Exhibit 10.11
HITTITE MICROWAVE CORPORATION
STOCK PURCHASE AGREEMENT
AS OF NOVEMBER 20, 2000
1
SECTION 1 PURCHASE AND SALE........................................................1
1.1 DESCRIPTION OF SECURITIES...............................................1
1.2 SALE AND PURCHASE.......................................................1
1.3 CLOSING.................................................................1
1.4 USE OF PROCEEDS BY THE COMPANY FROM THE CLOSING.........................1
1.5 TRANSFER TAXES..........................................................2
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................2
2.1 ORGANIZATION AND CORPORATE POWER........................................2
2.2 AUTHORIZATION AND NON-CONTRAVENTION.....................................2
2.3 CORPORATE RECORDS.......................................................3
2.4 CAPITALIZATION..........................................................3
2.5 SUBSIDIARIES, INVESTMENTS...............................................4
2.6 FINANCIAL STATEMENTS; PROJECTIONS.......................................4
2.7 ABSENCE OF CERTAIN DEVELOPMENTS.........................................4
2.8 ABSENCE OF UNDISCLOSED LIABILITIES......................................5
2.9 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE; BACKLOG..........................5
2.10 TRANSACTIONS WITH AFFILIATES, DISTRIBUTIONS TO STOCKHOLDERS.............6
2.11 TITLE TO PROPERTIES.....................................................6
2.12 TAX MATTERS.............................................................7
2.13 CERTAIN CONTRACTS AND ARRANGEMENTS......................................7
2.14 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS.....................9
2.15 DISABLING CODES........................................................11
2.16 PERFORMANCE OF COMMERCIAL PRODUCTS.....................................11
2.17 LITIGATION.............................................................11
2.18 LABOR MATTERS..........................................................11
i
2.19 EMPLOYEE BENEFIT PROGRAMS..............................................12
2.20 LIST OF CERTAIN EMPLOYEES; SUPPLIERS AND CUSTOMERS.....................13
2.21 INSURANCE..............................................................13
2.22 WARRANTY AND RELATED MATTERS...........................................14
2.23 PERMITS; COMPLIANCE WITH LAWS..........................................14
2.24 ENVIRONMENTAL MATTERS..................................................14
2.25 INVESTMENT BANKING; BROKERAGE..........................................15
2.26 SOLVENCY...............................................................15
2.27 INFORMATION SUPPLIED BY THE COMPANY....................................15
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.........................16
3.1 INVESTMENT STATUS......................................................16
3.2 AUTHORITY..............................................................16
3.3 INVESTMENT BANKING; BROKERAGE FEES.....................................17
SECTION 4 CONDITIONS OF PURCHASE BY THE INVESTORS AT CLOSING......................17
4.1 SATISFACTION OF CONDITIONS.............................................17
4.2 OPINION OF COUNSEL.....................................................17
4.3 AUTHORIZATION..........................................................17
4.4 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION......................17
4.5 DELIVERY OF DOCUMENTS..................................................17
4.6 REGISTRATION RIGHTS AGREEMENT..........................................18
4.7 STOCKHOLDERS AGREEMENT.................................................18
4.8 NO MATERIAL ADVERSE CHANCE.............................................18
4.9 ALL PROCEEDINGS SATISFACTORY...........................................18
4.10 INVESTORS' FEES........................................................18
4.11 NO VIOLATION OR INJUNCTION.............................................18
- ii -
4.12 CONSENTS AND WAIVERS...................................................18
4.13 ELECTION OF DIRECTORS..................................................19
4.14 INVENTIONS AND NON-COMPETE AGREEMENTS..................................19
4.15 AUDIT..................................................................19
4.16 MANAGEMENT COMPENSATION................................................19
SECTION 5 COVENANTS OF THE COMPANY................................................19
5.1 FINANCIAL STATEMENTS...................................................19
5.2 BUDGET.................................................................20
5.3 CONDUCT OF BUSINESS....................................................20
5.4 PAYMENT OF TAXES.......................................................20
5.5 COMPLIANCE WITH LAWS...................................................20
5.6 ADVERSE CHANGES........................................................20
5.7 INSURANCE..............................................................20
5.8 LIFE INSURANCE.........................................................21
5.9 AFFILIATED TRANSACTIONS................................................21
5.10 INFORMATION AND INSPECTION.............................................21
5.11 MANAGEMENT COMPENSATION................................................22
5.12 STOCK OPTIONS; RESTRICTED STOCK........................................22
5.13 NO CONFLICTING AGREEMENTS..............................................22
5.14 INVENTIONS AND NON-COMPETE AGREEMENTS..................................22
5.15 ENFORCEMENT OF CERTAIN AGREEMENTS......................................22
5.16 NEGATIVE COVENANTS.....................................................22
SECTION 6 SURVIVAL; INDEMNIFICATION...............................................23
6.1 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS...................23
6.2 INDEMNIFICATION FOR VICARIOUS LIABILITY................................24
- iii -
6.3 ATTORNEYS' FEES........................................................26
SECTION 7 DEFINITIONS.............................................................26
SECTION 8 GENERAL.................................................................27
8.1 AMENDMENTS, WAIVERS AND CONSENTS.......................................28
8.2 LEGEND ON SECURITIES...................................................28
8.3 GOVERNING LAW..........................................................28
8.4 SECTION HEADINGS AND GENDER............................................28
8.5 COUNTERPARTS...........................................................28
8.6 NOTICES AND DEMANDS....................................................29
8.7 DISPUTE RESOLUTION.....................................................29
8.8 REMEDIES, SEVERABILITY.................................................30
8.9 INTEGRATION............................................................31
8.10 CONFIDENTIALITY........................................................31
8.11 SUCCESSORS AND ASSIGNS.................................................31
- iv -
EXHIBITS
Exhibit A - Investors
Exhibit B - Form of Amended and Restated Certificate of Incorporation
Exhibit C - Form of Opinion of Xxxxxx, Xxxx & Xxxxxxx
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Stockholders Agreement
Exhibit F - Form of Director Indemnification Agreement
Exhibit G-1 - Form of Non-Compete Agreement
Exhibit G-2 - Form of Non-Solicitation Agreement
Exhibit H - Form of Proprietary Information, Confidentiality and
Inventions Agreement
SCHEDULES
DISCLOSURE SCHEDULE
Section 2.1 - Foreign Qualification
Section 2.4 - Capitalization
Section 2.6 - Financial Statements; Projections
Section 2.7 - Certain Developments
Section 2.8 - Undisclosed Liabilities
Section 2.9(a) - Accounts Payable
Section 2.9(b) - Accounts Receivable
Section 2.9(c) - Backlog
Section 2.10 - Transactions with Affiliates
Section 2.11 - Properties
Section 2.12 - Tax Matters
Section 2.13 - Certain Contracts and Arrangements
Section 2.14 - Intellectual Property Rights; Employee Restrictions
Section 2.15 - Disabling Codes
Section 2.16 - Existing Products
Section 2.17 - Litigation
Section 2.18 - Labor Matters
Section 2.19 - Employee Benefit Programs
Section 2.20(a)- List of Certain Employees
Section 2.20(b)- List of Certain Suppliers
Section 2.20(c)- List of Certain Customers
Section 2.21 - Insurance
Section 2.22 - Warranty and Related Matters
Section 2.27 - Information
- v -
STOCK PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT is made as of this 20th day of November, 2000
by and among
Hittite Microwave Corporation, a Delaware corporation (together
with any predecessors or successors thereto as the context requires, the
"COMPANY"), and the investors named in EXHIBIT A attached hereto (collectively,
the "INVESTORS" and each individually, an "INVESTOR"). Except as otherwise
indicated, capitalized terms used herein shall have the meanings set forth in
Section 7 hereof.
SECTION 1 PURCHASE AND SALE
1.1 DESCRIPTION OF SECURITIES. The Company has authorized the issuance
and sale to the Investors of shares of its Series A Convertible Preferred Stock,
par value $.01 per share (the "SERIES A PREFERRED STOCK"), with the rights,
preferences and other terms set forth in Exhibit B attached hereto, which are
convertible into shares of the Company's Common Stock, par value $.01 per share
(the "COMMON STOCK"). For purposes of this Agreement, the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock are referred to as the
"CONVERSION SHARES." The Company has authorized and reserved, and covenants to
continue to reserve, a sufficient number of shares of its Common Stock necessary
to satisfy the conversion rights of the holders of Series A Preferred Stock as
set forth in EXHIBIT B.
1.2 SALE AND PURCHASE. Upon the terms and subject to the conditions
contained herein, and in reliance on the representations and warranties set
forth in Section 2, at the Closing (as defined in Section 1.3 hereof) each of
the Investors shall purchase from the Company, and the Company shall issue and
sell to each of the Investors, the number of shares of Series A Preferred Stock
set forth opposite the name of such Investor in EXHIBIT A for the purchase price
of $11.64028719 per share, or an aggregate of 1,288,628 shares of Series A
Preferred Stock for an aggregate purchase price of $15,000,000.00 (the "PURCHASE
PRICE").
1.3 CLOSING. The closing of the purchase and sale of the Series A
Preferred Stock under Section 1.2 hereof (the "Closing") shall take place at the
offices of XxXxxxxxx, Will & Xxxxx, located at 00 Xxxxx Xxxxxx, Xxxxxx, XX
00000, 10:00 a.m. Boston time, on the date hereof or such other time and place
as shall be agreed upon by the Company and the Investors (the "CLOSING DATE").
At the Closing, the Company shall issue and deliver stock certificates
representing the applicable number of shares of Series A Preferred Stock to be
sold by the Company under, and in consideration of the purchase price set forth
in, Section 1.2 hereof to each of the Investors, free and clear of any and all
Liens against payment of the full purchase price therefor by or on behalf of
such Investor to the Company by wire transfer of immediately available funds.
1.4 USE OF PROCEEDS BY THE COMPANY FROM THE CLOSING. The Company shall
use the proceeds from the sale of Series A Preferred Stock hereunder (i) to pay
all transaction fees incurred by the Company and the Investors (subject to
Section 4.10 hereof) in connection with the transactions contemplated under this
Agreement; (ii) to fund a pro rata distribution of retained earnings to the
current stockholders of the Company in an amount not to exceed
1
$11,000,000.00 (the "STOCKHOLDER DISTRIBUTION"); and (iii) to fund the Company's
working capital, capital expenditures and other corporate needs.
1.5 TRANSFER TAXES. All transfer taxes, fees and duties under applicable
law incurred in connection with the sale and transfer by the Company of the
Series A Preferred Stock to the Investors under this Agreement will be borne and
paid by the Company and the Company shall promptly reimburse the Investors for
any such tax, fee or duty which any of them is required to pay under applicable
law.
