Stock Purchase Agreement - MTI Technology Corp., Caldera Systems Inc. and The Canopy Group Inc.
STOCK PURCHASE AGREEMENT
AMONG
MTI TECHNOLOGY CORPORATION,
a Delaware corporation
CALDERA SYSTEMS, INC.,
a Utah corporation
AND
THE CANOPY GROUP, INC.,
a Utah corporation
Dated as of July 27, 1999
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TABLE OF CONTENTS
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1. DEFINITIONS ....................................................... 1
2. PURCHASE AND SALE OF COMPANY SHARES AND SHAREHOLDER SHARES ........ 4
2.1 Basic Transaction.......................................... 4
2.2 Purchase Price............................................. 4
2.3 The Closing................................................ 5
2.4 Deliveries at the Closing.................................. 5
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION ......... 5
3.1 Representations and Warranties of the Company.............. 5
3.2 Representations and Warranties of the Shareholder.......... 16
3.3 Representations and Warranties of the Buyer................ 17
4. PRE-CLOSING COVENANTS ............................................. 18
4.1 General ................................................... 18
4.2 Notices and Consents....................................... 18
4.3 Operation of Business...................................... 18
4.4 Preservation of Business................................... 18
4.5 Full Access................................................ 19
4.6 Notice of Developments..................................... 19
4.7 Exclusivity ............................................... 19
5. POST-CLOSING COVENANTS ............................................ 19
5.1 General ................................................... 19
5.2 Consultation............................................... 19
5.3 Records.................................................... 20
5.4 Observer Rights............................................ 20
5.5 Legends.................................................... 20
5.6 Distribution and License Agreement......................... 21
6. CONDITIONS TO OBLIGATION TO CLOSE.................................. 21
6.1 Conditions to Obligation of the Buyer...................... 21
6.2 Conditions to Obligation of the Company and Shareholder.... 22
7. REMEDIES FOR BREACHES OF THIS AGREEMENT............................ 23
7.1 Survival of Representations and Warranties................. 23
7.2 Indemnification Provisions for Benefit of the Buyer........ 23
7.3 Indemnification Provisions for Benefit of the Company and
Shareholder................................................ 24
7.4 Matters Involving Third Parties............................ 24
7.5 Determination of Adverse Consequences...................... 25
7.6 Recoupment Against Purchase Price.......................... 26
7.7 Other Indemnification Provisions........................... 26
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8. TAX MATTERS........................................................ 27
8.1 Certain Taxes.............................................. 27
9. TERMINATION........................................................ 27
9.1 Termination of Agreement................................... 27
9.2 Effect of Termination...................................... 27
10. MISCELLANEOUS ..................................................... 28
10.1 Press Releases and Public Announcements.................... 28
10.2 No Third-Party Beneficiaries............................... 28
10.3 Entire Agreement........................................... 28
10.4 Succession and Assignment.................................. 28
10.5 Counterparts............................................... 28
10.6 Headings................................................... 28
10.7 Notices.................................................... 28
10.8 Governing Law.............................................. 29
10.9 Amendments and Waivers..................................... 29
10.10 Severability............................................... 30
10.11 Expenses................................................... 30
10.12 Construction............................................... 30
10.13 Incorporation of Exhibits, Annexes, and Schedules.......... 30
10.14 Specific Performance....................................... 30
10.15 Submission to Jurisdiction................................. 30
10.16 Confidentiality............................................ 31
10.17 California Corporate State Securities Law.................. 31
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Exhibit "A" -- Historical Financial Statements
Exhibit "B" -- Form of Opinion of Counsel to the Company
Exhibit "C" -- Form of Investors Rights Agreement
Exhibit "D" -- Distribution and License Agreement
Annex I -- Disclosure Schedule of Exceptions to the Company and its Subsidiaries
Representations and Warranties Concerning the Transaction
Annex II -- Exceptions to the Shareholder's Representations and Warranties
Concerning the Transaction
Annex III -- Exceptions to the Buyer's Representations and Warranties Concerning
the Transaction
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STOCK PURCHASE AGREEMENT
Agreement entered into as of July 27, 1999, by and among MTI Technology
Corporation, a Delaware corporation (the "Buyer"), Caldera Systems, Inc., a Utah
corporation (the "Company"), and The Canopy Group, Inc., a Utah corporation (the
"Shareholder"). The Buyer, the Company and the Shareholder are referred to
collectively herein as the "Parties."
A. The Company has 50,000,000 shares of authorized common stock,
16,000,000 of which are issued and outstanding.
B. The Shareholder owns sixteen million (16,000,000) shares of the
outstanding capital stock of the Company.
C. Buyer desires to acquire an aggregate of 25% of the issued and
outstanding capital stock of the Company, calculated immediately following the
closing of the transactions contemplated hereunder.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1 . Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Applicable Rate" means the prime rate of interest publicly
announced from time to time by The Wall Street Journal plus 1% per annum.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any of the 5,333,333 shares of Common Stock,
no par value, of the Company that the Buyer is purchasing from the Company as
contemplated in this Agreement.
"Confidential Information" has the meaning set forth in Section
10.16 below.
"Deductible" has the meaning set forth in Section 7.2 below.
"Deferred Intercompany Transaction" has the meaning set forth in
Reg. Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 3.1
below.
"Distribution and License Agreement" shall mean the reciprocal
Distribution and License Agreement identified in Sections 5.6 and 6.1(k) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(l).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Excess Loss Account" has the meaning set forth in Reg. Section
1.1502-19.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 3.1(h)
below.
"Final Distribution" has the meaning set forth in Section 2.2 below.
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"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 7.4 below.
"Indemnifying Party" has the meaning set forth in Section 7.4 below.
"Informed Party" has the meaning set forth in Section 10.16 below.
"Informing Party" has the meaning set forth in Section 10.16
below.
"Initial Distribution" has the meaning set forth in Section 2.2
below.
"Intellectual Property" means (a) patent rights, patent
applications, and patents, and reissuances, continuations,
continuations-in-part, divisions, extensions, and reexaminations thereof, (b)
trademarks, service marks, and trade names, and applications to register
trademarks or service marks, and registrations of trademarks and service marks,
(c) copyrights, and all applications to register copyrights, and all
registrations of copyrights, and renewals thereof, (d) trade secrets and other
proprietary rights, and (e) any other intellectual property.
"Investors Rights Agreement" means an Investors Rights Agreement
between the Company, the Shareholder and Buyer substantially in the form of
Exhibit "C."
"Knowledge" means actual knowledge after reasonable investigation;
provided, however, that there is no obligation to conduct intellectual property
searches or other intellectual property investigations outside the Company and
its subsidiaries.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Millennial Dates" has the meaning set forth in Section 3.1(m)(vi)
below.
"Most Recent Balance Sheet" means the balance sheet at June 23,
1999.
"Multiemployer Plan" has the meaning set forth in ERISA Section
3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past or current custom and practice.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Products" has the meaning set forth in Section 3.1(m)(vi) below.
