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EXHIBIT 2.1
SHARE ACQUISITION AGREEMENT
BY AND AMONG
NEW ERA OF NETWORKS, INC.,
CENTURY ANALYSIS INC.,
LA FRANCE FAMILY TRUST,
XXXX XXXXX XXXXXXXX
AND
XXXXXX XXX XXXXXX
DATED AS OF SEPTEMBER 30, 1998
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INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Form of Non-Competition Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Stockholders Agreement
SCHEDULE DESCRIPTION
1.1 Shareholders; Capital Stock Ownership; Allocation of Purchase
Price
4.5 Brokers' and Finders' Fees
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TABLE OF CONTENTS
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ARTICLE I - PURCHASE AND SALE OF COMPANY CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing; Post-Closing Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Company Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 No Further Ownership Rights in Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.8 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.9 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . 6
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Company Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.11 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment . . . . . . . . . . 13
2.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.14 Agreements, Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.15 Interested Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.16 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.17 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.19 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.21 Brokers' and Finders' Fees; Third Party Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.22 Employee Benefit Plans and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.24 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.25 Warranties; Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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2.26 Complete Copies of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.27 Proprietary Information Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.28 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.29 Products Sold to High Country Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.30 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Absence of Claims by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF NEON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.3 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.4 Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.5 Brokers' and Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.6 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.8 SEC Documents; NEON Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.9 Stockholder Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.10 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.12 Representations Complete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.5 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.7 [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8 No Issuance of Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.10 Renegotiation of Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.11 Assumption of Company's Business Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.12 Additional Documents and Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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ARTICLE VI - CONDITIONS TO THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Conditions to Obligations of Each Party to Consummate the Acquisition . . . . . . . . . . . . . . . 32
6.2 Conditions to Obligations of the Company and the Shareholders . . . . . . . . . . . . . . . . . . . 32
6.3 Conditions to the Obligations of NEON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.7 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.9 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
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SHARE ACQUISITION AGREEMENT
This SHARE ACQUISITION AGREEMENT (the "Agreement") is made and entered
into as of September 30, 1998 by and among New Era of Networks, Inc., a
Delaware corporation ("NEON"), Century Analysis Inc., a California corporation
(the "Company"), Xxxx X. Xxxxxxxx and Xxxxxxx X. Xxxxxxxx (each directly or
indirectly a shareholder of the Company hereinafter referred to individually as
a "Principal Shareholder" and collectively as the "Principal Shareholders"),
and the other shareholders of the Company set forth on Schedule 1.1 attached
hereto (the "Other Shareholders" and collectively with the Principal
Shareholders, the "Shareholders") and, with respect to Articles VII and VIII
(the "Shareholder Representative").
RECITALS
A. The Board of Directors of NEON believes it is in the best
interests of NEON and its shareholders that NEON acquire all of the issued and
outstanding capital stock of the Company (other than Company Options (as
defined below) which have not been exercised on or prior to the Closing (as
defined below), which options shall be assumed by NEON subject to adjustment as
set forth herein) owned or held of record or to be owned or held of record by
the Shareholders (the "Acquisition") such that upon consummation of the
acquisition NEON will own all of the issued and outstanding capital stock of
the Company and, in furtherance thereof, has approved the Acquisition.
B. The Shareholders desire to sell all of the capital stock of
the Company owned or held of record or to be owned or held of record by them to
NEON, all upon the terms and subject to the conditions set forth herein.
C. As an inducement for NEON to consummate the Acquisition, the
Company and the Shareholders agree to make certain representations, warranties,
covenants and other agreements in connection with the Acquisition.
D. A portion of the consideration otherwise payable by NEON in
connection with the Acquisition shall be placed in escrow by NEON for the
purposes of satisfying damages, losses, expenses and other similar charges
which result from breaches of representations, warranties and covenants.
E. As an inducement for NEON to consummate the Acquisition,
certain of the Shareholders have agreed to enter into Consulting and
Non-Competition Agreements ("Non-Competition Agreements") of even date herewith
in substantially the form attached hereto as Exhibit A, which Non-Competition
Agreements shall be effective only upon the closing of the Acquisition.
F. The signing and closing of the Acquisition shall take place
simultaneously.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
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ARTICLE I
PURCHASE AND SALE OF COMPANY CAPITAL STOCK
1.1 Purchase and Sale. At the Closing (as defined in Section 1.3)
and subject to and upon the terms and conditions of this Agreement, NEON shall
purchase from the Shareholders and the Shareholders shall sell, convey,
transfer, assign and deliver to NEON, free and clear of all liens, encumbrances
or other defects of title, all of the issued and outstanding shares of capital
stock of the Company now beneficially owned or held of record and to be
beneficially owned or held of record by the Shareholders at the Closing (the
"Shares"), including all property or rights issued by the Company with respect
to the Shares. The name, address and taxpayer identification number of each
Shareholder and the number and description of such Shares being sold by such
Shareholder pursuant hereto, and the consideration payable in connection with
the Acquisition to each Shareholder are set forth in Schedule 1.1 hereto.
1.2 Consideration.
(a) At Closing, NEON shall (i) pay to the Shareholders
cash in the amount of $23.0 million (the "Cash Consideration") and (ii) issue
to the Shareholders 440,031 shares of NEON Common Stock (the "Stock
Consideration")(collectively, the "Purchase Price"); provided, however, that
NEON shall withhold 119,786 shares of NEON Common Stock (the "Escrow Shares")
for deposit (the "Escrow Fund") with U.S. Bank Trust N.A. (the "Escrow Agent")
as collateral for the indemnification obligations of the Shareholders under
Article VII hereof pursuant to the provisions of an escrow agreement
substantially in the form of Exhibit B attached hereto to be entered into at
the Closing by NEON, the Shareholder Representative and the Escrow Agent (the
"Escrow Agreement"). Schedule 1.1 sets forth the allocation of the Purchase
Price among the Shareholders (including the allocation of the Escrow Shares
among the Shareholders).
(b) Any shares of NEON Common Stock issuable hereunder
shall be subject to the Stockholder Agreement executed by the applicable
Stockholder.
1.3 Closing; Post-Closing Payments.
(a) The closing of the Acquisition (the "Closing") will
take place concurrently with the execution and delivery hereof at the offices
of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000 Xxxx Xxxx
Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000, unless another time or place is agreed to in
writing by NEON and the Shareholders. The date upon which the Closing actually
occurs is herein referred to as the "Closing Date."
(b) At the Closing or with respect to any share
certificates, as soon as practicable after the Closing, each of the
Shareholders shall deliver or cause to be delivered to NEON the following:
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(i) certificates representing the Shares being
sold by such Shareholder pursuant to this Agreement (as reflected in Schedule
1.1) duly endorsed or accompanied by stock powers duly endorsed in blank with
any required transfer stamps affixed thereto; and
(ii) an executed Stockholder Agreement;
(iii) with regard to the Principal Shareholders, an
executed Non-Competition Agreement; and
(iv) all other documents, agreements,
certificates, instruments or writings required to be delivered by such
Shareholder on or prior to the Closing Date pursuant to this Agreement or as
may be reasonably requested by any party in order to consummate the
transactions contemplated by this Agreement.
(c) At the Closing or as soon as practicable after the
Closing, NEON shall deliver or cause to be delivered to each Shareholder the
following:
(i) for each share of Company Common Stock held
by such Shareholder that amount of cash obtained by multiplying the Cash
Consideration by (ii) the Exchange Ratio (as defined in Section 1.4), payable
by certified or cashier's check or personal check or by promissory note or by
wire transfer to an account designated by such Shareholder;
(ii) subject to Section 1.2 regarding the Escrow
Shares, certificates representing each Shareholder's respective portion of NEON
Common Stock issued pursuant to Section 1.2 hereof and reflected on Schedule
1.1;
(iii) all other documents, agreements, certificates
or writings required to be delivered by NEON on or prior to the Closing Date
pursuant to this Agreement or as may be reasonably requested by any party in
order to consummate the transactions contemplated by this Agreement.
(d) At the Closing or as soon as practicable after the
Closing, NEON shall deliver to the Escrow Agent the Escrow Shares in accordance
with Section 7.2.
(e) After the Closing or as soon as practicable after the
Closing, in the event that (i) the Company shall receive full payment of the
$3.0 million owing to the Company under its agreement with High Country
Computer Programing ("High Country") dated September 4, 1998 (the "High Country
Payment") prior to December 31, 1998, free and clear of any lien, charge,
security interest or encumbrance, and all claims, warranty rights, rights to
refunds, rights of reimbursement or offset and any other rights of recovery,
and (ii) all criteria for revenue recognition of such Payment under SOP 97-2,
other than delivery of the software by the Company, have been satisfied (as
finally determined by Xxxxxx Xxxxxxxx & Co., whose determination shall be final
and conclusive), then NEON shall, within ten (10) days of receipt of the High
Country Payment, issue an additional 195,569 shares of NEON Common Stock (the
"Additional Shares"), to the Shareholders in accordance with Schedule 1.1 as
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additional consideration for its purchase of the Shares hereunder, pro rata in
proportion to the portion of the Purchase Price received by such Shareholders.
Such NEON shares shall be governed by the terms of each Stockholder Agreement
attached hereto as Exhibit C. The Company has represented to NEON that there
are no outstanding conditions or contingencies (including any obligations to be
performed by the Company) to the payment of the High Country Payment, which is
due and owing in full, and that the transactions contemplated by this Agreement
will not create any right or claim (nor any basis therefor) that full payment
is not owing. The parties further acknowledge that NEON will integrate the
business and operations of the Company with NEON immediately following the
Closing, and that NEON's sole obligation with respect to the High Country
Payment shall be to use reasonable commercial efforts to cooperate with High
Country and assist in its business activities and, to collect such payment and
deliver the software. In the event that NEON reasonably determines in good
faith, after consultation with the Principal Shareholders, that the High
Country Payment is not collectible in the ordinary course of business, NEON may
elect to treat such payment as uncollectible and shall have no obligation to
institute legal action or to otherwise continue to pursue collection. In the
event a portion of the High Country Payment is received and the criteria in
item (ii) is satisfied, a proportionate portion of the Additional Shares shall
be issued to the Shareholders.
