Exhibit 10.37
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STOCK PURCHASE AGREEMENT
dated as of
June 14, 2000
by and among
LOUDEYE TECHNOLOGIES, INC.,
VIDIPAX, INC.
and
XXXXX XXXXXXX
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[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of June 14, 2000, by and among Loudeye Technologies, Inc., a Delaware
corporation (the "Purchaser"), VidiPax, Inc., a New York corporation (the
"Company"), and Xxxxx Xxxxxxx ("Stockholder").
RECITALS
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The Company is in the business of the restoration and preservation of
magnetic data. Stockholder is the sole owner of all of the Company's outstanding
capital stock. Purchaser wishes to purchase from Stockholder, and Stockholder
wishes to sell to Purchaser, all of the outstanding capital stock of the Company
in a taxable stock purchase on the terms and conditions set forth herein (the
"Purchase").
AGREEMENT
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In consideration of the mutual promises, agreements, warranties and
provisions contained in this Agreement, the parties agree as follows:
SECTION 1
PURCHASE AND SALE OF STOCK
1. Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase at the Closing (as defined
below) and the Stockholder agrees to sell to the Purchaser at the Closing, all
of the shares of capital stock of the Company outstanding as of the Closing (the
"Company Shares") in exchange for the following consideration:
(a) Base Payment. At the Closing, Purchaser agrees to pay to
Stockholder [*] (the "Base Payment"). [*] of the Base Payment will be paid by
wire transfer of immediately available funds (the "Base Cash Payment"). In
addition, Purchaser will issue to Stockholder that number of unregistered shares
of Purchaser's common stock equal to [*] of the Base Payment divided by the
average closing price of the Purchaser's Common Stock for the ten trading days
ending four trading days prior to the Closing (the "Base Stock Payment");
provided, however, in no event shall Purchaser be obligated to issue more than
[*] shares of its common stock in connection with the Base Stock Payment and
provided, further, that the Base Cash Payment shall not be increased as a result
of such limitation.
(b) Contingent Payment.
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(i) If the Company Business (as defined below) generates Net Revenues
(as defined below) of at least [*] between Closing and the first full twelve
calendar months following the Closing (the "Contingent Period"), Purchaser shall
pay Stockholder an amount (the "Contingent Payment") equal to the sum of (x) [*]
if Net Revenues for the Contingent Period are at least [*], plus (y) [*] for
every dollar Net Revenues for the Contingent
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
Period exceed [*] but are less than or equal to [*], plus (z) [*] for every
dollar Net Revenues for the Contingent Period exceed [*] but are less than or
equal to [*]; provided, however, the Contingent Payment shall in no event exceed
[*].
(ii) Notwithstanding the foregoing:
(A) if Stockholder is terminated by Purchaser without Cause
(as defined below) during the first six (6) months of the Contingent Period,
Purchaser shall pay Stockholder [*] within ten (10) days following such
termination and Purchaser shall not have any further obligation with respect to
any Contingent Payment;
(B) if Stockholder is terminated without Cause during the
last six (6) months of the Contingent Period, Purchaser shall pay Stockholder
within ten (10) days following such termination an amount calculated as follows
and Purchaser shall not have any further payment obligation with respect to any
Contingent Payment: (i) [*] if the Annualized Net Revenue (as defined below)
exceeds [*] but is less than [*] and (ii) if the Annualized Net Revenue is equal
to or greater than [*], an amount equal to the greater of (x) the Contingent
Payment which would have been payable pursuant to Section 1(b)(i) based on the
Net Revenues as of the date of such termination or (y) [*]; and
(C) if Stockholder dies, becomes disabled, resigns or is
terminated with Cause, the Contingent Payment shall be paid as set forth in
Section 1(b)(i) above, subject to Sections 8.2 and 10.2 hereof.
(iii) The Contingent Payment shall be made within ten (10) days
following the end of the Contingent Period (the "Second Closing") in such
combination of cash or unregistered shares of Purchaser's common stock as
Purchaser may elect in its sole discretion (such shares of Purchaser common
stock, if any, together with the Base Stock Payment shares shall be referred to
collectively as the "Purchaser Stock"). The number of unregistered shares of
Purchaser's common stock issued in respect of the stock portion of the
Contingent Payment, if any, shall be calculated on the basis of the average
closing price of Purchaser's Common Stock for the ten trading days ending three
days prior to the Second Closing.
(iv) The following terms shall be defined as follows:
(A) "Annualized Net Revenues" shall mean the aggregate Net
Revenues for the Contingent Period through the end of the month in which such
termination without Cause occurs divided by the number of days from Closing
through the end of such month multiplied by 365.
(B) "Cause" shall mean (1) conviction of Stockholder for a
felony entered by a trial court regardless of whether the Stockholder appeals
the judgment; (2) the issuance of an award, judgment, or order by an
administrative agency, arbitrator, governmental body, governmentally-owned
corporation, mediator, self-regulatory organization, or trial court that the
Stockholder is prohibited from performing any material duty as employee of
Company or Purchaser regardless of whether the Stockholder appeals the award,
judgment, or order; (3) any violation by Stockholder of any federal, state, or
local law or regulation that has a Material Adverse Effect on the Company or
Purchaser; (4) any act or failure to act of
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
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Stockholder that constitutes gross negligence or intentional misconduct and
causes a Material Adverse Effect to the Company or Purchaser; (5) willful
misrepresentations to management by Stockholder that have a Material Adverse
Effect on the Company or Purchaser; (6) appropriation of the business
opportunities of the Company or Purchaser for the personal benefit of the
Stockholder or any person or entity in which the Stockholder has an interest;
(7) any act by the Stockholder directed against the Company or Purchaser of
bribery, embezzlement, fraud, material misappropriation of assets, or the
receipt of kickbacks; or (8) habitual abuse of alcohol or a controlled substance
or habitual absence from work for reasons unrelated to illness or physical
disability.
(C) "Company Business" shall mean the business of the
Company as conducted prior to Closing of copying and/or restoring audio and
video content on magnetic media and consulting services related thereto.
(D) "Net Revenues" shall mean the aggregate gross revenue
generated by the Company Business during the Contingent Period as determined in
accordance with U.S. GAAP, less any trade and quantity discounts, rebates,
commissions paid to third parties who are not employees of the Purchaser or
Company, refunds, duties and credit allowances for returns, sales, use, excise
and value added taxes, license fees, shipping and shipping insurance costs
incurred by Purchaser in connection with such revenues.
(c) Bonus Payment to Company Employees. At the Closing,
Purchaser shall pay to each employee of the Company who will remain an employee
of the Company following the Closing a bonus payment (collectively, the
"Bonuses") for each such employee in the amounts set forth on Schedule 1(c);
provided, however, the Bonus and any Contingent Bonus shall be conditioned on
such employee executing Purchaser's standard form of Confidential Information
and Inventions Assignment Agreement attached hereto as Exhibit 7.3(h). Further,
Purchaser shall pay to each employee of Company who remains an employee of the
Company or Purchaser at the expiration of the Contingent Period, an additional
bonus payment (collectively, the "Contingent Bonuses") in amounts for each such
employee to be mutually determined by Purchaser and Stockholder; provided,
however, that the aggregate amount of the Contingent Bonuses shall not exceed
the sum of (i) [*] if the Net Revenues are at least [*]; plus (ii) [*] for every
dollar Net Revenues exceed [*] but are less than or equal to [*]; provided,
further, in no event shall the aggregate amount of the Contingent Bonuses exceed
[*]. The Contingent Bonuses may be paid in cash or unregistered shares of
Purchaser's Common Stock as Purchaser shall elect in its sole discretion. If any
portion of the Contingent Bonuses are paid in shares of Purchaser Common Stock,
(i) the number of shares of Common Stock to be issued shall be based on the
average closing price for the ten trading days ending three days prior to the
Second Closing and (ii) any employee receiving such Common Stock shall be
required to execute an investor representation letter in the form attached
hereto as Exhibit 1(c) (the "Investor Representation Letter") in a manner
satisfactory to Purchaser.
SECTION 2
CLOSING
2. Closing.
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[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
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2.1 Closing Date. The closing of the Purchase (the "Closing") shall
be held at the offices of Venture Law Group, 0000 Xxxxxxxx Xxxxx, Xxxxxxxx, XX
00000 at 10:00 a.m. Pacific Standard Time on June 14, 2000 or at such other time
and place upon which the parties shall agree orally or in writing, with the
Company and Stockholder participating by facsimile, such time and date being
referred to herein as the "Closing Date".
2.2 Actions at the Closing. At the Closing, the Company, the
Stockholder and Purchaser shall take such actions and execute and deliver such
agreements and other instruments and documents as necessary or appropriate to
effect the transactions contemplated by this Agreement in accordance with its
terms, including without limitation the following:
(a) Stockholder will deliver to Purchaser a certificate or
certificates representing all of the Company Shares, together with stock powers
duly endorsed in blank for transfer of such Company Shares to Purchaser, and
Stockholder shall deliver all other documents required of Stockholder pursuant
to the Agreement; and
(b) Purchaser will deliver to Stockholder (i) by wire transfer
the cash consideration set forth in Section 1 above; (ii) a certificate or
certificates representing the number of shares of Purchaser Stock owed to
Stockholder and to be issued at Closing in accordance with Section 1 above, and
Purchaser will deliver all other documents required of Purchaser herein;
provided, however, that the cash and shares to be delivered pursuant to this
Section 2.2(b) shall be net of the amounts deposited in escrow as set forth in
Section 2.3(a) below and the amounts to be paid to the professional advisors of
Stockholder set forth on Schedule 2.2(b) (the "Professional Payments") which
shall be paid at Closing by Stockholder and Purchaser as indicated on Schedule
2.2(b). Any issuance of shares of Purchaser Common Stock in connection with the
Professional Payment (i) shall be from the non-escrowed Base Stock Payment and
(ii) shall be conditioned upon such professional advisors executing the Investor
Representation Letter in a manner satisfactory to Purchaser.
2.3 Payment. At the Closing, the Base Payment shall be paid by
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Purchaser as follows:
(a) [*] in cash of the Base Cash Payment and [*] shares of the
Base Stock Payment shall be placed in escrow as provided in Section 8 below for
the purpose of enforcing Stockholder's indemnification obligations under Section
8 below; and
(b) the remaining Base Payment after the payments set forth in
subparagraph (a) above and after deducting the Professional Payments (the
"Remaining Amount") shall be paid to Stockholder as set forth in Section 2.2(b)
above.
2.4 Purchase of Common Stock. The Company Shares to be purchased
by Purchaser at the Closing represent all outstanding shares of capital stock of
the Company, and at such time there shall be no other outstanding securities of
or rights to purchase or otherwise acquire securities of the Company.
SECTION 3
SECURITIES LAW COMPLIANCE
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
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3.1 Securities Act Exemption. The Purchaser Stock to be issued
pursuant to this Agreement shall not be registered under the Securities Act of
1933, as amended ("Securities Act"), in reliance upon the exemption contained in
Section 4(2) of the Securities Act and in reliance upon the representations and
warranties of the Stockholder contained in Section 5 below.