"Purchase Price" has the meaning set forth in Section 2.2 below.
"Reduction Notice" has the meaning set forth in Section 7.6(a)
below.
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"Reduction Disputing Notice" has the meaning set forth in Section
7.6(b) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation or other entity with respect to
which a specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors or similar governing body (e.g. managers).
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 7.4 below.
"Transactional Agreements" means this Agreement and the Investors
Rights Agreement.
"Year 2000 Compliant" has the meaning set forth in Section
3.1(m)(vi) below.
2. Purchase and Sale of Company Shares and Shareholder Shares.
2.1 Basic Transaction.
On and subject to the terms and conditions of this Agreement, the
Buyer agrees to purchase from the Company, and the Company agrees to sell to the
Buyer, an aggregate of 5,333,333 Company Shares for the consideration specified
below in this Section 2.
2.2 Purchase Price.
The Buyer agrees to pay to the Company an aggregate of Six Million
Dollars ($6,000,000) in consideration for the Company Shares (the "Purchase
Price"). The Purchase Price shall be delivered by the Buyer to the Company in
three distributions. The Buyer shall deliver
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Three Million Dollars ($3,000,000) to the Company at the Closing (hereinafter
the "Initial Distribution"). On the later of (a) the resolution of any pending
recoupment pursuant to Section 7.6 or (b) six (6) months after the Closing, the
Buyer shall deliver to the Company One Million Five Hundred Thousand Dollars
($1,500,000), plus interest accrued thereon at the Applicable Rate, and less any
amounts due Buyer under Section 7 (hereinafter the "Second Distribution"). On
the later of (y) the resolution of any pending recoupment pursuant to Section
7.6 or (z) twelve (12) months after the Closing, the Buyer shall deliver to the
Company One Million Five Hundred Thousand Dollars ($1,500,000), plus interest
accrued thereon at the Applicable Rate, and less any amounts due Buyer under
Section 7, to the Company (hereinafter the "Final Distribution").
2.3 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Morrison & Foerster LLP at 19900
MacArthur Boulevard, Irvine, California, commencing at 9:00 a.m. local time on
the later of August 6, 1999 or the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Buyer and the Company may mutually determine (the
"Closing Date").
2.4 Deliveries at the Closing.
At the Closing, (i) the Company will deliver to the Buyer the
various certificates, instruments, and documents referred to in Section 6.1
below, (ii) the Buyer will deliver to the Company the various certificates,
instruments, and documents referred to in Section 6.2 below, (iii) the Company
will deliver to the Buyer stock certificates representing all of the Company
Shares, and (iv) the Buyer will deliver to the Company the consideration
specified in Section 2.2 above.
3. Representations and Warranties Concerning the Transaction.
3.1 Representations and Warranties of the Company and its
Subsidiaries.
The Company represents and warrants to the Buyer that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3), except as set forth in the disclosure
schedule delivered by the Company to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"), attached hereto as Annex I. Nothing
in the Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception and the relevant facts with reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
(a) Organization, Qualification and Corporate Power. Each of
the Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good
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standing under the laws of the jurisdiction of its incorporation. Each of the
Company and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required (except for any such jurisdiction in which the failure to be so
qualified, individually or in the aggregate, would not have a material adverse
effect on the Company or any of its Subsidiaries). Each of the Company and its
Subsidiaries has full corporate power and authority and all licenses, permits,
and authorizations necessary to carry on the businesses in which it is engaged
and in which it presently proposes to engage and to own and use the properties
owned and used by it, except for any such licenses, permits and authorizations,
the failure of which to obtain, individually or in the aggregate, would not have
a material adverse effect on the Company or any of its Subsidiaries. The Company
has delivered to the Buyer correct and complete copies of the charter and bylaws
of each of the Company and its Subsidiaries (as amended to date). The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), the stock certificate
books, and the stock record books of each of the Company and its Subsidiaries
are correct and complete. None of the Company or any of its Subsidiaries is in
default under or in violation of any provision of its charter or bylaws.
(b) Authorization of Transaction. The Company has full
corporate power and authority to execute and deliver this Agreement, the
Investors Rights Agreement and the Distribution and License Agreement and to
perform its obligations hereunder and thereunder. Each of the Transactional
Agreements constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with their respective terms and conditions. Except for
filings that may be required by applicable state securities laws, the Company
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by the Transactional Agreements.
(c) Noncontravention. Neither the execution and the delivery
of the Transactional Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which any of the
Company and its Subsidiaries is subject or any provision of the charter or
bylaws of any of the Company and its Subsidiaries, or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any of the Company or any of its Subsidiaries is a
party or by which it is bound or to which any of their respective assets are
subject (or result in the imposition of any Security Interest upon any of their
respective assets).
(d) Brokers' Fees. The Company has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(e) Company Shares. The Company Shares have been duly and
validly authorized and at the Closing will be duly and validly issued,
nonassessable and fully paid, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights,
contracts,
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commitments, equities, claims, and demands, except as provided in the Investors
Rights Agreement.
(f) Title to Assets. The Company and its Subsidiaries have
good and marketable title to, or a valid leasehold or license interest in, or
other right to use, the properties and assets used by them, located on their
premises, or shown on the Most Recent Balance Sheet or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet. This subsection (f) shall not apply to Intellectual
Property or any infringement, misappropriation or violation of Intellectual
Property. Any warranty of the Company concerning Intellectual Property is
limited to subsections (m) and (p) below.
(g) Subsidiaries. Section 3.1(g) of the Disclosure Schedule
sets forth for each Subsidiary of the Company (i) its name and jurisdiction of
incorporation or organization, (ii) the number of shares of authorized capital
stock of each class of its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, and (iv) the number
of shares of its capital stock held in treasury. All of the issued and
outstanding shares of capital stock of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid, and nonassessable. The
Company or its Subsidiary holds of record and owns beneficially the number of
shares of each Subsidiary of the Company as set forth in Section 3.1(g) of the
Disclosure Schedule, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments
equities, claims, and demands. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the Company
and its Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of its Subsidiaries or that could require any Subsidiary of the
Company to issue, sell, or otherwise cause to become outstanding any of its own
capital stock. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any Subsidiary
of the Company. None of the Company and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary of the Company.
(h) Financial Statements. Attached hereto as Exhibit "A" are
the following financial statements (collectively the "Financial Statements"):
(i) unaudited consolidated monthly income statement for November 1998 through
April 1999, and the individual monthly statements for such quarter, for the
Company and its Subsidiaries; (ii) unaudited balance sheets as of June 23, 1999
for the Company and its Subsidiaries; and (iii) the Company's Business Plan
covering operations from November 1, 1999 through October 31, 2001. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, and except as to the projection and Business Plan, present
fairly the financial condition of the Company and its Subsidiaries as of such
dates and the results of operations of the Company and its Subsidiaries for such
periods, are correct and complete, and are consistent with the books and records
of the Company and its Subsidiaries (which books and records are correct and
complete), subject to normal year-end adjustments (which
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will not be material individually or in the aggregate) and lack footnotes and
other presentation items.
