Exhibit 2.1
STOCK PURCHASE AGREEMENT
This AGREEMENT (this "Agreement") is made and entered into in the State
of North Carolina as of June 13, 2000, among RED HAT, INC., a Delaware
corporation ("Buyer"), WIRESPEED COMMUNICATIONS CORPORATION, an Alabama
corporation (the "Company"), all the stockholders of the Company who have signed
the signature pages to this Agreement and all persons who become stockholders of
the Company hereafter and become a party to this Agreement pursuant to Section
6.18 (individually, a "Stockholder" and collectively, the "Stockholders"), and
Xxxxxx Xxxxxx in his capacity as Securityholder Agent (the "Securityholder
Agent").
RECITALS
A. The Stockholders desire to sell, and Buyer desires to purchase, all
the shares (the "Shares") of capital stock of the Company issued and outstanding
as of the date on which the transactions contemplated in this Agreement close
(the "Closing Date") for the consideration and on the terms set forth in this
Agreement.
B. Buyer intends to create a subsidiary, which in turn will create a
subsidiary (the "Second Tier Subsidiary"), that will have all rights of the
Buyer under this Agreement.
C. The transactions contemplated in this Agreement are to be designed
to allow the parties to make applicable elections under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the parties
hereto intend for the sale and purchase of the Shares to be treated as a taxable
transaction. For accounting purposes, it is intended that the transactions
contemplated in this Agreement be accounted for under the "purchase method."
D. The respective Boards of Directors of Buyer and the Company have
approved this Agreement, the Escrow Agreement and the transactions contemplated
hereunder and thereunder.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties hereto agree as follows:
ARTICLE I
THE STOCK PURCHASE
1.1 Shares.
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Subject to the terms and conditions of this Agreement, at the closing
of the transactions contemplated in this Agreement (the "Closing"), the
Stockholders will sell and transfer the Shares to Buyer, and Buyer will purchase
the Shares from the Stockholders.
1.2 Purchase Price.
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(a) Base Consideration. In exchange for the acquisition by
Buyer of all outstanding capital stock of the Company, par value $0.001 per
share, and any shares that are currently represented by options that become
issued and outstanding prior to Closing ("Company Capital Stock"), and the
assumption by Buyer of all outstanding Company Options as provided in Section
1.2(e), Buyer shall (i) pay to the Stockholders cash of $10,000 (the "Cash
Amount"), (ii) issue shares of common stock of Buyer, par value $.0001 per share
("Buyer Common Stock"), and (iii) pay cash as described in Section 1.2(h), such
consideration having an aggregate value of $30,290,000 (the "Base
Consideration").
(b) Exchange of Company Common Stock. Subject to the terms and
conditions of (i) this Agreement, including without limitation Sections 1.2(d)
and 1.3 hereof, and (ii) the Escrow Agreement (as defined in Section 7.2(e)), at
the Closing, the Stockholders will exchange each share of Company Capital Stock
issued and outstanding at that time for that number of shares of Buyer Common
Stock equal to the Exchange Ratio and each Stockholder shall be entitled to
receive its pro rata share of the Cash Amount based on the share ownership
reflected on Schedule 2.3(a). For purposes of this Agreement, the following
definitions shall apply:
(i) the "Exchange Ratio" means the quotient obtained
by dividing (x) the Base Consideration Share Number by (y) the
Company Share Number;
(ii) the "Base Consideration Share Number" is
1,531,232, which was determined by dividing an amount equal to
$30,290,000 by $19.78145 (the "Designated Buyer Stock Price"),
which is the average closing price per share of Buyer's common
stock on the Nasdaq National Market for the twenty (20)
trading day period ending on the trading day immediately prior
to the execution of this Agreement, and rounding down to the
nearest .001 of a share. No adjustment shall be made in the
Base Consideration Share Number as a result of any proceeds
received by the Company from the date hereof to the Closing
Date pursuant to the exercise of any Company Options;
(iii) the "Company Share Number" means the aggregate
number of shares of Company Common Stock outstanding
immediately prior to the Closing Date (including all shares of
Company Common Stock issued or issuable upon
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exercise, conversion or exchange of all vested Company Options
which are exercised or converted as of the Effective Time).
(c) Stock Restrictions. If any shares of Company Capital Stock
issued and outstanding immediately prior to the Effective Time are unvested or
are subject to a repurchase option, risk of forfeiture or other condition under
any applicable restricted stock purchase agreement or other agreement with the
Company, then, in addition to the restrictions to be imposed pursuant to Section
1.3 below, the shares of Buyer Common Stock issued in exchange for such shares
of Company Capital Stock will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition, and the certificates
representing such shares of Buyer Common Stock may accordingly be marked with
appropriate legends in the discretion of Buyer.
(d) Escrow. 153,123 shares of Buyer Common Stock consisting of
Restricted Shares (the "Escrow Shares") to be issued by Buyer under this
Agreement (none of which Escrow Shares shall be unvested or subject to any right
of repurchase, risk of forfeiture or other condition in favor of the Company)
shall be held in escrow pursuant to the Escrow Agreement to reimburse Buyer and
its Affiliates (as defined in Rule 144 under the Securities Act), including the
Company, for any Losses (as defined in Section 8.2(a) hereof) reimbursable to
Buyer pursuant to Section 8.3(a) transactions contemplated hereby. The Escrow
Shares will be withheld on a pro rata basis among the holders of Company Capital
Stock. The exact number of Escrow Shares held for the account of each holder of
Company Capital Stock will be set forth in the Escrow Schedule as provided in
Section 8.3(a). The delivery of the Escrow Shares will be made on behalf of the
holders of Company Capital Stock in accordance with the provisions hereof, with
the same force and effect as if such shares had been delivered by Buyer directly
to such holders and subsequently delivered by such holders to the Escrow Agent
(as defined in Section 8.3(a)).
(e) Stock Options. At the Effective Time, the Company's stock
option plan (the "Option Plan"), and all options to purchase Company Common
Stock then outstanding under the Option Plan, shall be assumed by Buyer in
accordance with the following provisions:
(i) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock issued under the
Option Plan (each a "Company Option"), whether vested or
unvested, shall be assumed by Buyer. Buyer and the Company
will take all action necessary to cause the assumption by
Buyer as of the Effective Time of the Option Plan and all of
the Company Options set forth on Schedule 2.3(b) or granted on
or after the date hereof with the consent of Buyer and, in
each case, outstanding as of the Effective Time. The Company
will take all corporate action necessary to effect, without
the consent or cooperation of the holders of Company Options,
such assumption by Buyer and the conversion of the Company
Options into options to purchase shares of Buyer Common Stock
as set forth herein. Each Company Option so assumed by Buyer
under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Option Plan
and/or as provided in the respective option agreements
governing such Company Option immediately prior to the
Effective
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Time, except that (A) such Company Option shall be exercisable
for that number of whole shares of Buyer 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 Effective Time multiplied by the
Exchange Ratio, rounded down (in the case of Company Options
granted under the Option Plan) to the nearest whole number of
shares of Buyer Common Stock and (B) the per share exercise
price for the shares of Buyer 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 Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
(ii) Promptly following the Effective Time, Buyer
will issue to each holder of an unexpired and unexercised
Company Option an instrument evidencing the foregoing
assumption of such Company Option by Buyer.
(f) Earnout; Additional Consideration. The Stockholders shall
be entitled to receive additional consideration for the Shares (the "Additional
Consideration") as follows:
(i) Determination Dates. Within 45 days after
February 28, 2001, August 31, 2001, and February 28, 2002, the
Buyer will calculate the gross revenue of the Company for the
previous six (6) months ("Actual Revenue") determined in
accordance with generally accepted accounting principles.
Provided the following revenue goals are met, Additional
Consideration not to exceed $49,500,000 will be paid in
accordance with Sections 1.2(f)(ii)-(iii):
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Six Month Period Ending Revenue Goal Revenue Minimum
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February 28, 2001 $6,000,000 $1,900,000
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August 31, 2001 $8,500,000 $3,000,000
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February 28, 2002 $11,500,000 $4,000,000
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(ii) Payment Amounts. For each of the three (3)
six-month periods listed in Section 1.2(f)(i), Additional
Consideration will be computed by first subtracting the
applicable Revenue Minimum from Actual Revenue, then dividing
this number by the difference between the Revenue Goal and
Revenue Minimum for the appropriate period, and then
multiplying this fraction by $16,500,000 and rounding the
result to the nearest dollar (the "Payment Amount"). If this
computation produces a negative number or zero, no Additional
Consideration will be paid for that period. In addition, the
Payment Amount for each period shall not exceed $16,500,000.
For example, if the Company's Actual Revenue for the six-month
period ending February 28, 2001, is $5,000,000, the Payment
Amount is [($5,000,000 - $1,900,000)/($6,000,000 -
$1,900,000)] x $16,500,000 = $12,475,608.
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(iii) Procedure for Determining Post-Closing
Revenues. Buyer will determine, and deliver to Securityholder
Agent, statements setting forth the Actual Revenue within
forty-five (45) days following the end of February 28, 2001,
August 31, 2001 and February 28, 2002 (each such statement
being referred to in this Section 3.4 as the "Contingent
Statement"). If within twenty (20) days following delivery of
any Contingent Statement, the Securityholder Agent has not
given Buyer notice of its objection to the Contingent
Statement so delivered (such notice must contain a statement
of the basis of Securityholder Agent's objection), then such
Contingent Statement shall be deemed to be accepted by
Securityholder Agent and shall be used in computing the
appropriate payment to be made by Buyer. If Securityholder
Agent gives such notice of objection, then the issues in
dispute will be submitted to KPMG Peat Marwick LLP (the
"Accountants") for resolution, (i) each party will furnish to
the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants
may request and are available to that party or its
subsidiaries (or its representatives), and will be afforded
the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination
with the Accountants; (ii) the determination by the
Accountants, as set forth in a notice delivered to both
parties by the Accountants, will be binding and conclusive on
the parties; and (iii) Buyer and the Stockholders will each
bear 50% of the fees of the Accountants for such
determination.
(iv) Form of Payment. The Payment Amounts calculated
in Section 1.2(f)(ii) shall be paid in Buyer Common Stock in
the form of Restricted Shares (except as otherwise provided in
Section 1.3(d) hereof) within ten days after each
determination made pursuant to Section 1.2(f)(i). The number
of shares to be issued shall be determined by dividing the
Payment Amount by the average closing price per share (the
"Additional Share Stock Price") of Buyer's common stock on the
Nasdaq National Market for the twenty (20) trading day period
ending on the trading day immediately prior to the issuance of
Buyer Common Stock (the "Additional Shares") constituting the
Additional Consideration. The Additional Shares shall be
distributed on a pro rata basis to the holders of shares of
Company Capital Stock based on each stockholder's percentage
ownership of Company Capital Stock immediately prior to the
Closing Date as set forth on the Capitalization Table to be
furnished to Buyer at Closing pursuant to Section 7.3(k)
hereof.
(g) Adjustments. In the event of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock or Company Capital Stock), reorganization,
recapitalization or other like change with respect to Buyer Common Stock or
Company Capital Stock occurring after the date hereof and prior to the Effective
Time, appropriate adjustments will be made to the number of shares of Buyer
Common Stock issuable in exchange for shares of Company Capital Stock and upon
the exercise of Company Options.
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(h) Fractional Shares. No fraction of a share of Buyer Common
Stock will be issued, but in lieu thereof, each Stockholder who would otherwise
be entitled to a fraction of a share of Buyer Common Stock (after aggregating
all fractional shares of Buyer Common Stock to be received by such holder) shall
be entitled to receive from Buyer an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii) in the
case of Base Consideration, the Designated Buyer Stock Price and, in the case of
Additional Consideration, the Additional Share Stock Price with respect to the
relevant period.
1.3 Restricted Shares.
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(a) Unrestricted and Restricted Shares. The Stockholders shall
receive a portion of their Base Consideration in the form of Buyer Common Stock
subject to the restrictions set forth in Section 1.3(c) ("Restricted Shares")
and a portion of their Base Consideration in the form of Buyer Common Stock that
is not subject to the restrictions set forth in Section 1.3(c) ("Unrestricted
Shares"). The number of shares of Buyer Common Stock to be received by each
Stockholder in the form of Unrestricted Shares shall be equal to the total
number of shares of Buyer Common Stock to be received by such Stockholder under
Section 1.2(b) multiplied by the quotient obtained by dividing (x) an amount
equal to $15,000,000 by (y) the Base Consideration, rounded up to the nearest
whole number. The remaining shares received by such Stockholder under Section
1.2(b) shall be Restricted Shares.
(b) Restricted Period. The term "Restricted Period" with
respect to the Restricted Shares (after which restrictions shall lapse) means a
period starting on the date such Restricted Shares are issued and ending on the
first to occur of the following:
(i) the sixth anniversary of the Closing Date; and
(ii) termination, by Buyer, of the employment of the
holder of Restricted Shares without cause;
provided, however, as to Stockholders who were employees of the Company as of
May 26, 2000, as set forth in Schedule 2.3(a), and as to Xxxxx Xxxx
(collectively, the "Employee Stockholders"), the restrictions on one-third of
such Employee Stockholder's Restricted Shares shall lapse at the end of each
year during the three (3) years after such issuance if such Employee Stockholder
is employed by the Company or the Buyer on such anniversary date. For purposes
of the foregoing sentence, Stockholders who were not employees of the Company as
of May 26, 2000, as set forth in Schedule 2.3(a), other than Xxxxx Xxxx
(collectively, the "Non-Employee Stockholders"), shall be treated, for purposes
of this Agreement, as if they were employees of the Company and remain employed
by the Company for three years from the date of issuance of any Buyer Common
Stock to them pursuant to this Agreement.
(c) Restrictions. During the Restricted Period, none of the
Restricted Shares may be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of except, (i) upon the death of a Stockholder, to the heirs,
successors, assigns or personal representative of such Stockholder or (ii) a
transfer or gift to a parent, spouse, child (whether adopted or a step-child) or
other lineal descendants of a Stockholder, or a trust, limited partnership or
other entity
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of which all of the owner's or beneficiaries, as the case may be, consist solely
of parents, spouses or children (whether adopted or step-children) or other
lineal descendants of the Stockholders; provided, however, each such recipient
of Restricted Shares shall agree in writing to be bound by the restrictions set
forth in this Section 1.3 as a condition to such person's receipt of the
Restricted Shares. The transfer restriction imposed by this Section 1.3(c) does
not limit the Stockholders' right to receive dividends with respect to
Restricted Shares or to vote the Restricted Shares during the Restricted Period.
Any sale, exchange, transfer, pledge, hypothecation or other attempted
disposition of the Restricted Shares shall be null and void and of no force or
effect.
(d) Unrestricted Additional Share Amount. All Additional
Shares to be issued pursuant to Section 1.3(f) above, if any, shall be
Restricted Shares, except:
(i) of the Additional Shares, if any, issued with
respect to the six-month period ended February 28, 2001, a number of
shares equal to the lesser of (A) $4,000,000 (the "Unrestricted
Additional Share Amount") divided by the Additional Share Stock Price
and (B) twenty-five percent (25%) of such Additional Shares, shall be
issued as Unrestricted Shares;
(ii) of the Additional Shares, if any, issued with
respect to the six-month period ended August 31, 2001, a number of
shares equal to the lesser of (A) (the Unrestricted Additional Share
Amount reduced by the dollar value of the Unrestricted Shares issued
pursuant to sub-paragraph (i) above) divided by the Additional Stock
Price and (B) twenty-five percent (25%) of such Additional Shares,
shall be issued as Unrestricted Shares; and
(iii) of the Additional Shares, if any, issued with
respect to the six-month period ended February 28, 2002, a number of
shares equal to the lesser of (A) (the Unrestricted Additional Share
Amount reduced by the dollar value of the Unrestricted Shares issued
pursuant to sub-paragraphs (i) and (ii) above) divided by the
Additional Stock Price and (B) twenty-five percent (25%) of such
Additional Shares, shall be issued as Unrestricted Shares.