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement and
consummate the transactions contemplated hereby, the Company hereby makes to the
Investors the representations and warranties contained in this Section 2. For
purposes of this Section 2, the term "Company" shall refer to the Company and
all of its Subsidiaries. Such representations and warranties are subject to the
qualifications and exceptions set forth in the corresponding section of the
disclosure schedule delivered to the Investors pursuant to this Agreement (the
"DISCLOSURE SCHEDULE").
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
is duly qualified or registered to do business as a foreign corporation (a) in
each jurisdiction listed on SECTION 2.1 OF THE DISCLOSURE SCHEDULE and (b) in
each jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect. The Company has all required corporate power and authority to
carry on its business as presently conducted, to enter into and perform this
Agreement and the agreements contemplated hereby to which it is a party and to
carry out the transactions contemplated hereby and thereby. The copies of the
Amended and Restated Certificate of Incorporation and By-laws of the Company, as
amended to date (the "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION" and
"BY-LAWS," respectively), which have been furnished to the Investors by the
Company, are correct and complete at the date hereof, and the Company is not in
violation of any term of its Amended and Restated Certificate of Incorporation
or By-laws. To the Company's knowledge, the Company is not in violation of any
term or provision of any agreement, instrument, judgment, decree, order,
statute, rule or government regulation applicable to it or to which it is a
party, the violation of which would have a Material Adverse Effect.
2.2 AUTHORIZATION AND NON-CONTRAVENTION. This Agreement and all documents
executed pursuant hereto are valid and binding obligations of the Company,
enforceable in accordance with their terms. The execution, delivery and
performance of this Agreement and all agreements, documents and instruments
contemplated hereby, the sale and delivery of the Series A Preferred Stock and,
upon conversion of the Series A Preferred Stock, the issuance and delivery of
the Conversion Shares, have been duly authorized by all necessary corporate
action of the Company. The execution of this Agreement, the sale and delivery of
the Series A Preferred Stock and, upon conversion of the Series A Preferred
Stock, the issuance of the Conversion Shares, and the performance of any
transaction contemplated hereby will not (i) violate, conflict with or result in
a default under any contract or obligation to which the Company is a party or by
which it or its assets are bound, or any provision of the Amended and
- 2 -
Restated Certificate of Incorporation or By-laws of the Company, or cause the
creation of any Lien upon any of the material assets of the Company; (ii)
violate or result in a violation of, or constitute a default (whether after the
giving of notice, lapse of time or both) under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by any court or
other governmental agency applicable to the Company; (iii) require from the
Company any notice to, declaration or filing with, or consent or approval of any
governmental authority or other third party other than pursuant to state
securities or blue sky laws; or (iv) accelerate any obligation under, or give
rise to a right of termination of, any agreement, permit, license or
authorization to which the Company is a party or by which the Company is bound.
2.3 CORPORATE RECORDS. The corporate record books of the Company
accurately record all corporate action taken by its stockholders, board of
directors, and committees thereof. The copies of the corporate records of the
Company, as delivered to the Investors and/or their counsel for review, are true
and complete copies of the originals of such documents.
2.4 CAPITALIZATION. As of the Closing and after giving effect to the
transactions contemplated hereby, the authorized capital stock of the Company
will consist of (i) 20,000,000 shares of Common Stock, of which 11,841,000
shares will be issued and outstanding, (ii) 1,288,628 shares of Series A
Preferred Stock, all of which will be issued and outstanding, and (iii)
3,711,372 shares of undesignated preferred stock, par value $.01 per share, none
of which will be issued and outstanding. As of the Closing and after giving
effect to the transactions contemplated hereby, the outstanding shares of
capital stock of the Company are held beneficially and of record by the persons
identified in SECTION 2.4 OF THE DISCLOSURE SCHEDULE in the amounts indicated
thereon. Except for the Company's 1989 Stock Option Plan, 1990 Stock Option
Plan, 1996 Stock Appreciation Rights Plan and 1996 Stock Option Plan; each as
amended, the Company has never adopted or maintained any formal stock incentive
plan or other plan providing for equity compensation of any Person. The Company
has terminated each of the 1989 Stock Option Plan, the 1990 Stock Option Plan
and the 1996 Stock Appreciation Rights Plan and no Person has any outstanding
awards or other rights thereunder. The Company has reserved an aggregate of
2,000,000 shares of Common Stock (as adjusted for stock splits, stock dividends
and the like) for issuance under the 1996 Stock Option Plan, of which as of the
date hereof 384,000 shares have been issued upon exercise of options granted
under such plan, 722,000 shares are subject to outstanding, unexercised options
and 894,000 shares remain available for future grants. SECTION 2.4 OF THE
DISCLOSURE SCHEDULE sets forth the name of each holder of options, warrants or
rights to purchase Common Stock, the number of shares for which such options,
warrants or rights are exercisable with respect to each holder, along with the
applicable vesting schedule (including any acceleration terms thereof), if any,
and exercise or purchase price. Except as contemplated under this Agreement or
otherwise disclosed in SECTION 2.4 OF THE DISCLOSURE SCHEDULE, there are no
outstanding subscriptions, options, warrants, agreements, arrangements or
commitments of any kind for or relating to the issuance, or sale of, or
outstanding securities convertible into or exchangeable for, any shares of
capital stock of any class or other equity interests of the Company. Other than
as set forth in the Amended and Restated Certificate of Incorporation, the
Company has no obligation to purchase, redeem, or otherwise acquire any of its
capital stock or any interests therein. As of the Closing, and after giving
effect to the transactions contemplated hereby, all of the outstanding shares of
capital stock of the Company will have been duly and validly authorized and
issued and will be fully paid and non-assessable and will have been offered,
issued, sold and delivered in compliance
- 3 -
with applicable federal and state securities laws and not subject to any
preemptive rights. The Company has duly and validly authorized and reserved
1,288,628 shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock and the shares of Common Stock so issued will, upon such
conversion, be validly issued, fully paid and non-assessable. The relative
rights, preferences and other provisions relating to the Series A Preferred
Stock are as set forth in EXHIBIT B attached hereto. As of the Closing and after
giving effect to the transactions contemplated hereby, except as set forth in
(i) SECTION 2.4 OF THE DISCLOSURE SCHEDULE; (ii) the Amended and Restated
Certificate of Incorporation; (iii) the Stockholders Agreement; or (iv) the
Registration Rights Agreement, there are (x) no preemptive rights, rights of
first refusal, put or call rights or obligations or anti-dilution rights with
respect to the issuance, sale or redemption of the Company's capital stock by
the Company, (y) no rights to have the Company's capital stock registered for
sale to the public in connection with the laws of any jurisdiction and (z) to
the Company's knowledge, no documents, instruments or agreements relating to the
voting of the Company's voting securities or restrictions on the transfer of the
Company's capital stock.
2.5 SUBSIDIARIES, INVESTMENTS. The Company does not have any direct or
indirect Subsidiaries. The Company does not own or have any direct or indirect
interest in or control over any corporation, partnership, joint venture or other
entity of any kind. The term "CONTROL" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
2.6 FINANCIAL STATEMENTS; PROJECTIONS. Included in SECTION 2.6 OF THE
DISCLOSURE SCHEDULE are (i) the audited balance sheets as of December 31, 1998
and December 31, 1999 and the related statements of income and cash flows for
the fiscal periods then ended, and (ii) the unaudited balance sheet as of
September 30, 2000 (the "BASE BALANCE SHEET"), and the related statements of
income and cash flows for the fiscal period then ended, all of which statements
(including the footnotes and schedules thereto) were prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods covered thereby (except, in the case of the interim statements, for
the absence of footnote disclosures and immaterial customary year-end
adjustments) and fairly present in all material respects the financial condition
of the Company on the dates of such statements and the results of its operations
and cash flows for the periods covered thereby. Nothing has come to the
attention of the Company since the date of the Base Balance Sheet which would
indicate that such financial statements do not fairly present in all material
respects the financial condition of the Company on the dates of such statements
and results of its operations and cash flows for the periods covered thereby.
Included in SECTION 2.6 OF THE DISCLOSURE SCHEDULE are projections for fiscal
years ending December 31, 2000 and December 31, 2001, which represent
management's good faith estimates of the Company's future financial performance
based upon assumptions which management in good faith believes were reasonable
when made and continues to believe to be reasonable as of the date hereof.
2.7 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in SECTION 2.7
OF THE DISCLOSURE SCHEDULE, since the date of the Base Balance Sheet, there has
been: (a) no material adverse change in the properties, assets, business
condition (financial or otherwise), prospects or results of operations of the
Company; (b) no declaration, setting aside or payment of any dividend or other
distribution (other than the Stockholder Distribution and normal quarterly tax
- 4 -
distributions for periods prior to the Closing) with respect to, or any direct
or indirect redemption or acquisition of, any capital stock of the Company; (c)
no waiver of any valuable right of the Company or cancellation of any material
debt or claim held by the Company; (d) no material loan by the Company to any
officer, director, employee or stockholder of the Company, or any agreement or
commitment therefor; (e) no increase, direct or indirect, in the compensation
paid or payable to any officer, director, employee, consultant, agent or
stockholder of the Company (other than salary increases in the ordinary course
of business consistent with past practice which, individually or in the
aggregate, are not material); (f) no material loss, destruction or damage to any
property of the Company, whether or not insured; (g) no labor trouble involving
the Company and no change in the senior management or other key personnel of the
Company or the terms and conditions of their employment; (h) no acquisition or
disposition of any assets (or any contract or arrangement therefor) nor any
other material transaction by the Company otherwise than for fair value in the
ordinary course of business consistent with past practice; or (i) any agreement
or understanding, whether in writing or otherwise, for the Company to take any
of the actions specified in paragraphs (a) through (h).
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, or liabilities for Taxes due or then accrued or to become
due, regardless of whether claims in respect thereof had been asserted as of
such date), except liabilities or obligations (i) adequately provided for in the
Base Balance Sheet, (ii) incurred by the Company since the date of the Base
Balance Sheet in the ordinary course of business consistent with past practice,
(iii) under the contracts and agreements listed on the Disclosure Schedule, (iv)
incurred in connection with this Agreement, (v) not required under generally
accepted accounting principles to be reflected on the financial statements and
(vi) disclosed in SECTION 2.8 OF THE DISCLOSURE SCHEDULE. For purposes of this
Section 2.8, "material" liability or obligation shall mean a transaction
involving potential commitment or payment by the Company in excess of $150,000.
2.9 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE; BACKLOG.
(a) Except as set forth in SECTION 2.9(a) OF THE DISCLOSURE
SCHEDULE, all accounts payable of the Company arose in bona fide arm's-length
transactions in the ordinary course of business and no material account payable
is delinquent by more than sixty (60) days in its payment. Since the date of the
Base Balance Sheet, the Company has paid its accounts - payable in the ordinary
course and in a manner which is consistent with its past practices. As of the
date hereof, the Company has no account payable to any Person which is
affiliated with it or any of its directors, officers, employees or stockholders,
except as set forth in SECTION 2.9(a) OF THE DISCLOSURE SCHEDULE.