(i) Events Subsequent to Most Recent Balance Sheet. Since the
date of the Most Recent Balance Sheet, there has not been any adverse change in
the business, financial condition, operations, results of operations, or future
prospects of any of the Company and its Subsidiaries. Without limiting the
generality of the foregoing, since that date:
(i) none of the Company or its Subsidiaries has sold,
leased, transferred, or assigned any of its assets, tangible or
intangible, other than in the Ordinary Course of Business and in the
reasonable business judgment of the Company for a fair consideration;
(ii) none of the Company or its Subsidiaries has entered
into any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) either involving more than
$100,000 or outside the Ordinary Course of Business;
(iii) no party (including any of the Company and its
Subsidiaries) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $100,000 to which any
of the Company and its Subsidiaries is a party or by which any of them is
bound;
(iv) none of the Company or its Subsidiaries has imposed
any Security Interest upon any of its assets, tangible or intangible;
(v) none of the Company or its Subsidiaries has made any
capital expenditure (or series of related capital expenditures) either
involving more than $100,000 or outside the Ordinary Course of Business;
(vi) none of the Company or its Subsidiaries has made
any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than $100,000
or outside the Ordinary Course of Business;
(vii) none of the Company or its Subsidiaries has issued
any note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation either involving more than $250,000 singly or $1,000,000 in the
aggregate;
(viii) none of the Company or its Subsidiaries has
delayed or postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
(ix) none of the Company or its Subsidiaries has
cancelled, compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than $100,000 or
outside the Ordinary Course of Business;
(x) except as set forth in Section 3.1(i)(x) of the
Disclosure Schedule, none of the Company or its Subsidiaries has granted
any license or sublicense of any rights under or with respect to any
Intellectual Property;
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(xi) there has been no change made or authorized in the
charter or bylaws of any of the Company and its Subsidiaries;
(xii) none of the Company or its Subsidiaries has
experienced any material damage, destruction, or loss (whether or not
covered by insurance) to its property;
(xiii) none of the Company or its Subsidiaries has made
any loan to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of
Business;
(xiv) except as set forth on Section 3.1(i)(xiv) of the
Disclosure Schedule, none of the Company or its Subsidiaries has entered
into any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any existing such contract or agreement;
(xv) none of the Company or its Subsidiaries has granted
any increase in the base compensation of any of its directors, officers,
and employees outside the Ordinary Course of Business;
(xvi) none of the Company or its Subsidiaries has
adopted, amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the
benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(xvii) none of the Company or its Subsidiaries has made
any other change in employment terms for any of its directors, officers,
and employees outside the Ordinary Course of Business;
(xviii) none of the Company or its Subsidiaries has made
or pledged to make any charitable or other capital contribution outside
the Ordinary Course of Business;
(xix) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Company and its Subsidiaries; and
(xx) none of the Company or its Subsidiaries has
committed to any of the foregoing.
(j) Undisclosed Liabilities. None of the Company or its
Subsidiaries has any Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) and (ii) Liabilities which have arisen after the date of
the Most Recent Balance Sheet in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law).
(k) Legal Compliance. Each of the Company, its Subsidiaries,
and their respective predecessors and Affiliates, has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder)
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of federal, state, local, and foreign governments (and all agencies thereof),
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
(1) Tax Matters. The Company and its Subsidiaries have filed
all Tax Returns that each was required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by the Company and any of
its Subsidiaries (whether or not shown on any Tax Return) have been paid.
Neither of the Company nor any of its Subsidiaries currently is the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns that the Company or such Subsidiary is or
may be subject to taxation by that jurisdiction. There are no Security Interests
on any of the assets of the Company or any of its Subsidiaries imposed by any
tax authority.
(i) Each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
(ii) Neither the Company nor any director or officer (or
employee responsible for Tax matters) of any of the Company and its
Subsidiaries expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of any of the Company and its Subsidiaries
either (A) claimed or raised by any authority in writing or (B) as to
which any of the Shareholder, the Company and the directors and officers
(and employees responsible for Tax matters) of the Company and its
Subsidiaries has Knowledge based upon personal contact with any agent of
such authority.
(iii) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(iv) Neither of the Company nor any of its Subsidiaries
has filed a consent under Code Section 341(f) concerning collapsible
corporations. Neither of the Company nor any of its Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Sections 162(m) or 280G.
Neither of the Company nor any of its Subsidiaries has been a United
States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company and each of its Subsidiaries has disclosed
on its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662. Neither of the Company nor any of its
Subsidiaries is a party to any Tax allocation or sharing agreement.
Neither of the Company nor any of its Subsidiaries (A) has been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Shareholder) and
(B) does not have any Liability for the Taxes of any Person (other than
the Company or any of its Subsidiaries) under Reg. Section 1.1502-6 (or
any similar provision of state, local, or
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foreign law), as a transferee or successor, by contract, or otherwise. The
Company and each of its Subsidiaries is in compliance with the terms and
conditions of any applicable Tax exemptions, agreements or orders of any
government to which it may be subject or which it may have claimed, and
the transaction contemplated by this Agreement will not have any adverse
effect on such compliance.
(v) The unpaid Taxes of the Company and its Subsidiaries
(A) did not, as of the date of the Most Recent Balance Sheet, exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (B) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past
custom and practice of the Company and its Subsidiaries in filing their
Tax Returns.
(m) Intellectual Property. The Company, its Subsidiaries and
their products have not infringed and do not infringe the copyrights of any
third party. Neither the Company nor its Subsidiaries has misappropriated or is
misappropriating any trade secrets or proprietary confidential information of
any third party, and the products of the Company and its Subsidiaries do not
include or embody any trade secret or proprietary confidential information
misappropriated by the Company or its Subsidiaries from any Third Party. To the
Knowledge of the Company, each of the Company and its Subsidiaries and their
respective products have not infringed and do not infringe any patents,
trademarks, service marks, or trade names of any third party. Each item of
Intellectual Property owned by or licensed to the Company and its Subsidiaries
immediately prior to the Closing hereunder will be owned by or licensed to the
Company and the Subsidiary on identical terms and conditions immediately
subsequent to the Closing hereunder (i.e., identical to any applicable terms and
conditions immediately prior to the Closing).
(i) None of the Company or its Subsidiaries or their
directors and officers (and employees with responsibility for Intellectual
Property matters) has ever received any charge, complaint, claim, demand,
or notice alleging any such infringement, misappropriation, or violation
of Intellectual Property (including any claim that the Company and its
Subsidiaries must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of the Company and its
Subsidiaries and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and its
Subsidiaries, no third party has infringed, misappropriated, or otherwise
violated any Intellectual Property rights of the Company and its
Subsidiaries.