(e) Certificates for Restricted Shares. Stock certificates
representing the Restricted Shares shall be imprinted with a legend stating that
such shares are "restricted shares" and may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of except in accordance with the
terms of this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, hereby
represent and warrant to Buyer as follows:
2.1 Organization of the Company.
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The Company is a corporation duly organized, validly existing and,
except as set forth in Schedule 2.1 of the Company Schedules, in good standing
under the laws of the State of Alabama. The Company has the corporate power to
own, lease and operate its properties and to carry on its business as now being
conducted. Except as set forth in Schedule 2.1 of the written disclosure
schedules delivered by the Company to Buyer concurrently with the execution of
this Agreement (the "Company Schedules"), the Company is duly qualified or
licensed to do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified or licensed has had or
could be reasonably expected to have a Material Adverse Effect (as defined
below) on the Company. For purposes of this Agreement, a "Material Adverse
Effect" shall mean, with respect to Buyer on the one hand and the Company on the
other hand, the result of one or more events, occurrences, changes or effects
which, individually or in the aggregate, has had or could be reasonably expected
to have a material adverse effect or impact on the business, assets (including
intangible assets), results of operations or financial condition of such party
and its subsidiaries, taken as a whole, or on such party's ability to consummate
the transactions contemplated hereby. The Company has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to Buyer.
2.2 Subsidiaries.
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(a) Except as set forth on Schedule 2.2 of the Company
Schedules, the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any Person (as defined in Section 10.3
below). Unless such Schedule 2.2 provides otherwise, the Persons set forth on
Schedule 2.2 of the Company Schedules are sometimes herein referred to
individually as a "Subsidiary" and collectively as the "Subsidiaries."
(b) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization (to the extent such concepts are applicable), and
has the corporate power to own, lease and operate its properties and to carry on
its business as now being conducted. Each Subsidiary is duly qualified or
licensed to do business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified or licensed has had or
could be reasonably expected to have a Material Adverse Effect on the Company.
The Company has delivered a true and correct copy of the Articles of
Incorporation and Bylaws (or comparable documents) of each of the Subsidiaries,
each as amended to date, to Buyer.
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(c) All of the outstanding capital stock of, or other
ownership interests in, each Subsidiary is owned by the Company, directly or
indirectly, free and clear of any Lien (as defined in Section 2.10(b)(vi) below)
and free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of the Company or
any Subsidiary convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary, or (ii)
options or other rights to acquire from the Company or any Subsidiary, or to
cause the Company or any Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, any Subsidiary (the items in clauses
(i) and (ii) being referred to collectively as the "Subsidiary Securities").
There are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.
2.3 Company Capital Structure.
--------------------------
(a) Upon the filing of an amendment to the Articles of
Incorporation of the Company, which shall become effective prior to the Closing,
the authorized capital stock of the Company shall consist of 2,000,000 shares of
Company Common Stock, of which 1,038,000 shares shall be issued and outstanding.
Five hundred shares of Company Common Stock are held in the Company's treasury.
The Company Common Stock is held of record by the Persons, with the addresses of
record and in the amounts set forth on Schedule 2.3(a) of the Company Schedules.
Schedule 2.3(a) of the Company Schedules also indicates for each Company
stockholder whether that stockholder was an employee of the Company as of May
26, 2000 and whether any shares of Company Common Stock held by such stockholder
are subject to a repurchase right in favor of the Company, the lapsing schedule
for any such restricted shares, including the extent to which any such
repurchase right has lapsed as of the date of this Agreement and whether (and to
what extent) the lapsing will be accelerated by the transactions contemplated by
this Agreement. All outstanding shares of Company Common 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. All issued and outstanding shares of Company Common Stock have been
offered, sold and delivered by the Company in compliance with applicable federal
and state securities laws. There are no issued or outstanding shares of Company
Capital Stock other than as set forth on Schedule 2.3(a) of the Company
Schedules.
(b) The Company has reserved 500,000 shares of Company Common
Stock for issuance to employees and consultants pursuant to the Option Plan, of
which (i) 57,950 shares of Company Common Stock are subject to outstanding,
unexercised options, (ii) none of the shares are subject to outstanding
unexercised Purchase Rights (as defined below) and (iii) 442,050 shares of
Company Common Stock remain available for future grant. Schedule 2.3(b) of the
Company Schedules sets forth each outstanding Company Option, including the name
of the holder of such option, the domicile address of such holder, an indication
of whether such holder is an employee of the Company as of the date hereof, the
date of grant or issuance of such option, the number of shares of Common Stock
subject to such option, the exercise price of such option and the vesting
schedule for such option, including the extent vested to the date of this
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Agreement and whether and to what extent the exercisability of such option will
be accelerated and become exercisable as a result of the transactions
contemplated by this Agreement. Except for the Company Options and the
agreements set forth on Schedule 2.3(b) of the Company Schedules, there are no
options, warrants, calls, rights, exchangeable or convertible securities,
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 (i) issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any Company Common Stock or Preferred Stock or (ii)
grant, extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such option, warrant, call, right, exchangeable or convertible
securities, commitment or agreement (collectively, "Purchase Rights"). All
issued and outstanding Company Options have been offered, issued and delivered
in compliance with applicable federal and state securities laws. As a result of
the transactions contemplated by this Agreement, Buyer will be the record and
sole beneficial owner of all Company Capital Stock and rights to acquire or
receive Company Capital Stock. Upon the assumption by Buyer of the outstanding
Company Options as set forth in Section 1.2(f), all of such Company Options
shall be exercisable solely for shares of Buyer Common Stock as set forth in
Section 1.2(f). The assumption of the Company Options and the Option Plans by
Buyer as set forth in Section 1.2(f) does not conflict with or violate the
provisions of any Option Plan or any stock option or other agreement or
instrument relating to or governing any Company Option and no consent or
approval of, or notice to, any Person is required in connection with such
assumption.
2.4 Authority.
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The Company has all requisite corporate power and authority to execute
and deliver this Agreement and the Escrow Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. No vote or other action is required to be taken by or on behalf of
the Subsidiaries to duly approve the terms of this Agreement. The execution and
delivery of this Agreement and the Escrow Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. The Company's Board of
Directors, at a meeting duly called and held, has unanimously approved this
Agreement, the Escrow Agreement and the other transactions contemplated by this
Agreement and the Escrow Agreement. This Agreement has been duly executed and
delivered by the Company, the Securityholder Agent and the Stockholders and
constitutes, and the Escrow Agreement, when duly executed and delivered by the
Company will constitute, the legal, valid and binding obligation of the Company,
the Securityholder Agent and the Stockholders, enforceable against each such
person in accordance with its respective terms, except that the enforcement
hereof or thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity). Each
of the Stockholders and the Company has complied with, or has taken all actions
necessary to render inapplicable, any state takeover statute or similar statute
or regulation applicable to this Agreement, the Escrow Agreement and the
transactions contemplated hereby and thereby.
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2.5 No Conflict.
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Except as set forth on Schedule 2.5 of the Company Schedules, the
execution and delivery of this Agreement and the Escrow Agreement by each of the
Company, the Stockholders and the Securityholder Agent does not, and the
compliance with and performance of this Agreement and the Escrow Agreement and
the consummation of the transactions contemplated hereby and thereby by the
Company, the Stockholders and the Securityholder Agent 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 or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles of Incorporation or Bylaws of the
Company or any Subsidiary or (ii) any Contract (as defined in Section 2.17(b)
below), judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company, any Subsidiary , the Stockholders or the
Securityholder Agent, or any of the respective properties or assets of any of
such persons.
2.6 Consents.
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No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any court,
administrative agency or commission or other federal, state, county, local or
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, any Subsidiary, the Stockholders
or the Securityholder Agent in connection with the execution and delivery of
this Agreement or the Escrow Agreement or the consummation of the transactions
contemplated hereby or thereby, except for (i) a filing under the
Xxxx-Xxxxx-Xxxxxx Act, as amended (the "HSR Act"), and (ii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 2.6 of the Company Schedules.
2.7 Company Financial Statements.
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The Company has previously delivered to Buyer the unaudited statement
of operations of the Company and its Subsidiaries for the years ended December
31, 1999 and 1998 and the three months ended March 31, 2000 and the unaudited
balance sheet of the Company and its Subsidiaries as of December 31, 1999 and
1998 and March 31, 2000 (the "Most Recent Balance Sheet Date") (collectively,
the "Company Unaudited Financial Statements"). Except as set forth on Schedule
2.7 of the Company Schedules, the balance sheet included in the Company
Unaudited Financial Statements (including any related notes) (the "Company
Balance Sheet") presents fairly, in all material respects, the financial
position of the Company as of the Most Recent Balance Sheet Date and the
statement of operations included in the Company Unaudited Financial Statements
(including any related notes) presents fairly the results of operations of the
Company for the three months ended March 31, 2000, in each case in accordance
with the cash basis method of accounting except as otherwise stated therein (or
in any related notes) and except for the lack of footnotes.
11
2.8 No Undisclosed Liabilities.
---------------------------
Except as set forth in Schedule 2.8 of the Company Schedules, neither
the Company nor any Subsidiary has 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 generally
accepted accounting principles ("GAAP")), in an amount greater than $1,000 in
any individual case or $10,000 in the aggregate, which (i) has not been fully
disclosed, reflected or reserved against in the Company Balance Sheet or the
Company Unaudited Financial Statements or (ii) has not arisen in the ordinary
course of the Company's business consistent with past practices since the Most
Recent Balance Sheet Date, in each case which has had or could be reasonably
expected to have a Material Adverse Effect on the Company.
2.9 No Changes.
-----------
Except as set forth in Schedule 2.9 of the Company Schedules, since the
Most Recent Balance Sheet Date through and including the date hereof there has
not been, occurred or arisen any:
(a) transaction or action or failure to act by the Company or
any Subsidiary except in the ordinary course of business as conducted on the
Most Recent Balance Sheet Date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws (or other comparable document) of the Company or any Subsidiary;
(c) capital expenditure or capital commitment by the Company
or any Subsidiary of $5,000 in any individual case or $30,000 in the aggregate
(other than commitments to pay expenses incurred in connection with this
transaction);
(d) destruction of, significant damage to or loss of any
material assets, business or customer of the Company or any Subsidiary (whether
or not covered by insurance);
(e) work stoppage, labor strike or other labor trouble, or any
action, suit, claim, labor dispute or grievance relating to any labor, safety or
discrimination matter involving the Company or any Subsidiary, including,
without limitation, charges of wrongful discharge or other unlawful labor
practices or actions;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or any
Subsidiary;
(g) revaluation by the Company or any Subsidiary of any of its
respective assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to any Company Capital Stock or Subsidiary
Securities, or any direct or indirect
12
redemption, purchase or other acquisition by the Company or any Subsidiary of
any Company Capital Stock or Subsidiary Securities, other than dividends by any
wholly-owned Subsidiary to the Company;
(i) increase in the salary or other compensation payable or to
become payable by the Company or any Subsidiary to any of its respective
officers, directors, employees or advisors, including, but not limited to, the
modification of any existing compensation or equity arrangements with such
individuals (which modification may include the amendment of any vesting terms
related to Company Options or Subsidiary Securities held by such individuals)
other than salary increases in connection with annual salary reviews consistent
with past practices and in no event in excess of five percent per individual, or
the declaration, payment or commitment or obligation of any kind for the
payment, by the Company or any Subsidiary, of a bonus or other additional salary
or compensation to any such Person;
(j) agreement, contract, covenant, instrument, lease, license
or commitment to which the Company or any Subsidiary 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 or any Subsidiary is a party
or by which it or any of its assets is bound except in the ordinary course of
business and consistent with past practices;
(k) sale, lease, license or other disposition of any of the
assets or properties of the Company or any Subsidiary, or creation of any lien
or security interest in such assets or properties, except in the ordinary course
of business and consistent with past practices;
(l) loan by the Company or any Subsidiary to any Person,
incurring by the Company or any Subsidiary of any indebtedness, guaranteeing by
the Company or any Subsidiary of any indebtedness, issuance or sale of any debt
securities of the Company or any Subsidiary or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses or extensions of trade credit to customers in the ordinary course of
business on customary terms and consistent with past practices;
(m) waiver or release of any right or claim of the Company or
any Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary except in the ordinary course of
business and consistent with past practices or to the extent already reflected
in the Most Recent Balance sheet;
(n) commencement or notice or, to the Company's knowledge,
threat of commencement of any lawsuit or proceeding against or, to the knowledge
of the Company, investigation of the Company or any Subsidiary or its respective
affairs;
(o) (i) sale by the Company or any Subsidiary of any "Company
Intellectual Property" (as defined in Section 2.14 below) or the entering into
of any license agreement (other than customer agreements or end-user license
agreements entered into by the Company or any Subsidiary in the ordinary course
of business consistent with past practices), distribution agreement, reseller
agreement, security agreement, assignment or other conveyance or option for
13
the foregoing, with respect to the Company Intellectual Property with any Person
or with respect to the "Intellectual Property" (as defined in Section 2.14
below) of any Person, other than the transfer of Intellectual Property in
connection with work or services provided for a Company customer in the ordinary
course of business pursuant to a "work for hire" arrangement, (ii) purchase or
other acquisition of any Intellectual Property (other than Commercial Software
Rights (as defined in Section 2.14 below)) or the entering into of any license
agreement, distribution agreement, reseller agreement, security agreement,
assignment or other conveyance or option for the foregoing, with respect to the
Intellectual Property (other than Commercial Software Rights) of any Person or
(iii) change in pricing or royalties set or charged by the Company or any
Subsidiary to its respective customers or licensees or in pricing or royalties
set or charged by Persons who have licensed Intellectual Property to the Company
or any Subsidiary;
(p) except as set forth on Schedule 2.3(b) of the Company
Schedules, issuance or sale by the Company or any Subsidiary of any Company
Capital Stock, Subsidiary Securities or Purchase Rights or any amendment of any
existing equity arrangement;
(q) event, occurrence, change, effect or condition of any
character that has had or could be reasonably expected to have a Material
Adverse Effect on the Company; or
(r) agreement by the Company or any Subsidiary or any officer
or, to the Company's knowledge, employee thereof to do any of the things
described in the preceding clauses (a) through (q) (other than negotiations with
Buyer and its representatives regarding the transactions contemplated by this
Agreement).
2.10 Tax and Other Returns and Reports.
----------------------------------
(a) Definitions.
-----------
(i) For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means 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 and 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.
(ii) For the purposes of this Agreement, "Tax
Returns" means all returns, declarations, reports, claims for
refund, information statements and other documents relating to
Taxes, including all schedules and attachments thereto, and
including all amendments thereof, and the term "Tax Return"
means any one of the foregoing Tax Returns.
14
(iii) For the purposes of this Agreement, "Tax
Authority" means any governmental authority responsible for
the imposition of any Tax.
(b) Tax Returns and Audits. Except as set forth in Schedule
2.10(b) of the Company Schedules:
(i) The Company and the Subsidiaries have timely
filed all Tax Returns required to be filed. All Tax Returns
filed by the Company and the Subsidiaries are true, correct
and complete in all material respects and have been completed
in accordance with applicable law.
(ii) Each of the Company and the Subsidiaries: (A)
has paid or accrued all Taxes it is required to pay or accrue
(whether or not shown as due on any Tax Return) and (B) has
withheld with respect to its employees all federal and state
income Taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) Neither the Company nor any Subsidiary has been
delinquent in the payment of any Tax nor is there any Tax
deficiency outstanding, assessed or, to the knowledge of the
Company, proposed against the Company or any Subsidiary, nor
has the Company or any Subsidiary executed any waiver of any
statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) None of the Tax Returns filed by the Company or
any Subsidiary or Taxes payable by the Company or any
Subsidiary have been the subject of an audit, action, suit,
proceeding, claim, deficiency, assessment or, to the knowledge
of the Company, examination by any governmental authority, and
no such audit, action, suit, proceeding, claim, deficiency,
assessment or examination is currently pending or, to the
knowledge of the Company, threatened.
(v) Neither the Company nor any Subsidiary has any
liability for unpaid federal, state, local and foreign Taxes
(including, without limitation, any penalties or interest
assessed with respect thereto) which have not been accrued or
reserved against in the Company Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and neither
the Company nor any Subsidiary has incurred any liability for
Taxes since the Most Recent Balance Sheet Date other than in
the ordinary course of business consistent with past practice.
