EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
among
DATAWARE TECHNOLOGIES, INC.
SOVEREIGN HILL SOFTWARE, INC.
and
CERTAIN STOCKHOLDERS OF SOVEREIGN HILL SOFTWARE, INC.
____________________________________________
Dated as of December 31, 1998
_____________________________________________
TABLE OF CONTENTS
PAGE
ARTICLE 1 THE PURCHASE........................................... 1
1.1. Purchase and Sale of Assets............................... 1
1.2. Assumption of Liabilities................................. 3
1.3. Purchase Consideration.................................... 6
1.4. The Closing............................................... 6
1.5. Allocation of Purchase Price.............................. 7
1.6. Further Assurances........................................ 7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SELLER........... 8
2.1. Organization; Corporate Power; Capitalization............. 8
2.2. Authority................................................. 9
2.3. Noncontravention.......................................... 9
2.4. Financial Statements...................................... 9
2.5. Absence of Material Changes............................... 10
2.6. Absence of Undisclosed Liabilities........................ 11
2.7. Tax Matters............................................... 11
2.8. Ownership and Condition of Assets......................... 12
2.9. Intellectual Property..................................... 12
2.10. Contracts................................................. 14
2.11. Accounts Receivable....................................... 15
2.12. Year 2000 Readiness....................................... 16
2.13. Real Property And Leases.................................. 16
2.14. Litigation................................................ 16
2.15. Product Warranty.......................................... 16
2.16. Employees; Consultants.................................... 17
2.17. Employee Benefits......................................... 17
2.18. Environmental Matters..................................... 18
2.19. Legal Compliance.......................................... 18
2.20. Permits................................................... 18
2.21. Brokers' Fees............................................. 18
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TABLE OF CONTENTS
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2.22. Books and Records......................................... 18
2.23. Customers, Suppliers, and Resellers....................... 18
2.24. Bank Accounts; Brokerage Accounts; Powers of Attorney..... 19
2.25. Government Contracts...................................... 19
2.26. Insurance................................................. 19
2.27. Registration; Disposition of Shares....................... 19
2.28. Disclosure................................................ 20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...... 20
3.1. Investment; Registration; Disposition of Shares........... 20
3.2. Stockholder's Investigation............................... 21
3.3. Authority................................................. 21
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER............. 21
4.1. Organization.............................................. 21
4.2. Capitalization............................................ 21
4.3. Authorization of Transaction.............................. 21
4.4. Noncontravention.......................................... 22
4.5. SEC Reports............................................... 22
4.6. Dataware Shares and Dataware Warrants..................... 22
4.7. No Material Adverse Change................................ 23
4.8. Actions and Proceedings................................... 23
4.9. Brokers' Fees............................................. 23
4.10. Disclosure................................................ 23
ARTICLE 5 POST-CLOSING COVENANTS.................................. 23
5.1. Proprietary Information................................... 23
5.2. Solicitation and Hiring................................... 23
5.3. Non-Competition: Referral of Inquiries.................... 24
5.4. Sharing of Data........................................... 24
5.5. Cooperation in Litigation; Release of Liens............... 25
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5.6. Collection of Accounts Receivable; Contracts in Progress.. 25
5.7. Employees................................................. 25
5.8. Seller's Taxes............................................ 25
5.9. Public Announcements and Confidentiality.................. 26
ARTICLE 6 INDEMNIFICATION........................................ 26
6.1. Survival.................................................. 26
6.2. Indemnification by the Seller............................. 26
6.3. Indemnification by the Buyer.............................. 26
6.4. Limitations............................................... 27
6.5. Security for Indemnification Obligation................... 27
6.6. Claims for Indemnification................................ 28
6.7. Defense by the Indemnifying Party......................... 28
6.8. Voting of and Dividends on the Held Back Shares........... 29
6.9. Partial Release; Delivery of Held Back Shares............. 29
6.10. Consequential Damages..................................... 30
ARTICLE 7 SECURITIES REGISTRATION................................ 30
7.1. Registration on Form S-3.................................. 30
7.2. Registration Procedures................................... 30
7.3. Indemnification........................................... 31
7.4. Transfer of Registration Rights........................... 33
ARTICLE 8 MISCELLANEOUS.......................................... 33
8.1. No Third Party Beneficiaries.............................. 33
8.2. Entire Agreement.......................................... 33
8.3. Succession and Assignment................................. 33
8.4. Counterparts.............................................. 33
8.5. Headings.................................................. 33
8.6. Notices................................................... 34
8.7. Governing Law............................................. 36
8.8. Amendments and Waivers.................................... 36
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(CONTINUED)
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8.9. Severability.............................................. 36
8.10. Expenses.................................................. 36
8.11. Specific Performance...................................... 36
8.12. Submission to Jurisdiction................................ 36
8.13. Construction.............................................. 37
8.14. Incorporation of Exhibits and Schedules................... 37
8.15. Stockholder Representative................................ 37
8.16. Release................................................... 38
8.17. Certain Defined Terms..................................... 39
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LIST OF EXHIBITS
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EXHIBIT A Form of Dataware Warrant
EXHIBIT B Form of Xxxx of Sale
EXHIBIT C Form of Assignment of Contracts
EXHIBIT D Opinion of Xxxxx Xxxxx Xxxx Xxxxxx Xxxxxxx & Xxxxx PC
EXHIBIT E Form of Assumption of Liabilities
EXHIBIT F Opinion of Xxxxxx & Dodge LLP
LIST OF SCHEDULES
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Schedule A Stockholders for which Xxxxxxx Capital LLC is attorney-in-fact
Schedule 1.1 Assigned Contracts
Schedule 1.1(b) Certain Retained Contracts
Schedule 1.2 Certain Assumed Liabilities
Schedule 2 Seller's Disclosure Schedule
ASSET PURCHASE AGREEMENT
This Agreement is entered into as of December 31, 1998, by and among
Dataware Technologies, Inc., a Delaware corporation (the "Buyer"), Sovereign
Hill Software, Inc., a Delaware corporation (the "Seller"), Blue Rock Capital
L.P. ("Blue Rock"), Xxxxxxx Capital Group LLC ("Xxxxxxx Capital"), the persons
and entities listed on Schedule A hereto (the "Xxxxxxx Stockholders"), for which
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Xxxxxxx Capital is attorney-in-fact, and Xxxxxx Xxxxx, an individual. Blue
Rock, the Xxxxxxx Stockholders and Xxxxxx Xxxxx are referred to collectively
herein as the "Stockholders."
Preliminary Statement
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The Buyer desires to purchase, and the Seller desires to sell, the assets
comprising the Seller's business of designing, developing, manufacturing,
marketing, licensing, selling and supporting information search technology
software (the "Business"), for the consideration set forth below and the
assumption of certain of the Seller's liabilities and obligations relating to
the Business as set forth below and no other liabilities, subject to the terms
and conditions of this Agreement.
The transactions contemplated hereby are intended to achieve the transfer
of the Acquired Assets and the Assumed Liabilities to the Buyer for its use, to
the extent desired, in the Buyer's own business. The Seller shall retain the
sole responsibility to pay and perform all liabilities and obligations that are
not Assumed Liabilities, and the Buyer does not intend to continue the business
enterprise of the Seller as such.
Section 8.17 hereof contains a listing of certain defined terms used herein
and the sections of this Agreement in which each is defined.
Accordingly, in consideration of the representations, warranties and
covenants herein contained, the parties agree as follows.
ARTICLE 1
THE PURCHASE
1.1. Purchase and Sale of Assets.
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(a) Simultaneously with the execution hereof, upon and subject to the
terms and conditions of this Agreement, the Buyer purchases from the Seller, and
the Seller sells, transfers, conveys, assigns and delivers to the Buyer, for the
consideration specified in Section 1.3 below, all right, title and interest in
and to all of the assets, properties, and rights of the Seller of every kind and
description, tangible and intangible, real, personal, or mixed, and wherever
located, existing as of the date hereof (collectively, the "Acquired Assets"),
including without limitation:
(i) all computer software programs, modules and enhancements
thereof owned by the Seller, and all of the Seller's rights in and to any and
all computer software programs, modules and enhancements thereof owned by third
parties and licensed by the Seller
in the Business, in each case in all existing versions and revisions (to the
extent Seller has rights therein), including all source code, object code,
specifications, testing tools, compilers, development tools, maintenance tools,
user documentation, programmer documentation, and other documentation therefor,
and all copies thereof on all media (collectively, the "Software") and all
inventories of media, work in process, finished software product and
documentation inventory, product supplies, packaging materials, and similar
items;
(ii) all equipment and spare parts and supplies therefor,
furniture, fixtures, leasehold improvements and motor vehicles;
(iii) all (A) patents, patent registrations and applications for
registrations, (B) trademarks, service marks, trade dress, logos, trade names,
and registrations and applications for registration thereof and all goodwill
associated therewith, including without limitation the exclusive right to use
the name of the Seller as all or part of a trade name, (C) copyrights and
registrations and applications for registration thereof, (D) trade secrets and
confidential business information, whether patentable or nonpatentable and
whether or not reduced to practice, know-how, manufacturing and product
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(E) other proprietary rights relating to any of the foregoing (including without
limitation remedies against infringements thereof and rights of protection of
interest therein under the laws of all jurisdictions), (F) computer software,
data and documentation (including without limitation the Software) and (G)
copies and tangible embodiments thereof ((A) through (G) collectively,
"Intellectual Property");
(iv) all rights under the contracts, agreements, licenses,
leases and other instruments of the Seller listed on Schedule 1.1 (collectively,
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the "Assigned Contracts");
(v) all claims, prepayments, refunds, causes of action, choses
in action, rights of recovery, rights of setoff, rights of recoupment and rights
under warranties, all trade and other accounts receivable (the "Accounts
Receivable"), all prepaid amounts or unbilled amounts for contracts in progress
(the "Contracts in Progress") that are included in the Assigned Contracts, and
all payments under Assigned Contracts after the Closing;
(vi) all permits, licenses, registrations, certificates, orders,
approvals, franchises, variances and similar rights ("Permits") issued by or
obtained from any federal, state, local, or foreign governmental, regulatory or
administrative authority or agency, court or arbitrational tribunal (each, a
"Governmental Entity");
(vii) all books, records, accounts, ledgers, files, documents,
correspondence, lists, product specifications, employment records, manufacturing
and procedural manuals, advertising and promotional materials, studies, reports
and other printed or written materials; all customer, supplier and marketing
lists, account and other records, and data; and all brochures, data sheets,
promotional materials, videos, and other marketing collaterals; and
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(viii) all cash on hand, securities, investments, bank deposits,
and other liquid assets, including without limitation the associated bank and
other accounts and all rights thereunder, and all insurance policies;
provided that there shall be excluded from the Acquired Assets the rights and
assets listed in Section 1.1(b) below.
(b) The Seller shall retain and the Buyer shall not acquire, the
following rights and assets (collectively, the "Retained Assets"):
(i) the Purchase Consideration and all other rights of the
Seller under this Agreement;
(ii) the Seller's corporate charter, stock record books,
corporate records containing minutes of the meetings of the directors and
stockholders;
(iii) rights under agreements with respect to the voting,
registration, vesting, or repurchase of shares of the Seller's capital stock;
(iv) rights under other contracts and agreements to the extent
not included within the Acquired Assets (either as Assigned Contracts or
otherwise), including but not limited to those set forth on Schedule 1.1(b);
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(v) such other records as have to do exclusively with the
Seller's organization or stock capitalization or with any of the Retained
Liabilities; and (vi) all net operating losses of the Seller.
