\n8. TAX MATTERS……………………………………………….. 27
\n 8.1 Certain Taxes………………………………………. 27<\/p>\n9. TERMINATION……………………………………………….. 27
\n 9.1 Termination of Agreement…………………………….. 27
\n 9.2 Effect of Termination……………………………….. 27<\/p>\n
10. MISCELLANEOUS …………………………………………….. 28
\n 10.1 Press Releases and Public Announcements……………….. 28
\n 10.2 No Third-Party Beneficiaries…………………………. 28
\n 10.3 Entire Agreement……………………………………. 28
\n 10.4 Succession and Assignment……………………………. 28
\n 10.5 Counterparts……………………………………….. 28
\n 10.6 Headings…………………………………………… 28
\n 10.7 Notices……………………………………………. 28
\n 10.8 Governing Law………………………………………. 29
\n 10.9 Amendments and Waivers………………………………. 29
\n 10.10 Severability……………………………………….. 30
\n 10.11 Expenses…………………………………………… 30
\n 10.12 Construction……………………………………….. 30
\n 10.13 Incorporation of Exhibits, Annexes, and Schedules………. 30
\n 10.14 Specific Performance………………………………… 30
\n 10.15 Submission to Jurisdiction…………………………… 30
\n 10.16 Confidentiality…………………………………….. 31
\n 10.17 California Corporate State Securities Law……………… 31
\n<\/c><\/s><\/caption>\n<\/table>\n
ii
\n 4
\nExhibit ‘A’ — Historical Financial Statements<\/p>\n
Exhibit ‘B’ — Form of Opinion of Counsel to the Company<\/p>\n
Exhibit ‘C’ — Form of Investors Rights Agreement<\/p>\n
Exhibit ‘D’ — Distribution and License Agreement<\/p>\n
Annex I — Disclosure Schedule of Exceptions to the Company and its Subsidiaries
\n Representations and Warranties Concerning the Transaction<\/p>\n
Annex II — Exceptions to the Shareholder’s Representations and Warranties
\n Concerning the Transaction<\/p>\n
Annex III — Exceptions to the Buyer’s Representations and Warranties Concerning
\n the Transaction<\/p>\n
iii
\n 5
\n STOCK PURCHASE AGREEMENT<\/p>\n
Agreement entered into as of July 27, 1999, by and among MTI Technology
\nCorporation, a Delaware corporation (the ‘Buyer’), Caldera Systems, Inc., a Utah
\ncorporation (the ‘Company’), and The Canopy Group, Inc., a Utah corporation (the
\n‘Shareholder’). The Buyer, the Company and the Shareholder are referred to
\ncollectively herein as the ‘Parties.’<\/p>\n
A. The Company has 50,000,000 shares of authorized common stock,
\n16,000,000 of which are issued and outstanding.<\/p>\n
B. The Shareholder owns sixteen million (16,000,000) shares of the
\noutstanding capital stock of the Company.<\/p>\n
C. Buyer desires to acquire an aggregate of 25% of the issued and
\noutstanding capital stock of the Company, calculated immediately following the
\nclosing of the transactions contemplated hereunder.<\/p>\n
Now, therefore, in consideration of the premises and the mutual promises
\nherein made, and in consideration of the representations, warranties, and
\ncovenants herein contained, the Parties agree as follows.<\/p>\n
1 . Definitions.<\/p>\n
‘Accredited Investor’ has the meaning set forth in Regulation D
\npromulgated under the Securities Act.<\/p>\n
‘Adverse Consequences’ means all actions, suits, proceedings,
\nhearings, investigations, charges, complaints, claims, demands, injunctions,
\njudgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
\namounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
\nexpenses, and fees, including court costs and reasonable attorneys’ fees and
\nexpenses.<\/p>\n
‘Affiliate’ has the meaning set forth in Rule 12b-2 of the
\nregulations promulgated under the Securities Exchange Act.<\/p>\n
‘Affiliated Group’ means any affiliated group within the meaning of
\nCode Section 1504(a) or any similar group defined under a similar provision of
\nstate, local or foreign law.<\/p>\n
‘Applicable Rate’ means the prime rate of interest publicly
\nannounced from time to time by The Wall Street Journal plus 1% per annum.<\/p>\n
‘Basis’ means any past or present fact, situation, circumstance,
\nstatus, condition, activity, practice, plan, occurrence, event, incident,
\naction, failure to act, or transaction that forms or could form the basis for
\nany specified consequence.<\/p>\n
‘Buyer’ has the meaning set forth in the preface above.<\/p>\n
‘Closing’ has the meaning set forth in Section 2.3 below.<\/p>\n
‘Closing Date’ has the meaning set forth in Section 2.3 below.<\/p>\n
1
\n 6
\n ‘Code’ means the Internal Revenue Code of 1986, as amended.<\/p>\n
‘Company’ has the meaning set forth in the preface above.<\/p>\n
‘Company Share’ means any of the 5,333,333 shares of Common Stock,
\nno par value, of the Company that the Buyer is purchasing from the Company as
\ncontemplated in this Agreement.<\/p>\n
‘Confidential Information’ has the meaning set forth in Section
\n10.16 below.<\/p>\n
‘Deductible’ has the meaning set forth in Section 7.2 below.<\/p>\n
‘Deferred Intercompany Transaction’ has the meaning set forth in
\nReg. Section 1.1502-13.<\/p>\n
‘Disclosure Schedule’ has the meaning set forth in Section 3.1
\nbelow.<\/p>\n
‘Distribution and License Agreement’ shall mean the reciprocal
\nDistribution and License Agreement identified in Sections 5.6 and 6.1(k) below.<\/p>\n
‘Employee Benefit Plan’ means any (a) nonqualified deferred
\ncompensation or retirement plan or arrangement which is an Employee Pension
