EXHIBIT 2
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ENGLISH LANGUAGE LEARNING & INSTRUCTION SYSTEM, INC.
COMMON STOCK AND SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
Dated as of September 20, 2001
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TABLE OF CONTENTS
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Page
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Article 1. Authorization and Sale of the Company Stock............................................... 1
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Section 1.1 Authorization of the Company Stock........................................... 1
Section 1.2 Purchase of the Company Stock................................................ 1
Article 2. Closing Date; Delivery.................................................................... 1
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Section 2.1 Closing Date................................................................. 1
Section 2.2 Subsequent Closings.......................................................... 2
Section 2.3 Delivery..................................................................... 2
Article 3. Representations and Warranties of the Company............................................. 2
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Section 3.1 Organization, Good Standing and Qualification................................ 2
Section 3.2 Capitalization............................................................... 2
Section 3.3 Subsidiaries................................................................. 3
Section 3.4 Authorization................................................................ 3
Section 3.5 Valid Issuance of Preferred and Common Stock................................. 4
Section 3.6 Other Rights................................................................. 4
Section 3.7 Governmental Consents........................................................ 4
Section 3.8 Litigation................................................................... 5
Section 3.9 Proprietary Information Agreements........................................... 5
Section 3.10 Intellectual Property........................................................ 5
Section 3.11 Compliance with Other Instruments............................................ 8
Section 3.12 Agreements; Action........................................................... 9
Section 3.13 Employee Benefit Plans....................................................... 9
Section 3.14 Disclosure................................................................... 13
Section 3.15 Registration Rights and Stockholders' Rights................................. 13
Section 3.16 Real Property................................................................ 13
Section 3.17 Personal Property............................................................ 14
Section 3.18 Tax Returns and Payments..................................................... 14
Section 3.19 Minute Books................................................................. 15
Section 3.20 Labor Agreements and Employee Actions........................................ 15
Section 3.21 Monthly Financial Statements................................................. 16
Section 3.22 SEC Reports and Financial Statements......................................... 16
Section 3.23 Material Changes............................................................. 17
Section 3.24 United Stated Real Property Holding Corporation.............................. 18
Section 3.25 Private Placement............................................................ 18
Section 3.26 Environmental and Safety Laws................................................ 18
Section 3.27 Obligations to Related Parties............................................... 18
Section 3.28 Insurance.................................................................... 19
Section 3.29 Brokers and Finders.......................................................... 19
Section 3.30 Foreign Corrupt Practices Act................................................ 19
Section 3.31 Investment Company........................................................... 19
Section 3.32 FIRPTA....................................................................... 19
Section 3.33 Distribution Agreements...................................................... 19
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Article 4. Representations and Warranties of the Purchasers.......................................... 19
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Section 4.1 Authorization................................................................ 19
Section 4.2 Investment Experience........................................................ 19
Section 4.3 Restricted Securities........................................................ 20
Section 4.4 Legends...................................................................... 20
Article 5. Conditions of Investor's Obligations at Each Closing...................................... 20
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Section 5.1 Representations and Warranties............................................... 20
Section 5.2 Performance.................................................................. 20
Section 5.3 Compliance Certificate....................................................... 20
Section 5.4 Qualification................................................................ 20
Section 5.5 Stockholders Agreement....................................................... 21
Section 5.6 Registration Rights Agreement................................................ 21
Section 5.7 Bylaws....................................................................... 21
Section 5.8 Opinion of Company Counsel................................................... 21
Section 5.9 Board of Directors........................................................... 21
Section 5.10 Amended Certificate.......................................................... 21
Section 5.11 Consents, Permits, and Waivers............................................... 21
Section 5.12 Corporate Documents.......................................................... 21
Section 5.13 Reservation of Conversion Stock.............................................. 21
Section 5.14 Secretary's Certificate...................................................... 21
Section 5.15 Management Rights Letter..................................................... 22
Section 5.16 Employment Agreements........................................................ 22
Section 5.17 Proceedings and Documents.................................................... 22
Section 5.18 Standstill/Lock-up Agreement................................................. 22
Section 5.19 Confidentiality/Invention Assignment Agreement............................... 22
Section 5.20 Merger Certificate........................................................... 22
Section 5.21 Option Plan.................................................................. 22
Section 5.22 Directors and Officers Insurance............................................. 22
Section 5.23 Termination of Previous Employment Agreements................................ 22
Section 5.24 Netcap Release............................................................... 22
Section 5.25 Brazilian Entity............................................................. 23
Article 6. Conditions of the Company's Obligations at Each Closing................................... 23
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Section 6.1 Representations and Warranties............................................... 23
Section 6.2 Payment of Purchase Price.................................................... 23
Section 6.3 Stockholders Agreement....................................................... 23
Section 6.4 Registration Rights Agreement................................................ 23
Article 7. Indemnification........................................................................... 23
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Section 7.1 Indemnification by Company................................................... 23
Section 7.2 Claims for Indemnification................................................... 24
Section 7.3 Third Party Indemnification.................................................. 24
Section 7.4 Failure to Give Notice....................................................... 25
Article 8. Covenants of the Company.................................................................. 25
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Section 8.1 Insurance.................................................................... 25
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Section 8.2 NASDAQ Listing.................................................................. 25
Section 8.3 Independent Directors........................................................... 25
Section 8.4 Audit and Compensation Committees............................................... 25
Section 8.5 Blue Sky Filings................................................................ 25
Section 8.6 Director and Officers Insurance................................................. 26
Section 8.7 Accounting...................................................................... 26
Section 8.8 Use of Proceeds................................................................. 26
Section 8.9 Hiring of Chief Financial Officer or Controller................................. 26
Section 8.10 Patent Review and Filing........................................................ 26
Section 8.11 Future Assignments of Intellectual Property..................................... 26
Section 8.12 Board Representation............................................................ 26
Section 8.13 Brazilian Transfer.............................................................. 26
Article 9. Miscellaneous. 26
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Section 9.1 Survival of Warranties and Covenants............................................ 26
Section 9.2 Successors and Assigns.......................................................... 26
Section 9.3 Further Assurances.............................................................. 27
Section 9.4 Governing Law................................................................... 27
Section 9.5 WAIVER OF JURY TRIAL............................................................ 27
Section 9.6 Counterparts; Fax Signatures.................................................... 27
Section 9.7 Titles and Subtitles............................................................ 27
Section 9.8 Notices......................................................................... 28
Section 9.9 Finder's Fee.................................................................... 28
Section 9.10 Expenses........................................................................ 28
Section 9.11 Specific Performance; Remedies.................................................. 28
Section 9.12 Amendments and Waivers.......................................................... 28
Section 9.13 Severability.................................................................... 28
Section 9.14 Aggregation of Stock............................................................ 29
Section 9.15 Stock Splits.................................................................... 29
Section 9.16 Entire Agreement................................................................ 29
Section 9.17 Delays or Omissions............................................................. 29
Section 9.18 Attorneys' Fees................................................................. 29
Section 9.19 Rights of Purchasers............................................................ 29
Section 9.20 Exculpation Among Purchasers.................................................... 30
Article 10. Definitions.............................................................................. 30
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Section 10.1 Definitions..................................................................... 30
SCHEDULES
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A Schedule of Purchasers
B Schedule of Exceptions
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EXHIBITS
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A Form of Amended and Restated Certification of Incorporation
B Flow of Funds Memorandum
C Form of Stockholders Agreement
D Form of Registration Rights Agreement
E Form of Employee Confidentiality and Non-Competition Employment
Agreement
F Form of Bylaws
G Form of Opinion of Company Counsel
H Form of Management Rights Letter
I Form of Employment Agreement
J Form of Lock-Up Agreement
K Option Plan
L Form of Non-Disclosure, Intellectual Property and Non-Competition
Agreement
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ENGLISH LANGUAGE LEARNING & INSTRUCTION SYSTEM, INC.
COMMON STOCK AND SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Common Stock and Series A Preferred Stock Purchase Agreement (the
"Agreement") is made as of September 20, 2001, by and among English Language
Learning & Instruction System, Inc., a Delaware corporation (the "Company"),
Camden Partners Strategic Fund II-A, L.P., a Delaware limited partnership, and
Camden Partners Strategic Fund II-B, L.P., a Delaware limited partnership, (each
a "Purchaser" and collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company desires to issue and sell to each Purchaser, severally
and not jointly, and each Purchaser desires to purchase, severally and not
jointly, in exchange for cash, an aggregate of 500,000 shares of the Company's
Common Stock, par value $.00001 per share (the "Common Stock") and an aggregate
of 1,000,000 shares of the Company's Series A Preferred Stock, par value $.00001
per share (the "Series A Preferred Stock" and together with the Common Stock,
the "Company Stock"), in each case as set forth on Schedule A hereto (the
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"Schedule of Purchasers") upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants,
agreements and warranties herein contained, the parties hereto agree as follows:
Article 1.
Authorization and Sale of the Company Stock
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Section 1.1 Authorization of the Company Stock. The Company has, or before
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the Closing (as hereinafter defined) will have, authorized the sale and issuance
of (i) 500,000 shares of its Common Stock, and (ii) 1,000,000 shares of its
Series A Preferred Stock, having the rights, restrictions, privileges and
preferences as set forth in the Company's Amended and Restated Certificate of
Incorporation attached hereto as Exhibit A (as amended, the "Amended
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Certificate").
Section 1.2 Purchase of the Company Stock. Subject to the terms and
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conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, the Company agrees to issue to each Purchaser,
severally and not jointly, and each Purchaser, severally and not jointly agrees
to purchase from the Company, at the Closing, the number of shares of Common
Stock and Series A Preferred Stock set forth opposite the Purchaser's name on
the Schedule of Purchasers at a purchase price of $2.00 per share of Common
Stock and $3.00 per share of Series A Preferred Stock. The Company's agreement
with each Purchaser is a separate agreement, and the sale of the Common Stock
and Series A Preferred Stock to each Purchaser is a separate sale.