1.4 Definitions.
"Company Capital Stock" shall mean (i) shares of Company
Common Stock, no par value per share, (ii) any other capital stock of the
Company, and (iii) any issued and outstanding options, warrants and other
rights to purchase capital stock of the Company, exclusive of shares of capital
stock of the Company issuable upon exercise of Company Options.
"Company Common Stock" shall mean all shares of common stock
of the Company, no par value per share.
"Company Options" shall mean all issued and outstanding
options and rights to purchase Company Common Stock (each a "Company Option"),
whether or not vested, under the Company's 1996 Equity Incentive Plan (the
"Plan").
"Exchange Ratio" shall mean, with respect to the applicable
Shareholder, the quotient obtained by dividing (x) the total number of shares
of Company Common Stock issued and outstanding and held by such Shareholder
immediately prior to the Closing, by (y) the total number of shares of Company
Common Stock outstanding immediately prior to the Closing.
"GAAP" shall mean U.S. generally accepted accounting
principles consistently applied.
"NEON Common Stock" shall mean unregistered shares of the
common stock, $.0001 par value per share, of NEON.
"Option Exchange Ratio" shall mean .119726353.
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1.5 Company Stock Options.
(a) At Closing, all options to purchase Company Common
Stock then outstanding under the Plan (as defined below) or otherwise shall be
assumed by NEON in accordance with provisions described below.
(i) At the Closing, each Company Option as
defined below shall be, in connection with the Acquisition, assumed by NEON.
Each Company Option so assumed by NEON under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Plan
and/or as provided in the respective option agreements governing such Company
Option immediately prior to the Closing, except that (A) such Company Option
shall be exercisable (when vested) for that number of whole shares of NEON
Common Stock equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Option immediately prior
to the Closing multiplied by the Option Exchange Ratio, rounded down (in the
case of Company Options granted under the Plan) to the nearest whole number of
shares of NEON Common Stock and (B) the per share exercise price for the shares
of NEON Common Stock issuable upon exercise of such assumed Company Option
shall be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Closing by the Exchange Ratio, rounded up to the
nearest whole cent.
(ii) It is the intention of the parties that the
Company Options assumed by NEON qualify following the Closing as incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to the extent the Company Options qualified as
incentive stock options immediately prior to the Closing.
(iii) As soon as practicable after the Closing,
NEON will issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option by NEON.
(b) No fraction of a share of NEON Common Stock will be
issued, but in lieu thereof, each holder of shares of Company Capital Stock who
would otherwise be entitled to a fraction of a share of NEON Common Stock
(after aggregating all fractional shares of NEON Common Stock to be received by
such holder) shall be entitled to receive, without any interest, from NEON an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) $40.9062303.
1.6 No Further Ownership Rights in Shares. All cash paid in
respect of the surrender for exchange of the Shares in accordance with the
terms hereof, shall be deemed to be full satisfaction of all of the
Shareholders' rights pertaining to such Shares.
1.7 Withholding Taxes. Any cash amount payable to any Shareholder
pursuant to Section 1.2 shall be subject to, and reduced by, the amount of any
state and federal withholding taxes incurred (and not previously paid by or on
behalf of such Shareholder or the Company) in connection with the acquisition
of the Company's Capital Stock upon the exercise of Company Options, if any, by
such Shareholder.
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1.8 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, NEON shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section
1.2; provided, however, that NEON may, in its reasonable discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct against any claim that may be made against NEON with respect
to the certificates alleged to have been lost, stolen or destroyed.
1.9 Taking of Necessary Action; Further Action. If, at any time
after the Closing Date, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to ensure that the Company retains
full right, title and possession to all of its assets, property, rights,
privileges, powers and franchises, NEON, the Shareholders and the officers and
directors of the Company are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
Each of the Company and each Principal Shareholder hereby, jointly and
severally, represents and warrants to NEON, subject to such exceptions as are
specifically and accurately disclosed in the disclosure schedule supplied by
the Company and each Principal Shareholder to NEON (the "Company Disclosure
Schedule") and dated as of the date hereof, as set forth below. Any disclosure
included in the Company Disclosure Schedule with respect to a particular
representation or warranty shall be deemed to be a disclosure with respect to
each of the Company's and Principal Shareholders' representations and
warranties to which such disclosure applies; provided the application of such
disclosure to such other representations and warranties is either (i) readily
apparent from the nature of the disclosure or (ii) clearly indicated in any
section of the Company Disclosure Schedule where such disclosure is expressly
set forth.
2.1 Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has the corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified or licensed to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified or
licensed could reasonably be expected to have a material adverse effect on the
business, assets (including intangible assets), condition (financial or
otherwise), or results of operations of the Company (hereinafter referred to as
a "Material Adverse Effect"). A true
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and correct copy of the Company's Articles of Incorporation and Bylaws, each as
amended to date, has been made available to NEON. Section 2.1 of the Company
Disclosure Schedule lists the directors and officers of the Company. The
operations now being conducted by the Company have not been conducted under any
other name.
2.2 Subsidiaries. The Company does not have any subsidiaries and
does not otherwise own or control, directly or indirectly, any corporation,
limited liability company, partnership, association, joint venture or other
business entity.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists
of 15,000,000 shares of authorized Common Stock of which 10,005,000 shares are
issued and outstanding. The Company Capital Stock is held by the persons, with
the domicile addresses and in the amounts set forth in Section 2.3(a) of the
Company Disclosure Schedule. All outstanding shares of Company Capital Stock
are duly authorized, validly issued, fully paid and non-assessable and not
subject to preemptive rights created by statute, the Articles of Incorporation
or Bylaws of the Company or any agreement to which the Company is a party or by
which it is bound and have been issued in compliance with federal and state
securities laws. The Company has no other capital stock authorized, issued or
outstanding.
(b) Except for the Company Options described in Section
2.3(b) of the Company Disclosure Schedule, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company
or obligating the Company to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. The Company has reserved 1,000,000 shares of
Company Common Stock for issuance to employees and consultants pursuant to the
Plan, of which 430,000 shares are subject to outstanding, unexercised options,
500,000 shares remain available for future grant and 5,000 shares have been
issued pursuant to the exercise of options issued under the Plan of which no
shares have been repurchased by the Company. Section 2.3(b) sets forth for
each outstanding Company Option the name of the holder of such option, the
domicile address of such holder, the number of shares of Company Common Stock
subject to such option, the exercise price of such option and the vesting
schedule for such option, including the extent vested to date and whether the
exercisability of such option will be accelerated and become exercisable by the
transactions contemplated by this Agreement. Except for the Plan, the Company
does not have any stock option plan or other plan providing for equity
compensation of any person. Except as set forth in Section 2.3(b) of the
Company Disclosure Schedule, there is no outstanding Company Capital Stock
which is subject to vesting. Section 2.3(b) of the Company Disclosure Schedule
also sets forth the name of the holder of any Company Capital Stock subject to
vesting, the number of shares of Company Capital Stock subject to vesting and
the vesting schedule for such Company Capital Stock, including the extent
vested to date. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or other similar rights with respect to
the Company. Except as contemplated hereby, there are no voting trusts,
proxies, or other agreements or understandings with respect to the voting stock
of the Company.
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(c) The holders of Company Options have been or will be
given, or shall have properly waived, any required notice prior to the
consummation of the Acquisition, and all such rights will have terminated at or
prior to the Closing.
(d) Upon completion of the Acquisition hereunder, NEON
will own one hundred percent (100%) of the outstanding capital stock of the
Company and right to acquire or receive such capital stock, free and clear of
all liens, encumbrances or other defects of title.
2.4 Authority. The Company has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly approved and
authorized by the Board of Directors of the Company and all other necessary
corporate action on the part of the Company has been taken. This Agreement has
been duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and other laws of general application
including enforcement of creditors' rights generally and to rules of law
governing specific performance, injunctive relief or other equitable remedies.
2.5 No Conflict. Except as set forth in Section 2.5 of the
Company Disclosure Schedule, the execution and delivery by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the charter
documents and Bylaws of the Company, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which the Company or any of its properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, except where such
conflict, violation or default could not have reasonably be expected to have a
Material Adverse Effect.
2.6 Consents. Except as set forth in Section 2.6 of the Company
Disclosure Schedule, no consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency
or commission or other federal, state, county, local or other foreign
governmental authority, instrumentality, agency or commission ("Governmental
Entity") or any third party, (so as not to trigger any Conflict), is required
by or with respect to the Company in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws thereby, (ii) notification requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), if any and (iii) where the failure
to obtain or make such consent, waiver, approval, order, authorization,
registration, declaration or filing would not have a Material Adverse Effect.
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2.7 Company Financial Statements. Section 2.7 of the Company
Disclosure Schedule sets forth the Company's audited balance sheets as of
December 31, 1996 and December 31, 1997 and the related audited statements of
income and cash flow for the twelve-month periods ended December 31, 1996 and
December 31, 1997 (the "Year-End Financials") and the Company's unaudited
balance sheet as of August 31, 1998 and the related unaudited statements of
income and cash flow for the eight months then ended (the "Interim
Financials"). The Year-End Financials and the Interim Financials are correct
in all material respects and have been prepared in accordance with GAAP applied
on a basis consistent throughout the periods indicated except that Interim
Financials do not contain footnotes. The Year-End Financials and Interim
Financials present fairly in all material respects the financial condition,
consolidated operating results and consolidated cash flows of the Company as of
the dates and during the periods indicated therein, subject in the case of the
Interim Financials, to normal year-end adjustments, which are not expected to
be material in amount or significance. The Company's unaudited consolidated
Balance Sheet as of August 31, 1998 shall be referred to as the "Current
Balance Sheet."
2.8 No Undisclosed Liabilities. Except as set forth in Section
2.8 of the Company Disclosure Schedule, the Company does not have any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which (i) has not been reflected in or
reserved against in the Current Balance Sheet, (ii) has not arisen in the
ordinary course of business consistent with past practices since August 31,
1998 or (iii) could reasonably be expected to result in a Material Adverse
Effect.