1.2. Assumption of Liabilities.
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(a) Upon and subject to Section 1.2(b) and the other terms and
conditions of this Agreement, the Buyer shall assume, pay and discharge when
due, from and after the Closing, the following liabilities of the Seller
(collectively, the "Assumed Liabilities") and no other liabilities:
(i) the liabilities shown on or reflected on the Balance Sheet,
to the extent such liabilities have not been paid or discharged, and those
liabilities of a similar nature incurred since the Balance Sheet Date by the
Seller in the ordinary course of business consistent with past practice and the
terms of this Agreement (the "Ordinary Course") (including liabilities in the
ordinary course for sales, use, or excise taxes, for federal and state income
tax withholding with respect to employees of the Seller, and for employer FICA
and unemployment taxes, but no other Taxes); provided that Buyer shall assume
liability for accrued employee vacation days only to the extent such time is
carried over as accrued vacation days, and shall not assume any obligation of
the Seller, statutory or otherwise, to compensate such employees for such
vacation days in connection with the termination of their respective employment
with the Seller;
(ii) the liabilities and obligations of the Seller specifically
listed on Schedule 1.2, to the extent they are to be paid or performed after the
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Closing;
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(iii) the liabilities and obligations of the Seller under the
Assigned Contracts; provided, however, that the Buyer shall not assume any such
liabilities or obligations to the extent relating to any breach of contract,
breach of warranty (except to the extent specifically described on Schedule 1.2
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("Assumed Warranty Claims")), tort, product liability claim, or other
infringement occurring prior to the Closing;
(iv) liabilities and obligations of the Seller up to and not
exceeding $35,000 in the aggregate, including amounts paid before Closing, for
costs and expenses incurred in connection with the preparation, execution, and
performance of the letter of intent between the parties dated November 5, 1998
and this Agreement or the consummation of the transactions contemplated by this
Agreement, including without limitation all fees and expenses of agents,
representatives, counsel, and accountants; and
(v) liabilities and obligations of the Seller to the employees
of the Seller for the amounts held by employees in accounts under the Seller's
401(k) Plan.
(b) Notwithstanding Section 1.2(a), the Buyer shall not assume or
become responsible for, and the Seller shall remain liable for, and shall pay,
perform, and discharge, the following liabilities and obligations and all other
liabilities and obligations not included in Section 1.2(a), whether known or
unknown, absolute or contingent, liquidated or unliquidated, accrued or
unaccrued, or due or to become due, and whether claims with respect thereto are
asserted before or after the Closing (collectively, the "Retained Liabilities"):
(i) all liabilities and obligations with respect to borrowed
money other than pursuant to the promissory notes payable to Silicon Valley Bank
(the "Silicon Valley Bank Notes"), including without limitation any liability
for payment of principal or interest with respect to the Seller's convertible
promissory notes issued in December 1997 and any guaranty of the obligations of
others;
(ii) all liabilities and obligations of the Seller for any Taxes
not listed in Section 1.2(a)(i), including without limitation Taxes arising in
connection with the consummation of the transactions contemplated by this
Agreement, deferred Taxes or Taxes measured by income of the Seller, and any
liabilities for sales, use, ad valorem or excise taxes or customs and duties
incurred;
(iii) all liabilities and obligations of the Seller under or with
respect to this Agreement and the transactions provided for herein in excess of
$35,000 for costs and expenses described in Section 1.2(a)(iv), including
brokerage, accounting and counsel fees, transfer and other taxes, and expenses
pertaining to the Seller's liquidation or the performance by the Seller of its
obligations hereunder;
(iv) all liabilities and obligations with respect to ownership
or claims of ownership of any of the Seller's securities (including without
limitation the Seller's common or preferred stock, any options or warrants for
the purchase of any such stock, and any notes or other instruments convertible
into any such stock) or with respect to payments, dividends, issuances of
securities, or other distributions, upon liquidation or otherwise, on account of
ownership or possession of any securities;
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(v) all liabilities and obligations of the Seller under any
contracts, agreements, or arrangements that are not Assigned Contracts or
otherwise included within the Acquired Assets, including without limitation any
obligation of the Seller to indemnify any person, including any of the
Stockholders, by reason of the fact that such person was a director, officer,
employee, or agent of the Seller or was serving at the request of the Seller in
any capacity with another entity;
(vi) all liabilities and obligations to the extent relating to
any actual or alleged tort, infringement or violation of any law, rule,
regulation, judgment, decree, order, or Permit occurring prior to the Closing or
to the extent arising out of any charge, complaint, action, suit, proceeding,
hearing, investigation, claim or demand based upon acts, events or conduct
occurring prior to the Closing, whether or not such matter is pending,
threatened, or asserted before, on, or after the Closing Date;
(vii) all liabilities and obligations of the Seller arising out
of events, conduct or conditions existing or occurring prior to the Closing that
constitute or allegedly constitute an infringement or violation of or a
misappropriation of, any Intellectual Property rights of any other person or
entity;
(viii) all liabilities and obligations of the Seller to Xxxxx
Xxxxxxx for compensation beyond the base salary amount of $150,000 recorded on
the Balance Sheet, including any obligation for "paid in-kind" compensation
based on the Sale Proceeds (as that term is defined in the letter dated August
26, 1998 between the Seller and Xxxxx Xxxxxxx);
(ix) the liability and obligation of the Seller under Section
2.(a)(ii) of the Agreement between the University of Massachusetts (the
"University") and the Seller dated December 29, 1998 (the "University
Agreement") to pay to the University in the form of the consideration received
by the Seller one-half percent (0.5%) of the total consideration received by the
Seller under this Agreement and the transactions contemplated hereby;
(x) any liability or obligation of the Seller under Section
1.(A.)(iii) of the Agreement among the Seller, the Applied Computing Systems
Institute of Massachusetts, Inc. ("ACSIOM"), the University, W. Xxxxx Xxxxx and
Xxxxx X. Xxxxxx dated December 29, 1998 (the "ACSIOM Agreement") for payment to
ACSIOM of any amounts other than as recorded on the Balance Sheet;
(xi) any liability of the Seller to Xxxx XxXxxx for expenses
incurred on behalf of the Seller that cannot be substantiated with receipts
prior to the Closing;
(xii) any liability or obligation of the Seller to Xxxxx Xxxxx
other than as recorded on the Balance Sheet; and
(xiii) any liability or obligation of the Seller for compensation
to employees and consultants of the Seller other than as accrued on the Balance
Sheet and as incurred since the Balance Sheet Date by the Seller in the Ordinary
Course in connection with any Employee Benefit Plan being assumed by the Buyer.
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1.3. Purchase Consideration.
----------------------
(a) The consideration to be paid to the Seller shall be:
(i) Two Hundred Thousand (200,000) Shares (the "Dataware
Shares") of the common stock, $0.01 par value, of the Buyer ("Dataware Common
Stock"), subject to adjustment as provided in subsection (b);
(ii) warrants to purchase Forty Thousand (40,000) shares of
Dataware Common Stock in the form of Exhibit A hereto (the "Dataware Warrants");
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and
(iii) Ten Thousand Dollars ($10,000) in cash (with the Dataware
Shares and the Dataware Warrants, collectively, the "Purchase Consideration").
(b) The number of Dataware Shares deliverable pursuant to Section
6.9(c) shall be reduced by a number equivalent in value to (i) the amount of
accrued interest payable with respect to the Silicon Valley Bank Notes as of the
close of business on December 31, 1998 in excess of (ii) the amount of such
accrued interest due as of such date as stated in the letter dated December 28,
1998 from Silicon Valley Bank to the Seller, determined by dividing such excess
amount by the closing sale price of a share of the Dataware Common Stock on
December 31, 1998, as reported on the Nasdaq National Market (the "Closing Share
Price").
1.4. The Closing.
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(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place concurrently with the execution hereof (the
"Closing Date").
(b) At the Closing:
(i) (A) the Seller shall execute and deliver to the Buyer a
xxxx of sale in the form attached hereto as Exhibit B and execute and deliver or
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obtain, as appropriate, such other good and sufficient instruments of conveyance
in the form and containing warranties, covenants and other provisions not
inconsistent with the provisions hereof that are usual and customary for
transferring the type of property involved under the laws of the jurisdictions
applicable to such transfers (including without limitation trademark, patent,
copyright and other intellectual property assignments) as may be necessary or
appropriate in order to effectively vest in the Buyer good title to all the
Acquired Assets, free and clear of all Security Interests other than the
Security Interests in favor of Silicon Valley Bank (the "Silicon Valley Security
Interests"), together with any consents, approvals or Permits required to assign
and transfer the same;
(B) the Seller shall take such steps, including providing
such certificates and authorizations, as may be required to provide the Buyer
with full control and authority over each bank and investment account of the
Seller;
(C) the Seller shall deliver to the Buyer, or otherwise
enable and permit the Buyer to take possession and control of, all of the
Acquired Assets of a tangible nature, all of the Assigned Contracts, with such
assignments thereof in the form of Exhibit C
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hereto and consents to assignments as are necessary to assure the Buyer of the
full benefit of the same, and all of the Seller's business records, tax returns,
books and other data relating to its assets, business and operations (including
copies, but not originals, of the corporate records and other property of the
Seller included in the Retained Assets);
(D) the Seller shall take all other steps necessary or
desirable to put the Buyer in actual possession and operating control of the
Acquired Assets;
(E) the Seller shall deliver to the Buyer all such
customary closing certificates as it shall have requested and Buyer shall have
received from Xxxxx Xxxxx Xxxx Xxxxxx Xxxxxxx & Xxxxx PC, counsel to the Seller,
an opinion dated as of the date hereof in form reasonably satisfactory to the
Buyer, as to the matters set forth in Exhibit D hereto; and
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(F) the Seller shall deliver to the Buyer the Promissory
Noteholder Releases.
(ii) (A) the Buyer shall execute and deliver to the Seller one
or more instruments of assumption of liabilities in the form attached hereto as
Exhibit E and such other instruments as the Seller may reasonably request in
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order to effect the assumption by the Buyer of the Assumed Liabilities; and
(B) the Buyer shall deliver to the Seller all such
customary closing certificates as it shall have requested and Seller shall have
received from Xxxxxx & Dodge LLP, counsel to the Buyer, an opinion dated as of
the date hereof in form reasonably satisfactory to the Seller, as to the matters
set forth in Exhibit F hereto.
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(iii) the Buyer shall deliver the Purchase Consideration, except
for One Hundred and Fifty Thousand (150,000) of the Dataware Shares (the "Held
Back Shares"), which will be held back by the Buyer as security for the Seller's
indemnification obligations as further described in Article 6.
1.5. Allocation of Purchase Price. The Buyer shall determine the
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allocation of the Purchase Price (and all other capitalizable costs) among the
Acquired Assets for all purposes (including financial accounting and tax
purposes) and shall provide such allocation to the Seller within forty-five (45)
days after the Closing Date. All information contained in the Tax Returns or
other official filings of the Seller after the Closing shall be consistent with
such allocation.
1.6. Further Assurances. At the Closing and at any time and from time to
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time thereafter, at the request of the Buyer and without further consideration,
the Seller shall execute and deliver such other instruments of sale, transfer,
conveyance and assignment and take such action as the Buyer may reasonably
determine is necessary to transfer, convey and assign to the Buyer, and to
evidence and confirm the Buyer's rights to, title in and ownership of, the
Acquired Assets and to place the Buyer in actual possession and operating
control of the Acquired Assets.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to Buyer that the statements contained
in this Article 2 are true and correct, except as set forth in the disclosure
schedule attached hereto as Schedule 2 (the "Disclosure Schedule"). The
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Disclosure Schedule is arranged in sections corresponding to the numbered and
lettered sections contained in this Article 2, and the disclosures in any
section of the Disclosure Schedule (which may incorporate by reference other
sections of the Disclosure Schedule) shall qualify only the corresponding
section in this Article 2.
2.1. Organization; Corporate Power; Capitalization.
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(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Seller is duly
qualified to conduct business and is in good standing under the laws of the
Commonwealth of Massachusetts and each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification. The Seller has all requisite corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Seller does not have any subsidiary, or directly or
indirectly own or have any investment in the capital stock of, or any other
proprietary interest in, nor is it a party to, a partnership or joint venture
with any other person. The Seller does not file and is not required to file any
franchise, income or other Tax returns in any other jurisdiction (in the United
States or outside of the United States), other than Delaware and Massachusetts,
based upon the ownership or use of property therein or the derivation of income
therefrom.