3.2 Stock Restrictions. All certificates representing the shares of
Purchaser Common Stock to be issued pursuant to this Agreement shall bear a
restrictive legend or legends (and stop transfer orders shall be placed against
the transfer thereof with Purchaser's transfer agent), stating substantially as
follows:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend required by the securities laws of any state.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDER
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
material event, change, condition or effect related to the condition (financial
or otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that, when taken individually or together with all other adverse changes and
effects, is or is reasonably likely to be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations
or results of operations of such entity and its Subsidiaries, taken as a whole,
or to prevent or materially delay consummation of the transactions contemplated
under this Agreement or otherwise to prevent such entity and its Subsidiaries
from performing their obligations under this Agreement.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of such
matters.
Except as disclosed in a document of the same date as this Agreement and
delivered by the Company and Stockholder to Purchaser prior to the execution and
delivery of this Agreement and specifically referring to the particular
representations and warranties in this Agreement (the "Company Disclosure
Schedule"), each of the Company and Stockholder jointly and severally represent
and warrant to Purchaser as follows (for purposes herein with respect to the
Company
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Disclosure Schedule, any disclosure made on any section of the Company
Disclosure Schedule shall be deemed to be a disclosure made on any other section
of the Company Disclosure Schedule where such information would be applicable as
required under this Agreement or appropriate):
4.1 Organization; Subsidiaries.
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(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of New York. The
Company has the requisite corporate power and authority and all necessary
government approvals to own, lease and operate its properties and to carry on
its business as now being conducted and as proposed to be conducted, except
where the failure to have such power, authority and governmental approvals would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. The Company
Disclosure Schedule contains a true and complete list of all states in which the
Company is duly qualified or licensed to transact business as a foreign
corporation. The Company Disclosure Schedule contains a true and complete
listing of the locations of all sales offices, development facilities, and any
other offices or facilities of the Company and a true and complete list of all
states in which the Company maintains any employees.
(b) Except as set forth in Section 4.1(b) of the Company
Disclosure Schedule, the Company has no Subsidiaries (as defined below). The
Company does not own or control (directly or indirectly) any capital stock,
bonds or other securities of, and does not have any proprietary interest in, any
other corporation, general or limited partnership, limited liability company,
joint venture, firm, association or business organization, entity or enterprise,
and the Company does not control (directly or indirectly) the management or
policies of any other corporation, partnership, limited liability company, joint
venture, firm, association or business organization, entity or enterprise. As
used in this Agreement, the word "Subsidiary" means, with respect to any party,
any corporation or other organization, whether incorporated or unincorporated,
of which (i) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which held
by such party or any Subsidiary of such party do not have a majority of the
voting interest in such partnership), or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization or a majority
of the profit interests in such other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries.
4.2 Articles of Incorporation and Bylaws. The Company has delivered
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a true and correct copy of the Articles of Incorporation and Bylaws or other
charter documents of the Company, as amended to date, to Purchaser. The Company
is not in violation of any of the provisions of its Articles of Incorporation or
Bylaws.
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4.3 Capital Structure.
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(a) The authorized capital stock of the Company consists of two
hundred (200) shares of Common Stock, no par value. As of the date of this
Agreement, there were issued and outstanding one hundred (100) shares of the
Company's Common Stock (the "Company Capital Stock"). All of the issued and
outstanding shares of the Company Capital Stock are held of record by
Stockholder. All outstanding shares of the Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound. All outstanding shares of the Company Capital Stock were issued in
compliance with all applicable federal and state securities laws. The authorized
capital stock of Vidipax of Canada, Ltd. ("Vidipax Canada") consists of forty
thousand (40,000) shares of Common Stock, par value CN$1.00 per share. As of
the date of this Agreement, there were issued and outstanding fifty (50) shares
of Vidipax Canada Common Stock. All of the issued and outstanding shares of
Vidipax Canada Common Stock are held of record by the Company. All outstanding
shares of Vidipax Canada Common Stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any liens or encumbrances, and are not
subject to preemptive rights or rights of first refusal created by statute, the
charter documents of Vidipax Canada or any agreement to which the Company or
Vidipax Canada is a party or by which either is bound. All outstanding shares
of the Vidipax Canada Common Stock were issued in compliance with all applicable
Canadian and U.S. federal, state, provincial or other securities laws.
(b) There are no other outstanding shares of capital stock or
voting securities and no outstanding commitments to issue any shares of capital
stock or voting securities of the Company or Vidipax Canada. The Company is not
in active discussion, formal or informal, with any person or entity regarding
the issuance of any form of additional Company equity that has not been issued
or committed to prior to the date of this Agreement. Except for the rights
created pursuant to this Agreement, there are no options, warrants, calls,
rights, commitments, agreements or arrangements of any character to which the
Company or the Stockholder is a party or by which the Company or the Stockholder
is bound relating to the issued or unissued capital stock of the Company or
obligating the Company or the Stockholder to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of the Company or obligating the Company or the
Stockholder to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no contracts, commitments or agreements relating to
voting, purchase or sale of the Company's capital stock between or among the
Company and Stockholder.
4.4 Authority. The Company has all requisite corporate power and
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authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company. The Company's
Board of Directors has approved this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and
assuming due authorization, execution and delivery by Purchaser, constitute
valid
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and binding obligations of the Company enforceable against the Company in
accordance with their terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
4.5 No Conflicts; Required Filings and Consents.
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(a) The execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under or
result in the creation of any lien upon the assets of the Company under (i) any
provision of the Articles of Incorporation or Bylaws of the Company or any of
its Subsidiaries, as amended; or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, or decree applicable to the Company or any of its
properties or assets; or (iii) any statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets except where such
conflict, violation or default with any such statute, law, ordinance, rule or
regulation would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), applicable state
securities laws; and such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company and would not prevent, or materially alter or delay any of
the transactions contemplated by the Transaction Agreements (as defined below).
4.6 Financial Statements. Section 4.6 of the Company Disclosure
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Schedule includes a true, correct and complete copy of the Company's unaudited
financial statements (balance sheet, statement of operations and statement of
cash flows) as, at and for the fiscal year ended December 31, 1999, and its
unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) as at, and for the three-month period ended March 31,
2000 (collectively, the "Company Financial Statements"). Except as set forth in
Section 4.6 of the Company Disclosure Schedule, the Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
(except for the absence of the notes thereto) applied on a consistent basis
throughout the periods indicated. The Company Financial Statements fairly set
forth in all material respects the financial condition and operating results of
the Company as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Except as set forth in Section 4.6 of the
Company Disclosure Schedule, the Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles. The accounts
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receivable total, accounts payable total and bank account balances provided by
the Company and Stockholder for periods subsequent to March 31, 2000 and through
a date as reasonably close to the Closing Date as practicable (but in no event
more than three (3) days from the Closing Date) for purposes of calculating the
Company's net tangible assets in accordance with GAAP are true and correct in
all material respects, subject to normal year-end audit adjustments and to the
exceptions set forth in Section 4.6 of the Company Disclosure Schedule (such
information being referred to as the "Net Tangible Assets Information").
Purchaser, Stockholder and Company each acknowledge that Purchaser relied on the
Net Tangible Assets Information in establishing the total consideration
Purchaser agreed to pay in connection with the Purchase and any inaccuracy in
the Net Tangible Assets Information would have led to a reduction in the total
consideration Purchaser agreed to pay to the extent such inaccuracy caused the
Company's net tangible assets at Closing to be less than the Company's net
tangible assets as of March 31, 2000, in each case as determined in accordance
with GAAP.
4.7 Absence of Undisclosed Liabilities. Except as set forth in
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Section 4.7 of the Company Disclosure Schedule, the Company does not have any
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended March 31, 2000 (the "Company Balance Sheet"),
(ii) those incurred in the ordinary course of business since the date of the
Company Balance Sheet and consistent with past practice and (iii) those incurred
in connection with the execution of this Agreement.
4.8 Absence of Certain Changes. Except as set forth in Section 4.8
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of the Company Disclosure Schedule, since March 31, 2000 (the "Company Balance
Sheet Date") there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, in excess
of $10,000 in any individual transaction or series of related transactions, or
in the aggregate exceeding $30,000;
(d) destruction of, damage to, or loss of any assets (including,
without limitation, intangible assets), business or customer of the Company
(whether or not covered by insurance) which would constitute a Material Adverse
Effect;
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals, any change in respect of Taxes, as defined in
Section 4.15, including elections with respect thereto, or any change in
capitalization of software development costs) by the Company or any revaluation
by the Company of any of its assets;
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(g) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any of
its capital stock;
(h) increase in the salary or other compensation payable or to
become payable by the Company to any officers, directors, employees or advisors
of the Company, or the declaration, payment, or commitment or obligation of any
kind for the payment by the Company of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, or other than as set forth in Section 4.16 below, the establishment
of any bonus, insurance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation, stock appreciation rights
and performance awards), stock purchase or other employee benefit plan;
(i) sale, lease, license of other disposition of any of the
assets or properties of the Company, except in the ordinary course of business;
(j) termination or material amendment of any material contract,
agreement or license (including any distribution agreement) to which the Company
is a party or by which it is bound;
(k) loan by the Company to any person or entity, or guaranty by
the Company of any loan, other than normal employee advances for legitimate
business related expenses;
(l) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, in excess of $5,000 in the aggregate;
(m) the commencement or notice or, to the Company's or
Stockholder's knowledge, the threat of commencement of any lawsuit or proceeding
against or, to the Company's knowledge, investigation of the Company or its
affairs;
(n) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 4.13 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(o) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(p) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company, other than in
the ordinary course of business;
(q) event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company; or
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(r) agreement by the Company or any officer or employee of the
Company on behalf of the Company to do any of the things described in the
preceding clauses (a) through (q).
4.9 Litigation. There is no private or governmental action, suit,
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proceeding, claim, arbitration or investigation (collectively, a "Suit") pending
or, to the Company's and the Stockholder's knowledge, currently threatened
against the Company that questions the validity or enforceability of this
Agreement or the Escrow Agreement or the right of the Company to enter into it,
or to consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any Material Adverse Effect
on the Company, or any change in the current equity ownership of the Company,
nor is the Company aware that there is any basis for the foregoing. For the
purposes of this Section 4.9, "Suit" shall include but not be limited to any
action, suit, proceeding, claim, arbitration or investigation pending or, to the
Company's or the Stockholder's knowledge, currently threatened against the
Company involving the prior employment of any of the Company's current
employees, such employees' use in connection with the Company's business of any
information or techniques proprietary to any of such employees' former
employers, such employees' obligations under any agreements with prior
employers, or negotiations by the Company with potential investors in the
Company or its proposed business. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding,
claim, arbitration or investigation by the Company currently pending or which
the Company intends to initiate.
4.10 Restrictions on Business Activities. There is no agreement,
-----------------------------------
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any current or currently proposed future business practice of the
Company, any acquisition of property by the Company or the overall conduct of
business by the Company as currently conducted or as proposed to be conducted by
the Company. The Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
4.11 Permits. The Company is in possession of all franchises,
-------
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders necessary for the Company, to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Company Authorizations") and no suspension or cancellation of
any the Company Authorization is pending or, to the Company's and Stockholder's
knowledge, threatened, except where the failure to have, or the suspension or
cancellation of, any the Company Authorization would not have a Material Adverse
Effect on the Company. The Company is not in conflict with, or in default or
violation of, (i) any laws applicable to the Company or by which any property or
asset of the Company is bound or affected, (ii) any Company Authorization, or
(iii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is a
party or by which the Company or any property or asset of the Company is bound
or affected, except in all cases for any such conflict, default or violation
that would not have a Material Adverse Effect on the Company.