(vi) There are (and as of immediately following the
Closing there will be) 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 or any Subsidiary relating to or
attributable to Taxes, other than Liens for ad valorem taxes
not yet due and payable as of such time.
15
(vii) To the Company's knowledge, there is no 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 or any Subsidiary.
(viii) None of the assets of the Company or any
Subsidiary are treated as "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(ix) There is no contract, agreement, plan or
arrangement to which the Company or any Subsidiary is a party,
including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any
Subsidiary that, individually or collectively, could give rise
to an "excess parachute payment" within the meaning of Section
280G (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code) or Section 404 of the
Code.
(x) Neither the Company nor any Subsidiary has filed
any consent agreement under Section 341(f) of the Code or
agreed to have Section 341(f)(2) 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 or any Subsidiary.
(xi) Neither the Company nor any Subsidiary is a
party to a tax sharing, allocation, or indemnification
agreement nor does the Company or any Subsidiary owe any
amount under any such agreement.
(xii) Neither the Company nor any Subsidiary is, nor
has been at any time, a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the
Code.
(xiii) No adjustment relating to any Tax Return filed
by the Company or any Subsidiary has been proposed formally or
informally by any tax authority to the Company, any Subsidiary
or any representative thereof which was not resolved more than
three years ago to the satisfaction of the relevant tax
authority.
(xiv) Neither the Company nor any Subsidiary has
agreed to make any adjustment under Section 481(a) of the Code
(or any corresponding provision of state, local or foreign Tax
law) by reason of a change in accounting method or otherwise,
and will not be required to make such an adjustment as a
result of the transactions contemplated by this Agreement.
(xv) No material claim has been made by a Tax
Authority in a jurisdiction where the Company and the
Subsidiaries do not file Tax Returns that the Company or any
Subsidiary is or may be subject to Tax in that jurisdiction.
(xvi) Neither the Company nor any Subsidiary has, nor
has had, a permanent establishment in any foreign country, as
defined in any applicable Tax treaty or convention between the
United States and such foreign country.
16
(xvii) Neither the Company nor any Subsidiary has
ever been a member of a group filing a consolidated federal
income Tax Return.
(xviii) The Company made a valid election to be taxed
as an S corporation within the meaning of Sections 1361 and
1362 of the Code, effective for all tax years beginning on
October 26, 1995. The Company has not taken any action or
failed to take any action which adversely affects such S
election. The Company has been taxed under the Code as an S
corporation since October 26, 1995, and will continue to be so
taxed up to and including the Closing Date.
(xix) The Company will not be liable for any tax
imposed under Code Section 1374.
2.11 Restrictions on Business Activities.
------------------------------------
Except as set forth in confidentiality agreements and non-disclosure
agreements entered into in the ordinary course of business or as otherwise set
forth on Schedule 2.11 of the Company Schedules, there is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company or any Subsidiary is a party or otherwise binding upon the Company or
any Subsidiary which has had or could be reasonably expected to have the effect
of prohibiting or impairing any business practice of the Company or any
Subsidiary, any acquisition of property (tangible or intangible) by the Company
or any Subsidiary or the conduct of business by the Company or any Subsidiary.
Without limiting the foregoing and except as set forth on Schedule 2.11 of the
Company Schedules, neither the Company nor any Subsidiary has entered into any
agreement under which the Company or any Subsidiary is restricted from selling,
licensing or otherwise distributing any of its respective products or services
to any class of customers, in any geographic area, during any period of time or
in any segment of the market.
17
2.12 Title to Properties; Absence of Liens and Encumbrances.
-------------------------------------------------------
(a) Neither the Company nor any Subsidiary owns any real
property, nor has ever owned any real property. Schedule 2.12(a) of the Company
Schedules sets forth a list of all real property currently leased by the Company
or any Subsidiary, the name of the lessor and the date of the lease and each
amendment thereto and with respect to any current lease, the aggregate annual
rent. 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 default or event of default as defined in such
leases (or event which with notice or lapse of time, or both, would constitute a
default) except such defaults or events of default which, individually or in the
aggregate, have not had and could not be reasonably expected to have a Material
Adverse Effect on the Company. Neither the operations of the Company, nor the
operations of any Subsidiary, on such real property, nor to the knowledge of the
Company, such real property or improvements thereon, violate any applicable
building code, zoning requirement, or classification, or pollution control
ordinance or statute relating to the particular property or such operations, and
such non violation is not dependant, in any instance, on so called
non-conforming use exceptions.
(b) The Company and each of the Subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its respective tangible properties and assets, real,
personal and mixed, used or held for use in its respective business, free and
clear of any Liens, except as reflected in the Company Unaudited Financial
Statements, such Liens set forth on Schedule 2.12 of the Company Schedules and
such Liens, 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 (collectively,
the "Permitted Liens").
(c) Except as set forth on Schedule 2.12 of the Company
Schedules, all facilities, machinery, equipment, fixtures, vehicles, and other
properties owned, leased or used by the Company or any Subsidiary are (i)
adequate for the conduct of the business of the Company and the Subsidiaries as
currently conducted and (ii) in good operating condition, subject to normal wear
and tear, and reasonably fit and usable for the purposes for which they are
being used, except where a failure to be in such condition has not had and could
not be reasonably expected to have a Material Adverse Effect on the Company.
(d) Neither the Company nor any Subsidiary has sold or
otherwise released for distribution any of its respective customer files and
other customer information relating to the current and former customers of the
Company and the Subsidiaries (the "Company Customer Information"). Except for
information as provided to sales representatives (which information is subject
to a customary non-disclosure agreement), no Person other than the Company, the
Subsidiaries and, with respect to information about a particular customer, that
customer, possesses any claims or rights with respect to use of the Company
Customer Information.
2.13 Governmental Authorization.
---------------------------
18
Schedule 2.13 of the Company Schedules accurately lists each consent,
license, permit, grant or other authorization issued to the Company or any
Subsidiary by a Governmental Entity (i) pursuant to which the Company or any
Subsidiary currently operates or holds any interest in any of its respective
properties or (ii) which is required for the operation of its respective
business or the holding of any such interest (herein collectively called
"Company Authorizations"). The Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
and the Subsidiaries to operate or conduct their businesses or hold any interest
in their respective properties or assets except for Company Authorizations the
absence or invalidity of which has not had and could not be reasonably expected
to have a Material Adverse Effect on the Company.
2.14 Intellectual Property.
----------------------
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; (ii)
all inventions (whether or not patentable), invention disclosures, improvements,
trade secrets, proprietary information, know how, computer software programs (in
both source code and object code form), technology, technical data and customer
lists, tangible or intangible proprietary information, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service xxxx registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world; (viii) all Web
addresses, sites and domain names; and (ix) any similar or equivalent rights to
any of the foregoing anywhere in the world.
"Commercial Software Rights" shall mean commercially available software
programs generally available to the public which have been licensed to the
Company or any Subsidiary pursuant to end-user licenses and which are lawfully
used in the business of the Company or any Subsidiary but are in no way a
component of or incorporated in any products of the Company or any Subsidiary or
any related Company Intellectual Property.
"Company Intellectual Property" shall mean any Intellectual Property
(other than Commercial Software Rights and third party Intellectual Property
subject to the agreements set forth on Schedule 2.14(c)) that is used in the
business of the Company or any Subsidiary as currently conducted and as proposed
to be conducted, but the term "Company Intellectual Property" shall not include
any work and services performed by the Company or its customers in the ordinary
course of business pursuant to a "work for hire" arrangement.
"Registered Intellectual Property" shall mean all United States and
foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks,
19
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks; (iii) registered copyrights
and applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any state,
government or other public legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
Subsidiary.
(a) Schedule 2.14(a) of the Company Schedules sets forth a
complete list of all Company Registered Intellectual Property and specifies the
jurisdictions in which such Company Registered Intellectual Property has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners, together with a list
of all software products currently marketed by the Company or any Subsidiary and
an indication as to which, if any, of such software products have been
registered for copyright protection with the United States Copyright Office and
any foreign offices and by whom such items have been registered. Schedule
2.14(a) of the Company Schedules also sets forth a complete list of any requests
the Company or any Subsidiary has received to make any such registration,
including the identity of the requestor and the item requested to be so
registered and the jurisdiction for which such request has been made.
(b) Schedule 2.14(b) of the Company Schedules sets forth a
complete list of all licenses, sublicenses and other agreements to which the
Company or any Subsidiary is a party and pursuant to which the Company or any
Subsidiary has authorized any other Person to use any Company Intellectual
Property, and includes the date thereof and identity of all parties thereto.
(c) Schedule 2.14(c) of the Company Schedules sets forth any
agreement pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company or any Subsidiary (other than licenses of
Commercial Software Rights) and includes the date thereof and identity of all
parties thereto.
(d) Except as set forth on Schedule 2.14(d) of the Company
Schedules, the execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will not cause the Company
or any Subsidiary to be in violation or default under any license, sublicense or
agreement listed on, or which should be listed on, Schedule 2.14(b) or Schedule
2.14(c) of the Company Schedules, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license, sublicense
or agreement.
(e) Neither the Company nor any Subsidiary has been sued or
charged as a defendant in any claim, suit, action, or proceeding which involves
a claim of infringement of any Intellectual Property of any third party and
which has not been finally terminated prior to the date hereof nor does the
Company have any knowledge of any such charge or claim or any infringement
liability with respect to, or infringement or violation by, the Company or any
20
Subsidiary of any Intellectual Property of another. No Company Intellectual
Property or product of the Company or any Subsidiary is subject to any
outstanding decree, order, judgment or stipulation restricting in any manner the
licensing of products by the Company or any Subsidiary.
(f) Each item of Company Registered Intellectual Property is
valid and subsisting. All necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations 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 Company Registered Intellectual Property.
(g) Except for the licenses, sublicenses and agreements set
forth in Schedule 2.14(b), and work and services performed by the Company for
its customers in the ordinary course of business pursuant to a "work for hire"
arrangement, the Company is the sole and exclusive owner of, with all right,
title, and interest in and to each item of Company Intellectual Property, free
and clear of any Lien, (other than Permitted Liens) and has sole and exclusive
rights (and neither the Company nor any Subsidiary is contractually obligated to
pay any compensation (other than licensing fees and royalties set forth in the
applicable license) to any third party in respect thereof) to the use thereof or
the material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property is being used. Except for the
licenses, sublicenses and agreements set forth in Schedule 2.14(c), no Company
Intellectual Property is subject to any restrictions with respect to its use,
modification or distribution under the terms of the GNU General Public License
or other terms that would require the Company to make publicly and freely
available any Company Intellectual Property. Neither the Company nor any
Subsidiary uses nor is licensed to use, and none of its respective products
include or incorporate, any software distributed free of charge on a trial basis
for which a paid license would be required. Except for the licenses, sublicenses
and agreements set forth in Schedule 2.14(c), none of the Company's or any
Subsidiary's products include or incorporate any software whose ownership has
been retained by a third party who controls its distribution, modification,
performance, display, or other use (other than software of a customer of the
Company for which work and services were performed by the Company for such
customer in the ordinary course of business pursuant to a "work for hire"
arrangement).
(h) To the extent that any material Company Intellectual
Property has been developed or created by a third party for the Company or any
Subsidiary, the Company or such Subsidiary has a written agreement with such
third party with respect thereto, and the Company or such Subsidiary thereby has
obtained ownership of, and is the exclusive owner of all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment.
(i) Except in connection with work and services performed by
the Company for its customers in the ordinary course of business pursuant to a
"work for hire" arrangement, neither the Company nor any Subsidiary has
transferred ownership of, or granted any exclusive
21
license with respect to, any Intellectual Property that is or was material
Company Intellectual Property, to any third party.
(j) All contracts, licenses and agreements relating to the
Company Intellectual Property are in full force and effect. Each of the Company
and the Subsidiaries is in material compliance with, and has not breached any
term of such contracts, licenses and agreements in such a way as to have a
Material Adverse Effect on the Company or to give rise to a right by any other
party to terminate such contracts, licenses or agreements, and, to the Company's
knowledge, all other parties to such contracts, licenses and agreements are in
compliance with, and have not breached any term of, such contracts, licenses and
agreements in such a way as to have a Material Adverse Effect on the Company or
to give rise to a right by any other party to terminate such contracts, licenses
or agreements. Following the Closing Date, the Company will be permitted to
exercise all of the Company's and the Subsidiaries' rights under such contracts,
licenses and agreements to the same extent the Company and the Subsidiaries
would have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which the Company or any
Subsidiary would otherwise be required to pay.
(k) No claims with respect to Company Intellectual Property
have been asserted or, to the Company's knowledge, are threatened by any Person,
against the Company nor are there any valid grounds for any bona fide claims or
infringement liability (i) to the effect that the manufacture, sale, licensing
or use of any of the products of the Company or any Subsidiary infringes on or
misappropriates any Intellectual Property or constitutes unfair competition or
trade practices under the laws of any jurisdiction; (ii) against the use by the
Company or any Subsidiary of any Intellectual Property used in the business of
the Company or any Subsidiary as currently conducted or as proposed to be
conducted; or (iii) challenging the ownership by the Company or any Subsidiary,
validity or effectiveness of any Company Intellectual Property. To the Company's
knowledge, there is no unauthorized use, infringement or misappropriation of any
Company Intellectual Property by any third party, including any employee or
former employee of the Company or any Subsidiary.
(l) Each of the Company and the Subsidiaries has taken
reasonable steps to protect the Company's and the Subsidiaries' respective
rights in the Company's and the Subsidiaries' respective confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to the Company or any
Subsidiary, and, without limiting the foregoing, the Company and each of the
Subsidiaries has and uses its reasonable best efforts to enforce a policy
requiring each employee and contractor to execute a proprietary
information/nondisclosure agreement substantially in the form provided to Buyer
and all employees and contractors of the Company and the Subsidiaries have
executed such an agreement.
(m) Except as set forth on Schedule 2.14(m) of the Company
Schedules and except in connection with work and services performed by the
Company for its customers in the ordinary course of business pursuant to a "work
for hire," none of the Company's nor any Subsidiary's professional services
agreements with customers, agreements with merchants, agreements with outside
consultants for the performance of professional services on the
22
Company's, any Subsidiary's or customers' behalf, nor any agreement or license
with any end user or reseller of the Company's or any Subsidiary's products,
confers upon any party other than the Company or any Subsidiary any ownership
right with respect to any Intellectual Property developed in connection with
such agreement or license.
(n) Neither the Company nor any Subsidiary has breached or
violated the terms of any license, sublicense, or other agreement relating to
any Commercial Software Rights in such a way as to have a Material Adverse
Effect on the Company or to give rise to a right by any other party to terminate
such license, sublicense or agreement, and the Company and each of the
Subsidiaries has a valid right to use such Commercial Software Rights under such
licenses and agreements. Except as set forth on Schedule 2.14(n) of the Company
Schedules, neither the Company nor any Subsidiary is nor will be as a result of
the execution and delivery of this Agreement or the performance of the Company's
obligations hereunder, in violation of any license, sublicense, or agreement
relating to Commercial Software Rights. No claims with respect to the Commercial
Software Rights have been asserted or, to the knowledge of the Company, are
threatened by any Person against the Company or any Subsidiary, nor to the
knowledge of the Company are there any valid grounds for any bona fide claims
which would have a Material Adverse Effect on the Company (i) to the effect that
the use of any product as now used or proposed for use by the Company or any
Subsidiary infringes on any Intellectual Property, (ii) against the use by the
Company or any Subsidiary of any Company Intellectual Property or (iii)
challenging the validity or effectiveness of any of the rights of the Company or
any Subsidiary to use Commercial Software Rights. There is no unauthorized use,
infringement, or misappropriation of any of the Commercial Software Rights by
the Company, any Subsidiary or any employee or, to the Company's knowledge,
former employee thereof which would have a Material Adverse Effect on the
Company. To the Company's knowledge, no Commercial Software Right is subject to
any outstanding order, judgment, decree, stipulation, or agreement restricting
in any manner the use thereof by the Company or any Subsidiary.
