EXHIBIT 10.1
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R&D SYSTEMS COMPANY
26,000 Shares of
Series A Convertible Participating Preferred Stock
STOCK PURCHASE AGREEMENT
Dated as of March 14, 1996
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R&D Systems Company
Stock Purchase Agreement
Dated as of March 14, 1996
INDEX
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Page
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SECTION 1. TERMS OF PURCHASE....................................................................1
1.1 Description of Securities............................................................1
1.2 Reserved Shares......................................................................1
1.3 Sale and Purchase....................................................................1
1.4 Closing..............................................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE INDIVIDUAL FOUNDERS............................................................2
2.1 Organization and Corporate Power.....................................................2
2.2 Authorization........................................................................2
2.3 Non-contravention....................................................................3
2.4 Capitalization of the Company........................................................3
2.5 Financial Statements.................................................................4
2.6 Absence of Undisclosed Liabilities...................................................5
2.7 Absence of Certain Developments......................................................5
2.8 Accounts Receivable..................................................................5
2.9 Title to Properties..................................................................6
2.10 Tax Matters..........................................................................6
2.11 Contracts and Commitments............................................................7
2.12 Proprietary Rights; Employee Restrictions............................................7
2.13 Litigation...........................................................................9
2.14 Offerees.............................................................................9
2.15 Business; Compliance with Laws......................................................10
2.16 Investment Banking; Brokerage.......................................................10
2.17 Solvency............................................................................11
2.18 Environmental Matters...............................................................11
2.19 Employee Benefit Programs...........................................................11
2.20 Product and Services Claims.........................................................13
2.21 Backlog.............................................................................14
2.22 Employees; Labor Matters............................................................14
2.23 Customers, Distributors and Suppliers...............................................14
2.24 Corporate Records; Copies of Documents..............................................14
2.25 Affiliate Transactions..............................................................15
2.26 FIRPTA Withholding..................................................................15
SECTION 3. CONDITIONS OF PURCHASE..............................................................15
3.1 Satisfaction of Conditions..........................................................15
3.2 Opinion of Counsel..................................................................15
(i)
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3.3 Authorization.......................................................................15
3.4 Effectiveness of Preferred Stock Terms..............................................16
3.5 Stockholders' Agreement.............................................................16
3.6 Non-Competition Agreements..........................................................16
3.7 Senior Debt Facility................................................................16
3.8 Election of Directors; Indemnification Agreements...................................16
3.9 Recapitalization....................................................................16
3.10 [Intentionally Omitted].............................................................17
3.11 Releases............................................................................17
3.12 Escrow Agreement....................................................................17
3.13 All Proceedings Satisfactory........................................................17
3.14 No Adverse Change...................................................................17
3.15 Delivery of Documents...............................................................17
SECTION 3B. CONDITIONS OF SALE..................................................................18
3.1B Satisfaction of Conditions..........................................................18
3.2B Senior Debt Facility................................................................18
3.3B Stockholders' Agreement.............................................................18
3.4B Indemnification Agreement...........................................................19
3.5B Delivery of Documents...............................................................19
SECTION 4. COVENANTS OF THE COMPANY............................................................19
4.1 Financial Statements; Minutes.......................................................19
4.2 Budget and Operating Forecast.......................................................20
4.3 Conduct of Business.................................................................20
4.4 Payment of Taxes, Compliance with Laws, etc.........................................20
4.5 Insurance...........................................................................20
4.6 Maintenance of Properties...........................................................21
4.7 Affiliated Transactions.............................................................21
4.8 Management Compensation.............................................................21
4.9 Use of Proceeds.....................................................................21
4.10 Board of Directors Meetings.........................................................22
4.11 Right to Participate in Sales of Additional Securities..............................22
4.12 Stockholders' Agreement, Non-Competition Agreements and Confidentiality and
Proprietary Rights Agreements.......................................................23
4.13 Distributions on, and Redemptions of, Capital Stock.................................23
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other Actions...............24
4.15 No Amendments to Certificate of Incorporation.......................................24
4.16 Capital Expenditures................................................................24
SECTION 5. INVESTOR REPRESENTATIONS............................................................25
SECTION 6. INDEMNIFICATION.....................................................................26
(ii)
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6.1 [Intentionally Omitted].............................................................26
6.2 Indemnification for Breaches........................................................26
6.3 Limitations on Indemnification......................................................27
6.4 Notice; Defense of Claims...........................................................28
6.5 Satisfaction of Indemnification Obligations; Disputed Claims........................29
SECTION 7. GENERAL.............................................................................30
7.1 Amendments, Waivers and Consents....................................................30
7.2 Survival of Representations, Warranties and Covenants; Assignability of Rights......30
7.3 Governing Law.......................................................................31
7.4 Section Headings; Counterparts......................................................31
7.5 Notices and Demands.................................................................31
7.6 Severability........................................................................31
7.7 Expenses............................................................................31
7.8 Integration.........................................................................32
APPENDIX A - List of Investors
APPENDIX B - Lammle Entity Holdings
EXHIBITS
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Exhibit A - Form of Indemnification Agreement
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Confidentiality and Proprietary Rights Agreement
Exhibit D - Stockholders' Agreement
Exhibit E - Non-Competition Agreement
Exhibit F - Stock Option Plan
Exhibit G - Escrow Agreement
Exhibit H - Form of Release
Exhibit I - Form of Opinion re: Company
(iii)
SCHEDULES
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Schedule 2.3 - Non-contravention
Schedule 2.4 - Capitalization and Beneficial Ownership
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Material Developments
Schedule 2.8 - Accounts Receivable
Schedule 2.9 - Title to Properties
Schedule 2.10 - Tax Matters
Schedule 2.11 - Material Contracts
Schedule 2.12 - Proprietary Rights
Schedule 2.13 - Litigation
Schedule 2.14 - Offerees
Schedule 2.15 - Business
Schedule 2.18 - Environmental Matters
Schedule 2.19 - ERISA
Schedule 2.20 - Product and Service Claims
Schedule 2.21 - Backlog
Schedule 2.22 - Employees; Labor Matters
Schedule 2.23 - Customers, Distributors and Suppliers
Schedule 2.25 - Affiliate Transactions
Schedule 3.9 - Recapitalization
(iv)
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 14th day of March, 1996 by and among R&D Systems
Company, a Delaware corporation (the "Company"), and Xxxxx X. Xxxx and Xxx X.
Xxxxxx (collectively, the "Individual Founders"), and Xxxx X. Xxxx, Xxxxxxxx
Xxxx Trust and Xxxx Xxxx Trust (collectively with Xxxxx Xxxx, the "Xxxx
Entities") and Xxxx X. Xxxxxx, Xxx Xxxxxx Trust, Xxxxx Xxxxxx Trust and Xxxxx
Xxxxxx Trust (collectively with Xxx X. Xxxxxx, the "Lammle Entities") (the Linn
Entities and the Lammle Entities are collectively referred to as the "Founders")
and the investors identified on the signature pages hereto (the "Investors").
SECTION 1. TERMS OF PURCHASE
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1.1 Description of Securities. The Company has authorized the issuance
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and sale to the Investors of 26,000 shares (the "Preferred Shares") of its
authorized but unissued Series A Convertible Participating Preferred Stock, par
value $.01 per share (the "Preferred Stock"), which is convertible into 15,500
shares of the Company's authorized but unissued Senior Redeemable Preferred
Stock, par value $.01 per share (the "Senior Redeemable Preferred Stock"), and
2,600,000 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock") (in each case adjusted appropriately for stock splits, stock
dividends, recapitalizations and the like), for a purchase price of $1,000 per
Preferred Share. The Company has also authorized the issuance to the Lammle
Entities of 6,500 shares of its authorized but unissued Series B Convertible
Participating Preferred Stock, par value $.01 per share (the "Series B
Convertible Preferred Stock"), which is convertible into 3,875 shares of its
authorized but unissued Senior Redeemable Preferred Stock, 650,000 shares of
Common Stock and 2,625 shares of its authorized but unissued Junior Redeemable
Preferred Stock, par value $.01 per share (the "Junior Redeemable Preferred
Stock") (in each case adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like).
1.2 Reserved Shares. The Company has authorized and has reserved and
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covenants to continue to reserve, a sufficient number of shares of Common Stock
and Senior Redeemable Preferred Stock to satisfy the rights of conversion of the
holders of the Preferred Stock. Any shares of Common Stock, Senior Redeemable
Preferred Stock or any successor class of capital stock of the Company hereafter
issued or issuable upon conversion of the Preferred Shares are herein referred
to as "Conversion Shares," and the Preferred Shares and the Conversion Shares
are herein collectively referred to as the "Securities."
1.3 Sale and Purchase. At the Closing (as hereinafter defined) and
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subject to the terms and conditions herein set forth, the Company shall issue
and sell to each of the Investors, and each Investor severally and not jointly
shall purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Investor in Column 1 of Appendix A hereto for the
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aggregate purchase price set forth in the corresponding row of Column 2 of said
Appendix A.
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1.4 Closing. The closing (the "Closing") of the sale and purchase of
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the Preferred Shares shall take place at the offices of Holland & Xxxx, located
at 000 Xxxxxxxxxxx Xxxxxx, Xxxxx
0000, Xxxxxx, Xxxxxxxx 00000, at 10:00 A.M., on the date hereof, or such other
date, time and place as shall be mutually agreed upon by the Company and a
majority-in-interest of the Investors (the "Closing Date"). At the Closing, the
Company will deliver the Preferred Shares being acquired by each Investor in the
form of a certificate, issued in such Investor's name or in the name of its
nominee (of which the Investor shall notify the Company not less than two
business days prior to the Closing), against payment of the full purchase price
therefor by or on behalf of each Investor to the Company by check or wire
transfer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE INDIVIDUAL
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FOUNDERS
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In order to induce the Investors to enter into this Agreement, the Company
and the Individual Founders severally hereby represent and warrant to the
Investors that except as expressly contemplated by this Agreement, as of the
date hereof:
2.1 Organization and Corporate Power. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to qualify would not have a material adverse
effect on the Company. The Company has all required corporate power and
authority to own its property, to carry on its business as presently conducted
or contemplated, to enter into and perform this Agreement and the agreements
contemplated hereby, and generally to carry out the transactions contemplated
hereby and thereby. The copies of the Certificate of Incorporation and By-laws
of the Company, each as amended to date, which have been furnished to counsel
for the Investors, are correct and complete at the date hereof. The Company is
not in violation of any term of its Certificate of Incorporation or By-laws or
any material agreement, instrument, judgment, decree, order, statute, rule or
government regulation applicable to the Company.
2.2 Authorization. This Agreement and all documents and instruments
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executed pursuant hereto are valid and binding obligations of the Company and,
to the extent they are parties thereto, each of the Founders, enforceable in
accordance with their terms against the Company and the Founders, respectively.
The execution, delivery and performance of this Agreement and all documents and
instruments contemplated hereby and the delivery and issuance of the Preferred
Shares and, upon conversion of the Preferred Shares, the Conversion Shares have
been duly authorized by all necessary corporate or other action of the Company.
No consent, approval or authorization of, or designation, declaration or filing
with, any governmental authority is required of the Company in connection with
the execution, delivery and performance of this Agreement, or the issuance and
delivery by the Company of the Preferred Shares in accordance with the terms of
this Agreement and, upon conversion of the Preferred Shares, the Conversion
Shares, or the performance or consummation of any other transaction contemplated
hereby.
2.3 Non-contravention. Except as set forth on Schedule 2.3, the
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execution, delivery and performance by the Company and the Founders of this
Agreement and each of the other
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agreements and instruments to which they are a party and which are contemplated
hereby will not: (a) conflict with or result in any default under any material
agreement, contract, obligation or commitment of the Company or any of the
Founders, or any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any lien, charge or encumbrance of any
nature upon any of the properties or assets of the Company or the capital stock
of the Company owned or to be owned by the Founders or their affiliates; or (c)
violate any material instrument, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company or any of the Founders or to which the Company or any of the Founders is
a party.
2.4 Capitalization of the Company. The authorized capital stock of the
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Company consists of: (i) 10,000,000 shares of Common Stock, of which 640,845
shares will be, as of the Closing, duly and validly issued, outstanding, fully
paid and nonassessable after giving effect to the recapitalization contemplated
by Section 3.9; (ii) 54,500 shares of designated preferred stock, par value $.01
per share, of which (a) 26,000 shares have been designated as Series A
Convertible Participating Preferred Stock and will, as of the Closing, be
issued, outstanding, fully paid, and nonassessable, (b) 6,500 shares have been
designated as Series B Convertible Participating Preferred Stock and will, as of
the Closing, be issued, outstanding, fully paid, and nonassessable, (c) 19,375
shares have been designated as Senior Redeemable Preferred Stock, none of which
will be issued and outstanding as of the Closing, and (d) 2,625 shares have been
designated as Junior Redeemable Preferred Stock, none of which will be issued
and outstanding as of the Closing; and (iii) 50,000 shares of undesignated
preferred stock, par value $.01 per share. Except as disclosed in Schedule 2.4
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and except for 1,327,465 shares of Common Stock issued or reserved for issuance
under the Company's Stock Option and Grant Plan in the form attached hereto as
Exhibit F (the "Stock Option Plan"), the Company has not issued any other shares
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of its capital stock and there are no outstanding warrants, options or other
rights to purchase or acquire any of such shares, nor any outstanding securities
convertible into such shares or outstanding warrants, options or other rights to
acquire any such convertible securities. As of the Closing, assuming the
accuracy of the Investor representations set forth in Section 5 hereof, all of
the outstanding shares of capital stock of the Company will have been offered,
issued, sold and delivered in compliance with applicable federal and state
securities laws. The Preferred Shares have been duly and validly authorized and,
when delivered and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable. The Preferred Shares are convertible into 15,500
shares of Senior Redeemable Preferred Stock and 2,600,000 shares of Common Stock
representing 80% of the Common Stock of the Company on a presently outstanding
basis and 57% of the Common Stock of the Company on a fully-diluted basis after
giving effect to the issuance of the 1,327,465 shares issued or reserved for
issuance under the Stock Option Plan and the exercise, exchange or conversion of
any other securities exercisable or exchangeable for or convertible into Common
Stock. The relative rights, preferences, restrictions and other provisions
relating to the Preferred Stock are as set forth in Exhibit B attached hereto.
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The Company has authorized and reserved for issuance upon conversion of the
Preferred Shares not less than 15,500 shares of its Senior Redeemable Preferred
Stock and 2,600,000 shares of its Common Stock, and the Conversion Shares
issuable upon such conversion will be, when issued in accordance with the
Amended and Restated Certificate of
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Incorporation of the Company, duly and validly authorized and issued, fully paid
and nonassessable.
Except as set forth on Schedule 2.4, there are no preemptive rights or
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rights of first refusal with respect to the issuance or sale of the Company's
capital stock. Except as set forth on Schedule 2.4, no officer, director or
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employee of the Company or any other person or entity has, claims to have or has
any right to claim to have any interest in the Company's capital stock. Except
as disclosed in Schedule 2.4, there are no restrictions on the transfer of the
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Company's capital stock other than those arising from federal and state
securities laws or pursuant to the Stockholders' Agreement. Except as set forth
on Schedule 2.4 or pursuant to the Stockholders' Agreement, there are no rights,
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obligations, or restrictions on the voting of any of the Company's capital stock
or the registration of such capital stock for offering to the public pursuant to
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the capital stock owned by the Lammle Entities or the Linn Entities or which
arise pursuant to the Company's charter documents or any agreement to which the
Company is a party. The outstanding shares of the capital stock, before giving
effect to the transactions contemplated by this Agreement, are held of record
and beneficially by the persons identified in Schedule 2.4 in the amounts
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indicated therein. Upon the Closing, and after giving effect to the transactions
contemplated by this Agreement, the only stockholders of the Company other than
the Investors will be the Lammle Entities which, collectively, will beneficially
own 6,500 shares of Series B Convertible Preferred Stock, in the amount set
forth on Appendix B.
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The Company has no subsidiaries or investments in any other corporation
or business organization. Except as disclosed in Schedule 2.4, the Company does
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not own or have any direct or indirect interest in, a loan or advance to, or
control over any corporation, partnership, joint venture or other entity of any
kind.
