement, without Purchaser's prior written consent.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Key Employee in this Agreement and in each of the other
agreements and instruments delivered to Purchaser in connection with the
transactions contemplated by this Agreement shall be accurate in all material
respects as of the date of this Agreement (without giving effect to any
19.
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained or incorporated directly or indirectly in such
representations and warranties).
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Key Employee is required to comply with or perform at or prior to the
Closing shall have been complied with and performed in all respects.
5.3 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.25 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
5.4 AGREEMENTS AND DOCUMENTS. Purchaser shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) an Escrow Agreement in the form of Exhibit B, executed by the Key
Employee;
(b) an Employment Agreement in the form of Exhibit C, executed by the
Key Employee;
(c) an Investment Representation Letter in the form of Exhibit D,
executed by the Key Employee;
(d) a Release in the form of Exhibit E, executed by the Key Employee;
(e) an Employee Proprietary Information Agreement in the form of
Exhibit F executed by the Key Employee;
(f) a certificate executed by the Key Employee and containing the
representation and warranty of the Key Employee that each of the representations
and warranties set forth in Section 2 is accurate in all respects as of the
Closing Date and that the conditions set forth in Sections 5.1, 5.2 and 5.3 have
been duly satisfied (the "Key Employee Closing Certificate"); and
(g) the Company and the Sole Shareholder shall have executed the
Merger Agreement and the applicable agreements and documents contemplated
thereby.
5.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
5.6 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger.
20.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE KEY EMPLOYEE
The obligations of the Key Employee to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, at or prior to
the Closing, of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Purchaser in this Agreement shall have been accurate in all
material respects as of the date of this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, contained or incorporated directly or indirectly in such
representations and warranties).
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Purchaser is required to comply with or perform at or prior to the Closing shall
have been complied with and performed in all respects.
6.3 DOCUMENTS. The Key Employee shall have received the following
documents:
(a) an Escrow Agreement in the form of Exhibit B, executed by
Purchaser; and
(b) an Employment Agreement in the form of Exhibit C, executed by
Purchaser; and
(c) a certificate executed by Purchaser and containing the
representation and warranty of Purchaser that each of the representations and
warranties set forth in Section 3 is accurate in all respects as of the Closing
Date and that the conditions set forth in Sections 6.1 and 6.2 have been duly
satisfied ( "Purchaser Closing Certificate").
6.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.5 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger.
SECTION 7. INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS.
(a) The representations and warranties made by the Key Employee
(including the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Key Employee Closing
Certificate) shall survive the Closing and continue in full force and effect for
a period of one year following the Closing Date; PROVIDED, HOWEVER, that if, at
any time prior to the one year anniversary of the Closing Date, any Indemnitee
(acting in good
21.
faith) delivers to the Key Employee a written notice alleging the existence of
an inaccuracy in or a breach of any of the representations and warranties made
by the Key Employee (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 7.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive beyond the one year period
following the Closing Date until such time as such claim is fully and finally
resolved; and PROVIDED, FURTHER, that the representations and warranties set
forth in Section 2.14 shall survive until the applicable statute of limitations.
All representations and warranties made by Purchaser (including the
representations and warranties set forth in Section 3 and the representations
and warranties set forth in the Purchaser Closing Certificate) shall survive the
Closing and continue in full force and effect for a period of one year following
the Closing Date; PROVIDED, HOWEVER, that if, at any time prior to the one year
anniversary of the Closing Date, the Key Employee (acting in good faith)
delivers to Purchaser a written notice alleging the existence of an inaccuracy
in or a breach of any of the representations and warranties made by Purchaser
(and setting forth in reasonable detail the basis for belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery based on such
alleged inaccuracy or breach, then the claim asserted in such notice shall
survive beyond the one year period following the Closing Date until such time as
such claim is fully and finally resolved.
(b) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Key Employee in this Agreement.