2.9 No Changes. Except as set forth in Section 2.9 of the Company
Disclosure Schedule, since August 31, 1998, there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the Articles of
Incorporation or Bylaws of the Company;
(c) capital expenditure or commitment by the Company in
the aggregate exceeding $50,000;
(d) destruction of, damage to or loss of any material
assets, material business or material customer of the Company (whether or not
covered by insurance);
(e) claim of wrongful discharge or other unlawful labor
practice or action;
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(f) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company
other than required by GAAP;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend
or other distribution with respect to the Company Capital Stock, or any direct
or indirect redemption, purchase or other acquisition by the Company of its
Capital Stock;
(i) increase in the salary or other compensation payable
or to become payable by the Company to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment, by the Company, of a bonus or other additional
salary or compensation to any such person, except for adjustments in
compensation in accordance with annual performance reviews or other increases
in compensation made in the normal course of business (none of which exceed 25%
of the previous year's or current base salary) or as otherwise contemplated by
this Agreement;
(j) agreement, contract, convert, instrument, lease,
license or commitment to which the company is a party or by which it or any of
its assets is bound or any termination, extension, amendment or modification of
the terms of any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
is bound;
(k) sale, lease, license or other disposition of any of
the material assets or properties of the Company, or any creation of any
security interest in such assets or properties;
(l) loan by the Company to any person or entity,
incurring by the Company of any indebtedness for money borrowed, guaranteeing
by the Company of any indebtedness for money borrowed, issuance or sale of any
debt securities of the Company or guaranteeing of any debt securities of
others;
(m) waiver or release of any right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company, except in the ordinary course of business, consistent with past
practices;
(n) notice of any claim or potential claim of ownership
by any person other than the Company of the Company Intellectual Property (as
defined in Section 2.13) owned by or developed or created by the Company or of
infringement by the Company of any other person's Intellectual Property rights;
(o) issuance or sale, or contract to issue or sell, by
the Company of any shares of Company Capital Stock, or securities exchangeable,
convertible or exercisable therefor, or any securities, warrants, options or
rights to purchase any of the foregoing, except for the grant or exercise of
options under the Plan;
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(p) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or, to its knowledge, in
the pricing of royalties set or charged by persons who have licensed
Intellectual Property (as defined in Section 2.13) to the Company;
(q) any event or condition of any character that has had
a Material Adverse Effect on the Company; or
(r) negotiation or agreement by the Company, any of the
Principal Shareholders or Xxxxx Xxxx to do any of the things described in the
preceding clauses (a) through (q) (other than negotiations with NEON and its
representatives regarding the transactions contemplated by this Agreement).
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this
Agreement, "Tax" or, collectively, "Taxes", means (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the payment of any
amounts of the type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period; and (iii)
any liability for the payment of any amounts of the type described in clause
(i) or (ii) as a result of any express or implied obligation to indemnify any
other person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in
Section 2.10 of the Company Disclosure Schedule:
(i) The Company as of the Closing will have
prepared and timely filed all required federal, and state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attributable to the Company or its operations
and will have paid or accrued all Taxes as shown as owing on such Returns are
true and correct and have been completed in accordance with applicable law.
(ii) The Company as of the Closing (A) will have
paid all Taxes it is required to pay and will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld, and (B) will have paid or have accrued on the Current
Balance Sheet all Taxes attributable to the periods covered by the Current
Balance Sheet and will not have incurred any liability for Taxes for the period
from the date of the Current Balance Sheet through the Closing other than in
the ordinary course of business.
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(iii) There is no material Tax deficiency
outstanding, assessed or proposed against the Company, and the Company has not
executed any waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(iv) To the Company's and Principal Shareholders'
knowledge, no audit, or to the Company's and Principal Shareholders' knowledge,
other examination of any Return of the Company is presently in progress, nor
has the Company been notified of any request for such an audit or other
examination.
(v) The Company has made available to NEON or its
legal counsel, copies of all foreign, federal, state and local income and all
state and local sales and use Returns for the Company filed for all periods
since its inception.
(vi) To the Company's and Principal Shareholders'
knowledge, there are no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable.
(vii) Neither the Company nor any Principal
Shareholder has knowledge of any basis for the assertion of any claim relating
or attributable to Taxes which, if adversely determined, would result in any
Lien on the assets of the Company.
(viii) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(ix) As of the Closing, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could be treated as an excess
parachute payment within the meaning of Section 280G of the Code or could
otherwise give rise to the payment of any amount to such employee or former
employee that would not be deductible by the Company as an expense under
applicable law.
(x) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xi) The Company is not a party to any tax
sharing, indemnification or allocation agreement nor does the Company owe any
amount under any such agreement, other than this Agreement.
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(xii) Each of the Company's tax basis in its assets
for purposes of determining its future amortization, depreciation and other
federal income tax deductions is accurately reflected on the Company's tax
books and records.
(xiii) The Company is not, and has not been at any
time, a "United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
(c) Subchapter S Corporation Status. The Company is, and
at all times during its existence has been, an S Corporation under and within
the meaning of Section 1361 of the Code, and under all applicable state Tax
laws and regulations.
2.11 Restrictions on Business Activities. Except as set forth in
Section 2.11 of the Company Disclosure Schedule, there is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
line of business or business practice (including without limitation the
licensing of any product) of the Company, any acquisition of property (tangible
or intangible) by the Company or the conduct of business by the Company which
has or could reasonably be expected to have a Material Adverse Effect. The
Company is not a party to and is not currently bound by any agreement under
which the Company is restricted from selling, licensing or otherwise
distributing any of its technology or products to or providing services to,
customers or potential customers or any class of customers, in any geographic
area, during any period of time or in any segment of the market which has or
could reasonably be expected to have a Material Adverse Effect.
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment.
(a) The Company does not own any real property, nor has
it ever owned any real property. Section 2.12(a) of the Company Disclosure
Schedule sets forth a list of all real property leased by the Company as of the
Closing, the name of the lessor, the date of the lease and each amendment
thereto and, with respect to any current lease, the aggregate annual rental
and/or other fees payable under any such lease. All such current leases are in
full force and effect, are valid and effective in accordance with their
respective terms and there is not, under any of such leases, any existing
material default or material event of default by the Company (or event which
with notice or lapse of time, or both, would constitute a material default by
the Company).
(b) The Company has valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as set forth in
Section 2.14 of the Company Disclosure Schedule or as reflected in the Current
Balance Sheet (except for tangible properties and assets, real, personal and
mixed, sold or otherwise disposed of since the date of the Current Balance
Sheet), and except for Liens for Taxes, municipal and zoning ordinances, and
easements for public utilities not yet due and payable and such imperfections
of title and encumbrances, if any, which are not material in character, amount
or extent, and which do not materially detract from the value, or materially
interfere with the present use, of the property subject thereto or affected
thereby.
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(c) Section 2.12(c) of the Company Disclosure Schedule
lists all material items of equipment (the "Equipment") owned or leased by the
Company and such Equipment is, (i) adequate for the conduct of the business of
the Company as currently conducted and (ii) in good operating condition,
regularly and properly maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free
and clear of any Liens, of all customer files and other customer information in
its possession relating to its current and former customers (the "Customer
Information"). No person other than the Company possesses any claims or rights
with respect to use of the Customer Information.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following
terms have the following definitions:
"Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, and all
documentation relating to any of the foregoing; (iii) all copyrights, copyright
registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all mask works, mask work registrations and
applications therefor; (v) all industrial designs and any registrations and
applications therefor throughout the world; (vi) all trade names, logos, common
law trademarks and service marks, trademark and service xxxx registrations and
applications therefor and all goodwill associated therewith throughout the
world; (vii) all databases and data collections and all rights therein
throughout the world; (viii) all computer software including all source code,
object code, firmware, development tools, files, records and data, and all
media on which any of the foregoing is recorded; (ix) any similar,
corresponding or equivalent rights to any of the foregoing and (x) all
documentation related to any of the foregoing.
"Company Intellectual Property" shall mean any
Intellectual Property that is (i) owned by, (ii) exclusively licensed to or
(iii) was developed or created by the Company.
"Registered Intellectual Property" shall mean all
United States, international and foreign: (i) patents, patent applications
(including provisional applications); (ii) registered trademarks, applications
to register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations and
applications to register mask works; and (v) any other Company Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
state, government or other public legal authority.
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(b) Section 2.13(b) of the Company Disclosure Schedule
lists all Registered Intellectual Property owned by, or filed in the name of,
the Company (the "Company Registered Intellectual Property") and lists any
proceedings or actions currently pending before any court, tribunal (including
the United States Patent and Trademark Office (the "PTO") or equivalent
authority anywhere in the world) related to any of the Company Registered
Intellectual Property.
(c) Each item of Company Intellectual Property, including
all Company Registered Intellectual Property listed in Section 2.13(b) of the
Company Disclosure Schedule, is free and clear of any Liens. The Company, to
its knowledge, (i) is the exclusive owner of all trademarks and trade names
used in connection with the operation or conduct of the business of the
Company, including the sale of any products or technology or the provision of
any services by the Company and (ii) owns exclusively, and has good title to,
all copyrighted works that are Company products or other works of authorship
that the Company otherwise purports to own.
(d) To the extent that any Intellectual Property has been
developed or created by any person other than the Company for which the Company
has, directly or indirectly, paid, the Company has a written agreement with
such person with respect thereto and the Company thereby has obtained ownership
of, and is the exclusive owner of, all such Intellectual Property by operation
of law or by valid assignment.
(e) Except as set forth in Section 2.13(e) of the Company
Disclosure Schedule, the Company has not granted any exclusive license of or
right to use, or authorized the retention of any exclusive rights to use, any
Company Intellectual Property to any other person.
(f) The Company owns or has a written license to all
Intellectual Property, including but not limited to the Intellectual Property
set forth in Section 2.13(f) of the Company Disclosure Schedule used in the
conduct of its business as it currently is conducted including, without
limitation, products, technology or services currently under development and
the design, development, manufacture, use, import and sale of the products,
technology and services of the Company.