2.15 Product Warranties; Defects; Liabilities.
-----------------------------------------
Except as set forth on Schedule 2.15(a) of the Company Schedules, each
Company Product has been in all material respects in conformity with all
applicable contractual commitments and all applicable express and implied
warranties. Except as set forth on Schedule 2.15(b) of the Company Schedules,
neither the Company nor any Subsidiary has any liability or obligation (and to
the Company's knowledge, there is no reasonable basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against the Company or any Subsidiary giving rise to any liability or
obligation) for replacement or repair thereof or other damages in connection
therewith except liabilities or obligations incurred in the ordinary course of
business consistent with past practice. Except as set forth on Schedule 2.15(c)
of the Company Schedules, no Company Product is subject to any guaranty,
warranty, or other indemnity beyond the applicable standard terms and conditions
of sale, license or lease or beyond that implied or imposed by applicable law.
Schedule 2.15(c) of the Company Schedules includes a copy of the standard terms
and conditions of sale, license, or lease for each of the Company Products and
copies of the Company's and the Subsidiaries' standard forms of merchant
agreements, portal agreements and professional services agreements.
23
2.16 Contracts.
----------
(a) Except as set forth on Schedule 2.16(a) of the Company
Schedules, neither the Company nor any Subsidiary has, is a party to or is bound
by:
(i) any collective bargaining agreements;
(ii) any employment or consulting agreement, contract
or commitment with any officer, director, employee or member
of the Company's or any Subsidiary's Board of Directors that
is not immediately terminable at will by the Company without
payment or penalty;
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee
benefit plans or arrangements;
(iv) any employment or consulting agreement with an
employee or individual consultant or salesperson or consulting
or sales agreement, under which a firm or other organization
provides services to the Company or any Subsidiary;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights
plan or stock purchase 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;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of $10,000 per annum or which is not
cancelable by the Company or a Subsidiary without penalty
within ninety (90) days;
(viii) any agreement of indemnification or guaranty
other than customer agreements entered into in the ordinary
course of business;
(ix) any agreement containing any covenant limiting
the freedom of the Company or any Subsidiary to engage in any
line of business or to compete with any Person;
(x) any agreement relating to capital expenditures
and involving future payments in excess of $10,000;
(xi) any agreement relating to the disposition or
acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's or any
Subsidiary's business;
24
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of
credit, including guaranties referred to in clause (viii)
hereof, other than extensions of trade credit on customary
terms in customer agreements entered into in the ordinary
course of business;
(xiii) any purchase order or contract involving
$10,000 or more;
(xiv) any construction contracts;
(xv) any dealer, distribution, joint marketing
(including any pilot program), development, content provider,
destination site or sales representative agreement;
(xvi) any agreement pursuant to which the Company or
any Subsidiary has granted or may be obligated to grant in the
future, to any party a source-code license or option or other
right to use or acquire source-code, including any agreements
which provide for source code escrow arrangements;
(xvii) any original equipment manufacturer, value
added, remarketer or other agreement for distribution of the
Company's or any Subsidiary's products or services, or the
products or services of any other Person;
(xviii) any agreement pursuant to which the Company
or any Subsidiary has advanced or loaned any amount to any
stockholder of the Company or any Subsidiary or any director,
officer, employee, or consultant other than business travel
advances in the ordinary course of business consistent with
past practice;
(xix) any client service agreements or customer
support agreements; or
(xx) any other agreement that involves $10,000 or
more and is not cancelable by the Company or a Subsidiary
without penalty within ninety (90) days and any other
agreement that is not cancelable by the Company or a
Subsidiary without penalty within one (1) year.
(b) Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all set forth in Schedule 2.16(b) of
the Company Schedules, or breaches, violations and defaults which would not have
a Material Adverse Effect on the Company, neither the Company nor any Subsidiary
has breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the material terms or conditions
of any agreement, contract or commitment required to be set forth on Schedule
2.16(a) of the Company Schedules, Schedule 2.14(b) of the Company Schedules or
Schedule 2.14(c) of the Company Schedules (any such agreement, contract or
commitment, a "Contract"). Each Contract is in full force and effect and, except
as otherwise disclosed in Schedule 2.16(b) of the Company Schedules, is not
subject
25
to any default thereunder of which the Company has knowledge by any party
obligated to the Company or any Subsidiary pursuant thereto.
2.17 Change of Control Payments.
---------------------------
Schedule 2.17 of the Company Schedules sets forth each plan or
agreement pursuant to which any amounts may become payable (whether currently or
in the future) to current or former officers, directors or employees of or
consultants to the Company or any Subsidiary as a result of or in connection
with the transactions contemplated in this Agreement.
2.18 Interested Party Transactions.
------------------------------
Except as set forth on Schedule 2.18 of the Company Schedules, to the
Company's knowledge, no officer, director or Affiliate of the Company or any
Subsidiary (nor, to the Company's knowledge, any ancestor, sibling, descendant
or spouse of any of such Persons, or any Person in which any of such Persons has
or had an economic interest) has or has had, directly or indirectly, (i) an
economic interest in any Person which furnished or sold, or furnishes or sells,
services or products that the Company or any Subsidiary furnishes or sells, or
proposes to furnish or sell, or (ii) an economic interest in any Person that
purchases from or sells or furnishes to, the Company or any Subsidiary, any
goods or services or (iii) a 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 "economic interest in any
entity" for purposes of this Section 2.18. Except as set forth Schedule 2.18 of
the Company Schedules, there are no receivables of the Company or any Subsidiary
owing by any director, officer, employee, or consultant to the Company or any
Subsidiary (or, to the Company's knowledge, any ancestor, sibling, descendant,
or spouse of any such Persons, or any Person in which any of such Persons has an
economic interest), other than advances in the ordinary and usual course of
business for reimbursable business expenses (as determined in accordance with
the Company's or any Subsidiary's established employee reimbursement policies
and consistent with past practice). None of the stockholders of the Company or
any Subsidiary has agreed to, or assumed, any obligation or duty to guaranty or
otherwise assume or incur any obligation or liability of the Company or any
Subsidiary.
2.19 Compliance with Laws.
---------------------
Each of the Company and the Subsidiaries has complied in all material
respects 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,
ordinance, law, rule or regulation or any judgment, order or injunction.
2.20 Litigation.
-----------
Except as set forth on Schedule 2.20 of the Company Schedules, there is
no action, suit, claim or proceeding of any nature pending or to the Company's
knowledge threatened against the Company or any Subsidiary, its respective
properties or any of its respective officers, directors or to the knowledge of
the Company, employees, nor, to the knowledge of the
26
Company, is there any reasonable basis therefor. There is no investigation
pending or, to the Company's knowledge, threatened against the Company or any
Subsidiary, its respective properties or any of its respective officers,
directors or employees by or before any Governmental Entity. No Governmental
Entity has at any time challenged or questioned the legal right of the Company
or any Subsidiary to conduct its respective operations as presently or
previously conducted.
2.21 Insurance.
----------
Schedule 2.21 of the Company Schedules sets forth a complete list of
all insurance policies and fidelity bonds covering the respective assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and the Subsidiaries. There is no claim by the Company, any
Subsidiary or any Company Employee Plan pending under any of such policies or
bonds as to which coverage has been 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 to the extent due and payable and the Company and each of
the Subsidiaries is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.22 Books and Records.
------------------
(a) The books, records and accounts of the Company and the
Subsidiaries (i) are accurate and complete in all material respects and have
been maintained in accordance with good business practices on a basis consistent
with prior years, (ii) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the respective assets of the
Company and the Subsidiaries and (iii) accurately and fairly reflect the basis
for the Company Unaudited Financial Statements.
(b) The Company and each of the Subsidiaries has implemented
and maintained a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary (A) to permit preparation of financial statements in conformity
with the cash basis method of accounting, consistently applied and (B) to
maintain accountability for assets; and (iii) the amount recorded for assets on
the respective books and records of the Company and the Subsidiaries is compared
with the existing assets at reasonable intervals in connection with the
preparation of annual audits of the Company's financial statements and
appropriate action is taken with respect to any differences.
(c) The respective minute books of the Company and the
Subsidiaries have been made available to counsel for Buyer and are the only
minute books of the Company and the Subsidiaries and contain an accurate summary
(in all material respects) of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the respective times of
incorporation of the Company and the Subsidiaries.
27
2.23 Environmental Matters.
----------------------
(a) Hazardous Material. Except as set forth on Schedule 2.23
of the Company Schedules, neither the Company nor any Subsidiary has: (i)
operated any underground storage tanks at any property that the Company or any
Subsidiary has at any time owned, operated, occupied or leased; or (ii) 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,
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 federal
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 actions of the Company or any
Subsidiary, or, to the Company's knowledge, as a result of any actions of any
third party or otherwise during the Company's ownership or occupancy of such
property, in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that the Company or any Subsidiary has
at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as set forth on
Schedule 2.23 of the Company Schedules, neither the Company nor any Subsidiary
has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law, nor has
the Company or any Subsidiary 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 violation of
any law, rule, regulation, treaty or statute promulgated by any Governmental
Entity to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) Permits. The Company and each of the Subsidiaries
currently holds all environmental approvals, permits, licenses, clearances and
consents (the "Environmental Permits") necessary for the conduct of the
Company's and the Subsidiaries Hazardous Material Activities and other
businesses of the Company and the Subsidiaries as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding,
investigation, revocation proceeding, amendment procedure, writ, injunction or
claim is pending or, to the Company's knowledge, threatened, concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company or any Subsidiary. The Company is not aware of any fact or
circumstance which could reasonably be expected to involve the Company or any
Subsidiary in any environmental litigation or impose upon the Company or any
Subsidiary any environmental liability.
2.24 Brokers' and Finders' Fees.
---------------------------
28
Except as set forth on Schedule 2.24 of the Company Schedules, neither
the Company nor any Subsidiary nor any of the Stockholders has incurred, nor
will 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. Attached to Schedule 2.24 of the Company
Schedules are copies of any written agreements and the summary of terms for any
oral agreements with respect to such fees.
2.25 Employee Matters and Benefit Plans.
-----------------------------------
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.25(a)(i) below (such definition shall only
apply to this Section 2.25), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any Person 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) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended;
(iii) "Company Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance, termination
pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits or remuneration of any
kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is or has
been maintained, contributed to, or required to be contributed
to, by the Company or any Affiliate or 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;
(iv) "DOL" shall mean the United States Department of
Labor.
(v) "Employee" shall mean any current, former, or
retired employee, officer, or director of the Company or any
Affiliate;
(vi) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation,
repatriation, expatriation, or similar agreement or contract
between the Company or any Affiliate and any Employee or
consultant;
(vii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act
of 1993, as amended;
29
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as
defined in Section 3(37) of ERISA;
(xi) "Pension Plan" shall refer to each Company
Employee Plan which is an "employee pension benefit plan",
within the meaning of Section 3(2) of ERISA; and
(xii) "Multiple Employer Plan" means an employee
benefit plan (as defined in Section 3(3) and Section 3(40) of
ERISA) which is covered by ERISA (other than a Multiemployer
Plan) and which the Company or any Affiliate and at least one
employer, other than the Company, or any Affiliate are
contributing sponsors.
(b) Schedule. Schedule 2.25(b) of the Company Schedules
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. Neither the Company nor any Affiliate has (i) any stated
plan or commitment to establish or enter into any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Buyer in writing, or as required by this
Agreement), or (ii) any intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Buyer (i) correct
and complete copies of all documents embodying or relating to each Company
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the most
recent annual reports (Series 5500 and all schedules thereto), if any, required
under ERISA or the Code in connection with each Company Employee Plan or related
trust; (iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (v) the most recent summary
plan description together with any applicable summary of material modifications,
if any, required under ERISA with respect to each Company Employee Plan; (vi)
all IRS determination, opinion, notification and advisory letters and rulings
relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS, DOL or any other governmental agency with
respect to any Company Employee Plan, including, but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; (vii) all material written agreements and contracts relating to each
Company Employee Plan or its related trust; (viii) all communications material
to any Company Employee Plan and any proposed Company Employee Plans or any
Employee's participation thereunder, 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
material liability to the Company or the Company Employee Plan; (ix) the most
recent COBRA forms and related notices; (x) all policies pertaining to fiduciary
liability insurance covering the fiduciaries of for each Company
30
Employee Plan; (xi) 401(k) discrimination tests, if any, for each Company
Employee Plan for the most recent plan year; and (xii) all registration
statements, annual reports (Form 11-K and all attachments thereto) and
prospectuses, if any, prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.25(d) of the Company Schedules, (i) the Company and each Affiliate has
performed in all material respects all obligations required to be performed by
it under each Company Employee Plan and each Company Employee Plan has been
established and maintained in accordance with its terms and in compliance in all
material respects with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each Company
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 received a
favorable determination or opinion, letter from the IRS with respect to each
such Company Employee Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation; (iii) no non-exempt "prohibited transaction", within the meaning of
Section 4975 of the Code or Section 406 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, threatened or anticipated (other than
routine claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan; and (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, Buyer or any of its
Affiliates (other than ordinary administration expenses typically incurred in a
termination event); (vi) there are no audits, inquiries or proceedings pending
or, to the knowledge of the Company, threatened by the IRS or DOL with respect
to any Company Employee Plan; (vii) neither the Company nor any Affiliate is
subject to any material penalty or tax with respect to any Company Employee Plan
under Section 502(l) of ERISA or Section 4975 through 4980D of the Code; and
(viii) each Multiple Employer Plan, whether a Company Employee Plan intended to
be qualified under Section 401(a) of the Code, or a Multiple Employer Welfare
Arrangement (MEWA) as defined in Section 3(40) of ERISA, has been established
and maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules, and regulations,
including but not limited to ERISA or the Code.
(e) Pension Plans. The Company and each Affiliate 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 or any
Affiliate contributed to or been requested to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.25(g) of the Company Schedules, no Company 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 neither the Company nor, to
the Company's knowledge, any Affiliate has ever represented, promised or
31
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 upon their
retirement or termination of employment, except to the extent required by
statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to
the Closing Date, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of the Alabama Family
Rights Act applicable to its Employees.
(i) Effect of Transaction. Except as provided in Section 1.6 of
this Agreement, the execution and delivery 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 Company 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. Schedule 2.25(j) of the Company
Schedules lists all current officers, directors and employees of the Company and
each Affiliate. The Company and each Affiliate (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees (including any immigration laws with respect to the same); (ii) has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (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 (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending, reasonably
anticipated or, to the Company's knowledge, threatened claims or actions against
the Company or any Affiliate under any workers compensation policy or long-term
disability policy. Each Person who is acting or has acted as a consultant or
service provider to the Company or any Affiliate is acting or acted as an
"independent contractor" and could not, based on the facts and circumstances of
his consultancy, reasonably be deemed to be or have been "employed" with the
Company or any Affiliate, unless the Company treated such person as an employee
for income Tax purposes. Schedule 2.25(j) of the Company Schedules also sets
forth all outstanding offers of employment, whether written or oral, made to any
employee or prospective employee, which offer has not been rejected by the
offeree.
(k) Labor. No work stoppage or labor strike against the
Company or any Affiliate is pending or, to the Company's knowledge, threatened.
Neither the Company nor any Affiliate is involved in or, to the Company's
knowledge, threatened 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, could reasonably be expected to,
individually or in the aggregate, result in any liability to the Company or any
Affiliate. Neither the Company nor
32
any Affiliate has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which could reasonably be expected to,
individually or in the aggregate, directly or indirectly result in any liability
to the Company or any Affiliate. To the Company's knowledge, there are no
activities or proceedings of any labor union to organize any Employees. Neither
the Company nor any Affiliate is presently, nor has it been in the past, 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 or any Affiliate.
(l) No Interference or Conflict. To the Company's knowledge,
no officer, employee or consultant of the Company or any Affiliate is obligated
under any contract or agreement or subject to any judgment, 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 any Affiliate or that would
interfere with the Company's or any Affiliate's business. To the Company's
knowledge, none of the execution, delivery or performance of this Agreement by
the Company, nor the carrying on of the Company's or any Affiliate's respective
business as presently conducted nor any activity of such officers, directors,
employees or consultants in connection with the carrying on of the Company's or
any Affiliate's respective business as presently conducted, will 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.