7.2 INDEMNIFICATION BY THE KEY EMPLOYEE.
(a) From and after the Effective Time (but subject to Section
7.1(a)), the Key Employee shall hold harmless and indemnify each of the
Indemnitees from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 or in the Key Employee Closing
Certificate; (ii) any breach of any covenant or obligation of the Key Employee;
or (iii) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)" or "(ii)" above (including any Legal Proceeding
commenced by any Indemnitee for the purpose of enforcing any of its rights under
this Section 7).
(b) The Key Employee acknowledges and agrees that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Purchaser shall also
be deemed, by virtue of its ownership of the stock of the Surviving Corporation,
to have incurred Damages as a result of and in connection with such inaccuracy
or breach.
22.
7.3 THRESHOLD; CEILING.
(a) The Key Employee shall not be required to make any
indemnification payment pursuant to Section 7.2(a) for any inaccuracy in or
breach of any of their representations and warranties set forth in Section 2 (in
the absence of fraud) until such time as the total amount of all Damages
(including the Damages arising from such inaccuracy or breach and all other
Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds $50,000 in the
aggregate. If the total amount of such Damages exceeds $50,000, then the
Indemnitees shall be entitled to be indemnified against and compensated and
reimbursed for all of such Damages, including claims for Damages included in the
initial $50,000. Notwithstanding the foregoing, the Key Employee shall indemnify
the Indemnitees for any Damages in connection with the ▇▇▇▇▇ ▇▇▇ dispute
described in Part 2.12 of the Disclosure Schedule without regard to any dollar
threshold.
(b) The maximum liability, including expenses, third party claims and
attorneys' fees, of the Key Employee under Section 7.2(a) for breaches of the
representations and warranties set forth in Section 2 shall be equal to 50% of
the value of the aggregate Stock Consideration received or earned by the Key
Employee.
7.4 SATISFACTION OF INDEMNIFICATION CLAIM.
(a) If an assertion of indemnification is made by any Indemnitee on
or prior to the one year anniversary of the Closing Date, the Escrow Agent shall
retain up to that number of shares of escrowed stock that is equal in value to
50% of that number of shares of Stock Consideration received or earned by the
Key Employee, which shares shall be valued based on the average closing price of
the Purchaser Common Stock as reported by Nasdaq for the 10 trading days
preceding such assertion. Such shares will be retained by the Escrow Agent
until all Indemnitees that have presented claims for Damages to the Key Employee
shall have agreed to or settled with the Key Employee on the amount due to such
Indemnitees, if any.
(b) Subject to the limitations set forth in Section 7.3(b), in the
event the Key Employee has any liability (for indemnification or otherwise) to
any Indemnitee under this Section 7, the Key Employee shall satisfy such
liability first, by delivering from Escrow to such Indemnitee the number of
shares of Purchaser Common Stock determined by dividing (a) the aggregate dollar
amount of such liability by (b) the average closing price of the Purchaser
Common Stock as reported by Nasdaq for the 10 trading days preceding the
assertion of such liability, and second, to the extent shares of Purchaser
Common Stock are not available in Escrow to satisfy such liability, then such
difference in cash.
7.5 NO CONTRIBUTION. The Key Employee waives, and acknowledges and agrees
that he shall not have and shall not exercise or assert (or attempt to exercise
or assert), any right of contribution, right of indemnity or other right or
remedy against the Surviving Corporation as successor in interest to the Company
in connection with any indemnification obligation or any other liability to
which he may become subject under or in connection with this Agreement or the
Key Employee Closing Certificate.
23.
7.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Purchaser or against any other Indemnitee) with
respect to which the Key Employee would be obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 7,
Purchaser shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own. If Purchaser so proceeds with the
defense of any such claim or Legal Proceeding:
(a) subject to the provisions of Section 7.3, all reasonable expenses
relating to the defense of such claim or Legal Proceeding shall be borne and
paid exclusively by the Key Employee;
(b) the Key Employee shall make available to Purchaser any documents
and materials in his possession or control that may be necessary to the defense
of such claim or Legal Proceeding;
(c) Purchaser shall reasonably consult with and inform the Key
Employee of the progress of such defense; and
(d) Purchaser shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Key Employee; PROVIDED,
HOWEVER, that such consent shall not be unreasonably withheld.