(g) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements listed in
Section 2.13(g) of the Company Disclosure Schedule include all material
contracts, licenses and agreements, to which the Company is a party with
respect to any Intellectual Property of any person other than the Company. No
person other than the Company has ownership rights to improvements made by the
Company in Intellectual Property which has been licensed to the Company.
(h) Section 2.13(h) of the Company Disclosure Schedule
lists all contracts, licenses and agreements between the Company and any other
person wherein or whereby the Company has agreed to, or assumed, any material
obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or
otherwise assume or incur any material obligation or liability or provide a
right of rescission with respect to the infringement or misappropriation by the
Company or such other person of the Intellectual Property of any person other
than the Company.
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(i) (X) The operation of the business of the Company
as it is currently conducted (including, without limitation, products,
technology or services currently under development and the design, development,
manufacture, use, import and sale of the products, technology and services of
the Company) does not infringe or misappropriate the Intellectual Property
(other than Patents) of any person, violate the rights of any person (including
rights to privacy or publicity), or constitute unfair competition or trade
practices under the laws of any jurisdiction, and the Company has not received
notice from any person claiming that such operation or any act, product,
technology or service (including products, technology or services currently
under development) of the Company infringes or misappropriates the Intellectual
Property (other than Patents) of any person or constitutes unfair competition
or trade practices under the laws of any jurisdiction (nor is the Company or
any Principal Shareholder aware of any basis therefor).
(Y) The operation of the Company's Business (as
defined below) does not infringe or misappropriate the Patents of any person,
and the Company has not received notice from any person claiming that such
operation or any act, product, technology or service (including products,
technology or services currently under development) of the Company infringes or
misappropriates the Patents of any person (nor is the Company or any Principal
Shareholder aware of any basis therefor). The representations and warranties
of this Section 2.13(i)(Y) shall only apply to claims of infringement or
misappropriation or violations arising from the products or technology of the
Company existing as of the Closing Date. The term "Business" means the
operations of the Company as conducted as of the date hereof and as of the
Closing Date, including the manufacture, sale, licensing, copying, distribution
or other exploitation of any product or technology under development as of such
dates.
(j) To the Company's and each Principal Shareholder's
knowledge, each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Company Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property. Section 2.13(j) of the Company Disclosure Schedule
lists all actions that must be taken by the Company within sixty (60) days of
the Closing Date, including the payment of any registration, maintenance or
renewal fees or the filing of any documents, applications or certificates for
the purposes of maintaining, perfecting or preserving or renewing any Company
Intellectual Property. In each case in which the Company has acquired
ownership of any Intellectual Property rights from any person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Intellectual Property (including the right to seek past and
future damages with respect to such Intellectual Property) to the Company.
(k) There are no contracts, licenses or agreements
between the Company and any other person with respect to Company Intellectual
Property under which there is any material dispute known to the Company or any
Principal Shareholder regarding the scope of such agreement, or performance
under such agreement including with respect to any payments to be made or
received by the Company thereunder.
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(l) To the knowledge of the Company and each Principal
Shareholder, no person is infringing or misappropriating any Company
Intellectual Property.
(m) The Company has taken reasonable steps in accordance
with normal industry practice to protect the Company's rights in confidential
information and trade secrets of the Company or provided by any other person to
the Company. Without limiting the foregoing, the Company has, and enforces, a
policy requiring each employee, consultant and contractor to execute
proprietary information, confidentiality and assignment agreements
substantially in the Company's standard forms, and all current and former
employees, consultants and contractors of the Company have executed such an
agreement.
(n) No Company Intellectual Property or product,
technology or service of the Company is subject to any proceeding or
outstanding decree, order, judgment, agreement or stipulation that restricts in
any material manner the use, transfer or licensing thereof by the Company or
that may affect the validity, use or enforceability of such Company
Intellectual Property.
(o) To the knowledge of the Company and each Principal
Shareholder, no (i) product, technology, service or publication of the Company,
(ii) material published or distributed by the Company or (iii) conduct or
statement of the Company, constitutes obscene material, a defamatory statement
or material, false advertising or otherwise violates any law or regulation
except as could not reasonably be expected to have a Material Adverse Effect.
(p) The Company has taken reasonable steps to ensure that
its products (including existing products and technology and products and
technology currently under development) will record, store, process, calculate
and present calendar dates falling on and after (and if applicable, spans of
time including) January 1, 2000, and will calculate any information dependent
on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"). The Company has taken reasonable steps
to ensure that its products (i) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of the Company's internal computer and technology products and systems are
Year 2000 Compliant except where such failure to be in compliance could not
reasonably be expected to have a Material Adverse Effect.
(q) All versions of the Company's software code
(including, but not limited to, the current version) are properly on deposit in
escrow at DSI.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.13(g), 2.13(h) or
2.14(a) of the Company Disclosure Schedule, the Company is not a party to nor
is it bound by:
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(i) any agreements or arrangements that contain
any severance pay or post-employment liabilities or obligations exceeding
$25,000,
(ii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iii) any employment or consulting agreement,
contract or commitment with an employee or individual consultant or salesperson
or consulting or sales agreement, contract or commitment with a firm or other
organization involving payments in excess of $10,000,
(iv) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan other than the Plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement,
(v) any fidelity or surety bond or completion
bond,
(vi) any lease of personal property having a value
individually in excess of $50,000,
(vii) any agreement of indemnification or guaranty,
(viii) any agreement, contract or commitment
relating to capital expenditures and involving future payments in excess of
$25,000 individually or $50,000 in the aggregate,
(ix) any agreement, contract or commitment
relating to the disposition or acquisition of material assets or any material
interest in any business enterprise outside the ordinary course of the
Company's business,
(x) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit in excess of $25,000 individually
or $50,000 in the aggregate,
(xi) any purchase order or contract for the
purchase of materials involving in excess of $25,000 individually or $50,000 in
the aggregate,
(xii) any construction contracts,
(xiii) any distribution, joint marketing or
development agreement which is not cancelable without penalty within thirty
(30) days, or
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(xiv) any other agreement, contract or commitment
that involves $25,000 individually or $50,000 in the aggregate or more which is
not cancelable without penalty within thirty (30) days and which was not
entered into in the ordinary course of business.
(b) The Company is in compliance with and is not in
breach of, violation of or default under, and has not received notice that it
has materially breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or its properties is
bound which is required to be set forth in Schedule 2.13(g), 2.13(h) or 2.14(a)
(collectively a "Contract"), nor is the Company or any Principal Shareholder
aware of any event that would constitute such a breach, violation or default
with the lapse of time, giving of notice or both (except for notices relating
to breaches, violations or defaults that have been cured in all material
respects). Each Contract is in full force and effect and, except as otherwise
disclosed in Section 2.14(b) of the Company Disclosure Schedule, is not subject
to any default thereunder, of which the Company has knowledge, by any party
obligated to the Company pursuant thereto. The Company has obtained, or has
used all reasonable best efforts to obtain prior to the Closing Date, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Acquisition of for such Contracts to
remain in effect without modification after the Closing. Following the
Closing, the Company will be permitted to exercise all of the Company's rights
under the Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
2.15 Interested Party Transactions. Except as set forth in Section
2.15 of the Disclosure Schedule, no officer, director or shareholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells,
services, products or technology that the Company furnishes or sells, or
proposes to furnish or sell, or (ii) any interest in any entity that purchases
from or sells or furnishes to the Company, any material quantity of goods or
services or (iii) a material beneficial interest in any Contract; provided,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed an "interest in any
entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. The Company possesses all material
consents, licenses, permits, grants or other authorizations issued to the
Company by a Governmental Entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "Company Authorizations"). The Company
Authorizations are in full force and effect and to the Company's and each
Principal Shareholder's knowledge constitute all Company Authorizations
required to permit the Company to operate or conduct its business or hold any
interest in its properties or assets.
2.17 Litigation. There is no action, suit or proceeding of any
nature pending, or, to the Company's or any Principal Shareholder's knowledge,
threatened, against the Company, its properties
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or any of its officers or directors, nor, to the knowledge of the Company or
any Principal Shareholder, is there any reasonable basis therefor. There is no
investigation pending or, to the Company's or any Principal Shareholder's
knowledge threatened, against the Company, its properties or any of its
officers or directors (nor, to the knowledge of the Company or any Principal
Shareholder, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as
presently or previously conducted. Section 2.17 of the Company Disclosure
Schedule sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested.
2.18 Accounts Receivable.
(a) The Company has made available to NEON a list of all
material accounts receivable of the Company ("Accounts Receivable") as of
August 31, 1998 along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the
ordinary course of business, are carried at values determined in accordance
with GAAP and are, to the knowledge of the Company and the Principal
Shareholders, collectible except to the extent of reserves therefor set forth
in the Current Balance Sheet. Except as set forth in Section 2.14 of the
Disclosure Schedule, no person has any Lien on any of such Accounts Receivable,
and no request or agreement for deduction or discount has been made with
respect to any of such Accounts Receivable.
2.19 Minute Books. The minutes of the Company made available to
counsel for NEON are the only minutes of the Company and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of the Company and its shareholders or actions by written consent
since the time of incorporation of the Company.
2.20 Environmental Matters.
(a) Hazardous Material. The Company has not: (i)
operated any underground storage tanks at any property that the Company has at
any time owned, operated, occupied or leased; or (ii) illegally released any
material amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, lead, and urea-formaldehyde and
all substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource
Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present as a result of the deliberate actions of the Company or,
to the Company's or any Principal Shareholder's knowledge, as a result of any
actions of any other person or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that the Company has at any time owned, operated, occupied or leased.
