EXHIBIT 2.1
PURCHASE AGREEMENT
AMONG
ACTUATE CORPORATION,
XXXXX XXXXXX, XXXXX XXXXXX, XXXXX XXXXX AND
XXXXXX XXXXXXX
TABLE OF CONTENTS
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Page
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1. Purchase and Sale of Limited Liability Company Interest.................................. 1
1.1 Purchase and Sale of Limited Liability Company Interest......................... 1
1.2 Closing......................................................................... 3
2. Representations and Warranties Regarding LLC............................................. 4
2.1 Organization, Standing and Power................................................ 4
2.2 Capital Structure............................................................... 4
2.3 Financial Statements............................................................ 5
2.4 Absence of Certain Changes...................................................... 5
2.5 Absence of Undisclosed Liabilities.............................................. 5
2.6 Accounts Receivable............................................................. 6
2.7 Litigation...................................................................... 6
2.8 Restrictions on Business Activities............................................. 6
2.9 Governmental Authorization...................................................... 6
2.10 Title to Property............................................................... 7
2.11 Intellectual Property........................................................... 7
2.12 Environmental Matters........................................................... 9
2.13 Taxes........................................................................... 9
2.14 Employee Benefit Plans.......................................................... 11
2.15 Employees and Consultants....................................................... 13
2.16 Related-Party Transactions...................................................... 15
2.17 Insurance....................................................................... 15
2.18 Compliance with Laws............................................................ 15
2.19 Brokers' and Finders' Fees...................................................... 15
2.20 Customers and Suppliers......................................................... 15
2.21 Material Contracts.............................................................. 16
2.22 No Breach of Material Contracts................................................. 17
2.23 Third-Party Consents............................................................ 18
2.24 Intentionally Deleted........................................................... 18
2.25 Minute Books.................................................................... 18
2.26 Complete Copies of Materials.................................................... 18
3. Additional Representations and Warranties of the Sellers................................. 18
3.1 Title to LLC Membership Interest................................................ 18
3.2 Purchase for Own Account........................................................ 19
3.3 Authority....................................................................... 19
3.4 Brokers' and Finders' Fees...................................................... 20
3.5 Accredited Investor............................................................. 20
3.6 Restricted Securities........................................................... 20
3.7 Further Limitations on Disposition.............................................. 20
3.8 Legends......................................................................... 21
3.9 Agreement to Retain Interests................................................... 21
4. Representations and Warranties of Purchaser.............................................. 21
4.1 Organization, Standing and Power................................................ 22
4.2 Authority....................................................................... 22
4.3 SEC Documents; Financial Statements............................................. 23
4.4 Absence of Certain Changes...................................................... 24
4.5 Litigation...................................................................... 24
4.6 Compliance with Laws............................................................ 24
4.7 Board Approval.................................................................. 24
5. Conditions of Purchaser's Obligations at Closing......................................... 24
5.1 Representations and Warranties.................................................. 24
5.2 Performance..................................................................... 25
5.3 Qualifications.................................................................. 25
5.4 Non-Competition Agreements...................................................... 25
5.5 Intentionally Deleted........................................................... 25
5.6 Employment Agreement............................................................ 25
5.7 OST India....................................................................... 25
5.8 Termination of Employees........................................................ 25
5.9 Non-Compete Agreements.......................................................... 25
5.10 Certificate of Seller........................................................... 25
5.11 Proceedings and Documents....................................................... 26
6. Conditions of the Sellers' Obligations at Closing........................................ 26
6.1 Representations and Warranties.................................................. 26
6.2 Performance..................................................................... 26
6.3 Qualifications.................................................................. 26
6.4 Payment of Purchase Price; Escrow Agreement..................................... 26
6.5 Employment Agreements........................................................... 26
6.6 Certificate of Purchaser........................................................ 26
7. Indemnification.......................................................................... 27
7.1 Survival of Representations, Warranties and Covenants........................... 27
7.2A Indemnification of Purchaser.................................................... 27
7.2B Intentionally Deleted........................................................... 28
7.3 Escrow Fund..................................................................... 29
7.4 Damage Threshold................................................................ 29
7.5 Escrow Period................................................................... 29
7.6 Claims Against the Escrow Fund; Objections to Claims............................ 29
7.7 Payment of Claims............................................................... 30
7.8 Resolution of Conflicts; Arbitration............................................ 31
7.9 Sellers' Agent.................................................................. 32
7.10 Distribution Upon Termination of Escrow Period.................................. 33
7.11 Actions of the Sellers' Agent................................................... 33
7.12 Third-Party Claims.............................................................. 33
8 Registration Requirements................................................................ 34
8.1 S-3 Registration Statement...................................................... 34
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8.2 Registration Procedures......................................................... 34
8.3 Registration Expenses........................................................... 37
8.4 Indemnification................................................................. 38
8.5 "Market Stand-off" Agreement.................................................... 41
9. Miscellaneous............................................................................ 42
9.1 Successors and Assigns.......................................................... 42
9.2 Governing Law................................................................... 42
9.3 Counterparts.................................................................... 42
9.4 Titles and Subtitles............................................................ 42
9.5 Notices......................................................................... 42
9.6 Amendments and Waivers.......................................................... 42
9.7 Severability.................................................................... 43
9.8 Entire Agreement................................................................ 43
SCHEDULE A Schedule of Sellers
SCHEDULE B Pay-out Schedule
SCHEDULE C Schedule of Bonus Payments
EXHIBIT A Escrow Agreement
EXHIBIT B Non-Competition and Non-Solicitation Agreement
EXHIBIT C Form of Employment Agreement
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of the 29/th/ day of February,
2000, by and among Actuate Corporation ("Purchaser"), and the Sellers listed on
Schedule A hereto, each of which is herein referred to as a "Seller."
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THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Limited Liability Company Interest.
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1.1 Purchase and Sale of Limited Liability Company Interest. Subject
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to the terms and conditions of this Agreement, each Seller shall sell and
the Purchaser shall purchase, all right, title and interest in and to such
Seller's membership interest (the "Interest," collectively, the
"Interests") in Open Software Technology, LLC (the "LLC"), operating
pursuant to that certain limited liability company operating agreement
among the Sellers dated May 1, 1998 (the "Limited Liability Company
Operating Agreement"), for the aggregate purchase price as set forth
opposite such Seller's name on Schedule A attached hereto. The aggregate
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purchase price (the "Aggregate Purchase Price") shall consist of the Net
Asset Price and the Purchase Price, each term as defined below.
(a) Net Asset Price. (i) As promptly as practicable, but no later than forty-
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five (45) days after the Closing Date, Sellers will cause to be prepared
and delivered to Purchaser a balance sheet dated as of the Closing Date
(the "Closing Balance Sheet"), and a certificate derived from such Closing
Balance Sheet setting forth Sellers' calculation of the net assets of the
LLC, which amount shall conclusively be deemed the "Net Asset Price."
Provided however, that within 30 days of receipt of the Closing Balance
Sheet, Purchaser or Purchaser's accountants shall be given the opportunity
to determine whether the Closing Balance Sheet has been prepared in
accordance with generally accepted accounting principles ("GAAP") and, in
that regard, Sellers shall provide Purchaser and/or its accountants with
all relevant work product utilized in its preparation of the Closing
Balance Sheet. If the Net Asset Price determined by Purchaser pursuant to
such examination differs by less than 5% from the Net Asset Price on the
Closing Balance Sheet, the Net Asset Price derived from the Closing Balance
Sheet shall be binding and conclusive on the parties hereto. If the Net
Asset Price determined by Purchaser pursuant to such examination audit
differs more than 5% from the Net Asset Price on the Closing Balance Sheet,
the parties will cooperate in good faith to agree upon the Net Asset Price.
If within 10 days the parties can not agree on the Net Asset Price, the
parties will hire a mutually agreeable third party to determine the Net
Asset Price, the fees for such third party shall be borne equally by the
parties. The Closing Balance Sheet shall fairly present the consolidated
financial position of LLC as of the close of business on the Closing Date
in accordance with generally accepted accounting principles, except for the
absence of notes thereto, and shall include as accrued liabilities the one
bonus payment to be made pursuant to Section 1.1(d) below.
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(ii) The Net Asset Price shall be paid to the Sellers in the amounts
set forth on Schedule A in two equal installments. The first installment
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shall be paid on the date ninety (90) days following the Closing Date in
immediately available funds. The second installment shall be paid on the
date one hundred eighty (180) days following the Closing Date in
immediately available funds.
(b) Purchase Price. The Purchase Price shall consist of (A) $9,333,334 (the
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"Cash Consideration") and (B) 51,282 shares of Common Stock, par value
$0.001, of the Purchaser (the "Shares"). Subject to the further provisions
of this section 1.1(b), the Cash Consideration shall be paid as follows:
(i) on the Closing Date, an amount equal to $6,000,000 (such amount being
the "First Cash Payment") shall be paid to the Sellers in immediately
available funds in the amounts set forth on Schedule B attached hereto and
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(b) $3,333,334 shall be paid to the Sellers in immediately available funds
in the amounts set forth on Schedule B on the second anniversary of the
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Closing Date (the "Final Cash Payment"). In addition, within 10 business
days of the Closing Date, the Shares shall be issued to the Sellers in the
amounts set forth on Schedule B attached hereto. Except as otherwise
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provided in Section 8.6 below, no Seller shall be able to transfer, assign
or convey any of the Shares during the six month period following the
Closing Date.
(C) Purchase Price Adjustments. (i) Notwithstanding the provisions of Section
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1.1(b) above, on the Closing Date, $1,300,000 of the Final Cash Payment
(the "Initial Escrow Amount") shall be transferred by the Purchaser by
irrevocable wire transfer into an interest bearing escrow account (the
"Initial Escrow Amount") established pursuant to the Escrow Agreement in
the form of Exhibit A hereto (the "Escrow Agreement"). As more fully set
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forth in the Escrow Agreement and in Section 7 below, of the Initial Escrow
Amount, an amount equal 10% of Aggregate Purchase Price (the "Initial
Indemnification Fund") shall be available by Purchaser to satisfy
indemnification claims of Purchaser. Upon the termination of the Escrow
Agreement, the balance of the Initial Escrow Amount, plus interest accrued
thereon (the "Remaining Escrow Amount'), shall be paid to the Sellers in
immediately available funds.
(ii) Notwithstanding the provisions of Section 1(b) above, Purchaser
shall have the right to place a portion of the Final Cash Payment into the
escrow account in the manner and under the terms and conditions
contemplated by Section 7 below.