(ii) Section 3.1(m) of the Disclosure Schedule
identifies (a) each patent which has been issued or assigned to the
Company and its Subsidiaries, (b) each pending patent application which
has been filed by or for the Company and its Subsidiaries, (c) each
trademark or service mark registration issued or assigned to the Company
and its Subsidiaries, (d) each pending trademark or service mark
application which has been filed by or for the Company and its
Subsidiaries, (e) each copyright registration issued or assigned to the
Company and its Subsidiaries, (f) each pending copyright application which
has been filed by or for the Company and its Subsidiaries, and (g) each
license which the Company and its Subsidiaries has granted to any third
party with respect to any of the Company's Intellectual Property excluding
licenses to end users of Company products
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<PAGE> 16
granted in the Ordinary Course of Business. The Company has delivered to
the Buyer correct and complete copies of all such patents, registrations,
applications, and licenses (as amended to date). Section 3.1(m) of the
Disclosure Schedule also identifies each trade name and each unregistered
trademark or service mark used by any of the Company and its Subsidiaries
in connection with any of their businesses. With respect to each patent,
application, and registration (each an "item") identified in Section
3.1(m) of the Disclosure Schedule:
(A) the Company and its Subsidiaries possess all
right, title, and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the Knowledge of any of the Company, the directors and officers (and
employees with responsibility for Intellectual Property matters) of
the Company and its Subsidiaries, is threatened which challenges the
legality, validity, enforceability, use, or ownership of the item;
and
(D) none of the Company and its Subsidiaries has
ever agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the item.
(iii) Section 3.1(m) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and licenses to any of the Company and its Subsidiaries, excluding
licenses to commercially available software products (e.g., Windows,
Microsoft Office, etc.) used by any of the Company and its Subsidiaries as
an end user. The Company has delivered to the Buyer correct and complete
copies of all agreements applicable to such licenses (as amended to date).
The term "license" is intended to include "sublicense." With respect to
each such license and agreement required to be identified in Section
3.1(m) of the Disclosure Schedule, to the Knowledge of the Company:
(A) the license and agreement are legal, valid,
binding, enforceable, and in full force and effect;
(B) the license and agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
(C) no party to the agreement is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the agreement has repudiated any
provision thereof;
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<PAGE> 17
(F) the license is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, or
enforceability of the license or agreement.
(iv) To the Knowledge of any of the Company and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company and its Subsidiaries, neither the Company
nor any of its Subsidiaries will infringe, misappropriate, or otherwise
violate any Intellectual Property rights of third parties as a result of
the continued operation of its businesses as presently conducted and as
presently proposed to be conducted.
(v) To the Knowledge of the Company, the Year 2000
Readiness Disclosure as currently published by the Company on its web site
is accurate. A copy of this Year 2000 Readiness Disclosure is included in
Section 3.1(m) of the Disclosure Schedule. The Company makes no other
representation or warranty concerning any Year 2000 issue.
(vi) Notwithstanding anything in this Agreement to the
contrary, this subsection (m) and subsection (p) below are the sole,
exclusive and entire representation and warranty of the Company concerning
Intellectual Property or any infringement, misappropriation or violation
of Intellectual Property. No other representation or warranty in this
Agreement shall be construed as applying to Intellectual Property or any
infringement, misappropriation or violation of Intellectual Property.
(n) Tangible Assets. The Company and its Subsidiaries own or
lease all buildings, machinery, equipment, and other tangible assets necessary
for the conduct of their business as presently conducted and as presently
proposed to be conducted.
(o) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of any of the Company and its Subsidiaries outside
the Ordinary Course of Business.
(p) Litigation. Section 3.1(p) of the Disclosure Schedule sets
forth each instance in which any of the Company and its Subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the Knowledge of any of the Company, the
directors and officers (and employees with responsibility for litigation
matters) of the Company and its Subsidiaries, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 3.1(p) of the
Disclosure Schedule alone or in the aggregate could result in any adverse change
in the business, financial condition, operations, results of operations, or
future prospects of any of the Company and its Subsidiaries. None of the Company
the directors and officers (and employees with responsibility for litigation
matters) of the Company and its Subsidiaries has any reason to believe that any
such action, suit, proceeding, hearing, or investigation may be brought or
threatened against any of the Company and its Subsidiaries.
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<PAGE> 18
(q) Employees. To the Knowledge of the Company, the directors
and officers (and employees with responsibility for employment matters) of the
Company and its Subsidiaries, no executive, key employee, or group of employees
has any plans to terminate employment with any of the Company and its
Subsidiaries. None of the Company and its Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. None of the Company and its Subsidiaries has committed any
unfair labor practice. None of the directors and officers (and employees with
responsibility for employment matters) of the Company and its Subsidiaries has
any Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of any of the Company
and its Subsidiaries.
(r) Guaranties. None of the Company or its Subsidiaries is a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
(s) Certain Business Relationships with the Company and Its
Subsidiaries. None of the Company's Affiliates has been involved in any business
arrangement or relationship with any of the Company or its Subsidiaries within
the past twelve (12) months, and none of the Company's Affiliates owns any
asset, tangible or intangible, which is used in the business of any of the
Company or its Subsidiaries.
(t) Capitalization, Etc.
(i) The authorized capital stock of the Company consists
of 50,000,000 shares of common stock, no par value, 16,000,000 shares of
which have been issued and are outstanding, 4,000,000 shares of which have
been reserved for issuance pursuant to the Company's employee stock option
plan and 1,000,000 additional shares of which are contemplated to be
reserved for issuance pursuant to the Company's employee stock option
plan.
(ii) All of the Company's outstanding shares of Common
Stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, and (iii) have been issued in compliance with all
applicable securities laws and other applicable legal requirements.
(iii) Except as set forth in Section 3.1(t) of the
Disclosure Schedule, there are no:
(A) outstanding derivative securities;
(B) contracts, agreements or other arrangements
under which the Company is or may become obligated to sell or
otherwise issue any shares of its capital stock or any derivative
securities; or
(C) conditions or circumstances that would
directly or indirectly give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other
securities of the Company.
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<PAGE> 19
(iv) The Company has never repurchased, redeemed or
otherwise reacquired (and has not agreed, committed or offered (in writing
or otherwise) to reacquire) any shares of its capital stock or any
derivative securities.
(u) Real Property; Leases. The Company does not own any real
property or any interest in real property, except for the leaseholds created
under the real property leases identified in Section 3.1(u) of the Disclosure
Schedule. Section 3.1(u) of the Disclosure Schedule accurately and completely
describes the premises covered by said leases and the facilities located on such
premises. The Company enjoys peaceful and undisturbed possession of such
premises. All leases to which the Company is a party are valid, binding and
enforceable in accordance with their respective terms and are in full force and
effect; there are no material existing defaults by the Company or the other
party thereunder, and no event of default has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a material default thereunder.