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26
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in material violation of any rule, regulation, treaty or statute promulgated by
any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. To the extent legally required, the Company
currently holds all environmental approvals, permits, licenses, clearances and
consents (the "Environmental Permits") necessary for the conduct of the
Company's Hazardous Material Activities and other businesses of the Company as
such activities and businesses are currently being conducted, the absence of
which would be reasonably likely to result in fines to the Company in excess of
$25,000 individually or $50,000 in the aggregate.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's or any Principal Shareholder's knowledge,
threatened concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company. Neither the Company nor any
Principal Shareholder is aware of any fact or circumstance which could involve
the Company in any environmental litigation or impose upon the Company any
environmental liability which would be reasonably likely to exceed $25,000
individually or $50,000 in the aggregate.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as
set forth in Section 2.21 of the Company Disclosure Schedule, the Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby. Section
2.21 of the Company Disclosure Schedule sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees, and
that all such fees shall be paid by the Principal Shareholders. Section 2.21
of the Company Disclosure Schedule sets forth the Company's current reasonable
estimate of all Third Party Expenses (as defined in Section 5.2) expected to be
incurred by the Company in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby.
2.22 Employee Benefit Plans and Compensation.
(a) For purposes of this Section 2.22, the following
terms shall have the meanings set forth below:
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(i) "Affiliate" shall mean any other person or
entity under common control with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder.
(ii) "Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for bonuses, severance, termination pay, deferred compensation, pensions,
profit sharing, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
written or otherwise, funded or unfunded and whether or not legally binding,
including without limitation, any plan which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability,
contingent or otherwise; and
(iii) "Employee" shall mean any current, former, or
retired employee, consultant, officer, or director of the Company or any
Affiliate.
(iv) "Employee Agreement" shall refer to each
employment, severance, consulting or similar agreement or contract between the
Company or any Affiliate and any Employee;
(b) Schedule. Section 2.22(b) of the Company Disclosure
Schedule contains a list of each Employee Plan and each Employee Agreement,
together with a schedule of all liabilities, whether or not accrued, under each
such Employee Plan. The Company does not have any plan or commitment, whether
legally binding or not, to establish any new Employee Plan or Employee
Agreement, to modify any Employee Plan or Employee Agreement (except to the
extent required by law or to conform any such Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to NEON in writing, or as required by this Agreement), or to enter
into any Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has made available to NEON,
(i) correct and complete copies of all documents embodying any Employee Plan
and any Employee Agreement including all amendments thereto and copies of all
forms of agreement and enrollment used therewith; (ii) the most recent annual
actuarial valuations, if any, prepared for each Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Employee Plan or
related trust; (iv) the most recent summary plan description together with the
most recent summary of material modifications, if any, required under ERISA
with respect to each Employee Plan; (v) all IRS determination letters and
rulings, if any, relating to Company Employee Plans and copies of all
applications and correspondence to or from the IRS or the Department of Labor
("DOL") with respect to any Employee Plan; (vi) if the Employee Plan is funded,
the most recent annual and periodic accounting of Employee Plan assets; (vii)
all material agreements and contracts relating to each Employee Plan, including
but not limited to, administrative service agreements, group annuity contracts
and group insurance contracts; and (viii) all communications material to any
Employee or Employees relating to any Employee Plan and any proposed Employee
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Plans, in each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any liability to the Company.
(d) Employee Plan Compliance. (i) The Company has
performed in all material respects all obligations required to be performed by
it under each Employee Plan and each Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance in all material respects with all applicable laws, statutes, orders,
rules and regulations, including ERISA and the Code; (ii) each Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination letter with respect to each such Plan from the IRS, has timely
applied for such a determination or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for
such a determination letter and make any amendments necessary to obtain a
favorable determination; (iii) no "prohibited transaction", within the meaning
of Section 4975 of the Code or Section 406 or 407 of ERISA, has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the knowledge of the Company or any Principal
Shareholder threatened or anticipated (other than routine claims for benefits)
against any Employee Plan or against the assets of any Employee Plan; (v) each
Employee Plan can be amended, terminated or otherwise discontinued after the
Closing in accordance with its terms, without liability to the Company, NEON or
any Affiliate (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no inquiries or proceedings pending or,
to the knowledge of the Company, threatened by the IRS or DOL with respect to
any Employee Plan; (vii) the Company is not, to its knowledge, subject to any
penalty or tax with respect to any Employee Plan under Section 402(i) of ERISA
or Section 4975 through 4980 of the Code; and (viii) the Company is current on
all funding obligations related to the Company's 401(k) plan.
(e) Pension Plans. The Company does not now, nor has it
ever, maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the
Company has not represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a group) that
such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits or severance pay upon their retirement or termination
of employment, except to the extent required by statute.
(h) No COBRA Violation. Neither the Company nor any
Affiliate has, prior to the Closing and in any material respect, violated any
of the health care continuation requirements of COBRA or any similar provisions
of state law applicable to its employees.
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(i) Effect of Transaction. The execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Employee Plan, Employee Agreement, trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(j) Employment Matters. The Company (i) is in compliance
with all applicable laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours,
in each case, with respect to Employees in all material respects; (ii) has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees or other persons who by virtue
of their activities performed on behalf of the Company may be deemed employees
within the meaning of applicable law; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees or other persons who by virtue of their activities performed on
behalf of the Company may be deemed employees within the meaning of applicable
law (other than routine payments to be made in the normal course of business
and consistent with past practice).
(k) Labor. No work stoppage or labor strike against the
Company is pending, or to the knowledge of the Company or any Principal
Shareholder, threatened. The Company is not involved in nor has it been
threatened in the prior twelve months with any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in a material liability to the Company. The
Company has not engaged in any unfair labor practices which could, individually
or in the aggregate directly or indirectly result in a material liability to
the Company. The Company is not presently, nor has it in the past, been a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
(l) No Interference or Conflict. To the knowledge of the
Company and the Principal Shareholders, no shareholder, officer, employee or
consultant of the Company is obligated under any contract or agreement or
subject to any judgement, decree or order of any court or administrative
agency, that would interfere with such person's efforts to promote the
interests of the Company or that would materially interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as presently conducted or proposed to be
conducted nor any activity of such officers, directors, employees or
consultants in connection with the carrying on of the Company's business as
presently conducted or proposed to be conducted, will, to the Company's or any
Principal Shareholder's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract
or agreement under which any of such officers, directors, employees or
consultants is now bound.
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2.23 Insurance. Section 2.23 of the Company Disclosure Schedule
lists all insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company or any Affiliate. There is no material claim by the Company or any
Affiliate pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid, and the Company and its Affiliates are otherwise in material
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Neither the Company
nor any Principal Shareholder has knowledge of any threatened termination of,
or premium increase with respect to, any of such policies.
2.24 Compliance with Laws. The Company has materially complied
with, is not in material violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation (except for notices of violations which have been cured in all
material respects).
2.25 Warranties; Indemnities. Except in the ordinary course of
business or as listed in Section 2.13(h) of the Company Disclosure Schedule or
as set forth in a Contract in the ordinary course of business, the Company has
not given any warranties or indemnities relating to products or technology sold
or services rendered by the Company.
2.26 Complete Copies of Materials. The Company has delivered or
made available true and complete copies of each document (or summaries of same)
that has been requested by NEON or its counsel.
2.27 Proprietary Information Agreements. Each employee listed on
Section 2.27 of the Company Disclosure Schedule and presently employed by the
Company has executed a proprietary information agreement substantially in the
Company's standard form (as revised or modified, from time to time) samples of
each such executed version of which are attached hereto as part of Section 2.27
of the Company Disclosure Schedule. Such proprietary information agreements
constitute valid and binding obligations of the Company. To the Company's
knowledge, neither the execution or delivery of such agreements nor the
carrying on of the Company's business as employees by such persons, nor the
conduct of the Company's business as currently proposed, will conflict with or
result in a breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which any such
employee is now obligated.
2.28 Non-Competition Agreements. The employees of the Company set
forth in Section 2.28 of the Company Disclosure Schedule, are executing and
delivering to NEON concurrently herewith a Non-Competition Agreement
substantially in the forms attached hereto as Exhibit A as indicated in Section
2.28 of the Company Disclosure Schedule.
2.29 Products Sold to High Country Products. Sales of products
from the Company to High Country Computer Programming Products are final and
not subject to a right of return.
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2.30 Representations Complete. Without limiting in any way any
representations or warranties made by the Company or any Shareholder, none of
the representations or warranties made by the Company or any Principal
Shareholder (as modified by the Company Disclosure Schedule), nor any statement
made in any Schedule or certificate furnished by the Company or any Shareholder
pursuant to this Agreement contains or will contain at the Closing, any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder, severally but not jointly, represents and warrants
to NEON as follows:
3.1 Ownership of Shares. Such Shareholder is the sole record and
beneficial owner of the Shares designated as being owned by such Shareholder
opposite such Shareholder's name in Schedule 1.1, and such Shares are to be
sold pursuant to this Agreement. Such Shares are not subject to any Liens or
to any rights of first refusal of any kind, and such Shareholder has not
granted any rights to purchase such Shares to any other person or entity. Such
Shareholder has the sole right to transfer such Shares to NEON. Such Shares
constitute all of the Company Capital Stock owned, beneficially or of record,
by such Shareholder, and such Shareholder has no other rights to acquire
Company Capital Stock. Upon the Closing, NEON will receive good title to such
Shares, subject to no Liens retained, granted or permitted by such Shareholder
or the Company.
3.2 Tax Matters. Such Shareholder has had an opportunity to
review with its own tax advisors the tax consequences to such Shareholder of
the Acquisition and the transactions contemplated by this Agreement. Such
Shareholder understands that it must rely solely on its advisors and not on any
statements or representations by NEON, the Company or any of their agents.
Such Shareholder understands that it (and not NEON or the Company) shall be
responsible for its own tax liability that may arise as a result of the
Acquisition or the transactions contemplated by this Agreement.
3.3 Absence of Claims by the Shareholders. Such Shareholder does
not have any present claim against the Company and does not have knowledge of
the basis for any future claim against the Company whether, contingent or
unconditional, fixed or variable under any contract or on any other legal basis
whatsoever.