(b) The Seller has previously provided to Dataware true and complete
copies of its Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation") and Bylaws as presently in effect, and the
Seller is not in default in the performance, observation or fulfillment of its
Certificate of Incorporation or bylaws or other governing instruments. The
minute books of the Seller provided to the Buyer contain true and complete
records of all meetings and consents in lieu of meetings of the Board of
Directors (and any committees thereof) and of the stockholders since the time of
the Seller's incorporation and accurately reflect in all material respects all
actions taken at such meetings or pursuant to such consents in lieu of meetings.
The stock record books of the Seller provided to the Buyer are true and
complete.
(c) The Seller is authorized to issue (i) 14,000,000 shares of common
stock, $0.001 par value ("SH Common Stock"), of which 1,784,937 shares are
issued and outstanding, and (ii) 3,000,000 shares of Preferred Stock, par value
$0.001 per share, of which 3,000,000 are designated as Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock"), all of which are
issued and outstanding. Such shares of Series A Preferred Stock are convertible
into 3,000,000 shares of SH Common Stock. No other shares of Preferred Stock are
outstanding. All of the issued and outstanding shares of SH Common Stock and
Series A Preferred Stock (collectively, "SH Capital Stock") are duly authorized,
validly issued, fully paid and nonassessable, and are held by the persons, in
the respective amounts, set forth in Section 2.1 of the Disclosure Schedule.
Section 2.1 of the Disclosure Schedule includes a true and complete list all
outstanding warrants and options to purchase shares of SH Capital Stock and the
holders thereof. Except as described in this Section 2.1(c) and in Section
2.1(c) of the Disclosure
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Schedule, there are no other shares of capital stock of the Seller authorized or
outstanding or any subscriptions, options, conversion or exchange rights, notes,
debentures, warrants, repurchase or redemption agreements, or other agreements,
claims or commitments of any nature whatsoever obligating the Seller to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered, sold,
repurchased or redeemed, additional shares of the capital stock or other
securities of the Seller or obligating the Seller to grant, extend or enter into
any such agreement. Except as set forth in Section 2.1(c) of the Disclosure
Schedule, there are no shareholder agreements, voting trusts, proxies or other
agreements, instruments or understandings with respect to the voting of the
capital stock of the Seller.
2.2. Authority. The Seller has all requisite power and authority to
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execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by the Seller and the performance by
the Seller of this Agreement and the consummation by the Seller of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Seller. This Agreement has been
duly and validly executed and delivered by the Seller and constitutes a valid
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms.
2.3. Noncontravention. Except as set forth in Section 2.3 of the
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Disclosure Schedule, neither the execution and delivery of this Agreement by the
Seller, nor the consummation by the Seller of the transactions contemplated
hereby, will, directly or indirectly (with or without notice or lapse of time),
(a) violate any provision of the Certificate of Incorporation or Bylaws, each as
amended to date, of the Seller or any resolution adopted by the board of
directors or the stockholders of the Seller, (b) require on the part of the
Seller any filing with, or any permit, authorization, consent or approval of,
any Governmental Entity or give any governmental entity the right to challenge
any of the transactions contemplated by this Agreement, (c) result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest or other arrangement to
which the Seller is a party or by which the Seller is bound or to which any of
the assets of the Seller is subject, (d) result in the imposition of any
Security Interest upon any of the Acquired Assets, or (e) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Seller
or any of the properties or assets of the Seller. For purposes of this
Agreement, "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge or other lien, whether arising by contract or by operation
of law. Except as set forth in Section 2.3 of the Disclosure Schedule, the
Seller has obtained all of the waivers, consents, approvals or other
authorizations referred to in this Section or in Section 2.3 of Disclosure
Schedule.
2.4. Financial Statements. The Disclosure Schedule contains (i) the
--------------------
audited financial statements of the Seller as of each of December 31, 1996 and
1997 and for the years then ended, with all footnotes thereto and the report of
Deloitte and Touche LLP thereon (collectively, the "Audited Financial
Statements"), (ii) the unaudited statement of financial condition of the Seller
as of September 30, 1998 and the related statements of operations and cash flows
for the nine-month period then ended, and (iii) the unaudited statement of
financial condition (the "Balance Sheet") of the Seller as of November 30, 1998
(the "Balance Sheet Date") and the related statements of operations and cash
flows for the eleven-month period then ended (the financial
9
statements described in clauses (ii) and (iii) are referred to collectively
herein as the "Unaudited Financial Statements"). The Audited Financial
Statements and the Unaudited Financial Statements are referred to herein
collectively as the "Financial Statements." The Audited Financial Statements
have been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto). The Unaudited Financial Statements
have been prepared in conformity with GAAP, except as noted below, and with the
Seller's normal and historical practices. The Financial Statements present
fairly, in all material respects, the financial condition, assets and
liabilities of the Seller as of the dates indicated therein and the results of
operations and cash flows of the Seller for the periods covered thereby,
consistent with the books and records of the Seller, except that the Unaudited
Financial Statements do not contain footnotes required by GAAP and are subject
to normal and recurring year-end adjustments that were not, or are not expected
to be, material in amount.
2.5. Absence of Material Changes. Since December 31, 1997, except as may
---------------------------
be disclosed in the Unaudited Financial Statements, there have not been any
events or developments that, individually or in the aggregate, had a material
adverse effect on the assets, business, financial condition or results of
operations of the Seller (a "Material Adverse Effect"), nor have there occurred
any events or developments that, individually or in the aggregate, could
reasonably be foreseen to result in a Material Adverse Effect in the future.
Since the Balance Sheet Date, except as set forth in Section 2.5 of the
Disclosure Schedule, the Seller has not:
(a) made any changes in its capital structure;
(b) declared or paid any dividends or made any distributions with
respect to its capital stock;
(c) acquired, sold, leased, encumbered or disposed of any assets,
other than purchases and sales of assets in the ordinary course of business;
(d) created, incurred or assumed any debt (including obligations in
respect of capital leases), or made any payment of principal or interest on any
obligation for borrowed money other than the Silicon Valley Bank Notes;
(e) entered into, adopted or amended any Employee Benefit Plan or
increased in any manner the compensation or fringe benefits of, or materially
modified the terms of employment or service of, any of its officers, employees,
or consultants, or paid any benefit not required by the terms of any Employee
Benefit Plan in effect on such date;
(f) changed in any material respect its accounting methods,
principles or practices or made any new elections or any changes in current
elections with respect to Taxes;
(g) discharged or satisfied any Security Interest or incurred any
obligation or liability other than in the ordinary course of business;
(h) mortgaged or pledged any of its property or assets or subjected
any such assets to any Security Interest;
10
(i) sold, assigned, transferred, licensed or sublicensed any of the
Software or the Intellectual Property, other than pursuant to an agreement
listed on Section 2.9 of the Disclosure Schedule;
(j) modified or amended in any material respect, or canceled, any
material existing contract, agreement or understanding for the sale or license
of Software, goods or services, or obligations receivable;
(k) entered into any material contract or commitment except for the
normal purchase of materials, supplies and services usable in the ordinary
course of business;
(l) entered into, amended, terminated, taken or omitted to take any
action that would constitute a violation of or default under, or waiver of any
rights under, any material contract or agreement;
(m) entered into any written arrangement or agreement that creates a
liability on the Seller's part in excess of $10,000;
(n) made or committed to make any capital expenditure in excess of
$10,000 per item, or total capital expenditures in excess of $50,000 in the
aggregate;
(o) failed to take any action necessary to preserve the validity of
any Intellectual Property or Permit;
(p) paid any expenses or fees of counsel, accountants or consultants
for services in preparation for or in connection with the transactions
contemplated hereby except as contemplated by the Letter of Intent dated
November 5, 1998 by and among the parties; or
(q) agreed in writing or otherwise to take any of the foregoing
actions.
2.6. Absence of Undisclosed Liabilities. The Seller does not have any
----------------------------------
liability (whether absolute or contingent, whether liquidated or unliquidated,
whether accrued or unaccrued, and whether due or to become due, or otherwise),
except for (a) liabilities shown on the Balance Sheet, (b) liabilities that have
arisen since the Balance Sheet Date in the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount) and with this Agreement, and (c) contractual liabilities incurred in
the ordinary course of business that are not required by GAAP to be reflected on
the Balance Sheet.
2.7. Tax Matters.
-----------
(a) For purposes of this Agreement, "Taxes" means all taxes,
charges, fees, levies or other similar assessments or liabilities, including
without limitation income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, transfer, withholding,
employment, payroll and franchise taxes imposed by any governmental entity, and
any interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or dispute
thereof. For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements or other information required to be supplied
to a taxing authority in connection with Taxes.
11
(b) The Seller has filed all Tax Returns that it was required to file
and all such Tax Returns were correct and complete in all material respects. The
Seller has paid all Taxes that are shown to be due on any such Tax Returns. The
unpaid Taxes for tax periods through the Balance Sheet Date do not exceed the
accruals and reserves for Taxes set forth on the Balance Sheet. All Taxes that
the Seller is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
governmental entity.
(c) No deficiencies have been asserted or assessed as a result of any
audit of the Seller by any governmental entity and, to the knowledge of the
Seller, no such deficiency or audit has been proposed or threatened. There are
no liens for Taxes (other than for current Taxes not yet due and payable) on the
assets or property of the Seller. None of the Seller's assets or properties (i)
is property that is required to be treated as being owned by any other person
pursuant to the safe harbor lease provisions of former Section 168(f)(8) of the
Internal Revenue of 1986, as amended ("the Code"), (ii) is "tax exempt use
property" within the meaning of Section 168(h) of the Code, or (iii) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. The Seller is not a person other than a United States person
within the meaning of the Code. The transactions contemplated herein are not
subject to tax withholding under Section 3406 of the Code, under subchapter A of
chapter 3 of the Code, or under any other provision of law.
2.8. Ownership and Condition of Assets. The Acquired Assets include all
---------------------------------
assets of the Seller shown or reflected in the Balance Sheet except for those
assets disposed of since the Balance Sheet Date in the ordinary course of
business consistent with this Agreement. Except as set forth in Section 2.8 of
the Disclosure Schedule, the Seller is the true and lawful owner of and has good
and marketable title to all of the Acquired Assets, free and clear of all
Security Interests. Upon execution and delivery by the Seller to the Buyer of
the instruments of conveyance referred to in Section 1.4, the Buyer will become
the true and lawful owner of, and will receive good and marketable title to, the
Acquired Assets, free and clear of all Security Interests.
2.9. Intellectual Property.
---------------------
(a) The Seller owns or has the right to use all the Intellectual
Property. Upon execution and delivery by the Seller to the Buyer of the
instruments of conveyance referred to in Section 1.4, each such item of
Intellectual Property owned by the Seller will be owned by the Buyer immediately
following the Closing, and the terms and conditions of use of each such item of
Intellectual Property available for use by the Seller will not be modified by
reason of this Agreement or the transactions contemplated hereby. The Seller has
taken reasonable measures to protect the proprietary nature of the Intellectual
Property that it owns or uses in the Business, except that Seller has not sought
to patent or register all of the Intellectual Property. No other person or
entity has any rights to any of the Software or any of the Intellectual Property
described in clauses (A) through (C) of Section 1.1(a)(iii) or any trade secrets
of the Seller (except pursuant to agreements or licenses listed in Sections
2.9(d) or (e) of the Disclosure Schedule), and to Seller's knowledge no other
person or entity is infringing, violating or misappropriating any of the
Intellectual Property that Seller owns and uses in the Business.
12
(b) Other than the Original Software (as defined in the Software
Transfer Agreement dated April 8, 1996 by and among The Applied Computing
Systems Institute of Massachusetts, Inc. ("ACSIOM"), the Seller and the other
parties named therein (the "Software Transfer Agreement")), which is the basis
of the Software, and other than Software licensed by third parties to the Seller
(i) the Software has been developed entirely by employees of the Seller or by
consultants to the Seller under written agreements validly assigning and
transferring ownership of such Software to the Seller, copies of which have been
provided to the Buyer, and (ii) no portion of the Software was developed with
funds provided under any agreement or other arrangement with any third party.