(v) Environmental Matters. The Company is in compliance with
all applicable Environmental Health and Safety Requirements. The Company has not
received any notice or other communication (in writing or otherwise) that
alleges that the Company is not in compliance with any Environmental Health and
Safety Requirements and to the Company's Knowledge there are no circumstances
that are reasonably likely to prevent or interfere with the Company's compliance
with any Environmental Health and Safety Requirements in the future.
(w) Sale of Products; Performance of Services. To the
Knowledge of the Company, no distributor, customer, end-user, consumer or other
Person has ever asserted or threatened to assert any material claim against the
Company (i) under or based upon any warranty provided by or on behalf of the
Company, or (ii) relating to any product sold by the Company or any services
performed by the Company. No event has occurred, and no condition or
circumstance exists, that could (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for the assertion of any
such claim.
(x) Full Disclosure.
(i) None of the representations and warranties of the
Company in this Agreement (including the Disclosure Schedule) contains or
will contain as of the Closing Date any untrue statement of material fact
or omits or will omit as of the Closing Date to state any fact necessary
to make any of the representations, warranties or statements contained
therein not misleading. To the extent such representations permit omission
of items otherwise required to be discussed because they are not material
or do not or would not have Adverse Consequences, such omissions in the
aggregate will not as of the Closing Date and do not have Adverse
Consequences.
(ii) As of the date of this Agreement, the Company has
provided the Buyer with full and complete access to all of the Company's
records and other documents and data requested by it.
(iii) There is no fact within the Knowledge of the
Company or its directors, officers or employees (other than publicly known
facts or facts within the Knowledge of Buyer) that have Adverse
Consequences.
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<PAGE> 20
(iv) All of the written information set forth in the
Disclosure Schedule, and all other information regarding the Company and
its business, condition, assets, liabilities, operation, financial
performance, net income and prospects that has been furnished to Buyer or
any of its representatives by or on behalf of Company or any of the
Company's representatives, is accurate and complete in all material
respects. The Company acknowledges and agrees that although Buyer may
tender certain assistance to Company in the preparation of the Disclosure
Schedule, the provision of such assistance shall not be deemed to
constitute an admission by Buyer of the accuracy of the same or any basis
for any modification of any covenant, representation or warranty of
Company and Buyer contained in this Agreement.
(y) Customers and Suppliers. As of the date hereof, no
customer that individually accounted for more than five percent (5%) of the
Company's gross revenues during the 12-month period preceding the date hereof
has notified the Company that it will stop, or decrease the rate of, buying
services or products of the Company, or has at any time on or after December 31,
1998 decreased materially its purchase of the products of the Company. As of the
date hereof, no supplier of the Company has notified the Company that it will
stop, or decrease the rate of, supplying materials, products or services to the
Company. The Company has not knowingly breached any contract with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of the Company.
(z) Inventories. The inventories of the Company that are
reflected in the Financial Statements consist of items that are usable or
salable in the Ordinary Course of Business and do not include below-standard
quality, damaged, defective or obsolete items the value of which has not been
fully written down or with respect to which adequate reserves have not been
provided, adjusted for operations and transactions through the Closing in
accordance with the past custom and practice of the Company.
(aa) Financial Projections. The Company's business plan as
heretofore provided to Buyer has been prepared by the Company based on the
Company's good faith estimates (based on reasonable investigation) of the
projected financial performance of the Company following the Closing and certain
assumptions set forth therein, which assumptions the Company believes are
reasonable. The Company has concluded after reasonable investigation that the
assumptions and conclusions of the Company's business plan constitute reasonable
estimates of the Company's actual performance. However, such estimates and
projections are not guaranteed or warranted.
3.2 Representations and Warranties of the Shareholder.
The Shareholder represents and warrants to the Buyer that the
statements contained in this Section 3.2 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3.2) with respect to itself, except as
set forth in Annex II attached hereto.
(a) Authorization of Transaction. The Shareholder has full
power and authority to execute and deliver this Agreement and the Investors
Rights Agreement, and to perform its obligations hereunder and thereunder. Each
of the Transactional Agreements
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<PAGE> 21
constitutes the valid and legally binding obligation of the Shareholder,
enforceable in accordance with their respective terms and conditions. The
Shareholder need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by the Transactional
Agreements.
(b) Noncontravention. Neither the execution and the delivery
of the Transactional Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Shareholder is subject or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Shareholder is a party or by which it is bound or to which any of its assets
is subject.
(c) Company Representations. To Shareholder's Knowledge and
subject to the matters described in the Disclosure Schedule, the representations
and warranties of the Company in Section 3.1 are true and correct in all
material respects.
3.3 Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Company and the Shareholder
that the statements contained in this Section 3.3 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 3.3), except as set forth in
Annex III attached hereto.
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and the Investors Rights Agreement and to perform its obligations
hereunder and thereunder. This Agreement and the Investors Rights Agreement
constitute the valid and legally binding obligation of the Buyer, enforceable in
accordance with their respective terms and conditions. The Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement or the Investors Rights Agreement.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement or the Investors Rights Agreement, nor the consummation of the
transactions contemplated hereby and thereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which it is
bound or to which any of its assets is subject.
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<PAGE> 22
(d) Brokers' Fees. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Company could become
liable or obligated.
(e) Investment. The Buyer (i) understands that the Company
Shares have not been, and will not be, registered under the Securities Act, or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(ii) is a sophisticated investor with knowledge and experience in business and
financial matters, (iii) has received certain information concerning the Company
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in holding the Company Shares,
(iv) is able to bear the economic risk and lack of liquidity inherent in holding
the Company Shares, and (v) is an Accredited Investor who is acquiring the
Company Shares for investment purposes, for its own account, not as a nominee or
agent and not with a view to the resale or distribution of any part thereof, and
it has no present intention of selling, granting any participation in, or
otherwise distributing the same.
4. Pre-Closing Covenants.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
4.1 General.
Each of the Parties will use its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 6
below).
4.2 Notices and Consents.
The Company and its Subsidiaries will give any notices to third
parties and use its best efforts to obtain any third party consents, that the
Buyer may reasonably request in connection with the matters referred to in
Section 3.1 above. Each of the Parties will give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3.1(b), Section 3.2(a) and Section 3.3(b) above.
4.3 Operation of Business.
The Company and its Subsidiaries will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Company will not
(a) declare, set aside, or pay any dividend or make any distribution with
respect to its capital stock or redeem, purchase, or otherwise acquire any of
its capital stock, or (b) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 3.1(i) above.
4.4 Preservation of Business.
The Company and its Subsidiaries will keep their business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
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4.5 Full Access.
The Company and its Subsidiaries will permit representatives of the
Buyer to have fall access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company and its
Subsidiaries, to all premises, properties, personnel, books, records (including
Tax records), contracts, and documents of or pertaining to each of the Company
and its Subsidiaries. Information disclosed by the Company and its Subsidiaries
to the Buyer or learned by the Buyer or its representatives from the access
provided under this Section 4.5 shall be subject to Section 10.16.