2.5 Financial Statements. The Company has heretofore furnished to the
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Investors the following financial statements: (i) audited balance sheet of the
Company as of December 31, 1995 and the related statements of income, retained
earnings and cash flows of the Company for the 12-month period ended December
31, 1995, together with the notes thereto (collectively, the "Audited Financial
Statements"), and (ii) pro forma unaudited balance sheets for the Company as of
February 29, 1996 (adjusted to reflect the transactions contemplated herein).
All of the financial statements of the Company furnished to the Investors for
the fiscal years ended December 31, 1992, 1993, 1994 and 1995 have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, except that interim financial statements and pro forma
statements have been prepared without footnote disclosures and year-end audit
adjustments, which will not, in any event, be material. All of such financial
statements fairly represent the financial condition of the Company as of the
date thereof, and are true and correct as of the date thereof in all material
respects. The Company recognizes revenue in accordance with SOP 91-1. The
acquisition by the Company of substantially all of the assets of Ultimate Data
Systems, Inc. was accounted for as a purchase and booked in accordance with
generally accepted accounting principles.
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This Agreement and the Schedules, taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading. The
Confidential Memorandum prepared by The Xxxxxxx Company and the Company which
was delivered to the Investors was prepared in good faith and fairly presents
the business and prospects of the Company in all material respects as of its
date. To the best knowledge of the Company and the Individual Founders, the
forecasts and projections of future financial results contained in such
Confidential Memorandum were prepared by the Company in good faith and are based
upon information available to the Company as of the date thereof and upon
assumptions believed by the Company to be reasonable. There is no material fact
particular to the Company and not to the industry in which it does business
generally, relating to the business, prospects, operations, affairs or
conditions of the Company which materially adversely affects or in the future,
to the best knowledge of the Company, may materially adversely affect the same
which has not been set forth in this Agreement.
2.6 Absence of Undisclosed Liabilities. Since December 31, 1995 except
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as and to the extent disclosed in Schedule 2.6, the Company does not have any
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material liability or liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown.
2.7 Absence of Certain Developments. Except as disclosed in
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Schedule 2.7, since December 31, 1995 there has been (i) no material adverse
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change in the condition, financial or otherwise, of the Company or in the
assets, liabilities, business or prospects of the Company, (ii) no declaration,
setting aside or payment of any dividend or other distribution with respect to,
or any direct or indirect redemption or acquisition of, any of the capital stock
of the Company, (iii) no waiver of any valuable right of the Company or
cancellation of any material debt or claim held by the Company, (iv) no loan by
the Company to any officer, director, employee or stockholder of the Company, or
affiliates of any of the foregoing or any agreement or commitment therefor, (v)
no compensation paid or payable to any of the Founders (other than annual
salaries and bonuses for 1995 paid to any of the Founders in the ordinary course
of business and consistent with past practices) or any material increase in the
compensation paid or payable to any other officer, director, employee or agent
of the Company or affiliates of the Founders, (vi) no material loss, destruction
or damage to any property of the Company, whether or not insured, (vii) no
material labor dispute involving the Company and no material change in the
personnel of the Company or the terms and conditions of their employment, and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) except in the ordinary course of business nor any other
transaction by the Company otherwise than for fair value in the ordinary course
of business.
2.8 Accounts Receivable. Except to the extent reserved against in the
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Audited Financial Statements or disclosed elsewhere in this Agreement (including
the Schedules hereto), all of the accounts receivable of the Company represent
bona fide completed sales made in the ordinary course of business, are valid and
enforceable claims, subject to no set-off or counterclaim and fully-collectible
in the ordinary course. Except as disclosed on Schedule 2.8, the Company has no
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accounts receivable from any person, firm or corporation which is affiliated
5
with it or from any of the Founders or any of its directors, officers, employees
or stockholders or any affiliates of the Founders of the Company.
2.9 Title to Properties. The Company has good and marketable title to
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or a valid leasehold interest in all of its properties and assets, free and
clear of all liens, restrictions or encumbrances, except as disclosed in
Schedule 2.9, and such properties and assets constitute all of the assets
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reasonably necessary for the conduct of the Company's business as presently
conducted and as presently contemplated by the Company to be conducted. All
machinery and equipment included in such properties which is necessary to the
business of the Company is in good condition and repair in all material respects
and all leases of real or personal property to which the Company is a party are
in full force and effect and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. The Company is not in violation
of any material zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
properties, nor has the Company received any written notice of violation with
which it has not complied in all material respects.
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached hereto:
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(a) The Company has paid or caused to be paid all federal,
state, local, foreign, and other taxes, including without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
franchise taxes, employment and payroll-related taxes, withholding taxes,
transfer taxes, and all deficiencies, or other additions to tax, interest, fines
and penalties owed by it (collectively, "Taxes"), required to be paid by it
through the date hereof whether disputed or not. All taxes and other assessments
and levies which the Company is required to withhold or collect have been
withheld and collected and have been paid over to the proper governmental
authorities. The Company has, in accordance with applicable law, timely and
properly filed all federal, state, local and foreign tax returns required to be
filed by it through the date hereof, all such returns correctly and accurately
set forth the amount of any Taxes relating to the applicable period and any
deductions from, or credits against any Taxes or taxable income relating to such
returns are valid and proper items of deduction or credit.
(b) Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge of the Company,
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
6
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to such Sections.
2.11 Contracts and Commitments. Except as set forth on Schedule 2.11,
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the Company is not a party to any: (1) customer contract, obligation or
commitment (whether written or oral) which involves an unfulfilled obligation to
provide goods or services valued in excess of $250,000 to any other party; (2)
contract, obligation or commitment (whether written or oral) involving an
obligation to make payments in excess of $250,000 to any other party; (3)
exclusive license agreements; (4) employment contracts; (5) stock redemption or
purchase agreements; (6) loan agreements; (7) capital lease or other financing
agreements; (8) agreements with the Founders or any other officers, directors,
or stockholders of the Company or persons or organizations related to or
affiliated with the Founders or the Company; (9) leases; (10) powers of
attorney; or (11) pension, profit-sharing, retirement or stock option plans. To
the best knowledge of the Company, there is no basis for the termination,
expiration or modification of any such agreements within one year from the date
hereof, which termination, expiration or modification may have a material
adverse effect on the assets, liabilities, business, financial condition or
prospects of the Company. The Company is not in default under any contract,
obligation or commitment set forth on Schedule 2.11, and to the best knowledge
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of the Company, there is no state of facts which upon notice or lapse of time or
both would constitute such a default.
2.12 Proprietary Rights; Employee Restrictions. Set forth in
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Schedule 2.12 is a list and brief description of all patents, patent rights,
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patent applications, trademarks, trademark applications, service marks, service
xxxx applications, trade names and copyrights owned by or registered in the name
of the Company, or of which the Company is a licensor or licensee (other than
with respect to "off-the-shelf" software which is generally available to the
general public at retail) or in which the Company has any right, and in each
case a brief description of the nature of such right. Except as set forth on
Schedule 2.12, the Company owns or possesses adequate licenses (other than with
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respect to "off-the-shelf" software which is generally available to the general
public at retail) to use, free and clear of claims or rights of any other
person, all patents, patent applications, trademarks, trademark applications,
service marks, service xxxx applications, trade names, copyrights, manufacturing
processes, programming processes and software, algorithms, formulae, trade
secrets and know how (collectively "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
Except as disclosed in Schedule 2.12, all Intellectual Property that is used or
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incorporated into the Company's products or products actively under development
and which is proprietary to the Company was developed by or for the Company by
the current or former employees, consultants or independent contractors of the
Company or its predecessors in interests and is owned exclusively by the
Company, free and clear of claims or rights of any other person. The Company is
not aware of any infringement by any other person of any rights of the Company
under any Intellectual Property. No claim is pending or to the best of the
Company's knowledge threatened against the Company nor has the Company received
any notice from any third parties,
7
to the effect that any Intellectual Property owned or licensed by the Company,
or which the Company otherwise has the right to use, or the operation, products
or services of the Company infringe upon or conflict with the asserted rights of
any other person under any Intellectual Property, and, to the best knowledge of
the Company and the Founders, there is no basis for any such claim (whether or
not pending or threatened). No claim is pending or to the best of the Company's
knowledge threatened against the Company, nor has the Company received any
notice from any third parties, to the effect that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company, as the case may be, and, to
the best knowledge of the Company and the Founders, there is no basis for any
such claim (whether or not pending or threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.12. All such licenses
-------------
or other agreements are in full force and effect, to the best of the Company's
knowledge, there is no material default by any party thereto, and, except as set
forth on Schedule 2.12, to the best of the Company's knowledge, all of the
-------------
rights of the Company thereunder are freely assignable. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to the Investors and, neither the Company nor the Founders have any
reason to believe that the licensors under such licenses and other agreements do
not have and did not have all requisite power and authority to grant the rights
purported to be conferred thereby.
All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property (including all end user agreements)
are listed in Schedule 2.12. All of said licenses or other agreements are in
-------------
full force and effect, to the best of the Company's knowledge, there is no
material default by any party thereto, and, except as set forth on Schedule
--------
2.12, to the best of the Company's knowledge, all of the rights of the Company
----
with respect to Trend product contracts are freely assignable. True and complete
copies of all such licenses or other agreements, and any amendments thereto,
have been made available to the Investors.
All material technical information developed by or belonging to the
Company and which is material to the business of the Company which has not been
patented or copyrighted has been kept confidential. To the best of the Company's
knowledge, the Company is not making unlawful use of any Intellectual Property
of any other person, including without limitation any former employer of any
past or present employees of the Company. Except as disclosed in Schedule 2.12,
-------------
to the best of the Company's knowledge, neither the Company nor any of its
employees, officers or consultants has any agreements or arrangements with
former employers of such employees, officers or consultants relating to any
Intellectual Property of such employers, which materially interfere or conflict
with the performance of such employee's or consultant's duties for the Company
or results in any former employers of such employees and consultants having any
rights in, or claims on, the Company's Intellectual Property. To the best of the
Company's knowledge, the activities of the Company's employees, officers and
consultants do not violate any agreements or arrangements which any such
employees have with former employers. The Company has taken commercially
reasonable steps required to establish and preserve its ownership of all of the
Intellectual Property; each current employee and officer of the Company, each
former employee and officer of the Company who was employed by the
8
Company at any time and, except with respect to the SHIMS products, after
December 31, 1992 and each of the Company's current and former consultants and
independent contractors involved in development of any of the Intellectual
Property (limited, with respect to the SHIMS products to consultants and
contractors employed by the Company or its predecessor after December 31, 1992)
has executed an agreement regarding confidentiality, proprietary information and
assignment of inventions to the Company and, to the knowledge of the Company and
the Founders, none of such employees, consultants and independent contractors
are in violation of such agreements.
Without limitation of any of the foregoing and except as otherwise
expressly disclosed in Schedule 2.12 hereto: (a) the Company has taken
-------------
reasonable security measures to guard against unauthorized disclosure or use of
any of the Intellectual Property; and (b) the Company has no reason to believe
that any person (including without limitation any former employee of the
Company) has unauthorized possession of any of the Intellectual Property, or any
part thereof, or that any person has obtained unauthorized access to any of the
Intellectual Property.
2.13 Litigation. Except as disclosed in Schedule 2.13, there is no
---------- -------------
litigation or governmental proceeding or investigation pending against the
Company, the Founders or any officer of the Company, or, to the best knowledge
of the Company and the Individual Founders, threatened against the Company, the
Founders or any officer of the Company, which may call into question the
validity or hinder the enforceability or performance of this Agreement or the
agreements and transactions contemplated hereby or which could have a material
adverse effect on the assets, liabilities, business, condition (financial or
otherwise) or prospects of the Company; nor, to the best knowledge of the
Company and the Founders, has there occurred any event nor does there exist any
condition on the basis of which any litigation, proceeding or investigation
might properly be instituted.
2.14 Offerees. Except as set forth on Schedule 2.14, neither the
-------- -------------
Company nor, to the best of the Company's knowledge, anyone acting on its behalf
has in the past offered for sale or solicited offers to buy any securities of
the Company so as to bring the offer, issuance or sale of the Preferred Shares
or the Conversion Shares, as contemplated by this Agreement, within the
provisions of Section 5 of the Securities Act, unless such offer, issuance or
sale was within the exemptions of the Securities Act. Assuming the accuracy of
the Investor representations in Section 5 hereof, the Company has complied with
all applicable state "blue-sky" or securities laws in connection with the
issuance and sale of its Common Stock, Preferred Shares, and other securities
heretofore issued and to be issued upon the closing of this Agreement. The
Company has in the past complied with all applicable federal and state
securities laws in connection with the offer, solicitation of offers and sales
of its securities.
2.15 Business; Compliance with Laws. Except as disclosed in Schedule
------------------------------ --------
2.15, the Company has all franchises, permits, licenses and other rights and
----
privileges necessary to permit it to own its property and to conduct its
business as it is presently conducted by the Company except where the failure to
possess such rights and privileges would not have a material adverse effect on
the Company. The Company is not in material violation, in any respect, of any
material law, regulation, authorization or order of any public authority. The
Company is in compliance, in
9
all material respects, with all federal, state and local laws and regulations
(including all applicable environmental laws and regulations) relating to its
business as presently conducted, except as disclosed in Schedule 2.15. The
-------------
Company believes that the relationships of the Company with its major customers
and its suppliers are good commercial working relationships, and, except as set
forth on Schedule 2.15, within the last three years no customer that has paid
-------------
the Company or is under contract to pay the Company $100,000 or more has
terminated its relationship with the Company and the Company has not received
any notice within the last two years from any such customers or suppliers of
their intention to terminate, or otherwise modify such relationships in a manner
which could have a material adverse effect on the Company. Neither the Company
nor the Founders or any of their respective affiliates has been: (a) convicted
in a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (b) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining it or
him from, or otherwise imposing limits or conditions on his, engaging in any
securities, investment advisory, banking, insurance or other type of business or
acting as an officer or director of a public company; or (c) found by a court of
competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated any
federal or state commodities, securities or unfair trade practices law, which
such judgment or finding has not been subsequently reversed, suspended, or
vacated.
2.16 Investment Banking; Brokerage. No broker, finder, agent or similar
-----------------------------
intermediary has acted on behalf of the Company or any Founder in connection
with this Agreement or the transactions contemplated hereby and there are no
brokerage commissions, finders fees or similar fees or commissions payable in
connection therewith (other than the Xxxxxxx Company, with respect to whom any
compensation shall be the sole responsibility of the Founders).
2.17 Solvency. The Company has not: (a) made a general assignment for
--------
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated therein (including the payment of the distribution
to the Company's existing shareholders): (a) the Company will be able to pay its
debts as they come due in the usual course of business and will have adequate
capital to conduct its business; and (b) the Company's total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof).
2.18 Environmental Matters.
---------------------
(a) Neither the Company nor, to the knowledge of the Company, any
other person: (i) has ever caused, permitted, or suffered to exist any Hazardous
Material (as defined below) to be spilled, placed, held, located or disposed of
on, under, or about, any of the premises leased by the Company (the "Premises"),
or from the Premises into the atmosphere, any body of
10
water, any wetlands, or on any other real property nor to the Company's
knowledge does any Hazardous Material exist on, under or about the Premises
other than as disclosed on Schedule 2.18, or in respect of Hazardous Material
-------------
used or disposed of in compliance with law; (ii) has any knowledge that the
Premises has ever been used (whether by the Company or, to the knowledge of the
Company, by any other person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous Waste as defined in 42 U.S.C.A.
(S).6901, et seq. (the Resource Recovery and Conservation Act); and (iii) has
------
any knowledge of any notice of violation, lien or other notice issued by any
governmental agency with respect to the environmental condition of the Premises,
any other property owned or occupied by the Company, or any other property which
was included in the property description of the Premises or such other real
property within the preceding three years except as disclosed to the Investors.
(b) For purposes of this Section 2.18, "Hazardous Material"
shall mean any substance or material defined or designed as a hazardous or toxic
waste, hazardous or toxic material, hazardous or toxic substance, or other
similar term, by any United States federal, state or local environmental
statute, regulation or ordinance.