Each of ACSIOM, the University of Massachusetts, the Center for Intelligent
Information Retrieval and the individual developers has transferred all of such
person's or entity's right, title and interest in the Original Software to the
Seller. Except as set forth in Section 2.9(b) of the Disclosure Schedule, no
ownership interests or exclusive licenses to the Software have been granted to
any third party.
(c) The business, operations and activities of the Business,
including without limitation, use, marketing and distribution of the Software,
have not infringed or violated, or constituted a misappropriation of, and do not
now infringe or violate, or constitute a misappropriation of, any patent rights
or any other Intellectual Property rights of any other person or entity. Except
as set forth in Section 2.9(c) of the Disclosure Schedule, the Seller has not
received any complaint, claim or notice alleging any such infringement,
violation or misappropriation.
(d) Section 2.9(d) of the Disclosure Schedule identifies (A) each
patent or copyright, trademark or other registration that has been issued to or
is owned by the Seller with respect to any Intellectual Property, (B) each
pending patent application or application for registration that the Seller has
made or that the Seller owns with respect to any Intellectual Property, and (C)
each license or other agreement pursuant to which the Seller has granted any
rights to any third party with respect to any such Intellectual Property. The
Seller has made available to the Buyer correct and complete copies of all such
patents, registrations, applications, licenses and agreements (as amended to
date) and has made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership of, and any claims or disputes
relating to, each such item. With respect to each such item of Intellectual
Property:
(i) the Seller possesses all right, title and interest in and
to such item, subject to the Silicon Valley Security Interests;
(ii) such item is not subject to any outstanding Security
Interests, judgment, order, decree, stipulation or injunction, other than the
Silicon Valley Security Interests;
(iii) the Seller has not agreed to indemnify any person or
entity for or against any infringement, misappropriation or other conflict with
respect to such item, except in those agreements listed in Section 2.9(d)(C) of
the Disclosure Schedule; and
(iv) the Seller is not, and, to the Seller's knowledge, no
other party is, in material breach or default (including without limitation
breaches of warranty) of any applicable license or other agreement covering such
item, and no event has occurred that with
13
notice or lapse of time or both would constitute a breach or default by Seller,
or to Seller's knowledge, by any other party, or permit termination,
modification or acceleration thereunder.
(e) Section 2.9(e) of the Disclosure Schedule identifies each
item of Intellectual Property owned by a party other than the Seller (other than
commercially available software generally available to the public, which is not
listed in Section 2.9(e) of the Disclosure Schedule but with respect to which
the representations set forth below in this Section 2.9(e) are true) that is
used at any time in the operation of the Business, and all licenses, sublicenses
or other agreements (as amended to date) pursuant to which the Seller uses such
Intellectual Property. The Seller has made available complete and correct copies
of all such licenses, sublicenses, and other agreements to the Buyer. With
respect to each such item of Intellectual Property:
(i) the license, sublicense or other agreement covering
such item is valid, binding, enforceable and in full force and effect;
(ii) the license, sublicense or other agreement covering
such items is assignable by the Seller to the Buyer without the consent or
approval of any party, or such consent has been obtained and such license,
sublicense or other agreement will continue to be valid, binding, enforceable
and in full force and effect without acceleration or other change in terms
resulting from the transactions contemplated hereby immediately following the
Closing;
(iii) the Seller is not, and, to the Seller's knowledge, no
other party is, in breach or default of the license, sublicense or other
agreement covering such item, and no event has occurred that with notice or
lapse of time or both would constitute a breach or default by Seller, or to
Seller's knowledge, by any other party, or permit termination, modification or
acceleration thereunder;
(iv) such item of Intellectual Property is not, to the
Seller's knowledge, subject to any outstanding judgment, order, decree,
stipulation or injunction; and
(v) the Seller has not agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation or other
conflict with respect to such item, except as stated in Section 2.9(e) of the
Disclosure Schedule.
2.10. Contracts.
---------
(a) Section 2.10 of the Disclosure Schedule lists the following
arrangements (including without limitation written and oral agreements) of the
Seller:
(i) any arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties;
(ii) any arrangement (or group of related written arrangements)
for the purchase, sale, license, supply or manufacture of raw materials,
commodities, supplies, products or other personal property or for the furnishing
or receipt of services (A) which calls for performance over a period of more
than six months, (B) which involves more than the sum of $25,000 or (C) in which
the Seller has granted manufacturing rights, "most favored nation"
14
pricing provisions or marketing or distribution rights relating to any products
or territory or has agreed to purchase a minimum quantity of goods or services,
agreed to make a minimum payment or has agreed to purchase goods or services
exclusively from a certain party; including without limitation any agreement
under which Seller sublicenses software used in conjunction with the Software or
any agreement under which Seller has licensed a third party to distribute or
otherwise sublicense the Software.
(iii) any arrangement (or group of related written arrangements)
under which the Seller has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including capitalized lease
obligations) or under which it has granted (or may grant) a Security Interest on
any of the Acquired Assets, tangible or intangible;
(iv) any insurance policy or binder; and
(v) any other arrangement (or group of related written
arrangements) either involving more than $25,000 or not entered into in the
ordinary course of business.
(b) The Seller has made available to the Buyer a correct and complete
copy of each written arrangement (as amended to date) listed in Section 2.10 of
the Disclosure Schedule. With respect to each arrangement so listed: (i) the
arrangement is valid, binding and enforceable and in full force and effect; (ii)
except as set forth in Section 2.10(b) of the Disclosure Schedule, with respect
to arrangements to which the Seller is a party, the arrangement is assignable by
the Seller to the Buyer (or the Seller may enter into a subcontracting
arrangement with the Buyer with regard to such written arrangement) without the
consent or approval of any party and will continue to be valid, binding and
enforceable and in full force and effect immediately following the Closing
substantially in accordance with the terms thereof as in effect prior to the
Closing; and (iii) with respect to the arrangements to which the Seller is a
party, the Seller is not, and to the Seller's knowledge no other party is, in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default by Seller, or to Seller's knowledge, by the
other party, or permit termination, modification, or acceleration, under the
arrangement, nor to Seller's knowledge is there any dispute between the parties
thereto.
(c) The Seller does not have any written or oral agreements or
arrangements forming a partnership or joint venture or involving, including
without limitation any loan to or from, or guaranty of indebtedness of, any
officer, director, consultant, or stockholder of the Seller (other than Employee
Benefit Plans).
2.11. Accounts Receivable. All Accounts Receivable reflected on the Balance
-------------------
Sheet and all Accounts Receivable that have arisen since the Balance Sheet Date
(i) have arisen only from bona fide transactions in the ordinary course of
business, (ii) are valid obligations, (iii) are not, to the Seller's knowledge,
subject to any setoffs or counterclaims, and (iv) are owned by the Seller and
will be transferred free and clear of all Security Interests other than the
Silicon Valley Security Interests. The reserve for bad debts, if any, shown on
the Balance Sheet has been accrued in accordance with past experience and
practice. A complete list of all Accounts Receivable reflected on the Balance
Sheet, showing the aging thereof, is included in Section 2.11 of the Disclosure
Schedule.
15
2.12. Year 2000 Readiness. Except as set forth in Section 2.12 of the
-------------------
Disclosure Schedule, all of the products of the Seller sold or licensed to any
person (the "Products") are designed to be used prior to, during and after the
year 2000 and are "Year 2000 Ready." The performance, operation or use of any
of the Products will not be interrupted or fail after the Closing by reason of
any such item in whole or in part not being Year 2000 Ready and no modification,
change, addition, revision, update, substitution, replacement, or repair to the
Products is required to make any of the Software Year 2000 Ready. All
previously sold or licensed Products are Year 2000 Ready, or the Seller has no
liability or obligation, under warranty or otherwise, with respect to the
failure of any such Product to be Year 2000 Ready. For the purposes of this
Agreement, "Year 2000 Ready" means that the Product is capable of recognizing,
receiving, reflecting, accommodating and providing, correctly and accurately,
all time/date values and time/date data interface values (including any leap
year, same century, and multi-century values) and performing accurate and
correct recognition, calculation, comparison, exchange, sequencing and
processing of the same, when used properly and in conformity with the product
information furnished by the Seller, provided that all other technology used in
combination with the Product properly exchanges date data with the Product.
2.13. Real Property And Leases. The Seller does not own any real property.
------------------------
Section 2.13 of the Disclosure Schedule lists all real property leased or
subleased to the Seller and the applicable lease or sublease. The Seller has
made available to the Buyer correct and complete copies of such leases and
subleases (as amended to date). With respect to each such lease and sublease:
the lease or sublease is valid, binding, enforceable and in full force and
effect; the lease or sublease will continue to be valid, binding, enforceable
and in full force and effect immediately following the Closing substantially in
accordance with the terms thereof as in effect prior to the Closing; neither the
Seller nor, to the Seller's knowledge, any other party to the lease or sublease
is in breach or default, and no event has occurred that, with notice or lapse of
time or both, would constitute a breach or default by Seller or, to Seller's
knowledge, by any other party, or permit termination, modification or
acceleration thereunder; and the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold .
2.14. Litigation. Section 2.14 of the Disclosure Schedule identifies and
----------
contains a brief description of (a) each unsatisfied judgment, order, decree,
stipulation or injunction relating to the Seller, the Acquired Assets or the
Business and (b) each claim, complaint, action, suit, proceeding, hearing or
investigation of, in or brought before (by a private party or otherwise) any
Governmental Entity or before any arbitrator relating to or affecting the
Seller, the Acquired Assets or the Business that is currently pending or, to the
knowledge of the Seller, threatened. To the knowledge of the Seller, none of
such complaints, actions, suits, proceedings, hearings or investigations will
have a Material Adverse Effect.
2.15. Product Warranty. No product manufactured, licensed, sold, leased
----------------
or delivered by the Seller is subject to any guaranty, warranty, right of
return, credit or other indemnity beyond the Seller's applicable standard terms
and conditions of sale or lease, which are set forth in Section 2.15 of the
Disclosure Schedule. Section 2.15 of the Disclosure Schedule sets forth the
aggregate expenses incurred by the Seller in fulfilling its obligations under
its guaranty, warranty, right of return and indemnity provisions in connection
with the Business during 1997 and 1998.
16
2.16. Employees; Consultants. Section 2.16 of the Disclosure Schedule
----------------------
contains a list of all employees and consultants of the Seller, together with
the position, the annual rate of compensation, and all accrued and unpaid
compensation, vacation, or other amounts owed under any Employee Benefit Plan to
each such person. Each such employee and consultant has entered into a
confidentiality and/or assignment of inventions agreement with the Seller, a
copy of which has previously been delivered to the Buyer and is assignable by
the Seller to the Buyer without the consent of any other party. Except as set
forth in Schedule 2.16 of the Disclosure Schedule, no employee, group of
employees, or consultant has given written or oral notice to the Seller of any
plans to terminate employment or consulting services with the Seller (other than
for the purpose of accepting employment or consulting services with the Buyer
following the Closing) or not to accept employment or consulting services with
the Buyer. The Seller is not a party to or bound by any collective bargaining
agreement, nor has the Seller experienced any strikes, grievances, claims of
unfair labor practices or other collective bargaining disputes, in connection
with the Business. The senior management of the Seller has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Seller employed in connection with the Business. Except as set forth in Section
2.16 of the Disclosure Schedule, no employment or consulting agreement or
arrangement with the Seller exists that is not terminable at will by its terms
without penalty. Except as set forth in Section 2.16 of the Disclosure Schedule,
neither the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, or the termination of any Assigned Contract
that is an employment or consulting agreement will, by its terms, trigger or
otherwise result in any obligation of the Buyer to pay severance or related
costs.
2.17. Employee Benefits.
-----------------
(a) Section 2.17(a) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans (as defined below) maintained or
contributed to by the Seller, or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means (i) any "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), (ii) any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and (iii) any other written
or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement or post-termination compensation, in each case
relating to any employee or consultant of the Seller. For purposes of this
Agreement, "ERISA Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(ii) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (iii) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the Code),
any of which includes the Seller. Complete and accurate copies of all Employee
Benefit Plans that have been reduced to writing have been provided to the Buyer,
and the Seller has made available to the Buyer with written summaries of any
such plans that have not been reduced to writing. All Employee Benefit Plans are
in compliance in all material respects with the currently applicable provisions
of ERISA and the Code and the regulations thereunder.