Article 2.
Closing Date; Delivery
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Section 2.1 Closing Date. The closing of the purchase and sale of the
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Company Stock hereunder (the "Closing") shall be held at the offices of ▇▇▇▇▇▇,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇▇▇▇
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Tysons Blvd., ▇▇▇▇▇▇, VA, on or about September 20, 2001 (the "Closing Date") or
at such other time and place as shall be mutually agreed upon by the Company and
the Purchasers.
Section 2.2 Subsequent Closings. The Company may sell up to (i) 285,000
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shares of Common Stock to third party purchasers acceptable to the Purchasers at
a purchase price of at least $2.00 per share, and (ii) 500,000 shares of Common
Stock to third party purchasers acceptable to the Purchasers at a purchase price
of at least $3.00 per share, pursuant to the terms of a Subscription Agreement
to be drafted by counsel to the Purchasers. Any such sale shall be made upon
terms and conditions acceptable to the Purchasers and shall be made only to
purchasers acceptable to the Purchasers, all of which shall be "accredited
investors" as defined in the Securities Act.
Section 2.3 Delivery. At the Closing, the Company shall deliver to each
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Purchaser certificates, in such denomination and registered in the Purchaser's
name as set forth on the Schedule of Purchasers, representing the number of
shares of Common Stock and Series A Preferred Stock which such Purchaser is
purchasing from the Company on the Closing Date against delivery to the Company
of a cashier's check or wire transfer in immediately available funds that are to
be transferred on the Closing Date in accordance with the Flow of Funds
Memorandum attached hereto as Exhibit B.
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Article 3.
Representations and Warranties of the Company.
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Except as set forth on the Schedule of Exceptions attached hereto as
Schedule B, which exceptions shall be deemed to be representations and
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warranties as if made hereunder and shall identify the Section of this Agreement
to which the exception applies, the Company hereby represents and warrants to
each Purchaser as follows:
Section 3.1 Organization, Good Standing and Qualification. The Company and
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each of its subsidiaries is duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of organization and
have all requisite corporate power and authority to own and operate their
properties and assets, carry on their business as now conducted, as proposed to
be conducted. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and the Related Agreements (as defined
below), to issue and sell the Company Stock, and to carry out the provisions of
this Agreement, the Related Agreements and the Amended Certificate. The Company
and each of its subsidiaries is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure to so qualify would have
a material adverse effect on its business, financial condition, prospects or
properties of the Company or such subsidiary.
Section 3.2 Capitalization. Immediately prior to the Closing, the
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authorized capital of the Company consists of:
(a) 20,000,000 shares of Preferred Stock, par value $.00001 per share (the
"Preferred Stock"), of which 1,000,000 shares have been designated Series A
Preferred Stock, none of which are outstanding immediately prior to the Closing
and 1,000,000 of which shares of Series
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A Preferred Stock will be sold pursuant to this Agreement. The rights,
preferences, privileges and restrictions of the Series A Preferred Stock will be
as stated in the Amended Certificate.
(b) 50,000,000 shares of Common Stock, par value $.00001 per share (the
"Common Stock"), of which 14,232,221 shares are issued and outstanding
immediately prior to the Closing.
(c) 276,500 shares of Common Stock reserved for issuance under the
Company's Option Plan, as amended, of which (i) no shares have been issued upon
the exercise of outstanding options, (ii) 127,200 shares are issuable upon the
exercise of outstanding options, and (iii) 149,300 shares remain available upon
the future issuance of stock options.
(d) (i) Warrants to purchase 503,775 shares of common stock at a purchase
price of $4.00 per share, expiring on January 31, 2003; (ii) warrants to
purchase 500,000 shares of common stock at a purchase price of $1.00 per share
expiring in June 2004; (iii) warrants to purchase 245,000 shares of common stock
at a purchase price of $2.00 per share expiring in July 2005; (iv) warrants to
purchase 100,000 shares of common stock at a purchase price of $3.00 per share
expiring in July 2005; (v) warrants to purchase shares of common stock equal to
ten per cent of the number of shares issued by the Company to investors between
September and December 31, 2001 expiring five years from the date of issuance;
and (vi) options to purchase 25,000 shares of the Company's common stock at a
purchase price of $1.00 per share expiring in January 2007.
(e) Except as provided in this Section 3.2 and for the conversion
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privileges of the Series A Preferred Stock, there are no other outstanding
equity securities, options, warrants, convertible debt securities, rights
(including conversion or preemptive rights and rights of first refusal) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
Section 3.3 Subsidiaries. Except as set forth on the Schedule of
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Exceptions, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association, or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement. The Schedule of Exceptions identifies, the
name and address of each subsidiary as well as the type of legal entity and the
jurisdiction of such subsidiaries legal formation. In addition, the Schedule of
Exceptions lists the Company's percentage interest and type of security owned in
each subsidiary.
Section 3.4 Authorization. All corporate action on the part of the Company,
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its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the Stockholders Agreement (the
"Stockholders Agreement'") attached hereto as Exhibit C, the Registration Rights
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Agreement (the "Registration Rights Agreement") attached hereto as Exhibit D,
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and the other documents, instruments and certificates delivered hereunder
(collectively, the "Related Agreements"), and the performance of all obligations
of the Company under this Agreement, the Related Agreements and the Amended
Certificate and the authorization, sale, issuance (or reservation for issuance)
and delivery of the Company Stock being sold hereunder has been taken or will be
taken prior to the Closing. This Agreement and the Related Agreements constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (b) general principles of equity that restrict
the availability of
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equitable remedies, and (c) to the extent that the enforceability of the
indemnification provisions contained herein or in any Related Agreement may be
limited by applicable laws. The sale of the Series A Preferred Stock and the
Common Stock and the subsequent conversion of the Series A Preferred Stock into
shares of common stock (the "Conversion Stock") are not and will not be subject
to any preemptive rights or rights of first refusal that have not been properly
waived or complied with.
Section 3.5 Valid Issuance of Preferred and Common Stock.
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(a) The shares of Company Stock, which are being purchased by the
Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly authorized and
validly issued, fully paid, nonassessable and free of restrictions on transfer
other than restrictions on transfer under applicable state and federal
securities laws. The Company Stock is issued in compliance with all applicable
federal and state securities laws. The Conversion Stock has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Amended Certificate, shall be duly authorized and validly issued, fully
paid, nonassessable and free of restrictions on transfer other than restrictions
on transfer under applicable state and federal securities laws and issued in
compliance with all applicable federal and state securities laws.
(b) The outstanding securities of the Company are all duly authorized and
validly authorized and issued, fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws.
Section 3.6 Other Rights. Except as set forth in this Agreement (including
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the Schedule of Exceptions), the Amended Certificate and the Related Agreements,
there is, and immediately upon consummation of the transactions contemplated
hereby there will be: (a) no agreement, restriction or encumbrance to which the
Company is a party, relating to the sale or voting of any shares of the capital
stock of the Company, including, but not limited to rights of first refusal,
preemptive rights, rights of first offer, proxies or voting agreements; (b) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire from the Company any equity
securities of the Company; (c) no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset; (d) no obligation (contingent or other) by the Company to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof; and (e) no obligation to register any of the Company's
securities under any applicable securities laws.
Section 3.7 Governmental Consents. No consent, approval, order or
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authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local, provincial or foreign governmental
authority on the part of the Company is required in connection with the
execution and delivery of this Agreement and the issuance of the Company Stock
or the Conversion Stock, except for any applicable filings under the federal or
state securities laws as have been duly and validly filed, or with respect to
any filings that must be made after the Closing, as will be filed in a timely
manner. The Company and its subsidiaries have all franchises, permits, licenses
and any similar authority necessary under applicable laws
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for the conduct of their business as now being conducted by them, the lack of
which could materially and adversely affect the business, properties, prospects
or financial condition of the Company or any of its subsidiaries and the Company
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. Neither the Company
nor any of its subsidiaries is in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of their business or
the ownership of their properties which violation could materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company or any of its subsidiaries.
Section 3.8 Litigation. There is no action, suit, proceeding or
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investigation pending or currently threatened against the Company or its
subsidiaries, or their properties, assets or business. Neither the Company nor
its subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company or any of its subsidiaries
intends to initiate.
Section 3.9 Proprietary Information Agreements. Except as set forth on the
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Schedule of Exceptions, each former and current officer and employee of the
Company has executed a Employee Confidentiality and Non-Competition Agreement in
substantially the form attached hereto as Exhibit E, and no exceptions have been
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taken by any such officer or employee to the terms of such agreement. The
Company currently has no consultants. The Company, after reasonable
investigation, is not aware that any of its current officers, employees or
consultants are in violation of such agreements, and the Company will use its
best efforts to prevent any such violation. No former or current officer,
employee or consultant of the Company has excluded works or inventions made
prior to his or her employment or engagement with the Company from his or her
assignment of inventions pursuant to such Employee Confidentiality and Non-
Competition Agreement. Other than the employees listed on the Schedule of
Exceptions, no employee has an employment agreement with the Company.
Section 3.10 Intellectual Property.
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(a) The Schedule of Exceptions sets forth a complete and accurate list of:
(i) all patents, copyrights, trademarks, service marks, trade dress, mask works,
schematics, technology, inventions, manufacturing processes, supplier lists,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), moral rights,
computer software programs or applications (in both source and object code
form), and all applications, renewals and registrations for any of the foregoing
which are owned by or on behalf of the Company or its subsidiaries (the "Company
Intellectual Property"); (ii) all material hardware products and tools, software
products and tools, and services that are currently published, offered, or under
development by the Company or its subsidiaries; (iii) all material licenses,
sublicenses and other agreements to which the Company or any of its subsidiaries
is a party and pursuant to which the Company or any of its subsidiaries
authorizes any other person to use the Company Intellectual Property or exercise
any other right with regard thereto; and (iv) all agreements with third parties
pursuant to which the Company or its subsidiaries are granted the right to use
the intellectual property of other parties ("Third Party Licensing Rights").