2.19 Employee Benefit Programs.
-------------------------
(a) Schedule 2.19 sets forth a list of every Employee Program
-------------
(as defined below) that has been maintained (as such term is further defined
below) by the Company at any time during the three-year period ending on the
Closing.
(b) Each Employee Program which has ever been maintained by
the Company and which has at any time been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the Internal Revenue Service ("IRS") regarding its
qualification under such section and to the best knowledge of the Company has,
in fact, been continuously qualified under the applicable section of the Code
since the effective date of such Employee Program. No event or omission has
occurred which would cause any such Employee Program to lose its qualification
under the applicable Code section.
(c) Each Employee Program that has ever been maintained by
the Company has been maintained in all material respects in compliance with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exemption), which could result, directly or indirectly
(including, without limitation, through any obligation of indemnification or
contribution), in any material taxes, penalties or other liability to the
Company or any of its Affiliates (as defined below). No officer, director or
employee of the Company has committed a material breach of any duty imposed upon
fiduciaries by Title I of ERISA with respect to any Employee Program maintained
by the Company within the six years preceding the Closing Date. No litigation,
arbitration, or governmental administrative proceeding (or investigation) or
other proceeding (other than those relating to routine claims for benefits) is
pending or, to the best knowledge of the Company and the Founders, threatened
with respect to any such Employee Program.
11
(d) Neither the Company nor any Affiliate (i) has ever
maintained any Employee Program which has been subject to Title IV of ERISA or
Section 412 of the Code (including, but not limited to, any Multiemployer Plan
(as defined below)) or (ii) has ever provided benefits described in Section 3(1)
of ERISA to any former employees or retirees of the Company or such Affiliate
(other than as required by part 6 of subtitle B of Title I of ERISA) or has ever
promised to provide post-termination benefits which promise remains in effect.
(e) With respect to each Employee Program maintained by or on
behalf of the Company or any Affiliate within the three (3) years preceding the
Closing, complete and correct copies of the following documents (if applicable
to such Employee Program) have previously been delivered to Xxxxxxx, Procter &
Xxxx: (i) all documents embodying or governing such Employee Program, and any
funding medium for the Employee Program (including, without limitation, trust
agreements), as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to any such Employee
Program intended to qualify under Code Section 401 or 501(c)(9), and any
applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; and (v) any
insurance policy (including any fiduciary liability insurance policy and any
excess loss policy) related to such Employee Program.
(f) For purposes of this Section 2.19:
(i) "Employee Program" means (A) all employee
benefit plans within the meaning of ERISA Section 3(3), including, but
not limited to, multiple employer welfare arrangements (within the
meaning of ERISA Section 3(40)), plans to which more than one
unaffiliated employer contributes and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA; and
(B) all stock or cash option plans, restricted stock plans, bonus or
incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans and benefit agreements, and
benefit arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code
Section 501(c)(9), each reference to such Employee Program shall
include a reference to such organization.
(ii) An entity "maintains" an Employee Program
if such entity sponsors, contributes to, or provides (or has promised
to provide) benefits under such Employee Program, or has any obligation
(by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program
provides benefits to or otherwise covers employees of such entity (or
their spouses, dependents, or beneficiaries).
(iii) An entity is an "Affiliate" of the Company
if it would have ever been considered a single employer with the
Company under ERISA Section 4001(b)
12
or part of the same "controlled group" as the Company for purposes of
ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
2.20 Product and Services Claims. Except as set forth on Schedule 2.20,
--------------------------- -------------
(i) there are no pending or, to the best of the Company's and the Individual
Founders' knowledge, threatened material product or service claims with respect
to any products manufactured or services provided by the Company prior to the
Closing date nor to the best of the Company's knowledge are there any facts upon
which a claim of such nature could reasonably be anticipated to be based, and
(ii) the Company does not have any contractual liability for breach of warranty
or service claims. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best of the
Company's and the Founders' knowledge, there are no facts upon which any such
claim should reasonably be anticipated to be based.
2.21 Backlog. As of March 8, 1996, the Company had outstanding firm
-------
orders for the sale of services and products as set forth in Schedule 2.21. All
-------------
such orders represent orders for products with specifications that can be met in
accordance with the terms of such orders and in the ordinary course of conduct
of the Company's business without undue delay or extraordinary expense.
2.22 Employees; Labor Matters. On March 8, 1996, the Company employed a
------------------------
total of approximately 215 full-time employees and 7 part-time employees and
generally enjoys good employer-employee relationships. The Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth in Schedule 2.22. All of the
-------------
Company's programs and/or arrangements in connection with the payment of
commissions are described in Schedule 2.22. To the best of the Company's
-------------
knowledge, the Company is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations which are existing, pending
or to the best of the Company's knowledge threatened against or involving the
Company. The Company has not received any information indicating that any of its
employment policies or practices is currently being audited or investigated by
any federal, state or local government agency. To the best of the Company's
knowledge, the Company is, and at all times since December 31, 1992 has been, in
compliance with the requirements of the Immigration Reform Control Act of 1986.
Schedule 2.22 sets forth a complete list of each officer, employee, salesperson
-------------
and consultant who received or is scheduled
13
to receive total remuneration from the Company in excess of $150,000 for the
calendar year ended December 31, 1995.
2.23 Customers, Distributors and Suppliers. The relationships of the
-------------------------------------
Company with its customers and vendors are good commercial working
relationships. Except as set forth on Schedule 2.23, during the past twelve
-------------
months, no customer, VAR or vendor has canceled, materially modified, or
otherwise terminated its relationship with the Company, or materially decreased
its services, supplies or materials to the Company or its usage or purchase of
the services or products of the Company, nor to the knowledge of Company and the
Founders, does any customer, VAR or vendor have any plan or intention to do any
of the foregoing.
2.24 Corporate Records; Copies of Documents. The corporate record books
--------------------------------------
of the Company accurately record all corporate action taken by its respective
stockholders and board of directors and committees. The copies of the corporate
records of the Company, as made available to the Investors for review, are true
and complete copies of the originals of such documents. The Company has made
available for inspection by the Investors and their counsel true and correct
copies of all documents referred to in this Section 2.24 or in the Schedules
delivered pursuant to this Agreement.
2.25 Affiliate Transactions. Except as set forth in Schedule 2.25
---------------------- -------------
hereto, neither the Company, the Founders nor to the knowledge of the Company
any director of the Company owns, directly or indirectly, on an individual or
joint basis, any material interest in, or serves as an officer, director,
partner or in another similar capacity of, any competitor or supplier of
Company, or any organization which has a contract or arrangement with the
Company. After giving effect to the transactions contemplated hereby, the
Company shall not have any obligation or liability to any of the Founders, other
than as expressly provided in the Stockholders' Agreement. Attached hereto as
part of Schedule 2.25 is the letter agreement, dated March 7, 1996, among the
-------------
Company and the Founders relating to certain arrangements affecting the Company
and the Founders.
2.26 FIRPTA Withholding. The Company is not a "foreign person" within
------------------
the meaning of Section 145 of the Code and Treasury Regulations Section
1.1445-2.
SECTION 3. CONDITIONS OF PURCHASE
----------------------
The Investors' obligation to purchase and pay for the Preferred Shares
shall be subject to compliance by the Company and the Founders with their
agreements herein contained and to the fulfillment to the Investors' reasonable
satisfaction or waiver on or before the Closing Date of the following
conditions:
3.1 Satisfaction of Conditions. The representations and warranties of
--------------------------
the Company and the Founders contained in this Agreement (including but not
limited to the representations and warranties made in Section 2 hereof) shall be
true and correct in all material respects on and as of the Closing Date; and on
the Closing Date certificates to such effect executed by the Chief
14
Executive Officer and the principal financial officer of the Company shall be
delivered to the Investors.
3.2 Opinion of Counsel. The Investors shall have received an opinion
------------------
in the form of Exhibit I hereto on the organization and authority of the
---------
Company, the enforceability of this Agreement and any related agreements,
absence of conflicts with organizational documents and other agreements
specifically identified, absence of litigation and such other matters as
requested by the Investors.
3.3 Authorization. The Board of Directors and the stockholders of the
-------------
Company shall have duly adopted resolutions in form reasonably satisfactory to
the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of the Secretary of the Company
setting forth a copy of such resolutions and the Certificate of Incorporation
and By-laws of the Company and such other matters as may be reasonably requested
by the Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
--------------------------------------
the Company shall have adopted a resolution establishing the terms of the
Preferred Stock as set forth in Exhibit B hereto, and such action shall have
---------
been made effective by approval thereof by the stockholders and the filing of an
Amended and Restated Certificate of Incorporation with the Secretary of State
for the State of Delaware.
3.5 Stockholders' Agreement. The Company, the Investors and the Lammle
-----------------------
Entities shall have executed and delivered a Stockholders' Agreement in the form
of Exhibit D hereto (the "Stockholders' Agreement").
---------
3.6 Non-Competition Agreements. Each of the Individual Founders and
--------------------------
all other key employees of the Company shall have entered into a Non-Competition
Agreement containing non-competition, non-solicitation and confidentiality
provisions with the Company in the form of Exhibit E hereto (the "Non-
---------
Competition Agreement"). All employees of the Company who are exposed to
technical and proprietary information of the Company shall have entered into
confidentiality and invention assignment agreements with the Company
substantially in the form attached as Exhibit C hereto or, if previously entered
---------
into, such other form as is reasonably satisfactory to the Investors (the
"Confidentiality and Proprietary Rights Agreement").
3.7 Senior Debt Facility. The Company shall have obtained at least
--------------------
$30,000,000 in funds (the "Senior Debt") pursuant to a senior credit agreement
(the "Senior Loan Agreement") with a bank or financial institution (the "Senior
Lender") and such other agreements, documents and instruments as may be required
or contemplated thereby, all on terms which are reasonably acceptable to the
Investors.
3.8 Election of Directors; Indemnification Agreements. In accordance
-------------------------------------------------
with the terms of the Stockholders' Agreement, the size of the Company's Board
of Directors shall have been fixed at no less than three (3) members and no more
than seven (7) members in accordance with the terms of the Stockholders'
Agreement and two (2) designees of the Investors shall have been
15
elected to the Company's Board of Directors (herein referred to, together with
any successors as replacements, as the "Investor Representatives"). The Company
shall have entered into an Indemnification Agreement with each of the Investor
Representatives in substantially the form of Exhibit A hereto.
---------
3.9 Recapitalization. Subject to the provisions of Section 4.9, the
----------------
Company shall have (i) redeemed all of the shares of capital stock of the
Company held by the Linn Entities as of the date hereof and 60% of the shares of
capital stock of the Company held by the Lammle Entities for an aggregate of
$49,000,000 in cash, out of which the Founders shall pay all fees due to The
Xxxxxxx Company and deliver the Escrow Amount (as defined in Section 3.12 below)
to Norwest Bank Colorado, N.A. (the "Escrow Agent"), and (ii) made payments to
certain employees of the Company and related withholding obligations in an
aggregate amount of $7,000,000 pursuant to the Management Stock Unit Incentive
Plan ("MSUIP") of the Company, all as more fully set forth in Schedule 3.9
------------
hereto. The remaining capital stock in the Company held by the Lammle Entities
shall have been exchanged for 6,500 shares of Series B Convertible Preferred
Stock. In connection with such redemptions and exchanges, there shall have been
delivered to the Company the certificates representing all of the capital stock
held by the Founders, each marked canceled. Effective as of the Closing, options
or restricted stock grants for 640,845 shares of Common Stock shall have been
issued or granted to employees and agents of the Company under the Stock Option
Plan (thereby reducing the remaining shares available for issuance under the
Plan to 686,620) all in amounts and on terms acceptable to the Investors.
3.10 [Intentionally Omitted]
3.11 Releases. The Company and the Investors shall have received
--------
releases in substantially the form of Exhibit H hereto from each of the
---------
Founders, all of their respective affiliates and such other officers and
employees of the Company as the Investors shall designate.
3.12 Escrow Agreement. The Investors, the Founders and the Escrow Agent
----------------
shall have executed and delivered an Escrow Agreement in the form of Exhibit G
---------
hereto (the "Escrow Agreement"), pursuant to which $4,900,000 (the "Escrow
Amount") shall be deposited with the Escrow Agent at the Closing.
3.13 All Proceedings Satisfactory. All corporate and other proceedings
----------------------------
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to a
majority-in-interest of the Investors, and the Investors shall have received
such copies thereof and other materials (certified, if requested) as they may
reasonably request in connection therewith. The issuance and sale of the
Preferred Shares to the Investors shall be made in conformity with all
applicable state and federal securities laws.
3.14 No Adverse Change. Since December 31, 1995, there shall have been
-----------------
no material adverse change in the financial conditions, prospects, properties,
assets, liabilities, business or operations of the Company, whether or not in
the ordinary course of business.
16
3.15 Delivery of Documents. The Company shall have executed and
---------------------
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate persons) the following:
(a) Certificates for the Preferred Shares;
(b) Certified copies of resolutions of the Board of Directors
(and, if necessary, the stockholders) of the Company authorizing the execution
and delivery of this Agreement, the Stockholders' Agreement, the Amended and
Restated Certificate of Incorporation creating the Preferred Shares, the
issuance of the Preferred Shares and upon conversion of the Preferred Shares,
the issuance of the Conversion Shares;
(c) A copy of the corporate charter of the Company, as amended,
certified as of a recent date by the Secretary of State of the State of
Delaware;
(d) A copy of the by-laws of the Company certified by the
Company's secretary;
(e) Certificates issued by the Secretary of State of the States
of Delaware, Colorado and Texas, certifying that the Company is in good standing
in their respective states;
(f) True and correct copies of the Senior Loan Agreement,
together with all amendments thereto, and copies of all documents and
instruments evidencing the transactions consummated in connection therewith; and
(g) Such other supporting documents and certificates as the
Investors may reasonably request.
SECTION 3B. CONDITIONS OF SALE
------------------
The Company's obligation to sell the Preferred Shares shall be subject
to the compliance by the Investors with their agreements herein contained and to
the fulfillment to the Company's reasonable satisfaction or waiver on or before
the Closing Date of the following conditions:
3.1B Satisfaction of Conditions. The representations and warranties
--------------------------
of the Investors contained in this Agreement (including but not limited to the
representations and warranties made in Section 5 hereof) shall be true and
correct in all material respects on and as of the Closing Date; and on the
Closing Date certificates to such effect executed by the Investors shall be
delivered to the Company.
3.2B Senior Debt Facility. The Company shall have obtained the Senior
--------------------
Debt pursuant to the Senior Loan Agreement with the Senior Lender and such other
agreements, documents and instruments as may be required or contemplated
thereby, all on terms which are reasonably acceptable to the Company.
17
3.3B Stockholders' Agreement. The Company, the Investors and the Lammle
-----------------------
Entities shall have executed and delivered the Stockholders' Agreement.
3.4B Indemnification Agreement. The Company shall have entered into an
-------------------------
Indemnification Agreement with Xxx X. Xxxxxx in substantially the form of
Exhibit A hereto.
---------
3.5B Delivery of Documents. The Investors shall have executed and
---------------------
delivered to the Company (or shall have caused to be executed and delivered to
the Company by the appropriate persons) such supporting documents and
certificates as the Company may reasonably request.
SECTION 4. COVENANTS OF THE COMPANY
------------------------
The Company (which term shall be deemed to include, in addition to
subsidiaries existing as of the date hereof, for purposes of this Section 4, any
subsidiary or subsidiaries of the Company formed or acquired after the date of
this Agreement) shall comply with the following covenants except as shall
otherwise be expressly agreed pursuant to a written consent or consents executed
by a majority-in-interest of the Investors, until such time as all of the
Preferred Shares shall have either been redeemed in accordance with their terms
or converted into Common Stock and Senior Redeemable Preferred Stock at the
holders' option or upon the closing of an underwritten public offering pursuant
to an effective registration statement under the Securities Act covering the
offer and sale of Common Stock of the Company to the public at a per share price
of at least $20.00, appropriately adjusted for stock dividends, stock splits and
the like, and in which the proceeds received by the Company, net of underwriting
discounts and commissions, equal or exceed $30,000,000 (a "Qualified Public
Offering").