17
(b) Section 2.17(b) of the Disclosure Schedule lists each Employee
Benefit Plan any of the benefits of which will be increased, or the vesting of
the benefits under which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
2.18. Environmental Matters. The Seller has complied in all material
---------------------
respects with all applicable laws and regulations relating to the environment or
occupational health and safety. There is no pending or, to the knowledge of the
Seller, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding, or investigation, inquiry or information
request by any Governmental Entity, relating to any such law. There have been no
releases by the Seller, or to the Seller's knowledge, by others, of any
chemicals, pollutants, contaminants, or hazardous substances into the
environment at any parcel of real property or any facility formerly or currently
owned, leased, operated or controlled by the Seller.
2.19. Legal Compliance. The Seller is conducting and has conducted the
----------------
business and operations of the Business in compliance in all material respects
with all applicable federal, state, local and foreign laws, regulations and
orders, and has not received any notice or communication from any Governmental
Entity alleging non-compliance with any applicable federal, state, local or
foreign laws, regulations or orders with respect to the Business.
2.20. Permits. No Permits are required for the Seller to conduct the
-------
Business as presently conducted and there are no Permits issued to or held by
the Seller relating to the Acquired Assets or the Business.
2.21. Brokers' Fees. The Seller has no liability or obligation to pay any
-------------
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.22. Books and Records. The books, records, accounts, ledgers and files of
-----------------
the Seller relating to the Business are accurate and complete in all material
respects and have been maintained in accordance with good business and
bookkeeping practices.
2.23. Customers, Suppliers, and Resellers. No supplier to the Seller of
-----------------------------------
materials, products, components or services has given oral or written notice to
the Seller that it will stop, or materially change the terms of, supplying such
materials, products, components or services, and no customer of the Seller has
given oral or written notice to the Seller that it will stop, or decrease the
rate of, buying or licensing products of, or services offered by the Seller.
Except as set forth in Section 2.23 of the Disclosure Schedule, no reseller or
distributor has been granted exclusive rights to sublicense or distribute
Software in any markets or territory. No reseller or distributor has been
granted any right to sublicense or distribute Software for a fixed total fee or
royalty. Section 2.23 of the Disclosure Schedule sets forth a list of (a) each
customer that accounted for more than 5% of the revenues of the Seller during
the last full fiscal year and the eleven-month period ending on the Balance
Sheet Date and the amount of revenues accounted for by such customer during each
such period, (b) each supplier that is the sole or principal supplier of any
significant Intellectual Property, material, product, component or service used
by
18
the Seller in the Business, and (c) each reseller or distributor authorized
to sell, sublicense or distribute the Software.
2.24. Bank Accounts; Brokerage Accounts; Powers of Attorney. Section 2.24
-----------------------------------------------------
of the Disclosure Schedule identifies all bank accounts or brokerage accounts
used in connection with the operations of the Seller, whether or not such
accounts are held in the name of the Seller, lists the respective signatories
therefor. No persons hold a power of attorney from the Seller.
2.25. Government Contracts. The Seller has not been suspended or debarred
--------------------
from bidding on contracts or subcontracts with any Governmental Entity; no such
suspension or debarment has been initiated or, to the Seller's knowledge,
threatened; and the consummation of the transactions contemplated by this
Agreement will not result in any such suspension or debarment of the Business.
The Seller is not now being audited or investigated with respect to the Business
by any U.S. Governmental Entity or any foreign Governmental Entity, nor, to the
Seller's knowledge, has any such audit or investigation been threatened. To the
Seller's knowledge, there is no valid basis for (a) the suspension or debarment
of the Business from bidding on contracts or subcontracts with any Governmental
Entity or (b) any claim pursuant to an audit or investigation by any
Governmental Entity. The Seller has no agreements, contracts or commitments with
respect to the Business which require it to obtain or maintain a security
clearance with any Governmental Entity.
2.26. Insurance. Section 2.26 of the Disclosure Schedule sets forth a list
---------
of all policies or binders of fire, liability, product liability, workers
compensation, vehicular, and other insurance held by or on behalf of the Seller.
Such policies and binders are in full force and effect, are reasonably believed
to be adequate for the businesses engaged in by the Seller, and are in
conformity with all leases to which the seller is a party. The Seller is not in
default with respect to any of such policies or binders, nor has the Seller
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. There are no outstanding unpaid claims in excess of
$25,000 in the aggregate under any such policy or binder. The Seller has not
received any written or oral notice of cancellation or modification of any such
policy or binder.
2.27. Registration; Disposition of Shares.
-----------------------------------
(a) The Seller understands that the issuance of the Dataware Shares
and the Dataware Warrants to it and any issuance of shares of Dataware Common
Stock upon exercise of the Dataware Warrants ("Warrant Shares") are not being
registered under the Securities Act of 1933, as amended (the "Securities Act")
or under the securities laws of any state or other jurisdiction in reliance upon
exemptions for private offerings based in part on the representations of the
Seller hereunder and that: (i) there are substantial restrictions on the
transferability of such shares and warrants; (ii) such shares and warrants
cannot be resold unless the sale is registered under the Securities Act and any
applicable securities law of any state or other jurisdiction, or an exemption
from registration is available; (iii) the certificates representing such shares
and warrants will bear a legend to that effect; (iv) except as provided in
Section 7.1, the Seller has no rights to require that the sale of such shares
and warrants be registered under the Securities Act; and (v) unless and until
the sale of the such shares and warrants is so registered or an exemption
therefrom is available to the seller thereof, there will be no public market for
them.
19
(b) The Seller represents and warrants that the Dataware Shares,
Dataware Warrants, and Warrant Shares are being and will be acquired for its own
account and not for resale or other disposition except pursuant to (i) an
exemption from the registration requirements under the Securities Act, (ii) Rule
145 under the Securities Act, (iii) as contemplated by Article 7 hereof, an
effective registration statement filed with respect to such shares with the U.S.
Securities and Exchange Commission ("SEC") under the Securities Act or a
successor legislation, or (iv) a disposition that does not violate the
Securities Act or a successor legislation.
2.28. Disclosure. No representation or warranty by the Seller contained in
----------
this Agreement, and no statement contained in the Disclosure Schedule or any
other schedule, document, certificate or other instrument delivered or to be
delivered by or on behalf of the Seller pursuant to this Agreement contains any
untrue statement of a material fact or omits to state any material fact
necessary, in light of the circumstances under which it was or will be made, to
make the statements herein or therein not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders represents and warrants to the Buyer as follows:
3.1. Investment; Registration; Disposition of Shares.
-----------------------------------------------
(a) Such Stockholder is an "accredited investor" as that term is
defined in Rule 501 under the Securities Act, or has, alone or with another
person that is acting as his purchaser representative, such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of an investment in shares of the Dataware Common Stock
and /or the Dataware Warrants.
(b) Such Stockholder alone or with another person that is acting as
his purchaser representative understands that the issuance of the Dataware
Shares, Dataware Warrants, and Warrant Shares to the Seller (or, in the case of
Warrant Shares issued upon exercise of Dataware Warrants transferred to such
Stockholder or any investment account controlled by such Stockholder, such
issuance) are not being registered under the Securities Act or under the
securities laws of any state or other jurisdiction in reliance upon exemptions
for private offerings based in part on the representations of the Seller and the
Stockholders hereunder and that: (i) there are substantial restrictions on the
transferability of such shares and warrants; (ii) such shares and warrants
cannot be resold unless the sale is registered under the Securities Act and any
applicable securities law of any state or other jurisdiction, or an exemption
from registration is available; (iii) the certificates representing such shares
and warrants will bear a legend to that effect; (iv) except as provided in
Section 7.1, neither the Seller nor any other holder of any of such shares or
warrants has the right to require that the sale of such shares or warrants be
registered under the Securities Act; and (v) unless and until the sale of such
shares and warrants is so registered or an exemption therefrom is available to
the seller thereof, there will be no public market for them.
(c) In the event such Stockholder or any investment account
controlled by such Stockholder acquires any of the Dataware Shares, Dataware
Warrants, or Warrant Shares
20
from the Seller, via liquidation or otherwise, such securities will be acquired
for its own account (or that of such investment account) and not for resale or
other disposition except pursuant to (i) an exemption from the registration
requirements under the Securities Act, (ii) Rule 145 under the Securities Act,
or (iii) an effective registration statement filed by the Buyer with the SEC
under the Securities Act.
3.2. Stockholder's Investigation. Such Stockholder or its purchaser
---------------------------
representative has been furnished with, and has carefully read, this Agreement
and all materials relating to the business, finances, operations, and prospects
of the Buyer that have been reasonably requested by it, including but not
limited to the reports filed by the Buyer with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such Stockholder or its purchaser representative
understands that the Dataware Shares, Dataware Warrants, and Warrant Shares are
being or will be sold without any particular offering or disclosure document,
but acknowledges that the Stockholder or its purchaser representative has been
given ample opportunity to ask questions and request information of and receive
answers from Buyer officials concerning the business, finances, operations, and
prospects of the Buyer and the terms and conditions of the offering and to
obtain additional information necessary to verify the accuracy of the
information provided.
3.3. Authority. This Agreement has been duly authorized, executed and
---------
delivered by such Stockholder (or on his behalf pursuant to a valid, effective
power of attorney) and is a valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
4.1. Organization. The Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware.
4.2. Capitalization. The Buyer is authorized to issue (i) 14,000,000
--------------
shares of Dataware Common Stock, of which 9,190,638 shares were issued and
outstanding as of October 31, 1998, and (ii) 8,000,000 shares of Preferred
Stock, par value $0.01 per share, issuable in series, none of which are issued
and outstanding. All of the issued and outstanding shares of the Dataware Common
Stock are duly authorized, validly issued, fully paid and nonassessable. There
are no shareholder agreements, voting trusts, proxies or other agreements,
instruments or understandings with respect to the voting of the capital stock of
the Buyer.
4.3. Authorization of Transaction. The Buyer has all requisite power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Buyer, the
performance by the Buyer of this Agreement and the consummation of the
transactions contemplated hereby, including without limitation the issuance,
sale and delivery of the Dataware Shares, the Dataware Warrants, and the Warrant
Shares, have been duly and validly authorized by all necessary corporate action
on the part of the Buyer. This Agreement has been duly and validly executed and
delivered by the Buyer and
21
constitutes the valid and binding obligation of the Buyer, enforceable against
the Buyer in accordance with its terms. The Dataware Shares and the Warrant
Shares, when so issued and delivered in accordance with this Agreement or with
the terms of the Dataware Warrants, as the case may be, will be duly and validly
issued, duly paid and nonassessable.
4.4. Noncontravention. Neither the execution and delivery of this
----------------
Agreement by the Buyer, nor the consummation by the Buyer of the transactions
contemplated hereby will, directly or indirectly (with or without notice or
lapse of time), (a) violate any provision of the Restated Certificate of
Incorporation or Bylaws, each as amended to date, of the Buyer or any resolution
adopted by the board of directors or stockholders of the Buyer, (b) except for
filing a registration statement under the Securities Act pursuant to Article 7,
require on the part of the Buyer any filing with, or permit, authorization,
consent or approval of, any governmental entity or give any governmental entity
the right to challenge any of the transactions contemplated by this Agreement,
or (c) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer or any of its properties or assets.