-11-
4.12 Title to Property. The Company has good and marketable title
-----------------
to all of its properties and assets, real and personal, reflected as owned in
the Company Balance Sheet or acquired after the Company Balance Sheet Date
(except properties and assets sold or otherwise disposed of since the Company
Balance Sheet Date in the ordinary course of business), or with respect to
leased properties and assets, valid leasehold interests in, free and clear of
all mortgages, liens, pledges, charges or encumbrances of any kind or character,
except, in each case, for (i) liens for current taxes not yet due and payable,
(ii) such imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair business operations
involving such properties, and (iii) liens securing debt which is reflected on
the Company Balance Sheet. Except for equipment which is used for parts or the
Collection (as defined in Section 10.4), the plants, property and equipment of
the Company that are frequently used in the operations of its business are in
good operating condition and repair, subject to normal wear and tear and taking
into account the nature and age of the equipment and the frequency of its use.
Except as set forth on Section 4.12 of the Company Disclosure Schedule, all
properties used in the operations of the Company are reflected in the Company
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected and to the extent acquired prior to the Company Balance
Sheet Date. Section 4.12 of the Company Disclosure Schedule sets forth a true,
correct and complete list of all real property owned or leased by Company, the
name of the lessor, the date of the lease and each amendment thereto and the
aggregate annual rental and other fees payable under such lease. Such leases
are in good standing, are valid and effective in accordance with their
respective terms, and there is not under any such leases any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default) except where such default would not have Material Adverse
Effect on the Company.
4.13 Intellectual Property.
---------------------
(a) The Company owns, or is licensed or otherwise possess
legally sufficient and enforceable rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights, service marks,
copyrights, and any applications for any of the foregoing, maskworks, net lists,
schematics, industrial models, inventions, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of the Company as currently
conducted or as proposed to be conducted by the Company except where the failure
to have such rights would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(b) Section 4.13 of the Company Disclosure Schedule lists (i)
all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intellectual Property, including the
jurisdictions in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which any person is authorized to use any
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to
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which the Company is authorized to use any third party patents, trademarks or
copyrights, including software ("Third Party Intellectual Property Rights")
which are incorporated in, are, or form a part of any product or service offered
by the Company. The Company is not in violation of any license, sublicense or
agreement described in Section 4.13 of the Company Disclosure Schedule, except
for such violations as will not have a Material Adverse Effect on the Company.
The execution and delivery of this Agreement by the Company and the consummation
of the transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set forth
in Section 4.13 of the Company Disclosure Schedule, the Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens), the Intellectual Property, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which
Intellectual Property is being used.
(c) To Company's and Stockholder's knowledge, there is no
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of the Company, any trade secret material to the
Company or any Intellectual Property right of any third party to the extent
licensed by or through the Company, by any third party, including any employee
or former employee of the Company. Except as set forth on Section 4.13(c) of the
Company Disclosure Schedule, the Company has not entered into any agreement to
indemnify any other person against any charge of infringement of any
Intellectual Property, other than indemnification provisions contained in
purchase orders arising in the ordinary course of business.
(d) The Company is not nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights.
(e) All patents, registered trademarks, registered service marks
and copyrights held by the Company are valid and existing and, to the Company's
and Stockholder's knowledge, there is no assertion or claim (or basis therefor)
challenging the validity of any Intellectual Property of the Company. The
Company has not been sued in any suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party.
Neither the conduct of the business of the Company as currently conducted or
contemplated nor the manufacture, sale, licensing or use of any of the products
of the Company as now manufactured, sold or licensed or used, infringes on or
will infringe or conflict with, in any way, any license, trademark, trademark
right, trade name, trade name right, patent, patent right, industrial model,
invention, service xxxx or copyright of any third party, except where such
infringement or conflict would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company has not brought any action,
suit or proceeding for infringement of Intellectual Property or breach of any
license or agreement involving Intellectual Property against any third party.
There are no pending, or to the Company's and Stockholder's knowledge,
threatened interference, re-examinations, oppositions or nullities involving any
-13-
patents, patent rights or applications therefor of the Company, except such as
may have been commenced by the Company. There is no breach or violation of or,
to the Company's and Stockholder's knowledge, threatened or actual loss of
rights under any license agreement to which the Company is a party.
(f) Except as set forth on Section 4.13(f) of the Company
Disclosure Schedule, the Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that the Company does
not already own by operation of law, except where the failure to obtain such
assignments would not have a Material Adverse Effect on the Company.
(g) Except as set forth on Section 4.13(g) of the Company
Disclosure Schedule, the Company has taken all necessary and appropriate steps
that are commercially reasonable to protect and preserve the confidentiality of
all Intellectual Property not otherwise protected by patents, patent
applications or copyright ("Confidential Information"), except where the failure
to take such steps would not have a Material Adverse Effect on the Company. The
Company has a policy requiring each employee, consultant and independent
contractor to execute proprietary information and confidentiality agreements
substantially in the Company's standard forms and all current and former
employees, consultants and independent contractors of the Company have executed
such an agreement. All use, disclosure or appropriation of Confidential
Information owned by the Company by or to a third party has been pursuant to the
terms of a written agreement between the Company and such third party, except
where such use, disclosure or appropriation would not have a Material Adverse
Effect on the Company.
4.14 Compliance with Environmental Requirements.
------------------------------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders,
as each may be amended from time to time, that are intended to assure the
protection of the environment, or that classify, regulate, call for the
remediation of, require reporting with respect to, or list or define air, water,
groundwater, solid waste, hazardous or toxic substances, materials, wastes,
pollutants or contaminants; which regulate the manufacture, handling, transport,
use, treatment, storage or disposal of Hazardous Materials (as defined below) or
materials containing Hazardous Materials; or which are intended to assure the
protection, safety and good health of employees, workers or other persons,
including the public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws; petroleum or petroleum products including crude oil or any
fractions thereof; natural gas, synthetic gas, or any mixtures thereof; radon;
asbestos; or any other pollutant or contaminant, in each case as used by the
Company or Stockholder.
-14-
(iii) "Property" shall mean all real property leased or owned by
the Company or its Subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on
the Property of the Company or its Subsidiaries.
(b) The Company represents and warrants as follows: (i) no methylene
chloride or asbestos is contained in or has been used at or released from the
Facilities by the Company or Stockholder or, to the Company's and Stockholder's
knowledge, by any other person or entity; (ii) all Hazardous Materials and
wastes have been disposed of in accordance with all Environmental and Safety
Laws; and (iii) the Company and its Subsidiaries have received no notice (verbal
or written) of any noncompliance of the Facilities or of its past or present
operations with Environmental and Safety Laws; (iv) no notices, administrative
actions or suits are pending or threatened relating to Hazardous Materials or a
violation of any Environmental and Safety Laws by the Company or Stockholder or,
to the Company's and Stockholder's knowledge, by any other person or entity; (v)
to the Company's and Stockholder's knowledge, neither the Company nor its
Subsidiaries are a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), or state
analog statute, arising out of events occurring prior to the Closing Date; (vi)
there has not been in the past, and there is not now, any contamination,
disposal, spilling, dumping, incineration, discharge, storage, treatment or
handling of Hazardous Materials on, under or migrating to or from the Facilities
or Property (including without limitation, soils and surface and ground waters);
(vii) neither the Company nor Stockholder installed or had installed any
underground tanks or made any underground improvements at, on or under the
property, including without limitation treatment or storage tanks, sumps, or
water, gas or oil xxxxx, and to the Company's and Stockholder's best knowledge,
there have not been in the past, and are not now, any underground tanks or
underground improvements at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil xxxxx;
(viii) there are no polychlorinated biphenyls ("PCBs") deposited, stored,
disposed of or located on the Property or Facilities by the Company or
Stockholder or, to the Company's and Stockholder's knowledge, by any other
person or entity, or any equipment on the Property containing PCBs at levels in
excess of 50 parts per million owned or used by the Company or Stockholder, or,
to the Company's and Stockholder's knowledge, by any other person or entity;
(ix) there is no formaldehyde on the Property or in the Facilities, nor any
insulating material containing urea formaldehyde in the Facilities as a result
of any action or failure to act by the Company or Stockholder, or, to the
Company's and Stockholder's knowledge, by any action or failure to act by any
other person or entity; (x) the Facilities and the Company's and its
Subsidiaries uses and activities therein as conducted by the Company and
Stockholder, or, to the Company's and Stockholder's knowledge, as conducted by
any other person or entity have at all times complied with all Environmental and
Safety Laws; (xi) the Company and its Subsidiaries have all the permits and
licenses required to be issued and are in full compliance with the terms and
conditions of those permits; and (xii) neither the Company nor any of its
Subsidiaries is liable for any off-site contamination nor under any
Environmental and Safety Laws.
4.15 Taxes.
-----
-15-
(a) For purposes of this Section 4.15 and other provisions of
this Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, withholding taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns required to be
filed in connection with any Taxes, including information returns with respect
to backup withholding and other payments to third parties.
(b) Except as set forth on Section 4.15(b) on the Company
Disclosure Schedule, all Returns required to be filed by or on behalf of the
Company have been duly filed on a timely basis (taking into account all properly
requested extensions of due dates) and such Returns are true, complete and
correct in all material respects. All Taxes shown to be payable on such Returns
or on subsequent assessments with respect thereto, and all payments of estimated
Taxes required to be made by or on behalf of the Company under Section 6655 of
the Code or comparable provisions of state, territorial, local or foreign law,
have been paid in full on a timely basis, and no other Taxes are payable by the
Company with respect to items or periods covered by such Returns (whether or not
shown on or reportable on such Returns). The Company has withheld and paid over
all Taxes required to have been withheld and paid over, and complied in all
material respects with all information reporting and backup withholding in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. The Company has received from each employee
who holds stock that is subject to a substantial risk of forfeiture as of the
date hereof, a copy of the election(s) made under Section 83(b) of the Code with
respect to all such shares, and such elections were validly made and filed with
the Internal Revenue Service in a timely fashion. There is no claim for Taxes
that is a lien on any of the assets of the Company with respect to Taxes, other
than liens for Taxes not yet due and payable or for Taxes that the Company is
contesting in good faith through appropriate proceedings which are reflected as
a reserve on the Company Financial Statements. The Company has not been at any
time a member of an affiliated group of corporations filing consolidated,
combined or unitary income or franchise tax returns for a period for which the
statute of limitations for any Tax potentially applicable as a result of such
membership has not expired.
-16-
(c) Except as set forth in Section 4.15 of the Company
Disclosure Schedule, the amount of the Company's liabilities for unpaid Taxes
for all periods through the date of the Company Balance Sheet do not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
reflected on the Company Balance Sheet and there is on the Company Balance Sheet
an adequate accrual in accordance with generally accepted accounting principles
("GAAP") for all liabilities for Taxes of the Company payable after the date of
the Company Balance Sheet attributable to transactions and events occurring
prior to such date. No material liability for Taxes or amount of taxable income
of the Company has been incurred (or prior to Closing will be incurred) since
such date other than in the ordinary course of business.
(d) Purchaser has been furnished by the Company true and
complete copies of (i) relevant portions of income tax audit reports, statements
of deficiencies, closing or other agreements received by or on behalf of the
Company relating to Taxes, and (ii) all federal, state and foreign income or
franchise tax returns and state sales and use tax Returns for or including the
Company for all periods since 1996.