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(b) Company Intellectual Property also consists of (i) items and rights
solely owned by the Company or its subsidiaries, and (ii) any and all source
code in the Company's or its subsidiary's products, and (iii)any and all
inventions conceived or reduced to practice on or before the Closing by
employees and officers of the Company or its subsidiaries in the course of their
employment with Company or its subsidiaries, as applicable, or any party that
has an obligation to assign such inventions to Company or any of its
subsidiaries.
(c) The Company and its subsidiaries have all rights, title and interest in
the Company Intellectual Property, and all necessary licenses, permissions and
other rights in the Third Party Licensing Rights, necessary to carry out the
business of Company and its subsidiaries as they has been, are currently, or are
reasonably anticipated (as of the date Closing) by the Company and its
subsidiaries to be conducted.
(d) The Company or its subsidiaries are the rightful owner of any and all
rights in Company Intellectual Property for its current technologies or those
under development by Company or its subsidiaries on or before the Closing Date,
including without limitation rights to make, use, import, reproduce, modify,
adapt, create derivative works based on, translate, distribute (directly and
indirectly), transmit, display and perform publicly, license, rent, lease,
assign, offer to sell and sell the Company Intellectual Property and products
embodying the Company Intellectual Property, in all fields of use, in each
country in which Company or its subsidiaries conducts business, and to
sublicense any or all such rights to third parties, including the right to grant
further sublicenses.
(e) The Company and its subsidiaries have obtained any and all rights to
Company Intellectual Property in writing from its officers, employees and third
parties, including independent contractors and sub-contractors.
(f) All necessary registration, maintenance and renewal fees currently due
have been made with respect to, and all necessary documentation, recordations
and certifications have been filed with the relevant authorities for purposes of
maintaining, all Company Intellectual Property applications and registrations
listed on the Schedule of Exceptions.
(g) The employees and officers of the Company or its subsidiaries have
taken any and all reasonably necessary steps to protect material Company
Intellectual Property, including securing patent, copyright, trademark, trade
secret, mask works or other intellectual property rights, as appropriate, in
works of authorship, inventions, trade secrets and other confidential
information conceived or reduced to practice on or before the Closing. The
Company's employees and officers have exercised reasonable efforts and due
diligence to protect such Company Intellectual Property and have not engaged and
will not engage in an act or omission that would prevent, now, or in the future,
securing or protecting Company Intellectual Property and rights in current
technologies or those under development. Each of Company, its subsidiaries and
its employees, and officers have not engaged in any act or omission that would
constitute a bar to the U.S. patentability of any patent applications listed on
the Schedule of Exceptions, or any patent applications being prepared for
filing, including but not limited to, any publication, public use, or offer for
sale of an invention.
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(h) Each of the Company, its subsidiaries and its employees, or officers
have complied with the required duty of candor before the United States Patent
and Trademark Office in connection with any patent application filed on behalf
of the Company or in connection with any Company Intellectual Property.
(i) The Company's and its subsidiaries' current use, reproduction,
manufacture, modification, distribution, importation, licensing, sublicensing,
offers for sale, sale, or any other exercise of, or use, reproduction,
manufacture, modification, distribution, licensing, sublicensing, offers for
sale, sale, or any other exercise of any Company Intellectual Property currently
reasonably anticipated by the Company (including rights in any product, work,
technology, service or process) does not interfere with, infringe upon, or
misappropriate any copyright, patent, trade secret, trademark, service ▇▇▇▇,
trade name, firm name, logo, trade dress, mask work, moral right, other
intellectual property right, right of privacy or right in personal data of any
third party.
(j) The Company's and its subsidiaries' commercially available products,
including hardware or software products and tools, services, or technologies,
either alone or in combination, do not infringe any patent, copyright,
trademark, service ▇▇▇▇, trade dress or other intellectual property right or
similar right of a third party.
(k) The current marketed versions of each of the Company's and its
subsidiaries' products substantially conform to the current published
specifications and marketing materials relating to such products.
(l) The Company or any of its subsidiaries is not, nor as a result of the
execution or delivery of this Agreement, or performance of the Company's
obligations hereunder, will be, in violation or default of any license,
sublicense or other agreement to which the Company or any of its subsidiaries is
a party or otherwise bound. The consummation of the transactions contemplated by
this Agreement will not trigger the release of any of the Company's source code
to any third party. The Company is not in breach or default in any respect under
any agreement or arrangement relating to Third Party Licensing Rights, nor has
the Company given or received a notice of default under any agreement or
arrangement relating to Third Party Licensing Rights incorporated in each of the
Company's products, including hardware or software products and tools, services,
or technologies.
(m) Except as set forth in the Schedule of Exceptions, the Company is not
obligated to provide any consideration (whether financial or otherwise) to any
third party, nor is any third party otherwise entitled to any consideration,
with respect to any exercise of rights by the Company or its subsidiaries in the
Company Licensing Rights or the Third Party Licensing Rights.
(n) No claim, complaint, demand or notice (i) challenging the validity,
effectiveness, enforceability or ownership by Company of any of the Company
Intellectual Property, (ii) charging that the Company has not performed their
obligations under any license, sublicense, or agreement relating to the Third
Party Licensing Rights, (iii) to the effect that the use, manufacture,
importation, reproduction, modification, distribution, licensing, sublicensing,
offer for sale, sale, or any other exercise of, or the Company's or any of its
subsidiaries' reasonably
7
anticipated use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of any Company Intellectual Property
(including rights in any product, work, technology, service or process as used,
provided or offered at any time) interferes with, infringes upon, or
misappropriates or will interfere with, infringe upon, or misappropriate any
intellectual property or other proprietary or personal right of any third party
employee or former employee, has ever been alleged, asserted or threatened by
any third party or former employee, nor are there nor has there ever been, to
the knowledge of the Company, any valid grounds for any bona fide claim,
complaint, demand or notice of any such kind.
(o) There is no unauthorized use, infringement or misappropriation of any
of the Company Intellectual Property by any third party, employee or former
employee.
(p) No parties other than Company possess any current or contingent rights
to any source code which is part of the Company Intellectual Property.
(q) The Schedule of Exceptions lists all persons or entities who have
created any portion of, or otherwise have any rights as authors or inventors in
or to, the Company Intellectual Property. The Company has secured from all such
persons or entities, including all persons or entities currently or formerly
employed or engaged as an employee or consultant, valid and enforceable written
assignments of any such work or other rights, confidentiality agreements, and
non-disclosure agreements for the purpose of protecting the confidential
information of Company.
(r) The Schedule of Exceptions includes a true and complete list of support
and maintenance agreements relating to Company Intellectual Property.
(s) The Company has not granted any exclusive licenses in the Company
Intellectual Property to third parties, and no person or entity has a license to
use or the right to acquire a license to use any future version of the Company's
software programs or any future product based on the Company Intellectual
Property other than a right to license such updates to, new releases of and new
versions of the Company's software programs that the Company makes generally
available to its licensees.
Section 3.11 Compliance with Other Instruments.
-----------------------------------------------
(a) Neither the Company nor any of its subsidiaries is in violation or
default of any provisions of its Amended Certificate or Bylaws or of any
instrument, judgment, order, writ, decree, mortgage or contract to which it is a
party or by which it is bound or of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of this Agreement and the Related Agreements and the issuance and
sale of the Company Stock pursuant hereto and of the Conversion Stock pursuant
to the Amended Certificate, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge, mortgage or encumbrance upon any assets of the Company or any of its
subsidiaries.
8
(b) Neither the Company nor any of its subsidiaries has performed any act
or failed to perform any act, the occurrence or absence of which would result in
the Company's loss of any right granted under any license, distribution or other
agreement.
Section 3.12 Agreements; Action.
--------------------------------
(a) Except for agreements under the Related Agreements, there are no
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, stockholders or any affiliate of any of the
foregoing.
(b) Except for agreements explicitly contemplated hereby, there are no
agreements, understandings, instruments, contracts or proposed transactions to
which the Company or any of its subsidiaries is a party or by which it is bound
which involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or a subsidiary in excess of $25,000, or (ii) the transfer or license of
any Intellectual Property right to or from the Company or a subsidiary, or (iii)
the grant of rights to manufacture, produce, assemble, license, market or sell
its products to any other person or affect the Company's, or a subsidiary's,
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products, or (iv) indemnification by the Company with respect to
infringements of Intellectual Property rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(c) Neither the Company nor any of its subsidiaries has (i) declared or
paid any dividends, or authorized or made any distribution upon or with respect
to any class or series of its capital stock, (ii) incurred any indebtedness for
money borrowed or incurred any other liabilities individually in excess of
$25,000, (iii) made any loans or advances to any person, or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than in the ordinary
course of business.
(d) Neither the Company nor any of its subsidiaries is a party to or is
bound by any contract, agreement or instrument, or subject to any restriction
under their Certificate of Incorporation or bylaws, which materially adversely
affects their business as now conducted and as proposed to be conducted, their
properties or their financial condition.
(e) Neither the Company nor any of its subsidiaries have engaged in the
past twelve (12) months in any discussion (i) with any representative of any
company or firm regarding the consolidation or merger of the Company with or
into any other entity, (ii) with any company or firm or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company, or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, recapitalization, restructuring,
reorganization, liquidation, dissolution or winding up of the Company or, (iv)
regarding the filing of a voluntary petition in bankruptcy.
Section 3.13 Employee Benefit Plans.
------------------------------------
(a) The Schedule of Exceptions contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements.