4.6 Notice of Developments.
The Company and Shareholder will give prompt written notice to the
Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 3.1 and Section 3.2 above. Each Party
will give prompt written notice to the others of any material adverse
development causing a breach of any of his or its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 4.6, however, shall be deemed to amend or supplement Annex I, Annex II,
or Annex III or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
4.7 Exclusivity.
None of the Company or Shareholder will (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of control of a majority of any capital stock or other voting
securities, or any substantial portion of the assets, of the Company and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. Shareholder will not vote the Shareholder Shares in favor
of any such acquisition structured as a merger, consolidation, or share
exchange. The Company and Shareholder will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing. This Section 4.7 shall terminate 60 days from the date of this
Agreement.
5. Post-Closing Covenants.
5.1 General.
In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party may reasonably request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 7 below).
5.2 Consultation.
Buyer shall be entitled to reasonably consult with and advise
management of the Company on significant business issues, including management's
proposed annual operating plans, and management will meet with Buyer from time
to time at the Company's facilities at Buyer's expense at mutually agreeable
times for such consultation and advice and to review
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<PAGE> 24
progress in achieving said plans. The Company has no obligation to comply with
any advice or directions from Buyer. Information disclosed to Buyer pursuant to
this Section 5.2 will be subject to Section 10.16. The rights set forth in
this Section 5.2 shall terminate upon the earlier of the following: (i) if at
any time the Buyer ceases to own and control at least ten percent (10%) of the
issued and outstanding capital stock of the Company; (ii) the closing of any
initial public offering of the capital stock of the Company pursuant to an
effective registration statement under the Securities Act; or (iii) the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act.
5.3 Records.
Buyer may examine the books and records of the Company and inspect
its facilities and may request information at reasonable times and intervals
concerning the general status of the Company's financial condition and
operations, provided that access to confidential or proprietary information and
facilities need not be provided. Information disclosed to or learned by the
Buyer pursuant to this Section 5.3 is subject to Section 10.16. The rights set
forth in this Section 5.3 shall terminate upon the earlier of the following: (i)
if at any time the Buyer ceases to own and control at least ten percent (10%)
of the issued and outstanding capital stock of the Company; (ii) the closing of
an initial public offering of the capital stock of the Company pursuant to an
effective registration statement under the Securities Act; or (iii) the date the
Company becomes subject to the reporting requirements of the Securities Exchange
Act.
5.4 Observer Rights
If Buyer is not represented on the Company's Board of Directors by
an affiliate of Buyer, the Company shall give a representative of Buyer copies
of all notices, minutes, consents and other material that the Company provides
to its directors and the Company shall invite a representative of Buyer to
attend all meetings of the Board of Directors in a non-voting observer capacity,
except that Buyer may be excluded from access to any material or meeting or
portion thereof if the Company believes, in good faith, that such exclusion is
reasonably necessary to preserve the attorney-client privilege, to protect
highly confidential or proprietary information, to protect the interests of the
Company or for other similar reasons. Upon reasonable notice and at a scheduled
meeting of the Board of Directors or such other time, if any, as the Board of
Directors may determine in its sole discretion, such representative may address,
subject to reasonable limitations, the Board of Directors with respect to
Buyer's concerns regarding significant business issues facing the Company.
Information disclosed to or learned by the Buyer pursuant to this Section 5.4 is
subject to Section 10.16. The rights set forth in this Section 5.4 shall
terminate upon the earlier of the following: (i) if at any time the Buyer ceases
to own and control at least ten percent (10%) of the issued and outstanding
capital stock of the Company; (ii) the closing of an initial public offering of
the capital stock of the Company pursuant to an effective registration statement
under the Securities Act; or (iii) the date the Company becomes subject to the
reporting requirements of the Securities Exchange Act.
5.5 Legends.
To the extent applicable, each certificate or other document
evidencing any of the Company Shares shall be endorsed with the legend set forth
below, and Buyer covenants that, except for the transfer of shares pursuant to
Rule 144, the removal of the legend set forth in this
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Section 5.5 pursuant to Rule 144, the transfer or the distributions to any
Affiliate, and to the extent such restrictions are waived by the Company, Buyer
shall not transfer the shares represented by any such certificate without
complying with the restrictions on transfer described in the legends endorsed on
such certificate:
"THE SECURITIES REPRESENTED BY TIES CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS
PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION AND QUALIFICATION UNDER FEDERAL AND STATE SECURITIES
LAWS IS NOT REQUIRED."
5.6 Distribution and License Agreement.
The Company and Buyer shall enter into a reciprocal Distribution and
License Agreement in the form attached hereto as Exhibit "D".
5.7 Further Actions. The Company shall, within 90 days after the
Closing Date, provide to Buyer evidence of the Company's ownership of its
Subsidiaries to Buyer's reasonable satisfaction.
6. Conditions to Obligation to Close.
6.1 Conditions to Obligation of the Buyer.
The obligation of the Buyer to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(a) each of the representations and warranties set forth in
Sections 3.1 and 3.2 above that is qualified by materiality shall be true and
correct at and as of the Closing Date, and each of the representations and
warranties set forth in Sections 3.1 and 3.2 above that is not so qualified
shall be true and correct in all material respects at and as of the Closing
Date;
(b) the Company and Shareholder shall have performed and
complied with all of their covenants hereunder in all material respects through
the Closing;
(c) the Company and its Subsidiaries shall have procured all
of the third party consents specified in Section 3.1 above;
(d) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) affect adversely the right of the Buyer
to own the Company Shares, or (iv) affect adversely the right of any of the
Company and its Subsidiaries to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
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(e) the Company Shares that are being purchased by the Buyer,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein, will be duly and validly issued,
nonassessable and free from rights of first refusal or other restrictions.
(f) the Company shall have delivered to the Buyer a
certificate to the effect that the conditions specified above in Section
6.1(a)-(e) are satisfied in all respects;
(g) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, including the Company's Subsidiaries, shall have
received all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
3.3(b) above;
(h) the Buyer shall have received from counsel to the Company
an opinion in form and substance as set forth in Exhibit "B" attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(i) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to consummate the
transactions contemplated hereby;
(j) the Company and Shareholder shall have entered into and
delivered an Investors Rights Agreement substantially in the form attached as
Exhibit "C";
(k) the Company and the Buyer shall have entered into and
delivered the Distribution and License Agreement substantially in the form
attached as Exhibit "D"; and
(l) all actions to be taken by the Company and Shareholder in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Buyer.
The Buyer may waive any condition specified in this Section 6.1.
6.2 Conditions to Obligation of the Company and Shareholder.
The obligation of the Company and Shareholder to consummate the
transactions to be performed by them in connection with the Closing is subject
to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section
3.3 above shall be true and correct in all material respects at and as of the
Closing Date;
(b) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
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(d) the Buyer shall have delivered to the Company a
certificate to the effect that each of the conditions specified above in Section
6.2(a)-(c) is satisfied in all respects;
(e) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, including the Company's Subsidiaries, shall have
received all other authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
3.3(b) above; and
(f) the Company and the Buyer shall have entered into and
delivered the Distribution and License Agreement substantially in the form
attached as Exhibit "D";
(g) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company and Shareholder.