2.26 Bank Accounts.
--------------
Schedule 2.27 of the Company Schedules constitutes a full and complete
list of all the bank accounts and safe deposit boxes of the Company and each
Subsidiary, the number of each such account or box, and the names of the Persons
authorized to draw on such accounts or to access such boxes.
2.27 Representations Complete.
-------------------------
None of the representations or warranties made by the Company in this
Agreement, nor any statement made in any Company Schedule or certificate
furnished by the Company pursuant to this Agreement, when taken together,
contains any untrue statement of a material fact, or omits to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to the Company, except as set forth in
the written disclosure schedules delivered by Buyer to the Company concurrently
with the execution of this Agreement (the "Buyer Schedules"), as follows:
33
3.1 Organization of Buyer.
----------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has the corporate power
to own, lease and operate 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 as a foreign corporation in each jurisdiction in which the failure to
be so qualified has had or could be reasonably expected to have a Material
Adverse Effect on Buyer.
3.2 Authority.
----------
Buyer has all requisite corporate power and authority to execute and
deliver this Agreement and the Escrow Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement and the
Escrow Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of Buyer. Each of this Agreement and the Escrow Agreement has been duly
executed and delivered by Buyer and constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its respective
terms, except as the enforcement hereof or thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). The execution and delivery of this Agreement
and the Escrow Agreement by Buyer does not, and the compliance with and
performance of this Agreement and the Escrow Agreement and the consummation of
the transactions contemplated hereby and thereby by Buyer 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 or
acceleration of any obligation or to loss of a benefit under (i) any provision
of the Certificate of Incorporation or Bylaws of Buyer or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Buyer, the breach, violation, default, termination or
forfeiture of which could be reasonably expected to have a Material Adverse
Effect on Buyer. Except as set forth in Schedule 3.2 of the Buyer Schedules, no
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity is required by
or with respect to Buyer in connection with the execution and delivery of this
Agreement or the Escrow Agreement by Buyer or the consummation by Buyer of the
transactions contemplated hereby or thereby except for (a) filings, consents and
approvals of or with the Nasdaq National Market ("Nasdaq"), (b) a filing under
the HSR Act, and (c) such consents, approvals, order, authorizations,
registrations, declarations and filings as may be required under applicable
state and federal securities laws.
3.3 Buyer Common Stock.
-------------------
The shares of Buyer Common Stock to be issued hereunder, when issued
and delivered in accordance with this Agreement, will be duly authorized,
validly issued, fully paid, and non-assessable and will be issued in compliance
with applicable federal and state securities laws.
34
3.4 SEC Filings; Buyer Financial Statements.
----------------------------------------
(a) Since August 16, 1999, Buyer has filed all forms, reports,
and documents required to be filed by Buyer with the Securities and Exchange
Commission (the "SEC") pursuant to the Exchange Act and has made available to
the Company such forms, reports, and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Buyer may
file subsequent to the date hereof until the Effective Time) are referred to
herein as the "Buyer SEC Reports." As of their respective filing dates, the
Buyer SEC Reports (i) complied or will comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder applicable to such Buyer SEC Reports and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) or will not at the time they
are filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements of Buyer
(including, in each case, the notes thereto) included in the final prospectus
relating to the initial public offering of Buyer Common Stock and in the Buyer
SEC Reports, including each Buyer SEC Report filed after the date hereof until
the Effective Time (the "Buyer Financial Statements"), (i) complied as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto; (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as may be permitted
by the SEC on Form 10-Q under the Exchange Act); and (iii) fairly presented, in
all material respects, the consolidated financial position of Buyer and its
subsidiaries as at the respective dates thereof and the consolidated results of
Buyer's operations and cash flows for the periods indicated (subject, in the
case of unaudited financial statements, to normal audit adjustments). Except as
reflected or reserved against in the Buyer Financial Statements, or otherwise
disclosed in the Buyer Schedules, Buyer has no material liabilities or other
obligations, except (i) liabilities and obligations incurred in the ordinary
course of business since the date of the most recent balance sheet included in
the Buyer Financial Statements or (ii) that would not be required to be
reflected or reserved against in the balance sheet of Buyer prepared in
accordance with GAAP.
3.5 No Material Adverse Change.
---------------------------
Except as set forth in Schedule 3.5 of the Buyer Schedules, during the
period commencing on March 1, 2000 through and including the date of this
Agreement, Buyer has conducted its business in the ordinary course of business
consistent with past practices and no events, occurrences, changes or effects
have occurred which, individually or in the aggregate, have had or could be
reasonably expected to have a Material Adverse Effect on Buyer.
3.6 Buyer Capital Structure.
------------------------
35
The authorized capital stock of Buyer consists of 5,000,000 shares of
preferred stock, par value $.0001 per share, none of which shares are issued and
outstanding, and 225,000,000 shares of Buyer Common Stock, of which, as of June
9, 2000, (a) 156,404,576 shares were issued and outstanding and (b) 26,291,172
shares were reserved for issuance pursuant to Buyer's stock option and stock
purchase plans. Except as set forth in Schedule 3.6 of the Buyer Schedules,
there are no options, warrants, calls, rights, exchangeable or convertible
securities, commitments or agreements of any character, written or oral, to
which Buyer is a party or by which it is bound obligating Buyer to issue shares
of its capital stock or any other securities convertible into or evidencing the
right to subscribe to shares of its capital stock.
3.7 Representations Complete.
-------------------------
None of the representations or warranties made by the Buyer in this
Agreement, nor any statement made in any Buyer Schedule or certificate furnished
by the Company pursuant to this Agreement, when taken together, contains any
untrue statement of a material fact, or omits to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.
ARTICLE IV
SECURITIES ACT COMPLIANCE; REGISTRATION
4.1 Securities Act Exemption.
-------------------------
The Buyer Common Stock to be issued pursuant to this Agreement will not
be registered under the Securities Act in reliance on the exemption from the
registration requirements of Section 5 of the Securities Act set forth in
Section 3(a)(10) thereof, assuming approval of the terms and conditions of the
transactions contemplated in this Agreement pursuant to the Fairness Hearing and
the issuance of the Order (as described in Section 4.3); if the Order is not
issued, the provisions of Section 4.4 shall apply. In the event of the issuance
of the Order, the Unrestricted Shares will be freely transferable by the
Stockholders without restriction as to holding period, subject only to the
limitations set forth in Section 4.2(b).
4.2 Restrictions Regarding Securities Law Matters.
----------------------------------------------
Each of the Stockholders agrees as follows:
(a) Such Stockholder will not offer, sell, or otherwise
dispose of any shares of Buyer Common Stock except in compliance with the
Securities Act and the rules and regulations thereunder.
(b) Such Stockholder will not sell, transfer or otherwise
dispose of any shares of Buyer Common Stock unless (i) such sale, transfer or
other disposition is within the limitations of and in compliance with Rule 145
promulgated by the SEC under the Securities Act without regard to any holding
period limitations, (ii) in the opinion of counsel, reasonably
36
satisfactory to Buyer and its counsel, some other exemption from registration
under the Securities Act is available with respect to any such proposed sale,
transfer, or other disposition of Buyer Common Stock or (iii) the offer and sale
of Buyer Common Stock is registered under the Securities Act.
(c) Such Stockholder will not sell, transfer or otherwise
dispose of any shares of Buyer Common Stock except in compliance with the terms
of this Agreement.
4.3 Fairness Hearing.
-----------------
Promptly after the execution of this Agreement, Buyer shall prepare and
cause to be filed with the North Carolina Secretary of State or her delegate
(the "Administrator") an application under Section 78A-30 of the General
Statutes of North Carolina, and shall request a hearing on the fairness of the
terms and conditions of the transactions contemplated in this Agreement and the
issuance of an order (the "Order") stating the Administrator's determination
that the transactions contemplated in this Agreement are fair to the
stockholders of the Company (the "Fairness Hearing"). The parties to this
Agreement shall use their reasonable best efforts to cause the Administrator to
issue an Order approving the terms and conditions of the transactions
contemplated in this Agreement at such a hearing; provided, however, that Buyer
shall not be required to modify any of the terms of this Agreement or the
transactions contemplated in this Agreement in order to cause the Administrator
to approve the fairness of such terms and conditions.
4.4 Private Placement and Registration Rights.
------------------------------------------
(a) In the event that either (i) the Fairness Hearing is not
available to Buyer and the Company, (ii) the Fairness Hearing is available but
the Administrator does not issue the Order or (iii) the exemption from
registration under Section 3(a)(10) of the Securities Act is otherwise
determined not to be available in connection with the transactions contemplated
in this Agreement, then the issuance of the Buyer Common Stock pursuant to this
Agreement shall not be registered under the Securities Act (except as provided
in Section 4.4(b) below) in reliance upon the exemption from registration
provided by Section 4(2) thereof and regulations promulgated thereunder nor the
securities laws of any state. Consequently, each stockholder of the Company
understands that the shares of Buyer Common Stock issued pursuant to this
Agreement cannot be resold unless they are registered under the Securities Act
and applicable state securities laws, or unless an exemption from such
registration requirements is available, and that there will be placed on the
certificates representing the Buyer Common Stock issued pursuant to this
Agreement a legend to that effect.
(b) Upon the occurrence of the event specified in clauses (i),
(ii), or (iii) of Section 4.4.(a), Buyer and the holders of Unrestricted Shares
shall enter into a registration rights agreement (the "Registration Rights
Agreement") to be effective as of the Closing Date, providing for Buyer, at any
time, as determined by the Securityholder Agent, during the period beginning on
August 18, 2000 and ending on the first anniversary of the Closing Date, to use
its best efforts to register the Unrestricted Shares under the Securities Act
for resale to the public.
37
In addition to the terms and conditions customary for such agreements, the
Registration Rights Agreement shall include the following provisions:
(i) Buyer will only be obligated to effect such registration
on Form S-3 (or any successor form);
(ii) Buyer will only be obligated to keep the
registration statement effective until such time as the holders of
Unrestricted Shares can begin selling such shares to the public in
accordance with the provisions of Rule 144 promulgated under the
Securities Act; and
(iii) Buyer shall use reasonable best efforts to
resolve any conflict between the rights granted under the Registration
Rights Agreement and rights held by any other stockholder of Buyer to
cause it to register securities under the Securities Act.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company.
-----------------------------------
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement and the Effective Time, the
Company agrees (except to the extent that Buyer shall otherwise consent in
writing) to, and shall cause each of the Subsidiaries to, carry on its business
in the usual, regular and ordinary course of business in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Buyer of any materially negative event involving
or adversely affecting the Company or its business or any Subsidiary or its
business. By way of amplification and not limitation, except as expressly
contemplated by this Agreement, the Company shall not, and shall not permit any
Subsidiary to, without the prior written consent of Buyer:
(a) Waive any stock repurchase rights, accelerate, amend, or
change the period of exercisability of any outstanding Company Options, Company
Capital Stock or Subsidiary Securities subject to vesting, or reprice Company
Options or Subsidiary Securities or authorize cash payments in exchange for any
such outstanding options;
(b) Make any payment or enter into any commitment or
transaction outside of the ordinary course of business or in excess of $15,000;
38
(c) Modify, amend or terminate any material contract or
agreement to which the Company or any Subsidiary is a party or waive, release or
assign any material rights or claims thereunder;
(d) Transfer to any person or entity any rights to the Company
Intellectual Property (other than pursuant to end-user licenses granted to
customers of the Company or any Subsidiary in the ordinary course of business or
other transfer of Intellectual Property in connection with work or services
provided for a Company customer in the ordinary course of business pursuant to a
"work for hire" arrangement.
(e) Enter into or amend (except in the ordinary course of
business and consistent with past practices) any agreements pursuant to which
any other party is granted marketing, distribution or similar rights of any type
or scope with respect to any products of the Company or any Subsidiary;
(f) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the Contracts;
(g) Commence any litigation except to enforce its rights
hereunder or under any agreements related hereto;
(h) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any Company Capital Stock;
(i) Purchase, redeem or otherwise acquire, directly or
indirectly, any Company Capital Stock or Company Options, except repurchases of
unvested shares of Company Capital Stock at cost in connection with the
termination of the employment relationship with any employee or consultant
pursuant to stock option or purchase agreements;
(j) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any Company Capital Stock, Purchase Rights or Subsidiary Securities (except for
the issuance of any Company Common Stock upon exercise or conversion of
presently outstanding Company Options or Preferred Stock);
(k) Cause or permit any amendments to its Articles of
Incorporation or Bylaws or any equivalent documents of any Subsidiary;
(l) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any Person or other business organization or division
thereof, or otherwise acquire or agree to acquire outside of the ordinary course
of business any assets in any amount, or in the ordinary course of business in
an amount in excess of $10,000 in the case of a single transaction or in excess
of $25,000 in the aggregate;
39
(m) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(n) Incur any indebtedness for borrowed money (other than
trade payables incurred in the ordinary course of business) or guarantee any
such indebtedness or issue or sell any debt securities of the Company or any
Subsidiary or guarantee any debt securities of others;
(o) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other Employee except payments made pursuant to
written agreements outstanding on the date hereof and as disclosed in the
Company Schedules, or adopt any new severance plan;
(p) Except as provided in Section 7.3(p) below, adopt or amend
any Company Employee Plan, or enter into any Employee Agreement, extend
employment offers, pay or agree to pay any special bonus or special remuneration
to any director or Employee, or increase the salaries or wage rates of its
Employees; except that from and after the date that the Company and Buyer agree
on a mutually acceptable hiring plan (which shall be agreed within fourteen days
of the date hereof) the Company may extend employment offers consistent with the
hiring plan;
(q) Effect or agree to effect, including by way of involuntary
termination, any change in the Company's or any Subsidiary's directors, officers
or key Employees;
(r) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(s) Pay, discharge or satisfy, in an amount in excess of
$5,000 (in any one case) or $10,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Balance
Sheet (or the notes thereto) or that arose in the ordinary course of business
subsequent to the Most Recent Balance Sheet Date or arose in the ordinary course
of business prior to the Most Recent Balance Sheet Date and were not reflected
or reserved against in the Company Balance Sheet as a result of the Company
being on the cash basis method of accounting or expenses consistent with the
provisions of this Agreement incurred in connection with the transaction
contemplated hereby;
(t) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(u) Enter into any strategic alliance, joint development or
joint marketing agreement;
40
(v) Engage in any action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) through (v) above, or any other action that
would prevent the Company or any Subsidiary from performing or cause the Company
or any Subsidiary not to perform its covenants and obligations hereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Stock Split.
------------
The Stockholders and the Company agree to file with the Alabama
Secretary of State an amendment to the Articles of Incorporation of the Company
which shall effect a stock split of 6 to 1 as contemplated in Section 2.3 of
this Agreement.
6.2 Access to Information.
----------------------
The Company shall afford Buyer and its accountants, legal counsel, and
other representatives reasonable access during normal business hours during the
period prior to the Effective Time to (a) the properties, books, contracts,
commitments and records of the Company and the Subsidiaries and (b) such other
information concerning the business, properties, and personnel of the Company
and the Subsidiaries as Buyer may reasonably request. The Company agrees to
provide Buyer and its accountants, legal counsel, and other representatives
copies of internal financial statements promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 6.2 or
otherwise shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the transactions contemplated in this Agreement.
6.3 Confidentiality.
----------------
The parties acknowledge that the Company and Buyer have previously
executed a Nondisclosure Agreement, dated as of May 10, 2000 (the "Nondisclosure
Agreement"), which Nondisclosure Agreement will continue in full force and
effect in accordance with its terms.
6.4 Public Disclosure.
------------------
Unless otherwise required by applicable laws, rules or regulations
(including, without limitation, securities laws, rules and regulations) or, as
to Buyer, by regulatory authority of the National Association of Securities
Dealers, Inc. ("NASD"), Nasdaq or the SEC, prior to the Effective Time, 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 Buyer and
the Company prior to release, provided that such approval shall not be
unreasonably withheld.