(iii) Notwithstanding the provisions of Sections 1(C)(i) and 1(C)(ii)
above, in the event that (A) (a) Purchaser shall commence any proceeding or
other action relating to it in bankruptcy or seek reorganization,
arrangement, readjustment of its debts, receivership, dissolution,
liquidation, winding-up, composition or any other relief under the
Bankruptcy Act, as amended, or under any other insolvency, reorganization,
liquidation, dissolution, arrangement, composition, readjustment of debt or
any other similar act or law, of any jurisdiction, domestic or foreign, now
or hereafter existing; or (b) Purchaser shall admit the material
allegations of any petition or pleading in connection with any such
proceeding; or (c) Purchaser applies for, or consents or acquiesces to, the
appointment of a receiver, conservator, trustee or similar officer for it
or for all or a substantial part of its property; or (d) Purchaser makes a
general assignment for the benefit of creditors; (B) (a) there is
commencement of any proceedings or in the taking of any other action
against Purchaser in bankruptcy or seeking reorganization, arrangement,
readjustment of
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its debts, liquidation, dissolution, arrangement, composition, readjustment
of debt or any other similar act or law of any jurisdiction, domestic or
foreign, now or hereafter existing and the continuance of any of such
events for sixty (60) days undismissed, unbonded or undischarged; or (b)
there is an appointment of a receiver, conservator, trustee or similar
officer for the Purchaser or for all or substantially all of its property
and the continuance of any of such events for sixty (60) days undismissed,
unbonded or undisclosed; or (c) the issuance of a warrant of attachment,
execution or similar process against any of the material assets of either
Purchaser and the continuance of such event for sixty (60) days
undismissed, unbonded and undischarged; (C) the Purchaser fails to maintain
net worth (on a consolidated basis) of at least $15 million at any time
during the two year period commencing from the Closing; or (D) there shall
occur a Change of Control in Purchaser ("Change of Control" means any of
the following (a) the sale, lease, conveyance or other disposition of all
or substantially all of Purchaser's assets as an entirety or substantially
as an entirety or substantially as an entirety to any person or "group"
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (other than the officers and members
of the Board of Directors of Purchaser as of the date hereof) in one or a
series of transactions; (b) the approval by the stockholders of Purchaser
of any plan or proposal for the liquidation or dissolution of Purchaser;
(c) any transaction or series of transactions (as a result of a tender
offer, merger, consolidation or otherwise) that results in any person
(other than the officers or members of the Board of Directors of Purchaser
as of the date of hereof), including a "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) that includes such person, acquiring
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50% or more of the aggregate voting power of all
classes of common equity of Purchaser; or (d) individuals who at the
beginning of any calendar year commencing in 2000 constituted the Board of
Directors (together with any new directors whose election to the Board of
Directors or whose nomination for election by Purchaser's stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
during such period a majority of the members of the Board of Directors then
in office, then the Final Cash Payment shall become immediately due and
payable in immediately available funds to the Sellers.
(d) Bonus Payments. Prior to March 31, 2000, Purchaser shall cause LLC to make
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one set of bonus payments ("Annual Bonus Amount" and "Sale Bonus") to the
individuals and in the amounts set forth on Schedule C hereto.
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1.2 Closing. The closing of the transaction provided for herein (the
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"Closing") will take place at the offices of the Purchaser at 9 a.m. on
February 29, 2000 or at such other place, time and date as Purchaser and
the Sellers may mutually select (the "Closing Date").
2. Representations and Warranties Regarding LLC. Sellers jointly and
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severally represent and warrant to Purchaser that the statements contained
in this Section 2 are true and correct as of the Closing Date, except as
set forth in the disclosure letter delivered by LLC to Purchaser prior to
the execution and delivery of this Agreement (the "Seller Disclosure
Letter"). The Seller Disclosure Letter shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Section 2, and the disclosure in any paragraph shall qualify only the
corresponding paragraph in this Section 2. Any reference in this Section 2
to an agreement being "enforceable" shall be deemed to be qualified to the
extent such enforceability is subject to (i) laws of general application
relating to bankruptcy, insolvency, reorganization, fraudulent conveyance,
and any other laws of general application affecting enforcement of
creditor's rights generally, and (ii) the availability of specific
performance, injunctive relief and other equitable remedies. Any reference
to a "Material Adverse Effect" with respect to any entity or group of
entities means any event, change or effect that is materially adverse to
the condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, business, prospects
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operations or results of operations of such entity and its subsidiaries,
taken as a whole. Whenever this Agreement refers to the "knowledge of
Sellers" it shall mean and include only the actual present knowledge of a
Seller.
2.1 Organization, Standing and Power. LLC is a limited liability
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company duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. LLC has the power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a
Material Adverse Effect on LLC. LLC has delivered to Purchaser a true and
correct copy of the Limited Liability Company Operating Agreement and other
charter documents, as applicable, of LLC, as amended to date. LLC is not in
violation of any of the provisions of its Limited Liability Company
Operating Agreement or equivalent organizational documents the result of
which would have a Material Adverse Change on LLC. LLC does not directly or
indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
2.2 Capital Structure. The membership interests of LLC are owned by
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the persons and in the amounts set forth on Schedule 2.2. There are no
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other membership interests of LLC and no outstanding commitments to issue
any membership interests after the date of this Agreement. Membership
interests of LLC are free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, and are not subject to preemptive
rights, rights of first refusal, rights of first offer or similar rights
created by statute, the Limited Liability Company Operating Agreement or
any agreement to which LLC is a party or by which it is bound. Except for
the rights created pursuant to this Agreement, there are no other options,
warrants, calls, rights, commitments or agreements of any character to
which LLC is a party or by which it is bound obligating LLC to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any membership interests of LLC or
obligating LLC to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to the voting, purchase or sale of LLC membership
interests (i) between or among LLC and any of its members and (ii) to LLC's
and Sellers' knowledge, among any of LLC's members or between any of LLC's
members and any third party.
2.3 Financial Statements. LLC has delivered to Purchaser its
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unaudited combined financial statements (balance sheet, statement of
operations, statement of LLC and statement of cash flows) as of and for the
fiscal year ended December 31, 1998 and for the year ended December 31,
1999 attached as Schedule 2.3 (collectively, the "Financial Statements").
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The Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the financial
statements do not have notes thereto) applied on a consistent basis
throughout the periods indicated and with each other. The Financial
Statements fairly present the financial condition and operating results of
LLC as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments which are, not material
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in the aggregate. LLC maintains a system of accounting established and
administered in accordance with GAAP.
2.4 Absence of Certain Changes. Since December 31, 1999 (the "LLC
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Balance Sheet Date"), LLC has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change,
event or condition (whether or not covered by insurance) that has resulted
in, or might reasonably be expected to result in, a Material Adverse Effect
on LLC; (ii) any acquisition, sale or transfer of any material asset of
LLC; (iii) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by LLC or any
revaluation by LLC of any of its assets; (iv) any declaration, setting
aside, or payment of a distribution with respect to the membership
interests of LLC, or any direct or indirect redemption, purchase or other
acquisition by LLC of any of its membership interests ; (v) any Material
Contract entered into by LLC, other than as provided to Purchaser, or any
material amendment or termination of, or default under, any Material
Contract to which LLC is a party or by which it is bound; (vi) any
amendment or change to the Limited Liability Company Operating Agreement of
LLC; (vii) any increase in or modification of the compensation or benefits
payable or to become payable by LLC to any of its directors, employees or
consultants; (viii) capital expenditures or capital commitments by LLC
exceeding $25,000 individually or $50,000 in the aggregate; (ix)
destruction of, damage to or loss of any material assets, business or
customer of LLC (whether or not covered by insurance); (x) labor trouble or
claim of wrongful discharge or other unlawful labor practice or action; or
(xi) any negotiation or agreement by LLC to do any of the things described
in the preceding clauses (i) through (x) (other than negotiations with
Purchaser and its representatives regarding the transactions contemplated
by this Agreement).
2.5 Absence of Undisclosed Liabilities. The LLC has no material
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liability, indebtedness, obligation, expense, claim, deficiency, guaranty
or endorsement of any type, individually or in the aggregate, whether
accrued, absolute, contingent, matured, unmatured or other (whether or not
required to be set forth in the LLC December 31, 1999 balance sheet
statement included in the Financial Statements (the "LLC Balance Sheet")
under GAAP) which individually or in the aggregate (i) has not been
reflected in the LLC Balance Sheet or (ii) has not arisen in the ordinary
course of business since the LLC Balance Sheet Date in amounts consistent
with prior periods.
2.6 Accounts Receivable. The accounts receivable shown on the LLC
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Balance Sheet arose in the ordinary course of business and have been
collected or are collectible in the book amounts thereof, less the
allowance for doubtful accounts and returns provided for in such balance
sheet. Allowances for doubtful accounts and returns are adequate and have
been prepared in accordance with the past practices of LLC. The accounts
receivable of LLC arising after the date of the LLC Balance Sheet and prior
to the date hereof arose, and the accounts receivable arising prior to the
Closing Date will arise, in the ordinary course of business and have been
collected or are collectible in the book amounts thereof, less allowances
for doubtful accounts and returns determined in accordance with the past
practices of LLC. Since December
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31, 1999, none of the accounts receivable listed on the December 31, 1999
balance sheet are subject to any material claim of offset or recoupment, or
counterclaim and neither Sellers or LLC have knowledge of any specific
facts that would be reasonably likely to give rise to any such claim. No
material amount of accounts receivable are contingent upon the performance
by LLC of any obligation. No agreement for deduction or discount has been
made with respect to any accounts receivable.
2.7 Litigation. There is no private or governmental action, suit,
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proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of LLC or
Sellers, threatened (including allegations that could form the basis for
future action) against LLC or any of its properties or officers or
directors (in their capacities as such), nor is there any reasonable basis
therefor. There is no judgment, decree or order against LLC, or, to the
knowledge of the Sellers, LLC, any of its directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on LLC. All
litigation to which LLC is a party (or, to the knowledge of LLC, threatened
to become a party) is disclosed in the Seller Disclosure Letter. LLC does
not have any plans to initiate any litigation, arbitration or other
proceeding against any third party.
2.8 Restrictions on Business Activities. There is no material
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agreement, judgment, injunction, order or decree binding upon LLC that has
or could reasonably be expected to have the effect of prohibiting or
impairing any current or future material business practice of LLC, any
material acquisition of property by LLC or the conduct of business by LLC
as currently conducted or as proposed to be conducted by LLC.
2.9 Governmental Authorization. LLC has obtained each federal,
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state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to
which LLC currently operates or holds any interest in any of its properties
or (ii) that is required for the operation of LLC's business or the holding
of any such interest ((i) and (ii) herein collectively called "LLC
Authorizations"), and all of such LLC Authorizations are in full force and
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effect, except where the failure to obtain or have any such LLC
Authorizations could not reasonably be expected to have a Material Adverse
Effect on LLC.