The Company and Shareholder may waive any condition specified in
this Section 6.2.
7. Remedies for Breaches of this Agreement.
7.1 Survival of Representations and Warranties.
All of the representations and warranties of the Parties contained in
Sections 3.1(a) through (e) and 3.3 of this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect forever thereafter. The representations and
warranties of the Company contained in Section 3.1(1) (with respect to taxes)
shall survive the Closing hereunder and shall continue in full force and effect
thereafter, as they relate to any taxable year of the Company, until sixty (60)
days after the expiration of the statute of limitations applicable to the making
of adjustments or assessments by any taxing authority as the same may be
extended by the Company. All of the other representations, warranties and
covenants of the Parties contained in this Agreement shall survive the Closing
hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty or covenant at the time of Closing) and
continue in full force and effect thereafter until two years from the Closing
Date. Except as otherwise provided in the first sentence of this Section 7.1,
after said survival period, all representations and warranties shall terminate,
and no party shall have any Liability or obligation with respect to any
representation or warranty under this Agreement, provided that once notice of
any claim has been timely given, additional related claims arising out of
substantially the same circumstances may be made at any time prior to the
resolution of such claim (by means of a final, non-appealable judgment of a
court of competent jurisdiction, a binding arbitration decision or a settlement
approved by the parties involved) even if such resolution occurs after the
expiration or termination date, if any, prescribed for such representation or
warranty in this Section 7.1.
7.2 Indemnification Provisions for Benefit of the Buyer.
(a) In the event that (i) the Company breaches any of its
representations, warranties, and covenants contained herein, then the Company
agrees to indemnify the Buyer from and against any Adverse Consequences the
Buyer may suffer through and after the date of the claim
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for indemnification (including any Adverse Consequences the Buyer may suffer
after the end of any applicable survival period) resulting from, arising out of
or caused by such breach by the Company of any of its representations,
warranties or covenants made herein, or (ii) the Shareholder breaches any of its
representations, warranties, and covenants contained herein, then the
Shareholder agrees to indemnify the Buyer from and against any Adverse
Consequences the Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may suffer after
the end of any applicable survival period) resulting from, arising out of or
caused by such breach by the Shareholder of any of its representations,
warranties or covenants made herein.
(b) In the event that a third party asserts any claim against
the Company alleging that the Company has violated the Intellectual Property
rights of such third party based on acts that occurred during the two year
period following the Closing Date, then the Company agrees to indemnify the
Buyer from and against any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of or caused by such third party claim.
(c) Notwithstanding the foregoing provisions of this Section
7.2, no indemnification shall be payable by the Company or the Shareholder with
respect to any claim for breach of any representation, warranty or covenant made
herein or claim by any third party until the total of such claims for
indemnification shall exceed US$75,000 (the "Deductible"), in which event the
Buyer shall be entitled to recover the amount of such claims in excess of the
Deductible; and provided, further, that the aggregate liability of either the
Company or the Shareholder for indemnification payable hereunder shall not
exceed the amount of (i) the Purchase Price, plus (ii) reasonable attorneys'
fees and expenses incurred by the Buyer in seeking indemnification under this
Section 7.
7.3 Indemnification Provisions for Benefit of the Company and
Shareholder.
In the event the Buyer breaches any of its representations,
warranties, and covenants contained herein, then the Buyer agrees to indemnify
each of the Company and Shareholder from and against the entirety of any Adverse
Consequences they may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences they may suffer after the
end of any applicable survival period) resulting from, arising out of or caused
by the breach; provided, however, that no indemnification shall be payable by
the Buyer with respect to any claim for breach of any representation, warranty
or covenant made herein until the total of such claims for indemnification shall
exceed US$75,000, in which event the Company and the Shareholder, as the case
may be, shall be entitled to recover the amount of such claims in excess of the
Deductible; and provided, further, that the aggregate liability of the Buyer for
indemnification payable hereunder shall not exceed $1 million, except for any
breach of Buyer's obligation to pay the Purchase Price under Section 2.
7.4 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 7, then the
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Indemnified Party shall promptly notify each Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, or caused by the Third Party Claim, (ii) the Indemnifying
Party provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial resources
to defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (iii) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (iv) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Party, and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.4(b) above, (A)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 7.4(b) above
is or becomes unsatisfied, however, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (ii) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (iii) the Indemnifying Parties
will remain responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of or caused by the Third Party Claim to the
fullest extent provided in this Section 7.
7.5 Determination of Adverse Consequences.
The Parties shall take into account the time cost of money (using
the Applicable Rate as the discount rate) in determining Adverse Consequences
for purposes of this Section 7.
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7.6 Recoupment Against Purchase Price.
(a) The Buyer shall have the option of recouping all or any
part of any Adverse Consequences it may suffer (in lieu of seeking any
indemnification to which it is entitled under this Section 7) at any time or
from time to time by providing the Company with at least thirty (30) days'
notice (a "Reduction Notice") of Buyer's intent to reduce the amount of Purchase
Price due to the Company in the Second Distribution and the Final Distribution,
together with all documentation and information reasonably necessary to
substantiate Buyer's Adverse Consequences and Buyer's claim for satisfaction of
such Adverse Consequences.
(b) On or prior to the thirtieth (30th) day following the
delivery of a Reduction Notice, the Company may deliver to Buyer a written
statement (a "Reduction Disputing Notice") setting forth with reasonable
specificity any disagreement with any of the amounts contained in the Reduction
Notice which could affect the necessity or amount of any reduction of the
portion of the Purchase Price due to the Company in the Second Distribution and
the Final Distribution. The sole basis for any disagreement with a Reduction
Notice shall be either (i) that the Adverse Consequences claimed by Buyer do not
give rise to a claim for indemnification under this Section 7 or (ii) that there
has been an arithmetical error in adding the Adverse Consequences. If the
Company does not submit a Reduction Disputing Notice on or prior to such
thirtieth (30th) day, then the portion of the Purchase Price due to the Company
in the Second Distribution and the Final Distribution shall be deemed to have
been reduced for purposes of this Agreement in the amount set forth in the
Reduction Notice. If the Company does submit a Reduction Disputing Notice on or
prior to such thirtieth (30th) day, any amounts contained in such Reduction
Notice which are not disputed by the Reduction Disputing Notice shall be deemed
to have been finally determined for purposes of this Agreement.
(c) For a period of sixty (60) days, Buyer and the Company
shall attempt to resolve in good faith any dispute or disagreement between a
Reduction Notice and a Reduction Disputing Notice. Amounts contained on a
Reduction Notice and resolved by such attempts shall be deemed to have been
finally determined for purposes of this Agreement. After such sixty (60) day
period, either party may commence legal proceedings to resolve any such dispute.