Purchaser shall give the Key Employee prompt notice of the commencement of any
such Legal Proceeding against Purchaser or the Surviving Corporation; PROVIDED,
HOWEVER, that any failure on the part of Purchaser to so notify the Key Employee
shall not limit any of the obligations of the Key Employee under this Section 7
(except to the extent such failure materially prejudices the defense of such
Legal Proceeding).
7.7 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER. No
Indemnitee (other than Purchaser or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Purchaser (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
8.2 FEES AND EXPENSES. Whether or not the Merger is consummated, each
party to this Agreement shall bear and pay all fees, costs and expenses
(including legal fees and accounting fees) that have been incurred or that are
incurred by such party in connection with the transactions contemplated by this
Agreement.
24.
8.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
8.4 NOTICES. All notices and other communications required or permitted
under this Agreement and the transactions contemplated hereby shall be in
writing and shall be deemed to have been duly given, made and received on the
date when delivered by hand delivery with receipt acknowledged, or upon the next
"Business Day" (meaning a day, other than a Saturday or a Sunday, or a federal
holiday upon which offices of the federal government are not open for business)
following receipt of facsimile transmission, or upon the fifth day after deposit
in the United States mail, registered or certified with postage prepaid, return
receipt requested, addressed as set forth below:
(a) If to Purchaser or the Surviving Corporation:
DIGITAL RIVER, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (not constituting notice) to:
▇▇▇▇▇▇ GODWARD LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to the Key Employee:
MAAGNUM INTERNET GROUP, INC.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may alter the address to which its communications are to be sent by
giving notice of such change in conformity with the provisions of this Section
8.4 for the giving of notice.
8.5 CONFIDENTIALITY. On and at all times after the Closing Date, the Key
Employee shall keep confidential, and shall not use or disclose to any other
Person, any non-public
25.
document or other non-public information in such Key Employee's possession that
relates to the business of the Company or Purchaser.
8.6 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
8.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
8.8 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of Minnesota
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in the courts of any court located in Hennepin County,
Minnesota. Each party to this Agreement expressly and irrevocably consents and
submits to the jurisdiction of each court located in Hennepin County, Minnesota
(and each appellate court located in Hennepin County, Minnesota) in connection
with any such legal proceeding.
8.9 SUCCESSORS AND ASSIGNS. Purchaser may freely assign any or all of its
rights under this Agreement (including its indemnification rights under Section
7), in whole or in part, to any other Person without obtaining the consent or
approval of any other party hereto or of any other Person. The rights and
obligations of the Key Employee may not be assigned by the Key Employee without
the prior written consent of Purchaser. Subject to the foregoing, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and assigns.
8.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies of
the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision and (b) an injunction restraining such breach or threatened breach.
8.11 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or
26.
remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
8.12 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
8.13 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
8.14 ENTIRE AGREEMENT. This Agreement, the Schedules, Exhibits,
instruments and the other agreements referred to herein set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior agreements and understandings among or between
any of the parties relating to the subject matter hereof and thereof.
8.15 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
27.
The parties hereto have caused this Agreement to be executed and delivered
as of April 1, 1999.
DIGITAL RIVER, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
"ACQUISITION TRANSACTION" shall mean any transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company, (ii) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any capital stock or other
equity security of the Company, or (iii) any security, instrument or obligation
that is or may become convertible into or exchangeable for any capital stock or
other equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company.
"AGREEMENT" shall mean the Agreement and Plan of Merger to which this
Exhibit A is attached (including the Disclosure Schedule), as it may be amended
from time to time.
"COMPANY CONTRACT" shall mean any Contract: (a) to which the Company is a
party; (b) by which the Company or any of its assets is or may become bound or
under which the Company has, or may become subject to, any obligation; or (c)
under which the Company has or may acquire any right or interest.
"COMPANY PROPRIETARY ASSET" shall mean any Proprietary Asset owned by or
licensed to the Company or otherwise used by the Company.
"CONSENT" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
"CONTRACT" shall mean any agreement, contract, subcontract, lease,
understanding, instrument, note, warranty, insurance policy, benefit plan or
legally binding commitment or undertaking of any nature.