4.5. SEC Reports. The Buyer has timely filed all forms, reports, and
-----------
documents required to be filed with the SEC since December 31, 1997 (the
"Dataware SEC Reports"). As of their respective dates (as amended, if
applicable), the Dataware SEC Reports were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, as
amended, and did not contain any 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 in which they were made, not
misleading. The audited consolidated financial statements of Buyer contained in
Buyer's Annual Report on Form 10-K for the year ended December 31, 1997 and the
unaudited consolidated interim financial statements of Buyer for the fiscal
quarter ended September 30, 1998 contained in Buyer's Quarterly Report on Form
10-Q for the quarter then ended, including the notes relating thereto, have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited interim financial statements, as may be permitted by the
SEC on Form 10-Q under the Exchange Act). Said financial statements and related
notes fairly present in all material respects (subject, in the case of interim
financial statements, to year-end audit and adjustments) the consolidated
financial position and the results of operations and cash flow of Buyer as of
the respective dates thereof and for the periods indicated. Since September 30,
1998, there has not been any change in the business condition of Buyer, except
changes in the ordinary course of business which have not been, in the
aggregate, materially adverse.
4.6. Dataware Shares and Dataware Warrants.
-------------------------------------
(a) Assuming the accuracy of the representations and warranties of
the Seller contained in Article 2 hereof and of the Stockholders contained in
Article 3 hereof, the issuance of the Dataware Shares and the Warrant Shares is
and will be in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), as presently in effect.
(b) The Dataware Shares and Warrant Shares will be issued without
restrictions on transfer other than the applicable restrictions described in
Section 2.27 hereof.
22
(c) The Buyer will reserve sufficient shares of Dataware Common
Stock for issuance upon exercise of the Dataware Warrants.
4.7. No Material Adverse Change. Since December 31, 1997, except as
--------------------------
described in the Dataware SEC Reports, there has not been any material adverse
change in the assets, properties, business, results of operations or financial
condition of the Buyer and its subsidiaries taken as a whole.
4.8. Actions and Proceedings. There are no actions, suits or claims or
-----------------------
legal, administrative or arbitration proceedings pending or, to the best
knowledge of the Buyer, threatened against the Buyer that individually or in the
aggregate would have a material adverse effect upon the transactions
contemplated hereby.
4.9. Brokers' Fees. The Buyer has no liability or obligation to pay any
-------------
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.10. Disclosure. No representation or warranty by the Buyer contained in
----------
this Agreement or any other instrument delivered by the Buyer pursuant to this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary, in light of the circumstances under which it was made,
to make the statements herein or therein not misleading.
ARTICLE 5
POST-CLOSING COVENANTS
5.1. Proprietary Information. From and after the Closing, the Seller,
-----------------------
Xxxxxxx Capital and the Stockholders shall hold in confidence all knowledge,
information and documents of a confidential nature or not generally known to the
public with respect to the Business, the Acquired Assets, the Assumed
Liabilities, or the Buyer (including without limitation the financial
information, Intellectual Property, technical information or data relating to
the materials, products or components sold, or the services offered) and shall
not disclose the same without the written consent of the Buyer, except to the
extent that (i) such knowledge, information or documents shall have become
public knowledge other than through a breach of this Agreement by the Seller,
Xxxxxxx Capital or any Stockholder or (ii) such disclosure is required by an
order of a court of competent jurisdiction, in which case the Seller, Xxxxxxx
Capital or the applicable Stockholder agrees to notify the Buyer immediately of
such order and to use its best efforts to cooperate with the Buyer, at the
Buyer's expense, to lawfully avoid or limit such disclosure and protect the
information in question. Neither the Seller, Xxxxxxx Capital nor any Stockholder
shall make use of any of such confidential information except to the extent
required in connection with the satisfaction of the Retained Liabilities or the
liquidation of the Seller.
5.2. Solicitation and Hiring. For a period of two years after the Closing
-----------------------
Date, the Seller, Xxxxxxx Capital and each Stockholder shall not, either
directly or indirectly as a stockholder, investor, partner, director, officer,
employee or otherwise, (a) solicit or attempt to induce any Restricted Employee
(as defined below) to terminate his or her employment with the
23
Buyer or (b) hire or attempt to hire any Restricted Employee. For purposes of
this Agreement, a "Restricted Employee" shall mean any person who was employed
by the Seller on either the date hereof and received an employment offer from
the Buyer not later than five business days following the date hereof.
5.3. Non-Competition: Referral of Inquiries.
--------------------------------------
(a) In order to assure for the Buyer the benefits of this Agreement,
for a period of five years after the Closing Date, the Seller shall not, either
directly or indirectly as a stockholder, investor, partner, director, officer,
employee, consultant or otherwise, (i) develop, manufacture, market, sell,
perform or offer any material, product, component or service which is
competitive with any material, product, component or service developed (or under
development), manufactured, marketed, sold or offered by the Seller on or prior
to the Closing Date or (ii) engage in any business competitive with the Business
as conducted on the date of this Agreement or as of the Closing Date, in the
United States or any other country in which the Business was conducted during
the five years prior to the Closing Date.
(b) The Seller agrees that the duration and geographic scope of the
noncompetition provision set forth in this Section 5.3 are reasonable. In the
event that any court determines that the duration or the geographic scope, or
both, are unreasonable and that such provision is to that extent unenforceable,
the parties agree that the provision shall remain in full force and effect for
the greatest time period and in the greatest area that would not render it
unenforceable.
(c) The Seller shall refer all inquiries regarding the Acquired
Assets or Assumed Liabilities to the Buyer.
5.4. Sharing of Data. The Seller shall have the right for a period of six
---------------
years following the Closing Date to have reasonable access to, and retain such
copies as are appropriate of, such books, records and accounts, including
financial and tax information, correspondence, production records, employment
records and other records that are transferred to the Buyer pursuant to the
terms of this Agreement for the limited purposes of concluding its involvement
in the Business, liquidating, and complying with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations. The Buyer shall have the right for a period of six years following
the Closing Date to have reasonable access to, and may retain at its own expense
such copies as are appropriate of, those books, records and accounts, including
financial and tax information, correspondence, production records, employment
records and other records that are retained by the Seller pursuant to the terms
of this Agreement to the extent that any of the foregoing is needed by the Buyer
to make use of any of the Acquired Assets or to satisfy any of the Assumed
Liabilities or in order to comply with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations.
Neither the Buyer nor the Seller shall destroy any such books, records or
accounts retained by it without first providing the other party with the
opportunity to obtain or copy such books, records or accounts. In addition,
promptly upon request by the Buyer made at any time following the Closing Date,
(i) the Seller shall authorize the release to the Buyer of all files pertaining
to the Acquired Assets or the Assumed Liabilities held by any Governmental
Entity, and the Seller's authorization shall specifically waive (to the extent
available) all previous claims
24
of privilege or other restrictions, and in any case where a release by a current
or former employee is necessary, the Seller shall use its best efforts to obtain
such a release, and (ii) the Seller shall authorize the release to the Buyer of
all records related to the Seller held by Z&L Associates, Inc.
5.5. Cooperation in Litigation; Release of Liens. From and after the
-------------------------------------------
Closing Date, (a) each party shall fully cooperate with the other in the defense
or prosecution of any litigation or proceeding already instituted or which may
be instituted hereafter against or by such other party relating to or arising
out of the conduct of the Business, the use of the Acquired Assets or the
performance of the Assumed Liabilities prior to or after the Closing Date (other
than litigation arising out of the transactions contemplated by this Agreement)
and (b) the Seller shall fully cooperate with the Buyer in obtaining the release
of any Tax or other lien with respect to any of the Acquired Assets. Except as
otherwise provided in Article 6, the party requesting such cooperation shall pay
the reasonable out-of-pocket expenses incurred in providing such cooperation
(including legal fees and disbursements) by the party providing such cooperation
and by its officers, directors, employees and agents, but shall not be
responsible for reimbursing such party or its officers, directors, employees and
agents for their time spent in such cooperation.
5.6. Collection of Accounts Receivable; Contracts in Progress.
--------------------------------------------------------
(a) The Buyer shall be the responsible party for collecting all
Accounts Receivable. The Seller shall forward promptly to the Buyer any monies,
checks or instruments received by the Seller after the Closing Date with respect
to the Accounts Receivable or Contracts in Progress and shall provide to the
Buyer such reasonable assistance as the Buyer may request with respect to the
collection of any such Accounts Receivable, provided the Buyer pays the
reasonable out-of-pocket expenses of the Seller and its officers, directors and
employees incurred in providing such assistance.
(b) In the event any consent or waiver necessary for the assignment
to Buyer of any of the Assigned Contracts has not been obtained, the parties
shall use their best efforts to obtain all such required consents or waivers
promptly after the Closing. Until such consent, waiver or an appropriate
novation is obtained, the Buyer and the Seller shall cooperate with each other
in any arrangement designed to provide for the Buyer the benefits of, and permit
the Buyer to assume all liabilities and obligations under, any such contract;
provided, however, that such arrangements shall be for the benefit and
protection of the Buyer in respect of liabilities or obligations thereunder
arising after the Closing Date.
5.7. Employees. The Seller hereby consents to the hiring of any or all of
---------
its employees and consultants by the Buyer and hereby waives, with respect to
the employment by the Buyer of such persons, any claims or rights the Seller may
have against the Buyer or any such employee or consultant under any
noncompetition, confidentiality or employment agreement.
5.8. Seller's Taxes. The Seller shall file timely returns with respect to
--------------
all Taxes applicable to it, or to the conduct of the Business for all periods
ending on or before the Closing Date.
25
5.9. Public Announcements and Confidentiality. For a period of three
----------------------------------------
years after the Closing Date, any press release or other information to the
press or any third party with respect to this Agreement or the transactions
contemplated hereby shall require the prior approval of the Buyer and the
Seller, which approval shall not be unreasonably withheld, provided that a party
shall not be prevented from making such disclosure as it shall be advised by
counsel is required by law. The Seller, Xxxxxxx Capital and the Stockholders
shall also keep confidential and shall not use in any manner any information or
documents obtained from the Buyer or its representatives concerning the Buyer's
assets, properties, business and operations, unless readily ascertainable from
public information, already known or subsequently developed by the Seller,
Xxxxxxx Capital or the Stockholders independently, received from a third party
not under an obligation to keep such information confidential or as otherwise
required by law.
ARTICLE 6
INDEMNIFICATION
6.1. Survival. Except as otherwise expressly provided herein, all
--------
representations, warranties, covenants and obligations in this Agreement, the
Disclosure Schedule and any other certificate or documents delivered pursuant to
this Agreement will survive the Closing for a period of one year, and the right
to indemnification, reimbursement or other remedy based on such representations,
warranties, covenants and obligations shall not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) about the accuracy or inaccuracy of or compliance with, any such
representations, warranty, covenants or obligations.
6.2. Indemnification by the Seller. The Seller shall indemnify the Buyer
-----------------------------
in respect of, and hold the Buyer harmless against any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, court costs, costs of investigators, reasonable fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) (collectively, "Damages") incurred or suffered by the Buyer
resulting from, relating to or constituting:
(a) any in accuracy in or breach of any representation or warranty
by the Seller or any Stockholder contained in this Agreement, or
(b) any failure of the Seller or any Stockholder to perform any
covenant or agreement contained in this Agreement.
6.3. Indemnification by the Buyer. The Buyer shall indemnify the Seller in
----------------------------
respect of, and hold it harmless against, any and all Damages incurred or
suffered by the Seller resulting from, relating to or constituting:
(a) any inaccuracy in or breach of any representation or warranty by
the Buyer contained in this Agreement, or
26
(b) any failure of the Buyer to perform any covenant or agreement
contained in this Agreement.
6.4. Limitations. Notwithstanding the foregoing,
-----------
(a) an Indemnifying Party will have no liability for indemnification
pursuant to Section 6.2(a) or 6.3(a) until the total of all Damages with respect
to matters covered by the respective section exceeds $50,000, whereupon the
respective Indemnifying Party will be liable for the entire amount of such
Damages; provided that the preceding sentence of this Section 6.4 will not apply
to any breach of any of the Indemnifying Party's representations and warranties
of which the Indemnifying Party had knowledge at any time prior to the date on
which such representation and warranty is made;
(b) the aggregate liability of the Seller to the Buyer for
indemnification pursuant to this Agreement shall not exceed the value of the
Held Back Shares plus any dividends paid thereon after the Closing Date; and
(c) the aggregate liability of the Buyer to the Seller for
indemnification pursuant to this Agreement shall not exceed the value of the
Held Back Shares.