(b) All of the accounts receivable of the Company arose in bona fide
arm's-length transactions in the ordinary course of business and are valid and
enforceable claims, are not subject to any set-off or counterclaim, and, to the
Company's knowledge, are fully collectible in the normal course of business,
after deducting the allowance for doubtful accounts stated in the Base Balance
Sheet in accordance with generally accepted accounting principles. Since the
date of the Base Balance Sheet, the Company has collected its accounts
receivable in the
- 5 -
ordinary course and in a manner which is consistent with past practices and has
not accelerated or intentionally delayed any such collections. Except as set
forth in SECTION 2.9(b) OF THE DISCLOSURE SCHEDULE, as of the date hereof, the
Company does not have any accounts receivable from any Person which is known by
the Company to be affiliated with it or any of its directors, officers,
employees or stockholders. The Company has no return allowances or other
obligations, written or oral, with any of its customers which require the
Company to accept returns of their unsold inventory or swap it out for newer
versions.
(c) As of October 31, 2000, the Company had a backlog of firm orders
for the sale of products of the Company for which revenues have not been
recognized as set forth as SCHEDULE 2.9(c) OF THE DISCLOSURE SCHEDULE.
2.10 TRANSACTIONS WITH AFFILIATES, DISTRIBUTIONS TO STOCKHOLDERS.
(a) Except for their ongoing, regular employment relationships with
the Company and as set forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE, there
are no loans, leases, agreements or other transactions or continuing
transactions presently in effect (i) by and between the Company and any officer,
employee, director or stockholder (including any trustee or beneficiary of any
trust which is a stockholder) of the Company, or any member of such officer's,
employee's, director's or stockholder's immediate family, or Persons
controlling, controlled by, under common control with or otherwise affiliated
with such officer, employee, director or stockholder or his or her immediate
family; or (ii) by and between any officer, employee' director or stockholder
(including any trustee or beneficiary of any trust which is a stockholder) of
the Company, or any member of such officer's, employee's, director's or
stockholder's immediate family, or Persons controlling, controlled by, under
common control with or otherwise affiliated with such officer, employee,
director or stockholder or his or her immediate family, and any competitors,
customers, distributors or suppliers of the Company and known to the Company
(each, an "AFFILIATED TRANSACTION"). Each of the Affiliated Transactions were
entered into and have been heretofore conducted in bona fide arm's-length
transactions. Except as set forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE to
the Company's knowledge, no stockholder, director, officer or employee of the
Company, any of their respective spouses or family members, owns directly or
indirectly on an individual or joint basis any interest in, or serves as an
officer or director or in another similar capacity of, any competitor, customer,
distributor or supplier of the Company, or any organization which has a contract
or arrangement with the Company except for passive investments of less than 2%
in publicly-traded companies.
2.11 TITLE TO PROPERTIES. SECTION 2.11 OF THE DISCLOSURE SCHEDULE
sets forth the addresses and uses of all real property that the Company owns,
leases or subleases. Except as set forth in SECTION 2.11 OF THE DISCLOSURE
SCHEDULE, the Company has good, valid and (if applicable) marketable title to
all of its assets, free and clear of all Liens, and none of such assets is
subject to any conditional sale agreement. Such assets constitute all property
which is necessary to the business of the Company and all equipment included
therein is in good condition and repair (ordinary wear and tear excepted) and
all leases of real or personal property to which the Company is a party are in
full force and effect and afford the Company peaceful possession of the subject
matter of the lease and true and complete copies thereof have been delivered to
the Investors or their counsel. To the Company's knowledge, the Company is not
in violation of any zoning, building or safety ordinance, regulation or
requirement or other law or regulation
- 6 -
applicable to the operation of its owned or leased properties, which violation
would have a Material Adverse Effect, nor has it received any notice of such
violation. There are no defaults by the Company or, to the Company's knowledge,
by any other party which might curtail in any material respect the present use
of the property of the Company. The performance by the Company of this Agreement
and the transactions contemplated hereby will not result in the termination of,
or in any increase of any amounts payable under, any of its leases for real
property or material Liens for personal property and will not require the
consent or approval from any other party to such leases.
2.12 TAX MATTERS. The Company has timely and properly filed all federal,
state, local and foreign Tax returns required to be filed by it through the date
hereof, and has paid or caused to be paid all Taxes required to be paid by it
through the date hereof whether disputed or not, except Taxes which have not yet
accrued or otherwise become due. All Taxes and other assessments and levies
which the Company was or is required to withhold or collect have been withheld
and collected and, except for such Taxes which are not yet due and payable, have
been paid over to the proper governmental authorities. Except as set forth in
SECTION 2.12 OF THE DISCLOSURE SCHEDULE, (i) the Company has never received
written notice of any audit or of any proposed deficiencies from the Internal
Revenue Service (the "IRS") or any other taxing authority (other than routine
audits undertaken in the ordinary course and which have been resolved on or
prior to the date hereof); (ii) there are in effect no waivers of applicable
statutes of limitations with respect to any Taxes owed by the Company for any
year; (iii) neither the IRS nor any other taxing authority is now asserting, or
threatening to assert, against the Company any deficiency or claim for
additional Taxes or interest thereon or penalties in connection therewith in
respect of the income or sales of the Company; and (iv) the Company has never
been a member of an affiliated group of corporations filing a consolidated
federal income Tax return nor does the Company have any liability for Taxes of
any other Person under Treasury Regulations Section 1.1502.6 (or any similar
provision of foreign, state or local law) or otherwise. The Company is not a
party to any Tax allocation or sharing arrangement. The Company is not a party
to any contract, agreement, plan or arrangement covering any employee or former
employee thereof that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Section 280G or
162 of the Code. The Company is not a "foreign person" within the meaning of
Section 1445 of the Code and Treasury Regulations Section 1.1445-2. The Company
has not elected to be treated as a collapsible corporation pursuant to Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
that would have a Material Adverse Effect. The Company has been a validly
existing S corporation within the meaning of Sections 1361 and 1362 of the Code
at all times since the fiscal year beginning January 1, 1989. The Company has
not since January 1, 1995: (A) acquired assets from another corporation in a
transaction in which the Tax basis of the acquired assets was determined, in
whole or in part, by reference to the Tax basis of the assets in the hands of
the transferor, or (B) acquired the stock of any corporation which is or was a
qualified subchapter S subsidiary within the meaning of Section 1361(b)(3)(B) of
the Code.
2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in SECTION
2.13 OF THE DISCLOSURE SCHEDULE (with true and correct copies delivered to the
Investors' counsel), the Company is not a party or subject to or bound by:
- 7 -
(a) any contract or agreement involving potential commitment or
payment by the Company in excess of $150,000 or which is otherwise material and
not entered into in the ordinary course of business;
(b) any contract, lease or agreement involving payments in excess of
$150,000 which is not cancelable by the Company without penalty on not less than
sixty (60) days notice;
(c) any contract, including any distribution agreements, containing
covenants directly or explicitly limiting the freedom of the Company to compete
in any line of business or with any Person or to offer any of its products;
(d) any contract or agreement relating to the licensing,
distribution, development, purchase, sale or servicing of its products requiring
payments during the term in excess of $150,000;
(e) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing or any pledge or
security arrangement;
(f) any employment contracts, non-competition agreements, invention
assignments, severance or other agreements with officers, directors, employees,
stockholders or consultants of the Company or Persons related to or affiliated
with such Persons;
(g) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including without
limitation any agreement with any stockholder of the Company which includes,
without limitation, anti-dilution rights, registration rights, voting
arrangements or operating covenants;
(h) any pension, profit sharing, retirement or stock options plans;
(i) any royalty, dividend or similar arrangement based on the
revenues or profits of the Company or any material contract or agreement
involving fixed price or fixed volume arrangements;
(j) any joint venture, partnership, manufacturer, development,
distribution, supply or similar agreement involving potential commitment or
payment by the Company in excess of $150,000;
(k) any acquisition of a business or line of business, merger or
similar agreement relating to the acquisition; or
(l) any other contract not executed in the ordinary course of
business.
All such contracts, agreements, leases and instruments are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Company, and are enforceable in accordance with their respective terms. The
Company has not received any written notice, and has no knowledge of any threat,
to terminate any such contracts, agreements, leases or instruments. The Company
is not in default in complying with any provisions of any such
- 8 -
contract, agreement, lease or instrument, and no condition or event or fact
exists which, with written notice, lapse of time or both would constitute a
default thereunder on the part of the Company, except for any such default,
condition, event or fact that, individually or in the aggregate, would not have
a Material Adverse Effect.
2.14 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS. SECTION 2.14 OF
THE DISCLOSURE SCHEDULE sets forth a list and brief description of all material
Intellectual Property Rights owned by or registered in the name of the Company
or of which the Company is the licensor or licensee or in which the Company has
any material right (other than with respect to "off-the-shelf" software which is
generally commercially available) or which is otherwise material to the conduct
of the Company's business as presently conducted or proposed to be conducted.
Except as set forth in SECTION 2.14 OF THE DISCLOSURE SCHEDULE:
(a) Except where the lack thereof would not have a Material Adverse
Effect, the Company has exclusive ownership of, free and clear of claims or
rights of any other Person, with full right to use, sell, license, sublicense,
dispose of, and bring actions for infringement of, or possesses exclusive
licenses or other rights to use, all Intellectual Property Rights necessary for
the conduct of its business as presently conducted (other than with respect to
"off-the-shelf" software which is generally commercially available). All
Intellectual Property Rights that are used or incorporated into the Company's
products or products actively under development were developed by or for the
Company by the current or former employees, consultants or independent
contractors of the Company pursuant to agreements with the Company regarding
confidentiality, proprietary information and assignment of inventions and
copyrights in substantially the forms heretofore provided to the Investors
("INVENTIONS AGREEMENT") or purchased by the Company and are licensed or owned
exclusively by the Company, free and clear of claims and rights of any other
Person.
(b) The business of the Company as presently conducted and the
production, marketing, licensing, use and servicing of any products or services
of the Company do not infringe or conflict with any patent, trademark, copyright
or trade secret rights or, to the Company's knowledge, any patents or any other
Intellectual Property Rights of any Person, except where any such infringement
or conflict would not have a Material Adverse Effect. The Company has not
received written notice from any Person asserting that any Intellectual Property
Rights owned or licensed by the Company, or which the Company otherwise has the
right to use, is invalid or unenforceable by the Company and there is no valid
basis for any such claim (whether or not pending or threatened).
(c) The Company has not received any written notice or other written
claim from any Person asserting that any of the Company's present or
contemplated activities infringe or may infringe any Intellectual Property
Rights of such Person nor is the Company aware of any pending or threatened
claim thereof. The Company is not aware of any infringement by any other Person
of any Intellectual Property Rights of the Company.