4.1 Financial Statements; Minutes. The Company will maintain a
-----------------------------
comparative system of accounts in accordance with generally accepted accounting
principles, keep full and complete financial records and furnish to the
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated balance sheet of the Company as at the end of
such year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied; (b) within 45 days after the end
of each quarter commencing with the quarter ending March 31, 1996, a
consolidated unaudited balance sheet of the Company as at the end of such
quarter and a consolidated unaudited statement of income and retained earnings
for the Company for such quarter and for the year to date; (c) within 30 days
after the end of each month commencing with the month ending March 31, 1996, a
consolidated unaudited balance sheet of the Company as at the end of such
month and an unaudited statement of income and retained earnings for the Company
for such month and for the year to date, each of the foregoing balance sheets
and statements of income and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period and to include a brief
written discussion and analysis by management of such annual, quarterly and
monthly financial statements; and (d) such other financial information as a
majority-in-interest of the Investors may reasonably request, including without
limitation
18
certificates of the principal financial officer of the Company concerning
compliance with the covenants of the Company under this Section 4.
4.2 Budget and Operating Forecast. The Company will prepare and submit
-----------------------------
to the Board of Directors of the Company a budget for the Company for each
fiscal year of the Company at least 30 days prior to the beginning of such
fiscal year, together with management's written discussion and analysis of such
budget. The budget shall be accepted as the budget for such fiscal year when it
has been approved by a majority of the full Board of Directors of the Company
and, thereupon, a copy of such budget promptly shall be sent to the Investors.
The Company shall review the budget periodically and shall advise the Board of
Directors and the Investors of all changes therein and all material deviations
therefrom.
4.3 Conduct of Business. The Company will continue to engage
-------------------
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, including such
research and development activities as the Board of Directors may from time to
time approve. The Company will keep in full force and effect its corporate
existence and all intellectual property rights useful in its business (except
such rights as the Board of Directors has reasonably determined are not material
to the Company's continuing operations) and shall use its best efforts to cause
each new employee to execute a Confidentiality and Proprietary Rights Agreement
substantially in the form of Exhibit C attached hereto with such reasonable
---------
changes as may be deemed appropriate by the Board of Directors.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
-------------------------------------------
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Insurance. The Company will keep its insurable properties insured,
---------
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
-------------------------
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear
19
and tear excepted, as necessary to permit such business to be properly and
advantageously conducted.
4.7 Affiliated Transactions. All transactions by and between the
-----------------------
Company and any of the Founders or any other officer or key employee of the
Company or persons controlling, controlled by, under common control with or
otherwise affiliated with such Founder, officer or key employee, shall be
conducted on an arm's-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from nonrelated persons and
shall be approved in advance by the Board of Directors after full disclosure of
the terms thereof; provided, however, that the Company may, under its agreement
-------- -------
with the Distribution Team, Inc., exercise its option to purchase a perpetual
license to use software for a total purchase price of $500,000.
4.8 Management Compensation. Compensation paid by the Company to its
-----------------------
management will be comparable to compensation paid to management prior to the
Closing. Any grants of capital stock or options hereunder shall be conditioned
upon the grantee agreeing to be bound by the terms of the Stockholders'
Agreement. With respect to the 686,620 shares of Common Stock which remain
reserved for issuance under the Stock Option Plan after the Closing: (a) options
and/or stock grants for no more than 457,747 shares of Common Stock shall be
granted prior to March 31, 1997 (the "First Year Grants"); (b) one-half of the
First Year Grants shall, regardless of when granted, vest 25% on the first
anniversary of grant and on a ratable basis thereafter through the fourth
anniversary of grant; (c) the other half of the First Year Grants shall,
regardless of when granted, vest ratably over a ten year period from the date of
grant subject to acceleration; and (c) the remaining 228,873 shares reserved for
issuance may be granted to new hires commencing after March 31, 1997 with
vesting to be on a ratable basis over a four-year period from the date of grant;
provided that if Xxx X. Xxxxxx is still serving as Chief Executive Officer on
March 31, 1998 he would, subject to the discretion of the Board of Directors, be
eligible to receive up to no more than one-half of such 228,873 shares remaining
available for grant at that time.
4.9 Use of Proceeds. The Company will use an aggregate of $56,000,000
---------------
of the proceeds from the sale of the Preferred Shares and the Senior Debt (a) to
repurchase certain outstanding capital stock held by each of the Founders (who
in turn shall be responsible for all fees payable to The Xxxxxxx Company) and
(b) to make payments to certain employees of the Company and on account of
related withholding obligations in an aggregate amount of $7,000,000 pursuant to
the Company's MSUIP, so that after giving effect to such redemptions and
payments, the outstanding capital stock of the Company shall be as set forth in
Sections 2.4 and 3.9 hereof. In connection with the payments under the MSUIP,
the Company shall on or before thirty (30) days after the Closing Date obtain a
release from each payee thereunder in favor of the Company in substantially the
form of Exhibit H attached hereto. The Escrow Amount will be delivered to the
---------
Escrow Agent to be held by the Escrow Agent pursuant to and in accordance with
the terms of the Escrow Agreement to be executed in substantially the form of
Exhibit G attached hereto.
---------
20
4.10 Board of Directors Meetings. The Company will ensure that
---------------------------
meetings of its Board of Directors are held at least four times each year and at
intervals of not more than three months and will reimburse Directors for their
reasonable travel and other out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors or performing such other business
on behalf of the Company as may be approved by the Company in advance. The
Certificate of Incorporation or By-laws of the Company will at all times during
which any nominee of the Investors serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain on reasonable business
terms (including cost) directors and officers' liability insurance coverage of
at least $1,000,000 per occurrence.
4.11 Right to Participate in Sales of Additional Securities.
------------------------------------------------------
(a) The Company covenants and agrees that, except as otherwise
expressly permitted by Section 4.11(b) hereof it will not sell or issue any (i)
shares of capital stock of the Company, or bonds, certificates of indebtedness,
debentures or other securities convertible into or exchangeable for capital
stock of the Company, or options, warrants or rights carrying any rights to
purchase capital stock or convertible or exchangeable securities of the Company
(collectively, "Additional Equity Securities"), other than in connection with a
Qualified Public Offering or as otherwise provided in Section 4.11(b) hereof or
(ii) notes, bonds, certificates of indebtedness, debentures or other debt
securities (collectively, "Additional Debt Securities" and together with
Additional Equity Securities, "Additional Securities") unless (x) the Company
shall have received a bona fide arms-length offer (which may be in response to a
solicitation by the Company) to purchase such Additional Securities from a third
party, and (y) the Company first submits a written offer to the Investors and
the Lammle Entities identifying the third party to whom such Additional
Securities are proposed to be sold and the terms of the proposed sale, and
offering to the Investors and the Lammle Entities the opportunity to purchase
such securities on terms and conditions, including price, not less favorable
than those on which the Company proposes to sell such securities to the third
party. Each of the Investors and the Lammle Entities shall have the right to
purchase its proportionate share of such securities based on the ratio which the
Conversion Shares and shares of Common Stock, respectively, of the Company owned
or obtainable by such Investor or Founder owned by it bears to the sum of all
Conversion Shares and shares of Common Stock owned by all Investors and Founders
immediately prior to such issuance. Any Investor may transfer its right to be
offered any such opportunity to any transferee of shares of its Preferred
Shares. The Company's offer to the Investors and the Lammle Entities shall
remain open and irrevocable for a period of at least 45 days. Any securities so
offered to the Investors and the Lammle Entities which are not purchased
pursuant to such offer shall be offered to the Investors and the Lammle Entities
wishing to purchase any such securities, and thereafter may be sold by the
Company to the third party originally named or assigned in the offer to the
Investors and the Lammle Entities on terms and conditions, including price, not
more favorable to the third party than those set forth in such offer at any time
within 75 days following the date of such offer, but may not be sold to any
other person or on terms and conditions, including price, that are more
favorable to the purchaser than those set forth in such offer or after such
75-day period without renewed compliance with this Section 4.11. Notwithstanding
21
anything contained herein to the contrary, an Investor within an Investor group
shall have the right to purchase any shares with respect to which another
Investor within the same Investor group elects not to purchase hereunder.
(b) Notwithstanding the foregoing, the Company may (i) issue, or
issue options, warrants or rights to subscribe for, up to an aggregate of
1,327,465 shares of its Common Stock to officers, directors, employees,
consultants or agents of the Company pursuant to the terms of the Company's
Stock Option Plan and Section 4.8 hereof and issue shares of its Common Stock
upon the exercise of such stock options, (ii) issue Conversion Shares upon the
conversion of the Preferred Shares, (iii) declare, make or issue a dividend or
other distribution payable in shares of the Common Stock in respect of
outstanding shares of the Common Stock or the Preferred Stock in accordance with
the Company's Amended and Restated Certificate of Incorporation, as amended,
(iv) issue shares of Common Stock in connection with a Qualified Public
Offering, (v) issue shares of its Common Stock or other securities in connection
with the acquisition of any other corporation or business concern, whether by
acquisition of assets, or capital stock merger, consolidation or other
reorganization as long as the beneficial owners of the Company's outstanding
capital stock immediately prior to such transaction hold no less than fifty-one
percent (51%) of the voting power of the outstanding capital stock of the
Company immediately after such transaction, or (vi) with the prior consent of a
a majority-in-interest of the Investors, issue, or issue options, warrants or
rights to subscribe for, shares of its Common Stock in connection with any debt,
capital lease or other similar financing transaction, without offering the
Investors the opportunity to purchase their proportionate share of such shares
or options under this Section 4.11.
4.12 Stockholders' Agreement, Non-Competition Agreements and
-------------------------------------------------------
Confidentiality and Proprietary Rights Agreements. The Company will diligently
-------------------------------------------------
enforce all of its rights under the Stockholders' Agreement described in Section
3.5 hereof, and the agreements described in Section 3.6 hereof. The Company will
not effect any transfer of any of the outstanding capital stock of the Company
on the stock record books of the Company unless such transfer is made in
accordance with the terms of the Stockholders' Agreement referred to in Section
3.5 hereof. The Company will not waive or release any rights under, or consent
to the amendment of, any such agreement without the written consent of a
majority-in-interest of the Investors.
4.13 Distributions on, and Redemptions of, Capital Stock. Except as
---------------------------------------------------
otherwise expressly provided in this Agreement or in Exhibit B hereto, the
---------
Company will not declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem,
purchase, or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock; provided, however, that this
restriction shall not apply to the repurchase of shares of the Common Stock
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers, by operation of law,
provided that the repurchase price paid by the Company does not exceed the
purchase price paid to the Company for such shares. Any redemption, repurchase
or other acquisition by
22
the Company of any shares of its capital stock shall be made in compliance with
all laws, including but not limited to federal and state securities laws.
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
-------------------------------------------------------------
Actions. The Company will not without the prior written consent of Investors
-------
holding a majority-in-interest of the Preferred Shares and Conversion Shares:
(a) sell, lease or otherwise dispose of (whether in one transaction or a series
of related transactions) all or substantially all of its assets, (b) merge
with or into or consolidate with another entity (except into or with a
wholly-owned subsidiary of the Company with the requisite stockholder approval),
(c) acquire any other corporation or business concern, whether by acquisition of
assets, capital stock or otherwise, and whether in consideration of the payment
of cash, the issuance of capital stock or otherwise, (d) voluntarily liquidate
or wind up its operations, (e) issue any shares of its capital stock which are
senior to or on a parity with the Preferred Shares with respect to dividends,
conversion, liquidation or redemptions or with any special voting rights, (f)
create, incur, assume, become liable for, or permit to exist any indebtedness
for borrowed money (other than the Senior Debt), capital leases, or other
similar commitments or obligations, which, for any one such borrowing or series
of related borrowings, is in excess of $300,000, (g) grant or permit to exist
any liens, security interests or encumbrances on any of the Company's assets or
properties, except as permitted by the terms of the Senior Debt as in effect on
the date hereof or except for purchase money security interests, or (h) enter
into any agreement with any party which by its terms restricts the payments due
the holders of the Preferred Shares pursuant to Exhibit B hereto.
---------
4.15 No Amendments to Certificate of Incorporation. The Company will
---------------------------------------------
not make any amendment to its Certificate of Incorporation or make any amendment
to its By-laws that material adversely affects the rights of holders of the
Preferred Stock without the prior written consent of Investors holding a
majority-in-interest of the Preferred Shares and Conversion Shares.
4.16 Capital Expenditures. The Company will not, without the prior
--------------------
approval of the Board of Directors of the Company, make any expenditures for
fixed or capital assets, or any commitments for such expenditures, exceeding an
amount of $100,000 for any one such expenditure or series of related
expenditures in any one year.
4.17 Life Insurance. The Company will, within thirty (30) days after
--------------
the Closing Date, obtain a key-man term life insurance policy on the life of Xxx
X. Xxxxxx in the amount of at least $10,000,000, such policy to name the Company
as sole beneficiary thereof.
SECTION 5. INVESTOR REPRESENTATIONS
------------------------
In order to induce the Company and the Founders to enter into this
Agreement, each Investor hereby severally represents with respect to such
Investor's purchase of Securities hereunder that:
(a) The execution of this Agreement and all other documents
executed pursuant hereto has been duly authorized by all necessary action on the
part of the Investor, has
23
been duly executed and delivered, and constitutes a valid, binding and
enforceable agreement of the Investor.
(b) The Investor is acquiring the Preferred Shares for its own
account, for investment, and not with a present view to any "distribution"
thereof within the meaning of the Securities Act. The Investor was not formed or
organized for the purpose of acquiring the Preferred Shares.
(c) The Investor understands that because the Preferred Shares
have not been registered under the Securities Act, it cannot dispose of any or
all of the Preferred Stock or the Common Stock issuable upon conversion thereof
unless such securities are subsequently registered under the Securities Act or
exemptions from such registration are available. The Investor understands that
each certificate representing the Preferred Stock will bear the following legend
or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). These
securities have been acquired for investment and not with a
view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such
securities under the Act or the availability of an exemption
from such registration requirements.
(d) The Investor is sufficiently knowledgeable and experienced
in the making of venture capital investments so as to be able to evaluate the
risks and merits of its investment in the Company, and is able to bear the
economic risk of loss of its investment in the Company.
(e) The Investor has been advised that the Preferred Shares
have not been and are not being registered under the Act or under the "blue sky"
laws of any jurisdiction and that the Company in issuing the Preferred Stock is
relying upon, among other things, the representations and warranties of the
Investors contained in this Section 5.
(f) No broker, finder, agent or similar intermediary has acted
on behalf of an Investor in connection with this Agreement or the transactions
contemplated hereby and there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection therewith.
(g) The Investor is an "accredited investor" as defined in
Regulation D of the Securities Act.
(h) The Investor is not "controlled" by any other entity for
purposes of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended.
(i) Advent VII L.P., Advent Atlantic and Pacific II L.P.,
Advent Atlantic and Pacific III, L.P., Advent New York L.P., Summit Ventures IV,
L.P., Summit Investors III, L.P.
24
and TA Venture Investors Limited Partnership represent that they are
"institutional buyers" as described in the Massachusetts Uniform Securities Act.
(j) Technology Leaders II L.P. and Technology Leaders II
Offshore C.V. represent that they are "institutional investors" as described in
the Pennsylvania Securities Act.