2.10 Title to Property. LLC has good title to all of its properties,
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interests in properties and assets, real and personal, necessary for the
conduct of its business as presently conducted and which are reflected in
the LLC Balance Sheet or acquired after the LLC Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed
of in the ordinary course of business since the LLC Balance Sheet Date), or
with respect to leased properties and assets, valid leasehold interests
therein, in each case free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien
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of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected
thereby, or otherwise materially impair business operations involving such
properties and (iii) liens securing debt that are reflected on the LLC
Balance Sheet. The plants, property and equipment of LLC that are used in
the operations of its business are in good operating condition and repair
(ordinary wear and tear excepted). All properties used in the operations of
LLC are reflected in the LLC Balance Sheet to the extent generally accepted
accounting principles require the same to be reflected. Schedule 2.10
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identifies each parcel of real property owned by LLC.
2.11 Intellectual Property.
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(a) "Proprietary Rights" shall mean all rights in and to inventions (whether or
not patentable), ideas, formulae, software (in source and object code
form), process engineering, art works, schematic drawings, processes,
product plans, logos, trademarks, trademark applications, service marks,
moral rights, copyrights, trade names, trade secrets, know-how, technical
information, patents, patent applications, databases, employee lists and
customer lists.
(b) The Proprietary Rights include all patent rights, copyrights, trade
secrets, information, and other proprietary rights and processes necessary
to conduct the business of LLC as conducted or as proposed to be conducted.
LLC is the sole owner of all right, title and interest in and to all the
Proprietary Rights free and clear of all liens, encumbrances, claims,
rights of use and restrictions whatsoever or has licensed or otherwise
possess valid rights to use them. Any of the Proprietary Rights owned by
LLC which require the execution and filing with an appropriate governmental
agency, including without limitation the Patent and Trademark Office, have
been so indicated on Schedule 2.11. There are no outstanding options,
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licenses or agreements of any kind relating to the Proprietary Rights owned
by LLC (other than for distribution of standard object code products in the
ordinary course of business) nor is LLC a party to any options, licenses or
agreements of any kind with respect to the logos, trademark and tradename
rights, software, databases, source code, patents, patent rights,
copyrights, trade secrets, processes and proprietary licenses, information,
proprietary rights and processes of any other person or entity which
relates to the business of LLC as conducted or as proposed to be conducted.
(c) To the knowledge of LLC, the patent and trademark Proprietary Rights owned
by LLC do not infringe upon or conflict with any patent, copyright,
trademark, trade secret or other proprietary rights or intellectual
property of any other person, firm, corporation or other entity. To the
knowledge of LLC, the other Proprietary Rights owned by LLC do not infringe
upon or conflict with any patent, copyright, trademark, trade secret or
other proprietary rights or intellectual property of any other person,
firm, corporation or other entity. There is not pending or, to the
knowledge of LLC, threatened any claim or litigation contesting the right
of LLC to engage in its business or employ any of the Proprietary Rights.
LLC has taken reasonable security measures to protect the secrecy,
confidentiality, and value of all Proprietary Rights set forth on
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Schedule 2.11. LLC has only disclosed confidential Proprietary Rights to
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third parties subject to valid, binding and enforceable non-disclosure
agreements that protect such disclosed Proprietary Rights at least as much
as LLC protects Proprietary Rights its owns, and in no case permits less
than reasonable protection. LLC has not disclosed any software source code
to any third parties.
(d) Any employee, consultant or other person who, either alone or in concert
with others, developed, invented, discovered, derived, programmed or
designed any of the Proprietary Rights owned by LLC, or any part thereof,
or who has knowledge of or access to information relating to it, has been
put on notice that the Proprietary Rights owned by LLC, are proprietary to
LLC and not to be divulged or misused, and has assigned or licensed all of
his or her rights relating to the Proprietary Rights to LLC. To the
knowledge of LLC, no employee of LLC is in violation of any material term
of any employment contract, confidentiality, proprietary information or
inventions agreement, or any other contract or agreement relating to the
relationship of any such employee with LLC or any previous employer, and
all such contracts or agreements with employees are in full force and
effect and are valid, binding and enforceable in accordance with their
respective provisions. To the knowledge of LLC, the employees of LLC are
not obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would conflict
with their obligation to use their best efforts to promote the interests of
LLC or that would conflict with the business of LLC as conducted or as
proposed to be conducted.
(e) There are no material contracts, commitments, leases, permits, and other
instruments (written or oral) binding upon LLC with respect to the
Proprietary Rights except the contracts listed in Schedule 2.11 and
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excluding object code end-user licenses granted to end-users in the
ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same. Sellers have delivered
to Purchaser true and complete copies of all such items and any amendments
thereto. All of such contracts, commitments, leases, permits and
instruments are in full force and effect and are valid, binding and
enforceable in accordance with their respective provisions, and LLC is not
in material default nor has there occurred an event or condition which,
with the passage of time or giving of notice (or both), would constitute a
default with respect to the payment or performance of any obligation
thereunder that could reasonably be expected to have a Material Adverse
Effect on LLC; and no claim of such a material default has been asserted
and, to the knowledge of LLC, there is no basis or alleged basis upon which
such a claim could be made. LLC has not received any notice or notices
claiming any such material default or indicating the desire or intention of
any other party thereto to amend, modify, rescind or terminate the same.
2.12 Environmental Matters. To the knowledge of the Sellers, the LLC
---------------------
is not in violation of any applicable statute, law or regulation relating
to the environment, and to the knowledge of the Sellers, no expenditures
are or will be required in order to comply with any such existing statute,
law or regulation.
8
2.13 Taxes.
-----
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports
and material information statements, returns and reports) required to be
filed with any Tax authority with respect to the three year period ending
on the Effective Time, by or on behalf of LLC (collectively, "Tax Returns"
and individually a "Tax Return"), have been or will be completed and filed
when due (including any extensions of such due date) and all amounts shown
due on such Tax Returns on or before the Effective Time have been or will
be paid on or before such date. The LLC Balance Sheet (i) fully accrue all
actual and contingent liabilities for Taxes with respect to all periods
through the LLC Balance Sheet Date and LLC has not and will not incur any
Tax liability in excess of the amount reflected on such LLC Balance Sheet
with respect to such periods (excluding any amount thereof that reflects
timing differences between the recognition of income for purposes of GAAP
and for Tax purposes), and (ii) properly accrues in accordance with GAAP
all material liabilities for Taxes payable after the LLC Balance Sheet Date
with respect to all transactions and events occurring on or prior to such
date. All information set forth in the notes to the LLC Financial
Statements relating to Tax matters is true, complete and accurate in all
material respects. No material Tax liability since the LLC Balance Sheet
Date has been or will be incurred by LLC other than in the ordinary course
of business, and adequate provision has been made by LLC for all Taxes
since that date in accordance with GAAP on at least a quarterly basis.
(b) LLC has previously provided or made available to Purchaser true and correct
copies of all Tax Returns and such Returns have been filed for the year
ended December 31, 1998. LLC has withheld and paid to the applicable
financial institution or Tax authority all amounts required to be withheld.
LLC has not granted any extension or waiver of the limitation period
applicable to any Tax Returns that is still in effect. There is no
material claim, audit, action, suit, proceeding, or (to the knowledge of
LLC) investigation now pending or (to the knowledge of LLC) threatened
against or with respect to LLC in respect of any Tax or assessment. No
notice of deficiency or similar document of any Tax authority has been
received by LLC, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and
related expenses) with respect to the issues that have been raised (and are
currently pending) by any Tax authority that could, if determined adversely
to LLC, materially and adversely affect the liability of LLC for Taxes.
There are no liens for Taxes (other than for current Taxes not yet due and
payable) upon the assets of LLC. None of the assets of LLC is property
that LLC is required to treat as being owned by any other person pursuant
to the so-called "safe harbor lease" provisions of former Section 168(f)(8)
of the Code. None of the assets of LLC directly or indirectly secures any
debt the interest on which is tax-exempt under Section 103(a) of the Code.
None of the assets of LLC is "tax-exempt use property" within the meaning
of Section 168(h) of the Code. LLC has not participated in (and will not
participate in) an international boycott within the meaning of Section 999
of the Code. No LLC member is other than a United States person within the
meaning of the Code. LLC does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States of America and such foreign
country and LLC has not engaged in a trade or business within any foreign
country. LLC has never elected to be treated as an S-corporation under
Section 1362 of the Code or any corresponding provision of federal or state
law. All material elections with respect to LLC's Taxes made during the
fiscal years ending,
9
December 31, 1997 and 1998 are reflected on the LLC Tax Returns for such
periods, copies of which have been provided or made available to Purchaser.
After the date of this Agreement, no material election with respect to
Taxes will be made without the prior written consent of Purchaser, which
consent will not be unreasonably withheld or delayed. LLC is not party to
any joint venture, partnership, or other arrangement or contract which
could be treated as a partnership for federal income tax purposes. Other
than by reason of the Purchase, LLC has not been and will not be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the sale of
the Interests hereunder.
For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "taxes" and "Taxable")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added, net worth,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Entity (a
"Tax authority") responsible for the imposition of any such tax (domestic
or foreign), (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period or as the
result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a
result of any express or implied obligation to indemnify any other person.
As used in this Section 2.14, the term "LLC" means LLC and any entity
included in, or required under GAAP to be included in, any of the LLC
Financial Statements.