(d) All licenses or other agreements under which the Company is
granted Intellectual Property Rights (excluding licenses to use "off-the-shelf"
software utilized in the Company's internal operations and which is generally
commercially available) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE.
All such licenses or other agreements are in full force
- 9 -
and effect, there is no material default by the Company, and to the Company's
knowledge, by any other party thereto and, except as set forth in SECTION 2.14
OF THE DISCLOSURE SCHEDULE, all of the rights of the Company thereunder are
freely assignable. The Company is not making unlawful use of any Intellectual
Property Rights granted to it under any such licenses or other agreements. True
and complete copies of all such licenses or other agreements, and any amendments
thereto, have been provided to the Investors and the Company has no reason to
believe that the licensors under such licenses and other agreements lacked the
requisite power and authority and right to grant the Intellectual Property
Rights purported to be conferred thereby.
(e) All licenses or other agreements under which the Company has
granted Intellectual Property Rights to other Persons (including all end-user
agreements) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE, with a
description of any terms which vary from the Company's standard form, if any, of
such licenses or other agreements. All of such licenses or other agreements
provide for the grant of the Company's Intellectual Property Rights on a
nonexclusive basis, and are in full force and effect and there is no material
default by the Company, and to the Company's knowledge, by any other party
thereto. True and complete copies of all such licenses or other agreements, and
any amendments thereto, have been made available to the Investors. All
agreements, contracts and instruments which contain escrow terms or provisions
with respect to the Company's Intellectual Property Rights, including, without
limitation, the Company's source code, are listed in SECTION 2.14 OF THE
DISCLOSURE SCHEDULE, and no other party thereto has a claim to exercise any
rights under such escrow terms or provisions to acquire or obtain access to any
of the Company's Intellectual Property Rights held thereunder.
(f) The Company has taken all reasonable steps to keep confidential
all technical information developed by or belonging to the Company which has not
been patented or copyrighted. To the Company's knowledge, the Company is not
making unlawful use of any Intellectual Property Rights of any other Person,
including, without limitation, any former employer or client of any past or
present employees or consultants of the Company. Except as disclosed in SECTION
2.14 OF THE DISCLOSURE SCHEDULE, neither the Company nor to the Company's
knowledge, any of its employees, independent contractors or consultants has any
agreements or arrangements with their former employers or clients relating to
any Intellectual Property Rights of such employers or clients, which interfere
or conflict with the performance of such employee's, independent contractor's or
consultant's duties for the Company or result in any former employers or clients
of such employees, independent contractors or consultants having any rights in,
or claims on, the Company's Intellectual Property Rights. To the Company's
knowledge, after due inquiry, the activities of the Company's employees,
independent contractors and consultants do not violate any agreements or
arrangements which they have with their former employers or clients. The Company
has taken all reasonable steps to establish and preserve its ownership of all of
its Intellectual Property Rights; except as set forth in SECTION 2.14 OF THE
DISCLOSURE SCHEDULE, each current or former employee, independent contractor or
consultant of the Company who had or has responsibility for coding or developing
the Company's products or technologies or who had access to source code or other
proprietary product information has executed an Inventions Agreement, and the
Company has not received written notice that any employee, independent
contractor or consultant is in violation of any agreement or in breach of any
agreement or arrangement with former or present employers or clients relating to
proprietary information or assignment of inventions. Each key employee listed
- 10 -
in SECTION 2.14 OF THE DISCLOSURE SCHEDULE has executed a non-competition
agreement, copies of which have been provided to the Investors. Without
limitation of any of the foregoing and except as otherwise expressly disclosed
in SECTION 2.14 OF THE DISCLOSURE SCHEDULE: (i) the Company has taken all
reasonable security measures to guard against unauthorized disclosure or use of
its Intellectual Property Rights; and (ii) to the Company's knowledge, no Person
(including, without limitation, any former employee or consultant of the
Company) has unauthorized possession of its Intellectual Property Rights, or any
part thereof, and no Person has obtained unauthorized access to any of its
Intellectual Property Rights.
2.15 DISABLING CODES. The Company has taken reasonable steps and
implemented reasonable procedures to ensure that its internal computer systems
(consisting of hardware, software, databases or embedded control systems, (the
"SYSTEMS")) are free from any disabling codes or instructions and any virus or
other intentionally created, undocumented contaminant. Except as may be set
forth in SECTION 2.15 OF THE DISCLOSURE SCHEDULE, the Company has in place
appropriate disaster recovery plans, procedures and facilities and has taken all
reasonable steps to safeguard its Systems and restrict unauthorized access
thereto.
2.16 PERFORMANCE OF COMMERCIAL PRODUCTS. Except as may be set forth in
SECTION 2.16 OF THE DISCLOSURE SCHEDULE, to the Company's knowledge, all
products that the Company has distributed (whether pursuant to a pre-commercial
evaluation or otherwise) to third parties or that have been designed by the
Company for commercial distribution (whether or not the Company has released
pre-commercial versions to third parties, either for evaluation and testing or
otherwise) perform in all material respects, free of significant bugs or design
defects, with each of the functions described in any published specifications or
end-user documentation or other information provided to customers of the Company
on which such customers relied when licensing or otherwise acquiring such
products. Such products are in material compliance with all applicable industry
standards and laws and regulations.
2.17 LITIGATION. Except as set forth in SECTION 2.17 OF THE DISCLOSURE
SCHEDULE, there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or affecting the properties or assets of the Company, or, as to
matters relating to the Company, against any officer, director or stockholder or
key employee of the Company. No claim has been asserted in writing against the
Company for renegotiation of any business transaction. SECTION 2.17 OF THE
DISCLOSURE SCHEDULE includes a description of all litigation, claims,
proceedings or investigations involving the Company or any of its officers,
directors, stockholders or key employees in connection with the business of the
Company occurring, arising or existing since January 1, 1995.
2.18 LABOR MATTERS. As of the date hereof, the Company employs
ninety-three (93) full-time employees, no part-time employees and has retained
two (2) consultants or independent contractors. The Company is not delinquent in
payments to any of its employees, consultants or independent contractors for any
wages, salaries, commissions, bonuses or other direct compensation for any
service performed for it to the date hereof or amounts required to be reimbursed
to such employees, consultants or independent contractors. Except as set forth
in SECTION 2.18 OF THE DISCLOSURE SCHEDULE or as required by law, upon
termination of the employment of any such employees, consultants or independent
contractors, no severance or other payments will become due. Except as set forth
in SECTION 2.18 OF THE DISCLOSURE SCHEDULE,
- 11 -
the Company has no policy, practice, plan or program of paying severance pay or
any form of severance compensation in connection with the termination of
employment services. The Company is and since January 1, 1995 has been in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, terms and conditions of employment, and
wages and hours, except where the failure to be in such compliance would not
have a Material Adverse Effect. There are no charges of employment
discrimination, sexual harassment or unfair labor practices except as set forth
in SECTION 2.18 OF THE DISCLOSURE SCHEDULE, nor are there any strikes,
slowdowns, stoppages of work, or any other concerted interference with normal
operations existing, pending or, to the Company's knowledge, threatened against
or involving the Company. There are no union organizing activities pending or,
to the Company's knowledge, threatened with respect to the Company and, to the
Company's knowledge, no question concerning representations exists respecting
the employees of the Company. There are no grievances, complaints or charges
that have been filed under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might reasonably be expected to have a
Material Adverse Effect. No arbitration or similar proceeding is pending and no
claim therefor has been asserted against the Company. No collective bargaining
agreement is in effect or is currently being or is about to be negotiated by the
Company. The Company is, and at all times since January 1, 1995 has been, in
material compliance with the requirements of the Immigration Reform Control Act
of 1986. There are no changes pending or, to the Company's knowledge, threatened
with respect to (including, without limitation, the resignation of senior
management or any employee, consultant or independent contractor of the Company)
nor has the Company received any notice or information concerning any
prospective change with respect to such senior management, key employees or
independent contractors.
2.19 EMPLOYEE BENEFIT PROGRAMS.
(a) SECTION 2.19 OF THE DISCLOSURE SCHEDULE sets forth a list of
every Employee Program that has been maintained by the Company or to which the
Company has contributed at any time since its inception and (i) is subject to
ERISA; (ii) involves the issuance of options or other securities; or (iii) is
otherwise material.
(b) The terms and operation of each Employee Program comply in all
material respects with all applicable laws and regulations relating to such
Employee Program. There are no unfunded obligations of the Company under any
Employee Program. If required, each Employee Program which has been maintained
by the Company and which has at any time been intended to qualify under Section
401 (a) or 501(c)(9) of the Code has received a favorable determination or
opinion or approval letter from the IRS regarding its qualification under such
Section (or an application for such a determination or opinion or approval
letter is not yet due to be filed with the IRS with respect to any
"disqualifying provision" within the meaning of Treasury Regulation, Section
1.40(b)-1 or has been timely filed and is pending with the IRS) and has, in
fact, been qualified under the applicable Section of the Code from the effective
date of such Employee Program through and including the Closing (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause such Employee Program to lose its
qualification under the applicable Code Section. The Company is not required to
make any payments or contributions to any Employee Program pursuant to any
collective bargaining agreement or any applicable labor relations law, and all
- 12 -
Employee Programs are terminable at the discretion of the Company without
liability to the Company upon or following such termination. The Company has
never maintained or contributed to any Employee Program providing or promising
any health or other nonpension benefits to terminated employees, other than as
required by Code Section 4980B.
2.20 LIST OF CERTAIN EMPLOYEES; SUPPLIERS AND CUSTOMERS.
(a) SECTION 2.20(a) OF THE DISCLOSURE SCHEDULE sets forth a detailed
description of all compensation, including salary, bonus and deferred
compensation, paid or payable, for each officer, employee, consultant and
independent contractor of the Company who is anticipated to receive compensation
in excess of $100,000 for the fiscal year ended December 31, 2000.
(b) SECTION 2.20(b) OF THE DISCLOSURE SCHEDULE sets forth a list of
all suppliers and vendors of the Company to whom the Company made payments
aggregating $250,000 or more for the fiscal year ended December 31, 1999 and for
the nine months ended September 30, 2000, showing, with respect to each, the
name, address and dollar volume involved. Since January 1, 1999, no such
supplier or vendor has canceled or otherwise terminated or materially reduced
its business with the Company or materially and adversely modified its
relationship with the Company nor, to the knowledge of the Company, does any
supplier or vendor have any plan or intention to do so.
(c) SECTION 2.20(c) OF THE DISCLOSURE SCHEDULE sets forth the name
of each customer of the Company who accounted for more than five percent (5%) of
the revenues of the Company for the fiscal years ended December 31, 1999 and the
nine months ended September 30, 2000 (the "CUSTOMERS"). To the knowledge of the
Company, the relationships of the Company with its Customers are good commercial
working relationships. Since January 1, 1999, except as set forth in SECTION
2.20(c) OF THE DISCLOSURE SCHEDULE, no Customer of the Company has canceled or
otherwise terminated its relationship with the Company or has decreased
materially its purchases of the Company's products. No Customer has, to the
knowledge of the Company, any plan or intention to terminate, to cancel or
otherwise materially and adversely modify it relationship with the Company or to
decrease materially or limit its purchase or distribution of the Company's
products.