9
(b) With respect, as applicable, to Benefit Plans and Benefit Arrangements:
(1) The Company has delivered true, correct, and complete copies
of the following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, to the Buyer: (A) all plan or arrangement
documents, including but not limited to, trust agreements, insurance policies,
service agreements and formal and informal amendments to each; (B) the most
recent Forms 5500 or 5500C/R or other comparable documents and any attached
financial statements and those for the prior three years and any related
actuarial reports; (C) the last Internal Revenue Service ("IRS") determination
or opinion letter, the last IRS determination or opinion letter that covered the
qualification of the entire plan (if different), and the materials submitted to
obtain those letters; (D) summary plan descriptions, summaries of material
modifications, any prospectuses that describe the Company Plans or Company
Benefit Arrangements, and Statement of Financial Accounting Standards Nos. 87,
106, and 112 reports or other comparable documents; (E) the most recent written
descriptions of all non-written agreements relating to any such plan or
arrangement; (F) all reports received within the three years preceding the date
of this Agreement by any domestic or foreign governmental agency, third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors (other than individual account records or participant
statements) or prepared by employees of the Company, a subsidiary or its ERISA
Affiliates; (G) all notices the IRS, Department of Labor, or any other domestic
or foreign governmental agency or entity issued to the Company or Any of its
subsidiaries within the four years preceding the date of this Agreement; (H)
employee manuals or handbooks containing personnel or employee relations
policies; and (I) any other documents the Buyer has requested;
(2) The only Qualified Plan currently in operation is the plan
with The American Funds Company Intermountain Financial Group. Neither the
Company nor any of its subsidiaries has maintained or contributed to another
Qualified Plan. The Qualified Plans qualify under Code Section 401(a), and
nothing has occurred with respect to the operation of any Qualified Plans that
could cause the loss of such qualification or exemption or the imposition of any
liability, lien, penalty or tax under ERISA or the Code; each Company Plan and
each Company Benefit Arrangement has been maintained in accordance with its
constituent documents and with all applicable provisions of domestic and foreign
laws, including federal and state securities laws and any reporting and
disclosure requirements; with respect to each Company Plan, no transactions
prohibited by Code Section 4975 or ERISA Section 406 and no breaches of
fiduciary duty described in ERISA Section 404 have occurred; Company has
fiduciary liability insurance of at least $1 million in effect covering the
fiduciaries of the Company Plans with respect to whom the Company could have
liability; no current or former asset of a Company Plan has been any security
issued by the Company, or any ERISA Affiliate; and the Company has never
sponsored an employee stock ownership plan.
(3) Neither the Company, nor any of its subsidiaries nor any
ERISA Affiliate has ever sponsored or maintained or had any liability (whether
actual or contingent) with respect to any Pension Plan; neither the Company nor
any of its subsidiaries has any liability (whether actual or contingent) with
respect to any Pension Plan maintained by any predecessor entity (or any of
their ERISA Affiliates); the Company neither has nor has ever had any ERISA
Affiliates; neither the Company nor any of its subsidiaries has any liability
(whether actual or contingent) with respect to any Benefit Plan or Benefit
Arrangement other than the
10
Company Plans and Company Benefit Arrangement or with respect to any Benefit
Plan maintained, now or in the past (or that should have been maintained), by
any ERISA Affiliate or predecessor;
(4) With respect to each Pension Plan, (I) neither the Company,
nor any of its subsidiaries, nor any ERISA Affiliate has terminated or withdrawn
or sought a funding waiver, and no facts exist that could reasonably be expected
to cause such actions; (II) no accumulated funding deficiency (under Code
Section 412 and without regard to waivers) exists or has existed; (III) no
reportable event (as defined in ERISA Section 4043) has occurred; (IV) all costs
have been provided for on the basis of consistent methods in accordance with
sound actuarial assumptions and practices; (V) the assets, as of its last
valuation date, exceeded its "Benefit Liabilities" (as defined in ERISA Section
4001(a)(16)); and (VI) since the last valuation date, there have been no
amendments or changes to increase the amounts of benefits and, nothing has
occurred that would reduce the excess of assets over benefit liabilities in such
plans;
(5) There are no pending claims (other than routine benefit
claims) or lawsuits that have been asserted or instituted by, against, or
relating to, any Company Plans or Company Benefit Arrangements, nor is there any
basis for any such claim or lawsuit. No Company Plans or Company Benefit
Arrangements are or have been under audit or examination (nor has notice been
received of a potential audit or examination) by any domestic or foreign
governmental agency or entity (including the IRS and Department of Labor); and
no matters are pending under the IRS's Employee Plans Compliance Resolutions
System or any successor or predecessor program;
(6) No Company Plan or Company Benefit Arrangement contains any
provision or is subject to any law that would accelerate or vest any benefit or
require severance, termination or other payments or trigger any liabilities as a
result of the transactions this Agreement contemplates; neither the Company nor
any of its subsidiaries has declared or paid any bonus or incentive compensation
related to the transactions this Agreement contemplates; and no payments under
any Company Plan or Company Benefit Arrangement would, individually or
collectively, be nondeductible under Code Section 280G;
(7) The Company and all Related Employers have paid all amounts
they are required to pay as contributions to the Company Plans as of June 30,
2001; all benefits accrued under any unfunded Company Plan or Company Benefit
Arrangement will have been paid, accrued, or otherwise adequately reserved in
accordance with GAAP as of June 30, 2001; all monies withheld from employee
paychecks for Company Plans have been transferred to the relevant plan within
the time applicable regulations specify;
(7) Neither the Company nor any of its subsidiaries provide
benefits through a voluntary employee beneficiary association as defined in Code
Section 501(c)(9); and
(8) All group health plans of the Company, all Related Employers
and its ERISA Affiliates materially comply with the requirements of Part 6 of
Title I of ERISA ("COBRA"), Code Section 5000, the Health Insurance Portability
and Accountability Act, and any other comparable domestic or foreign laws;
neither the Company nor any of its subsidiaries
11
has any liability under or with respect to COBRA for its own actions or
omissions or those of any predecessor; no employee or former employee (or
beneficiary of either) of the Company or any of its subsidiaries is entitled to
receive any benefits, including, without limitation, death or medical benefits
(whether or not insured) beyond retirement or other termination of employment,
other than as applicable law requires.
(c) The Schedule of Exceptions contains the most recent quarterly listing
of workers' compensation claims and a schedule of workers' compensation claims
of the Company and all Related Employers for the last three fiscal years.
(d) The Schedule of Exceptions sets forth an accurate list, as of the date
hereof, of all employees of the Company and all Related Employers who earned
more than $50,000 in 2000 or who may earn more than $50,000 in 2001, all
officers and all directors, and all employment agreements with such employees,
officers, and directors and the rate of compensation (and the portions thereof
attributable to salary, bonus, and other compensation respectively) of each such
person as of (i) the June 30, 2001 and (ii) the date of this Agreement. The
schedule also shows totals accrued for vacation, sick leave, and incentive
bonuses for all employees. For purposes of this Section 3.13, the following
------------
definitions apply:
(1) "Benefit Arrangement" means any benefit arrangement, obligation,
or practice, whether or not legally enforceable, to provide benefits (other
than merely as salary or under a Benefit Plan), as compensation for
services rendered, to present or former directors, employees, agents, or
independent contractors, including, but not limited to, employment or
consulting agreements, severance agreements or pay policies, stay or
retention bonuses or compensation, executive or incentive compensation
programs or arrangements, sick leave, vacation pay, plant closing benefits,
salary continuation for disability, workers' compensation, retirement,
deferred compensation, bonus, stock option or purchase plans or programs,
tuition reimbursement or scholarship programs, employee discount programs,
meals, travel, or vehicle allowances, any plans subject to Code Section
125, and any plans providing benefits or payments in the event of a change
of control, change in ownership or effective control or sale of a
substantial portion (including all or substantially all) of the assets of
any business or portion thereof, in each case with respect to any present
or former employees, directors, or agents.
(2) "Benefit Plan" has the meaning given in ERISA Section 3(3),
together with plans or arrangements that would be so defined if they were
not (i) otherwise exempt from ERISA by that or another section, (ii)
maintained outside the United States, or (iii) individually negotiated or
applicable only to one person.
(3) "Company Benefit Arrangement" means any Benefit Arrangement the
Company or any of its subsidiaries sponsors or maintains or with respect to
which the Company or any of its subsidiaries has or may have any current or
future liability (whether actual, contingent, with respect to any of its
assets or otherwise), in each case with respect to any present or former
directors, officers, or employees of or service providers to the Company or
any Related Employer.
12
(4) "Company Plan" means any Benefit Plan that the Company or any
of its subsidiaries maintains or has previously maintained or to which the
Company or any of its subsidiaries is obligated to make payments or has or
may have any liability, in each case with respect to any present or former
employees of the Company or any Related Employer.
(5) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(6) "ERISA Affiliate" means any person or entity that, together
with the entity referenced, would be or was at any time treated as a single
employer under Code Section 414 or ERISA Section 4001 and any general
partnership of which the entity is or has been a general partner.
(7) "Multiemployer Plan" means any Benefit Plan described in ERISA
Section 3(37).
(8) "Pension Plan" means any Benefit Plan subject to Code Section
412 or ERISA Section 302 or Title IV (including any Multiemployer Plan) or
any comparable plan not covered by ERISA.
(9) "Qualified Plan" means any Benefit Plan intended to meet the
requirements of Code Section 401(a), including any already terminated plan.
(10) "Related Employer" means all subsidiaries of the Company.
Section 3.14 Disclosure. The Company has fully provided each Purchaser with
-----------------------
complete and accurate copies of all the information which such Purchaser has
requested for deciding whether to purchase the Company Stock and all information
which the Company believes is reasonably necessary to enable such Purchaser to
make such decision. Neither this Agreement, the Related Agreements nor any other
statements, schedules, exhibits or certificates made or delivered in connection
herewith or therewith contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements herein or therein not
misleading which has not been, prior to the Closing, corrected or amended. There
are no facts which (individually or in the aggregate) materially adversely
affect the business, assets, liabilities, financial condition, prospects or
operations of the Company or any of its subsidiaries that have not been set
forth in the Agreement, the exhibits hereto, the Related Agreements or in other
documents delivered to Purchasers or their attorneys or agents in connection
herewith.