SECTION 6. INDEMNIFICATION
---------------
6.1 [Intentionally Omitted]
6.2 Indemnification for Breaches. Each of the Founders, severally,
----------------------------
on behalf of himself and his successors, executors, administrators, estate,
heirs and assigns (collectively, for the purposes of this Section 6,
"Founders"), agrees to defend, indemnify, save and hold each of the Investors
and, from and after the Closing, the Company and persons serving as officers,
directors, partners, employees or agents of each Investor and the Company
(individually an "Indemnified Party" and collectively the "Indemnified Parties")
harmless from and against any and all costs, losses, liabilities, damages,
lawsuits, deficiencies, claims, taxes and expenses (whether or not arising out
of third-party claims), including, without limitation, interest, penalties,
reasonable attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing which may be sustained or suffered by any
such Indemnified Party (a "Loss" or "Losses"), based upon, arising out of,
resulting from, by reason of or otherwise in respect of or in connection with:
(a) any inaccuracy in or breach of any representation or
warranty made by the Founders or the Company in this Agreement, or in any
Schedule, exhibit or certificate delivered by or on behalf of the Founders or
the Company as part of or pursuant to this Agreement (collectively, "Warranty
Claims");
(b) any breach of the representations set forth in Section 2.4
relating to the capital stock and capitalization of the Company and Section 2.16
relating to investment banking or brokerage fees or any covenant or agreement
made by or on behalf of the Founders or the Company in this Agreement, or in any
Schedule, exhibit or certificate delivered by or on behalf of the Founders or
the Company as part of or pursuant to this Agreement;
(c) any liability of the Company for Taxes arising from an
event or transaction prior to the Closing or as a result of the Closing which
have not been paid by the Company prior to the Closing, including without
limitation, any increase in Taxes due to the unavailability of any loss or
deduction claimed by the Company; or
(d) any liability of the Company arising from the defense
or disposition of Data Dynamics, Inc. v. R&D Systems Company (which for purposes
------------------------------------------
of this Section 6 shall be deemed to be a Warranty Claim).
25
The rights of Indemnified Parties to recover indemnification in respect
of any occurrence referred to in either of clauses (b), (c) and (d) of this
Section 6.2 shall not be limited by the fact that such occurrence may constitute
an inaccuracy in or breach of any representation, warranty or agreement referred
to in clause (a) of this Section 6.2.
6.3 Limitations on Indemnification.
------------------------------
(a) The right of Indemnified Parties to indemnification
under Section 6.2 shall be subject to the following provisions:
(i) Indemnification with respect to Warranty Claims
shall expire on the earlier to occur of (A) a Qualified Public Offering
or (B) thirty (30) days after receipt by the Company of the audited
financial statements of the Company for the fiscal year ending December
31, 1996; provided, however, that the limitation of this clause (i)
shall not apply to (x) Warranty Claims involving fraud, intentional
misrepresentation or breach of Section 2.4 or 2.16, (y) Taxes, for
which the period for making such claims shall expire on the date which
is six (6) months after the termination of the applicable statute of
limitations relating thereto and (z) claims arising from the defense or
disposition of Data Dynamics, Inc. v. R&D Systems Company if such
------------------------------------------
lawsuit has not been finally adjudicated as of such date (in which
event appropriate reserves for the estimated liabilities, losses and
expenses arising from such lawsuit shall remain in escrow (which
reserves will not, in any event exceed $650,000)). If prior to the
relevant date of expiration a specific state of facts shall have become
known which may constitute or give rise to any Warranty Claim as to
which indemnity may be payable and an Indemnified Party shall have
given notice of such facts to the Founders, then the right to
indemnification with respect thereto shall remain in effect without
regard to when such matter shall have been finally determined and
disposed of, according to the date on which notice of the applicable
claim is given.
(ii) No indemnification shall be payable with respect
to Warranty Claims (other than those involving fraud, intentional
misrepresentation, breach of Section 2.4 or 2.16 or Taxes) to
Indemnified Parties unless the total of all Warranty Claims shall
exceed $500,000 in the aggregate, whereupon only the amount of such
excess claims shall be recoverable in accordance with the terms hereof;
provided, however, that with respect to indemnification claims relating
-------- -------
to Section 6.2(d) hereof, indemnification shall be available from the
first dollar of loss or claim, notwithstanding anything herein to the
contrary.
(iii) The Founders shall not be obligated to
indemnify Indemnified Parties for Warranty Claims (other than any such
claims involving fraud, intentional misrepresentations, or Taxes) after
the cumulative amount of all amounts paid by the Founders to
Indemnified Parties with respect thereto exceeds FOUR MILLION NINE
HUNDRED THOUSAND DOLLARS ($4,900,000) and the sole remedy with respect
to any such claim described in this Section 6.3(a)(iii) shall be as
provided in the Escrow Agreement; provided, further, that the Founders
-------- -------
shall not be obligated to indemnify
26
Indemnified Parties for indemnification claims relating to Section
6.2(d) in an amount in excess of Six Hundred and Fifty Thousand Dollars
($650,000).
(iv) The limitations herein with respect to certain
Warranty Claims shall not limit the rights of any Indemnified Party
with respect to any other claims arising under provisions of Section
6.2 and the Founders shall not have any right of contribution from, or
claims against, the Company with respect to their indemnification
claims hereunder.
(b) In the event any claim for indemnification hereunder arises under
more than one provision of Section 6.2 and as such may be subject to limitations
pursuant to this Section 6.3 if deemed to arise under a particular provision but
not if deemed to arise under a different provision, then the claim shall be
deemed to arise under the provision to which no restrictions or the least
restrictive provisions apply.
6.4 Notice; Defense of Claims. Promptly after receipt by an indemnified
-------------------------
party of notice of any third party or other claim, liability or expense to which
the indemnification obligations hereunder would apply, including in connection
with any governmental proceeding, the indemnified party shall give notice
thereof in writing to the indemnifying party or parties, but the omission to so
notify the indemnifying party or parties promptly will not relieve the
indemnifying party or parties from any liability except to the extent that the
indemnifying party or parties shall have been materially prejudiced as a result
of the failure or delay in giving such notice. Such notice shall state the
information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the indemnifying party
or parties (i) give written notice to the indemnified party or parties stating
that they intend to defend in good faith against such claim, liability or
expense at their own cost and expense and (ii) provide assurance and security
reasonably acceptable to such indemnified party or parties that such
indemnification will be paid fully and promptly if required and such indemnified
party or parties will not incur cost or expense during the proceeding, then
counsel for the defense shall be selected by the indemnifying party or parties
(subject to the consent of such indemnified party or parties which consent shall
not be unreasonably withheld) and such indemnified party or parties shall not be
required to make any payment with respect to such claim, liability or expense as
long as the indemnifying party or parties are conducting a good faith and
diligent defense at their own expense; provided, however, that the assumption of
defense of any such matters by the indemnifying party or parties shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. If the indemnifying party or parties assume such defense in
accordance with the preceding sentence, they shall have the right, with the
consent of such indemnified party or parties, which consent shall not be
unreasonably withheld, to settle all Indemnifiable matters related to claims by
third parties which are susceptible to being settled provided the indemnifying
party or parties' obligation to indemnify such indemnified party or parties
therefor will be fully satisfied and the settlement includes a complete release
of such indemnified party or parties. The
27
indemnifying party or parties shall keep such indemnified party or parties
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish such indemnified party or
parties with all documents and information that such indemnified party or
parties shall reasonably request and shall consult with such indemnified party
or parties prior to acting on major matters, including settlement discussions.
Notwithstanding anything herein stated, such indemnified party or parties shall
at all times have the right to fully participate in such defense at its own
expense directly or through counsel; provided, however, if the named parties to
the action or proceeding include both the indemnifying party or parties and the
indemnified party or parties and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for such indemnified party or parties
shall be paid by the indemnifying party or parties. If no such notice of intent
to dispute and defend is given by the indemnifying party or parties, or if such
diligent good faith defense is not being or ceases to be conducted, such
indemnified party or parties shall, at the expense of the indemnifying party or
parties, undertake the defense of (with counsel selected by such indemnified
party or parties), and shall have the right to compromise or settle, such claim,
liability or expense with the consent of the Indemnifying Party, which will not
be unreasonably withheld, provided, however, if such consent is requested and
the Indemnifying Party does not respond within ten (10) business days, such
Indemnifying Party shall be deemed to have consented. If such claim, liability
or expense is one that by its nature cannot be defended solely by the
indemnifying party or parties, then such indemnified party or parties shall make
available all information and assistance that the indemnifying party or parties
may reasonably request and shall cooperate with the indemnifying party or
parties in such defense.
6.5 Satisfaction of Indemnification Obligations; Disputed Claims. Any
------------------------------------------------------------
indemnity payable pursuant to this Section 6 shall be paid in accordance with
the Escrow Agreement within the later of (a) fifteen (15) days after the
indemnified party's request therefor or (b) ten (10) days prior to the date on
which the Loss upon which the indemnity is based is required to be satisfied by
the indemnified party. Notwithstanding anything to the contrary set forth in
this Agreement, any dispute relating to any indemnification claim hereunder
shall be resolved in accordance with the provisions of the Escrow Agreement.
SECTION 7. GENERAL
-------
7.1 Amendments, Waivers and Consents. For the purposes of this
--------------------------------
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company or the Founders on the one hand and any Investor
on the other and no delay on the part of any party hereto in exercising any
rights hereunder or thereunder shall operate as a waiver of the rights hereof
and thereof. No covenant or other provision hereof or thereof may be waived
otherwise than by a written instrument signed by the party so waiving such
covenant or other provision; provided, however, that except as otherwise
provided herein or therein, changes in or additions to, and any consents
required by, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in
28
a particular instance and either retroactively or prospectively) by a consent or
consents in writing signed by the Investors holding a majority-in-interest of
the Preferred Shares (including for such purposes, on a proportional basis, any
Conversion Shares into which any of the Preferred Shares have been converted
that have not been sold to the public) and (in the case of any such change or
addition) the Company; provided, however, that the amendment, modification or
-------- -------
waiver of any provision which by its terms requires the consent or approval of
more than a majority-in-interest of the Investors shall only be effective if it
is signed by holders of such requisite percentage. All references in this
Agreement to a majority-in-interest of the Investors refer to Investors holding
a- majority-in-interest of the outstanding Preferred Shares and Conversion
Shares on an as converted basis. Any amendment or waiver effected in accordance
with this Section 7.1 shall be binding upon each holder of Preferred Shares
purchased under this Agreement at the time outstanding (including securities
into which such Preferred Shares have been converted), each future holder of all
such securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
------------------------------------------------------
Assignability of Rights. All covenants, agreements, representations and
-----------------------
warranties of the Company and/or the Founders made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished by or on behalf of the Company and/or the Founders to any Investor
in connection herewith shall be deemed material and to have been relied upon by
such Investor, and, except as otherwise provided in this Agreement, shall
survive the delivery of the Securities regardless of any instruction and shall
not merge in the performance of any obligation and shall bind the Company's and
the Founders' successors, assigns and heirs, whether so expressed or not, and,
except as otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not. The representations and warranties made by the Investors in
Section 5 of this Agreement shall survive the delivery of the Securities and
shall bind the Investors' successors and assigns and shall inure to the benefit
of the Company's successors and assigns.
7.3 Governing Law. Except for Delaware corporate law matters relating
-------------
to the Company which shall be governed by and construed in accordance with the
Delaware General Corporation Law, this Agreement shall be deemed to be a
contract made under, and shall be construed in accordance with, the laws of The
Commonwealth of Massachusetts (without giving effect to principles of conflicts
of law). Each party also waives trial by jury in any action relating to this
Agreement
7.4 Section Headings; Counterparts. The descriptive headings in this
------------------------------
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
-------------------
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto,
29
except as otherwise provided therein, is required or provided to be given shall
be deemed to have been sufficiently given or served and received for all
purposes when delivered or five days after being sent by certified or registered
mail, postage and charges prepaid, return receipt requested, or by express
delivery providing receipt of delivery, to the following addresses: if to the
Company, at its address as shown on the signature page hereof, or at any other
address designated by the Company to each of the Investors in writing; if to an
Investor, at its mailing address as shown on Appendix A hereto, or at any other
----------
address designated by such Investor to the Company and the other Investors in
writing; if to a Lammle Entity, at its mailing address as shown on Appendix B
----------
hereto, or at any other address designated by such Lammle Entity to the Company
and the Investors in writing; and if to an assignee of an Investor, at its
address as designated to the Company and the other Investors in writing.
7.6 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Founders shall pay all attorneys' fees (including
--------
costs) that each of the Company, the Founders and the Investors incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement and the agreements, documents and instruments contemplated hereby or
executed pursuant hereto and the Founders shall pay all other costs and expenses
that they and the Company incur with respect to the negotiation, execution,
delivery and performance of this Agreement and the agreements, documents and
instruments contemplated hereby or executed pursuant hereto (including, without
limitation, any amounts payable to The Xxxxxxx Company).
7.8 Integration. This Agreement together with the Stockholders'
-----------
Agreement, including the exhibits, documents and instruments referred to herein
or therein, constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
[Remainder of Page Intentionally Left Blank]
30
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
R&D SYSTEMS COMPANY
0000 X. Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
By: /s/ XXX X. XXXXXX
-----------------------------
Name:
Title:
/s/ XXXXX X. XXXX
--------------------------------
Xxxxx X. Xxxx
/s/ XXX X. XXXXXX
--------------------------------
Xxx X. Xxxxxx
/s/ XXXX X. XXX
--------------------------------
Xxxx X. Xxxx
XXXXXXXX XXXX TRUST
By: /s/ XXXXX X. XXXX
-----------------------------
Trustee
XXXX XXXX TRUST
By: /s/ XXXXX X. XXXX
-----------------------------
Trustee
/s/ XXXX X. XXXXXX
--------------------------------
Xxxx X. Xxxxxx
31
XXX XXXXXX TRUST
By: /s/ XXX X. XXXXXX
-----------------------------
Trustee
XXXXX XXXXXX TRUST
By: /s/ XXX X. XXXXXX
-----------------------------
Trustee
XXXXX XXXXXX TRUST
By: /s/ XXX X. XXXXXX
-----------------------------
Trustee
TA INVESTORS:
------------
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------
32
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
ADVENT ATLANTIC AND
PACIFIC III, L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------
TA VENTURE INVESTORS
LIMITED PARTNERSHIP
By: *
--------------------------------
33
*/s/ XXXXXXXXXX X. XXXXX
------------------------
By Xxxxxxxxxx Xxxxx
SUMMIT INVESTORS:
----------------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Xxxxxxx & Co., IV
Its General Partner
By: /s/ XXXXXXX X. XXXX
--------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ XXXXXXX X XXXX
--------------------------------
General Partner
TL INVESTORS:
------------
TECHNOLOGY LEADERS II L.P.
By:Technology Leaders II Management
L.P., the General Partner
By:Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------
Managing Director
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By:Technology Leaders II Management
L.P., a General Partner
34
By: Technology Leaders Management,
Inc., a General Partner
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------
Managing Director
35
Appendix A
----------
List of Investors
-----------------
Column 1 Column 2
-------- --------
Number of Aggregate
Preferred Purchase Price for
Name Shares Preferred Shares
---- --------- ------------------
Advent VII L.P. 7,500 $7,500,000
c/o TA Associates
125 High Street, Suite 0000
Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Advent Atlantic and Pacific II L.P. 2,865 2,865,000
c/o TA Associates, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Advent Atlantic and Pacific III, L.P. 3,750 3,750,000
c/o TA Associates, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Advent New York L.P. 750 750,000
c/o TA Associates, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
TA Venture Investors Limited Partnership 135 135,000
c/o TA Associates, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Summit Ventures IV, L.P. 9,577 9,577,000
c/o Summit Partners
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx, XX 00000
Summit Investors III, L.P. 423 423,000
c/o Summit Partners
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx, XX 00000
Technology Leaders II L.P. 557 557,000
c/o Technology Leaders Management,
Inc.
800 The Safeguard Building
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000
Technology Leaders II Offshore C.V. 443 443,000
c/o Technology Leaders Management,
Inc.
800 The Safeguard Building
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000
========== ==========
Total 26,000 $26,000,000
========== ==========
36
Appendix B
Lammle Entity Holdings
----------------------
Number of Shares of
Series B Convertible
Name Preferred Stock
---- --------------------
Xxx X. Xxxxxx 2,275
Xxxx X. Xxxxxx 2,275
Xxx Xxxxxx Trust 487.5
Xxxxx Xxxxxx Trust 487.5
Xxxxx Xxxxxx Trust 975
-------
6,500
The address for each of the above is:
00000 Xxxx Xxxxxx Xxxx Xxxxx
Xxxxxxxxxx, XX 00000
Exhibit A
to Stock Purchase Agreement
Form of Indemnification Agreement
[Reference is hereby made to Exhibit 10.17 to the Registration Statement.]