2.21 INSURANCE. The physical properties, assets, business, operations,
employees, officers and directors of the Company are insured under policies
maintained by the Company in the amounts and subject to the deductibles
disclosed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE. Except as set forth in
SECTION 2.21 OF THE DISCLOSURE SCHEDULE and claims for health care benefits in
the ordinary course, there is no claim by the Company pending under any such
policies. Said insurance policies and arrangements are in full force and effect,
all premiums with respect thereto are currently paid, and the Company is in
compliance in all material respects with the terms thereof. Said insurance is
sufficient for compliance by the Company in all material respects with all
requirements of applicable law and all agreements and leases to which it is a
party and otherwise is of the type and in amounts customarily carried by Persons
conducting business similar in nature and size to that conducted by the Company.
Each such insurance policy shall continue to be in full force and effect
immediately following consummation of the
- 13 -
transactions contemplated by this Agreement. To the Company's knowledge, there
is no threatened termination of any such policies or arrangements.
2.22 WARRANTY AND RELATED MATTERS. SECTION 2.22 OF THE DISCLOSURE SCHEDULE
sets forth a recitation of all outstanding product warranties, disclaimers and
guarantees on any of the products that the Company distributes, services,
markets, sells or produces for itself, a customer or a third party (each such
product shall be referred to herein as a "COMPANY PRODUCT"). There are no
existing or, to the knowledge of the Company, threatened product liability,
warranty or other similar claims against the Company alleging that any Company
Product is defective or fails to meet any product warranty except as set forth
in SECTION 2.22 OF THE DISCLOSURE SCHEDULE and to the extent of warranty
reserves. To the Company's knowledge, there are (a) no inherent design defects
or systemic or chronic problems in any Company Product and (b) no liabilities
for warranty or other claims or returns with respect to any Company Product
relating to any such defects or problems other than those that are consistent
with the Company's past experience and which will not have a Material Adverse
Effect on the Company.
2.23 PERMITS; COMPLIANCE WITH LAWS. The Company has all Permits necessary
to permit it to own its property and to conduct its business as it is presently
conducted and all such Permits are valid and in full force and effect, except
where the failure to obtain such a Permit or its invalidity, in whole or in
part, would not have a Material Adverse Effect. No Permit is subject to
termination as a result of the execution of this Agreement or consummation of
the transactions contemplated hereby. The Company is in compliance with all
applicable statutes, ordinances, orders, rules and regulations promulgated by
any federal, state, municipal or other governmental authority which apply to the
conduct of its business, except where the failure to so comply would not have a
Material Adverse Effect. Since January 1, 1995, the Company has not entered into
or been subject to any judgment, consent decree, compliance order or
administrative order with respect to any aspect of the business, affairs,
properties or assets of the Company or received any request for information,
notice, demand letter, administrative inquiry or formal or informal complaint or
claim from any regulatory agency with respect to any aspect of the business,
affairs, properties or assets of the Company.
2.24 ENVIRONMENTAL MATTERS. To the Company's knowledge and except in
material compliance with applicable law, (i) no hazardous wastes, substances or
materials or oil or petroleum products have been generated, transported, used,
disposed, stored or treated by the Company and (ii) no hazardous wastes,
substances or materials, or oil or petroleum products have been released,
discharged, disposed, transported, placed or otherwise caused by the Company to
enter the soil or water in, under or upon any real property owned, leased or
operated by the Company.
To the Company's knowledge, the Company has complied with all applicable
Environmental Laws (as defined below), except where the failure to so comply
would not have a Material Adverse Effect. There is no pending or, to the
knowledge of the Company, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or investigation, inquiry
or information request by any Governmental Entity, relating to any Environmental
Law involving the Company. For purposes of this Agreement, "ENVIRONMENTAL LAW"
means any federal, state or local law, statute, rule or regulation or the common
law relating to the protection of human health or the environment, including
without limitation, the
- 14 -
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1976, and any statute,
regulation or order pertaining to (i) the treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous materials or
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of industrial, toxic or hazardous materials or substances,
or solid or hazardous waste, including without limitation, emissions,
discharges, injections, spills, escapes or dumping of pollutants, contaminants,
or chemicals; (v) the protection of wildlife, marine life and wetlands,
including without limitation all endangered and threatened species; (vi) storage
tanks, vessels, abandoned or discarded barrels, containers and other closed
receptacles; (vii) the health and safety of employees and other persons; and
(viii) the manufacture, processing, use, distribution, treatment, storage,
disposal, transportation or handling of pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used in this Section 2.24, the terms "release" and
"environment" shall have the meanings set forth in CERCLA.
2.25 INVESTMENT BANKING; BROKERAGE. There are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement payable by the Company or based
on any arrangement or agreement made by or on behalf of the Company.
2.26 SOLVENCY. The Company has not: (a) made a general assignment for the
benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered
the filing of any involuntary petition by its creditors; (c) suffered the
appointment of a receiver to take possession of all, or substantially all, of
its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally.
2.27 INFORMATION SUPPLIED BY THE COMPANY. This Agreement (including the
schedules and exhibits thereto), the Disclosure Schedule and the certificates
and statements furnished pursuant to this Agreement by or on behalf of the
Company do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained therein not
misleading in the light of the circumstances under which they were made. To the
Company's knowledge, there is no material fact directly relating to the
properties, assets, business, operations, condition (financial or otherwise) or
prospects of the Company (including any competitive developments) other than
facts which relate to general economic or industry trends or conditions, that
materially adversely affects the same that has not been set forth in this
Agreement or in the Disclosure Schedule. Except as disclosed in SECTION 2.27 OF
THE DISCLOSURE SCHEDULE, to the Company's knowledge, none of the officers or
directors of the Company during the previous five years has been (a) subject to
voluntary or involuntary petition under the federal bankruptcy laws or any state
insolvency law or the appointment of a receiver, fiscal agent or similar officer
by a court for his business or property; (b) convicted in a criminal proceeding
or named as a subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); (e) subject to any order, judgment, or
decree (not subsequently reversed, suspended or vacated) of any court of
competent jurisdiction permanently or temporarily enjoining him from engaging or
otherwise imposing limits or conditions on his
- 15 -
engagement in any securities, investment advisory, banking, insurance or other
type of business or acting as an officer or director of a public company; or (d)
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated any federal or state securities, commodities or unfair trade
practices law, which such judgment or finding has not been subsequently
reversed, suspended, or vacated.
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
As a material inducement to the Company to enter into this Agreement and
consummate the transactions contemplated hereby, each Investor hereby makes to
the Company the representation and warranties contained in this Section 3.
3.1 INVESTMENT STATUS. Each Investor represents that it is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act. Each
Investor represents to the Company that it is purchasing the Series A Preferred
Stock for its own account, for investment only and not with a view to, or any
present intention of, effecting a distribution of such securities or any part
thereof except pursuant to a registration statement or an available exemption
under applicable law. Each such Investor acknowledges that such securities have
not been registered under the Securities Act or the securities laws of any state
or other jurisdiction and cannot be disposed of unless they are subsequently
registered under the Securities Act and any applicable state laws or unless an
exemption from such registration is available. Each such Investor (a) has
knowledge and experience in financial and business matters so as to be capable
of evaluating and understanding the merits and risks of an investment in the
Company, (b) has received certain information concerning the Company and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks of an investment in the Company and (c) is able to bear
the economic risk of its investment in the Company and the Series A Preferred
Stock and, if issued, the Conversion Shares in that, among other factors, such
Investor can afford to hold the Series A Preferred Stock and the Conversion
Shares for an indefinite period and can afford a complete loss of its investment
in the Company.
3.2 AUTHORITY. Each Investor represents that it has full right, authority
and power under its charter, by-laws or governing partnership or operating
agreement, as applicable, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's charter, bylaws or governing partnership or operating agreement,
as applicable. This Agreement and each agreement, document and instrument
executed and delivered by each Investor pursuant to or as contemplated by this
Agreement constitute, or when executed and delivered will constitute, valid and
binding obligations of each of the Investors enforceable in accordance with
their respective terms and will not violate or result in a violation of, or
constitute a default (whether after the giving of notice, lapse of time or both)
under, any provision of any law, regulation or rule, or any order of, or any
restriction imposed by any court or other governmental agency applicable to the
Investors.
- 16 -
3.3 INVESTMENT BANKING; BROKERAGE FEES. No Investor has incurred or
become liable for any broker's or finder's fee, banking fees or similar
compensation relating to or in connection with the transactions contemplated
hereby.
SECTION 4 CONDITIONS OF PURCHASE BY THE INVESTORS AT CLOSING
Each Investor's obligation to purchase and pay for the Series A Preferred
Stock to be purchased by it hereunder shall be subject to compliance by the
Company with the agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before the
Closing Date of the following conditions:
4.1 SATISFACTION OF CONDITIONS. The representations and warranties of the
Company contained in this Agreement shall be true and correct on and as of the
Closing Date and each of the conditions specified in this Section 4 shall have
been satisfied or waived in writing by the Investors.
4.2 OPINION OF COUNSEL. The Investors shall have received from Xxxxxx,
Xxxx & Xxxxxxx an opinion dated as of the Closing Date substantially in the form
attached hereto as EXHIBIT C.
4.3 AUTHORIZATION. The Board of Directors and stockholders of the Company
shall have duly adopted resolutions in form and substance reasonably
satisfactory to the Investors and shall have taken all actions necessary for the
purpose of authorizing the Company to consummate all of the transactions
contemplated hereby (including, without limitation, the issuance of the Series A
Preferred Stock and the Conversion Shares as contemplated hereunder).
4.4 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. The Company shall
have duly and properly authorized and filed with the Delaware Secretary of State
the Amended and Restated Certificate of Incorporation which shall create the
Series A Preferred Stock, and the Amended and Restated Certificate of
Incorporation shall be in effect as of the Closing Date on the terms set forth
in EXHIBIT B hereto. The Company shall have delivered to the Investors a copy of
the Company's Amended and Restated Certificate of Incorporation certified as of
a recent date by the Delaware Secretary of State.
4.5 DELIVERY OF DOCUMENTS. The Company shall have executed and/or
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate Persons) the following:
(a) Certificates for the Series A Preferred Stock to be purchased
hereunder;
(b) Certificates issued by (i) the Secretary of State of the State
of Delaware certifying that the Company has legal existence and is in good
standing; and (ii) the Secretary of State (or similar authority) of each
jurisdiction in which the Company has qualified to do business as a foreign
corporation as to such foreign qualification;
(c) A certificate executed by the President or Chief Executive
Officer of the Company certifying that each of the conditions under Section 4.1
have been satisfied;
- 17 -
(d) A certificate of the Secretary of the Company which shall
certify (i) the resolutions adopted by the Board of Directors and stockholders
as contemplated in Section 4.3 hereof; (ii) the Company's By-laws; and (iii) the
names of the officers of the Company authorized to sign this Agreement and the
other documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers; and
(e) Such other supporting documents and certificates as the
Investors may reasonably request and as may be required pursuant to this
Agreement.