2.14 Employee Benefit Plans.
----------------------
(a) For all purposes under this Section 2.15 "ERISA Affiliate" shall mean each
person (as defined in Section 3(9) of ERISA) that, together with LLC, is
treated as a single employer under Section 4001(b) of ERISA or Section 414
of the Code. Except for the plans and agreements listed in Schedule 2.14
-------------
(collectively, the "Plans"), LLC and its ERISA Affiliates do not maintain,
are not a party to, do not contribute to and are not obligated to
contribute to, and employees or former employees of LLC and its ERISA
Affiliates and their dependents or survivors do not receive benefits under,
any of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
10
(ii) Any bonus, deferred compensation, incentive, restricted stock, stock
purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent
care, director or employee loan, fringe benefit, sabbatical, severance,
termination pay or similar plan, program, policy, agreement or arrangement;
or
(iii) Any plan, program, agreement, policy, commitment or other arrangement
relating to the provision of any benefit described in section 3(1) of ERISA
to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
(b) Neither LLC nor any ERISA Affiliate has, since January 1, 1993, terminated,
suspended, discontinued contributions to or withdrawn from any employee
pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) LLC has provided to Purchaser complete, accurate and current copies of each
of the following:
(i) Text (including amendments) of each of the Plans, to the extent
reduced to writing;
(ii) A summary of each of the Plans, to the extent not previously reduced
to writing;
(iii) With respect to each Plan that is an employee benefit plan (as
defined in section 3(3) of ERISA), the following:
A. The most recent summary plan description, as described in section 102
of ERISA;
B. Any summary of material modifications that has been distributed to
participants but has not been incorporated in an updated summary plan
description furnished under subparagraph (1) above; and
C. The annual report, as described in section 103 of ERISA, and (where
applicable) actuarial reports, for the three most recent plan years for
which an annual report or actuarial report has been prepared; and
11
(iv) With respect to each Plan that is intended to qualify under section
401(a) of the Code that is not set forth in a standardized prototype
document the most recent determination letter concerning the plan's
qualification under section 401(a) of the Code, as issued by the Internal
Revenue Service, and any subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan (as defined in
section 3(3) of ERISA), the requirements of ERISA applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of
such requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the requirements of
COBRA applicable to such Plan have been satisfied, except to the extent
that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.
(f) With respect to each Plan that is subject to the Family Medical Leave Act
of 1993, as amended, the requirements of such Act applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of
such requirements would not have a Material Adverse Effect.
(g) Each Plan that is intended to qualify under section 401(a) of the Code
meets the requirements for qualification under section 401(a) of the Code
and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401(b) of
the Code and the regulations thereunder. Each such Plan has been
administered in accordance with its terms (or, if applicable, such terms as
will be adopted pursuant to a retroactive amendment under section 401(b) of
the Code) and the applicable provisions of ERISA and the Code and the
regulations thereunder, except to the extent that a failure to be so
administered would not have a Material Adverse Effect.
(h) Neither LLC nor any ERISA Affiliate has any accumulated funding deficiency
under section 412 of the Code or any termination or withdrawal liability
under Title IV of ERISA, except to the extent that any such liability would
not have a Material Adverse Effect.
(i) All contributions, premiums or other payments due from the LLC to (or
under) any Plan have been fully paid or adequately provided for on the
books and financial statements of LLC. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
12
2.15 Employees and Consultants.
-------------------------
(a) LLC has provided Purchaser with a true and complete list of all individuals
employed by the LLC as of January 31, 2000 and for whom H1-B visas have
been filed and the position and base compensation payable to each such
individual. The Seller Disclosure Letter contains a description of any
material written or oral employment agreements, consulting agreements or
termination or severance agreements to which LLC is a party.
(b) LLC is not a party to or subject to a labor union or a collective
bargaining agreement or arrangement and is not a party to any labor or
employment dispute.
(c) The consummation of the transactions contemplated herein will not result in
(i) any amount becoming payable to any employee, director or independent
contractor of LLC and awards thereunder, (ii) the acceleration of payment
or vesting of any benefit, option or right to which any employee, director
or independent contractor of LLC may be entitled, (iii) the forgiveness of
any indebtedness of any employee, director or independent contractor of LLC
or (iv) any cost becoming due or accruing to LLC or the Purchaser with
respect to any employee, director or independent contractor of LLC.
(d) Intentionally Deleted.
(e) To the knowledge of LLC or Seller, no employee of LLC has been injured in
the work place or in the course of his or her employment except for
injuries which are covered by insurance or for which a claim has been made
under workers' compensation or similar laws.
(f) LLC has complied in all material respects with the verification
requirements and the record-keeping requirements of the Immigration Reform
and Control Act of 1986 ("IRCA"); to the knowledge of LLC or Seller, the
--------
information and documents on which LLC relied to comply with IRCA are true
and correct; and to the knowledge of the Sellers, there have not been any
discrimination complaints filed against LLC pursuant to IRCA, and to the
knowledge of LLC, there is no basis for the filing of such a complaint.
(g) LLC has not received or been notified of any complaint by any employee,
applicant, union or other party of any discrimination or other conduct
forbidden by law or contract, nor to the knowledge of LLC or the Sellers,
is there a basis for any complaint, except such complaints as could not
reasonably be expected to have a Material Adverse Effect.
13
(h) LLC's action in complying with the terms of this Agreement will not violate
any agreements with any of LLC's employees the result of which might
reasonably be expected to have a Material Adverse Effect.
(i) LLC has filed all required reports and information with respect to its
employees that are due prior to the Closing Date, the failure of which
might reasonably be expected to have a Material Adverse Effect and
otherwise has complied in its hiring, employment, promotion, termination
and other labor practices with all applicable federal and state law and
regulations, including without limitation those within the jurisdiction of
the United States Equal Employment Opportunity Commission, United States
Department of Labor and state and local human rights or civil rights
agencies, except to the extent that any such failure to file or comply
would not have a Material Adverse Effect on the Company. LLC has filed and
shall file any such reports and information that are required to be filed
prior to the Closing Date.
(j) Neither LLC nor the Sellers are aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment,
decree, order or otherwise (an "Employee Obligation") that could reasonably
be expected to interfere with the use of his or her best efforts to promote
the interests of LLC or that could reasonably be expected to conflict with
any of LLC's business as conducted or proposed to be conducted. Neither
the execution nor delivery of this Agreement nor the conduct of LLC's
business as conducted or proposed, will, to LLC's and Sellers' knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any Employee Obligation.
2.16 Related-Party Transactions. No employee, officer, or director
--------------------------
of LLC or member of his or her family (family shall include the extended
family of a spouse) is indebted to LLC, nor is LLC indebted (or committed
to make loans or extend or guarantee credit) to any of them. None of such
persons has any direct or indirect ownership interest in any firm or
corporation with which LLC is affiliated or with which LLC has a business
relationship, or any firm or corporation that competes with LLC, except to
the extent that employees, officers, or directors of LLC and members of
their immediate families own stock in publicly traded companies that may
compete with the Company. No member of the immediate family of any officer
or director of LLC is directly or indirectly interested in any material
contract with LLC.
2.17 Insurance. LLC has policies of insurance and bonds of the type
---------
and in the amounts shown on Schedule 2.17. There is no material claim
-------------
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and LLC is otherwise in compliance with the terms of such
policies and bonds.
14
Neither Sellers nor LLC have any knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.18 Compliance with Laws. To the knowledge of the Sellers, LLC has
--------------------
complied with, are not in violation of, and have not received any notices
of violation with respect to, any federal, state, local or foreign statute,
law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on LLC.
2.19 Brokers' and Finders' Fees. LLC has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
2.20 Customers and Suppliers. As of the date hereof, no customer
-----------------------
which individually accounted for more than 1% of LLC's gross revenues
during the 12 month period preceding the date hereof, and no supplier of
LLC, has canceled or otherwise terminated, or made any threat to LLC to
cancel or otherwise terminate its relationship with LLC for any reason
including, without limitation the consummation of the transactions
contemplated hereby, or has at any time on or after December 31, 1998
decreased materially its services or supplies to LLC in the case of any
such supplier, or its usage of the services or products of LLC in the case
of such customer, and to LLC's and the Sellers knowledge, no such supplier
or customer intends to cancel or otherwise terminate its relationship with
LLC or to decrease materially its services or supplies to LLC or its usage
of the services or products of LLC, as the case may be, the results of
which might reasonably be expected to have a Material Adverse Effect on
LLC. To the knowledge of the Sellers, LLC has not knowingly breached, so as
to provide a benefit to LLC that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of LLC.
2.21 Material Contracts. Except for the material contracts described
------------------
in Schedule 2.21 (collectively, the "Material Contracts") LLC is not a
-------------
party to or bound by any material contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract and which involves more than $25,000;
(b) any continuing contract for the purchase of materials, supplies, equipment
or services involving in the case of any such contact more than $25,000
over the life of the contract;
15
(c) any material contract that expires or may be renewed at the option of any
person other than the LLC so as to expire more than one year after the date
of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or other
contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required
to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $25,000 individually and
$50,000 in the aggregate;
(f) any contract pursuant to which LLC leases any real property;
(g) any contract pursuant to which the LLC leases of any material machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property with value exceeding $25,000;
(h) any contract with any person with whom the LLC does not deal at arm's
length within the meaning of the Internal Revenue Code;
(i) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person in excess of $25,000;
(j) any license, sublicense or other agreement to which LLC is a party (or by
which it or any Proprietary Rights owned or licensed by LLC is bound or
subject) and pursuant to which any person has been or may be assigned,
authorized to use, or given access to any Proprietary Rights owned or
licensed by LLC in excess of $25,000 other than (A) access to or use of
standard object code product pursuant to a customary non-exclusive end-
user, object code, internal-use software license and support/maintenance
agreements entered into in the ordinary course of business or (B) access
provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(k) any license, sublicense or other agreement in excess of $25,000 pursuant to
which LLC has been or may be assigned or authorized to use, or has or may
incurred any obligation in connection with, (A) any third party Proprietary
Rights or (B) any LLC Proprietary Rights other than
16
customary non-exclusive, end-user, object code, internal-use software
license and support/maintenance agreements entered into in the ordinary
course of business;
(l) any agreement pursuant to which LLC has deposited or is required to deposit
with an escrow holder or any other person or entity, all or part of the
source code (or any algorithm or documentation contained in or relating to
any source code) of any LLC Intellectual Property ("Source Materials"); and
(m) any agreement to indemnify, hold harmless or defend any other person with
respect to any assertion of personal injury, damage to property or
Proprietary Rights infringement, misappropriation or violation or
warranting the lack thereof in excess of $50,000, other than
indemnification provisions contained in a customary purchase
orders/purchase agreements/product licenses arising in the ordinary course
of business.
2.22 No Breach of Material Contracts. To the knowledge of Sellers,
-------------------------------
the LLC has performed all of the obligations required to be performed by it
and is entitled to all benefits under, and is not alleged to be in default
in respect of, any Material Contract. To the knowledge of Sellers, each of
the Material Contracts is in full force and effect, unamended, and there
exists no default or event of default or event, occurrence, condition or
act, with respect to LLC or to LLC's knowledge with respect to the other
contracting party, or otherwise that, with or without the giving of notice,
the lapse of the time or the happening of any other event or conditions,
could reasonably be expected to (A) become a default or event of default
under any Material Contract, which default or event of default could
reasonably be expected to have a Material Adverse Effect on LLC or (B)
result in the loss or expiration of any material right or option by LLC (or
the gain thereof by any third party) under any Material Contract or (C) the
release, disclosure or delivery to any third party of any part of the
Source Materials (as defined in Section 2.21(m)). True, correct and
complete copies of all Material Contracts have been delivered to the
Purchaser.