Exhibit B
to Stock Purchase Agreement
Amended and Restated Certificate of Incorporation
[Reference is hereby made to Exhibit 3.1 to the Registration Statement.]
EXHIBIT C
---------
R&D SYSTEMS COMPANY
EMPLOYEE AGREEMENT
REGARDING CONFIDENTIALITY
AND PROPRIETARY RIGHTS
Employee Name:
Date:
WHEREAS, certain investors have agreed to provide financing (the
"Financing") to R&D Systems Company (the "Company") subject to the terms of
that certain Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as
of the date hereof, by and among the Company, the stockholders of the Company
identified therein (the "Founders") and the investors identified therein (the
"Investors");
WHEREAS, such Financing will significantly benefit the Company and
indirectly benefit the above-named Employee as a stockholder of the Company; and
WHEREAS, this Agreement is a condition to the Stock Purchase
Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Non-Disclosure Obligation. I understand and agree that my
-------------------------
employment creates a relationship of confidence and trust between me and the
Company with respect to (a) all proprietary and confidential information of the
Company, and (b) the confidential information of others with which the Company
has a business relationship. The information referred to in clauses (a) and (b)
of the preceding sentence is referred to in this Agreement, collectively, as
"Confidential Information." I will not at any time, whether during or after the
termination of employment, for any reason whatsoever (other than to promote and
advance the business of the Company), reveal to any person or entity (both
commercial and non-commercial) or use for any purpose other than the furtherance
of the Company's business interests any of the trade secrets or Confidential
Information, including, but not limited to, the Company's research and
development activities; marketing plans and strategies; pricing and costing
policies; customer and supplier lists; and business or financial information of
the Company so far as they have come or may come to my knowledge, except as may
be required in the ordinary course of performing my duties as an employee of the
Company. This restriction shall not apply to: (i) information that may be
disclosed generally or is in the public domain through no fault of mine; (ii)
information received from a third party outside the Company that was disclosed
without a breach of any confidentiality obligation; or (iii) information that
may be required by law or an order of any court, agency or proceeding to be
disclosed; provided, that such disclosure is subject to all applicable
governmental or judicial protection available for like material and I agree to
provide the Company with prior notice of any such disclosure. I shall keep
secret all matters of such nature entrusted to me and shall not use or disclose
any such information in any manner, except as may be required in the ordinary
course of performing my duties as an employee of the Company.
2. Assignment of Inventions. I expressly understand and agree
------------------------
that any and all right or interest I have or obtain in any designs, trade
secrets, technical specifications, technical data, know-how and show-how,
internal reports and memoranda, marketing plans, inventions, concepts, ideas,
expressions, discoveries, improvements, copyrights, and patent or patent rights
conceived, devised, developed, reduced to practice, or which I otherwise have or
obtain during the
term of this Agreement which relate to the business of the Company or arise out
of my employment with the Company are expressly regarded as "works for hire"
(the "Inventions").
I hereby assign to the Company the sole and exclusive right to such
Inventions. I agree that I will promptly disclose to the Company any and all
such Inventions, and that, upon request of the Company, I will execute and
deliver any and all documents or instruments and take any other action which the
Company shall deem necessary to assign to and vest completely in the Company, to
perfect trademark, copyright and patent protection with respect to, or to
otherwise protect the Company's trade secrets and proprietary interest in such
Inventions. The obligations of this Section shall continue beyond the
termination of my employment with respect to such Inventions conceived of or
made by me during the term of this Agreement. The Company agrees to pay any and
all copyright, trademark and patent fees and expenses or other costs incurred by
me for any assistance rendered to the Company pursuant to this Section.
My obligation to assign Inventions shall not apply to any invention
about which I can prove that: (i) it was developed entirely on my own time and
effort; (ii) no equipment, supplies, facilities, trade secrets or confidential
information of the Company was used in its development; (iii) it does not relate
to the business of the Company or to the Company's actual or anticipated
research and development; and (iv) it does not result from any work performed by
me for the Company.
3. Documents, records, etc. All documents, records, apparatus,
-----------------------
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Restrictions on Corporate Opportunities. During my
---------------------------------------
employment with the Company and for a period of one (1) year thereafter, I will
not pursue, engage in or have an interest in other business ventures or
opportunities which arise out of, are similar to or competitive with the
business of the Company. In addition, I will be obligated to present any
computer software business or investment opportunity arising out of the
Company's operations to the Company, and the Company shall have the exclusive
right to pursue such business or investment opportunity.
5. Absence of Conflicting Agreements. I understand the Company
---------------------------------
does not desire to acquire from me any trade secrets, know-how or confidential
business information that I may have acquired from others. I represent that I
am not bound by any agreement or any other existing or previous business
relationship which conflicts with or prevents the full performance of my duties
and obligations to the Company under this Agreement or otherwise during the
course of my employment.
6. No Employment Obligation. I understand that this Agreement
------------------------
does not create an obligation on the part of the Company to continue my
employment with the Company. I am employed as an employee "at will."
7. Remedies Upon Breach. I agree that it would be difficult to
--------------------
measure any damages caused to the Company which might result from any breach by
me of the promises set forth in this Agreement, and that, in any event, money
damages would be an inadequate remedy for any such breach. Accordingly, I agree
that if I breach, or propose to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
8. Binding Effect. This Agreement will be binding upon me and
--------------
my heirs, executors, administrators and legal representatives and will inure to
the benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns. My obligations under this Agreement shall
survive the termination of my relationship with the Company regardless of the
manner of such termination.
9. Enforceability. If any portion or provision of this
--------------
Agreement is to any extent declared illegal or unenforceable by a court of
competent jurisdiction, then the remainder of this Agreement, or the application
of such portion or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.
10. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Company and myself with respect to the subject matter
hereof, and supersedes all prior representations and agreements with respect to
such subject matter. This Agreement may not be amended, modified or waived
except by a written instrument duly executed by the person against whom
enforcement of such amendment, modification or waiver is sought. The failure of
any party to require the performance of any term or obligation of this
Agreement, or the waiver by any party of any breach of this Agreement, in any
particular case will not prevent any subsequent enforcement of such term or
obligation or to be deemed a waiver of any separate or subsequent breach.
11. Third Party Beneficiaries. This Agreement is being entered
-------------------------
into at the request of the Investors and such Investors are intended to be third
party beneficiaries hereunder with full power to enforce the terms hereof.
12. Notices. Any notices, requests, demands and other
-------
communications provided for by this Agreement will be sufficient if in writing
and delivered in person or sent by registered or certified mail, postage
prepaid, to me at the last address which I have filed in writing with the
Company or, in the case of any notice to the Company, at its main offices, to
the attention of its Chief Executive Officer.
13. Governing Law. This is a State of Colorado contract and shall be
-------------
construed under and be governed in all respects by the laws of the State of
Colorado, without giving effect to its conflicts of law principles.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE
READ IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
__________________________________
Accepted and Agreed to by
R&D SYSTEMS COMPANY
By: ___________________________
Name:
Title:
Date:
Exhibit D
to Stock Purchase Agreement
Stockholder's Agreement
[Reference is hereby made to Exhibit 10.2 to the Registration Statement.]
Exhibit E
to Stock Purchase Agreement
Non-Competition Agreement
[Reference is hereby made to Exhibit 10.19 to the Registration Statement.]
EXHIBIT F
---------
R&D SYSTEMS COMPANY
1996 Stock Option and Grant Plan
--------------------------------
1. PURPOSE
This Stock Option and Grant Plan (the "Plan") is intended as a performance
incentive for officers, employees, directors, consultants and other key persons
of R&D Systems Company (the "Company") or its Subsidiaries (as hereinafter
defined) to enable the persons to whom options are granted (the "Optionees") or
to whom shares of common stock are granted (the "Grantees") to acquire or
increase a proprietary interest in the success of the Company. The Company
intends that this purpose will be effected by the granting of "incentive stock
options" ("Incentive Options") as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), nonqualified stock options ("Nonqualified
Options") and outright grants of common stock under the Plan. The term
"Subsidiaries" includes any corporations in which stock possessing fifty percent
or more of the total combined voting power of all classes of stock is owned
directly or indirectly by the Company.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by a committee (the "Option Committee")
of not less than two directors of the Company appointed by the Board of
Directors of the Company (the "Board of Directors") each of whom is an "outside
director" within the meaning of Section 162(m) of the Code.
1
(c) Subject to the terms and conditions of the Plan, the Option Committee
shall have the power:
(i) To determine from time to time the options or stock to be
granted to eligible persons under the Plan, to prescribe the terms and
provisions (which need not be identical) of options or stock granted under
the Plan to such persons and to approve the grant of options or stock, as
the case may be;
(ii) To construe and interpret the Plan and grants thereunder and to
establish, amend, and revoke rules and regulations for administration of the
Plan. In this connection, the Option Committee may correct any defect or
supply any omission, or reconcile any inconsistency in the Plan, in any
option agreement, or in any related agreements, in the manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective. All decisions and determinations by the Option Committee in the
exercise of this power shall be final and binding upon the Company, the
Optionees and the Grantees; and
(iii) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of the
Company with respect to the Plan.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under the Plan, shall be shares of the Company's authorized but unissued common
stock, par value $.01 per share (the "Common Stock"). The total number of shares
that may be issued under the Plan shall not exceed an aggregate of 1,327,465
shares of Common Stock and the total number of shares of Common Stock that may
be issued to, and/or for which Options may be granted to, any one
2
individual during any one calendar year shall not exceed 700,000. Such number
shall be subject to adjustment as provided in Section 7 hereof.
(b) Whenever any outstanding option under the Plan expires, is cancelled
or is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options under the Plan or grants of Common Stock.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other employees
of the Company or its Subsidiaries, including members of the Board of Directors
who are also employees of the Company or its Subsidiaries. Nonqualified Options
may be granted to officers or other employees of the Company or its
Subsidiaries, members of the Board of Directors and consultants and other key
persons who provide services to the Company or its Subsidiaries (regardless of
whether they are also employees). Grants of Common Stock may be made to any
officer, director, employee, consultant or other key person of the Company.
(b) No person shall be eligible to receive any Incentive Option under the
Plan if, at the date of grant, such person beneficially owns stock representing
in excess of 10% of the voting power of all outstanding capital stock of the
Company (a "Ten Percent Stockholder") unless notwithstanding anything in this
Plan to the contrary (i) the purchase price for the Common Stock subject to such
option is at least 110% of the fair market value of such stock at the time of
the grant and (ii) the option by its terms is not exercisable more than five
years from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, to the extent that
the aggregate fair market value of the stock with respect to which Incentive
Options are exercisable for the first
3
time by any individual during any calendar year (under all plans of the Company
and its parent and Subsidiaries) exceeds $100,000, the options attributable to
the excess over $100,000 shall be treated as Nonqualified Options under the
Plan. Such annual limitation shall be applied by taking Incentive Options into
account in the order in which they were granted.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement shall
contain such provisions as the Option Committee shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
-------------------------------------
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted; provided, however, that if such Incentive Option
is held by a Ten Percent Stockholder, the expiration date of such Incentive
Option shall not be later than five years from the date of grant thereof. If an
Optionee's employment or service as a director with the Company and its
Subsidiaries terminates for any reason, the Option Committee may in its
discretion provide, at any time, that any outstanding option granted to such
Optionee under the Plan shall be exercisable for three months following
termination of employment, subject to the expiration date of such option.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
--------------------------
to which an option may be exercised at any one time shall be fifty (50) shares,
or such lesser number as is subject to exercise under the option at the time,
provided that no fractional shares may be issued.
4
(c) Exercise. Each option shall be exercisable in such installments (which
--------
need not be equal) and at such times as may be designated by the Option
Committee. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject
--------------
to each option shall be determined by the Option Committee; provided, however,
that the purchase price per share of Common Stock subject to each Incentive
Option shall be not less than the fair market value of the Common Stock on the
date such Incentive Option is granted. For the purposes of the Plan, the fair
market value of the Common Stock shall be determined in good faith by the Option
Committee; provided, however, that (i) if the Common Stock is admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") on the date the option is granted, the fair market value shall
not be less than the average of the highest bid and lowest asked prices of the
Common Stock on NASDAQ reported for such date, or (ii) if the Common Stock is
admitted to trading on a national securities exchange or the NASDAQ National
Market System on the date the option is granted, the fair market value shall not
be less than the closing price reported for the Common Stock on such exchange or
system for such date or, if no sales were reported for such date, for the last
date preceding such date for which a sale was reported.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to be
-------------------
the owner of any shares of Common Stock subject to any option unless and until
(i) the option shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Company, (iii) the Company shall have issued and
delivered the shares to the Optionee, and (iv) the Optionee's name shall
5
have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such shares of Common Stock.
(f) Transfer. No option granted hereunder shall be transferable by the
--------
Optionee other than by will or by the laws of descent and distribution, and such
option may be exercised during the Optionee's lifetime only by the Optionee, or
his or her guardian or legal representative.
5A. TERMS OF STOCK GRANT
Subject to the terms and conditions of this Plan, the Option Committee may
grant (or sell at a purchase price determined by such committee) shares of
Common Stock to eligible participants under this Plan. Such grants or issuances
may be on such terms as the Option Committee may determine, including
restrictions on transfer, rights of first refusal and repurchase provisions
based upon continuing employment and/or the achievement of performance goals or
other conditions. In no event may Common Stock issued or granted under this Plan
(other than as a result of the exercise of Options issued under this Plan) be
transferred or sold within six months of the date of issuance thereof.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Section 5(b) hereof, in part by delivering to the Company
on any business day a written notice specifying the number of shares of Common
Stock the Optionee then desires to purchase (the "Notice"). As a condition
precedent to the exercise of any option (i) prior to the closing date of the
Company's first underwritten public offering of the Common Stock, on or prior to
the exercise date, the Optionee shall execute and deliver a Stockholders'
Agreement with substantially the terms attached hereto as Exhibit A, which may
---------
be amended from time to time
6
and (ii) the Optionee shall pay or make arrangements for the payment of all
taxes to be withheld, in accordance with Section 9 of the Plan.
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or bank
check or other payment acceptable to the Company, equal to the option exercise
price for the number of shares specified in the Notice (the "Total Option
Price"); (ii) if authorized by the applicable option agreement and if permitted
by law, by delivery of shares of Common Stock that the optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee and the broker shall comply with such procedures and enter into such
agreements of indemnity or other agreements as the Company shall prescribe as a
condition of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of an option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Option Committee, and the fulfillment of any
other requirements contained in the option agreement or applicable provisions of
law.
7
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares subject to the Plan, and in the number, kind, and per share
exercise price of shares subject to unexercised options or portions thereof
granted prior to any such change. In the event of any such adjustment in an
outstanding option, the Optionee thereafter shall have the right to purchase the
number of shares under such option at the per share price, as so adjusted, which
the Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the Option
Committee and such determinations shall be conclusive. The Option Committee
shall have the discretion and power in any such event to determine and to make
effective provision for acceleration of the time or times at which any option or
portion thereof shall become exercisable. No fractional shares of Common Stock
shall be issued under the Plan on account of any adjustment specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity, or (iii) the
sale of all or substantially all of the assets of the Company
8
to another entity, the Plan and the options issued hereunder shall terminate
upon the effectiveness of any such transaction or event, unless provision is
made in connection with such transaction for the assumption of options
theretofore granted, or the substitution for such options of new options of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and the per share exercise price, as provided in Section 7.
In the event of such termination, all outstanding vested options shall be
exercisable for at least fifteen (15) days prior to the date of such termination
whether or not otherwise vested or exercisable during such period.
9. TAX WITHHOLDING
Each Optionee shall, no later than the exercise date of any option, pay to
the Company, or make arrangements satisfactory to the Option Committee regarding
payment of any Federal, state, or local taxes of any kind required by law to be
withheld with respect to such income. The Company and its Subsidiaries shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Optionee.
10. CONDITION TO GRANTS OF COMMON STOCK
As a condition precedent to the grant of Common Stock to any Grantee under
the Plan prior to the closing date of the Company's first underwritten public
offering of the Common Stock, the Grantee shall execute and deliver a
Stockholders' Agreement with substantially the terms attached hereto as Exhibit
-------
A, which may be amended from time to time. The Option Committee may also impose
-
such other terms and conditions on the grant of any Common Stock under the Plan
as it may determine.
11. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as
9
provided in Sections 7 and 8 hereof, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law
and regulations at an annual or special meeting held within twelve months before
or after the date of adoption of such amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options may
be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price; or
(d) otherwise materially increase the benefits accruing to participants
under the Plan.
Except as provided in Sections 7 and 8 hereof, rights and obligations under
any option granted before any amendment of the Plan shall not be altered or
impaired by such amendment, except with the consent of the Optionee.
12. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan nor any option granted hereunder shall be
deemed to confer upon any employee any right to continued employment with the
Company or its Subsidiaries.
10
13. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Option Committee.
(b) The Plan shall be governed by Delaware law, except to the extent that
such law is preempted by federal law.
14. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior to
such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
* * *
Approved by Board of Directors: March 14, 1996
Approved by Stockholders: March 14, 1996
11
EXHIBIT G
---------
ESCROW AGREEMENT
----------------
This Agreement is made and entered into as of March 14, 1996 by and among
Xxxxx X. Xxxx, Xxxx X. Xxxx, Xxxxxxxx Xxxx Trust and Xxxx Xxxx Trust
(collectively, the "Linn Entities") and Xxx X. Xxxxxx, Xxxx X. Xxxxxx, Xxx
Xxxxxx Trust, Xxxxx Xxxxxx Trust and Xxxxx Xxxxxx Trust (collectively, the
"Lammle Entities") (the Linn Entities and the Lammle Entities are collectively
referred to as the "Founders"), the investors identified on the signature pages
hereto (the "Investors"), and Norwest Bank Colorado, N.A. (the "Escrow Agent").
WHEREAS, reference is made to the Stock Purchase Agreement, dated as of the
date hereof, by and among R&D Systems Company (the "Company"), the Founders and
the Investors (the "Investment Agreement"), pursuant to which the Investors have
purchased 26,000 shares of Convertible Participating Preferred Stock, par value
$.01 per share, of the Company;
WHEREAS, the Founders have agreed to indemnify the Investors against
certain losses resulting from breaches of the representations, obligations,
warranties and covenants made by the Company and the Founders in the Investment
Agreement;
WHEREAS, under the Investment Agreement, the Founders and the Investors
have agreed that an aggregate amount of $4,900,000 will be deposited into
escrow, on the terms and conditions hereinafter provided, in an aggregate amount
equal to $4,900,000, to secure payment of such indemnification;
WHEREAS, the Founders and the Investors acknowledge that the Founders have
not received, nor do they have control over, the funds deposited hereunder, and
that the Founders will not receive any control over such funds until certain
conditions set forth herein have been satisfied; and
WHEREAS, Norwest Bank Colorado, N.A. is willing to serve as Escrow Agent
pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged by each party hereto, it is hereby agreed by and
among the Founders, the Investors and the Escrow Agent as follows:
1. Establishment of Escrow. The Investors have herewith deposited with
-----------------------
the Escrow Agent, and the Escrow Agent acknowledges receipt of, the sum of Four
Million Nine Hundred Thousand Dollars ($4,900,000). The consideration deposited
hereunder, and all interest and earnings thereon, shall be referred to as the
"Escrowed Funds." The Escrowed Funds shall be held in escrow in the name of the
Escrow Agent or its nominee, subject to the terms and conditions set forth
herein.
2. Investment of Escrowed Funds. The Escrow Agent shall invest the
----------------------------
Escrowed Funds in United States Treasury obligations with a remaining maturity
of less than one year and investment- grade commercial paper. The Escrow Agent
shall not be responsible for any loss incurred upon any such investment made in
good faith. All income and earnings of the Escrowed Funds shall be attributed
to the Founders.
3. Distribution of Earnings. All amounts earned on the Escrowed Funds (by
------------------------
way of interest, dividends or otherwise) shall not be distributed except as
provided in Section 6 and shall be held by the Escrow Agent under the terms of
this Agreement and shall be considered as part of the Escrowed Funds.
4. Claims Against Escrowed Funds. At any time or times prior to the
-----------------------------
expiration of this Agreement, the Investors may make claims against the Escrowed
Funds, pursuant to the indemnification provisions set forth in Section 6 of the
Investment Agreement. The Investors shall notify each of the Founders and the
Escrow Agent in writing prior to the expiration of this Agreement of each such
claim, including a brief description (based on information then available) of
the amount and nature of such claim. If any of the Founders shall dispute such
claim, such Founder shall give written notice thereof to the Investors and to
the Escrow Agent within thirty (30) days after the date of notice of the
Investors' claim, in which case the Escrow Agent shall continue to hold the
Escrowed Funds in accordance with the terms of this Agreement; otherwise, such
claim shall be deemed to have been acknowledged to be payable out of the
Escrowed Funds in the full amount thereof and the Escrow Agent shall pay such
claim in immediately available funds to the Investors within three (3) business
days after expiration of said thirty-day period. If the amount of the claim
exceeds the value of the Escrowed Funds, the Escrow Agent shall pay to the
Investors the entire Escrowed Funds and shall have no liability or
responsibility for any deficiency.
5. Disputed Claims.
---------------
(a) If any of the Founders shall dispute an indemnification claim of the
Investors by written notice as provided above, the Escrow Agent shall set aside
a portion of the Escrowed Funds sufficient to pay said claim in full, which
shall be based upon the full amount of such claim as set forth in the Investors
initial notice (the "Set Aside Amount"). In addition to the Set Aside Amount,
in the event the Investors notify the Escrow Agent in writing that it has made
out-of-pocket expenditures in connection with any such disputed claim, an amount
equal to such expenditures shall be set aside and added to and become a part of
the Set Aside Amount.
(b) If the disputed indemnification claim has not been resolved or
compromised within sixty (60) days after any of the Founders gives notice of
dispute of the same, or in the event of a third-party claim or suit, within
fifteen (15) days after its resolution or compromise, said indemnification claim
shall be submitted to arbitration to be held in Boston, Massachusetts in
accordance with the rules and procedures of the American Arbitration
Association, and the decision of such arbitrators shall be final and conclusive
and judgment thereof may be entered in any court of law having jurisdiction,
including, without limitation, any Superior Court in the Commonwealth of
Massachusetts. Notwithstanding the foregoing, in the
2
event the Escrow Agent seeks to become a party to any arbitration claim, the
venue for such claim shall be removed to Denver, Colorado. The fees and expenses
of the arbitrators shall be borne equally by the Investors on the one hand and
the Founders on the other, unless the arbitrators shall in their sole discretion
specify another allocation, and in such case such fees and expenses shall be
borne as so allocated. In no event shall the Escrow Agent be made a party to,
nor be responsible for any fee or expense of any party to, any arbitration
proceeding. The Escrow Agent shall make payment of such claim, as and to the
extent allowed, to the Investors out of the Set Aside Amount within three (3)
business days following said determination by the arbitrators.
6. Termination. This Agreement shall terminate on the earlier to occur of
-----------
(a) the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock of the Company to the public at a per share
price of at least $20.00, appropriately adjusted for stock dividends, stock
splits and the like, and in which the proceeds received by the Company, net of
underwriting discounts and commissions, equal or exceed $30,000,000, or (b)
thirty (30) days after receipt by the Company of the audited financial
statements for the fiscal year ending December 31, 1996, together with an
audited statement of income and retained earnings of the Company for the fiscal
year then ended (such earlier date, the "Termination Date"), and the balance of
the Escrowed Funds (including any amounts earned on the Escrowed Funds, less any
taxes paid or accrued by the Escrow Agent on such earnings) shall be distributed
to the Founders in the ratio of five-eighths to the Linn Entities and three-
eighths to the Lammle Entities (the "Sharing Ratio"); provided that there are no
-------- ----
indemnification claims outstanding on the Termination Date and provided further
----------------
that in the event that Data Dynamics, Inc. v. R&D Systems, Inc. has not been
----------------------------------------
finally adjudicated as of such Termination Date (in which event appropriate
reserves for the estimated liabilities, losses and expenses arising from such
lawsuit shall remain in escrow pending final adjudication of such lawsuit (which
reserves will not, in any event exceed $650,000)). If there are indemnification
claims outstanding on the Termination Date, this Agreement shall continue in
effect until all indemnification claims the Investors have made pursuant to
Section 4 hereof on or prior to the Termination Date shall have been disposed
of. As of the Termination Date, an amount of the Escrowed Funds adequate to
cover all disputed and undisputed claims made by the Investors pursuant to
Section 4 hereof will be held by the Escrow Agent, and the Escrow Agent shall
distribute on the Termination Date the balance, if any, of the Escrowed Funds to
the Founders in accordance with the Sharing Ratio. At such time as all
remaining indemnification claims hereunder have been resolved and the Escrow
Agent has received a written notice executed in counterpart by the Investors and
each of the Founders to that effect and any amounts to be distributed to the
Investors in connection therewith have been so distributed, the Escrow Agent
shall distribute the remaining Escrowed Funds, if any, to the Founders in
accordance with the Sharing Ratio or as directed by each of the Founders.
7. Duties and Responsibilities of Escrow Agent.
-------------------------------------------
(a) The Founders and the Investors acknowledge and agree that the Escrow
Agent (i) shall not be responsible for any of the agreements referred to herein
but shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement; (ii) shall not be obligated to take
any legal or other action hereunder which might in its judgment
3
involve any expense or liability unless it shall have been furnished with
acceptable indemnification; (iii) may rely on and shall be protected in acting
or refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (iv) may
consult counsel satisfactory to it, including house counsel, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or wilful misconduct. The Founders and the Investors,
jointly and severally, covenant and agree to indemnify the Escrow Agent and hold
it harmless without limitation from and against any loss, liability or expense
of any nature incurred by the Escrow Agent arising out of or in connection with
this Agreement or with the administration of its duties hereunder, including but
not limited to reasonable legal fees and other costs and expenses of defending
or preparing to defend against any claim or liability, unless such loss,
liability or expense shall be caused by the Escrow Agent's willful misconduct or
gross negligence. In no event shall the Escrow Agent be liable for indirect,
special or consequential damages.
(c) The Founders agree to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to the payment of Escrowed
Funds under this Agreement, and to indemnify and hold the Escrow Agent harmless
from and against any taxes, additions for late payment, interest, penalties and
other expenses, that may be assessed against the Escrow Agent on any such
payment or other activities under this Agreement. The Founders undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. The Founders agree to
indemnify and hold the Escrow Agent harmless from any liability on account of
taxes, assessments or other governmental charges, including without limitation
the withholding or deduction or the failure to withhold or deduct same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement including costs and
expenses (including reasonable legal fees), interest and penalties.
(d) Concurrently with the execution of this Agreement by the parties
hereto, the Investors will pay to the Escrow Agent by check, as compensation for
the services of the Escrow Agent hereunder, a fee in accordance with the
schedule attached hereto as Exhibit A. The Founders shall be liable for out of
---------
pocket expenses of the Escrow Agent referred to in Exhibit A.
---------
(e) The Escrow Agent may at any time resign as Escrow Agent hereunder by
giving at least thirty (30) days' prior written notice of resignation to the
Founders and the
4
Investors. Prior to the effective date of the resignation as specified in such
notice, the Founders and the Investors will issue to the Escrow Agent a written
instruction authorizing redelivery of the Escrowed Funds to a bank or trust
company that they select. Such bank or trust company shall have capital, surplus
and undivided profits in excess of $50,000,000. If, however, the Founders and
the Investors shall fail to name such a successor escrow agent within twenty
(20) days after receipt of notice of resignation from the Escrow Agent, the
Escrow Agent may apply to a court of competent jurisdiction for appointment of a
successor escrow agent. The provisions of paragraph (b) and (c) of this Section
7 shall survive the termination of this Agreement.
8. Dispute Resolution. It is understood and agreed that should any
------------------
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrowed Funds, or should any claim be made upon the
Escrowed Funds by a third party, the Escrow Agent, upon receipt of written
notice of such dispute or claim by the parties hereto or by a third party, is
authorized and directed to retain in its possession without liability to anyone,
all or any of the Escrowed Funds until such dispute shall have been settled
either by the mutual agreement of the parties involved or by the dispute
resolution procedure set forth in Section 5(b) hereof. The Escrow Agent may,
but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Escrowed Funds.
9. Force Majeure. Neither the Founders nor the Investors nor the Escrow
-------------
Agent shall be responsible for any delay or failure in performance resulting
from acts beyond its control. Such acts shall include but not be limited to
acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental
regulations superimposed after the fact, fire, communication line failures,
power failures, earthquakes or other disasters.
10. Notices. Any notice permitted or required hereunder shall be deemed
-------
to have been duly given when received or when mailed certified or registered
mail, postage prepaid, to the parties at their address set forth below or to
such other address as they may hereafter designate in the manner set forth
herein.
(a) if to the Founders:
Xxxxx X. Xxxx (and all other Linn Entities)
000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Facsimile:
Xxx X. Xxxxxx (and all other Lammle Entities)
00000 X. Xxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Facsimile:
with a copy to:
5
(b) if to the Investors:
TA Associates, Inc.
000 Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxx
TA Associates, Inc.
000 Xxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxxxxx
Summit Partners
000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxx
Technology Leaders Management, Inc.
800 The Safeguard Building
000 Xxxxx Xxxx Xxxxx
Xxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxx
with a copy to:
Xxxxxxx, Procter & Xxxx, LLP
Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxx, Esq.
H. Xxxxx Xxxxxx, Esq.
(c) if to the Escrow Agent:
Norwest Bank Colorado, N.A.
0000 Xxxxxxxx
Xxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxx
6
12. Binding Effect. This Agreement shall be binding upon the respective
--------------
parties hereto and their heirs, executors, successors and assigns.
13. Modifications. This Agreement may not be altered or modified without
-------------
the express written consent of the parties hereto. No course of conduct shall
constitute a waiver of any of the terms and conditions of this Agreement, unless
such waiver is specified in writing, and then only to the extent so specified.
A waiver of any of the terms and conditions of this Agreement on one occasion
shall not constitute a waiver of the other terms of this Agreement, or of such
terms and conditions on any other occasion.
14. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Colorado.
15. Execution. This Agreement may be executed in counterparts, each of
---------
which shall be deemed an original, and all of which together shall constitute
one Agreement. In the event of any conflict between the terms of this Agreement
and the Investment Agreement, the terms of the Investment Agreement shall
control.
16. Assignment. The Founders' interests under this Agreement shall not be
----------
assignable, in whole or in part, and none of the Founders may sell, transfer,
pledge, hypothecate or mortgage its interest in this Agreement. Any attempt to
assign, sell, transfer, pledge, hypothecate or mortgage any interest of a
Founder hereunder shall be void and of no force or effect.
[Remainder of Page Intentionally Left Blank]
7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FOUNDERS:
--------
--------------------------------------------
Xxxxx X. Xxxx
--------------------------------------------
Xxxx X. Xxxx
XXXXXXXX XXXX TRUST
By:_________________________________________
Trustee
XXXX XXXX TRUST
By:_________________________________________
Trustee
--------------------------------------------
Xxx X. Xxxxxx
--------------------------------------------
Xxxx X. Xxxxxx
XXX XXXXXX TRUST
By:_________________________________________
Trustee
8
XXXXX XXXXXX TRUST
By:_________________________________________
Trustee
XXXXX XXXXXX TRUST
By:_________________________________________
Trustee
INVESTORS:
---------
ADVENT VII L.P.
By: TA Associates VII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
--------------------------------------
9
ADVENT ATLANTIC AND
PACIFIC II L.P.
By: TA Associates AAP II Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
----------------------------------------
ADVENT ATLANTIC AND
PACIFIC III, L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
----------------------------------------
ADVENT NEW YORK L.P.
By: TA Associates VI L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
By: *
-----------------------------------------
TA VENTURE INVESTORS
LIMITED PARTNERSHIP
By: *
----------------------------------------
*__________________________________
By Xxxxxxxxxx Xxxxx
10
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Xxxxxxx & Co., IV
Its General Partner
By:_________________________________________
General Partner
SUMMIT INVESTORS III, L.P.