4.6 REGISTRATION RIGHTS AGREEMENT. The Company and the Investors shall
have entered into the Registration Rights Agreement in substantially the form
attached hereto as EXHIBIT D.
4.7 STOCKHOLDERS AGREEMENT. The Company, the Investors and Xxxxxx Xxxxxx
shall have entered into the Stockholders Agreement in substantially the form
attached hereto as EXHIBIT E.
4.8 NO MATERIAL ADVERSE CHANCE. There shall not have been any material
adverse change in the properties, assets, condition (financial or otherwise),
business or operations of the Company whether or not in the ordinary course of
business. The Company shall have conducted its business and operations in the
ordinary course of business since the date of the Base Balance Sheet.
4.9 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and instruments related
thereto, shall be reasonably satisfactory in form and substance to the Investors
and the issuance and sale of the Series A Preferred Stock hereunder shall be
made in compliance with applicable federal and state laws.
4.10 INVESTORS' FEES. The Company shall have paid all reasonable fees and
all related out-of-pocket expenses of the Investors up to $50,000, including the
legal fees and expenses incurred by XxXxxxxxx, Will & Xxxxx.
4.11 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
4.12 CONSENTS AND WAIVERS. The Company shall have made all filings with
and notifications of governmental authorities, regulatory agencies and other
entities required to be made by it in connection with the execution and delivery
of this Agreement and the performance of the transactions contemplated hereby.
The Company and the Investors shall have received all authorizations, waivers,
consents and permits, in form and substance reasonably satisfactory to the
Investors, including any and all notices, consents and waivers required from all
third parties, including, without limitation, applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the consummation of the transactions contemplated by this
Agreement, except where the failure to obtain the same would not have a Material
Adverse Effect.
- 18 -
4.13 ELECTION OF DIRECTORS. The Company shall have taken proper corporate
action to fix the size of the Board of Directors at no more than seven (7)
members. In addition, one designee of the holders of Series A Preferred Stock
(the "PREFERRED STOCK REPRESENTATIVE") shall have been elected as a director of
the Company in accordance with the provisions of the Stockholders Agreement, who
shall initially be Xxxxx X. Xxxxxxx, effective on the Closing Date. The Company
shall have entered into an Indemnification Agreement with the Preferred Stock
Representative in the form attached hereto as EXHIBIT F.
4.14 INVENTIONS AND NON-COMPETE AGREEMENTS. Xx. Xxxxxx Xxxxxx shall have
entered into an Inventions Agreement and a Non-Compete Agreement in the form
attached hereto as EXHIBIT G-1 (a "NON-COMPETE AGREEMENT") and each of Xxxxx
Xxxxxx, Xxxxxxxx Xxxxxxx, Xxxxxxx Xxxx, Xxxxx Xxxxxx and Xxxxxxx Xxxxxxxx shall
have entered into a Non-Solicitation Agreement in the form attached hereto as
EXHIBIT G-2 (a "NON-SOLICITATION AGREEMENT").
4.15 AUDIT. The Company shall have provided the Investors with an audit of
the Company's financial performance for the fiscal year ended December 31, 1999
and a review of the Base Balance Sheet and related statements of income and cash
flows for the period ended September 30, 2000, performed by a "Big Five"
accounting firm.
4.16 MANAGEMENT COMPENSATION. The Company and the Investors shall have
agreed on the compensation arrangements for Dr. Yalsin Ayasli.
SECTION 5 COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of this
Section 5, all Subsidiaries of the Company, including any Subsidiary of the
Company formed after the date of this Agreement) agrees with the Investors that
it shall comply with the following covenants except as shall otherwise be
expressly agreed pursuant to a written consent of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock for so long as
any shares of Series A Preferred Stock remain outstanding:
5.1 FINANCIAL STATEMENTS. The Company shall maintain a system of accounts
from which financial statements prepared in accordance with GAAP consistently
applied can be derived, keep full and complete financial records and furnish to
each of the Investors the following reports: (a) within 90 days after the end of
each fiscal year, a copy of the consolidated balance sheet of the Company as at
the end of such year, together with consolidated statements of income and cash
flow of the Company for such year, audited by a "Big Five" independent public
accounting firm selected by the Board of Directors, each of the foregoing
balance sheets and statements of income and cash flow to set forth in
comparative form the corresponding figures for the prior fiscal period; (b)
within 45 days after the end of each quarterly accounting period, an unaudited
consolidated balance sheet of the Company as at the end of such quarter and an
unaudited consolidated statement of income and cash flow for the Company for
such quarterly period and for the year to date, including the corresponding
figures for the prior fiscal periods in comparative form, and accompanied with a
certificate of the Chief Executive Officer, Vice President of Finance or the
Chief Financial Officer or similar officer of the Company, on behalf of the
Company, stating that nothing has come to the attention of management of the
Company which would indicate that such financial statements were not true and
correct in all material
- 19 -
respects as of the date thereof; (c) within 30 days after the end of each
monthly accounting period, an unaudited consolidated balance sheet of the
Company as at the end of such monthly period and unaudited consolidated
statements of income and cash flow for the Company for such monthly period and
for the year to date; (d) promptly after the same are available, copies of any
financial statements and reports that the Company shall send or make available
generally to any of its stockholders or any regulatory authority (other than tax
returns or other reports provided to regulatory authorities in the ordinary
course of business); and (e) such other financial information as the Investors
may reasonably request.
5.2 BUDGET. The Company shall prepare and submit to the Investors a
budget and operating plan for the Company for each fiscal year of the Company at
least 30 days prior to the beginning of such fiscal year.
5.3 CONDUCT OF BUSINESS. The Company will engage principally in the
business now conducted by the Company or a business or businesses similar
thereto or an extension thereof. The Company will use its reasonable best
efforts to keep in full force and effect its corporate existence and all
Intellectual Property Rights owned by it and useful in its business (except such
rights as the Company has reasonably determined are not material to the
Company's continuing operations).
5.4 PAYMENT OF TAXES. The Company shall pay and discharge all lawful
Taxes, assessments and governmental charges or levies imposed upon it or its
property before the same shall become in default; PROVIDED, HOWEVER, that the
Company shall not be required to pay and discharge any such Tax, assessment,
charge, levy or claim so long as the validity thereof is being contested by it
in good faith by appropriate proceedings and an adequate reserve therefor has
been established.
5.5 COMPLIANCE WITH LAWS. The Company shall comply with all applicable
statutes, ordinances, orders; rules, regulations, policies and practices
promulgated by any federal, state, municipal or other governmental authority
which apply to the conduct of its business, except where the failure to so
comply would not have a Material Adverse Effect. The Company and its employees
and directors shall hold all Permits as may be necessary to conduct the business
of the Company in substantially the manner conducted by the Company as of the
date of this Agreement, except where the failure to hold such Permits would not
have a Material Adverse Effect.
5.6 ADVERSE CHANGES. To the extent not disclosed in the financial
statements to be provided under Section 5.1, the Company will promptly advise
the Investors of any event which represents a material adverse change in the
properties, assets, condition (financial or otherwise), business, or operations
of the Company, and of each suit or proceeding commenced or threatened against
the Company which, if adversely determined, could result in a Material Adverse
Effect.
5.7 INSURANCE. The Company will keep its insurable properties insured,
upon reasonable business terms, against liability and the perils of casualty,
fire, business interruption, and extended coverage in commercially reasonable
amounts of coverage to the extent customarily maintained by companies in the
same or similar business, and of similar size, as the Company. The Company will
also maintain insurance against other hazards and risks and
- 20 -
liability to Persons and property in commercially reasonable amounts and to the
extent and in the manner customary for companies engaged in the same or similar
business and of similar size, including errors and omissions liability
insurance.
5.8 LIFE INSURANCE. The Company shall obtain, maintain, and continue to
pay the premiums on key person life insurance policies from financially sound
and reputable insurers on the life of Xx. Xxxxxx Xxxxxx in the amount of
$2,000,000 and any other selected members of management, as reasonably requested
by the Preferred Stock Representative, for so long as such individual or
individuals remain employed by the Company, in amounts determined by the Board
of Directors, with proceeds payable to the Company. The Company hereby agrees
that it shall not assign, borrow against or pledge any such policies.
5.9 AFFILIATED TRANSACTIONS. All Affiliated Transactions shall be
conducted on an arm's-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from Persons unaffiliated with
the Company and shall require the approval in advance by the majority of the
disinterested members of the Board of Directors, which majority shall include
the Preferred Stock Representative, after full disclosure of the terms thereof.
The Company agrees that it will diligently enforce all of its rights under any
Affiliated Transaction and shall not waive or release any rights under, or make
any modifications to, any such Affiliated Transaction without first having
obtained the affirmative vote or written consent of a majority of the
disinterested directors (such majority to include the Preferred Stock
Representative).
5.10 INFORMATION AND INSPECTION. The Company will furnish to each Investor
who together with its Affiliates hold at least 100,000 shares of Series A
Preferred Stock upon reasonable notice full information regarding its business
and, at all reasonable times during the Company's normal business hours and upon
reasonable notice and as often as the Investors shall reasonably request, permit
any authorized representative designated by the Investors to visit and inspect
any of its properties, including its books and records (and to make copies and
extracts therefrom), and to discuss its affairs, finances and accounts with its
officers. Each Investor agrees to use, and to use its reasonable best efforts to
insure that its authorized representatives use, the same degree of care as such
Investor uses to protect its own confidential information, any information
furnished to it by the Company which it identifies as being confidential or
proprietary (so long as such information is not in the public domain), except
that such Investor may disclose such proprietary or confidential information to
any partner, employee, affiliate, authorized representative, subsidiary, parent
or prospective transferee of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, employee, affiliate,
authorized representative, subsidiary, parent or prospective transferee is
advised of, and agrees to be bound by, the confidentiality provisions of this
Section 5.10. Notwithstanding anything herein to the contrary, it is expressly
understood and agreed that access by an Investor to any such confidential
information of the Company shall not (i) preclude an individual who has seen
such confidential information from working on similar investment opportunities
for such Investor, provided that such individual does not make reference to such
confidential information and does not divulge the substance of such confidential
information; or (ii) prevent such Investor's employees who had access to such
confidential information from using such information retained as part of their
general skill, knowledge, talent and expertise.
- 21 -
5.11 MANAGEMENT COMPENSATION. Compensation paid by the Company to its
officers and key management employees will be comparable to compensation paid to
substantially similarly situated employees in companies in the same or similar
businesses of similar size and maturity and with comparable financial
performance as the Company and shall be determined by the Compensation Committee
of the Board of Directors, which committee shall include the Preferred Stock
Representative.