(e) No audit of the Returns of the Company by a government or
taxing authority is in process, or, to the Company's or Stockholder's knowledge,
threatened (either in writing or orally, formally or informally) or, to the
Company's or Stockholder's knowledge, pending (either in writing or orally,
formally or informally). No deficiencies exist or have been asserted (either in
writing or orally, formally or informally) or are expected to be asserted with
respect to Taxes of the Company, and the Company has not received notice (either
in writing or orally, formally or informally) nor does it expect to receive
notice that it has not filed a Return or paid Taxes required to be filed or
paid. The Company is not a party to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted or threatened (either in
writing or orally, formally or informally) against the Company, or any of its
respective assets. No waiver or extension of any statute of limitations is in
effect with respect to Taxes or Returns of the Company. The Company has
disclosed on its federal and state income and franchise tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) The Company is not (nor has it ever been) party to any tax
sharing agreement.
(g) The Company is not, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
The Company is not a "consenting corporation" under Section 341(f) of the Code.
The Company has not entered into any agreements where any payment thereunder
would result in a nondeductible expense to the Company pursuant to Section 280G
of the Code or an excise tax to the recipient of such payment pursuant to
Section 4999 of the Code. The Company has not agreed to, nor is it required to
make, any adjustment under Code Section 481(a) by reason of, a change in
accounting method, and the Company will not otherwise have any income reportable
for a period ending after the Closing Date attributable to a transaction or
other event (e.g., an installment sale) occurring prior to the Closing Date with
respect to which the Company received the economic benefit prior to the Closing
Date. The Company is not, nor has it been, a "reporting corporation" subject to
the
-17-
information reporting and record maintenance requirements of Section 6038A and
the regulations thereunder.
(h) Section 4.15(h) of the Company Disclosure Schedule contains
accurate and complete information regarding the Company's net operating losses
for federal and each state tax purposes. The Company has no net operating
losses and credit carryovers or other tax attributes currently subject to
limitation under Sections 382, 383 or 384 of the Code.
4.16 Employee Benefit Plans.
----------------------
(a) Section 4.16 of the Company Disclosure Schedule lists, with
respect to Company, each Subsidiary of Company and any trade or business
(whether or not incorporated) which is treated as a single employer with Company
(an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (i) all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii)
each loan to a non-officer employee in excess of $10,000, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all contracts and agreements
relating to employment that provide for annual compensation in excess of
$100,000 and all severance agreements, with any of the directors, officers or
employees of Company or its Subsidiaries (other than, in each case, any such
contract or agreement that is terminable by the Company or its Subsidiary at
will or without penalty or other adverse consequence), (iv) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Company or any Subsidiary and
that do not generally apply to all employees, and (vi) any current or former
employment or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations of Company or any Subsidiary of
greater than $10,000 remain for the benefit of, or relating to, any present or
former employee, consultant or director of Company or any Subsidiary (together,
the "Company Employee Plans").
(b) Company has furnished to Purchaser a copy of each of the
Company Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and, to the extent still in its possession, any
material employee communications relating thereto) and has, with respect to each
Company Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any Company
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service an opinion letter or favorable
determination letter as to its initial qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation; may rely on an opinion letter issued to a prototype plan
sponsor with respect to a standardized plan adopted by Company in accordance
with the requirements for such reliance; or has applied to the Internal Revenue
Service for such a determination letter (or has time remaining to apply for such
a determination letter) prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue
-18-
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination with respect
to all periods since the date of adoption of such Company Employee Plan. Company
has also furnished Purchaser with the most recent Internal Revenue Service
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a).
(c) Except as set forth in Section 4.16(c) of the Company
Disclosure Schedule, (i) none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare or life insurance benefits to any
person; (ii) to the Company's knowledge, there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, and not exempt under Section 408 of ERISA or Section 4975 of the
Code, with respect to any Company Employee Plan, which could reasonably be
expected to have, in the aggregate, a Material Adverse Effect; (iii) each
Company Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect, and Company and each Subsidiary or ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
Company Employee Plans; (iv) neither Company nor any Subsidiary or ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through
4980D of the Code or Title I of ERISA with respect to any of the Company
Employee Plans; (v) all material contributions required to be made by Company or
any Subsidiary or ERISA Affiliate to any Company Employee Plan have been made on
or before their due dates and a reasonable amount has been accrued for
contributions to each Company Employee Plan for the current plan years; (vi)
with respect to each Company Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA
has occurred; (vii) no Company Employee Plan is covered by, and neither Company
nor any Subsidiary or ERISA Affiliate has incurred or expects to incur any
direct or indirect liability under, arising out of or by operation of Title IV
of ERISA in connection with the termination of, or an employee's withdrawal
from, any Company Employee Plan or other retirement plan or arrangement, and no
fact or event exists that could give rise to any such liability, or under
Section 412 of the Code; and (viii) no compensation paid or payable to any
employee of Company or any Subsidiary has been, or will be, non-deductible by
reason of application of Section 162(m) or 280G of the Code. With respect to
each Company Employee Plan subject to ERISA as either an employee pension plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, Company has prepared in good faith
and timely filed all requisite governmental reports (which were true and correct
as of the date filed) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed or
posted with respect to each such Company Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Company is threatened, against or with respect to any such Company
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Company nor any Subsidiary or other ERISA Affiliate
is a party to, or has made any contribution
-19-
to or otherwise incurred any obligation under, any "multiemployer plan" as
defined in Section 3(37) of ERISA.
(d) With respect to each Company Employee Plan, Company and each
of its United States Subsidiaries have complied with (i) the applicable health
care continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations thereunder or any
similar applicable state law, (ii) the applicable requirements of the Health
Insurance Portability Amendments Act ("HIPAA") and the regulations thereunder
and (iii) the applicable requirements of the Family Medical Leave Act of 1993
and the regulations thereunder or any similar applicable state law, except to
the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Company, any Subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any Company
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Company's financial statements.
4.17 Certain Agreements Affected by this Agreement. Except as
---------------------------------------------
provided for in Section 1(c) of this Agreement, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Company or any of its Subsidiaries, (ii) materially
increase any benefits otherwise payable by Company, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits except as
required under Code section 411(d)(3).
4.18 Employee Matters. The Company and each of its Subsidiaries are
----------------
in compliance in all material respects with all currently applicable federal,
state, local and foreign laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against Company or
any of its Subsidiaries under any workers compensation plan or policy or for
long term disability. Neither Company nor any of its Subsidiaries has any
material obligations under COBRA or any similar state law with respect to any
former employees or qualifying beneficiaries thereunder. There are no
controversies pending or, to the knowledge of Company or any of its
Subsidiaries, threatened, between Company or any of its Subsidiaries and any of
their respective employees or former employees, which controversies have or
could reasonably be expected to have a Material Adverse Effect on Company.
Neither Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor unions contract nor does Company or any of
its Subsidiaries know of any activities or proceedings of any labor union or
other group to organize any such employees. To the Company's knowledge, the
Company and its Subsidiaries have not incurred any liability under, and have
complied in all respects with, the Worker Adjustment Retraining Notification
Act, (the "WARN Act") and no fact or event exists that could give rise to
liability under the WARN Act. Section 4.18 of the Company Disclosure Schedule
contains a list of all employees who are currently on a leave of
-20-
absence (whether paid or unpaid), the reasons therefor, the expected return
date, and whether reemployment of such employee is guaranteed by contract or
statute, and a list of all employees who have requested a leave of absence to
commence at any time after the date of this Agreement, the reason therefor, the
expected length of such leave, and whether reemployment of such employee is
guaranteed by contract or statute.
4.19 Material Contracts.
------------------
(a) Subsections (i) through (viii) of Section 4.19(a) of the
Company Disclosure Schedule contain a list of all contracts and agreements to
which the Company is a party and that are material to the business, results of
operations, or condition (financial or otherwise), of the Company taken as a
whole (such contracts, agreements and arrangements as are required to be set
forth in Section 4.19(a) of the Company Disclosure Schedule being referred to
herein collectively as the "Material Contracts"). Material Contracts shall
include, without limitation, the following and shall be categorized in the
Company Disclosure Schedule as follows:
(i) each contract and agreement (other than routine
purchase orders and pricing quotes in the ordinary course of business covering a
period of less than 1 year) for the purchase of inventory, spare parts, other
materials or personal property with any supplier or for the furnishing of
services to the Company under the terms of which the Company: (A) paid or
otherwise gave consideration of more than $20,000 in the aggregate to date in
2000 or during the calendar year ended December 31, 1999, (B) is likely to pay
or otherwise give consideration of more than $20,000 in the aggregate over the
remaining term of such contract, or (C) cannot be cancelled by the Company
without penalty or further payment of less than $20,000;
(ii) each customer contract and agreement (other than
routine sales orders, repair orders, pricing quotes with open acceptance and
other tender bids, in each case, entered into in the ordinary course of business
and covering a period of less than one year to which the Company is a party
which (A) involved payments by or to the Company of more than $20,000 in the
aggregate to date in 2000 or during the calendar year ended December 31, 1999,
(B) is likely to involve payments by or to the Company of more than $20,000 in
the aggregate over the remaining term of the contract, or (C) cannot be
cancelled by the Company without penalty or further payment of less than
$20,000;
(iii) (A) all distributor, manufacturer's representative,
broker, franchise, agency and dealer contracts and agreements to which the
Company is a party (specifying on a matrix, in the case of distributor
agreements, the name of the distributor, product, territory, termination date
and exclusivity provisions) and (B) all sales promotion, market research,
marketing and advertising contracts and agreements to which the Company is a
party which: (1) involved payments by or to the Company of more than $20,000 in
the aggregate to date in 2000 or during the calendar year ended December 31,
1999 or (2) are likely to involve payments by or to the Company of more than
$20,000 in the aggregate over the remaining term of the contract;
-21-
(iv) all management contracts with independent contractors
or consultants (or similar arrangements) to which the Company is a party and
which (A) involved payments by or to the Company or more than $20,000 in the
aggregate during the calendar year ended December 31, 1999 or (B) are likely to
involve payments by or to the Company of more than $20,000 in the aggregate over
the remaining term of the contract;
(v) all contracts and agreements (excluding routine
checking account overdraft agreements involving xxxxx cash amounts) under which
the Company has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness for borrowed money or under which the Company
has imposed (or may impose) a security interest or lien on any of its assets,
whether tangible or intangible, to secure indebtedness;
(vi) all contracts and agreements that limit the ability of
the Company or, after the Closing, Purchaser or any of its affiliates, to
compete in any line of business or with any person or in any geographic area or
during any period of time, or to solicit any customer or client;
(vii) all other contracts or agreements (A) which if not
already covered above are, in the judgment of the Company, material to the
Company or the conduct of its businesses, (B) the absence of which would have a
Material Adverse Effect on the Company, or (C) which are believed by the Company
to be of unique value even though not material to the business of the Company.
(b) Except as would not reasonably likely have a Material
Adverse Effect on the Company, each Material Contract is a legal, valid and
binding agreement in full force and effect and enforceable by the Company in
accordance with their terms; the Company is not in receipt of any claim of
default under any such agreement; and the Company does not anticipate any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of this Agreement. The Company has furnished Purchaser
with true and complete copies of all such agreements together with all
amendments, waivers or other changes thereto.