7.7 Exclusive Remedy for Non-Intentional Violations.
The foregoing indemnification provisions shall be the sole and
exclusive remedy for claims relating to any breach of the representations,
warranties and covenants made herein by the respective Parties with respect to
the transactions contemplated herein. Notwithstanding the foregoing limitation,
in the case of any intentional or knowing breach of the representations,
warranties or covenants made by the respective Parties herein or intentionally
fraudulent or tortious conduct ("Intentional Violations"), the indemnification
provisions herein are in addition to, and not in derogation of, any statutory,
equitable or common law remedy (including without limitation any such remedy
arising under Environmental, Health and Safety Requirements) any Party may have
with respect to the Buyer, the Company, its Subsidiaries or the transactions
contemplated by this Agreement.
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8. Tax Matters.
8.1 Certain Taxes.
All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with the sale of the Company Shares under this Agreement (including
any gains tax or transfer tax imposed in state or subdivision), shall be paid by
the Company when due, and the Company will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Buyer will, and will cause its affiliates to, join
in the execution of any such Tax Returns and other documentation.
9. Termination.
9.1 Termination of Agreement.
Certain of the Parties may terminate this Agreement as provided
below:
(a) the Buyer and the Company may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company prior to the Closing if the Buyer is not satisfied with
the results of its continuing business, legal, environmental, and accounting due
diligence regarding the Company and its Subsidiaries;
(c) the Buyer may terminate this Agreement by giving written
notice to the Company at any time prior to the Closing (i) in the event any of
the Company or the Shareholder has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, the
Buyer has notified the Company or the Shareholder of the breach, and the breach
has continued without cure for a period of 30 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before August 31, 1999, by
reason of the failure of any condition precedent under Section 6.1 hereof
(unless the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(d) the Company may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (i) in the event the Buyer
has breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, the Company has notified the Buyer of
the breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (ii) if the Closing shall not have occurred on or
before August 31, 1999, by reason of the failure of any condition precedent
under Section 6.2 hereof (unless the failure results primarily from any of the
Company or the Shareholder themselves breaching any representation, warranty, or
covenant contained in this Agreement).
9.2 Effect of Termination.
If any Party terminates this Agreement pursuant to Section 9.1
above, all rights and obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach).
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10. Miscellaneous.
10.1 Press Releases and Public Announcements.
No Party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the Buyer and the Company; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Parties prior to making the
disclosure).
10.2 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and permitted
assigns.
10.3 Entire Agreement.
This Agreement (including the documents referred to herein)
constitutes the entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they related in any way to the subject matter hereof.
10.4 Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the Buyer, the
Company and the Shareholder; provided, however, that the Buyer may (a) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, (b) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder), and
(c) assign any or all of its rights and interests hereunder in connection with
any merger or sale of all or substantially all of its assets or capital stock.
After the Closing and without any prior approval of any other Party, this
Agreement may be assigned by any Party to any successor to its business or to
any purchaser or transferee of substantially all of its assets; provided,
however, that such assignment shall not be deemed to relieve the assigning Party
of any of its obligations hereunder.
10.5 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
10.6 Headings.
The Section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
10.7 Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed
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<PAGE> 33
duly given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the
intended recipient as set forth below:
If to the Company: Copy to:
Caldera Systems, Inc. Parsons, Behle & Latimer
240 West Center Street 1 South Main Street
Orem, Utah 84057 Suite 1800
Attn: Ransom Love, President & Salt Lake City, Utah 84145
Chief Executive Officer Attn: Brent Christensen, Esq.
If to the Shareholder: Copy to:
The Canopy Group, Inc. Parsons, Behle & Latimer
240 West Center Street 1 South Main Street
Orem, Utah 84057 Suite 1800
Attn: Ray Noorda and Ralph Yarro Salt Lake City, Utah 84145
Attn: Brent Christensen, Esq.
If to the Buyer: Copy to:
MTI Technology Corporation Morrison & Foerster LLP
4905 East La Palma Avenue 19900 MacArthur Boulevard
Anaheim, California 92807 Irvine, California 92612
Attn: Chief Financial Officer Attn: Tamara Powell Tate, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
10.8 Governing Law.
This agreement is to be construed in accordance with and governed by
the internal laws of the State of California (as permitted by Section 1646.5 of
the California Civil Code or any similar successor provision) without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of California to the
rights and duties of the parties.
10.9 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Buyer, the company and the
Shareholder. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
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10.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
10.11 Expenses.
Each of the Parties will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
10.12 Construction.
The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
10.13 Incorporation of Exhibits, Annexes, and Schedules.
The Exhibits, Annexes, and Schedules identified in this Agreement
are incorporated herein by reference and made a part hereof. However, the
Distribution and License Agreement shall be deemed a separate and complete
agreement and shall exist and be governed independent of this Agreement.
10.14 Specific Performance.
Each of the Parties acknowledges and agrees that the other Parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the Parties agrees that the other Parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in Section 10.15 below), in addition to
any other remedy to which they may be entitled, at law or in equity.
10.15 Submission to Jurisdiction.
Each of the Parties submits to the jurisdiction of any state or
federal court sitting in Orange County, California, in any action or proceeding
arising out of or relating to this Agreement
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and agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any action
or proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7 above.
10.16 Confidentiality.
Each of the Parties and their respective representatives and
employees shall keep strictly confidential and shall not disclose or use for any
purpose other than this Agreement, any and all confidential and proprietary
information ("Confidential Information") disclosed by any of the Parties (an
"Informing Party") to any other Party (an "Informed Party") or learned by the
Informed Party from the premises, properties, personnel, books, records
(including Tax records), contracts, and documents to which it is given access.
Each Party shall limit disclosure of Confidential Information to its
representatives, financial advisors and employees on a need to know basis. The
term "Confidential Information" does not include information which (i) is or
becomes generally available to the public other than as a result of a disclosure
by the Informed Party or its representatives, (ii) was available to the Informed
Party on a non-confidential basis prior to its disclosure to the Informed Party
by the Informing Party or its representatives, or (iii) becomes available to the
Informed Party on a non-confidential basis from a source other than the
Informing Party or its representatives, provided, however, that such source is
not bound by a confidentiality agreement with the Informing Party or its
representatives. Each of the Parties shall ensure that its representatives and
employees comply with this Section 10.16.
10.17 California Corporate State Securities Law.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA OR UTAH AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT
OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION
IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
MTI TECHNOLOGY CORPORATION, a Delaware
corporation
By: /s/ DALE R. BORD
------------------------------------
Title: Chief Financial Officer
CALDERA SYSTEMS, INC., a Utah corporation
By: /s/ RANSOM H. LOVE
-------------------------------------
Title: President & CEO
THE CANOPY GROUP, INC., a Utah corporation
By: /s/ RALPH YARRO
-------------------------------------
Title: President & CEO
32