5.12 STOCK OPTIONS; RESTRICTED STOCK. All future grants of stock options
or restricted stock to employees, directors or consultants shall be approved by
the Compensation Committee of the Board of Directors and shall be conditioned
upon the grantee agreeing to be bound by the terms of an option and/or stock
agreement containing first refusal rights of the Company with respect to
transfers of such stock or options, vesting over no less than a four-year
period, and "lock-up" provisions upon terms as determined by the Compensation
Committee of the Board of Directors prohibiting such employee, director or
consultant from selling or otherwise transferring such stock or options for a
certain period of time in connection with a public offering of Common Stock by
the Company.
5.13 NO CONFLICTING AGREEMENTS. The Company will not enter into or amend
any agreement, contract, commitment or understanding which would restrict or
prohibit the exercise by the Investors of any of their rights under this
Agreement or any of the other documents, agreements or instruments contemplated
hereunder or thereunder.
5.14 INVENTIONS AND NON-COMPETE AGREEMENTS. The Company shall obtain from
all new employees and consultants who are involved in the development of
Intellectual Property Rights on behalf of the Company or are exposed to
technical and other proprietary information of the Company duly executed
Inventions Agreements in substantially the form attached hereto as EXHIBIT H.
5.15 ENFORCEMENT OF CERTAIN AGREEMENTS. The Company agrees that it will
diligently enforce all of its rights under the Stockholders Agreement, the
Inventions Agreements and the Non-Compete Agreements, the Non-Solicitation
Agreements and will not waive or release any rights under, or make any amendment
or modification to, any such agreements without the approval of a majority of
the Board of Directors, including the Preferred Stock Representative.
5.16 NEGATIVE COVENANTS. So long as at least 250,000 shares of Series A
Preferred Stock shall be outstanding, the Company shall not, without first
having obtained the affirmative vote or written consent of the holders of not
less than a majority of the outstanding shares of Series A Preferred Stock
voting as a single class:
(a) take any action or enter into any agreement to create or
authorize any new class or series of securities which has a preference over, or
is offered in a Dilutive Transaction (as defined in the Company's Amended and
Restated Certificate of Incorporation ) with rights on a PARI PASSU basis with,
the Series A Preferred Stock as to dividends or redemptions or with respect to
the distribution of assets or other amounts in connection with a Liquidation
Event or an Extraordinary Transaction (as such terms are defined in the
Company's Amended and Restated Certificate of Incorporation);
- 22 -
(b) effect (i) any Liquidation Event or (ii) any Extraordinary
Transaction other than a Qualified Sale Event (as defined in the Company's
Amended and Restated Certificate of Incorporation);
(c) declare or pay dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other capital stock of the Company other than dividends or
distributions required to be made on or with respect to the Series A Preferred
Stock, dividends payable solely in shares of Common Stock or securities
exercisable therefor and the Stockholder Distribution;
(d) repurchase, redeem or otherwise acquire any of the outstanding
capital stock of the Company, except for (i) the repurchase of unvested shares
from employees, directors or consultants at cost, pursuant to the terms of
agreements which were entered into in connection with the original issuance of
such capital stock (or options to purchase such capital stock); and (ii) the
redemption of the Series A Preferred Stock pursuant to and in accordance with
the provisions of the Company's Amended and Restated Certificate of
Incorporation;
(e) amend, alter, repeal or waive any provision of, or add any
provision to, the Company's Amended and Restated Certificate of Incorporation or
By-laws (whether by merger, consolidation or otherwise) in a manner that
adversely affects the rights, preferences or privileges of the Series A
Preferred Stock or the holders of the Series A Preferred Stock;
(f) authorize or engage in any acquisition of any corporation or
business concern, whether by acquisition for cash, capital stock or otherwise,
or make any other investment in another business entity or any joint venture or
similar arrangement if such acquisition or investment would involve a payment or
other commitment by the Company in excess of $5,000,000;
(g) increase the number of authorized shares of Series A Preferred
Stock;
(h) authorize any reclassification or recapitalization of the
outstanding capital stock of the Company;
(i) increase the authorized number of directors constituting the
Company's Board of Directors to more than seven (7); or
(j) permit the aggregate of indebtedness (consisting of debt under
credit facilities, capital leases and similar obligations) of the Company and/or
its Subsidiaries on a consolidated basis measured at the end of each fiscal
quarter to exceed the Company's total stockholders' equity (as determined in
accordance with GAAP).
SECTION 6 SURVIVAL; INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS. All covenants,
agreements, representations and warranties of the Company and the Investors made
herein and in the certificates, lists, exhibits, schedules or other written
information delivered or furnished to any Investor in connection herewith (a)
are material, shall be deemed to have been relied upon by the party or parties
to whom they are made and shall survive the Closing regardless of any
- 23 -
investigation on the part of such party or its representatives, and (b) shall
bind the parties' successors and assigns (including, without limitation, any
successor to the Company by way of acquisition, merger or otherwise), whether so
expressed or not, and, except as otherwise provided in this Agreement, all such
covenants, agreements, representations and warranties shall inure to the benefit
of the Investors' successors and assigns and to their transferees, whether so
expressed or not.
6.2 INDEMNIFICATION FOR VICARIOUS LIABILITY.
(a) Without limitation of any other provision of this Agreement, the
Company agrees to defend, indemnify and hold each Investor, their affiliates and
their respective direct and indirect partners, members, stockholders, directors,
officers, employees, agents and representatives and each Person who controls any
of them within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act (collectively, the "INDEMNIFIED PARTIES" and each individually,
an "INDEMNIFIED PARTY") harmless from and against any and all losses, claims,
damages, obligations, liens, assessments, judgments, fines, liabilities and
other costs and expenses, including, without limitation, interest, penalties and
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same are actually incurred by the Indemnified Parties, of any
kind or nature whatsoever which may be sustained or suffered by any such
Indemnified Party, in their capacity as or as a result of any action taken or
omitted to be taken by them as a director, stockholder, representative or
controlling person of the Company, without regard to any investigation by any of
the Indemnified Parties, based upon, arising out of, by reason of or otherwise
in respect of or in connection with third party or governmental claims under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise ("LAWS", including, without limitation,
any third party or governmental claim alleging so-called control person
liability or securities law liability ("INDEMNIFIABLE CLAIMS"); PROVIDED,
HOWEVER, that the Company will not be liable to the extent that such loss,
claim, damage, expense or liability arises from and is based on (A) an untrue
statement or omission or alleged untrue statement or omission in a registration
statement or prospectus which is made in reliance on and in conformity with
written information furnished to the Company in an instrument duly executed by
or on behalf of such Indemnified Party specifically stating that it is for use
in the preparation thereof, (B) a knowing and willful violation of any Law or
Laws by an Indemnified Party as finally determined by a court of competent
jurisdiction or (C) a fraudulent act or omission by the Indemnified Party as
finally determined by a court of competent jurisdiction.
(b) If the indemnification provided for in Section 6.2(a) above for
any reason (other than for any reason specified in items (A), (B), and (C) of
the proviso in Section 6.2(a)) is held by a court of competent jurisdiction to
be unavailable to an Indemnified Party in respect of any losses, claims,
damages, expenses or liabilities referred to therein, then the Company, in lieu
of indemnifying such Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Investors, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Investors in
- 24 -
connection with the action or inaction which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In connection with any registration of the Company's securities,
the relative benefits received by the Company and the Investors shall be deemed
to be in the same respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Company and the Investors, in each
case as set forth in the table on the cover page of the applicable prospectus,
bear to the aggregate public offering price of the securities so offered. The
relative fault of the Company and the Investors shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Investors and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
Each of the Company and the Investors agrees that it would not be just and
equitable if contribution pursuant to this Section 6.2(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Investor be required to contribute any amount
under this Section 6.2(b) in excess of the proceeds received by such Investor
from its sale of securities under such registration statement. No person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not found guilty of such fraudulent misrepresentation.
(c) Promptly after receipt by an Indemnified Party of any
Indemnifiable Claim, the Indemnified Party shall give notice thereof in writing
to the Company: PROVIDED, HOWEVER, the failure to give such notice shall not
relieve the Company from its obligations under this Section 6.2 except to the
extent that the Company shall have been materially and adversely prejudiced as a
result of the failure or delay in giving such notice. In any proceeding
involving an Indemnifiable Claim, the Company shall control the defense thereof;
PROVIDED that, the Indemnified Party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the Company shall pay
as incurred the fees and expenses of the counsel retained by the Indemnified
Party in the event that (i) the Company and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the Company
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them.
The Company shall not, without the prior written consent of the Indemnified
Party, consent to the entry of any judgment against the Indemnified Party or
enter into any settlement or compromise which (i) includes an admission of fault
of the Indemnified Party or (ii) does not include, as an unconditional term
thereof, the full release of the Indemnified Party from all liability in respect
of such Indemnifiable Claim, which release shall be in form and substance
reasonably satisfactory to the Indemnified Party.
(d) The indemnification and contribution provided for in this
Section 6.2 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Parties or any officer, director,
partner, member, employee, agent or controlling
- 25 -
person of the Indemnified Parties. The provisions of this Section 6.2 are in
addition to and shall supplement those set forth in any other agreement between
the Company and the Investors.
(e) Notwithstanding anything to the contrary herein, the Company
agrees to pay and hold the Investors harmless against liability for payment of
all reasonable fees and disbursement of counsel in connection with the
enforcement, amendment, modification or waiver of this Agreement and the
agreements, documents and instruments contemplated and executed pursuant hereto.
6.3 ATTORNEYS' FEES. In the event that any suit or action is instituted
to enforce any provision in this Agreement or the agreements, documents and
instruments contemplated hereby and executed pursuant hereto, 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 and the agreements, documents and instruments
contemplated hereby and executed pursuant hereto, 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 7 DEFINITIONS
Unless the context specifically requires otherwise, capitalized terms used
in this Agreement shall have the meaning specified below:
"AFFILIATE" of any Person means a Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with the first mentioned Person. A Person shall be deemed to
control another Person if such first Person possesses directly or indirectly the
power to direct, or cause the direction of, the management and policies of the
second Person, whether through the ownership of voting securities, by contract
or otherwise.
"CODE" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"EMPLOYEE PROGRAM" means any employee benefit or welfare plan, savings and
investment plan, retirement, pension, profit sharing, stock option, bonus or
incentive plan, severance pay policy or agreement, deferred compensation
agreement or any similar plan or agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INTELLECTUAL PROPERTY RIGHT" means all intellectual property rights,
including all patents, patent applications, patent rights, trademarks, trademark
applications, trade names, trade dress, service marks, service xxxx
applications, domain names, copyrights, copyright applications, computer
programs and other computer software (including, without limitation, all source
and object code, algorithms, architecture, structure, display screens, layouts
and development tools), inventions, mask works, designs, samples,
specifications, schematics, know-how, trade secrets,
- 26 -
proprietary processes and formulae, and development tools, promotional
materials, databases, customer lists, supplier, vendor and dealer lists and
marketing research, and all documentation and media constituting, describing or
relating to the foregoing, including without limitation, manuals, memoranda and
records.