(c) The Company is not in default under or in breach or
violation of, nor, to the Company's knowledge, is there any valid basis for any
claim of default by the Company under, or breach or violation by the Company of,
any material provision of any Material Contract. To the Company's and
Stockholder's knowledge, no other party is in default under or in breach or
violation of, nor is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any Material
Contract. Except as specifically indicated on Section 4.19(c) of the Company
Disclosure Schedule, none of the Material Contracts provides for indemnification
by the Company of any third party. No claims have been made or, to the knowledge
of the Company and Stockholder, threatened that would require indemnification by
the Company.
4.20 Interested Party Transactions. Except as set forth on Section
-----------------------------
4.20 of the Company Disclosure Schedule, the Company is not indebted to any
director, officer, employee or shareholder of the Company or Purchaser (except
for amounts due as normal salaries and
-22-
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to the Company. Section 4.20 of the Company Disclosure Schedule lists
all agreements and arrangements currently in effect, and currently proposed
agreements and arrangements, by or between the Company, on the one hand, with or
for the benefit of any current or former shareholder, director or officer of the
Company, on the other hand. Section 4.20 of the Company Disclosure Schedule
lists all payments of any kind since December 31, 1999, from the Company, to or
for the benefit of any current or former shareholder, officer, director or other
affiliate of the Company other than payments related to employment. All debts of
any of the Company's shareholders, officers, directors or their respective
Affiliates owed or owing to the Company are reflected in the Company Financial
Statements.
4.21 Insurance. The Company has policies of insurance and bonds of
---------
the type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of the Company. There is no material claim
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and the Company is otherwise in compliance with the terms of such policies and
bonds. The Company and the Stockholder have no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
4.22 Compliance With Laws. The Company has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not reasonably be expected to
have a Material Adverse Effect on the Company.
4.23 Minute Books. The minute books of the Company made available to
------------
Purchaser contain true copies of all minutes of all meetings of directors and
stockholders and all actions by written consent since the time of incorporation
of the Company through the date of this Agreement.
4.24 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and copies of each document which has been requested by Purchaser
or its counsel in connection with their legal and accounting review of the
Company.
4.25 Bank Accounts. Section 4.25 of the Company Disclosure Schedule
-------------
sets forth the names and locations of all banks, trust companies, savings and
loan associations, and other financial institutions at which the Company
maintains accounts of any nature and the names of all persons authorized to draw
thereon or make withdrawals therefrom.
4.26 Brokers' and Finders' Fees. Except as set forth on Schedule
--------------------------
2.2(b), neither the Company or the Stockholder has incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
4.27 Compliance with the Xxxx-Xxxxx-Xxxxxx Act. Neither the
-----------------------------------------
Company's total assets or annual net sales exceed $10,000,000 within the meaning
of, and calculated in
-23-
accordance with, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended, Section 7A(a)(3) of the Xxxxxxx Act, 15 U.S.C. (S) 18A, and the
regulations promulgated thereunder.
4.28 Third Party Consents. Except as set forth in Section 4.29 of
--------------------
the Company Disclosure Schedule, no consent or approval is needed from any third
party in order for the Company to effect this Agreement or any of the
transactions contemplated hereby.
4.29 Representations Complete. None of the representations or
------------------------
warranties made by the Company herein or in any Exhibit or Schedule hereto,
including the Company Disclosure Schedule, or certificate furnished by the
Company pursuant to this Agreement, when all such documents are read together in
their entirety, contains any untrue statement of a material fact, or omits to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
4.30 Breach of Representations and Warranties. Neither the Company
----------------------------------------
nor Stockholder has any actual knowledge of any fact or circumstance
constituting a breach of the representations and warranties of the Purchaser set
forth in Section 6 of this Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Stockholder hereby represents and warrants to Purchaser as follows:
5.1 Power, Authorization and Validity. The Stockholder, and Xxxxx
---------------------------------
Bear Realty, Inc. ("Xxxxx Bear") in the case of the Lease Agreement, has all
requisite legal power and authority, as the case may be, to enter into and
perform his or its obligations under this Agreement, the Registration Rights
Agreement attached hereto as Exhibit 7.1(d) (the "Rights Agreement"), the
Employment Letter attached hereto as Exhibit 7.1(f) (the "Employment Letter"),
the lease agreement by and between Xxxxx Bear and Purchaser in substantially the
form attached as Exhibit 7.1(e) (the "Lease Agreement") and the Escrow Agreement
by and among the Purchaser, Stockholder and the escrow agent attached hereto as
Exhibit 7.1(c) (the "Escrow Agreement" and this Agreement, the Rights Agreement,
the Employment Letter, the Lease Agreement and the Escrow Agreement together
being referred to as the "Transaction Agreements) and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
the Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved and authorized by all
necessary action, including, if applicable, corporate action, by or on behalf of
Xxxxx Bear. The Transaction Agreements have been duly executed and delivered by
Stockholder or Xxxxx Bear, as the case may be, and constitute valid and binding
obligations of Stockholder or Xxxxx Bear, as the case may be, subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief and
equitable remedies. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to the Stockholder or Xxxxx Bear, as the case may be in
connection with the execution and delivery of the Transaction Agreements by the
Stockholder or Xxxxx Bear, as the case may be, or the consummation by the
-24-
Stockholder or Xxxxx Bear, as the case may be, of the transactions contemplated
hereby and thereby.
5.2 Title to Stock. Stockholder is the sole owner of all of the
--------------
outstanding capital stock of the Company and has good, valid and marketable
title to all of the Company Shares free and clear of all restrictions, claims,
liens, charges, encumbrances and equities whatsoever, except as a result of
applicable state and federal securities laws. Stockholder represents that he
has full right, power and authority to sell, transfer and deliver such Company
Shares to Purchaser, and, upon delivery of the certificate or certificates
therefor duly endorsed for transfer to Purchaser and Purchaser's payment for and
acceptance thereof, will transfer to Purchaser good, valid and marketable title
thereto free and clear of any restriction, claim, lien, charge, encumbrance or
equity whatsoever. Stockholder is not party to any voting trust, agreement or
arrangement affecting the exercise of the voting rights of the Company Shares.
There is no action, proceeding, claim or, to the Stockholder's knowledge,
investigation against the Stockholder or the Stockholder's assets or properties
pending or, to the Stockholder's knowledge, threatened, at law or in equity, or
before any court, arbitrator or other tribunal, or before any administrative law
judge, hearing officer or administrative agency relating to or in any other
manner impacting upon the Company Shares held by the Stockholder.
5.3 No Violation. The execution, delivery and performance of the
------------
Transaction Agreements, and the consummation of the Purchase and the other
transactions contemplated by the Transaction Agreements do not and will not
conflict with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or constitute a default or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the Company Shares under, (a) any instrument, indenture, lease, mortgage or
other agreement or contract to which the Stockholder is a party or to which the
Stockholder or any of the Stockholder's assets or properties may be subject or
(b) any federal, state, local or foreign judgment, writ, decree, order,
ordinance, statute, rule or regulation applicable to the Stockholder or the
Stockholder's assets or properties. The consummation of the Purchase and the
other transactions contemplated by the Transaction Agreements will not require
the consent of any third person with respect to the rights, licenses,
franchises, leases or agreements of the Stockholder.
5.4 Acknowledgment. The Stockholder hereby acknowledges that the
--------------
Stockholder has read the Transaction Agreements and the other documents to be
delivered in connection with the consummation of the transactions contemplated
hereby and thereby and has made an independent examination of the transactions
contemplated hereby (including the tax consequences thereof). The Stockholder
acknowledges receipt of an and opportunity to review the Purchaser SEC Documents
(as defined below). The Stockholder acknowledges that the Stockholder has had
an opportunity to consult with and has relied solely upon the advice, if any, of
the Stockholder's legal counsel, financial advisors, or accountants with respect
to the transactions contemplated hereby to the extent the Stockholder has deemed
necessary, and has not been advised or directed by Purchaser, the Company or
their respective legal counsel or other advisors in respect of any such matters
and has not relied on any such parties in connection with the Transaction
Agreements and the transactions contemplated hereby and thereby. To the extent
the representations and warranties contained in this Section 5.4 are made as of
the Second Closing, Purchaser SEC Documents shall be deemed to include all other
forms, reports and
-25-
registration statements (other than exhibits to registration statements and
materials relating to stock option and compensation plans) filed with the SEC by
Purchaser after the date hereof and prior to the Second Closing.
5.5 Acquisition Entirely for Own Account. This Agreement is made
------------------------------------
with Stockholder in reliance upon his representation to Purchaser, which by its
execution of this Agreement, Stockholder hereby confirms, that the Purchaser
Stock to be acquired by Stockholder will be acquired for investment for
Stockholder's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Stockholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same, except to the extent of any hedging, short sale or collaring
transactions permitted by applicable state and federal securities laws that
would not jeopardize the exemptions relied upon for the issuance of the
Purchaser Stock to Stockholder and provided that the Company is provided a legal
opinion of Stockholder's counsel to such effect. By executing this Agreement,
Stockholder further represents that, except for the Professional Payments, he
does not presently have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any
third person, with respect to any of the Purchaser Stock.
5.6 Restricted Securities. Stockholder understands that the
---------------------
Purchaser Stock has not been, and will not be, registered under the Securities
Act, by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of Stockholder's representations as
expressed herein. Stockholder understand that the shares of Purchaser Stock are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, Stockholder must hold the Securities
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Stockholder
acknowledges that, except as provided in Section 7.1(d) the Company has no
obligation to register or qualify the Purchaser Stock for resale. Stockholder
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to Purchaser which are outside of Stockholder's
control, and which Purchaser is under no obligation and may not be able to
satisfy.
5.7 Legends. Stockholder understands that the Purchaser Stock and
-------
any securities issued in respect of or exchange for the Purchaser Stock, may
bear the legends set forth in Section 3.2.
5.8 Accredited Investor. Stockholder is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as disclosed in a document of even date herewith and delivered by
Purchaser to the Company and the Stockholder prior to the execution and delivery
of this Agreement (the
-26-
"Purchaser Disclosure Schedule"), Purchaser hereby represents and warrants to
the Company and the Stockholder as follows:
6.1 Organization, Standing and Power. The Purchaser is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
state of Delaware. The Purchaser has the requisite corporate power and
authority and all necessary government approvals to own, lease and operate its
properties and to carry on its business as now being conducted and as proposed
to be conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Purchaser. The Purchaser is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on the Purchaser.
6.2 Authority. Purchaser has all requisite corporate power and
---------
authority to enter into the Transaction Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of the
Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Purchaser. The Purchaser's Board of Directors has approved this
Agreement, the Escrow Agreement, the Employment Letter and the Rights Agreement
and the transactions contemplated thereby. The Transaction Agreements have been
duly executed and delivered by Purchaser and constitute valid and binding
obligations of Purchaser enforceable against the Purchaser in accordance with
their terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity. The shares of Purchaser Stock, when in issued
in accordance with the terms and conditions of this Agreement shall be validly
issued, fully-paid and nonassessable.