Section 3.15 Registration Rights and Stockholders' Rights. Except as
---------------------------------------------------------
provided in the Registration Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. Except as contemplated in the Stockholders Agreement, no
stockholder of the Company has entered into any agreement or trust with respect
to the voting of equity securities of the Company.
Section 3.16 Real Property. The Company does not own and never has owned
--------------------------
any Real Property in fee. "Real Property" means all interests in real property,
including, without limitation, improvements, and fixtures located on such real
property. All oral or written leases,
13
subleases, licenses, concession agreements or other use or occupancy agreements
pursuant to which the Company leases to or from any other party any real
property, including all renewals, extensions, modifications or supplements to
any of the foregoing or substitutions for any of the foregoing (collectively,
the "Leases"), are valid and in full force and effect, and have not been
assigned, modified, supplemented or amended. The Company leases all Real
Property necessary to conduct its business. The Company has made available to
each Purchaser true and complete copies of all of the Leases, all amendments
thereto, and all material correspondence related thereto, including all
correspondence pursuant to which any party to any of the Leases declared a
default thereunder or provided notice of the exercise of any operation granted
to such party under such Lease. The Leases and the Company's interests
thereunder are free of all liens, claims or encumbrances.
Section 3.17 Personal Property. The Schedule of Exceptions sets forth an
-------------------------------
accurate list of all personal property owned or leased by the Company with a
current book value in excess of $25,000. The Company currently owns or leases
all personal property necessary to conduct the business and operations of the
Company.
Section 3.18 Tax Returns and Payments.
--------------------------------------
(a) All Tax Returns (as hereinafter defined) that are required to be filed
by or with respect to the Company have been filed and all such Tax Returns were
true, correct and complete in all material respects when filed, (ii) all Taxes
(as hereinafter defined) of the Company and its Subsidiaries that are due and
payable, whether or not shown on such Tax Returns, have been paid in full, (iii)
the provisions for Taxes on the audited and unaudited balance sheets included in
the Financial Statements are sufficient for the payment of all accrued and
unpaid Taxes of the Company whether or not assessed or disputed as of the
respective dates of such balance sheets, (iv) no federal, state, local, or
foreign audits or other administrative proceedings or court proceedings with
regard to Taxes are presently pending with regard to the Company or any of its
Subsidiaries, (v) no waiver of statutes of limitation have been given by or
requested with respect to any Taxes of the Company or its subsidiaries, (vi)
there are no liens for Taxes on any asset of the Company or any of its
Subsidiaries other than for current Taxes not yet due and payable, (vii) no
consent has been filed relating to the Company or any of its subsidiaries
pursuant to section 341(f) of the Code, (viii) neither the Company nor any
subsidiary has any current liability for Taxes of any person (other than the
Company and its subsidiaries) (A) under Treasury Regulation section 1.1502-6 (or
any similar provision of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or (D) otherwise, and (ix) the Company's methods of
tax accounting are correct in all material respects.
(b) For purposes of this Agreement, the term (i) "Taxes" means all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, excise, property, sales and use, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and (ii) "Tax Return" means any
return, report, information return or other document (including any related or
supporting information) filed or required to be filed with any taxing authority
with respect to Taxes.
14
Section 3.19 Minute Books. The minute books of the Company and its
--------------------------
subsidiaries provided or made available to counsel for the Purchasers contain a
complete summary of all meetings and actions by written consent of directors
(and any committees of directors) and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
Section 3.20 Labor Agreements and Employee Actions. With respect to
---------------------------------------------------
employees of and services providers to the Company and its subsidiaries:
(a) The Company and its subsidiaries comply and have complied with all
applicable domestic and foreign laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation any such laws respecting employment discrimination, employee
classification, workers' compensation, family and medical leave, the Immigration
Reform and Control Act, and occupational safety and health requirements, and
have complied with all employment agreements, and no claims, controversies,
investigations, or suits are pending or threatened with respect to such laws or
agreements, either by private individuals or by governmental agencies; and all
employees are at-will;
(b) Neither the Company nor any subsidiary is or has been engaged in any
unfair labor practice, and there is not now, nor within the past three (3) years
has there been, any unfair labor practice complaint against the Company or any
of its subsidiaries pending or threatened before the National Labor Relations
Board or any other comparable foreign or domestic authority or any workers'
council;
(c) No labor union represents or has ever represented the Company's or its
subsidiary's employees and no collective bargaining agreement is or has been
binding against the Company or any of its subsidiaries. No grievance or
arbitration proceeding arising out of or under collective bargaining agreements
or employment relationships is pending, and no claims therefore exist or have
been threatened; no labor strike, lock-out, slowdown, or work stoppage is or has
ever been pending or threatened against or directly affecting the Company or any
of its subsidiaries;
(d) No contractor, manufacturer, or supplier used by or under contract with
Company is in material violation of any law relating to labor or employment
matters; and
(e) All persons who are or were performing services for the Company and any
of its subsidiaries and are or were classified as independent contractors do or
did satisfy and have satisfied the requirements of law to be so classified, and
the Company and all of its subsidiaries have fully and accurately reported their
compensation on IRS Forms 1099 or other applicable tax forms for independent
contractors when required to do so;
(f) The Company and any of its subsidiaries are and have been in compliance
with all applicable domestic and foreign laws concerning employer contributions
to any trade union, housing, unemployment, retirement, bonus and welfare funds
and all other funds to which an employer is required by law to contribute; and
(g) The Company has entered into and complied with any employment
contracts, individual labor contracts, collective labor contracts and similar
agreements required by
15
applicable domestic and foreign laws, and the Company has delivered to the
Purchasers prior to the date hereof true and complete ▇▇▇▇▇ of all employment
contracts, individual labor contracts, collective labor contracts and similar
agreements, whether written or oral, to which the Company or any of its
subsidiaries is a party.
Section 3.21 Monthly Financial Statements. The Company has made available
------------------------------------------
to each Purchaser as part of such Purchaser's due diligence of the Company
unaudited monthly balance sheets and unaudited monthly income statements through
August 31, 2001 (the "Monthly Financial Statements"). The Monthly Financial
Statements (i) are complete and correct in all material respects, (ii) are in
accordance with the Company's books and records, (iii) have been prepared in
accordance with GAAP (as defined below) applied on a consistent basis throughout
the periods indicated, except as disclosed therein, and (iv) fairly present the
financial position of the Company as of the dates indicated; provided, however,
-------- -------
that the unaudited financial statements are subject to normal recurring year-end
audit adjustments (which are not expected to be material) and do not contain all
footnotes required under generally accepted accounting principles.
Section 3.22 SEC Reports and Financial Statements. Each form, report,
--------------------------------------------------
schedule, registration statement and definitive proxy statement filed by the
Company with the Securities and Exchange Commission ("SEC") prior to the date
hereof (as such documents have been amended prior to the date hereof, the "SEC
Reports"), as of their respective dates, complied in all material respects with
the applicable requirements of the Securities Act and the Securities Exchange
Act of 1934 as amended ("Exchange Act") and the rules and regulations
promulgated thereunder applicable to such SEC Reports, and none of the SEC
Reports when filed (or if amended or superseded by a filing prior to the date
hereof, then on the date of such filing) 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 light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of the Company included in
the SEC Reports ("Financial Statements") as of their respective dates comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of the
dates thereof and the consolidated results of their operations, stockholders'
equity and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal and recurring year-end audit adjustments not
material in amount). None of the Company's subsidiaries has filed, or is
obligated to file, any forms, reports, schedules, statements or other documents
with the SEC. The adoption of SEC Staff Accounting Bulletin No. 101 (Revenue
Recognition in Financial Statements) effective January 1, 2000, has not
adversely impacted and will not adversely impact, in any material respect, the
amount or timing of revenue recognition by the Company or any of its
subsidiaries as compared to their respective prior revenue recognition
practices. Neither the Company nor any of its subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise), other than liabilities and obligations (i) fully reflected or
reserved against in the
16
financial statements included in the SEC Reports, (ii) incurred since June 30,
2001 in the ordinary course of business or (iii) as set forth in the Schedule of
Exceptions.
Section 3.23 Material Changes. Since June 30, 2001, there has not been:
------------------------------
(a) any change in the assets, liabilities, financial condition or operating
results of the Company or any of its subsidiaries from that reflected in the
Financial Statements, except changes in the ordinary course of business
consistent with past practice;
(b) any material damage, destruction or loss, whether or not covered by
insurance, affecting the business, properties, prospects, or financial condition
of the Company or any of its subsidiaries (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or
payment of any material obligation by the Company or any of its subsidiaries,
except in the ordinary course of business consistent with past practice;
(e) any change to a material contract or agreement by which the Company or
any of its subsidiaries or any of their assets is bound or subject;
(f) any change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
subsidiaries;
(g) any sale, assignment or transfer of any Intellectual Property or other
intangible assets of the Company or any of its subsidiaries;
(h) any resignation or termination of employment of any officer, key
employee or director of the Company or any of its subsidiaries; and the Company
does not know of any impending resignation or termination of employment of any
such officer, key employee or director;
(i) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company or any of its subsidiaries;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company or any of its subsidiaries, with respect to any of its
material properties or assets, except liens for taxes not yet due or payable;
(k) any declaration or payment of any dividend or other distribution of the
assets of the Company or any of its subsidiaries;
(l) any other event or condition of any character that might, either
individually or in the aggregate, materially and adversely affect the business,
properties, prospects or financial condition of the Company or any of its
subsidiaries (as such business is presently conducted and as it is proposed to
be conducted); or
17
(m) any arrangement or commitment by the Company or any of its subsidiaries
to do any of the acts described in subsections (a) through (l) above.