2.23 Third-Party Consents. Schedule 2.23 lists each Material
-------------------- -------------
Contract for which the consent, waiver or approval of any third party to
such Material Contract is required thereunder in connection with the
transactions contemplated by this Agreement or for such Material Contract
to remain in effect without modification after the Closing, the failure to
obtain could reasonably be expected to have a Material Adverse Effect on
the LLC.
2.24 Intentionally deleted.
---------------------
17
2.25 Minute Books. The minute books of LLC made available to
------------
Purchaser contain a complete and accurate summary of all meetings of
members or actions by members since the time of formation of LLC through
the date of this Agreement, and reflect all transactions referred to in
such minutes accurately in all material respects.
2.26 Complete Copies of Materials. LLC has delivered or made
----------------------------
available true and complete copies of each document which has been
requested by Purchaser or its counsel in connection with their legal and
accounting review of LLC.
3. Additional Representations and Warranties of the Sellers. Sellers,
--------------------------------------------------------
severally, and only with respect to himself or herself, represent and
warrant to Purchaser that the statement contained in this Section 3 are
true and correct, except as set forth in the Seller Disclosure Letter. The
Seller Disclosure Letter shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Section 3, and the
disclosure in any paragraph shall qualify only the corresponding paragraph
in this Section 3. Any reference in this Section 3 to an agreement being
"enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, reorganization, fraudulent conveyance, and any
other laws of general application affecting enforcement of creditor's
rights generally, and (ii) the availability of specific performance,
injunctive relief and other equitable remedies. Whenever this Agreement
refers to the "knowledge of Sellers" it shall mean and include only the
actual present knowledge of a Seller.
3.1 Title to LLC Membership Interest. Each Seller own his or her
--------------------------------
Interests in the amounts set forth on Schedule 2.2 hereof, beneficially
------------
and of record, free and clear of any liens, claims, encumbrances, or
proprietary interests of any third party. There is not outstanding any
subscription, option, warrant, call, right or other agreement or commitment
obligating such Seller to sell, deliver or transfer (including any right of
conversion or exchange under any outstanding security or other instrument)
any membership interest of LLC.
3.2 Purchase for Own Account. The Shares to be received in
------------------------
connection with this Agreement (the "Shares") will be acquired for
investment for each Seller's own account, not as a nominee or agent, and
not with a view to the distribution of any part thereof, and such Seller
has no present intention of selling, granting any participation in, or
otherwise distributing the Shares. By executing this Agreement, such Seller
further represents that such Seller does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of the Shares.
18
3.3 Authority.
---------
(a) Each Seller which is an individual has the power and authority and capacity
to enter into this Agreement and the other Transaction Documents to which
he or she is a party and to consummate the transactions contemplated hereby
and thereby. All actions on the part of such Seller necessary for the
execution and delivery this Agreement and the other Transaction Documents
to which such Seller is a party, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly taken. This
Agreement and the other Transaction Documents to which such Seller is a
party have been duly executed and delivered by such Seller and constitute
the valid and binding obligations of such Seller enforceable against such
Seller in accordance with their terms.
(b) The execution and delivery of this Agreement and the other Transaction
Documents by Seller do not, and the consummation of the transactions
contemplated hereby and thereby 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 (i) any provision of the
Limited Liability Company Operating Agreement of LLC, as amended, or (ii)
any material agreement, contract, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Sellers or any of his or her or its properties or assets, the
result of which could reasonably be expected to have a Material Adverse
Effect on the LLC.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Sellers in connection with the execution and delivery of this
Agreement and the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby, except for such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable state securities laws and the
securities laws of any foreign country, the failure of which to obtain
would not have a Material Adverse Effect on the LLC.
3.4 Brokers' and Finders' Fees. Each Seller has not incurred, nor
--------------------------
will Sellers incur, directly or indirectly, any liability for brokerage or
finder's fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.5 Accredited Investor. Each Seller is an "accredited investor"
-------------------
within the meaning of Rule 501 promulgated under the U.S. Securities Act of
1933, as amended ("Securities Act") and (ii) by reason of his or her or its
business and financial experience, such Seller has such knowledge,
sophistication and experience in business and financial matters as to be
capable of evaluating the merits and risks of the prospective investment,
and is able to bear
19
the economic risk of such investment and is able to afford a complete loss
of such investment. Such Seller acknowledges that he or she or it has been
granted the opportunity to ask questions of, and receive answers from,
representatives of Purchaser concerning Purchaser and the Shares and to
obtain any additional information that he deems necessary to verify the
accuracy of the answers he or she or it received from such representatives.
Such Seller acknowledges that he or she or it and those persons retained by
him or her or it to advise him or her or it with respect to the tax effects
of the transactions contemplated hereby have fully and independently
examined the tax effects of such transactions as they may related to him or
her or it. Purchaser makes no representation or warranty whatsoever with
respect to such tax effects, and such Seller further acknowledges that he
or she or it is not relying on any representation or warranty of Purchaser
with respect to such tax effects.
3.6 Restricted Securities. Each Seller understands that the Shares
---------------------
are characterized as "restricted securities" under the United States
federal securities laws inasmuch as they are being acquired in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration
under the under the United States Securities Act of 1933, as amended (the
"Securities Act"), only in certain limited circumstances. Each Seller
represents that it is familiar with Rule 144 promulgated under the
Securities Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Seller further agrees not to sell
or otherwise dispose of any Shares without registration under the
Securities Act and qualification under the "blue sky" laws of the
appropriate jurisdiction, unless an exemption from registration and
qualification thereunder is available. In connection with the proposed
transfer of any Shares that have not been registered under the Securities
Act, if attempting to transfer such shares, such Seller shall deliver
written notice to Purchaser describing in reasonable detail the proposed
transfer, and, if reasonably requested by Purchaser, an opinion, in form
and substance reasonably satisfactory to Purchaser and its counsel to the
effect that such transfer of the Shares may be effected without
registration under the Securities Act and qualification under any
applicable state securities laws. It is agreed that an opinion of counsel
shall not generally be required by Purchaser for transactions made pursuant
to Rule 144 except in unusual circumstances.
3.8 Legends. Each Seller understands that the certificates
-------
evidencing the Shares shall bear the following legend:
"These securities have not been registered under
the Securities Act of 1933, as amended. They may not be
sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel
satisfactory to Actuate Corporation that such registration
is not
20
required or unless sold pursuant to Rule 144 of such Act.
The holder of the securities represented by this certificate
has entered into a market stand-off agreement whereby such
holder agrees that prior to September 1, 2000 such holder
shall not offer to sell, contract to sell or otherwise
dispose of or grant any rights with respect to the
securities represented by this certificate."
3.9 Agreement to Retain Interests. Each Seller agrees not to
-----------------------------
transfer, sell, exchange, pledge or otherwise dispose of or encumber (in
each case, other than as a result of death or to affiliates; provided such
affiliate agrees to be subject to the covenants, obligations and conditions
set forth in this Agreement) any membership interest of LLC, owned or
beneficially held by him (collectively, the "Interests"), or any New
Interests (as defined below), or to make any offer or agreement relating
thereto, at any time prior to the Closing. Each Seller agrees that any
Interests that such Seller shall purchase and Interests of which each
Seller shall otherwise acquire beneficial ownership after date hereof and
prior to the Closing ("New Interests") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted
Interests.
4. Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to Sellers that the statements contained in this Section 4 are
true and correct, except as set forth (i) in the Disclosure Letter
delivered by Purchaser prior to the execution and delivery of this
Agreement (the "Purchaser Disclosure Letter") or (ii) in Purchaser's most
recently filed Annual Report on Form 10K (which report was filed with the
Securities and Exchange Commission (the "SEC") on March 12, 1999) and any
Purchaser SEC Documents (as defined in Section 4.4) filed subsequent to
March 12, 1999. The Purchaser Disclosure Letter shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained
in this Section 4, and the disclosure in any paragraph shall qualify only
the corresponding paragraph in this Section 4. Any reference in this
Section 4 to an agreement being "enforceable" shall be deemed to be
qualified to the extent such enforceability is subject to (i) laws of
general application relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, and any other laws of general application affecting
enforcement of creditor's rights generally , and (ii) the availability of
specific performance, injunctive relief and other equitable remedies.
4.1 Organization, Standing and Power. Each of Purchaser and its
--------------------------------
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of
Purchaser and its subsidiaries has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a
Material Adverse Effect on Purchaser. Purchaser has delivered a true and
correct copy of the Certificate of Incorporation and Bylaws of Purchaser,
as amended to date, to Seller. Purchaser is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws. Purchaser is the
owner of all outstanding shares of capital stock of each of its
subsidiaries and all such shares are duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock of
each such subsidiary are owned by Purchaser free and clear of all liens,
charges, claims or encumbrances or rights of others.
21
There are no outstanding subscriptions, options, warrants, puts, calls,
rights, exchangeable or convertible securities or other commitments or
agreements of any character relating to the issued or unissued capital
stock or other securities of any such subsidiary, or otherwise obligating
Purchaser or any such subsidiary to issue, transfer, sell, purchase, redeem
or otherwise acquire any such securities. Except as disclosed in the
Purchaser SEC Documents (as defined in Section 4.4), Purchaser does not
directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
4.2 Authority.
---------
(a) Purchaser has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been duly
executed and delivered by Purchaser and constitutes the valid and binding
obligations of its Purchaser, enforceable against Purchaser in accordance
with its terms. The Shares to be issued to the Sellers have been duly
authorized and validly issued and fully paid and non-assessable.
(b) The execution and delivery of this Agreement does not, and the consummation
of the transactions contemplated hereby and thereby 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 a benefit under,
or require a consent to assignment or a novation under (i) any provision of
the Certificate of Incorporation or Bylaws of Purchaser or any of its
subsidiaries, as amended, or (ii) any contract, agreement, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Purchaser or any of its
properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Purchaser or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Purchaser or the consummation
by Purchaser of the transactions contemplated hereby, except for (i) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (ii) the filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares
with respect to the Shares, (iii) the filing of the Registration Statement
with the SEC in accordance with the Securities Act of 1933, as amended, and
(iv) such other consents, authorizations, filings, approvals and
registrations that, if not obtained or made, would not have a Material
Adverse Effect on Purchaser and would not prevent, materially alter or
delay the consummation of the sale of the Interests.