6.3 No Conflict; Required Filings and Consents.
------------------------------------------
(a) The execution and delivery of the Transaction Agreements by
Purchaser does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under or result in the creation of any lien upon the assets of the Purchaser
under (i) any provision of the Certificate of Incorporation or Bylaws of
Purchaser, as amended, or (ii) any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Purchaser or its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Purchaser in connection with the execution and delivery of
the Transaction Agreements by Purchaser or the consummation by Purchaser of the
transactions contemplated hereby and thereby, except for
-27-
(i) the filing of a Form 8-K with the Securities and Exchange Commission ("SEC")
and National Association of Securities Dealers ("NASD") within 15 days after the
Closing Date, and any amendments thereto, (ii) any filings as may be required
under applicable state securities laws and (iii) consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Purchaser and would not prevent, materially
alter or delay any the transactions contemplated by this Agreement.
6.4 SEC Documents; Financial Statements.
-----------------------------------
(a) Purchaser has filed all forms, reports and documents
required to be filed by Purchaser with the SEC since March 14, 2000, and
heretofore has made available to the Stockholder copies, in the form filed with
the SEC, of (i) its Registration Statement on Form S-1 effective as of March 14,
2000; (ii) its Quarterly Report on Form 10-Q for the period ended March 31, 2000
and (iii) all other forms, reports and registration statements (other than
exhibits to registration statements and materials relating to stock option and
compensation plans) filed with the SEC by Purchaser since March 14, 2000, and
prior to the date hereof, and Purchaser will have made available to the
Stockholder true and complete copies of any additional documents filed with the
SEC by Purchaser after the date hereof and prior to the Closing (collectively,
the "Purchaser SEC Documents"). As of their respective filing dates, the
Purchaser SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Securities Act, and none of the Purchaser SEC Documents and none of the
representations or warranties made by the Company herein or in any Exhibit or
Schedule hereto, including the Purchaser Disclosure Schedule, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed Purchaser SEC Document.
(b) The financial statements of Purchaser, including the notes
thereto, included in the Purchaser SEC Documents (the "Purchaser Financial
Statements") were complete and correct in all material respects as of their
respective filing dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto as of their respective dates, and have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto or, in the case of
unaudited statements, included in Quarterly Reports on Form 10-Q). The
Purchaser Financial Statements fairly present the consolidated financial
condition and operating results of Purchaser at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments).
6.5 Litigation. There is no private or governmental action, suit,
----------
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Purchaser, threatened
against Purchaser or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Purchaser. There is
no judgment, decree or order against Purchaser that could prevent, enjoin, or
materially alter or delay any of
-28-
the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Purchaser.
6.6 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company and
Stockholder, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Company Shares to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Company Shares. The Purchaser has not been
formed for the specific purpose of acquiring the Company Shares.
6.7 Restricted Company Shares. The Purchaser understands that the
-------------------------
Company Shares have not been, and will not be, registered under the Securities
Act, by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Company Shares are
"restricted securities" under applicable U.S. federal and state securities laws
and that, pursuant to these laws, the Purchaser must hold the Company Shares
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Company Shares for resale. The Purchaser further acknowledges that if an
exemption from registration or qualification is available, it may be conditioned
on various requirements including, but not limited to, the time and manner of
sale, the holding period for the Company Shares, and on requirements relating to
the Company which are outside of the Purchaser's control, and which the Company
is under no obligation and may not be able to satisfy.
6.8 No Public Market. The Purchaser understands that no public
----------------
market now exists for any of the Company Shares, and that neither the Company
nor the Stockholder has made no assurances that a public market will ever exist
for the Company Shares.
6.9 Legends. The Purchaser understands that the Company Shares and
-------
any Company Shares issued in respect of or exchange for the Company Shares, may
bear one or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE COMPANY SHARES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
-29-
(b) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
6.10 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
6.11 Breach of Representations and Warranties. The Purchaser has no
----------------------------------------
actual knowledge of any fact or circumstance constituting a breach of the
representations and warranties of the Company and Stockholder set forth in
Section 4 of this Agreement or of the representations and warranties of
Stockholder set forth in Section 5 of this Agreement.
SECTION 7
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Each Party. The respective
---------------------------------------
obligations under this Agreement of each party hereto shall be subject to the
satisfaction on or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by agreement of all the parties:
(a) Conditions to Obligations of Each Party. No temporary
---------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the transactions contemplated hereby, which makes the
consummation of such transactions illegal.
(b) Governmental Approval. Purchaser, Stockholder and the
---------------------
Company shall have timely obtained from each Governmental Entity all approvals,
waivers and consents, if any, necessary for consummation of or in connection
with the transactions contemplated hereby, including, without limitation, such
approvals, waivers and consents as may be required under the Securities Act and
under any state securities laws.
(c) Escrow Agreement. Purchaser, the Company, Escrow Agent and
----------------
the Stockholder shall have entered into an Escrow Agreement.
(d) Registration Rights Agreement. Purchaser and Stockholder
-----------------------------
shall have entered into the Rights Agreement to provide Stockholder with certain
"piggy-back" registration rights with respect to the Purchaser Stock.
(e) Lease Agreement. Xxxxx Bear Realty, Inc. and Purchaser
---------------
shall haveentered into the Lease Agreement.
(f) Employment Letter Agreement. Stockholder and Purchaser
---------------------------
shall have executed the Employment Letter.
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(g) Sterling Factoring Agreement. The letter agreement by and
----------------------------
between the Company and Sterling Factors Corporation dated as of April 22, 1997
shall have been terminated.
7.2 Additional Conditions to Obligations of the Company and the
-----------------------------------------------------------
Stockholder. The obligations of the Company and the Stockholder under this
-----------
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing, by the
Company and the Stockholder:
(a) Representations, Warranties and Covenants. (i) Each of the
-----------------------------------------
representations and warranties of Purchaser in this Agreement that is expressly
qualified by a reference to materiality shall be true in all respects as so
qualified, and each of the representations and warranties of Purchaser in this
Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Closing as though such representation or warranty had
been made on and as of the Closing (except that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date), and (ii) Purchaser shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by Purchaser as of
the Closing.
(b) Certificates of Purchaser.
-------------------------
(i) Compliance Certificate of Purchaser. The Company
-----------------------------------
shall have been provided with a certificate executed on behalf of Purchaser by
its President or its Chief Financial Officer to the effect that, as of the
Closing, each of the conditions set forth in Section 7.2(a) above has been
satisfied with respect to Purchaser.
(ii) Certificate of Secretary of Purchaser. The Company
-------------------------------------
shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Purchaser certifying:
(A) Resolutions duly adopted by the Board of Directors
of Purchaser authorizing the execution of this Agreement and the execution,
performance and delivery of all agreements, documents and transactions
contemplated hereby; and
(B) the incumbency of the officers of Purchaser
executing this Agreement and all agreements and documents contemplated hereby.
(c) Legal Opinion. The Company shall have received a legal
-------------
opinion from Purchaser's legal counsel substantially in the form of Exhibit
7.2(c) hereto.
(d) No Material Adverse Effect. There shall not have occurred
--------------------------
any event or condition of any character that has a Material Adverse Effect on
Purchaser.
(e) Minimum Number of Purchaser Shares. Notwithstanding the
----------------------------------
limitation set forth in the last clause of Section 1.1(a) to the contrary, the
obligations of the Company and the Stockholder to enter into this Agreement
shall be subject to Stockholder receiving at Closing shares of Purchaser Common
Stock with a value of [*] as the Base Stock Payment, calculated
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
-31-
using the average closing price of the Purchaser common stock for the ten
trading days ending three days prior to Closing.
(f) Stockholder Guaranties. Purchaser shall cooperate in good
----------------------
faith to assist Stockholder in his efforts to be released from any personal
guaranties of Company liabilities undertaken by Stockholder as set forth on
Schedule 7.2(f) hereof (the "Stockholder Guarantees"), including without
limitation the signing by Purchaser of equivalent guaranties upon the request of
the Company's creditors. Purchaser agrees to indemnify and hold harmless
Stockholder for any obligations or liabilities Stockholder may have following
the Closing under the Stockholder Guarantees, except for any such obligations or
liabilities resulting from Stockholder's fraud, intentional misconduct or gross
negligence. Purchaser shall repay all obligations outstanding under the SBA Loan
(#PLP 000-000-0000 administered by the CIT Group) promptly following Closing.
(g) Payments. Stockholder shall receive at Closing a payment
--------
from the Company or Purchaser of a total of [*] representing payment in full for
all outstanding indebtedness owed to Stockholder by the Company as of the
Closing Date, except that the Company owes Stockholder approximately [*] for
reimbursement of certain business expenses incurred by Stockholder on behalf of
the Company which will be repaid within seven days of Closing upon receipt of
invoices therefor.
7.3 Additional Conditions to the Obligations of Purchaser. The
-----------------------------------------------------
obligations of Purchaser under this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by Purchaser:
(a) Representations, Warranties and Covenants. (i) Each of the
-----------------------------------------
representations and warranties of the Company and the Stockholder in this
Agreement that is expressly qualified by a reference to materiality shall be
true in all respects as so qualified, and each of the representations and
warranties of the Company and the Stockholder in this Agreement that is not so
qualified shall be true and correct in all material respects, on and as of the
Closing as though such representation or warranty had been made on and as of the
Closing (except that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date), and
(ii) the Company and the Stockholder shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Closing.
(b) No Material Adverse Effect. There shall not have occurred
--------------------------
any event or condition of any character that has a Material Adverse Effect on
the Company.
(c) Certificates of the Company and the Stockholder.
-----------------------------------------------
(i) Compliance Certificate of the Company. Purchaser
-------------------------------------
shall have been provided with a certificate executed on behalf of the Company by
its President to the effect that, as of the Closing, each of the conditions set
forth in Section 7.3(a) and (b) above has been satisfied.
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(ii) Compliance Certificate of Stockholder. Purchaser
-------------------------------------
shall have been provided with a certificate executed by Stockholder to the
effect that, as of the Closing, each of the conditions set forth in Section
7.3(a) and (b) above has been satisfied.
(iii) Certificate of Secretary of the Company. Purchaser
---------------------------------------
shall have been provided with a certificate executed by the Secretary of the
Company certifying:
(A) resolutions duly adopted by the Board of
Directors of the Company authorizing the execution of this Agreement and the
execution, performance and delivery of all agreements, documents and
transactions contemplated hereby;
(B) the Articles of Incorporation and Bylaws of the
Company, as in effect immediately prior to the Closing, including all amendments
thereto; and
(C) the incumbency of the officers of the Company
executing this Agreement and all agreements and documents contemplated hereby.
(d) Third Party Consents. Purchaser shall have been furnished
--------------------
with evidence satisfactory to it that the Company has obtained those consents,
waivers, approvals or authorizations of those Governmental Entities and third
parties whose consent or approval are required or requested by Purchaser in
connection with this Agreement.
(e) Injunctions or Restraints; Conduct of Business. No
----------------------------------------------
proceeding brought by any administrative agency or commission of other
governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the transactions contemplated by this Agreement
shall be pending. In addition, no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint provision limiting or
restricting Purchaser's conduct or operation of the business of the Company,
following the Closing shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other Governmental Entity, domestic or
foreign, seeking the foregoing be pending.
(f) Legal Opinion. Purchaser shall have received a legal
-------------
opinion from the Company's legal counsel, in substantially the form of Exhibit
7.3(f).
(g) Resignation of Directors and Officers. Purchaser shall have
-------------------------------------
received letters of resignation from each of the directors and officers of the
Company in office immediately prior to the Closing, which resignations in each
case shall be effective as of the Closing.
(h) Confidentiality and Assignment of Inventions Agreement.