"DAMAGES" shall include any loss, damage, injury, decline in value,
liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee
(including reasonable attorneys' fees), charge, cost (including costs of
investigation) or expense of any nature.
"DISCLOSURE SCHEDULE" shall mean the schedule (dated as of the date of the
Agreement) delivered to Purchaser on behalf of the Company and the Key
Employees, and delivered to the Company and the Key Employee on behalf of
Purchaser.
1.
"ENCUMBRANCE" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, infringement, interference, option, right
of first refusal, preemptive right, community property interest or restriction
of any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
"ENVIRONMENTAL LAW" shall mean any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"ESCROW" shall mean the escrow established pursuant to the Escrow
Agreement.
"ESCROW AGENT" shall mean the escrow agent that is party to the Escrow
Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean generally accepted accounting principles.
"GOVERNMENTAL AUTHORIZATION" shall mean any: (a) permit, license,
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
"GOVERNMENTAL BODY" shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or Entity and any court or other tribunal).
"INDEMNITEES" shall mean the following Persons: (a) Purchaser;
(b) Purchaser's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; PROVIDED,
HOWEVER, that the Key Employee shall not be deemed to be an "Indemnitee."
"KNOWLEDGE" shall mean actual knowledge. When used in the phrase "Knowledge
of the Company and the Sole Shareholder," "Knowledge" shall limit any
representation, warranty or covenant to the actual knowledge of the Company or
the Sole Shareholder on the date hereof.
"KNOWLEDGE OF THE COMPANY" shall mean knowledge of any employee of the
Company.
2.
"LEGAL PROCEEDING" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"LEGAL REQUIREMENT" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"MATERIAL ADVERSE EFFECT" means a violation or other matter will be deemed
to have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Company and Key Employee Closing Certificate but for the presence of
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the Company's business, condition, assets, liabilities,
operations, financial performance or prospects.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.
"PERSON" shall mean any individual, Entity or Governmental Body.
"PROPRIETARY ASSET" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service ▇▇▇▇ (whether registered or
unregistered), service ▇▇▇▇ application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program, invention, design, blueprint, engineering drawing, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset; or (b) right to use or exploit any of the foregoing.
"PURCHASER PARTIES" shall mean the following Persons: (a) Purchaser;
(b) Purchaser's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; PROVIDED,
HOWEVER, that the Key Employee shall not be deemed to be a "Purchaser Party."
"RELATED PARTY" shall mean: (i) the Key Employee; (ii) each individual
who is, or who has at any time since December 31, 1996 been, an officer of the
Company; (iii) each member of the immediate family of each of the individuals
referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or other
entity (other than the Company) in which any one of the individuals referred to
in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one of
such
3.
individuals collectively hold), beneficially or otherwise, a material voting,
proprietary or equity interest).
"REPRESENTATIVES" shall mean officers, directors, employees, agents,
attorneys, accountants, advisors and representatives.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"TAX" shall mean any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
"TAX RETURN" shall mean any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"YEAR 2000 COMPLIANT" means, with respect to a computer, computer program
or other item of software (i) the functions, calculations, and other computing
processes of the computer, program or software (collectively, "Processes")
perform in a consistent and correct manner without interruption regardless of
the date on which the Processes are actually performed and regardless of the
date input to the applicable computer system, whether before, on, or after
January 1, 2000; (ii) the computer, program or software accepts, calculates,
compares, sorts, extracts, sequences, and otherwise processes date inputs and
date values, and returns and displays date values, in a consistent and correct
manner regardless of the dates used whether before, on, or after January 1,
2000; (iii) the computer, program or software accepts and responds to year
input, if any, in a manner that resolves any ambiguities as to century in a
defined, predetermined, and appropriate manner; (iv) the computer, program or
software stores and displays date information in ways that are unambiguous as to
the determination of the century; and (v) leap years will be determined by the
following standard (A) if dividing the year by 4 yields an integer, it is a leap
year, except for years ending in 00, but (B) a year ending in 00 is a leap year
if dividing it by 400 yields an integer.
4.