▇▇▇▇▇▇▇ ▇.▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Real Property Holding Corporation. The Company
------------------------------------------------------------
is not now and has never been a "United States real property holding
corporation" within the meaning of Code Section 897(c)(2) and any regulations
promulgated thereunder.
Section 3.25 Private Placement. Subject to the truth and accuracy of the
------------------------------
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Company Stock and the Conversion Stock is exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "Act"), and the qualification or registration requirements of applicable
blue sky laws. Neither the Company nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
Section 3.26 Environmental and Safety Laws. Neither the Company nor any of
------------------------------------------
its subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. No Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company or any of its
subsidiaries or by any other person or entity on any property owned, leased or
used by the Company or any of its subsidiaries. For the purposes of the
preceding sentence, "Hazardous Materials" shall mean (a) materials which are
listed or otherwise defined as "hazardous" or "toxic" under any applicable
local, state, federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials or (b)
any petroleum products or nuclear materials.
Section 3.27 Obligations to Related Parties. There are no obligations of
-------------------------------------------
the Company or any of its subsidiaries to officers, directors, stockholders, or
employees of the Company or any of its subsidiaries other than (a) for payment
of salary for services rendered, (b) reimbursement for reasonable expenses
incurred on behalf of the Company or subsidiary and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). None of the officers, directors or stockholders of
the Company or any of its subsidiaries, or any members of their immediately
families, are indebted to the Company or its subsidiaries or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any of its subsidiaries is affiliated or with which the Company or any of its
subsidiaries has a business relationship, or any firm or corporation which
competes with the Company or any of its subsidiaries, except that officers,
directors and/or stockholders of the Company may own stock in publicly traded
companies (representing less than 1% of such Company) which may compete with the
Company. No officer, director or stockholder of the Company or any of its
subsidiaries, or any member of their immediately families, is, directly or
indirectly, interested in any material contract with the Company or any of its
subsidiaries (other than such contracts as relate to any such person's or its
affiliate's ownership of capital stock or other securities of the Company).
Neither the Company nor any of its subsidiaries is a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation.
18
Section 3.28 Insurance. The Company has general commercial, product
----------------------
liability, fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
Section 3.29 Brokers and Finders. Except as set forth on the Schedule of
--------------------------------
Exceptions, no agent, broker, investment banker or other firm or Person acting
on behalf or under the authority of the Company is or will be entitled to any
broker's, finder's or consultant's fee or any other commission or similar fee
from the Company in connection with any of the transactions contemplated by this
Agreement.
Section 3.30 Foreign Corrupt Practices Act. Neither the Company nor any of
------------------------------------------
its subsidiaries has made, offered or agreed to offer anything of value to any
government official, political party or candidate for government office, nor has
it otherwise taken any action that would cause the Company or any of its
subsidiaries to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any law of similar effect. There is not now, and there has never
been, any employment by the Company, or beneficial ownership in the Company or
any of its subsidiaries, by any governmental or political official of any
country in the world.
Section 3.31 Investment Company. The Company is not an "investment company"
--------------------------------------------
within the meaning of the Investment Company Act of 1940, as amended.
Section 3.32 FIRPTA. The Company is not a "foreign person" within the
-------------------
meaning of Section 1445 of the Code.
Section 3.33 Distribution Agreements. The Schedule of Exceptions contains a
------------------------------------
list of all of the Company's distributors and their territory. The Company has
provided a copy of each distribution agreement to which the Company is a party
(the "Distribution Agreements"). Each of the Distribution Agreements is
currently in effect and no breach or waiver by the Company or any other party
thereto has occurred or is occurring.
Article 4.
Representations and Warranties of the Purchasers.
-------------------------------------------------
Each Purchaser hereby severally and not jointly represents and warrants
that:
Section 4.1 Authorization. This Agreement and the Related Agreements when
-------------------------
executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of such Purchaser, enforceable in accordance with their
terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (b) general principles of equity that restrict
the availability of equitable remedies, and (c) to the extent that the
enforceability of the indemnification provisions in this Agreement or the
Related Agreement may be limited by applicable laws.
Section 4.2 Investment Experience. Such Purchaser acknowledges that it is
---------------------------------
able to protect its interests, and bear the economic risk of its investment and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Company
Stock. Such Purchaser also represents it has not been organized
19
for the purpose of acquiring the Company Stock. Such Purchaser understands the
term "accredited investor" as used in Regulation D promulgated under the Act and
represents and warrants to the Company that such Purchaser is an "accredited
investor" for purposes of acquiring the Company Stock purchasable by it
hereunder.
Section 4.3 Restricted Securities. Such Purchaser understands that the
---------------------------------
Company Stock it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. In this
connection, each Purchaser represents that it is familiar with Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
Section 4.4 Legends. It is understood that the certificates evidencing the
-------------------
Company Stock (and the Conversion Stock) may bear one or all of the following
legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by any other applicable laws.
Article 5.
Conditions of Investor's Obligations at Each Closing.
----------------------------------------------------
The obligations of each Purchaser under Section 1.2 of this Agreement are
-----------
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against such Purchaser
unless consented thereto in writing by such Purchaser:
Section 5.1 Representations and Warranties. The representations and
------------------------------------------
warranties of the Company contained in Article 3 shall be true on and as of the
date hereof.
Section 5.2 Performance. The Company shall have performed and complied with
-----------------------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
Section 5.3 Compliance Certificate. The Chief Executive Officer or
----------------------------------
President of the Company shall deliver to each Purchaser a certificate, dated as
of the date of the Closing, certifying that the conditions specified in Sections
5.1, 5.2, 5.5, 5.6, 5.7, 5.9, 5.10, 5.11, 5.12 and 5.13 have been fulfilled.
Section 5.4 Qualification. All authorizations, approvals or permits, if
-------------------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required to
20
be in effect as of the Closing in connection with the lawful issuance and sale
of the Company Stock pursuant to this Agreement shall be obtained and effective
as of the Closing.
Section 5.5 Stockholders Agreement. The Company, ▇▇. ▇▇▇▇▇ ▇▇▇▇ and Mr.
----------------------
▇▇▇ ▇▇▇▇ shall have entered into and delivered the Stockholders Agreement at or
prior to the Closing, and the Stockholders Agreement shall be in full force and
effect, without amendment or modification.
Section 5.6 Registration Rights Agreement. The Company shall have entered
------------------------------------------
into and delivered the Registration Rights Agreement at or prior to the Closing,
and the Registration Rights Agreement shall be in full force and effect, without
amendment or modification.
Section 5.7 Bylaws. The Bylaws of the Company attached hereto as Exhibit F
-------------------
shall have been validly adopted by the Company in full force and effect.
Section 5.8 Opinion of Company Counsel. The Purchaser shall have received
---------------------------------------
from ▇▇▇▇ & ▇▇▇▇, P.C., counsel for the Company, an opinion, dated as of the
date of such Closing, in the form attached hereto as Exhibit G.
---------
Section 5.9 Board of Directors. The Company's Bylaws shall provide for a
-------------------------------
Board of Directors, with the number of directors fixed at seven (7).
Section 5.10 Amended Certificate. The Amended Certificate shall have been
--------------------------------
filed with the Secretary of State of the State of Delaware, shall have become
effective, and shall not have been further modified or amended and shall
continue to be in full force and effect.
Section 5.11 Consents, Permits, and Waivers. The Company shall have
-------------------------------------------
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the Related
Agreements.
Section 5.12 Corporate Documents. The Company shall have delivered to the
--------------------------------
Purchasers or their counsel, complete and accurate copies of all corporate
documents of the Company reasonably requested by Purchasers.
Section 5.13 Reservation of Conversion Stock. The Conversion Stock issuable
--------------------------------------------
upon conversion of the Series A Preferred Stock shall have been duly authorized
and reserved for issuance upon such conversion.
Section 5.14 Secretary's Certificate. The Purchasers shall have received
------------------------------------
from the Company's Secretary a certificate having attached thereto (i) a
certified copy of the Company's Amended Certificate as in effect at the time of
the Closing, (ii) the Company's Bylaws as in effect at the time of the Closing,
(iii) resolutions approved by the Board of Directors authorizing the
transactions contemplated hereby, (iv) resolutions approved by the Company's
stockholders authorizing the filing of the Amended Certificate, and (v) good
standing certificates (including tax good standing) with respect to the Company
from the appropriate authorities in any jurisdiction in which the Company is
qualified to do business, dated a recent date before the Closing.
21
Section 5.15 Management Rights Letter. Each Purchaser shall have received a
-------------------------------------
management rights letter signed by the Company substantially in the form
attached hereto as Exhibit H.
---------
Section 5.16 Employment Agreements. Each of ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and
----------------------------------
▇▇▇▇ ▇▇▇▇▇▇ shall have entered into an Employment Agreement substantially in the
form attached hereto as Exhibit I. ▇▇. ▇▇▇▇▇ ▇▇▇▇ shall have entered into a
---------
Non-Disclosure, Intellectual Property and Non-Competition Agreement
substantially in the form attached hereto as Exhibit L.
---------
Section 5.17 Proceedings and Documents. All corporate and other proceedings
--------------------------------------
in connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers and their special counsel,
and the Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
Section 5.18 Standstill/Lock-up Agreement. Any broker/agent that receives
-----------------------------------------
shares of the Company in connection with the transactions contemplated by this
Agreement shall enter into a lock-up and standstill agreement in the form
attached hereto as Exhibit J.
---------
Section 5.19 Confidentiality/Invention Assignment Agreement. Each employee
-----------------------------------------------------------
and officer of the Company shall enter into an Employee Confidentiality and Non-
Competition Employment Agreement in the form attached hereto as Exhibit E
---------
Section 5.20 Merger Certificate. The Company shall have filed with the
-------------------------------
Secretary of State of the State of Delaware the Certificate of Merger that
consummates the merger of Computer Assisted Learning and Instruction, Inc., a
Utah corporation, and ▇▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation, and any other
documentation as required to consummate the merger of a Utah corporation with a
Delaware corporation, including, without limitation, any documents of
certification in Utah. The Company shall have provided the Purchasers with a
copy of the documents confirming such actions.