41
6.5 Consents.
---------
The Company shall promptly apply for or otherwise seek and use
commercially reasonable efforts to obtain all consents and approvals required to
be obtained by it for the consummation of the transactions contemplated in this
Agreement, including all consents, waivers, or approvals under any of the
Contracts in order to preserve the benefits thereunder for the Company and
otherwise in connection with the transactions contemplated in this Agreement.
All of such consents and approvals are set forth in Schedule 2.6 of the Company
Schedules.
6.6 FIRPTA Compliance.
------------------
On the Closing Date, the Company shall deliver to Buyer a properly
executed statement or statements in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treasury Regulation Section
1.1445-2(c)(3).
6.7 Legal Conditions to the Closing.
--------------------------------
Each of Buyer and the Company will take all commercially reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on such party with respect to the transactions contemplated in this
Agreement and will promptly cooperate with and furnish information to any other
party hereto in connection with any such requirements imposed upon such other
party in connection with the transactions contemplated in this Agreement. Each
party will take all commercially reasonable actions to obtain (and will
cooperate with the other parties in obtaining) any consent, authorization, order
or approval of, or any registration, declaration, or filing with, or notice to,
or an exemption by, any Governmental Entity, or other third party, required to
be obtained or made by such party or its subsidiaries in connection with the
transactions contemplated in this Agreement or the taking of any action
contemplated thereby or by this Agreement.
6.8 Reasonable Best Efforts; Additional Documents and Further
---------------------------------------------------------
Assurances.
-----------
Each of the parties to this Agreement shall use commercially reasonable
efforts to effectuate the transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to Closing under this Agreement. 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
reasonably necessary or desirable for effecting completely the consummation of
this Agreement, and the transactions contemplated hereby.
6.9 Notification of Certain Matters.
--------------------------------
The Company shall give prompt notice to Buyer, and Buyer shall give
prompt notice to the Company, of (i) the occurrence or non-occurrence of any
event which has caused or is likely to cause any representation or warranty of
the Company, Stockholders or Buyer, respectively, contained in this Agreement to
be untrue or inaccurate at or prior to the Effective Time and (ii) any failure
of the Company, Stockholders or Buyer, as the case may be, to comply with or
42
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.9 shall not limit or otherwise affect any remedies available to
the party receiving such notice.
6.10 Form S-8.
---------
Buyer shall file a Registration Statement on Form S-8 with the SEC
covering the shares of Buyer Common Stock issuable with respect to assumed
Company Options promptly after the Effective Time, and in any event no later
than 30 days after the Closing Date.
6.11 Nasdaq National Market Listing.
-------------------------------
Buyer will prepare and file with Nasdaq an additional listing
application and use commercially reasonable efforts to have the shares of Buyer
Common Stock issuable hereunder accepted by Nasdaq for listing on the Nasdaq
National Market, upon official notice of issuance.
6.12 Blue Sky Laws.
--------------
Buyer shall use its reasonable best efforts to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of the Buyer Common Stock pursuant hereto. The Company shall use its
reasonable best efforts to assist Buyer as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Buyer Common Stock pursuant hereto.
6.13 Termination of Company Investor Rights.
---------------------------------------
The Company shall take such steps as may be necessary to provide for
the termination as of the Closing of all Company investor rights granted by the
Company to its stockholders and in effect prior to the Closing, including but
not limited to, rights of co-sale, voting, registration, first refusal, board
observation or information or operational covenants.
6.14 No Solicitation.
----------------
From and after the date of this Agreement until the earlier to occur of
the Effective Time or termination of this Agreement pursuant to its terms, the
Company and the Stockholders will not, and the Company will not permit its
directors, officers, employees, representatives, investment bankers, agents, or
Affiliates to, directly or indirectly (a) initiate, solicit, encourage or
entertain any inquiries, offers or proposals that constitute, or could
reasonably be expected to lead to, any "Acquisition Proposal" (as defined
herein) by any Person, or (b) participate in any discussions or negotiations
with, or disclose any non-public information concerning the Company or any
Subsidiary to, or afford access to the properties, books, or records of the
Company or any Subsidiary, or otherwise assist or facilitate, or enter into any
agreement or understanding with, any Person (other than Buyer and its
Affiliates, agents, and representatives) for the purpose of making, or take any
other action to facilitate the making, of an Acquisition Proposal or inquiry,
offer or proposal that could reasonably be expected to lead to an Acquisition
Proposal; or (c) agree to, approve or recommend any Acquisition Proposal or
change, withdraw
43
or modify its position with respect to the transactions contemplated in this
Agreement. For the purposes of this Agreement, "Acquisition Proposal" shall mean
any one of the following (other than the transactions among the Company, the
Stockholders and Buyer contemplated hereunder) involving the Company or any
Subsidiary: (i) a proposal for any transaction pursuant to which any Person or
its Affiliates (a "Third Party") proposes to acquire beneficial ownership of at
least ten percent (10%) of the outstanding equity securities of the Company,
whether from the Company or pursuant to a tender offer, exchange offer,
recapitalization, reorganization or otherwise, (ii) a proposal for any merger,
consolidation or other business combination involving the Company pursuant to
which any Third Party proposes to acquire beneficial ownership of at least ten
percent (10%) of the outstanding equity securities of the Company, or the entity
surviving such merger, consolidation or other business combination, (iii) a
proposal for any other transaction or series of related transactions (including
any license) pursuant to which any Third Party proposes to acquire control of
assets of the Company and its subsidiaries having a fair market value equal to
or greater than ten percent (10%) of the fair market value of all of the assets
of the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction, or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing. The
Company will, and will cause its directors, officers, employees,
representatives, investment bankers, agents and Affiliates to, immediately cease
any and all existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. The Company will
promptly (a) notify Buyer if it receives any proposal or inquiry or request for
information in connection with an Acquisition Proposal or potential Acquisition
Proposal and (b) notify Buyer of the significant terms and conditions of any
such Acquisition Proposal including the identity of the party making an
Acquisition Proposal. In addition, from and after the date of this Agreement
until the earlier to occur of the Effective Time or termination of this
Agreement pursuant to its terms, the Company will not, and will instruct its
directors, officers, employees, representatives, investment bankers, agents, and
Affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation, or solicitation in support of any Acquisition
Proposal made by any Person (other than Buyer).
6.15 401(k) Plan.
------------
On or before the Closing Date, the Company shall take (or cause to be
taken) all action necessary or otherwise appropriate to cause the cessation of
the Company's participation in the Company or HBV 401(k) plan, effective
immediately prior to the Closing Date, including, but not limited to (i) the
timely adoption of valid resolutions of the Company's and Huntsville Business
Ventures' boards of directors resolving to cease the Company's participation in
such plan, effective immediately prior to the Closing Date; (ii) providing
timely notice of the cessation of the Company's participation in such plan to
affected the Company participants therein; (iii) fully vesting all accrued
benefits of the affected the Company participants in such plan; (iv) amending
such plan, to the extent necessary, to provide for an allocation of any employer
contributions for the period through the Closing Date to plan participants who
otherwise would have been entitled to an allocation of such contributions at the
end of the current plan year; (v) making the employer contributions described in
(iv); and (vi) amending the Company or HBV 401(k) plan, to the extent necessary,
to designate the cessation of the Company's participation as a Code section
401(k)(10) distributable event.
44
6.16 Stockholders' Agreement.
------------------------
Any and all stockholders' agreements that may exist among the
Stockholders are hereby terminated in their entirety upon the execution by the
Stockholders of this Agreement.
6.17 Tax Agreements.
---------------
(a) Section 338(h)(10) Election. The Company and the
Stockholders shall file and (i) join Buyer in timely making an election under
Section 338(h)(10) of the Code (and any comparable election under state or local
tax law) (collectively a "Section 338(h)(10) Election") with respect to the
purchase and sale of the Shares and (ii) cooperate with Buyer in the completion
and timely filing of such elections in accordance with the provisions of
Treasury Regulations Section 1.338(h)(10)-1 (or any comparable provisions of
state or local tax law) or any successor provision. Buyer will prepare and
forward to the Stockholders the appropriate forms and documentation related to
such election within ninety (90) days after the Closing. Each Stockholder and
Buyer represent and warrant to the other that it is qualified to make such an
election. The Stockholders shall pay any federal tax attributable to the making
of the Section 338(h)(10) Election, including, without limitation, any tax
imposed on the Company under Section 1374 of the Code, and will indemnify and
hold harmless Buyer and the Company against any losses and liabilities arising
out of any failure to pay such tax. With respect to the transactions
contemplated in this Agreement and with respect to (i) those states or local
jurisdictions, including Alabama, whose laws adopt the provisions of the Code or
whose laws provide for an election substantially similar to the election
available under Section 338(h)(10) of the Code the Stockholders shall pay any
state or local tax, including, without limitation, any tax imposed under Section
1374 of the Code, and indemnify and hold harmless Buyer and the Company against
any losses and liabilities arising out of any failure to pay any tax
attributable to such election (or which results from the making of such
election) and (ii) Tennessee and any other state or local jurisdiction in which
the Company has assets or employees and whose laws do not adopt the provisions
of the Code and do not provide for an election substantially similar to the
election available under Section 338(h)(10) of the Code, the Stockholders shall
pay any state or local tax, and will indemnify and hold harmless Buyer and the
Company against any losses and liabilities arising out of any failure to pay any
tax attributable to an election under state or local law similar to the election
available under Section 338(g) of the Code (or which results from the making of
an election under Section 338(g) of the Code.
(b) Allocation of Purchase Price. The Stockholders and Buyer
agree that the Base Consideration plus any Additional Consideration for which
the Stockholders become eligible will be allocated to the assets of the Company
for all purposes (including tax and financial accounting purposes) in a manner
consistent with the fair market values of the assets pursuant to Treasury
Regulations ss. 1.338(b) - 2T and ss. 1.338(b) - 3T. Within ninety (90) days of
the Closing, Buyer shall deliver to the Securityholder Agent, for his review and
approval, a Schedule setting forth the allocation of the Purchase Price among
the assets of the Company (the "Allocation"). If Buyer and the Securityholder
Agent are not able to agree to the Allocation within thirty (30) days after such
delivery, either of them may submit any unresolved matter related to the
Allocation to KPMG Peat Marwick LLP to resolve all unresolved matters related to
45
the Allocation, and such resolution shall be binding on both parties. All fees
and expenses of the foregoing accounting firm shall be shared equally by Buyer
and the Stockholders. The Stockholders and Buyer shall file all tax returns
(including amended returns and claims for refund) and information reports in a
manner consistent with the Allocation, as finally determined.
(c) Final S Corporation Return. Buyer shall cause the Company
to file on a timely basis a final S corporation tax return, which return shall
be subject to the reasonable approval of the Securityholder Agent, reporting the
deemed sale of assets pursuant to the Section 338(h)(10) election for the period
ending on the Closing Date.
(d) Returns and Inclusion of Income for Periods Through the
Closing Date. Stockholders shall file the tax returns (other than the final S
corporation return referred to in subsection (c) above), for and include the
income of Stockholders and the Company on Stockholders' federal tax returns and
on all other tax returns for all periods through the Closing Date and pay any
taxes attributable to such income. Except as otherwise expressly provided
herein, Stockholders shall be responsible for and indemnify Buyer for all taxes
of the Company and for preparing and filing all tax returns with respect to the
Company for all periods prior to or ending on the Closing Date (including
without limitation the final S corporation return referred to in subsection (c)
above), and Buyer shall be responsible for and indemnify Stockholders for all
taxes of the Company and for preparing and filing all tax returns with respect
to the Company for all periods commencing after the Closing Date.
(e) Cooperation. Stockholders and Buyer shall reasonably
cooperate, and shall cause their respective affiliates and representatives
reasonably to cooperate, in preparing and filing all tax returns, including, but
not limited to, maintaining and making available to each other all records
necessary in connection with taxes and in resolving all disputes and audits with
respect to all taxable periods relating to taxes. Buyer shall furnish tax
information to the Securityholder Agent for inclusion in all Stockholders' tax
returns for all periods which include the Closing Date. Without limiting the
generality of the forgoing, Buyer shall retain, and shall cause the Company to
retain, and Stockholders shall retain, until the applicable statute of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such tax returns for all tax periods or portions thereof ending before or
including the Closing Date and shall not destroy or otherwise dispose of any
such records without first providing the other parties hereto with a reasonable
opportunity to review and copy same at the cost of such other party. Buyer shall
give Securityholder Agent prompt notice of any audit or similar investigation or
proceeding in which the IRS or any other Governmental Entity makes or proposes
to make, or in which Buyer has reason to believe that the IRS or any other
Governmental Entity will make, or proposes to make, a tax adjustment affecting
the liability of taxes of Stockholders with respect to a pre-Closing tax period.
If such tax adjustment or the manner in which it is to be settled or compromised
relates solely to or solely affects the liability for taxes or any item of
income, deduction, credit, basis, tax accounting method, gain, or loss ("Tax
Attributes") of Stockholders for any period ending on or prior to the Closing
Date, Stockholders shall conduct and control all aspects of the audit, including
the settlement or compromise thereof. Furthermore, in the event any such tax
adjustment with respect to the Company results in a refund of taxes to Buyer,
the Company, or any of its affiliates with respect to any period ending on or
prior to the Closing Date or in the event Buyer, the Company or
46
any of their affiliates receives a refund of taxes with respect to any tax
attribute of the Company for any such period, the amount of such refund shall be
paid to the Securityholder Agent by Buyer or an affiliate of Buyer upon receipt
of such refund by Buyer, the Company or any of its affiliates.
(f) Amended Returns. Buyer shall be responsible for filing, at
the expense of Stockholders, any amended tax returns related to the Company for
all periods ending on or before the Closing Date which are required as a result
of examination adjustments made by the Internal Revenue Service or by the
applicable state, local or foreign taxing authorities for such taxable years as
finally determined. For those jurisdictions in which tax returns are filed by
the Company, any required amended returns resulting from such examination
adjustments, as finally determined, shall be prepared by Stockholders and
furnished to Buyer for approval (which approval shall not be unreasonably
withheld or delayed), signature and filing at least 30 days prior to the due
date for filing such returns. Nothing in this Agreement shall require
Stockholders to amend any tax return, other than as set forth above.
(g) Ordinary Conduct. On the Closing Date, Buyer shall cause
the Company to conduct its businesses in the ordinary course in substantially
the same manner as presently conducted and on the Closing Date shall not permit
the Company to effect any extraordinary transactions on the Closing Date (other
than any such transactions expressly required by applicable law or expressly
permitted by this Agreement) that could result in tax liability to the Company
for periods on or before the Closing Date in excess of tax liability associated
with the conduct of its business in the ordinary course of business.
(h) Tax Sharing Agreements. Stockholders shall cause the
provisions of any tax sharing agreement or policy between Stockholders and any
of their affiliates (other than the Company), on the one hand, and the Company,
on the other hand, to be terminated on or before the Closing Date.
(i) Taxable Transaction. The Stockholders hereby agree that
(a) the sale of Shares contemplated in this Agreement is intended to be a
taxable transaction for United States federal income tax purposes, (b) they will
report the sale of Shares as a taxable transaction and (c) at no time will they
take a position inconsistent with this treatment.
6.18 Notice to Option Holders.
-------------------------
Promptly after the date hereof, the Company shall notify all Persons
who hold vested options for Shares (the "Option Holders") that they have the
right to exercise their options and participate in the transactions contemplated
in this Agreement. In order to exercise such right, the Option Holder must
exercise his or her options, pay the exercise price and sign an addendum (an
"Addendum") to this Agreement, in form and substance satisfactory to Buyer, by
which such Person becomes a party hereto. Such Option Holders shall have all the
rights of a Stockholder under this Agreement, including without limitation the
right to receive a pro rata share of the Base Consideration and the Additional
Consideration with respect to the Shares owned by them as of the Closing Date.
47
6.19 Employment Terms.
-----------------
With respect to any Company employees retained as Company employees
after the Closing Date, the Buyer agrees that such employment relationship will
be employment at will. No such employee will be required to relocate from such
employee's current office for a period extending one year from the Closing Date.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party to Close.