6.5. Security for Indemnification Obligation. As security for the
---------------------------------------
indemnification obligations contained in this Article 6, at the Closing, the
Buyer shall set aside and hold, and the Seller hereby grants a security interest
in, the Held Back Shares. The Buyer may set off against the Held Back Shares
any loss, damage, cost or expense for which the Seller may be responsible
pursuant to this Agreement (including without limitation, any Damages)
indemnified pursuant to this Article 6, subject, however, to the following terms
and conditions:
(a) The Buyer shall give written notice to the Seller (or following
the Seller's liquidation, Blue Rock and the Stockholder Representative) of any
claim for Damages or any other damages hereunder against which it plans to apply
Held Back Shares, which notice shall set forth (i) the amount of Damages or
other loss, damage, cost or expense which the Buyer claims to have sustained by
reason thereof, and (ii) the basis of such claim in reasonable detail.
(b) To contest any such claim, the Seller, or Blue Rock and the
Stockholder Representative, as the case may be, shall deliver written notice to
the Buyer within ten (10) business days after the Buyer gives its notice of
claim. In the event of such contest, the parties shall attempt to resolve the
claim between themselves. Any dispute with respect to any proposed setoff of
Held Back Shares that cannot be resolved between the parties shall be submitted
to binding arbitration in the City of Boston in accordance with the rules and
procedures of the American Arbitration Association, before a single arbitrator
who will be reasonably familiar with the computer software industry. Judgment
upon any award made in such arbitration may be entered and enforced in any court
of competent jurisdiction.
(c) A claim, or any part thereof, shall become a "Final Claim" upon
any one of the following events:
27
(i) the Seller, or Blue Rock and the Stockholder
Representative, as the case may be, fails to timely contest the claim or such
part pursuant to Section 6.5(b) above, in which case the Final Claim shall equal
the amount of the claim or such part;
(ii) the claim or any art thereof is settled by written
agreement signed by the Seller, or Blue Rock and the Stockholder Representative,
as the case may be, and the Buyer, in which case the Final Claim shall equal the
amount set forth in such agreement; or
(iii) there shall be a final decision of the arbitrator(s), in
which case the Final Claim shall equal the amount awarded by such tribunal.
(d) If and when a claim, or any part thereof, becomes a Final Claim,
for the purposes of any set-off against the Held Back Shares pursuant to this
Article 6, the value of a Held Back Share shall be the closing sale price of a
share of the Dataware Common Stock as reported on the Nasdaq National Market on
the last trading day before the date on which the claim became a Final Claim.
6.6. Claims for Indemnification. Whenever any claim shall arise for
--------------------------
indemnification hereunder with respect to a liability or obligation owed or
asserted to be owed to a third party, the party seeking indemnification (the
"Indemnified Party") shall promptly notify (in accordance with Section 8.6) the
party from whom indemnification is sought (the "Indemnifying Party") (in the
case of the Seller after its liquidation, Buyer shall notify Blue Rock and the
Stockholder Representative), of the claim and, when known, the facts
constituting the basis for such claim; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder except to the
extent of any damage or liability caused by or arising out of such failure. In
the event of any such claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice to
the Indemnifying Party shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is seeking
indemnification hereunder without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld), unless the Indemnifying Party
shall not have taken control of the defense of such claim as provided in Section
6.7 of this Agreement, after notification thereof pursuant to this Section 6.6,
in which case the Indemnified Party may settle or compromise such claim without
the Indemnifying Party's consent.
6.7. Defense by the Indemnifying Party. In connection with any claim for
---------------------------------
indemnification hereunder resulting from or arising out of any claim or legal
proceeding by a third party, the Indemnifying Party at its sole cost and expense
may, upon written notice to the Indemnified Party given within twenty (20) days
after the date of the notice of the claim from the Indemnified Party pursuant to
Section 6.6, assume the defense of such claim or legal proceeding with counsel
approved by the Indemnified Party, which approval shall not be unreasonably
withheld, if (i) the Indemnifying Party acknowledges to the Indemnified Party in
writing the Indemnifying Party's obligations to indemnify the Indemnified Party
with respect to all elements of such claim, (ii) the third party seeks monetary
damages only, and (iii) an adverse resolution of the third party's claim would
not have a material adverse effect on the goodwill or the reputation of the
Indemnified Party or the future conduct of the business of the Indemnified
Party. If the
28
Indemnifying Party so assumes such defense, the Indemnified Party shall be
entitled to participate in (but not control) such defense, with its counsel and
at its own expense. In addition, if the Indemnifying Party so assumes such
defense, it shall take all steps necessary in the defense or settlement thereof;
provided, however, that the Indemnifying Party shall not consent to any
settlement or to the entry of any judgment with respect to a claim or legal
proceeding which does not include a complete release of the Indemnified Party
from all liability with respect thereto or which imposes any liability on the
Indemnified Party without the written consent of the Indemnified Party. If the
Indemnifying Party does not (or is not permitted under the terms hereof to)
assume the defense of any such claim or legal proceeding, (A) the Indemnified
Party may defend against such claim or legal proceeding (with the Indemnifying
Party responsible for the reasonable fees and expenses of counsel for the
Indemnified Party) in such manner as it may deem appropriate, including but not
limited to settling such claim or legal proceeding on such terms as the
Indemnified Party reasonably and in good faith may deem appropriate, and (B) the
Indemnifying Party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense.
6.8. Voting of and Dividends on the Held Back Shares. Except with respect
-----------------------------------------------
to shares transferred pursuant to the right of set-off in Section 6.5 (and in
the case of such shares, until the same are transferred), all Held Back Shares
shall be deemed to be owned by the Seller, or such other persons or entities in
whose names the Seller may instruct the Buyer to reregister the Held Back
Shares, who or which shall be entitled to vote the Held Back Shares on all
matters presented to the stockholders of the Buyer; provided that (a) the Buyer
shall not be required to reregister any Held Back Shares in the name of any
person or entity that has not delivered to the Buyer a stock power properly
executed in blank with respect to such reregistered Held Back Shares and (b) no
such reregistration shall affect the Buyer's rights hereunder with respect to
such Held Back Shares. There shall be deposited with the Buyer all shares of
Dataware Common Stock issued as a result of any stock dividend or stock split
with respect to the Held Back Shares and all cash dividends paid with respect to
the Held Back Shares, and all such additional shares and cash shall be held by
the Buyer as additional security subject to the provisions of this Article 6. In
the event any Held Back Shares are distributed to or at the direction of the
Seller, all stock and cash issued or paid upon any Held Back Share shall be
distributed together with such Held Back Share.
6.9. Partial Release; Delivery of Held Back Shares. The Buyer agrees to
---------------------------------------------
deliver the Held Back Shares to or as directed by the Seller as follows:
(a) On the date that is three months after the Closing Date, thirty
seven thousand five hundred (37,500) of the Held Back Shares;
(b) On the date that is six months after the Closing Date, thirty
seven thousand five hundred (37,500) of the Held Back Shares; and
(c) On the date that is the first anniversary of the Closing Date,
the remaining seventy five thousand (75,000) Held Back Shares,
provided that the Buyer shall not deliver to the Seller any Held Back Shares
then held by the Buyer if at the time of proposed distribution there remains
unresolved any claim for Damages or
29
other damages hereunder as to which notice has been given and all claims made up
to and including that time, in the aggregate, exceed $50,000, in which event any
remaining Held Back Shares shall continue to be held by the Buyer subject to the
provisions of this Article 6 until such claim shall have become a Final Claim or
shall have otherwise been satisfied.
6.10. Consequential Damages. Notwithstanding anything to the contrary in
---------------------
this Agreement, in no event shall either party be liable for any consequential
damages, whether foreseeable or not, occasioned by any failure to perform or the
breach of any representations, warranties, covenants or obligations of any type
under this Agreement for any cause whatsoever.
ARTICLE 7
SECURITIES REGISTRATION
7.1. Registration on Form S-3. The Buyer will, within 45 days after the
------------------------
Closing Date, file with the SEC a registration statement on Form S-3 (or
successor Form providing for incorporating substantially all information about
the Buyer by reference from other SEC filings), covering all the Dataware Shares
and will use its reasonable efforts to cause such registration statement to
become effective thereafter and to remain effective until the second anniversary
of the Closing Date (the "Termination Date"). Notwithstanding the foregoing, if
the Buyer is not eligible to register the resale of such securities on such Form
within such time, the Buyer will file such registration statement promptly after
it again becomes so eligible, whereupon the other provisions of this Article 7
shall apply. Subject to receipt of the transferee's agreement described in
Section 7.4, the Buyer will amend such registration statement within a
reasonable time after request to include the names of any permitted transferee
of the Dataware Shares as selling stockholders. Each holder of Dataware Shares
being registered on such registration statement (the "Selling Holders") shall,
as a condition thereof, provide the Buyer with all such information about such
holder and his or its proposed method of distribution as the Buyer shall
reasonably request to comply with the provisions of the Securities Act and the
rules of the SEC thereunder.
7.2. Registration Procedures. In connection with any registration
-----------------------
statement filed under Section 7.1, the Buyer shall:
(a) furnish to the Selling Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the registered
Dataware Shares owned by them;
(b) notify each Selling Holder at any time when a prospectus
relating to such shares is required to be delivered under the Securities Act as
a result of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, whereupon each such Selling Holder
shall refrain from selling any Dataware Shares pursuant to such registration
statement until the Buyer shall have filed such amendment or supplement to such
registration statement and the prospectus used in connection
30
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) cause all such registered Dataware Shares to be registered (if
not exempt) under the blue sky laws of any state reasonably requested by a
Selling Holder and to be listed on each securities exchange or national market
on which similar securities issued by the Buyer are then listed; and
(d) pay all expenses of such registration, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Buyer (but not for any
Selling Holder), blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding
underwriting fees, discounts, selling commissions and stock transfer taxes
applicable to the securities registered by a Selling Holder).
7.3. Indemnification.
---------------
(a) The Buyer will indemnify each Selling Holder, each of its
officers and directors and partners and each Person controlling any such Persons
within the meaning of Section 15 of the Securities Act, and each underwriter, if
any, and each Person who controls any underwriter within the meaning of Section
15 of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in the investigation or settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any 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 any violation by the Buyer of any rule or regulation promulgated
under the Securities Act or any state securities laws applicable to the Buyer
and relating to action or inaction required of the Buyer in connection with any
such registration, qualification or compliance, and will reimburse each such
Selling Holder, each of its officers and directors and each Person controlling
any such Persons, each such underwriter and each Person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided that the Buyer will not be liable in any
such case to the extent that any such claim, loss, damage, liability, expense,
or violation arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Buyer by an instrument duly executed
by such Selling Holder or underwriter, or any action or inaction required of any
Selling Holder in connection there with.
(b) Each Selling Holder will indemnify the Buyer, each of its
directors and officers, each underwriter, if any, of the Buyer's securities
covered by such a registration statement, each Person who controls the Buyer or
such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Person whose securities are covered by such registration
statement, each of its officers and directors and each Person controlling such
31
selling securityholder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any 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 any violation by
such Selling Holder of any rule or regulation promulgated under the Securities
Act or any state securities laws applicable to such Selling Holder and relating
to action or inaction required of such Selling Holder in connection with any
such registration, qualification or compliance, and will reimburse the Buyer,
such other selling securityholders, such directors, officers, underwriters or
control Persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Buyer by such Selling Holder for use therein or such violation
arises out of any action or inaction required of such Selling Holder in
connection therewith; provided, however, that the obligation of such Selling
-------- -------
Holder hereunder shall be limited to an amount equal to the net proceeds
received by such Selling Holder upon the sale of the Dataware Shares sold by
such Selling Holder in the offering covered by such registration.