Section 5.21 Option Plan. The Company's option plan is currently in full
------------------------
force and effect and is attached hereto as Exhibit K
---------
Section 5.22 Directors and Officers Insurance. The Company's director and
---------------------------------------------
officer insurance coverage is currently in full force and effect.
Section 5.23 Termination of Previous Employment Agreements. Each of the
----------------------------------------------------------
employment agreements, dated as of December, 1999, by and between the Company
and ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇ shall be terminated and be of no further force
and effect and shall be superceded in all respects by the Employment Agreements
entered into pursuant to Section 5.16 above. Each of ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇
------------
shall have executed a release of all claims against the Company in form and
substance satisfactory to the Purchasers.
Section 5.24 Netcap Release. The Company shall have entered into a
---------------------------
Settlement Agreement with Netcap Ventures, in form and substance satisfactory to
the Purchasers, relating
22
to the release of claims arising out of that certain Engagement Letter, dated as
of June 11, 2001 by and between Netcap Ventures and the Company.
Section 5.25 Brazilian Entity. The Company shall have arrived at an
-----------------------------
agreement to obtain ownership of all of the outstanding capital stock of Cali
Brasilia Ltda to the reasonable satisfaction of the Purchasers.
Article 6.
Conditions of the Company's Obligations at Each Closing.
--------------------------------------------------------
The obligations of the Company to each Purchaser under this Agreement are
subject to the fulfillment on or before Closing of each of the following
conditions, the waiver of which shall not be effective unless consented to in
writing by the Company:
Section 6.1 Representations and Warranties. The representations and
------------------------------------------
warranties of each Purchaser contained in Article 4 hereof shall be true on and
---------
as of the date hereof.
Section 6.2 Payment of Purchase Price. At the Closing, each Purchaser shall
-------------------------------------
have tendered payment of the Purchase Price for all of the Company Stock being
purchased by such Purchaser at the Closing.
Section 6.3 Stockholders Agreement. Each of the Purchasers shall have
----------------------------------
entered into and delivered the Stockholders Agreement at or prior to the
Closing, and the Stockholders Agreement shall be in full force and effect,
without amendment or modification.
Section 6.4 Registration Rights Agreement. Each of the Purchasers shall
-----------------------------------------
have entered into and delivered the Registration Rights Agreement at or prior to
the Closing, and the Registration Rights Agreement shall be in full force and
effect, without amendment or modification.
Article 7.
Indemnification
---------------
Section 7.1 Indemnification by Company. The Company shall indemnify each
--------------------------------------
Purchaser and its affiliates and their respective officers, directors,
employees, financial advisors, attorneys, accountants, agents and affiliates
(collectively, the "Indemnified Parties") against, and hold each Indemnified
Party harmless from, any damage, claim, loss, cost, liability or expense,
including interest, penalties, reasonable attorneys' fees and the Indemnified
Party's expenses of investigation, response action or remedial action
(collectively, "Damages"), incident to, arising out of, in connection with or
related to, whether directly or indirectly, any of the following:
(a) the breach of any representation or warranty made by the Company set
forth in this Agreement or any of the Related Agreements;
(b) any breach by the Company of any of its covenants or agreements set
forth in this Agreement or the Related Agreements; or
23
(c) any material loss, liability or diminution in value resulting from:
(1) the Company's failure to receive intellectual property
assignment agreements and confidentiality agreements with any of its
current, former or future employees and/or officers; and
(2) any false or misleading statements or information made in any
filings made with the SEC; and
(3) the merger of Computer Assisted Learning and Instruction, Inc.
with and into ▇▇▇▇▇▇▇▇.▇▇▇, Inc.; and
(4) any undisclosed liabilities associated with the Brazilian
entity, Cali Brasilia Ltda and the sale or transfer of the shares of Cali
Brasilia Ltda. to the Company.
Section 7.2 Claims for Indemnification. In the event that any Indemnified
--------------------------------------
Party has a claims or demands for indemnification under this Article 7
---------
("Claims") against the Company (the "Indemnifying Party") which does not involve
a Claim being asserted against or sought to be collected by a third party, the
Indemnified Party shall with reasonable promptness notify the Indemnifying Party
of such Claim, specifying the nature of such Claim and the amount or the
estimated amount thereof to the extent then feasible (the "Claim Notice"). The
Indemnified Party shall have the right to obtain information and to inspect and
copy records of the Indemnifying Party that may be relevant to the claim or to
the indemnification obligation hereunder. If, within twenty (20) days after the
date of delivery of the Claim Notice the Indemnifying Party does not notify the
Indemnified Party that the Indemnifying Party disputes such Claim, with a
detailed statement of the basis of such position, the amount of such Claim shall
be conclusively deemed a liability of the Indemnifying Party hereunder. In case
an objection is made in writing in accordance with this Section 7.2, the
-----------
Indemnified Party shall respond in a written statement to the objection within
twenty (20) days and, for twenty (20) days thereafter, attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
Claims (and, if the parties should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties).
Section 7.3 Third Party Indemnification. (a) In the event that any Claim
---------------------------------------
for which the Indemnifying Party would be liable to an Indemnified Party
hereunder is asserted against an Indemnified Party by a third party (a "Third
Party Claim"), the Indemnified Party shall deliver a Claim Notice to the
Indemnifying Party. The Indemnifying Party shall have twenty (20) days from the
date of delivery of the Claim Notice to notify the Indemnified Party whether the
Indemnifying Party disputes liability to the Indemnified Party hereunder with
respect to the Third Party Claim, and, if so, the basis for such a dispute. In
the event that the Indemnifying Party timely notifies the Indemnified Party that
the Indemnifying Party does not dispute the Indemnifying Party's obligation to
indemnify with respect to the Third Party Claim, the Indemnifying Party shall
defend the Indemnified Party against such Third Party Claim by appropriate
proceedings, provided that, unless the Indemnified Party otherwise agrees in
--------
writing, the Indemnifying Party may not settle any Third Party Claim (in whole
or in part) if such settlement does not include a complete and unconditional
release of the Indemnified Party. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement the
24
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to assume control of the defense on behalf of the Indemnified
Party against a Third Party Claim, whether by failure of such party to give the
Indemnified Party timely notice as provided herein or otherwise, then the
Indemnified Party, without waiving any rights against such party, may settle or
defend against such Third Party Claim and the Indemnified Party shall be
entitled to recover from the Indemnifying Party the amount of any settlement or
judgment and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred, provided that any settlement shall require the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld.
Section 7.4 Failure to Give Notice. The Indemnified Party's failure to give
----------------------------------
reasonably prompt notice as required by this Article 7 of any actual, threatened
---------
or possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability which the
Indemnifying Party may have to the Indemnified Party unless the failure to give
such notice materially and adversely prejudiced the Indemnifying Party or
materially prejudices its ability to defend the claim.
Article 8.
----------
Covenants of the Company
------------------------
The Company hereby covenants and agrees with the Purchasers as follows:
Section 8.1 Insurance. The Company shall obtain and maintain valid policies
---------------------
of insurance with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations engaged in the
same business and similarly situated, including, without limitation, workers
compensation insurance and insurance against casualty loss, public liability,
libel, slander, defamation, advertising injury and other risks.
Section 8.2 NASDAQ Listing. The Company shall use all reasonable efforts to
--------------------------
list its shares on the Nasdaq National Market as soon as is possible after the
Closing.
Section 8.3 Independent Directors. The Company shall use all reasonable
---------------------------------
efforts to form a Board of Directors that is comprised of a majority of
independent directors. The "independent directors" shall be non-affiliated with
the Company, have relevant industry experience and shall be acceptable to ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ and the Purchasers.
Section 8.4 Audit and Compensation Committees. The Company will establish
---------------------------------------------
an audit committee and a compensation committee of the Board of Directors, as
well as any other committees required by the Nasdaq regulations. A majority of
the members of the audit committee and the compensation committee shall be
independent directors as defined in Section 8.3 above. The nominating committee
-----------
of the Board of Directors will nominate members to the audit committee and the
compensation committee as well as any other committee formed by the Board of
Directors.
Section 8.5 Blue Sky Filings. Within fifteen (15) days of the Closing, the
----------------------------
Company will file a notice of sale of the Company Stock pursuant to Form D under
the Securities Act of 1933, as amended (the "Securities Act") and will make any
other filings required by the Securities or Blue Sky laws of any other
applicable state.
25
Section 8.6 Director and Officers Insurance. Within thirty (30) days of
--------------------------------------------
Closing, the Company shall obtain directors and officers insurance in form and
substance acceptable to the Purchasers.
Section 8.7 Accounting. The Company maintains and will continue to
-----------------------
maintain a standard system of accounting established and administered in
accordance to GAAP.
Section 8.8 Use of Proceeds. The Company shall use the proceeds of the
----------------------------
sale of the Company Stock for expansion of the Company's sales and marketing
efforts, product development and working capital purposes.
Section 8.9 Hiring of Chief Financial Officer or Controller. The Company
------------------------------------------------------------
shall use its best efforts to hire a Chief Financial Officer or a Controller
acceptable to the Camden Purchasers within 120 days of Closing.
Section 8.10 Patent Review and Filing. Within thirty (30) days of Closing,
-------------------------------------
the Company shall engage attorneys to review all of the Company's Intellectual
Property and thereafter will promptly prepare and file patents for all
patentable Intellectual Property, as reasonably determined by the Company and
the Camden Purchasers.
Section 8.11 Future Assignments of Intellectual Property. The Company
--------------------------------------------------------
shall use its best efforts to obtain valid assignments from all current and
former employees in connection with all Company Intellectual Property,
including, without limitation, all assignments required by the United States
Patent and Trademark Office in connection with the filing of patent
applications.