22
4.3 SEC Documents; Financial Statements. Purchaser has made
-----------------------------------
available to Sellers a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to
Rule 424(b) of the Securities Act), definitive proxy statement, and other
filing filed with the SEC by Purchaser since January 1, 1998, (the
"Purchaser SEC Documents"). In addition, Purchaser has made available to
Sellers all exhibits to the Purchaser SEC Documents filed prior to the date
hereof. All documents required to be filed as exhibits to the Purchaser SEC
Documents have been so filed, and all Material Contracts so filed as
exhibits are in full force and effect, except those that have expired in
accordance with their terms, and neither Purchaser nor any of its
subsidiaries is in default thereunder, except for any such default that
individually or in the aggregate would not or could not reasonably be
expected to have a Material Adverse Effect on Purchaser. As of their
respective filing dates (or if amended or superseded by a filing prior to
the date hereof, then on the date of such subsequent filing), the Purchaser
SEC Documents complied in all material respects with the requirements of
the Exchange Act and the Securities Act, and none of the Purchaser SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Purchaser SEC Document. The financial statements of Purchaser,
including the notes thereto, included in the Purchaser SEC Documents (the
"Purchaser Financial Statements") fairly present the consolidated financial
condition and the related consolidated statements of operations, of
stockholder's equity, and of cash flows of Purchaser at the dates and
during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments), complied as to form
in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of
their respective dates, and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be
indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Qs, as permitted by Form 10-Q and
Regulation S-K of the SEC).
4.4 Absence of Certain Changes. Since September 30, 1999 (the
--------------------------
"Purchaser Balance Sheet Date"), Purchaser has conducted its business in
the ordinary course consistent with past practice and there has not
occurred any (i) change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result
in, a Material Adverse Effect on Purchaser or (ii) any change by Purchaser
in its accounting methods, principles or properties.
4.5 Litigation. Except as disclosed in the Purchaser SEC
----------
Documents, there is no private or governmental action, suit, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Purchaser or any of
its subsidiaries, threatened against Purchaser or any of its subsidiaries
or any of their respective properties or any of their respective officers
or directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
on Purchaser. There is no judgment, decree or order against Purchaser or
any of its
23
subsidiaries or, to the knowledge of Purchaser or any of its subsidiaries,
any of their respective directors or officers (in their capacities as such)
that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Purchaser.
4.6 Compliance with Laws. Each of Purchaser and its subsidiaries
--------------------
has complied with, is not in violation of, and has not received any notices
of violation with respect to, any federal, state, local or foreign statute,
law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or
failures to comply as could not be reasonably expected to have a Material
Adverse Effect on Purchaser.
4.7 Board Approval. The Board of Directors of Purchaser has
--------------
approved this Agreement and the transactions contemplated hereunder.
5. Conditions of Purchaser's Obligations at Closing. The obligations of
------------------------------------------------
Purchaser under this Agreement are subject to the fulfillment on or before
the Closing of each of the following conditions which conditions may be
waived by the Purchaser:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Sellers contained in Section 2 and Section 3 shall be
true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance. The Sellers shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing.
5.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.4 Non-Competition Agreements. Each Seller shall have entered into
--------------------------
a non-competition agreement in substantially the form attached hereto as
Exhibit B.
---------
24
5.5 Intentionally Deleted.
---------------------
5.6 Employment Agreements. Each of Xxxxx Xxxxxx and Xxxxx Xxxxxx
---------------------
shall have entered into an employment agreement in substantially the form
attached hereto as Exhibit C.
---------
5.7 OST India. Purchaser shall have executed an agreement acceptable
---------
to Purchaser with OST India.
5.8 Termination of Employees. Seller shall have terminated certain
-------------------------
employees as specified by Purchaser and shall have entered into a release
acceptable to Purchaser with each such employee.
5.9 Non-Compete Agreements. Seller shall have delivered copies of
----------------------
non-compete agreements between LLC and Xxxxxx Xxxxx and Xxxx Xxxxxxx.
5.10 Certificate of Seller. Purchaser shall have been provided with a
---------------------
certificate executed by Sellers to the effect that, as of the Closing Date:
(a) all representations and warranties made by Sellers under this Agreement are
true and complete in all material respects; and
(b) all covenants, obligations and conditions of this Agreement to be performed
by Sellers on or before such date have been so performed in all material
respects.
5.11 Proceedings and Documents. All proceedings in connection with
-------------------------
the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to
Purchaser, and they shall have received all such counterpart original and
certified or other copies of such documents as Purchaser may reasonably
request.
6. Conditions of the Sellers' Obligations at Closing. The obligations of the
-------------------------------------------------
Sellers under this Agreement are subject to the fulfillment on or before
the Closing (which conditions may be waived by the each Seller):
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Section 4 shall be true on and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
25
6.2 Performance. The Purchaser shall have performed and complied
-----------
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
6.4 Payment of Purchase Price; Escrow Agreement. The Purchasers
-------------------------------------------
shall have delivered the aggregate purchase price as specified in Section
1.2 and funded and executed the Escrow Agreement.
6.5 Employment Agreements. Xxxxx Xxxxxx and Xxxxx Xxxxxx shall have
---------------------
entered into an employment agreement in substantially the form attached
hereto as Exhibit C.
---------
6.6 Certificate of Purchaser. Purchaser shall have been provided
------------------------
with a certificate executed by its President to the effect that, as of the
Closing Date:
(a) all representations and warranties made by Purchaser under this Agreement
are true and complete in all material respects; and
(b) all covenants, obligations and conditions of this Agreement to be performed
by Purchaser on or before such date have been so performed in all material
respects.
7. Indemnification.
---------------
7.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
(a) Notwithstanding any investigation conducted at any time by or on behalf of
any party and notwithstanding any actual or implied knowledge or notice of
any facts or circumstances which the parties may have as a result of such
investigation or otherwise, the parties will be entitled to
26
rely upon the other party's respective representations, warranties and
covenants set forth in this Agreement. The representations, warranties,
covenants and agreements of Sellers shall survive the Closing and continue
in full force and effect until the expiration of the Escrow Period (as
defined in section 7.5) at which time such representations, warranties,
covenants and agreements of Sellers and liability with respect thereto will
terminate.
(b) As used in this Section 7, except as otherwise indicated in this Section 7,
any reference to a representation or warranty in any section of this
Agreement shall include the schedule relating to such section.
7.2A (1) Indemnification of Purchaser. Sellers hereby agrees,
----------------------------
severally and pro rata, in accordance with their respective ownership of
--- ----
LLC Interests, to indemnify and hold harmless Purchaser and its affiliates
against any and all actual losses, liabilities, damages, demands, claims,
suits, actions, judgments, causes of action, assessments, costs, and
expenses, including, without limitation, interest, penalties, reasonable
attorneys' fees, any and all reasonable expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened,
and any claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation, asserted against, resulting from, imposed upon,
reasonably or incurred by Purchaser or its affiliates directly or
indirectly, as a result of or arising from any inaccuracy in or breach or
nonfulfillment of any of the representations, warranties, covenants, or
agreements made by Sellers in this Agreement with respect to facts and
circumstances existing the Closing Date (all of which shall also be
referred to collectively as "Damages"). "Damages" as used herein is not
---------
limited to matters asserted by third parties, but includes Damages incurred
or sustained by Purchaser or its subsidiaries in the absence of claims by a
third party. Anything contained in this Agreement or the Escrow Agreement
to the contrary notwithstanding, except as set forth in Sections 7.2A(2)
and (3) below, the aggregate indemnification obligation of the Sellers, and
the sole recourse of Purchaser with respect to the satisfaction of such
indemnification obligations, shall be the Initial Indemnification Fund as
defined in Section 1.1(C) above, pro rata among the Sellers in accordance
--- ----
with Schedule A; provided, however, that no Seller shall have any
obligation to indemnify the Purchaser in respect of Damages arising out of
the breach by any other Seller of representations and warranties made by
such other Seller in Section 3 with respect to himself or herself only.
(C)
(2) Notwithstanding the provisions of Section 7.2A(1) above, (i) the
maximum Damages with respect to any indemnification claims
arising out of or relating to any breach of any Non-Solicitation
and Non-Competition Agreement or of the Pre-existing Non-
Solicitation and Non-Competition Agreement shall be limited to
One Hundred Thousand ($100,000) Dollars per each Purchaser
employee who is solicited and an aggregate of One Million
($1,000,000) Dollars with respect to any and all claims for
breach of the non-competition provisions contained therein and
(ii) the maximum Damages with respect to any indemnification
claims arising out of or relating to any claim of fraud against
the Sellers shall be limited to the Aggregate Purchase Price and
in no event shall the aggregate obligation of any Seller pursuant
to this clause (ii) exceed his or her pro rata portion of the
--- ----
Aggregate Purchase Price.
(3) If, but only if, an indemnification claim under Section 7.2(A)(2)
has not or cannot be satisfied by the Initial Indemnification
Fund by the second anniversary of the Closing Date, then, subject
to the remaining provisions of this Section 7. Purchaser shall
place into the Escrow Account that portion of
27
the Final Cash Payment otherwise payable on the second
anniversary of the Closing Date which Purchaser reasonably
believes equals the purported amount of the Damages (such amount,
the "Additional Escrow Account").
7.2B. Intentionally Deleted.
---------------------
7.3 Escrow Fund. As the sole and exclusive course for the
-------------
indemnity provided for in Section 7.2 (A)(1) hereof, except to the extent
contemplated by Sections 7.2 (A)(2) and (3), the Initial Escrow Amount and,
if applicable, the Additional Escrow Amount, shall be deposited by
Purchaser in the Escrow Account, (such deposit(s), together with any
interest earned thereon, to constitute an escrow fund (the "Escrow Fund"))
to be governed by the terms set forth in this Agreement and the Escrow
Agreement. Subject to the provisions of this Section 7, Purchaser shall be
entitled to obtain indemnity from, and only from, the Escrow Fund for
Damages covered by the indemnity provided for in Section 7.2(A) of this
Agreement.
7.4 Damage Threshold. Purchaser may not receive any payment from
----------------
the Escrow Fund unless and until an Officer's Certificate (as defined in
Section 7.6 below) identifying Damages, which in the aggregate exceeds
$25,000 (the "Damage Threshold"), has been delivered to the Purchaser as
provided in Section 7.6(A) below and such amount is determined pursuant to
this Section 7 to be payable, in which case Purchaser shall receive cash
equal to the amount of Damages in excess of $25,000, except as otherwise
provided in this Section 7.
7.5 Escrow Period. The Escrow Fund shall terminate either (i) on the
-------------
date twenty-four (24) months following the Closing (the "Termination
Date"), provided that on such date there remain no unsatisfied or contested
claims which have been specified in an Officer's Certificate delivered to
the Purchaser prior to the Termination Date, or (ii) if such unsatisfied or
contested claims exist on the Termination Date, then on the date that all
amounts in the Escrow Fund will have been finally and fully paid pursuant
to the terms of this Section 7.