By:_________________________________________
General Partner
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management
L.P., the General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:_________________________________________
Managing Director
11
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By: Technology Leaders II Management
L.P., a General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:_________________________________________
Managing Director
ESCROW AGENT:
------------
NORWEST BANK COLORADO, N.A.
By:_________________________________________
Name:
Title:
12
EXHIBIT H
---------
GENERAL RELEASE
---------------
This General Release is delivered in connection with that certain Stock
Purchase Agreement (the "Purchase Agreement") dated as of March 14, 1996.
Capitalized terms used herein and not otherwise defined shall have the meanings
provided in the Purchase Agreement.
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the undersigned, the undersigned hereby generally
releases and discharges the Company, its past, present and future officers,
directors, employees, agents, successors, predecessors, divisions, subsidiaries,
affiliates, business units, assigns, subrogees and attorneys (each a "Released
Party") of and from any and all commitments, indebtedness, suits, demands,
obligations and liabilities, contingent or otherwise, every kind and nature,
including claims and causes of action both in law and in equity, which the
undersigned and/or his heirs, executors, administrators or assigns ever had, now
has or, to the extent arising from or in connection with any act, omission or
state of facts taken or existing on or prior to the date hereof, may have after
the date hereof, against any Released Party, whether asserted, unasserted,
absolute, contingent, known or unknown, other than (a) claims for accrued
bonuses and commissions for the Company's first quarter ending March 31, 1996
and expenses, including but not limited to reimbursements for fringe benefits,
and (b) claims or causes of action arising after the date hereof under or
pursuant to the Purchase Agreement, the Stockholders' Agreement or the
Indemnification Agreement, in each case dated as of the date hereof and to which
the undersigned is a party.
The undersigned hereby represents to the Released Parties that (i) he has
not assigned any claim or possible claim against any Released Party, (ii) he
fully intends to release all claims against the Released Parties including
without limitation unknown and contingent claims, and (iii) he has consulted
with counsel with respect to the execution and delivery of this General Release
and has been fully apprised of the consequences hereof. With respect to the
foregoing General Release, the undersigned also hereby acknowledges that (v) he
has been informed that from time to time the Company has received indications of
interest from third parties regarding possible acquisitions, joint ventures, or
additional types of financing, including a possible initial public offering, for
the Company ("Financing Transactions"), and that the Company may, at any time,
enter into one or more Financing Transactions which could result in a valuation
for the capital stock of the Company that is significantly higher than the
present value, (w) he is a sophisticated investor accustomed to making
valuations of investments such as the capital stock of the Company and agrees
that, in making his decision to have his capital stock redeemed by the Company
as contemplated by the Purchase Agreement, he has relied upon his own valuation
of the capital stock held by him and not upon a valuation provided by the
Company, (x) he has had an opportunity to obtain all information from the
Company relevant to his decision to have his capital stock redeemed by the
Company as contemplated by the Purchase Agreement, (y) notwithstanding the
possibility of any future Financing Transactions and the undersigned's review of
all Company-related information which he has deemed to be relevant to his
redemption decision, the undersigned has made a decision to have his capital
stock redeemed, and (z) the execution and delivery of this General Release was a
condition to the investment by the Investors
in the Company which funded the redemption of the undersigned's capital stock
and was relied upon by the Investors. The undersigned hereby acknowledges that
it is entering into this General Release with the full understanding of the
possibility that the Company may enter into one or more Financing Transactions.
This General Release shall be governed by and construed in accordance with
the internal laws of Delaware.
EXECUTED as of March __, 1996.
_______________________________
2
EXHIBIT I
March 15, 1996
To the Investors Listed in Appendix A to the Stock Purchase Agreement dated as
of March 14, 1996
Ladies and Gentlemen:
We have acted as special counsel to R&D Systems Company, a Delaware
corporation (the "Company") and the Lammle Parties (as defined below) in
connection with (i) the merger (the "Merger") of R&D Systems Company, a Colorado
corporation, with and into the Company, (ii) the negotiation, execution and
delivery of the Stock Purchase Agreement (the "Purchase Agreement") dated as of
March 14, 1996, by and among (a) the Company, (b) Xxxxx X. Xxxx ("X. Xxxx"),
Xxxx X. Xxxx, Xxxxxxxx Xxxx Trust and Xxxx Xxxx Trust, (collectively, the "Linn
Parties"), (c) Xxx X. Xxxxxx ("X. Xxxxxx"), Xxxx X. Xxxxxx, Xxx Xxxxxx Trust,
Xxxxx Xxxxxx Trust and Xxxxx Xxxxxx Trust (collectively, the "Lammle Parties")
(the "Linn Parties" and the "Lammle Parties" collectively referred to as the
"Stockholders"), and (d) the Investors named therein (the "Investors"); (iii)
the issuance and sale by the Company of 26,000 shares (the "Preferred Shares")
of its authorized but unissued Series A Convertible Participating Preferred
Stock, par value $.01 per share (the "Preferred Stock"), for a purchase price of
$1,000 per Preferred Share to the Investors; (iv) the redemption (the
"Redemption") by the Company of 5,000 shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), held by the Linn Parties and 3,000
shares of the Company's Common Stock held by the Lammle Parties; (v) the payment
to employees and agents of the Company of an aggregate of $7,000,000 (before
applicable withholding) (the "MSUIP Payment") pursuant to the Management Stock
Unit Incentive Plan of the Company (the "MSUIP") and (vi) the issuance to X.
Xxxxxx of 640,845 shares of the Company's Common Stock (the "Common Stock")
pursuant to the Stock Purchase and Restriction Agreement, dated March 14, 1996
between the Company and X. Xxxxxx (the "Restricted Stock Agreement"). This
opinion is being delivered to you pursuant to Section 3.2 of the Purchase
Agreement. Capitalized terms used in this opinion, unless
March 15, 1996
Page 2
specifically defined herein, shall have the meanings assigned them in the
Purchase Agreement.
For purposes of this opinion, we have examined copies of the following
documents:
a. an executed copy of the Purchase Agreement;
b. an executed copy of the Stockholders' Agreement;
c. an executed copy of the Escrow Agreement;
d. an executed copy of the Non-Competition Agreement, dated March
14, 1996, between the Company and X. Xxxxxx (the "Xxxxxx Non-Competition
Agreement");
e. an executed copy of the Non-Competition Agreement between the
Company and X. Xxxx, dated March 14, 1996 (the "Linn Non-Competition
Agreement");
f. an executed copy of the Redemption and Exchange Agreement, dated
March 14, 1996, among the Company, the Lammle Parties and the Linn Parties (the
"Redemption Agreement");
g. an executed copy of the Restricted Stock Agreement;
h. an executed copy of the Indemnification Agreement, dated March
14, 1996 between the Company and the Investors (the "Indemnification
Agreement").
i. the Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on March 11, 1996; the Agreement and Plan of
Merger, dated as of March 12, 1996 by and between the Company and R&D Systems
Company, a Colorado corporation ("R&D Colorado"); the Articles of Merger of R&D
Colorado into the Company, dated as of March 12, 1996 and the Certificate of
Merger of R&D Colorado into the Company dated as of March 12, 1996
(collectively, the "Merger Documents");
j. the Company's Amended and Restated Certificate of Incorporation
certified to us by an officer of the Company as being in full force and effect
as of the date of this opinion;
March 15, 1996
Page 3
k. the Bylaws of the Company, as amended to date, and certified to
us by an officer of the Company as being complete and in full force and effect
as of the date of this opinion;
l. the trust agreements for the Xxxxx Xxxxxx Trust dated July 2,
1984, Xxx Xxxxxx Trust dated July 2, 1984, and Xxxxx Xxxxxx Trust dated October
16, 1985 (collectively the "Lammle Trusts"); and
m. records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the Board of Directors
and Stockholders of the Company relating to the transactions contemplated by the
Purchase Agreement.
We have also examined such other documents, corporate records, other
certificates, instruments and statements of government officials and corporate
officials and other representatives of the Company as we have deemed necessary
or appropriate for the purpose of this opinion. As to certain questions of fact
material to such opinion, we have relied upon certificates from officers or
other representatives of the Company.
As used in this opinion, the expression "to our best knowledge" with
reference to matters of fact means that, after an examination of documents in
our files and documents made available to us by the Company and the Stockholders
and after inquiries of officers of the Company and the Stockholders and based on
the actual present knowledge of the Holland & Xxxx attorneys who have had
significant responsibility representing the Company during the course of our
representation of the Company with respect to this matter, we find no reason to
believe that the opinions expressed herein are factually incorrect; but beyond
that we have made no independent factual investigation for the purpose of
rendering this opinion.
We are qualified to practice in the State of Colorado, and we do not
purport to be experts in, and do not express any opinion herein concerning any
law other than the laws of such jurisdiction, the General Corporation Law of the
State of Delaware and federal law of the United States.
In rendering the opinions expressed herein, we have assumed, without
independent verification, but with your consent, that:
March 15, 1996
Page 4
1. the signatures of persons signing all documents in connection
with which this opinion is rendered are genuine (other than those of each of the
Company and the Lammle Parties, as to which our opinion is rendered below);
2. all documents submitted to us as originals or duplicate originals
are authentic;
3. all documents submitted to us as copies, whether certified or
not, conform to authentic original documents; and
4. all parties to the documents reviewed by us (other than the
Company and the Lammle Parties as to which our opinion is rendered below) have
full power, authority and legal capacity to execute and deliver, and to perform
their obligations under, such documents, and all such documents have been duly
authorized by all necessary corporate or other action on the part of such
parties, have been duly executed by such parties, have been duly delivered by
such parties and constitute the legal, valid and binding agreement of such
parties, enforceable in accordance with their terms.
Based on the foregoing and upon an examination of such questions of law
as we have considered necessary or appropriate, it is our opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to conduct its business.
2. The Merger has become effective under the laws of the states of
Delaware and Colorado.
3. The Company has the corporate power and authority (a) to execute,
deliver and perform the (i) Purchase Agreement, including, without limitation,
the power to issue the Preferred Shares, (ii) the Stockholders' Agreement, (iii)
the Lammle and Linn Non-Competition Agreements, (iv) the Redemption Agreement
(collectively, the "Company Transaction Documents"), (v) the Restricted Stock
Agreement and (vi) the Indemnification Agreement and (b) to make the MSUIP
Payment.
4. The Lammle Trusts have the power and authority to execute,
deliver and perform the Purchase Agreement, the
March 15, 1996
Page 5
Stockholders' Agreement, the Escrow Agreement and the
Redemption Agreement.
5. Each of the Company Transaction Documents, the Restricted Stock
Agreement and the Indemnification Agreement has been duly authorized, executed
and delivered by the Company. The Redemption Agreement constitutes the legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms. We note that the Purchase Agreement and the
Stockholders' Agreement are governed by the laws of The Commonwealth of
Massachusetts, and the Restricted Stock Agreement is governed by the laws of the
State of Delaware. However, if the laws of the State of Colorado were determined
by a court of competent jurisdiction to govern the Purchase Agreement, the
Stockholders' Agreement and the Restricted Stock Agreement, each of the Purchase
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement would
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Our opinion is subject to the
qualification that enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws affecting or
limiting the enforcement of creditors' rights generally; and such enforceability
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Furthermore,
we express no opinion on the enforceability of Section 7.3 of the Purchase
Agreement, Sections 4.6 and 6.10 of the Stockholders' Agreement, Section 8.4 of
the Restricted Stock Agreement or the Lammle or Linn Non-Competition Agreements.
6. The Lammle Non-Competition Agreement and the Restricted Stock
Agreement have been executed and delivered by X. Xxxxxx. Each of the Purchase
Agreement, the Stockholders' Agreement, the Escrow Agreement and the Redemption
Agreement has been duly authorized, executed and delivered by the Lammle
Parties. The Escrow Agreement and the Redemption Agreement each constitutes the
legal, valid and binding agreement of the Lammle Parties, enforceable against
the Lammle Parties in accordance with its terms. We note that the Purchase
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement are
governed by the laws of The Commonwealth of Massachusetts. However, if the laws
of the State of Colorado were determined by a court of competent jurisdiction to
govern the Purchase
March 15, 1996
Page 6
Agreement, the Stockholders' Agreement and the Restricted Stock Agreement, each
of the Purchase Agreement and the Stockholders' Agreement would constitute the
valid and binding obligation of the Lammle Parties, and the Restricted Stock
Agreement would constitute the valid and binding obligation of X. Xxxxxx,
enforceable in accordance with their respective terms. Our opinion is subject to
the qualification that enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other laws affecting or
limiting the enforcement of creditors' rights generally; and such enforceability
is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Furthermore,
we express no opinion on the enforceability of Section 7.3 of the Purchase
Agreement, Sections 4.6 and 6.10 of the Stockholders' Agreement, Section 14 of
the Escrow Agreement or the Lammle and Linn Non-Competition Agreements.
7. Neither the execution or delivery of the Company Transaction
Documents, nor the performance by the Company of its obligations under the
Company Transaction Documents (a) violates any provision of the Amended and
Restated Certificate of Incorporation or the Bylaws of the Company, or (b)
except as set forth on Schedule A attached to this opinion, results in the
breach, constitutes a default under or results in the creation or imposition of
any lien, charge or encumbrance on any property or assets of the Company under
any indenture, agreement or other instrument listed on Schedule 2.11 of the
Purchase Agreement, or (c) assuming the accuracy of the representations of the
Investors in Section 5 of the Purchase Agreement, violates any federal, State of
Colorado or Delaware General Corporation law which affects the Company.
8. Assuming the accuracy of the representations of the Investors in
Section 5 of the Purchase Agreement, no authorization, approval or other action
by or notice to or filing with any federal, State of Colorado or Delaware
governmental authority or regulatory body is required in connection with the
execution and delivery of the Company Transaction Documents by the Company or
the performance of its obligations thereunder, except for the filing of the
Merger Documents with the Secretaries of State of Colorado and Delaware; filings
contemplated by the Loan Agreement dated March 14, 1996 between the Company,
Fleet Bank of Massachusetts, The First National Bank of Boston and Other
March 15, 1996
Page 7
Financial Institutions (the "Loan Agreement"); and filings pursuant to federal
and state securities laws.
9. The Amended and Restated Certificate of Incorporation has been
duly adopted by the Company, has been duly filed with the Secretary of State of
Delaware and has become effective under the laws of Delaware.
10. The stock certificates representing the Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock") purchased at the
Closing have been duly authorized, executed and delivered by the Company, such
Series A Preferred Stock has been validly issued and is outstanding, fully paid
and nonassessable, and there are no statutory, or to our best knowledge
contractual, preemptive rights of stockholders or rights of first refusal with
respect to the issuance of such Preferred Stock.
11. The Senior Redeemable Preferred Stock and Common Stock issuable
upon conversion of the Series A Preferred Stock has been duly authorized and
reserved for issuance by the Company, there are no statutory, or to our best
knowledge contractual, preemptive rights of stockholders or rights of first
refusal with respect to the issuance of such Senior Redeemable Preferred Stock
and Common Stock and the Senior Redeemable Preferred Stock and Common Stock to
be issued upon conversion of such Preferred Stock will upon such issuance be
validly issued, fully paid and nonassessable.
12. Assuming the accuracy of the representations of the Investors in
Section 5 of the Purchase Agreement, the sale and issuance of (a) the Series A
Preferred Stock under the Purchase Agreement and (b) the Company's Common Stock
under the Restricted Stock Agreement does not require registration under the
Securities Act of 1933, as amended.
13. Schedule B attached to this opinion correctly sets forth the
number of shares of each class of the Company's authorized capital stock and the
number of outstanding shares of each such class as of the Closing.
14. To our best knowledge, except as set forth on Schedule B, there
are no (a) outstanding shares of capital stock or securities convertible into or
exchangeable or exercisable for shares of the Company's capital stock, or (b)
outstanding options for the purchase of any such capital stock.
March 15, 1996
Page 8
15. We are not acting as counsel for the Company in any pending
litigation to which the Company is a party.
Our opinions set forth herein are as of the date hereof, and we
disclaim any undertaking or obligation to advise you of changes which may
hereafter be brought to our attention.
This opinion is solely for your benefit in connection with this matter
and may not be relied upon in any manner by any other person or by you in any
other context.
Very truly yours,