------------------------------------------------------
Each of Company's employees identified on Schedule 7.3(h) shall have executed
Purchaser's standard Confidential Information and Assignment of Inventions
Agreement in the form attached hereto a Exhibit 7.3(h).
(i) 401(k) Plan. The Company's 401(k) Plan shall have been
------------
terminated at or prior to Closing.
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7.4 Conditions to the Obligations of Purchaser at the Second
--------------------------------------------------------
Closing. The obligations of Purchaser under this Agreement at the Second
-------
Closing shall be subject to the satisfaction at or prior to the Second Closing
of each of the following conditions, any of which may be waived, in writing, by
Purchaser:
(a) Representations, Warranties and Covenants. (i) Each of the
-----------------------------------------
representations and warranties of the Stockholder set forth in Sections 5.4,
5.5, 5.6, 5.7 and 5.8 in this Agreement shall be true in all respects, on and as
of the Second Closing as though such representation or warranty had been made on
and as of the Second Closing.
(b) Certificate of the Stockholder. Purchaser shall have been
------------------------------
provided with a certificate executed by Stockholder to the effect that, as of
the Second Closing, the conditions set forth in Section 7.4(a) above has been
satisfied.
SECTION 8
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Closing Date, [*]
-----------
shares of the Base Stock Payment (the "Initial Escrow Shares" and, together with
the New Shares (as defined below), the "Escrow Shares") and [*] of the Base Cash
Payment to be paid to Stockholder (the "Escrow Cash") shall, without any act of
any Stockholder, be deposited with HSBC Bank USA (the "Escrow Agent"), such
deposit to constitute the escrow fund (the "Escrow Fund") and to be governed by
the terms set forth herein and in the Escrow Agreement. If any Damages (as
defined below) arise, the Escrow Fund shall be available to compensate the
Indemnified Persons (defined below) pursuant to the indemnification obligations
of the Stockholder pursuant to Section 8.2 and in accordance with the Escrow
Agreement; provided, however, resort to the Escrow Fund shall not be the
exclusive recourse to compensate the Indemnified Persons for any Damages.
8.2 Stockholder Indemnification. Subject to the limitations set
---------------------------
forth in this Section 8, from and after the Closing Date, the Stockholder shall
protect, defend, indemnify and hold harmless Purchaser and its affiliates,
officers, directors, employees, representatives and agents (each a "Purchaser
Indemnified Person" and collectively "Purchaser Indemnified Persons") from and
against any and all losses, costs, damages, liabilities, fees (including without
limitation reasonable attorneys' fees and other reasonable fees incurred in the
investigation and defense) and expenses (collectively, the "Damages"), that any
of the Purchaser Indemnified Persons incurs by reason of or in connection with
(i) any claim, demand, action or cause of action (collectively, a "Claim")
alleging misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Company or
Stockholder contained in this Agreement, including any exhibits or schedules
attached hereto which becomes known to Purchaser during the Escrow Period and
(ii) any Claim resulting from Stockholder's actions or inactions which serve as
a basis for his termination for Cause but only with respect to the portions of
such Claim which result in actual, out-of-pocket expense to Purchaser. Subject
to the right of Stockholder to dispute any Claims as provided herein or in the
Escrow Agreement, Purchaser shall be entitled to deduct from the amount due to
Stockholder as a result of the Contingent Payment any Damages arising from
Claims resulting from the
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
-34-
foregoing clauses (i) and (ii) which exceed the amount of the Escrow Fund;
provided, however, Purchaser shall deposit such amount in an interest-bearing
trust account during the pendency of the resolution of any dispute as to any
such Claims. Damages in each case shall be net of the amount of any insurance
proceeds actually recovered by Purchaser.
8.3 Damages Threshold. Notwithstanding the foregoing, Purchaser may
-----------------
not receive any amount of the Escrow Shares or Escrow Cash from the Escrow Fund
unless and until a certificate signed by an officer of Purchaser (an "Officer's
Certificate") identifying Damages in the aggregate amount in excess of $25,000
has been delivered to the Escrow Agent and such amount is determined pursuant to
this Section 8 to be payable, in which case Purchaser shall receive Escrow
Shares and Escrow Cash equal in value to the full amount of such Damages without
deduction. In determining the amount of any Damages attributable to a breach
(but not whether a breach has occurred), any materiality standard contained in a
representation, warranty or covenant of Purchaser shall be disregarded.
8.4 Escrow Period. Subject to the following requirements, the Escrow
-------------
Fund shall remain in existence until the 13 month anniversary of Closing (the
"Escrow Termination Date" and such period of time being referred to as the
"Escrow Period"). Upon the expiration of the Escrow Period, the Escrow Fund
shall terminate with respect to all Escrow Cash and Escrow Shares; provided,
however, that the amount of Escrow Cash and the number of Escrow Shares which,
as provided in the Escrow Agreement, are necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to the expiration of such Escrow Period with respect to facts and
circumstances existing on or prior to the Escrow Termination Date shall remain
in the Escrow Fund (and the Escrow Fund shall remain in existence) until such
claims have been resolved. As soon as all such claims have been resolved, the
Escrow Agent shall deliver to the Stockholder all Escrow Cash, Escrow Shares and
other property remaining in the Escrow Fund and not required to satisfy such
claims.
8.5 Distributions; Voting.
---------------------
(a) Any shares of Purchaser Common Stock issued or distributed
by Purchaser upon any stock split, stock dividend or recapitalization of
Purchaser ("New Shares") in respect of the Escrow Shares that have not been
released from the Escrow Fund shall be added to the Escrow Fund and become a
part thereof. When and if dividends in the form of cash or property on Escrow
Shares in the Escrow Fund shall be declared and paid, they shall be immediately
distributed to the beneficial owners of the Escrow Shares. The beneficial owners
of the Escrow Shares shall pay any taxes on such dividends.
(b) Stockholder shall have voting rights with respect to the
Escrow Shares (and on any voting securities added to the Escrow Fund in respect
of such Escrow Shares) so long as such Escrow Shares or other voting securities
are held in the Escrow Fund. As the record holder of such shares, the Escrow
Agent shall vote such shares in accordance with the instructions of Stockholder
and shall promptly deliver copies of all proxy solicitation materials to
Stockholder. Purchaser shall show the Purchaser Stock contributed to the Escrow
Fund as issued and outstanding on its balance sheet.
-35-
8.6 Purchaser Indemnification. Subject to the limitations set forth
-------------------------
in this Section 8, from and after the Closing Date, Purchaser shall protect,
defend, indemnify and hold harmless the Stockholder from and against any Damages
that Stockholder incurs by reason of or in connection with any Claim alleging
misrepresentation, breach of, or default in connection with, any of the
representations, warranties, covenants or agreements of the Purchaser contained
in this Agreement, including any exhibits or schedules attached hereto which
becomes known to Stockholder during the Escrow Period; provided however, that no
such compensation shall be payable to the Stockholder unless and until the
amount of all Damages to the Stockholder exceeds $25,000 in the aggregate,
whereupon compensation shall be payable for all such Damages without deduction.
Damages in each case shall be net of the amount of any insurance proceeds
actually recovered by Stockholder.
8.7 Method of Asserting Claims. All claims for indemnification by a
--------------------------
Purchaser Indemnified Person pursuant to this Section 8 shall be made in
accordance with the provisions of this Section 8 and the provisions of the
Escrow Agreement.
8.8 Defense of Third Party Claims. In the event of the assertion or
-----------------------------
commencement by any individual, entity or governmental body (each, a "Person")
of any claim or action, suit, litigation, arbitration proceeding (including any
civil, criminal, administrative, investigative or appellate proceeding),
hearing, inquiry, audit, examination or investigation commenced, brought,
conducted or heard by or before, or otherwise involving any court or other
governmental body or any arbitrator or arbitration panel (each a "Legal
Proceeding") (whether against the Company, against Purchaser, Stockholder or
against any other Person) with respect to which the Stockholder or Purchaser may
become obligated to hold harmless, indemnify, compensate or reimburse a
Purchaser Indemnified Person or Stockholder pursuant to this Section 8, as the
case may be, the procedure set forth below shall be followed.
(a) With respect to the claims made by third parties, if an
indemnified party is threatened with any claim, or any such claim is presented
to or any action or proceeding commenced, that may give rise to the right of
indemnification hereunder, such indemnified party, as the case may be (the
"Indemnitee"), will give written notice thereof to the party or parties bearing
the indemnification obligation (the "Indemnifying Party); provided, however,
that any failure on the part of the Indemnitee to so notify the Indemnifying
Party shall not limit any of the obligations of the Indemnifying Party under
this Section 8, except that, to the extent such failure to promptly notify the
Indemnifying Party increases the Damages, then such Damages shall be reduced by
the amount of the Damages that would have been avoided, if any, had the
Indemnifying Party been promptly notified.
(b) The Indemnitee shall have the right to be represented by
counsel of its choice and to defend or otherwise control the handling of any
claim, or Legal Proceeding for which indemnity is sought. Notwithstanding the
foregoing but subject to the limitations provided below, the Indemnifying Party
may elect (by written notice to the Indemnitee under Section 11.2) to assume the
defense of or otherwise control the handling of such claim or Legal Proceeding
involving solely claims for monetary damages; provided, however, that the
Company or Stockholder, as the Indemnifying Party, shall have no right to assume
the defense or otherwise control the handling of any such claim or Legal
Proceeding against a Purchaser Indemnified Person (i) if the amount in question
(when aggregated with all other outstanding or unreimbursed
-36-
paid claims, if any) exceeds two times (2x) the Escrow Fund (valued as of the
date hereof) or (ii) if such claim or Legal Proceeding relates to (A) the
intellectual property rights of Purchaser or Company, or (B) disputes with
customers of Purchaser or the Company. If the Indemnifying Party and the
Indemnitee agree upon mutually satisfactory counsel to assume the defense, the
Indemnifying Party shall assume the obligation to pay such counsel's fees and
expenses and shall no longer assume the obligation to pay the Indemnitee's
attorneys' fees and expenses.
(c) The party or parties which control the defense of any such
claim or Legal Proceeding:
(i) shall proceed to defend such claim or Legal Proceeding
in a diligent manner with counsel reasonably satisfactory to the other party,
(ii) each party shall make available to the defending party
any non-privileged documents and materials in its possession that may be
necessary to the defense of such claim or Legal Proceeding except for documents
or materials which are sealed by a court order or are subject to a nondisclosure
agreement prohibiting such disclosure,
(iii) the defending party shall keep the Indemnitee or the
Indemnifying Party, as applicable, informed of all material developments and
events relating to such claim or Legal Proceeding;
(iv) the other parties shall have the right to participate
in the defense of such claim or Legal Proceeding at their sole cost and expense;
and
(v) the defending party shall not settle, adjust or
compromise such claim or Legal Proceeding without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed,
provided that where the Indemnifying Party is controlling the defense such
settlement (A) includes as an unconditional term thereof the giving by the
plaintiff or claimant to the Indemnitee of a release from all liability in
respect of such claim or litigation, (B) provides that the Indemnitee does not
admit any guilt or fault with respect to the subject matter of such claim or
litigation, and (C) does not involve injunctive or other equitable relief.
8.9 No Contribution. The Stockholder acknowledges and agrees that he
---------------
shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
by virtue of having been an officer or director of the Company against a
Purchaser Indemnified Person or the Company, in each case as an Indemnified
Party, in connection with any indemnification obligation to which he may become
subject under or in connection with this Agreement.