7.6 Claims Against the Escrow Fund; Objections to Claims.
----------------------------------------------------
(a) No claim of Purchaser for Damages pursuant to 7.2A(1) against the Escrow
Fund will be paid unless, on or before the date 12 months before the
Termination Date, the Escrow Agent has received a certificate signed by the
chief financial officer or president of Purchaser (an "Officer's
Certificate") specifying:
(i) that Purchaser has incurred, paid or properly accrued (in accordance
with local GAAP) Damages or that a claim or dispute exists in respect of
facts or circumstances
28
existing prior to the Closing Date that could, unless successfully
defended, entitle Purchaser to Damages, in an aggregate stated amount with
respect to which Purchaser is entitled to payment from the Escrow Fund
pursuant to this Agreement; and
(ii) in reasonable detail the individual items of Damages included in the
amount so stated, the date each such item was incurred, paid or properly
accrued (in accordance with local GAAP), or the basis for such anticipated
liability, and the specific nature of the breach of representation,
warranty or covenant to which such item is related.
(b) No claim of Purchaser for Damages pursuant to 7.2A(2) against the Escrow
Fund will be paid unless, on or the Termination Date, the Escrow Agent has
received a certificate signed by the chief financial officer or president
of Purchaser (an "Officer's Certificate") specifying:
(i) that Purchaser has incurred, paid or properly accrued (in accordance
with local GAAP) Damages or that a claim or dispute exists in respect of
facts or circumstances existing prior to the Termination Date that could,
unless successfully defended, entitle Purchaser to Damages, in an aggregate
stated amount with respect to which Purchaser is entitled to payment from
the Escrow Fund pursuant to this Agreement; and
(ii) in reasonable detail the individual items of Damages included in the
amount so stated, the date each such item was incurred, paid or properly
accrued (in accordance with local GAAP), or the basis for such anticipated
liability, and the specific nature of the breach of representation,
warranty or covenant to which such item is related.
(c) At the time of delivery of any Officer's Certificate to the Escrow Agent
pursuant to Section 7.6(a) or 7.6(b), Purchaser shall deliver to the
Sellers' Agent a duplicate copy of the officer's Certificate along with any
supporting documents reasonably available to Purchaser that relate to the
claims set forth in the Officer's Certificate. For a period of forty-five
(45) days after such delivery to the Sellers' Agent, the Escrow Agent shall
make no delivery of cash unless the Escrow Agent shall have received
written authorization from the Sellers' Agent to make such delivery. After
the expiration of such forty-five (45) day period, the Escrow Agent shall
make delivery of the cash in the Escrow Fund in accordance with Section 7.7
hereof, provided that no such payment may be made if the Sellers' Agent
shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow
Agent Purchaser prior to the expiration of such forty-five (45) day period.
29
7.7 Payment of Claims. Upon receipt by the Escrow Agent on or
-----------------
before the Termination Date of an Officer's Certificate for a claim for
Damages against the Escrow Fund, the Escrow Agent shall:
(a) If there are no objections presented by Sellers' Agent pursuant to Section
7.6(c) of this Agreement with respect to such claim within the 45 day
period, deliver to Purchaser cash in the Escrow Fund in an amount necessary
to indemnify Purchaser for the Damages claimed, not to exceed the amounts
specified in Section 7.2A above, provided, however that no payment shall be
made from the Escrow Fund until Damages are actually incurred or paid.
(b) If objections to the claim have been presented pursuant to Section 7.6(c)
hereof, then Escrow Agent shall make no payment in relation to such claim
until and unless (A) the Escrow Agent receives a copy of a joint memorandum
from Sellers' Agent and Purchaser or an award rendered by the arbitrator,
pursuant to the provisions of Section 7.8 hereof, in which case the Escrow
Agent shall make payment as instructed in the memorandum or such award; or
(B) the Purchaser notifies Escrow Agent that no Damages will be required to
be incurred or paid or otherwise withdraws its claims. If (B) occurs after
the Termination Date, then amounts held in Escrow in relation to such
withdrawn claim shall be distributed to Sellers in accordance with Section
7.10 below.
(c) All claims against the Escrow Fund that are allowed pursuant to this
Section 7 shall be charged to the account of each Seller in accordance with
the allocation set forth on Schedule A hereof, as amended on or before the
Closing. Each Seller is responsible only for its pro rata share of such
payments from the Escrow Fund. The amount of Damages payable to Purchaser
may not exceed the amount in the Escrow Fund, and if there is at any time
insufficient cash in the Escrow Fund to pay Purchaser any Damages,
Purchaser shall have no right of recourse against any Seller, except to the
extent provided for in Section 7.2A(3).
7.8. Resolution of Conflicts; Arbitration
(a) In case the Sellers' Agent shall object in writing pursuant to Section
7.6(b) to any claim or claims by Purchaser made in any Officer's
Certificate delivered pursuant to Section 7.6(a), the Sellers' Agent and
Purchaser shall attempt in good faith for a period of sixty (60) days to
agree upon the rights of the respective parties with respect to each of
such claims. If the Sellers' Agent and Purchaser should so agree, a
memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent
shall be entitled to rely on any such memorandum and shall distribute the
cash from the Escrow Fund in accordance with the terms thereof.
(b) If the parties have not resolved the dispute during such sixty (60) day
period, then within an additional ten (10) day period the parties will
mutually agree on and appoint a single arbitrator who is familiar with the
computer software industry (or, in connection with a tax dispute, who has
expertise in tax matters). If the parties cannot agree upon a single
arbitrator, then such an arbitrator shall be selected by the American
Arbitration Association ("AAA")). Within ten (10) days of such appointment,
the parties will each deliver to the arbitrator and to each other a written
proposal of that party's final recommended resolution to the dispute (the
"Proposal"), along with all written arguments or documentation supporting
such recommended resolution. This will be the final proposal each party can
make concerning the dispute except as otherwise provided in paragraph (c)
below. Within seventy-five (75) days of the appointment of such arbitrator,
the arbitrator shall issue a final award (the
30
"Award") taking into account the two Proposals. Any judgment upon the Award
rendered by the arbitrator may be entered in any court having jurisdiction
over the subject matter thereof.
(c) The arbitrator may request reasonable written clarification of the
documents previously provided for his review during the thirty (30) days
after such appointment. Any material provided to the arbitrator shall also
be simultaneously provided to the opposing party. The opposing party will
be entitled, during the five (5) days following delivery of such material,
to provide a written response or rebuttal to same to the arbitrator and the
other party.
(d) Any such arbitration shall be conducted in the nearest metropolitan area to
where the activities of the Business of the LLC are being conducted. The
single arbitrator shall be compensated for his or her services at a rate to
be determined by the parties or, failing their agreement, by decision of
the AAA, based upon a reasonable hourly or daily consulting rate for the
arbitrator.
(e) The arbitrator may award either party its costs and attorneys fees. Pending
such award, however, the fees of the arbitrator will be shared equally by
the parties and each party will bear its own costs and attorneys fees.
(f) The Award shall contain the arbitrator's findings of fact and conclusions
of law and a written opinion setting forth the basis and reasons for any
decision reached, and the arbitrator shall deliver to each party a signed
copy of the Award.
(g) A copy of the Award shall be furnished to the Escrow Agent, which shall
distribute funds from the Escrow Fund in accordance with its terms.
7.9 Sellers' Agent
--------------
(a) Xxxxxx Xxxxxxx shall be constituted and appointed as the Sellers' Agent for
and on behalf of the Sellers to give and receive notices and
communications, to authorize delivery to Purchaser of the cash from the
Escrow Fund in satisfaction of claims by Purchaser, 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 the Sellers' Agent for the accomplishment
of the foregoing. Such agency may be changed by the holders of a majority
in interest of the Escrow Fund from time to time upon not less than ten
(10) days' prior written notice to Purchaser. The Sellers' Agent may
resign upon thirty (30) days' notice to the parties to this Agreement. No
bond shall be required of the Sellers' Agent, and the Sellers' Agent shall
receive no compensation for his services. Notices or communications to or
from the Sellers' Agent shall constitute notice to the Seller.
(b) The Sellers' Agent shall not be liable for any act done or omitted
hereunder as Sellers' Agent while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advice
of counsel shall be conclusive evidence of such good faith. The Sellers
shall indemnify the Sellers' Agent and hold him harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the
part of the Sellers' Agent and arising out of or in connection with the
acceptance or administration of his duties hereunder.
31
(c) The Sellers' Agent shall have reasonable access to information about Seller
and the reasonable assistance of Sellers' officers and employees for
purposes of performing its duties and exercising its rights hereunder,
provided that the Sellers' Agent shall treat confidentially and not
disclose any nonpublic information from or about Sellers to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
7.10 Distribution Upon Termination of Escrow Period. Within five (5)
----------------------------------------------
business days following the Termination Date, the Escrow Agent shall
deliver to the Sellers all of the cash in the Escrow Fund in excess of any
amount of cash reasonably necessary to satisfy any unsatisfied or contested
claims for Damages specified in an Officer's Certificate on or before the
Termination Date with respect to facts and circumstances existing prior to
the Closing Date. As soon thereafter as any such individual unsatisfied or
contested claim has been resolved, the Escrow Agent shall make payment in
accordance with Section 7.7 hereof and deliver to the Seller all cash
remaining in the Escrow Fund which is not required to satisfy other
unsatisfied or contested claims. As soon as all such unsatisfied or
contested claims have been resolved, the Escrow Agent shall deliver to the
Sellers all cash remaining in the Escrow Fund.
7.11 Actions of the Sellers' Agent. A decision, act, consent or
-----------------------------
instruction of the Sellers' Agent shall constitute a decision of the
Sellers and shall be final, binding and conclusive upon each Seller, and
Purchaser may rely upon any decision, act, consent or instruction of the
Sellers' Agent as being the decision, act, consent or instruction of the
Sellers. The Purchaser is hereby relieved from any liability to any person
for any acts done by them in accordance with such decision, act, consent or
instruction of the Sellers' Agent.
7.12 Third-Party Claims. In the event Purchaser becomes aware of a
------------------
third-party claim which Purchaser believes may result in a claim for
Damages against the Escrow Fund before the Termination Date, Purchaser
shall promptly notify the Sellers' Agent of such claim, and the Sellers'
Agent shall be entitled, at his expense, to participate in any defense of
such claim. Purchaser shall have the right in its sole discretion to settle
any such claim; provided, however, that Purchaser may not effect the
settlement of any such claim without the consent of the Sellers' Agent,
which consent shall not be unreasonably withheld. In the event that the
Sellers' Agent has consented to any such settlement, the Sellers' Agent
before the Termination Date shall have no power or authority to object
under Section 7.6 or any other provision of this Section 7 to the amount of
any claim by Purchaser against the Escrow Fund for indemnity with respect
to such settlement.