(c) Each party entitled to indemnification under this Section 7.3
(the "Indemnified Party") shall give notice to the party required to provide
------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest (as determined in good faith by the Indemnified Party). The failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
do so materially prejudices the Indemnifying Party. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 7.3 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Section 7.3 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as
32
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Indemnifying Party or
parties on the one hand or the Indemnified Party on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid to an Indemnified
Party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 7.3(d) shall be deemed to include any legal
or other expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any action or claim that is the subject of this
Section 7.3. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
7.4. Transfer of Registration Rights. The rights of a holder of
-------------------------------
Dataware Shares under this Article 7 may be transferred to any stockholder or
noteholder of the Seller who receives Dataware Shares in connection with the
liquidation of the Seller or to any other transferee of at least five percent
(5%) of the total number of Dataware Shares; provided that such transferee shall
have executed an instrument satisfactory to the Buyer agreeing to be bound by
the obligations of his or its transferor under this Article 7.
ARTICLE 8
MISCELLANEOUS
8.1. No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
8.2. Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto and the documents referred to herein) constitutes the entire
agreement between the parties and supersedes any prior understandings,
agreements or representations by or between the parties, written or oral, that
may have related in any way to the subject matter hereof.
8.3. Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. The Buyer may assign its rights, interests and/or
obligations hereunder to an affiliate of the Buyer but, in such event, the Buyer
shall remain liable for all of its obligations hereunder. Except as provided in
the preceding two sentences or in Section 7.4, neither party may assign either
this Agreement or any of its rights, interests or obligations hereunder without
the prior written approval of the other party.
8.4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.5. Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
33
8.6. Notices. All notices, requests, demands, claims and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered upon personal
delivery or transmission by fax, four business days after it is sent by U.S.
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service, in each case to the intended recipient as set forth below:
If to the Seller:
----------------
Sovereign Hill Software, Inc.
000 Xxxxxxx Xxx
Xxxxxx, XX 00000
Attn: President
Fax: (000) 000-0000
Copy to:
-------
Mintz Xxxxx Xxxx Xxxxxx Xxxxxxx and Xxxxx PC
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
If to Blue Rock:
---------------
Blue Rock Capital L.P.
000 Xxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Fax: (000) 000-0000
Copy to:
-------
Xxxxxx Xxxxxxxx LLP
0000 Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxxx, Esq.
Fax: (000) 000-0000
34
If to any Xxxxxxx Stockholder or
--------------------------------
the Stockholder Representative:
------------------------------
Xxxxxxx Capital Group LLC
As Stockholder Representative
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Copy to:
-------
Xxxxxx Xxxxxxxx LLP
0000 Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxxx, Esq.
Fax: (000) 000-0000
If to Xxxxxx Xxxxx:
------------------
Xxxxxx Xxxxx
Conus Partners, Inc.
00 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
If to the Buyer:
---------------
Dataware Technologies, Inc.
Xxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: President
Fax: (000) 000-0000
Copy to:
-------
Xxxxxx & Dodge LLP
Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
Any party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
35
8.7. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts.
8.8. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by each
of the parties. No waiver by either party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
8.9. Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision they is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.10. Expenses. Except as specifically set forth in this Agreement, each
--------
party shall bear its own costs and expenses (including legal and accounting fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. In the event of any litigation, claim or proceeding with
respect to this Agreement, the prevailing party shall be paid its reasonable
legal fees and expenses by the opposing party.
8.11. Specific Performance. The Seller and each Stockholder acknowledges
--------------------
and agrees that the Buyer would be damaged irreparably in the event any of its
or his obligations under any provision of Article 5 hereof are not performed in
accordance with their specific terms or otherwise are breached and, accordingly,
agrees that the Buyer shall be entitled to an injunction or injunctions to
prevent breaches of such provisions of this Agreement and to enforce
specifically such provisions in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter,
in addition to any other remedy to which it may be entitled, at law or in
equity.
8.12. Submission to Jurisdiction. Each party (a) submits to the
--------------------------
jurisdiction of any state or federal court sitting in the Commonwealth of
Massachusetts in any action or proceeding arising out of or relating to this
Agreement, (b) agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court, and (c) agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other
court. Each party hereby waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of the other party with respect
thereto. Each party hereto shall accept service made on him or it by sending or
delivering a copy of the process to such party at the address and in the manner
provided for the
36
giving of notices in this Agreement. Nothing in this Section 8.12, however,
shall affect the right of either party to serve legal process in any other
manner permitted by law.
8.13. Construction. The language used in this Agreement shall be deemed
------------
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against either party. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder unless the
context requires otherwise.
8.14. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
8.15. Stockholder Representative.
--------------------------
(a) In order to efficiently administer the matters described in
paragraph (c) of this Section 8.15, Xxxxxxx Capital is hereby designated as the
representative of the Xxxxxxx Stockholders (the "Stockholder Representative")
and appointed as agent and attorney-in-fact with full power to execute,
acknowledge, deliver, and file any instrument, agreement, release, or document
necessary or appropriate for any such purpose.
(b) If the Stockholder Representative enters into any voluntary or
involuntary dissolution, bankruptcy or insolvency proceedings or otherwise
becomes unable to perform its responsibilities hereunder or resigns from such
position, Xxxxxxx Stockholders who had a majority of the shares of SH Capital
Stock held by all Xxxxxxx Stockholders on the date hereof shall, within ten (10)
days after such event, select another representative to fill such vacancy and
such substituted representative shall be deemed to be the Stockholder
Representative for all purposes of this Agreement.
(c) The Stockholder Representative is exclusively authorized and
appointed from time to time in its sole discretion (i) after the liquidation of
the Seller, to take all actions necessary or appropriate in connection with the
defense and/or settlement of any claims for which the Seller may be required to
indemnify the Buyer pursuant to this Agreement, (ii) to give and receive all
notices required to be given by or to the Stockholder Representative under this
Agreement and (iii) to take any and all additional actions as are contemplated
to be or may be taken by or on behalf of the Stockholder Representative under or
with respect to this Agreement.
(d) With respect to the authority of the Stockholder Representative:
(i) The Buyer shall be able to rely conclusively on the written
instructions and decisions of the Stockholder Representative as to the matters
set forth in paragraph (c) above, and no party shall have any cause of action
against the Buyer for any action taken by the Buyer in reliance upon the written
instructions or decisions of the Stockholder Representative;
(ii) all actions, decisions and instructions of the Stockholder
Representative hereunder, including without limitation with respect to the
defense or settlement of any claims for which the Seller may be required to
indemnify the Buyer pursuant to this Agreement, shall be conclusive and binding
upon all of the Xxxxxxx Stockholders and no Xxxxxxx
37
Stockholder shall have the right to object, dissent, protest or otherwise
contest the same, nor any cause of action against the Stockholder Representative
for any action taken, decision made or instruction given by the Stockholder
Representative under the authority granted hereby, absent fraud or willful
breach of this Agreement by the Stockholder Representative;
(iii) the provisions of this Section 8.15 are independent and
severable, are irrevocable and coupled with an interest, and shall be
enforceable notwithstanding any rights or remedies that any Xxxxxxx Stockholder
may have in connection with the transactions contemplated by this Agreement;
(iv) remedies available at law for any breach of the provisions
of this Section 8.15 are inadequate; therefore, the Buyer, and the Stockholder
Representative shall be entitled to temporary and permanent injunctive relief
without the necessity of proving damages if any of them brings an action to
enforce any of the provisions of this Section 8.15; and
(v) the provisions of this Section 8.15 shall be binding upon
the executors, heirs, legal representatives, successors, and assigns of each
Xxxxxxx Stockholder, and any references in this Agreement to a Xxxxxxx
Stockholder or the Xxxxxxx Stockholders shall mean and include the successors to
the Xxxxxxx Stockholders' rights hereunder, whether pursuant to testamentary
disposition, the laws of descent and distribution, merger or other operation of
law, or otherwise.
(e) All fees and expenses incurred by the Stockholder Representative
in his capacity as such shall be paid by the Xxxxxxx Stockholders in proportion
to their holdings of shares of SH Capital Stock on the date hereof; provided
--------
that the Stockholder Representative may direct that any such amounts be withheld
from any payment otherwise due hereunder to or as directed by the Seller and
paid to or as directed by it.
(f) The Stockholder Representative shall not be liable to the Xxxxxxx
Stockholders for the performance of any act or the failure to act under or in
connection with this Agreement, and the Xxxxxxx Stockholders shall indemnify and
hold harmless the Stockholder Representative from any liability in connection
with its acting as such, as long as its actions or failure to act did not
constitute gross negligence or willful misconduct.
8.16. Release. Each of the undersigned Stockholders, on its behalf and on
-------
behalf of its successors and assigns, heirs and representatives, hereby remises,
releases and forever discharges the Buyer and its respective directors,
officers, agents, administrators, attorneys and accountants (the "Releasees")
from all actions, causes of action, suits, debts, damages, judgments,
liabilities, obligations, claims and demands of any kind or nature whatsoever,
in law, in equity or otherwise, individual, representative or derivative, joint
or several, known or unknown, asserted or unasserted, which they or any of them
ever had, now have, or hereafter can, shall or may have against any Releasee
arising out of or in connection with any ownership interest the undersigned has
or has had in the Seller and any distribution of assets in connection with the
winding down and liquidation of the Seller or the purchase by the Buyer of
substantially all of the assets of the Seller, including the terms of the
Purchase Agreement.
38
8.17. Certain Defined Terms. The following terms are used in this
---------------------
Agreement as defined in the following sections, respectively:
Term Section
---- -------
Accounts Receivable 1.1(a)(v)
Acquired Assets 1.1(a)
Assigned Contracts 1.1(a)(iv); Schedule 1.1
Assumed Liabilities 1.2(a)
Assumed Warranty Claims 1.2(a)(iii)
Audited Financial Statements 2.4
Balance Sheet 2.4
Balance Sheet Date 2.4
Business Preliminary Statement
Certificate of Incorporation 2.1(b)
Closing 1.4
Closing Date 1.4
Closing Share Price 1.3(b)
Code 2.7(c)
Contracts in Progress 1.1(a)(v)
Damages 6.2
Dataware Common Stock 1.3
Dataware Shares 1.3
Dataware Warrants 1.3
Disclosure Schedule Introduction to Article 2
Employee Benefit Plan 2.17
ERISA 2.17
Exchange Act 3.2
Financial Statements 2.4
GAAP 2.4
Governmental Entity 1.1(a)(vi)
Held Back Shares 1.3
Intellectual Property 1.1(a)(iii)
Material Adverse Effect 2.5
Permits 1.1(a)(vi)
Purchase Consideration 1.3
Retained Assets 1.1(b)
Retained Liabilities 1.2(b)
SEC 2.27(b)
Securities Act 2.27
Security Interest 2.3
Series A Preferred Stock 2.1(c)
SH Capital Stock 2.1(c)
SH Common Stock 2.1(c)
Silicon Valley Bank Notes 1.2(b)(i)
Software 1.1(a)(i)
Stockholder Representative 8.15
Tax Returns 2.7
39
Term Section
---- -------
Taxes 2.7
Unaudited Financial Statements 2.4
Warrant Shares 2.27
Year 2000 Ready 2.12
40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SOVEREIGN HILL SOFTWARE, INC.
By: /s/ Xxxxx Xxxxxxx
------------------------
Xxxxx Xxxxxxx, President
DATAWARE TECHNOLOGIES, INC.
By: /s/ Xxxx Xxxxxxx
-------------------------
Xxxx Xxxxxxx, President
STOCKHOLDERS:
BLUE ROCK CAPITAL, L.P.
By: BLUE ROCK PARTNERS, L.P.
Its General Partner
By: BLUE ROCK, INC.
Its General Partner
By: /s/ Xxxxx Xxxxxxxx
---------------------
Title: Vice President
XXXXXXX CAPITAL GROUP, L.L.C.,
individually
By: /s/ Xxxxxx Xxxxxxx
---------------------
Title: Principal
EACH OF THE PERSONS AND
ENTITIES LISTED ON
SCHEDULE A HERETO,
By XXXXXXX CAPITAL GROUP, L.L.C.,
as attorney-in-fact
By: /s/ Xxxxxx Xxxxxxx
---------------------
Title: Principal
/s/ Xxxxxx Xxxxx
---------------------
Xxxxxx Xxxxx
41