3.4 Authority. Such Shareholder has all requisite power and
authority to enter into this Agreement and the Stockholder Agreement in the
form attached hereto as Exhibit C and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Stockholder Agreement and the consummation of the transactions
contemplated hereby and thereby
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have been duly authorized by all necessary corporate action on the part of such
Shareholder (if such entity is not a natural person), and no further action is
required on the part of such Shareholder to authorize this Agreement and the
Stockholder Agreement and the transactions contemplated hereby and thereby.
This Agreement and the Stockholder Agreement have been duly executed and
delivered by such Shareholder and, assuming the due authorization, execution
and delivery by the other parties thereto, constitute the valid and binding
obligations of each such Shareholder, enforceable in accordance with their
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.5 No Conflict. The execution and delivery by such Shareholder
of this Agreement and the Stockholder Agreement and the consummation of the
transactions contemplated hereby and thereby will not conflict with (i) any
provision of the charter documents and bylaws of such Shareholder (if such
Shareholder is not a natural person), (ii) any material mortgage, indenture,
lease, contract or other material agreement or instrument, permit, concession,
franchise or license to which such Shareholder or any of its properties or
assets are subject (a "Shareholder Conflict"), or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to such
Shareholder or its properties or assets.
3.6 Consents. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or any third party (so as not to trigger any Shareholder Conflict), is
required by or with respect to such Shareholder in connection with the
execution and delivery of this Agreement or the Stockholder Agreement or the
consummation of the transactions contemplated hereby or thereby except for (i)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws
thereby, (ii) notification requirements of the HSR Act, if any.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEON
NEON hereby represents and warrants to the Company and each of the
Shareholders as follows:
4.1 Organization, Standing and Power. NEON is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. NEON has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified or licensed would have a material adverse effect on the ability
of NEON to consummate the transactions contemplated hereby.
4.2 Authority. NEON has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
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Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of NEON.
This Agreement has been duly executed and delivered by NEON and constitutes the
valid and binding obligation of NEON, enforceable in accordance with its terms,
except as such enforceability may be limited by principles of public policy and
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
4.3 Capital Structure.
The authorized stock of NEON consists of 45,000,000 shares of
Common Stock, of which 11,775,930 shares were issued and outstanding as of June
30, 1998, and 2,000,000 shares of Preferred Stock, none of which is issued or
outstanding. At the close of business on December 31, 1997, 2,102,025 shares
of NEON Common Stock were subject to issuance upon the exercise of outstanding
stock option ("NEON Rights"). No shares of NEON Common Stock were held by NEON
in its treasury, and no shares of NEON Preferred Stock were outstanding. All
the outstanding shares of NEON Common Stock are validly issued, fully paid,
nonassessable and free of preemptive rights. The shares of NEON Common Stock
issuable in connection with the Acquisition have been duly authorized and
reserved for issuance and, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights.
4.4 Capital Resources. NEON has sufficient capital resources to
pay the cash portion of the Purchase Price.
4.5 Brokers' and Finders' Fees. Except as set forth in Schedule
4.5, NEON has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
4.6 No Conflict. The execution and delivery of this Agreement
does not, and, the consummation of the transactions contemplated hereby will
not, Conflict with, (i) any provision of the charter documents and Bylaws of
NEON, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which NEON or any of
its properties or assets are subject and which has been filed as an exhibit to
NEON's filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to NEON or its
properties or assets.
4.7 Consents. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, or any third party, including a party to any agreement with NEON (so as
not to trigger any Conflict), is required by or with respect to NEON in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws
thereby, and (ii) notification requirements of the HSR Act, if any.
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4.8 SEC Documents; NEON Financial Statements. NEON has furnished
or made available to the Company and the Shareholders true and complete copies
of all reports or registration statements filed by it with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for all
periods since January 1, 1998, all in the form so filed (all of the foregoing
being collectively referred to as the "SEC Documents") which constitute all of
the documents that NEON was required to file with the SEC since such date. As
of their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act, as the case may be, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC. The financial statements of NEON, including the notes thereto,
included in the SEC Documents (the "NEON Financial Statements") comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated
financial position of NEON at the dates thereof and the consolidated results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal audit adjustments). There has been no
change in NEON accounting policies except as described in the notes to the NEON
Financial Statements.
4.9 Stockholder Consent. No consent or approval of the
stockholders of NEON is required or necessary for NEON to enter into this
Agreement or to consummate the transactions contemplated hereby.
4.10 No Material Adverse Change. Since the date of the Balance
Sheet included in NEON's most recently filed report on Form 10-Q, NEON has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets or
business of NEON; (b) any amendment or change in the Certificate of
Incorporation or Bylaws of NEON, or (c) any damage to, destruction or loss of
any assets of NEON (whether or not covered by insurance) that materially and
adversely affects the financial condition or business of NEON.
4.11 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which NEON has received any
notice of assertion against NEON, which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement or which has or could reasonably be expected to have a
material adverse effect on the financial condition, liabilities, assets or
business of NEON.
4.12 Representations Complete. Without limiting in any way any
representations or warranties made by NEON, to the knowledge of NEON, none of
the representations or warranties made by NEON in or pursuant to this
Agreement, nor any statement made in any Schedule or certificate furnished by
NEON pursuant to this Agreement contains or will contain, any untrue statement
of a material fact, or omits or will omit to state any material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which made, not misleading.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Confidentiality. Each of the parties hereto hereby agrees to
keep such information or knowledge obtained in connection with the negotiation
and execution of this Agreement or the effectuation of the transactions
contemplated hereby, confidential; provided, however, that the foregoing shall
not apply to information or knowledge which (a) a party can demonstrate was
already lawfully in its possession prior to the disclosure thereof by the other
party, (b) is generally known to the public and did not become so known through
any violation of law, (c) became known to the public through no fault of such
party, (d) is later lawfully acquired by such party from other sources, (e) is
required to be disclosed by order of court or government agency with subpoena
powers or (f) which is disclosed in the course of any litigation between any of
the parties hereto.
5.2 Expenses. Except as specifically provided in this Section
5.2, and except for certain expenses payable by the Principal Shareholders as
provided in Section 2.21 all fees and expenses incurred in connection with the
Acquisition including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses. The Company shall not incur Third Party Expenses in
excess of $100,000 in connection with the consummation of the Acquisition and
the transactions contemplated here. However, the Company and the Shareholders
agree that to the extent such Third Party Expenses exceed $100,000 in the
aggregate, NEON will have full recourse to the Escrow Fund (without regard to
$500,000 threshold limitation) for payment of aggregate Third Party Expenses in
excess of $100,000 that have been paid by the Company, accrued by the Company
or have been incurred (and not accrued and paid) by the Company.
5.3 Public Disclosure. Unless otherwise required by law, prior to
the Closing, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by NEON and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.4 Consents. The Company shall use its reasonable best efforts
to obtain the consents, waivers and approvals under any of the Contracts set
forth in Section 5.4 of the Company Disclosure Schedule so as to preserve all
rights of, and benefits to, the Company thereunder.
5.5 FIRPTA Compliance. On the Closing Date, the Company shall
deliver to NEON a properly executed statement in a form reasonably acceptable
to NEON for purposes of satisfying NEON's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
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5.6 Tax Matters.
(a) The Company shall, and the Shareholders shall cause
the Company to, maintain its status as an S Corporation within the meaning of
Section 1361 of the Code, and all applicable state Tax laws and regulations, at
all times prior to the Closing.
(b) In connection with the Acquisition the Company and
the Shareholders shall join NEON in filing a timely election under Section
338(h)(10) of the Code on Form 8023 (to be prepared by NEON), and any
corresponding elections available under applicable state laws (collectively,
the "338 Election"). The Company and Shareholders shall cooperate with NEON to
promptly take all actions necessary and appropriate (including, without
limitation, filing the foregoing Form 8023 and all other forms, Returns,
elections, schedules and documents as may be required) to effect and preserve a
timely 338 Election in accordance with Section 338(h)(10) of the Code or any
successor statute thereto (and all corresponding state and local tax laws).
The Shareholders shall be solely and exclusively responsible and liable for,
and shall pay when due, all corporate taxes incurred by the Company in
connection with the 338 Election.
(c) The parties hereto agree to allocate the Purchase
Price for purposes of Section 338(h)(10) in accordance with the allocation to
be provided by NEON (the "NEON Price Allocation"). The parties hereto shall
adopt and utilize the Price Allocation for purposes of all tax returns and
reports filed by any of them with any state or federal taxing authority, and
such parties shall not voluntarily take any position inconsistent therewith in
connection with the examination of any tax return of any such parties, any
refund claim, any litigation proceeding or otherwise, unless required by the
United States Internal Revenue Service or any state taxing authority. In
addition to the foregoing, all financial statements of the parties hereto shall
be prepared in a manner consistent with the NEON Price Allocation.
(d) NEON shall cause the Company to prepare and file, at
the sole cost and expense of the Company, all income Returns of the Company for
all taxable periods ending on or before the Closing Date and the Shareholders
shall be responsible for the payment of all Taxes of the Company for such
periods, whenever incurred or assessed, including Taxes attributable to the 338
Election. Such Returns shall be made available to the Shareholders no less
than 21 calendar days prior to the filing thereof with the appropriate
governmental authority for review by the Shareholders. From and after the
Closing Date, NEON and the Company, on the one hand, and the Shareholders, on
the other hand, shall make available to the other, as reasonably requested, all
information, records or documents relating to the Tax liabilities of the
Company for all periods ending on or prior to the Closing Date, and will
preserve such information, records or documents until the expiration of any
applicable statute of limitations or extensions thereof.
5.7 [INTENTIONALLY OMITTED]
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5.8 No Issuance of Company Capital Stock. Prior to the Closing,
the Company shall not issue any Company Capital Stock except upon exercise of
Company Options.
5.9 Indemnification. NEON agrees to indemnify and hold harmless
all past and present officers and directors of the Company in a manner
consistent with the indemnification and liability policies presently applied to
officers and directors at NEON.
5.10 Renegotiation of Leases. NEON and the Principal Shareholders
shall renegotiate the terms of the following leases:
(a) Office Lease for the property located at 000 0xx
Xxxxxx (also known as 00 Xxxxx Xxxxx) dated January 28, 1997 by and between La
France Family Trust and the Company.