8. Registration Requirements.
-------------------------
32
8.1 S-3 Registration Statement. Purchaser shall prepare and, on or before
--------------------------
30 days after the Closing (the "Filing Date"), file a registration
statement for an offering to be made on a continuous basis pursuant to
Rule 415 (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 as
amended ("Securities Act") to register the resale of the Shares
("Registrable Securities") The Registration Statement shall be on Form
S-3. The Purchaser shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof, but in any event
prior to ninety (90) days following the Closing Date (the
"Effectiveness Date"), and shall use its best efforts to keep such
Registration Statement continuously effective under the Securities Act
until the date which is two (2) years after the date that such
Registration Statement is declared effective by the SEC or such
earlier date when all Registrable Securities covered by such
Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to
the Purchaser pursuant to a written opinion letter to such effect,
addressed and acceptable to the Purchaser's transfer agent (the
"Effectiveness Period"), provided, however, that the Purchaser shall
-------------------- -------- -------
not be deemed to have used its best efforts to keep the Registration
Statement effective during the Effectiveness Period if it voluntarily
takes any action that would result in the Holder not being able to
sell the Registrable Securities covered by such Registration Statement
during the Effectiveness Period, unless such action is required under
applicable law or the Purchaser has filed a post-effective amendment
to the Registration Statement and the SEC has not declared it
effective.
8.2 Registration Procedures. In connection with the Purchaser's
-----------------------
registration obligations hereunder, the Purchaser shall:
(a) Prepare and file with the SEC on or prior to the Filing Date, a
Registration Statement on Form S-3, and cause the Registration Statement to
become effective and remain effective as provided herein.
(b) (i) Prepare and file with the SEC such amendments, including post-effective
amendments, to the Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the SEC such additional
Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule
424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) use its best effort to respond as quickly as
possible, and, in case the obtainment of information requested by the SEC
which is within the control of the Purchaser, no later than ten (10)
Business Days of receipt thereof, to all comments received from the SEC
with respect to the Registration Statement or any amendment thereto and as
promptly as possible provide the Holders true and complete copies of all
correspondence from and to the SEC relating to the Registration Statement;
and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by
the Holders thereof set forth in the Registration Statement as so amended
or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold as promptly as
reasonably possible (and, in the case of (i)(A) below, not less than three
(3) business days and (if requested by any such Person) confirm such notice
in writing no later than one (1) business day following the day (i)(A) when
a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed; (B) when the SEC
notifies the Purchaser whether there will be a "review" of such
Registration Statement and whenever the SEC comments in writing on such
Registration Statement (the Purchaser shall provide true and complete
copies thereof and all written responses thereto to each of the Holders,
which the Holders shall keep confidential); and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of
the receipt by the Purchaser of any notification with respect to the
suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation
or threatening of any Proceeding for such purpose; and (v) of the
occurrence of any event or passage of time that makes the financial
statements included in the Registration Statement ineligible for inclusion
therein or any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other
33
documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) Furnish to each Holder without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
by such Holder (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the SEC.
(f) Promptly deliver to each Holder without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request; and
the Purchaser hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders and any
underwriters in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement
thereto.
(g) Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with
the selling Holders in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
a Registration Statement; provided, however, that the Purchaser shall not
-------- -------
be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or subject the Purchaser to any material tax in any such
jurisdiction where it is not then so subject or make any change in its
charter or by-laws, which in each case the Board of Directors of the
Purchaser determines to be contrary to the best interests of the Purchaser
and its stockholders.
(h) Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be
delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable law, of
all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as Holders may request.
(i) Upon the occurrence of any event contemplated by Section 8.2(C)(vi), as
promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(j) Use its best efforts to cause all Registrable Securities relating to such
Registration Statement to be listed on the Nasdaq National Market
("NASDAQ") or on any other stock market or trading facility on which the
------
shares of Common Stock are traded, listed or quoted (each a "Subsequent
----------
Market").
-------
(k) Comply with all applicable rules and regulations of the SEC.
(l) The Purchaser may require each selling Holder to furnish to the Purchaser
such information regarding the distribution of such Registrable Securities
and the beneficial ownership of Common Stock held by such Holder as is
required by law to be disclosed in the Registration Statement, and the
Purchaser may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request. If the Registration Statement
refers to any Holder by name or otherwise as the holder of any securities
of the Purchaser, then such Holder shall have the right to require (if such
reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force) the deletion
of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
34
8.3. Registration Expenses.
(a) All fees and expenses incident to the performance of or compliance with
this Section 8 by the Purchaser shall be borne by the Purchaser whether or
not the Registration Statement is filed or becomes effective and whether or
not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence
shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to
filings required to be made with the NASDAQ and any Subsequent Market on
which the Common Stock is then listed for trading, and (B) reasonably
incurred in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Holders in
connection with Blue Sky qualifications or exemptions of the Registrable
Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the
Holders of a majority of Registrable Securities may reasonably designate)),
(ii) printing expenses of printing certificates for Registrable Securities,
(iii) messenger, telephone and delivery expenses of the Purchaser, (iv)
fees and disbursements of counsel for the Purchaser and counsel for the
Holders, up to an aggregate of $5,000, (v) Securities Act liability
insurance, if the Purchaser so desires such insurance, and (vi) fees and
expenses of all other persons retained by the Purchaser in connection with
the consummation of the transactions contemplated by this Agreement. In
addition, the Purchaser shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange as required hereunder.
(b) Purchaser shall pay all Registration Expenses (as defined below) in
connection with any registration qualification or compliance hereunder, and
each holder of Registrable Securities ("Holder") shall pay all Selling
Expense (as defined below) and other expenses that are not Registration
Expenses relating to the Registrable Securities resold by such Holder.
"Registration Expenses" shall mean all expenses, except for Selling
Expenses, contemplated by sub-section (a) above. "Selling Expenses" shall
mean all selling commissions, underwriting fees (if any) and stock transfer
taxes applicable to the Registrable Securities and all fees and
disbursements of counsel for any Holder.
35
8.4 Indemnification.
(a) To the extent permitted by law, Purchaser will indemnify and hold harmless
each Holder, any underwriter (as defined in the Securities Act) for such
Holder, its officers, directors, shareholders or partners and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages, or liabilities (joint
------------
or several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (A) any untrue statement or alleged untrue
---------
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (B) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (C) any
violation or alleged violation by Purchaser of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and Purchaser will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, or liability, or action; provided, however, that the
indemnity agreement contained in this Section 8.4(a) shall not apply to
amounts paid in settlement of any such loss, claim, liability, or action if
such settlement is effected without the consent of Purchaser (which consent
shall not be unreasonably withheld), nor shall Purchaser be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and hold
harmless Purchaser, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls
Purchaser within the meaning of the Securities Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Securities Act, the
36
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 8.4(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 8.4(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 8.4(b) exceed the net proceeds from the
offering received by such Holder, except in the case of willful fraud by
such Holder.
(c) Promptly after receipt by an indemnified party under this Section 8.4 of
notice of the commencement of any action (including governmental action),
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 8.4, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnifying parties which may
be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the reasonable fees and expenses to be
paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to
its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 8.1(e), but the
omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 8.4(C). No indemnifying party, in
defense of any such claim or litigation, shall, except with the consent of
each indemnified party, consent to the entry of any judgment of enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the indemnified party of a release
from all liability in respect of such claim or litigation.
(d) If the indemnification provided for in this Section 8.4 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in
37
such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations; provided, that, in no event shall any
contribution by a Holder under this subsection 8.5(d) exceed the net
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) The obligation of Purchaser and Holders under this Section 8.4 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 8.4 and otherwise.
(f) If at any time after a registration statement becomes effective, Purchaser
advises the Holders in writing that the registration statement shall
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any prospectus comprising a part of
such registration statement shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated
there in or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or the occurrence
or existence of any pending corporate development that, in the reasonable
discretion of Purchaser, makes it appropriate to suspend the availability
of the registration statement and the related prospectus, Purchaser shall
give notice to the Holders that the availability of the registration
statement is suspended and the Holders shall suspend any further sale of
Registrable Securities pursuant to the registration statement until the
Holders have been informed in writing that the registration statement is
available, provided that Purchaser may not suspend the availability of the
registration statement unless affiliates of the Purchaser who are subject
to Purchaser's xxxxxxx xxxxxxx policies are also precluded from trading in
Purchaser's Common Stock. Purchaser shall be entitled to exercise its
right to suspend the availability of the registration statement for a
period exceeding not more than thirty (30) consecutive days, or a total of
ninety (90) days within any consecutive three hundred sixty (360) day
period. In addition, each Holder who becomes an employee of Purchaser
shall be subject to Purchaser's xxxxxxx xxxxxxx policy to the extent
applicable.
8.5 "Market Stand-Off" Agreement. Each Holder hereby agrees
---------------------------
that it will not, without the prior written consent of the Purchaser,
during the period commencing on the Closing Date and ending on the date one
hundred eighty (l80) days following the Closing Date (i) lend, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of, directly or indirectly,
any Shares or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities
are then owned by the Holder or are thereafter acquired), or (ii) enter
into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the
38
Shares, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; provided, however, that for so long as the bid price for
the Common Stock as quoted on the Nasdaq National Market is less than
$22.50 (as adjusted for stock dividends, stock splits, combinations and the
like), the provisions of this Section 8.5 shall not apply. In order to
enforce the foregoing covenant, the Purchaser may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
9. Miscellaneous.
-------------
9.1 Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any Interests). Nothing in this
Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
9.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed
entirely within California.
9.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon personal delivery or when personally
delivered by courier, overnight delivery service or confirmed facsimile to
the party to be notified or forty eight (48) hours after being deposited
with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written
notice to the other parties copies of notices set to the Seller should be
sent to Xxxxxxx Xxxxxx Xxxx & Ball
39
P.C. 000 Xxxxx Xxxxxx, 00/xx/ Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, attention:
Xxxxxxxx X. Xxxxxxx, Esq.
9.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Sellers and Purchaser.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon the Company, the Sellers, the Purchasers and their respective
successors and assigns.
9.7 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
9.8 Entire Agreement. This Agreement and the documents referred
----------------
to herein constitute the entire agreement among the parties and no party
shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
40
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACTUATE CORPORATION
By:_________________________________
Address: ___________________________
____________________________________
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SELLERS
By: ________________________________
Address: ___________________________
____________________________________