-------------------------------------------------
The respective obligations of each party to this Agreement to close
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) 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 or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated in this
Agreement shall be in effect; and there shall not have been any action taken, or
any statute, rule, regulation or order enacted, entered, enforced, promulgated,
issued or deemed applicable to the transactions contemplated in this Agreement,
which makes consummation of the transactions contemplated in this Agreement
illegal.
(b) HSR Act. The waiting period required pursuant to the HSR
Act and the regulations promulgated thereunder shall have expired or been
terminated or any approvals required in connection with the HSR Act and the
regulations promulgated thereunder shall have been obtained.
(c) Fairness Hearing; Registration Statement. The
Administrator shall have issued an Order approving the fairness of the terms and
conditions of the transactions contemplated in this Agreement after a hearing
conducted in accordance with Section 78A-30 of the General Statutes of North
Carolina or, in the absence of such approval and issuance, the Stockholders and
Buyer shall have entered into the Registration Rights Agreement.
(d) No Proceedings or Challenges. No investigation, action,
suit or proceeding by any Governmental Entity, and no action, suit or proceeding
by any other Person, shall be pending on the Closing Date which challenges this
Agreement or the transactions contemplated in this Agreement or seeks to
restrain or prohibit the consummation of the transactions contemplated in this
Agreement;
48
7.2 Additional Conditions to the Obligations of the Stockholders.
------------------------------------------------------------
The obligations of the Stockholders to consummate the transactions
contemplated in this Agreement 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, by the Securityholder Agent:
(a) Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall have been true and correct
(in the case of representations and warranties qualified as to materiality) or
true and correct in all material respects (in the case of other representations
and warranties) on and as of the date of this Agreement and shall be so true and
correct on and as of the Closing Date except for those representations and
warranties which address matters only as of a particular date (which shall
remain so true and correct as of such date), and the Company shall have received
a certificate to such effect signed on behalf of Buyer by a duly authorized
officer of Buyer.
(b) Agreements and Covenants. Buyer shall have performed or
complied in all respects with all covenants, obligations and conditions of this
Agreement required to be performed or complied with by it on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed by a duly authorized officer of Buyer.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any events, occurrences, changes or
effects which, individually or in the aggregate, have had or could be reasonably
expected to have a material adverse effect on the business, assets (including
intangible assets), results of operations or financial condition of Buyer and
its subsidiaries taken as a whole.
(d) Cash and Stock Certificates. Buyer shall have delivered to
the Securityholder Agent cash and certificates for the Buyer Common Stock to be
delivered at Closing pursuant to Section 1.2(b) plus any cash to be paid with
respect to the Noncompete Agreements to be delivered pursuant to Section 7.3(i)
of this Agreement.
(e) Escrow Agreement. Each of Buyer, the Securityholder Agent
(as defined in Section 8.2(b)) and First Union National Bank, as Escrow Agent,
shall have executed and delivered to the Company an Escrow Agreement in
substantially the form attached hereto as Exhibit C (the "Escrow Agreement").
(f) Nasdaq National Market Listing. The shares of Buyer Common
Stock issuable pursuant to this Agreement shall have been authorized for listing
on the Nasdaq National Market upon official notice of issuance.
(g) Legal Opinion. The Company shall have received a legal
opinion from Xxxxx & Xxx Xxxxx, PLLC, counsel to Buyer, in form and substance
reasonably acceptable to the Company and its counsel.
(h) Stock Options. The Company shall have been furnished with
evidence satisfactory to it that Buyer is able to assume all Company Options.
49
(i) Guaranties. The Stockholders shall be released from their
respective guaranties of indebtedness of the Company pursuant to the bank
financing of the Company identified in Schedule 7.2(i) of the Company Schedules.
7.3 Additional Conditions to the Obligations of Buyer.
--------------------------------------------------
The obligations of Buyer to consummate the transactions contemplated in
this Agreement 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, by
Buyer:
(a) Representations and Warranties. The representations and
warranties of the Company and the Stockholders contained in this Agreement shall
have been true and correct (in the case of representations and warranties
qualified as to materiality) or true and correct in all material respects (in
the case of other representations and warranties) on and as of the date of this
Agreement and shall be so true and correct on and as of the Closing Date except
for those representations and warranties which address matters only as of a
particular date (which shall remain so true and correct as of such date) (except
that the representation made in Section 2.3 with respect to issued and
outstanding shares may be updated by Stockholders to reflect the exercise of
options after the date hereof and prior to the Closing Date), and Buyer shall
have received a certificate to such effect signed on behalf of the Company by a
duly authorized officer of the Company.
(b) Agreements and Covenants. The Company and the Stockholders
shall have performed or complied in all respects with all covenants, obligations
and conditions of this Agreement required to be performed or complied with by it
on or prior to the Closing Date, and Buyer shall have received a certificate to
such effect signed by a duly authorized officer of the Company.
(c) Certificates for Company Capital Stock. The Securityholder
Agent shall have delivered to Buyer certificates representing the Company
Capital Stock, duly endorsed (or accompanied by duly executed stock powers).
(d) Third Party Consents. Buyer shall have been furnished with
evidence satisfactory to it that the Company, the Stockholders and the
Securityholder Agent have obtained the consents, approvals and waivers set forth
in Schedule 2.6 of the Company Schedules.
(e) Legal Opinion. Buyer shall have received a legal opinion
from Xxxxxxx Xxxxx Xxxx & White LLP, counsel to the Company, in form and
substance reasonably acceptable to Buyer and its counsel.
(f) Conduct of Company Business. The Company shall have
conducted its business in accordance with Article V from the date hereof until
the Effective Time.
(g) No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any events, occurrences, changes or
effects which, individually or in the
50
aggregate, have had or could be reasonably expected to have a material adverse
effect on the business, assets (including intangible assets), results of
operations or financial condition of the Company and its subsidiaries taken as a
whole.
(h) Termination of Company Investor Rights. Buyer shall have
been furnished evidence reasonably satisfactory to it that all investor rights
granted by the Company to its stockholders and in effect prior to the Closing,
including but not limited to rights of co-sale, voting, registration, first
refusal, board observation or information or operational covenants, shall have
been terminated as of the Closing.
(i) Non-Competition and Non-Solicitation Agreements and
Continued Employment. Each of Xxxxx Xxxx, Xxxxxx Xxxxxx, Xxxxx Xxxxxxxx, and
Xxxxx Xxxx shall have executed and delivered to Buyer a NonCompetition,
NonSolicitation and NonDisclosure Agreement substantially in the form attached
hereto as Exhibit B. Each of the Company employees identified in Schedule 7.3(j)
shall remain in the employment of the Company as of the Closing Date and shall
not have provided to Buyer or the Company notice of intention to cease
employment with the Company or Buyer (or of intention not to become employed by
Buyer).
(j) Escrow Agreement. Each of the Company, the Securityholder
Agent (as defined in Section 8.2(b)) and First Union National Bank, as Escrow
Agent, shall have executed and delivered to Buyer the Escrow Agreement.
(k) Capitalization Table. The Company shall have delivered to
Buyer a detailed capitalization table (the "Capitalization Table") setting forth
the capitalization of the Company as of immediately prior to the Closing Date,
certified by a duly authorized officer of the Company.
(l) No Change to Organizational Documents or Capitalization.
Since the date of this Agreement, (i) no change shall have been made to the
Company's (A) Articles of Incorporation or Bylaws or the Articles of
Incorporation or Bylaws (or comparable documents) of any of its Subsidiaries
(except for an amendment effecting the stock split referred to in Section 6.1)
or (B) authorized, issued, or outstanding shares and (ii) the Company shall not
have granted or issued to any Person any Purchase Rights.
(m) Satisfactory Completion of Due Diligence Review. Buyer
shall have completed its review of the Company's business, condition, assets,
liabilities, operations, financial performance and prospects and shall be
satisfied, in its reasonable discretion, with the results of such review.
(n) Waiver of Acceleration. All holders of Company Options and
all holders of Company Capital Stock subject to vesting and/or stock restriction
agreements shall have irrevocably waived all rights to acceleration of vesting
and other lapsing of restrictions with respect to such Company Options and
Company Capital Stock in connection with the transactions contemplated in this
Agreement.
51
(o) Transfer of Huntsville Office. Title to the office of the
Company located at Huntsville, Alabama shall have been transferred to a third
party other than the Stockholders or any affiliate of any of them or, in the
alternative, the existing lease between Wirespeed Properties Holdings, Inc. and
the Company shall be amended to provide that such lease can be terminated by the
Company, as lessee, at any time upon thirty (30) days' written notice.
(p) Qualification in Tennessee. The Company shall have
delivered to Buyer a certificate from the Secretary of State of Tennessee
stating that the Company is qualified to do business in Tennessee and is in good
standing in that State.
(q) Release of Guaranty. The Company shall have obtained a
full release of any obligations of the Company under that certain Guaranty dated
August 13, 1999 executed by the Company in favor of First Commercial Bank with
respect to a loan from First Commercial Bank to Image Concepts LLC.
(r) Amendment of Agreement with NETSilicon. The Company shall
deliver to Buyer a copy of the Development Agreement dated as of February 23,
2000, between the Company and NETSilicon, Inc. that has been amended to remove
the restriction in Section 7.2, which provides that the Company will not "port
Linux" to or for any other supplier of an ARM processor with Ethernet.
(s) Assignment of Equity Interests. The Company shall have
transferred to a third party all of its interest in Image Concepts LLC on terms
satisfactory to the Buyer.
(t) Termination of Contracts. The Company shall have
terminated its contracts with the parties identified on Schedule 7.3(t), on
terms satisfactory to the Buyer, without any payment by the Company that would
otherwise be triggered by the termination. Buyer reserves the right to require
termination of any Company agreements, copies of which were provided on or after
the date hereof, on terms satisfactory to the Buyer, as a condition to Closing.
(u) Releases. The Stockholders shall have entered into
releases, in a form mutually satisfactory to the Stockholders and the Buyer, of
any and all claims the Stockholders may have against the Company.
(v) Good Standing. The Company shall be validly existing and
in good standing under the laws of the State of Alabama.
(w) Addendums and Waivers. The Company shall deliver, with
respect to each Option Holder, either an Addendum signed by such Option Holder
or a waiver, in form and substance satisfactory to Buyer, under which such
Option Holder waives the right to participate in the transactions contemplated
in this Agreement and agrees not to exercise its options on or prior to the
Closing Date.
(x) Amendment to Stock Option Plan. All Option Holders shall
have consented to and executed an amendment of the option plan and grant
documents with respect to
52
the WireSpeed Stock Option Plan to allow the substitution of (i) options
exercisable for Buyer Common Stock for (ii) options exercisable for Shares.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ESCROW; INDEMNIFICATION
8.1 Survival of Representations and Warranties.
-------------------------------------------
All of the Company's and the Stockholders' representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the closing of the transactions contemplated in this
Agreement and continue until 5:00 p.m., Alabama time, on the date which is
eighteen months following the Closing Date (the "Expiration Date"), and not
thereafter except for the representations and warranties set forth in Section
2.3, which shall survive the closing of the transactions contemplated in this
Agreement indefinitely, and the representations and warranties set forth in
Sections 2.10, 2.23, 2.25, which shall survive until thirty days after the
expiration of the applicable statute of limitations. All of the covenants and
agreements of the parties hereto shall survive the Closing of the transactions
contemplated in this Agreement without limitation.
8.2 Escrow Arrangements.
--------------------
(a) Escrow Fund. At the Effective Time, the Stockholders will
be deemed to have received from Buyer and deposited with the Escrow Agent the
Escrow Shares (plus any additional shares as may be issued upon any stock split,
stock dividend or recapitalization effected by Buyer after the Effective Time)
without any act on the part of any Stockholder. As soon as practicable after the
Effective Time, the Escrow Shares, without any act on the part of any
Stockholder, will be deposited with First Union National Bank 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 in the Escrow Agreement.
The number of Escrow Shares deposited on behalf of each Stockholder shall be in
proportion to the aggregate Buyer Common Stock to which such holder would
otherwise be entitled under Sections 1.2(b) and shall be in the respective share
amounts and percentages listed opposite each Stockholder's name listed in a
schedule in form and substance reasonably acceptable to Buyer to be executed by
the Company and delivered to Buyer at Closing (the "Escrow Schedule"). No shares
of Buyer Common Stock deposited in the Escrow Fund shall be unvested or subject
to any right of repurchase, risk of forfeiture or other condition in favor of
the Company. The Escrow Fund shall be available to reimburse, indemnify, defend
and hold harmless, Buyer and its Affiliates (including the Company) for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including attorneys' fees and expenses, and expenses of investigation and
defense (hereinafter individually a "Loss" and collectively "Losses") incurred
by Buyer, its officers, directors, agents or Affiliates (including the Company),
in each case net of insurance proceeds if and when received by such Person in
connection with such Losses, directly or indirectly as a result of:
53
(i) any inaccuracy in, or breach of, a representation or
warranty of the Company or the Stockholders contained herein (or in any
certificate, instrument, schedule or document attached to this
Agreement and delivered by the Company or the Stockholders pursuant to
this Agreement);
(ii) any failure by the Company or any Stockholder to perform
or comply with any covenant contained herein;
(iii) any claims or liabilities of any type with respect to,
related to or arising from Huntsville Business Venture Corporation
("HBV") (including without limitation any rent or other amounts owed
with respect to the Huntsville Office and any amounts owed for
compensation of employees compensated by HBV), Image Concepts LLC,
WireSpeed Property Holdings, QualTech, AquaTex Industries, Inc., Simple
Surfer, Inc., Xxxxxx Golf Corporation, C-Sharp Technologies, Inc. and
ABR , Inc., provided, however, nothing herein shall be deemed an
acknowledgment that there is any liability of the Stockholders or the
Company to any of the other companies identified in this Section
8.2(a)(iii);
(iv) any Losses arising from the matters disclosed on
Schedule2.20, 2.25(d) and 8.2;
(v) any liability or obligation (A) of the Company for any
Taxes of the Company with respect to any Tax year or portion thereof
ending on or before the Closing Date (or for any Tax year beginning
before and ending after the Closing Date to the extent allocable to the
portion of such period beginning before and ending on the Closing
Date), and (B) of the Company for the unpaid Taxes of any person under
Treasury Regulation ss.1.1502-6 (or any similar provision of state,
local, or foreign Law), as a transferee or successor, by Contract, or
otherwise; or
(vi) any claims or liabilities of any type of the Company with
respect to periods on or prior to the Closing Date, other than any
liability set forth in Schedule 2.8 of the Company Schedules, any
liability fully disclosed, reflected or reserved against in the Company
Balance Sheet or the Company Unaudited Financial Statements and any
liability that has arisen in the ordinary course of the Company's
business consistent with past practices since the Most Recent Balance
Sheet Date.
Claims arising out of an inaccuracy in, or breach of, any
representations and warranties of the Company or any Stockholder contained in
this Agreement and in any certificate, instrument, schedule or document
delivered by the Company at the Closing in connection with this Agreement or the
transactions contemplated in this Agreement must be asserted on or before 5:00
p.m. (Alabama Time) on the Expiration Date, except for claims for a breach of
the representations and warranties set forth in Section 2.3, which shall survive
the Closing indefinitely, and claims for a breach of the representations and
warranties set forth in Sections 2.10, 2.23, 2.25, which shall survive until
thirty days after the expiration of the applicable statute of limitations. Buyer
shall provide notice to the Securityholder Agent within 30 days of Buyer
becoming aware of any claims for Losses if such claims are reasonably
54
identifiable and determinable; provided, however, that no delay or failure on
the part of Buyer in notifying the Securityholder Agent shall relieve the
Securityholder Agent or the Stockholders on whose behalf the Escrow Amount was
contributed from any obligation unless they are materially prejudiced thereby
(and then only to the extent of such prejudice). Except as otherwise provided
herein, Buyer may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in the Escrow Agreement) identifying Losses,
the aggregate amount of which exceed $100,000 (the "Basket Amount"), have been
delivered to the Escrow Agent as provided in the Escrow Agreement and such
amount is determined pursuant to the Escrow Agreement to be payable; in such
case, Buyer may recover shares from the Escrow Fund equal in value to all
indemnified Losses in excess of the Basket Amount for which there is no
objection or any objection had been resolved in accordance with the provisions
of the Escrow Agreement; provided, however, that any Losses attributable to any
failure by the Company or any Stockholder to perform or comply with any covenant
contained herein shall be immediately reimbursable to Buyer in accordance with
this Article VIII (without regard to the Basket Amount for Losses and without
counting toward the Basket Amount); provided, further, however, that to the
extent that Third Party Expenses (as defined in Section 10.2(a) below) incurred
by the Company exceed $100,000 in the aggregate, such excess shall be deemed a
Loss for purposes of this Article VIII and shall be immediately reimbursable to
Buyer in accordance with this Article VIII (without regard to the Basket Amount
for Losses and without counting toward the Basket Amount). Losses shall be
determined without regard to any materiality or knowledge qualifiers that may be
included in any representation or warranty that is breached.