(b) Commercial Lease for the property located at 000
Xxxxxx Xxxxxx dated July 1, 1998 by and between La France Family Trust and the
Company.
(c) Commercial Lease for the property located at 000
Xxxxxx Xxxxxx dated November 6, 1997 by and between La France Family Trust and
the Company.
5.11 Assumption of Company's Business Operations. NEON is assuming
all risks and rewards of the Company's business operations as of September 1,
1998.
5.12 Additional Documents and Further Assurances. Each party
hereto, at the request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the Closing
and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to Obligations of Each Party to Consummate the
Acquisition. The obligations of each party to this Agreement to consummate the
Acquisition shall be subject to the satisfaction at or prior to the Closing of
the following conditions:
(a) Government Approvals. All authorizations, consents,
permits and approvals of all federal, state and local governmental agencies and
authorities required to be obtained in order to permit consummation of the
transactions contemplated by this Agreement shall have been obtained.
(b) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Acquisition shall be in effect,
nor shall
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any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Acquisition, which makes the consummation of the Acquisition or the
transactions contemplated thereby illegal.
(c) No Litigation. There shall be no litigation pending
or threatened by any regulatory body or private party in which (i) an
injunction is or may be sought against any of the transactions contemplated by
this Agreement, or (ii) relief is or may be sought against any party hereto as
a result of this Agreement and in which, in the good faith judgment of the
Board of Directors of either the Company or NEON (relying on the advice of
their respective legal counsel), such regulatory body or private party has the
probability of prevailing and such relief would have a material adverse effect
upon such party.
(d) Non-Competition Agreements. The Non-Competition
Agreement in the form of Exhibit A attached hereto shall have been executed and
delivered by the persons set forth in Section 2.28 of the Company Disclosure
Schedule.
(e) Escrow Agreement. NEON, the Shareholder
Representative (as defined in Section 7.2(h)) and the Escrow Agent (as defined
in Section 7.2(a)) shall have executed and delivered a mutually satisfactory
escrow agreement (the "Escrow Agreement") incorporating the provisions of
Section 7.2, which Escrow Agreement shall be in full force and effect.
6.2 Conditions to Obligations of the Company and the Shareholders.
The obligations of the Company and the Shareholders to consummate the
Acquisition and to effect the transactions to be performed by them at the
Closing are, at the option of the Company and the Management Shareholders,
subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions:
(a) Representations and Warranties. The representations
and warranties of NEON contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date; except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on NEON.
(b) Third Party Consents. NEON shall have obtained all
consents required, if any, to consummate the transactions contemplated by this
Agreement.
(c) Material Adverse Change. There shall not have
occurred any material adverse change in the business, assets (including
intangible assets), liabilities, financial condition or results of operations
of NEON since June 30, 1998.
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6.3 Conditions to the Obligations of NEON. The obligation of NEON
to consummate the Closing shall be subject to the satisfaction at or prior to
the Closing of each of the following conditions, any of which may be waived, in
writing, exclusively by NEON:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company and the Shareholders contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date, except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), with the
same force and effect as if made on and as of the Closing Date, except, in all
such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a Material Adverse Effect on the Company. NEON shall have
been provided with a certificate executed by the Shareholders and executed on
behalf of the Company by its Chief Executive Officer to the effect that, as of
the Closing the Company and the Shareholders have complied with the foregoing.
(b) Third Party Consents. Any and all consents and
waivers from third parties to the Company's contracts and other instruments set
forth in Section 6.3(b) of the Company Disclosure Schedule shall have been
obtained by the Company.
(c) Claims. There shall not have occurred any claims
(whether or not asserted in litigation) which may materially and adversely
affect the consummation of the transactions contemplated hereby or may have a
Material Adverse Effect.
(d) 338 Election. The Company and the Shareholders shall
have signed and delivered the 338 Election in the form prepared by NEON
(provided that such form shall have been provided to the Company and the
Shareholders prior to the Closing).
(e) Stockholder Agreement. The Stockholders receiving
NEON Common Stock shall have executed and delivered a Stockholder Agreement in
substantially the form attached hereto as Exhibit C.
(f) September Revenue. The Company shall have provided
evidence satisfactory to NEON that it has received recognizable revenue (in
accordance with GAAP) of $2.4 million for the month of September.
(g) Material Adverse Change. There shall not have
occurred any material adverse change in the business, assets (including
intangible assets), liabilities, financial condition or results of operations
of the Company since August 31, 1998.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. The Company's and
the Shareholders' and NEON's representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Closing and shall terminate on the first anniversary of the Closing (the
"Expiration Date") other than the obligations set forth in Section 5.6 which
shall survive until the expiration of all applicable statutes of limitations,
or extensions thereof, governing such matters. All of NEON's representations
and warranties contained herein or in any instrument delivered pursuant to this
Agreement shall terminate at the Closing.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Closing the Shareholders
receiving NEON Common Stock will be deemed to have received and consented to
the deposit with the Escrow Agent (as defined below) of the Escrow Shares (plus
any additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by NEON after the Closing) pursuant to the Escrow
Agreement attached hereto as Exhibit B hereto, without any act required on the
part of any Shareholder. As soon as practicable after the Closing, the Escrow
Shares, without any act required on the part of any Shareholder, will be
deposited with an escrow agent acceptable to NEON and the Shareholder
Representative (as defined in Section 7.2(h)(i) below) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth herein and at NEON's cost and expense.
The portion of the Escrow Fund contributed on behalf of each Shareholder shall
be as set forth in Schedule 1.1. The Escrow Fund shall be comprised entirely of
the Escrow Shares. The Escrow Fund shall be available to compensate NEON and
its affiliates for any claims, losses, liabilities, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses, and
expenses of investigation and defense (hereinafter individually a "Loss" and
collectively "Losses") incurred by NEON, its officers, directors, or affiliates
as a result of any inaccuracy or breach of a representation or warranty of the
Company or the Shareholders, contained in Articles II and III herein (as
modified by the Company Disclosure Schedule), or any failure by the Company or
the Shareholders to perform or comply with any covenant contained herein;
provided that NEON shall not receive any shares from the Escrow Fund with
respect to any individual Loss not exceeding $5,000 and shall not receive any
shares from the Escrow Fund unless such Losses exceed $500,000 in the
aggregate, at which time NEON shall receive shares from the Escrow Fund for
such first $500,000 in Losses and to the extent of such excess. NEON and the
Company each acknowledge that such Losses, if any, would relate to unasserted
contingent liabilities existing at the Closing, which if resolved at the
Closing would have led to a reduction in the aggregate Purchase Price. The
foregoing limitations shall not apply to the obligations of the Shareholders to
pay the income taxes described in Section 5.6.
(b) Intentionally omitted.
(c) Escrow Period; Distribution upon Termination of
Escrow Periods. Subject to the following requirements, the Escrow Fund shall
be in existence immediately following the Closing and shall terminate on the
Expiration Date (the "Escrow Period"); provided that the Escrow Period shall
not terminate with respect to such amount (or some portion thereof), that
together with the aggregate amount
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remaining in the Escrow Fund is necessary to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period and to the extent specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall transfer to
the applicable Shareholders, pursuant to written instructions by NEON, the
remaining portion of the Escrow Fund not required to satisfy such claims.
(d) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of NEON and
shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of NEON Common Stock Shares or
other equity securities issued or distributed by NEON (including shares issued
upon a stock split) ("New Shares") and any cash dividends distributed by NEON
in respect of NEON Common Stock in the Escrow Fund which have not been released
from the Escrow Fund as of the time of such issuance or distribution by NEON,
such New Shares and cash dividends shall be deemed distributed to and received
by the Shareholders but such Shareholders have consented that such New Shares
and cash dividends shall be added to the Escrow Fund and become a part thereof.
New Shares and cash dividends issued in respect of shares of NEON Common Stock
which have been released from the Escrow Fund as of the time of such issuance
or distribution by NEON shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Each Shareholder shall be entitled to control
the vote of the shares of NEON Common Stock contributed to the Escrow Fund by
such Shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of NEON Common Stock), and the Escrow Agent in whose
name the shares are held shall vote such shares on all matters as instructed in
writing by the Shareholder Representative.
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time
on or before the last day of the Escrow Period of a certificate signed by any
officer of NEON (an "Officer's Certificate"): (A) stating that NEON has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is
related, the Escrow Agent shall, subject to the provisions of Section 7.2(f)
hereof, cause the transfer agent of NEON Company Stock to transfer to NEON out
of the Escrow Fund, as promptly as practicable, shares of NEON Common Stock
held in the Escrow Fund in an amount equal to such Losses.
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(ii) For the purposes of determining the number of
shares of NEON Common Stock to be delivered to NEON out of the Escrow Fund
pursuant to Section 7.2(e)(i) hereof, the shares of NEON Common Stock shall be
valued at the average closing price of NEON's Common Stock for the eighteen
(18) consecutive trading days ending on the third trading day immediately prior
to the Closing Date, as reported on the Nasdaq National Market. NEON and the
Shareholder Representative shall certify such fair market value in a
certificate signed by both NEON and the Shareholder Representative, and shall
deliver such certificate to the Escrow Agent, who may rely on it without
inquiry.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Shareholder Representative and for a period of thirty
(30) days after receipt of an Officer's Certificate by the Escrow Agent, the
Escrow Agent shall make no transfer to NEON of any Escrow Shares pursuant to
Section 7.2(e) hereof unless the Escrow Agent shall have received written
authorization from the Shareholder Representative to make such transfer. After
the expiration of such thirty (30) day period, the Escrow Agent shall cause the
transfer agent of NEON Company Stock to transfer shares of NEON Common Stock
from the Escrow Fund in accordance with Section 7.2(e) hereof, provided that no
such transfer may be made if the Shareholder Representative shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent prior to the expiration
of such thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Shareholder Representative shall
object in writing to any claim or claims made in any Officer's Certificate as
provided in Section 7.2(f) hereof, the Shareholder Representative and NEON
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Shareholder Representative and
NEON should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and
distribute shares of NEON Common Stock from the Escrow Fund in accordance with
the terms thereof.