Section 8.12 Board Representation. Within five (5) days of the
---------------------------------
Purchasers' request, the Company shall use its best efforts to elect ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ to the Board of Directors of the Company and shall ensure that ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ is appointed to serve on the Compensation Committee, the Audit Committee
and the Nominating Committee of the Board.
Section 8.13 Brazilian Transfer Within thirty (30) days of the Closing,
-------------------------------
the Company shall consummate the transfer of the shares of Cali Brasilia Ltda.
to the Company and shall have made all registrations and filings required of a
foreign-owned Brazilian entity with the Brazilian Central Bank.
Article 9.
Miscellaneous.
--------------
Section 9.1 Survival of Warranties and Covenants. The warranties,
-------------------------------------------------
representations and covenants of the Company and Purchasers contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Purchasers or the
Company.
Section 9.2 Successors and Assigns. The terms and conditions of this
-----------------------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than
26
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
Section 9.3 Further Assurances. Each party hereto shall do and perform
-------------------------------
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to carry out
the provisions of this Agreement and the consummation of the transactions
contemplated hereby.
Section 9.4 Governing Law. This Agreement shall be governed by and
--------------------------
construed, interpreted and enforced in accordance with the laws of Delaware,
without regard to principles of conflicts of laws. Each of the parties hereto,
(a) consents to submit itself to the personal jurisdiction of the Court of
Chancery of the State of Delaware and Federal District Court for the District of
Delaware in the event any dispute arises out of this Agreement or any
transaction contemplated hereby, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, (c) agrees that it will not bring any action relating to this
Agreement or any transaction contemplated hereby in any court other than the
Court of Chancery of the State of Delaware or the Federal District Court for the
District of Delaware and (d) waives any right to trial by jury with respect to
any action related to or arising out of this Agreement or any transaction
contemplated hereby.
Section 9.5 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT WAIVES
---------------------------------
ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT
OF THIS AGREEMENT OR ANY DEALINGS BETWEEN ANY OF THE PARTIES HERETO RELATING TO
THE SUBJECT MATTER OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENT OR AGREEMENT
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREIN.
Section 9.6 Counterparts; Fax Signatures. This Agreement may be
-----------------------------------------
executed by facsimile and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument. Any
signature page delivered by a fax machine or telecopy machine shall be binding
to the same extent as an original signature page, with regard to any agreement
subject to the terms hereof or any amendment thereto. Any party who delivers
such a signature page agrees to later deliver an original counterpart to any
party which requests it.
Section 9.7 Titles and Subtitles. The titles and subtitles used in this
---------------------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
27
Section 9.8 Notices. Unless otherwise provided, any notice required or
--------------------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon (i) personal delivery, (ii) at the time of transmission
by facsimile addressed to the other party at its facsimile number specified
herein (or hereafter modified by subsequent notice to the parties hereto), until
confirmation of receipt made by printed confirmation sheet verifying successful
transmission of the facsimile, (iii) delivery by a nationally recognized
overnight courier or (iv) four (4) days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid. Such notice shall
be addressed to the party to be notified at the address indicated for such party
on the signature page to this Agreement, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
Section 9.9 Finder's Fee. Except for the fees paid to Netcap Ventures,
-------------------------
Inc. in connection with the transactions contemplated herein which is disclosed
on the Schedule of Exceptions, each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. The Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its subsidiaries, officers,
employees, affiliates or representatives is responsible.
Section 9.10 Expenses. Each party to this Agreement shall pay all of its
----------------------
own fees and costs relating to the negotiation, execution and delivery of this
Agreement and the Related Agreements and all actions and transactions
contemplated hereby and thereby. Notwithstanding the foregoing, at the Closing,
the Company will pay the fees and costs related to this financing of the law
firm of ▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, legal counsel to the Purchasers in an
aggregate amount not to exceed $25,000.00.
Section 9.11 Specific Performance; Remedies. Each party hereto acknowledges
-------------------------------------------
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement. It is accordingly agreed that, in
addition to any other remedies which may be available upon the breach of any
such covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement. All remedies, either under this Agreement or by law
or otherwise afforded to any party, shall be cumulative and not alternative.
Section 9.12 Amendments and Waivers. Any term of this Agreement may be
------------------------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Purchasers.
Any amendment or waiver effected in accordance with this Section 9.9 shall be
-----------
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
Section 9.13 Severability. If one or more provisions of this Agreement
--------------------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and
28
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
Section 9.14 Aggregation of Stock. All Company Stock held or acquired by
----------------------------------
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
Section 9.15 Stock Splits. All references to numbers of shares in this
--------------------------
Agreement shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
Section 9.16 Entire Agreement. This Agreement and the Related Agreements
-----------------------------
embody the complete agreement and understanding among the parties hereto with
respect to the subject matter hereof and thereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof or thereof
in any way.
Section 9.17 Delays or Omissions. It is agreed that no delay or omission
--------------------------------
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Amended Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Investor's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Amended Certificate or any waiver on such party's part
of any provisions or conditions of this Agreement, the Related Agreements, or
the Amended Certificate must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Agreement, the Related Agreements, the Amended Certificate, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
Section 9.18 Attorneys' Fees. In the event that any suit or action is
----------------------------
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
Section 9.19 Rights of Purchasers. Each Purchaser shall have the
---------------------------------
absolute right to exercise or refrain from exercising any right or rights that
such Purchaser may have by reason of this Agreement, the Related Agreements, the
Amended Certificate, the Bylaws or at law or in equity including, without
limitation, the right to consent to the waiver of any obligation of the Company
and to enter into any agreement with the Company for the purpose of modifying
this Agreement or the Related Agreements and such Purchaser shall not incur any
liability to any other Purchaser or holder of Common Stock or Series A Preferred
Stock (or Common Stock issued upon conversion thereof) with respect to
exercising or refraining from exercising any such
29
right or rights. Each Purchaser acknowledges that such Purchaser is not relying
upon any other Purchaser in making its investment decision to invest in the
Company.
Section 9.20 Exculpation Among Purchasers. Each Purchaser acknowledges
-----------------------------------------
that it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the Company Stock and Conversion Stock.
Article 10.
Definitions.
------------
Section 10.1 Definitions.The defined terms below have the meaning set forth
------------------------
in the page referred to below.
Term Page #
---- ------
Act................................................................................ 18
Agreement.......................................................................... 1
Amended Certificate................................................................ 1
Benefit Arrangement................................................................ 12
Benefit Liabilities................................................................ 11
Benefit Plan....................................................................... 13
Claim Notice....................................................................... 26
Closing............................................................................ 2
Closing Date....................................................................... 2
COBRA.............................................................................. 12
Common Stock....................................................................... 1
Company............................................................................ 1
Company Benefit Arrangement........................................................ 13
Company Intellectual Property...................................................... 6
Company Plan....................................................................... 13
Company Stock...................................................................... 1
Conversion Stock................................................................... 4
Damages............................................................................ 26
ERISA.............................................................................. 13
ERISA Affiliate.................................................................... 13
Exchange Act....................................................................... 17
Financial Statements............................................................... 17
GAAP............................................................................... 17
Hazardous Materials................................................................ 19
Indemnified Parties................................................................ 26
Indemnifying Party................................................................. 26
Leases............................................................................. 14
Multiemployer Plan................................................................. 13
Pension Plan....................................................................... 13
30
Preferred Stock.................................................................... 3
Purchaser.......................................................................... 1
Purchasers......................................................................... 1
Qualified Plan..................................................................... 14
Real Property...................................................................... 14
Registration Rights Agreement...................................................... 4
Related Agreements................................................................. 4
Related Employer................................................................... 14
Schedule of Purchasers............................................................. 1
SEC................................................................................ 17
SEC Reports........................................................................ 17
Series A Preferred Stock........................................................... 1
Stockholders' Agreement............................................................ 4
Third Party Claim.................................................................. 27
Third Party Licensing Rights....................................................... 6
(Signature pages follow)
2
IN WITNESS WHEREOF, this Common Stock and Series A Preferred Stock Purchase
Agreement has been duly executed on the date herein above set forth.
"COMPANY"
ENGLISH LANGUAGE LEARNING & INSTRUCTION
SYSTEM, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: President and Chief Executive Officer
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Fax No.: ▇▇▇.▇▇▇.▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
With a copy to: ▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
"PURCHASERS"
CAMDEN PARTNERS STRATEGIC FUND II A, L.P.
By: Camden Partners Strategic II, LLC,
its General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Member
Address: Camden Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇, Esq.
CAMDEN PARTNERS STRATEGIC FUND II B, L.P.
By: Camden Partners Strategic II, LLC,
its General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Member
Address: Camden Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇, Esq.
Schedule A
----------
Schedule of Purchasers
Shares of Aggregate
----------- Shares of ---------
Purchaser Common Stock Preferred Stock Purchase Price
--------- ------------ --------------- --------------
Camden Partners 472,000 944,000 $3,776,000
Strategic Fund II-A,
L.P.
Camden Partners 28,000 56,000 $ 224,000
Strategic Fund II-B,
L.P.
Schedule B
----------
Schedule of Exceptions
Exhibit A
---------
Form of Amended and Restated Certification of Incorporation
Exhibit B
---------
Flow of Funds Memorandum
Exhibit C
---------
Form of Stockholders Agreement
Exhibit D
---------
Form of Registration Rights Agreement
Exhibit E
---------
Form of Employee Confidentiality and Non-Competition Employment Agreement
Exhibit F
---------
Form ofBylaws
Exhibit G
---------
Form of Opinion of Company Counsel
Exhibit H
---------
Form of Management Rights Letter
Exhibit I
---------
Form of Employment Agreement
Exhibit J
---------
Form of Lock-Up Agreement
Exhibit K
---------
Option Plan
Exhibit L
---------
Form of Non-Disclosure, Intellectual Property and Non-Competition Agreement