"KNOWLEDGE OF THE COMPANY" or words or phrases of similar import shall mean
the actual knowledge after due inquiry of (i) Xx. Xxxxxx Xxxxxx in his capacity
as the President and Director of the Company and (ii) each of the Director-level
employees of the Company who report directly to the President of the Company.
"LIEN" means any lien, claim, option, charge, pledge, mortgage, security
interest, voting agreement, trust, encumbrance.
"MATERIAL ADVERSE EFFECT" means any change or effect that is materially
adverse to the properties, assets, business, condition (financial or otherwise),
prospects or results of operations of the Company and its Subsidiaries, taken as
a whole.
"PERMITS" means any franchises, authorizations, approvals, orders,
consents, licenses, certificates, permits, registrations, qualifications or
other rights and privileges.
"PERSON" means any individual, association, corporation, partnership,
limited liability company, joint venture, estates, trust or unincorporated
organization or any government or any agency or political subdivision thereof,
including, without limitation, any partner, officer, director, member or
employee of such Person.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement in
the form of Exhibit D hereto, dated as of the Closing Date, to be executed by
and among the Company and the Investors.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement in the form of
EXHIBIT E hereto, dated as of the Closing Date, to be executed by and among the
Company, Xx. Xxxxxx Ayalsi and the Investors.
"SUBSIDIARY" means any corporation more than 50% of the outstanding voting
securities of which, or any partnership, joint venture or other entity more than
50% of the total equity interest of which, is directly or indirectly owned by
the Company or any other entity otherwise controlled by or under common control
with the Company.
"TAXES" means any federal, state, local, foreign or other taxes, including
without limitation income taxes, estimated taxes, excise taxes, sales taxes, use
taxes, gross receipts taxes, franchise taxes, employment and payroll related
taxes, withholding taxes, stamp taxes, transfer taxes and property taxes,
whether or not measured in whole or in part by net income.
SECTION 8 GENERAL
- 27 -
8.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this Agreement
and all agreements executed pursuant hereto, no course of dealing between or
among any of the parties hereto and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No provision hereof may be waived otherwise than by a
written instrument signed by the party or parties so waiving such covenant or
other provision. No amendment to this Agreement may be made without the written
consent of the Company and the Investors (in accordance with the immediately
succeeding sentence). Any actions required to be taken or consents, approvals,
votes or waivers required or contemplated to be given by the Investors herein
shall require a vote of a majority-in-interest of the Investors based on the
relative holdings of Series A Preferred Stock or Conversion Shares of the
Company of the Investors as a group at the relevant time and any such action by
such percentage of Investors shall bind all of the Investors. The Company agrees
to pay the reasonable fees and out-of-pocket expenses of the Investor's counsel
in connection with the waiver or amendment of any provision of this Agreement
and any agreement executed pursuant hereto.
8.2 LEGEND ON SECURITIES. The Company and the Investors acknowledge and
agree that the following legend (or one substantially similar thereto) shall be
typed on each certificate evidencing any of the Series A Preferred Stock issued
hereunder held at any time by an Investor:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT
TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND
BLUE SKY LAWS.
8.3 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of The Commonwealth
of
Massachusetts, without giving effect to conflict of laws principles thereof.
8.4 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
8.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute but one and the same instrument.
One or more counterparts of this Agreement may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
- 28 -
8.6 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five (5) business days after
being sent by certified or registered mail, postage and charges prepaid, return
receipt requested, or two (2) business days after being sent by overnight
delivery providing receipt of delivery, to:
(a) if to the Company:
Hittite Microwave Corporation
00 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn: Xx. Xxxxxx Xxxxxx
or at such other address designated by the Company to the Investors in writing
with a copy to:
Xxxxxx, Xxxx & Xxxxxxx
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx III, P.C.
(b) if to the Investors, at the mailing addresses as shown on EXHIBIT A,
or at such other address designated by an Investor to the Company in writing,
with a copy to:
XxXxxxxxx, Will & Xxxxx
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Fax: (000) 000-0000
Attn: Xxxx X. Xxxx III, P.C.
8.7 DISPUTE RESOLUTION.
(a) All disputes, claims, or controversies arising out of or
relating to this Agreement or any other agreement executed and delivered
pursuant to this Agreement or the negotiation, validity or performance hereof
and thereof or the transactions contemplated hereby and thereby that are not
resolved by mutual agreement shall be resolved solely and exclusively by binding
arbitration to be conducted before the American Arbitration Association ("AAA").
If AAA ceases operations, then the parties shall select a comparable
organization that provides qualified arbitration services. The arbitration shall
be held in Boston,
Massachusetts before a single arbitrator and shall be
conducted in accordance with the rules and regulations promulgated by AAA unless
specifically modified herein.
The parties covenant and agree that the arbitration hearing shall commence
within ninety (90) days after the date on which a written demand for arbitration
is filed by any party hereto. In
- 29 -
connection with the arbitration proceeding, the arbitrator shall have the power
to order the production of documents by each party and any third-party
witnesses. In addition, each party may take up to three (3) depositions as of
right, and the arbitrator may in his or her discretion allow additional
depositions upon good cause shown by the moving party. However, the arbitrator
shall not have the power to order the answering of interrogatories or the
response to requests for admission. In connection with any arbitration, each
party shall provide to the other, no later than seven (7) business days before
the date of the arbitration hearing, the identity of all persons that may
testify at the arbitration and a copy of all documents that may be introduced at
the arbitration hearing or considered or used by a party's witness or expert.
The arbitrator's decision and award shall be made and delivered within three (3)
months of the selection of the arbitrator. The arbitrator's decision shall set
forth a reasoned basis for any finding of liability or award of damages. The
arbitrator shall not have power to award damages in excess of actual
compensatory damages and shall not multiply actual damages or award punitive
damages or any other damages that are specifically excluded under this
Agreement, and each party hereby irrevocably waives any claim to such damages.
The parties covenant and agree that they will participate in the
arbitration in good faith and that they will share equally its costs, except as
otherwise provided herein. The arbitrator may in his or her discretion assess
fees and costs (including the reasonable legal fees and expenses of the
prevailing party whether claimant or respondent) against any party to a
proceeding. Any party failing or refusing to comply with an order of the
arbitrators shall be liable for costs and expenses, including attorneys' fees,
incurred by the other party in enforcing the award. Nothing in this Section 8.7
shall prohibit any party from proceeding in court without prior arbitration for
the limited purpose of seeking injunctive relief to avoid immediate and
irreparable harm. The provisions of this Section 8.7 shall be enforceable in any
court of competent jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
consents to the exclusive use of AAA to resolve all disputes, claims or
controversies arising out of or relating to this Agreement or any other
agreement executed and delivered pursuant to this Agreement or the negotiation,
validity or performance hereof and thereof or the transactions contemplated
hereby and thereby and further consents to the jurisdiction of the federal
and/or state courts in The Commonwealth of
Massachusetts for the purposes of
enforcing the arbitration provisions of Section 8.7(a) of this Agreement. Each
party Rather irrevocably waives any objection to proceeding before AAA based
upon lack of personal jurisdiction or to the laying of venue and further
irrevocably and unconditionally waives and agrees not to make a claim in any
court that arbitration before AAA has been brought in an inconvenient forum.
Each of the parties hereto hereby consents to service of process by registered
mail at the address to which notices are to be given. Each of the parties hereto
agrees that its or his submission to jurisdiction and its or his consent to
service of process by mail is made for the express benefit of the other parties
hereto.
8.8 REMEDIES, SEVERABILITY. Notwithstanding Section 8.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance in the federal or state courts in The Commonwealth of
Massachusetts (to the extent permitted by law). Whenever possible, each
provision of this Agreement shall be interpreted in
- 30 -
such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be deemed prohibited or invalid under such
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
8.9 INTEGRATION. This Agreement, including the exhibits, schedules,
documents and instruments referred to herein, constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof, including,
without limitation, the letter of intent dated September 28, 2000 among the
Investors and the Company in respect of the transactions contemplated herein.
8.10 CONFIDENTIALITY. Each Investor agrees that it will keep confidential
and will not disclose, divulge or use for any purpose other than to monitor its
investment in the Company any confidential, proprietary or secret information
which such Investor may obtain from the Company pursuant to financial
statements, reports and other materials submitted by the Company to such
Investor pursuant to this Agreement, or pursuant to visitation or inspection
rights granted hereunder ("CONFIDENTIAL INFORMATION"), unless such Confidential
Information is known, or until such Confidential Information becomes known, to
the public (other than as a result of a breach of this Section 8.10 by such
Investor); PROVIDED, HOWEVER, that an Investor may disclose Confidential
Information (i) to its attorneys, accountants, consultants, and other
professionals to the extent necessary to obtain their services in connection
with monitoring its investment in the Company, (ii) to any prospective purchaser
of any Series A Preferred Stock from such Investor as long as such prospective
purchaser agrees to be bound by the provisions of this Section 8.10, (iii) to
any Affiliate of such Investor or to a partner, employee, authorized
representative, stockholder or subsidiary of such Investor for the purposes of
monitoring and evaluating its investment in the Company or (v) as may otherwise
be required by law, provided that the Investor takes reasonable steps to
minimize the extent of any such required disclosure. Notwithstanding anything
herein to the contrary, it is expressly understood and agreed that access by an
Investor to any such Confidential Information of the Company shall not (i)
preclude an individual who has seen such Confidential Information from working
on similar investment opportunities for such Investor, provided that such
individual does not make reference to such Confidential Information and does not
divulge the substance of such Confidential Information, or (ii) prevent such
Investor's employees or partners who had access to such Confidential Information
from using such information retained as part of their general skill, knowledge,
talent and expertise.
8.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the respective successors and assigns of the
parties hereto as contemplated herein, and any successor to the Company by way
of merger or otherwise shall specifically agree to be bound by the terms hereof.
[SIGNATURE PAGES FOLLOW]
- 31 -
IN WITNESS WHEREOF, the parties hereto have caused this
Stock Purchase
Agreement to be duly executed and delivered by their proper and duly authorized
representatives as of the day and year first above written.
COMPANY:
HITTITE MICROWAVE CORPORATION
By: /s/ Xxxxxx Xxxxxx
----------------------------------------------
Name: Xx. Xxxxxx Xxxxxx
Title: Chief Executive
- 32 -
INVESTORS:
SUMMIT INVESTORS III, L.P.
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: General Partner
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: Member
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: Member
- 33 -
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
Its General Partner
By: Summit Partners, LLC
Its General Partner
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: Member
- 34 -