(ii) If no such agreement can be reached after
good faith negotiation, either NEON or the Shareholder Representative may
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree
to arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. NEON and the Shareholder
Representative shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The arbitrators shall set a limited
time period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators shall rule
upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys fees and costs, to the same extent as a
court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification.
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The decision of a majority of the three arbitrators as to the validity and
amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement, and notwithstanding anything in
Section 7.2(f) hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Xxxxx County, California under the rules
then in effect of the American Arbitration Association. For purposes of this
Section 7.2(g), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, NEON shall be deemed
to be the Prevailing Party in the event that the arbitrators award NEON an
amount equal to greater than the sum of one-half (1/2) of the disputed amount
plus any amounts not in dispute (provided that the arbitrator may not obtain a
resolution of equal liability); otherwise, the Shareholders as represented by
the Shareholder Representative shall be deemed to be the Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(h) Shareholder Representative of the Shareholders; Power
of Attorney.
(i) Upon the Closing, and without further act of
any Shareholder, Xxxx X. Xxxxxxxx shall be appointed as agent and
attorney-in-fact (the "Shareholder Representative") for each Shareholder, for
and on behalf of the Shareholders, to give and receive notices and
communications, to authorize delivery to NEON of shares of NEON Common Stock
from the Escrow Fund in satisfaction of claims by NEON, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Shareholder Representative for the
accomplishment of the foregoing. Such agency may be changed by a majority in
interest of the Shareholders from time to time upon not less than thirty (30)
days prior written notice to NEON; provided that the Shareholder Representative
may not be removed unless holders of a two-thirds interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. Any
vacancy in the position of Shareholder Representative may be filled by approval
of the holders of a majority in interest of the Escrow Fund. No bond shall be
required of the Shareholder Representative, and the Shareholder Representative
shall not receive compensation for his or her services. Notices or
communications to or from the Shareholder Representative shall constitute
notice to or from each of the Shareholders.
(ii) The Shareholder Representative shall not be
liable for any act done or omitted hereunder as Shareholder Representative
while acting in a manner he believes in good faith to be in the best interests
of the corporation. The Shareholders on whose behalf the Escrow Shares was
contributed to the Escrow Fund shall severally indemnify the Shareholder
Representative and hold the Shareholder Representative harmless against any
loss, liability or expense incurred without gross
38
44
negligence or bad faith on the part of the Shareholder Representative and
arising out of or in connection with the acceptance or administration of the
Shareholder Representative's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Shareholder Representative.
(i) Actions of the Shareholder Representative. A
decision, act, consent or instruction of the Shareholder Representative shall
constitute a decision of all the Shareholders for whom a portion of the Escrow
Shares otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each of such Shareholders, and the Escrow
Agent and NEON may rely upon any such decision, act, consent or instruction of
the Shareholder Representative as being the decision, act, consent or
instruction of each every such shareholder of the Company. The Escrow Agent
and NEON are hereby relieved from any liability to any person for any acts done
by them in accordance with such decision, act, consent or instruction of the
Shareholder Representative.
(j) Third-Party Claims. In the event NEON becomes aware
of a third-party claim which NEON believes may result in a demand against the
Escrow Fund, NEON shall promptly notify the Shareholder Representative of such
claim in accordance with Section 7.2(f), and the Shareholder Representative, as
representative for the Shareholders, shall be entitled, at their expense, to
participate in any defense of such claim. NEON shall have the right in its
sole discretion to settle any such claim; provided, however, that except with
the consent of the Shareholder Representative, no settlement of any such claim
with third-party claimants shall permit any claim against the Escrow Fund. In
the event that the Shareholder Representative has consented to any such
settlement and acknowledged that the claim is a valid claim against the Escrow
Fund, the Shareholder Representative shall be deemed to have agreed to the
claim by NEON against the Escrow Fund in an amount equal to such settlement.
In the event, the claimed amount is less than the then available escrow, the
Shareholder Representative, as representative for the Shareholders, at his
election, can control the litigation; provided, however, if such claim relates
to the business operations of the Company then NEON shall control the
litigation of such claim.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of NEON
and the Shareholder Representative, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall
be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of
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45
any court, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties
executing or delivering or purporting to execute or deliver this Agreement or
any documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement,
the Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of the
Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any
act or failure to act made or omitted in good faith, or (B) any action taken or
omitted in reliance upon any instrument, including any written statement of
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties
to this Agreement, or with any other party, concerning the subject matter of
this Agreement, its terms or conditions, the Escrow Agent will not be required
to determine the controversy or to take any action regarding it. The Escrow
Agent may hold all documents and shares of NEON Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file
an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and shares of NEON Common Stock held
in escrow, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action and which the
parties jointly and severally agree to pay. Upon initiating such action, the
Escrow Agent shall be fully released and discharged of and from all obligations
and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors
and assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages,
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46
liabilities, and expenses, including reasonable costs of investigation, counsel
fees, and disbursements that may be imposed on Escrow Agent or incurred by
Escrow Agent in connection with the performance of his/her/its duties under
this Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days' written notice to the parties; provided,
however, that no such resignation shall become effective until the appointment
of a successor escrow agent which shall be accomplished as follows: the
parties shall use their best efforts to mutually agree on a successor escrow
agent within thirty (30) days after receiving such notice. If the parties fail
to agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the States of California or Massachusetts. The successor escrow agent shall
execute and deliver an instrument accepting such appointment and it shall,
without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor escrow agent as if originally named as
escrow agent. The Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(l) Fees. All fees of the Escrow Agent for performance
of its duties hereunder shall be paid by NEON. It is understood that the fees
and usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not promptly
fulfilled, or if the Escrow Agent renders any service not provided for in this
Agreement, or if the parties request a substantial modification of its terms,
or if any controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to this escrow or its subject matter,
the Escrow Agent shall be reasonably compensated by NEON for such extraordinary
services and reimbursed for all costs, attorney's fees, and expenses occasioned
by such default, delay, controversy or litigation.
(m) Exclusive Remedy. Except for the obligations set
forth in Section 5.6 or for acts constituting fraud, intentional
misrepresentation or other willful misconduct, the Escrow Fund provided for in
this Article VII shall be the exclusive remedy in respect of any matter subject
to the Escrow Fund hereunder and no claim or cause of action, other than for
fraud, with respect to any misrepresentation, breach or default as to any
representation, warranty, agreement, covenant or obligation contained in this
Agreement or in any certificate or schedule delivered pursuant to this
Agreement other than the obligations set forth in Section 5.6, shall be
enforceable unless made in accordance with the procedures, and, within the time
periods, set forth in this Article VII.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Amendment. This Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
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47
8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial messenger or courier service, or mailed by registered or certified
mail (return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice), provided,
however, that notices sent by mail will not be deemed given until received:
(a) if to NEON, to:
New Era of Networks, Inc.
0000 Xxxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Senior Counsel
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, the Shareholders or the
Shareholder Representative, to:
Century Analysis Inc.
00 Xxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx Godward LLP
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
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48
8.3 Interpretation. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Assignment. This Agreement, the Exhibits
hereto, the Company Disclosure Schedule and other schedules hereto, the
Nondisclosure Agreement, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall
not be assigned by operation of law or otherwise, except that NEON may assign
its rights and delegate its obligations hereunder to its affiliates as long as
NEON remains ultimately liable for all of NEON's obligations hereunder.
8.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
8.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefor, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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49
IN WITNESS WHEREOF, NEON, the Company, the Principal Shareholders, the
other Shareholders and the Shareholder Representative have caused this Share
Acquisition Agreement to be signed, all as of the date first written above.
NEW ERA OF NETWORKS, INC. CENTURY ANALYSIS INC.
By: /s/ Xxxxxx X. (Xxxx) Xxxx, Jr. By: /s/ Xxxx X. Xxxxxxxx
-------------------------------- ---------------------------
Name: Xxxxxx X. (Xxxx) Xxxx, Jr. Name: Xxxx X. Xxxxxxxx
------------------------------ -------------------------
Title: Chief Executive Officer and Title: President
----------------------------- ------------------------
President
----------
SHAREHOLDER REPRESENTATIVE:
/s/ Xxxx X. Xxxxxxxx /s/ Xxxx X. Xxxxxxxx
----------------------------------- ------------------------------
Xxxx X. Xxxxxxxx
Name: Xxxx X. Xxxxxxxx
------------------------------
/s/ Xxxxxxx X. Xxxxxxxx
------------------------------
Xxxxxxx X. Xxxxxxxx
[COUNTERPART SIGNATURE PAGE TO SHARE ACQUISITION AGREEMENT]
50
SHAREHOLDERS:
La France Family Trust
By: /s/ Xxxx X. Xxxxxxxx
----------------------------
Name: Xxxx X. Xxxxxxxx
--------------------------
Title: Trustee
-------------------------
/s/ Xxxx Xxxxx Xxxxxxxx
-------------------------------
Xxxx Xxxxx Xxxxxxxx
/s/ Xxxxxx Xxx Xxxxxx
-------------------------------
Xxxxxx Xxx Xxxxxx
[COUNTERPART SIGNATURE PAGE TO SHARE ACQUISITION AGREEMENT]
51
SCHEDULE 1.1
NEON NEON SECTION 1.3(d)
CAI SHARES CASH/NOTE SHARES SHARES IN HOLDBACK
NAME EXCHANGED RECEIVED RECEIVED ESCROW SHARES
La France Family Trust 9,868,364 $22,685,894.26 311,565 119,786 195,569
Xxxx Xxxxx Xxxxxxxx 131,636 302,611.49 8,362
Xxxxxx Xxx Xxxxxx 5,000 11,494.25 318
TOTAL: 10,005,000 $ 23,000,000 320,245 119,786 195,569
52
SCHEDULE 4.5
Broker's and Finders' Fee
1. NEON is party to an agreement with XX Xxxxx Securities Corporation in
connection with this Acquisition, the cost of which shall be borne
solely by NEON.