8.10 Exclusive Remedy; Limitations.
-----------------------------
(a) The sole remedy of Purchaser for any and all claims of the
nature described in Section 8.2 shall be the indemnity set forth in Section 8.2,
subject to the other terms and conditions of this Section 8, and the maximum
liability of Stockholder hereunder shall be the sum of (i) [*] and (ii) fifty
percent of the total amount paid or due to be payable by Purchaser to
Stockholder pursuant to Section 1(b) hereof (such sum being referred to as the
"Liability Limit");
[*] Certain Information in this Exhibit has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment
request.
-37-
provided, however, that nothing herein shall limit Purchaser's right to recover
Damages, or the amount of such Damages so recovered, from Stockholder in the
event of: (i) any breach of representation or warranty set forth in Sections 4.3
or 4.4, and (ii) any fraud by Stockholder.
(b) The sole remedy of Stockholder for any and all claims of the
nature described in Section 8.6 shall be the indemnity set forth in Section 8.6,
subject to the other terms and conditions of this Section 8, and the maximum
liability of Purchaser hereunder shall be the Liability Limit; provided,
however, that nothing herein shall limit Stockholder's right to recover Damages
from Purchaser in the event of any fraud by any officer, director, agent or
representative of Purchaser; and provided, further, that nothing herein shall
limit Stockholder's right to the Contingent Payment except for Purchaser's right
to offset with respect thereto as set forth herein.
SECTION 9
COVENANTS OF STOCKHOLDER AND THE COMPANY
9.1 Public Announcements. All parties hereto agree that neither
--------------------
party will make any press release or publication with respect to the existence
of this Agreement or the transactions contemplated hereby without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld or delayed, except as may be required by law.
9.2 Cooperation. Each party hereto will fully cooperate with the
-----------
other parties, their counsel and accountants in connection with any steps
required to be taken as part of its obligations under this Agreement. Each party
will use reasonable efforts to cause all conditions to this Agreement to be
satisfied as promptly as possible and to obtain all consents and approvals
necessary for the due and punctual performance of this Agreement and for the
satisfaction of the conditions hereof. No party will undertake any course of
action inconsistent with this Agreement or which would make any representations,
warranties or agreements made by such party in this Agreement untrue or any
conditions precedent to this Agreement unable to be satisfied at or prior to the
Closing.
9.3 Further Acts. After the Closing Date, each party hereto, at the
------------
request of and without any further cost or expense to the other parties will
take any further actions necessary or desirable to carry out the purposes of
this Agreement and to vest in Purchaser full title to all properties, assets,
Company Capital Stock and rights of the Company. In addition, without in any
way limiting the generality of the foregoing, the Company and, to the extent
required, the Stockholder hereby agrees to take any and all further actions
necessary or desirable to carry out the assignment to Purchaser of all
Intellectual Property.
SECTION 10
COVENANTS OF PURCHASER
10.1 Blue Sky Laws. Purchaser shall take such steps as may be
-------------
necessary to comply with the securities and Blue Sky Laws of all jurisdictions
which are applicable to the issuance of the Purchaser Stock pursuant hereto.
-38-
10.2 Post-Closing Operation of Company. Following the Closing,
---------------------------------
Purchaser hereby covenants and agrees that the Company Business will be operated
either as a subsidiary or a business unit of Purchaser. Subject to the terms of
the Employment Letter, Stockholder shall be appointed general manager (or such
other title as Purchaser and Stockholder shall mutually agree) of the Company
Business, reporting directly to Purchaser's President, in which capacity he
shall be responsible for managing the day-to-day operations of the Company
Business. During the Contingent Period, in addition to permitting the Company
to retain and use any positive cash flow which it generates, Purchaser shall
provide operating capital to the Company Business at a level consistent with the
operating capital and borrowings of the Company during the twelve (12) months
preceding the Closing plus such amounts as may be needed to fund any increased
accounts receivable and any compensation and other payments to be made to
Stockholder or Xxxxx Bear Realty (in excess of those paid to Stockholder or
Xxxxx Bear Realty in the twelve (12) months prior to Closing) pursuant to this
Agreement, the Lease Agreement and the Employment Letter (to the extent that the
compensation set forth therein exceeds that paid to Stockholder in the twelve
(12) months prior to Closing). Purchaser understands that the Company's ability
to generate Net Revenues in an amount which would entitle Stockholder to the
Contingent Payment is an important condition to Stockholder, and it agrees,
subject to the foregoing quantification of Purchaser's working capital
commitment and its fiduciary obligations to its stockholders, to act in good
faith to support the Stockholder in his efforts to grow the Company Business
during the Contingent Period. Notwithstanding the foregoing, Purchaser reserves
the right to reduce the funding of the Company Business or curtail its
operations during or after the Contingent Period in its reasonable commercial
discretion (excluding, in exercising such discretion, Purchaser's obligation to
pay the Contingent Payment) if Stockholder is no longer employed by the Company
Business for any reason whatsoever, including his death, disability, voluntary
resignation or termination with or without Cause.
10.3 Guarantees. Purchaser agrees to guarantee the obligations of
----------
the Company under the Employment Letter.
10.4 Museum Covenant.
---------------
(a) Set forth on Schedule 10.4 hereto is a listing of
historically significant audio and video equipment that the Company currently
owns (the "Collection"). The Purchaser hereby covenants that from and after the
Closing Date it will: (i) keep the Collection intact and secure, (ii) use
commercially reasonable efforts to include the Collection in its standard
property and casualty insurance coverage, and (iii) not sell or otherwise
dispose of any of the Collection, in whole or in part without the consent of
Stockholder. Stockholder hereby covenants and agrees to provide advice to the
Company and Purchaser on affairs relating to the Collection; provided, however,
that except to the extent set forth above, Purchaser and Company shall have no
obligation with respect to such advice.
(b) As soon as practicable after the Closing, upon the request
of Stockholder, Purchaser shall cause the Company to convey title to the
Collection to a not-for-profit corporation formed or designated by the
Stockholder for the express purpose of preserving the Collection (the
"Conveyance"). Purchaser shall not bear any costs and expenses associated with
the Conveyance and the on-going operations of such entity and Stockholder shall
indemnify and hold harmless Purchaser for any such costs or expenses incurred by
Purchaser. As a condition to
-39-
the Conveyance, Purchaser shall receive a perpetual, royalty free, fully-paid
right and license to use items of the Collection from time to time that are
necessary or useful in the operation of the Business as determined by Purchaser
in its sole commercially reasonable discretion. Notwithstanding the foregoing
section (a) and (b), at any time prior to the Conveyance, Purchaser may request
in writing that the Stockholder effect the Conveyance (the "Conveyance Request")
and if within six months of Stockholder's receipt of the Conveyance Request
Stockholder has not effected the Conveyance, Purchaser shall have no further
obligations with respect to the Collection and shall be free to retain or
dispose of the Collection in its sole discretion.
SECTION 11
MISCELLANEOUS
11.1 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
11.2 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
the third business day after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice,
(a) if to Purchaser, to:
Loudeye Technologies, Inc.
000 Xxxxx Xxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxx, General Counsel
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Venture Law Group
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
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(b) if to the Company, to:
Vidipax, Inc.
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000, x102
with a copy to:
Xxxxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(c) if to the Stockholder, to:
Xxxxx Xxxxxxx
00 Xxxxxxxxxx Xxxxx - #0X
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000, x102
with a copy to:
Xxxxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
11.3 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to June 14, 2000. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
11.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including facsimiles thereof, each of which shall be deemed an
original and all of which together shall constitute one instrument.
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11.5 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents referred to herein are the product of all of the
parties hereto, and constitutes the entire agreement between such parties
pertaining to the subject matter hereof and thereof, and merge all prior
negotiations and drafts of the parties with regard to the transactions
contemplated herein and therein. Any and all other written or oral agreements
existing between the parties hereto regarding such transactions: (a) are
expressly canceled except for the Confidentiality Agreement, which shall
continue in full force and effect, and shall survive any termination of this
Agreement or the Closing, in accordance with its terms; (b) are not intended to
confer upon any other person any rights or remedies hereunder, and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
11.6 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. If the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
11.7 Remedies Cumulative. Except as otherwise provided herein, any
-------------------
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
11.8 Rules of Construction. The parties hereto agree that they have
---------------------
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
11.9 Waiver of Restrictions. The Company hereby consents to the
----------------------
transfers of Stock that are the subject of this Agreement and waives any
restrictions on transfer applicable to such Stock with respect to the transfers
contemplated by this Agreement.
11.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 11.10 shall be binding upon the parties and their
respective successors and assigns.
11.11 Expenses. Each party shall bear its own expenses in connection
--------
with this Agreement and the transactions contemplated hereby; provided, however,
that Purchaser shall at Closing pay $75,000 of the reasonable expenses of the
Company and Stockholder incurred in connection with the transactions
contemplated by this Agreement. Stockholder shall be responsible for all such
expenses of the Company and the Stockholder in excess of $75,000 and Stockholder
shall bear sole responsibility for the payment of any brokerage or finder's fee
payable by the Company or Stockholder and Stockholder shall indemnify and hold
harmless the Purchaser therefor, to the extent not already accounted for in
Section 2.2(b).
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11.12 Arbitration. Any controversy or dispute arising out of or
-----------
relating to this Agreement, or the breach thereof, shall be resolved by
arbitration conducted in accordance with the commercial arbitration rules of the
American Arbitration Association ("AAA") and judgment upon the award rendered by
the arbitral tribunal may be entered in any court having jurisdiction thereof.
The arbitration tribunal shall consist of a single arbitrator mutually agreed by
the parties, or in the absence of such agreement within thirty (30) calendar
days from the first referral of the dispute to the AAA, designated by the AAA.
The place of arbitration shall be Chicago, Illinois, unless the parties shall
have agreed to another location within fifteen (15) calendar days from the first
referral of the dispute to the AAA. The arbitral award shall be final and
binding. The parties waive any right to appeal the arbitral award, to the extent
a right to appeal may be lawfully waived. Each party retains the right to seek
judicial assistance: (i) to compel arbitration; (ii) to obtain interim measures
of protection prior to or pending arbitration, (iii) to seek injunctive relief
in the courts of any jurisdiction as may be necessary and appropriate to protect
the unauthorized disclosure of its proprietary or confidential information, and
(iv) to enforce any decision of the arbitrator, including the final award. The
arbitration proceedings contemplated by this Section 11.12 shall be as
confidential and private as permitted by law. To that end, the parties shall not
disclose the existence, content or results of any proceedings conducted in
accordance with this Section, and materials submitted in connection with such
proceedings shall not be admissible in any other proceeding; provided, however,
that this confidentiality provision shall not prevent a petition to vacate or
enforce an arbitral award, and shall not bar disclosures required by law.
[Signature page follows]
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The parties have duly executed this Stock Purchase Agreement as of the date
first above written.
LOUDEYE TECHNOLOGIES, INC. VIDIPAX, INC.
By: /s/ Xxxxx Xxxxxx By: /s/ Xxx Xxxxxxx
------------------------------ ----------------------------------
Title: Chief Financial Officer Title: President
-------------------------- --------------------------------
STOCKHOLDER
/s/ Xxx Xxxxxxx
_________________________________
Xxxxx Xxxxxxx
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