(b) Securityholder Agent of the Stockholders; Power of
Attorney.
(i) Xxxxxx Xxxxxx is hereby appointed as agent and
attorney-in-fact for each Stockholder, for and on behalf of
Stockholders, to act as the Securityholder Agent under the
Escrow Agreement and to give and receive notices and
communications, to authorize delivery to Buyer of Escrow
Shares from the Escrow Fund in satisfaction of claims by
Buyer, 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
Securityholder Agent for the accomplishment of the foregoing
in accordance with the terms and provisions of the Escrow
Agreement. Such agency may be changed by the Stockholders from
time to time upon not less than thirty (30) days prior written
notice to Buyer; provided that the Securityholder Agent 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
Securityholder Agent may be filled by approval of the holders
of a majority in interest of the Escrow Fund. No bond shall be
required of the Securityholder Agent, and the Securityholder
Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent
shall constitute notice to or from each of the Stockholders.
(ii) The Securityholder Agent shall not be liable for
any act done or omitted hereunder or under the Escrow
Agreement as Securityholder Agent while
55
acting in good faith and in the exercise of reasonable
judgment. The Stockholders on whose behalf the Escrow Amount
was contributed to the Escrow Fund shall jointly indemnify the
Securityholder Agent and hold the Securityholder Agent
harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the
Securityholder Agent and arising out of or in connection with
the acceptance or administration of the Securityholder Agent's
duties hereunder, including the reasonable fees and expenses
of any legal counsel retained by the Securityholder Agent.
(c) Actions of the Securityholder Agent. A decision, act,
consent or instruction of the Securityholder Agent relating to the Escrow
Shares, the Escrow Fund or the Escrow Agreement shall constitute a decision of
all the Stockholders for whom a portion of the Escrow Amount otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such Stockholders, and the Escrow Agent and Buyer may
rely upon any such written decision, consent or instruction of the
Securityholder Agent as being the decision, consent or instruction of each every
such Stockholder. The Escrow Agent and Buyer are hereby relieved from any
liability to any Person for any acts done by them in accordance with such
decision, consent or instruction of the Securityholder Agent.
8.3 Indemnification by the Stockholders.
------------------------------------
In addition to the provisions contained in Sections 8.2(a), after
exhaustion of the Escrow Fund, the Stockholders shall, severally, reimburse,
indemnify, defend and hold harmless Buyer and its Affiliates (including the
Company) for any Losses incurred by Buyer, its officers, directors, agents or
Affiliates (including the Company) , in each case net of insurance proceeds if
and when received by such Person in connection with such Losses, directly or
indirectly as a result of:
(i) any inaccuracy in, or breach of, a representation
or warranty of the Company or the Stockholders contained
herein (or in any certificate, instrument, schedule or
document attached to this Agreement and delivered by the
Company or the Stockholders pursuant to this Agreement);
(ii) any failure by the Company or any Stockholder to
perform or comply with any covenant contained herein;
(iii) any claims or liabilities of any type with
respect to, related to or arising from HBV (including without
limitation any rent or other amounts owed with respect to the
Huntsville Office and any amounts owed for compensation of
employees compensated by HBV), or any of the other companies
identified in Section 8.2(a)(iii);
(iv) any Losses arising from the matters disclosed on
Schedules 2.20, 2.25(d) and 8.2;
56
(v) any liability or obligation (A) of the Company for
any Taxes of the Company with respect to any Tax year or
portion thereof ending on or before the Closing Date (or for
any Tax year beginning before and ending after the Closing
Date to the extent allocable to the portion of such period
beginning before and ending on the Closing Date), and (B) of
the Company for the unpaid Taxes of any Person under Treasury
Regulation ss.1.1502-6 (or any similar provision of state,
local, or foreign Law), as a transferee or successor, by
contract, or otherwise; or
(vi) any claims or liabilities of any type of the
Company with respect to periods on or prior to the Closing
Date other than any liability set forth in Schedule 2.8 of the
Company Schedules, any liability fully disclosed, reflected or
reserved against in the Company Balance Sheet or the Company
Unaudited Financial Statements and any liability that has
arisen in the ordinary course of the Company's business
consistent with past practices since the Most Recent Balance
Sheet Date;
provided, however, that the maximum amount of Losses for which any Stockholder
shall be liable under Section 8.3(i) shall equal the product of (x) the
percentage of such Stockholder's pro rata share of the issued and outstanding
stock of the Company as set forth on the Capitalization Table to be delivered
pursuant to Section 7.3(k) and (y) the Base Consideration (less any amounts
reimbursed to Buyer or any other person pursuant to this Agreement from the
Escrow Fund) (other than with respect to claims for infringement of any
intellectual property right, in which event the maximum amount of Losses for
which any Stockholder shall be liable under Section 8.3(i) shall equal the
product of (x) the percentage of such Stockholder's pro rata share of the issued
and outstanding stock of the Company as set forth on the Capitalization Table
and (y) the sum of the Base Consideration (less any amounts reimbursed to Buyer
or any other person pursuant to this Agreement from the Escrow Fund) plus any
Additional Consideration actually paid to the Stockholders); provided, further,
however, that the foregoing limitations shall not apply in the case of a claim
by Buyer or any of its Affiliates (including the Company) relating to any
representation or warranty which was known to any Stockholder to be false or
materially inaccurate when made.
8.4 Indemnity by the Buyer.
-----------------------
The Buyer hereby agrees to indemnify, defend and hold harmless
Stockholders and their respective Affiliates against and in respect of all
Losses incurred by Stockholders or their respective Affiliates, in each case net
of insurance proceeds if and when received by such Person in connection with
such Losses, directly or indirectly as a result of:
(i) any inaccuracy in, or breach of, a representation
or warranty of the Buyer contained herein (or in any
certificate, instrument, schedule or document attached to this
Agreement and delivered by the Buyer pursuant to this
Agreement); or
(ii) any failure by the Buyer to perform or comply
with any covenant contained herein.
57
8.5 Matters Involving Third Parties.
--------------------------------
(a) If any third party shall notify any party hereto entitled
to indemnification under Sections 8.2, 8.3, or 8.4 (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any other party hereto (the "Indemnifying
Party") under this Article VIII, then the Indemnified Party shall promptly
notify (and in any event by the sooner to occur of (i) 10 days after receipt of
notice by it, and (ii) five days prior to the date a responsive pleading is due
(which notification shall be made by either facsimile or overnight delivery
pursuant to Section 10.1 hereof)), each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party promptly notifies the Indemnified Party in writing that the Indemnifying
Party will indemnify the Indemnified Party, to the extent indemnification is
provided for under Sections 8.2, 8.3, or 8.4, (ii) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, and (iii) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8.5(b) above, (i)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (which consent shall not unreasonably be
withheld), (iii) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
unless written agreement is obtained releasing the Indemnified Party from all
liability thereunder, (iv) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to a Third Party
Claim, which involves an injunction or other equitable relief, without the
consent of the Indemnified Party, which consent will not be unreasonably
withheld, and (v) the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to a Third Party Claim which
will, in the good faith judgment of the Indemnified Party, likely establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnified Party.
(d) In the event any of the conditions in Section 8.5(b) above
is or becomes unsatisfied, however, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (ii) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the costs of
defending against the
58
Third Party Claim (including attorneys' fees and expenses), provided that the
Third Party Claim is subject to indemnification under Sections 8.2, 8.3, or 8.4
and (iii) the Indemnifying Parties will remain responsible for any Losses the
Indemnified Party may incur to the extent provided in Sections 8.2, 8.3, or 8.4,
as applicable.
8.6 Exclusive Remedies.
-------------------
The remedies provided in this Article VIII constitute the sole and
exclusive remedies available to each party hereto for recoveries against the
other party hereto for breaches or failures to comply with or non-fulfillments
of the representations, warranties, covenants and agreements of this Agreement
or in any schedule or certificate furnished to any party hereto by any other
party hereto pursuant to this Agreement except that nothing in this Agreement
shall limit the right of the Buyer or the Company to pursue any appropriate
remedy at equity, including specific performance for breach of any of the
covenants of the Stockholders contained herein or any appropriate remedy based
upon allegations of fraud (or, with respect to claims governed by Alabama law,
willful fraud) or willful misconduct in connection with this Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination.
------------
Except as provided in Section 9.2 below, this Agreement may be
terminated:
(a) by mutual written consent duly authorized by the Board of
Directors of the Company and Buyer;
(b) by either Buyer or the Company if the Closing Date has not
occurred by July 31, 2000 (the "Termination Date") (provided that the right to
terminate this Agreement under this clause 9.1(b) shall not be available to any
party whose failure to fulfill any obligation hereunder has been the cause of,
or resulted in, the failure of the Effective Time to occur on or before such
date and such action or failure constitutes a breach of this Agreement);
(c) by either Buyer or the Company if there shall be any
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the transactions contemplated in this Agreement,
by any Governmental Entity, which would: (i) prohibit Buyer's or the Company's
ownership or operation of any portion of the business of the Company or (ii)
compel Buyer or the Company to dispose of or hold separate, as a result of the
transactions contemplated in this Agreement, any portion of the business or
assets of the Company or Buyer;
(d) by Buyer if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company or the Stockholders and as a result of such breach the
conditions set forth in Section 7.3(a) or 7.3(b), as the case may be, would not
59
then be satisfied; provided, however, that if such breach is curable by the
Company or the Stockholders prior to the Termination Date through the exercise
of its or their commercially reasonable efforts, then for so long as the Company
or the Stockholders continue to exercise such commercially reasonable efforts
Buyer may not terminate this Agreement under this Section 9.1(d) unless such
breach is not cured prior to the Termination Date (but no cure period shall be
required for a breach which by its nature cannot be cured);
(e) by the Company if neither it nor the Stockholders are in
material breach of its or their obligations under this Agreement and there has
been a breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of Buyer and as a result of such breach the
conditions set forth in Section 7.2(a) or 7.2(b), as the case may be, would not
then be satisfied; provided, however, that if such breach is curable by Buyer
prior to the Termination Date through the exercise of its commercially
reasonable efforts, then for so long as Buyer continues to exercise such
commercially reasonable efforts the Company may not terminate this Agreement
under this Section 9.1(e) unless such breach is not cured prior to the
Termination Date (but no cure period shall be required for a breach which by its
nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to Section 9.1, it
shall be sufficient for such action to be authorized by the Board of Directors
(as applicable) of the party taking such action.
9.2 Effect of Termination.
----------------------
Except as set forth in Section 10.2, any valid termination of this
Agreement under Section 9.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the valid termination of this Agreement as provided in Section
9.1, this Agreement shall be of no further force or effect, except (i) as set
forth in this Section 9.2 and Article X (general provisions, including
expenses), each of which shall survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from liability for any breach of
this Agreement. No termination of this Agreement shall affect the obligations of
the parties contained in the Nondisclosure Agreement, all of which obligations
shall survive termination of this Agreement.
9.3 Amendment.
----------
Except as is otherwise required by applicable law, prior to the
Closing, this Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed by Buyer and the Company. Except as
is otherwise required by applicable law, after the Closing, this Agreement may
be amended by the parties hereto at any time by execution of an instrument in
writing signed by Buyer and by either the Securityholder Agent or former Company
stockholders who receive more than 66 2/3% of the Buyer Common Stock issued
pursuant to Section 1.2(b).
9.4 Extension; Waiver.
------------------
60
At any time prior to the Effective Time, Buyer, on the one hand, and
the Company, on the other, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices.
--------
All notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally or by commercial delivery 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):
(a) if to Buyer, to:
Red Hat, Inc.
0000 Xxxxxxxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxx & Xxx Xxxxx, PLLC
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 00
Xxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Hope, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
61
(b) if to the Company, to:
WireSpeed Communications, Corporation
000 Xxxx Xxxxx XX
Xxxxxxxxxx, XX 00000
Attention: Mr. Xxxxx Xxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxx Rose & White LLP
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000-0000
Attention: Hall X. Xxxxxx III
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to the Stockholders or the Securityholder Agent:
Xxxxxx Xxxxxx
000 Xxxx Xxxxx XX
Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Any notice or other communication required to be delivered to any of the
Stockholders hereunder shall be deemed delivered to such Stockholder if
delivered to the Securityholder Agent in accordance with the provisions of this
Section 10.1.
10.2 Expenses.
---------
(a) In the event the transactions contemplated in this
Agreement are not consummated, all fees and expenses incurred in connection with
the transactions contemplated in this Agreement 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.
(b) Subject to the provisions of Section 8.2, in the event the
transactions contemplated in this Agreement are consummated, the Company shall
be responsible for the payment of all reasonable Third Party Expenses, including
reasonable Third Party Expenses incurred by the Company, up to an aggregate
amount of $100,000. No fees or expenses of the Stockholders will be paid by the
Company or Buyer.
62
10.3 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
word "agreement" when used herein shall be deemed in each case to mean any
contract, commitment or other agreement, whether oral or written, that is
legally binding. 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. The term "Person" means any individual,
corporation, partnership, association, trust, limited liability company or
partnership, unincorporated organization, joint venture, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act).
10.4 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.
10.5 Entire Agreement; Assignment.
-----------------------------
Except for the Nondisclosure Agreement, this Agreement, the schedules
and Exhibits hereto, 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 as otherwise specifically provided, or
with the written consent of each of the other parties hereto, provided, however,
that Buyer may assign its rights and obligations under this Agreement to an
Affiliate of Buyer including without limitation a subsidiary of a subsidiary
(i.e., a second-tier subsidiary) of Buyer.
10.6 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.
63
10.7 Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof. Each
of the parties hereto agrees that process may be served upon them in any manner
authorized by the laws of the State of North Carolina for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
10.8 Rules of Construction.
----------------------
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore, 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.
10.9 Specific Performance.
---------------------
Notwithstanding Sections 8.2 and 8.3, the parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
64
IN WITNESS WHEREOF, Buyer, the Company, the Stockholders and the
Securityholder Agent have signed or caused this Agreement to be signed by their
duly authorized respective officers, as the case may be, all as of the date
first written above.
RED HAT, INC., WIRESPEED COMMUNICATIONS CORPORATION, an Alabama
a Delaware corporation corporation
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxx Xxxxxx
---------------------------------- -----------------------------------
Xxxxxx Xxxxxx Xxxxxx Xxxxxx
Chief Financial Officer President
SECURITYHOLDER AGENT
By: /s/ Xxxxxx Xxxxxx
----------------------------------
Xxxxxx Xxxxxx
STOCKHOLDERS:
/s/ Xxxxx Xxxx /s/ Xxxxx Xxxx
---------------------------------- -----------------------------------
Xxxxx Xxxx Xxxxx Xxxx
/s/ Xxxx Xxxxxxx /s/ Xxxx Xxxxx
---------------------------------- -----------------------------------
Xxxx Xxxxxxx Xxxx Xxxxx
/s/ Xxxxx Xxxxxxxx /s/ Xxxxxx Xxxxxx
---------------------------------- -----------------------------------
Xxxxx Xxxxxxxx Xxxxxx Xxxxxx
/s/ Xxxxx Xxxxxxx
----------------------------------
Xxxxx Xxxxxxx
00