\nBenefit Plan, (b) qualified defined contribution retirement plan or arrangement
\nwhich is an Employee Pension Benefit Plan, (c) qualified defined benefit
\nretirement plan or arrangement which is an Employee Pension Benefit Plan
\n(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
\nmaterial fringe benefit plan or program.<\/p>\n
‘Employee Pension Benefit Plan’ has the meaning set forth in ERISA
\nSection 3(2).<\/p>\n
‘Employee Welfare Benefit Plan’ has the meaning set forth in ERISA
\nSection 3(l).<\/p>\n
‘Environmental, Health, and Safety Requirements’ shall mean all
\nfederal, state, local and foreign statutes, regulations, ordinances and other
\nprovisions having the force or effect of law, all judicial and administrative
\norders and determinations, all contractual obligations and all common law
\nconcerning public health and safety, worker health and safety, and pollution or
\nprotection of the environment, including without limitation all those relating
\nto the presence, use, production, generation, handling, transportation,
\ntreatment, storage, disposal, distribution, labeling, testing, processing,
\ndischarge, release, threatened release, control, or cleanup of any hazardous
\nmaterials, substances or wastes, chemical substances or mixtures, pesticides,
\npollutants, contaminants, toxic chemicals, petroleum products or byproducts,
\nasbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
\nnow or hereafter in effect.<\/p>\n
‘ERISA’ means the Employee Retirement Income Security Act of 1974,
\nas amended.<\/p>\n
‘Excess Loss Account’ has the meaning set forth in Reg. Section
\n1.1502-19.<\/p>\n
‘Fiduciary’ has the meaning set forth in ERISA Section 3(21).<\/p>\n
‘Financial Statement’ has the meaning set forth in Section 3.1(h)
\nbelow.<\/p>\n
‘Final Distribution’ has the meaning set forth in Section 2.2 below.<\/p>\n
2
\n 7
\n ‘GAAP’ means United States generally accepted accounting principles
\nas in effect from time to time.<\/p>\n
‘Hart-Scott-Rodino Act’ means the Hart-Scott-Rodino Antitrust
\nImprovements Act of 1976, as amended.<\/p>\n
‘Indemnified Party’ has the meaning set forth in Section 7.4 below.<\/p>\n
‘Indemnifying Party’ has the meaning set forth in Section 7.4 below.<\/p>\n
‘Informed Party’ has the meaning set forth in Section 10.16 below.<\/p>\n
‘Informing Party’ has the meaning set forth in Section 10.16
\nbelow.<\/p>\n
‘Initial Distribution’ has the meaning set forth in Section 2.2
\nbelow.<\/p>\n
‘Intellectual Property’ means (a) patent rights, patent
\napplications, and patents, and reissuances, continuations,
\ncontinuations-in-part, divisions, extensions, and reexaminations thereof, (b)
\ntrademarks, service marks, and trade names, and applications to register
\ntrademarks or service marks, and registrations of trademarks and service marks,
\n(c) copyrights, and all applications to register copyrights, and all
\nregistrations of copyrights, and renewals thereof, (d) trade secrets and other
\nproprietary rights, and (e) any other intellectual property.<\/p>\n
‘Investors Rights Agreement’ means an Investors Rights Agreement
\nbetween the Company, the Shareholder and Buyer substantially in the form of
\nExhibit ‘C.’<\/p>\n
‘Knowledge’ means actual knowledge after reasonable investigation;
\nprovided, however, that there is no obligation to conduct intellectual property
\nsearches or other intellectual property investigations outside the Company and
\nits subsidiaries.<\/p>\n
‘Liability’ means any liability (whether known or unknown, whether
\nasserted or unasserted, whether absolute or contingent, whether accrued or
\nunaccrued, whether liquidated or unliquidated, and whether due or to become
\ndue), including any liability for Taxes.<\/p>\n
‘Millennial Dates’ has the meaning set forth in Section 3.1(m)(vi)
\nbelow.<\/p>\n
‘Most Recent Balance Sheet’ means the balance sheet at June 23,
\n1999.<\/p>\n
‘Multiemployer Plan’ has the meaning set forth in ERISA Section
\n3(37).<\/p>\n
‘Ordinary Course of Business’ means the ordinary course of business
\nconsistent with past or current custom and practice.<\/p>\n
‘Party’ has the meaning set forth in the preface above.<\/p>\n
‘PBGC’ means the Pension Benefit Guaranty Corporation.<\/p>\n
‘Person’ means an individual, a partnership, a corporation, an
\nassociation, a joint stock company, a trust, a joint venture, an unincorporated
\norganization, or a governmental entity (or any department, agency, or political
\nsubdivision thereof).<\/p>\n
‘Products’ has the meaning set forth in Section 3.1(m)(vi) below.<\/p>\n
‘Purchase Price’ has the meaning set forth in Section 2.2 below.<\/p>\n
‘Reduction Notice’ has the meaning set forth in Section 7.6(a)
\nbelow.<\/p>\n
3
\n 8
\n ‘Reduction Disputing Notice’ has the meaning set forth in Section
\n7.6(b) below.<\/p>\n
‘Reportable Event’ has the meaning set forth in ERISA Section 4043.<\/p>\n
‘Securities Act’ means the Securities Act of 1933, as amended.<\/p>\n
‘Securities Exchange Act’ means the Securities Exchange Act of 1934,
\nas amended.<\/p>\n
‘Security Interest’ means any mortgage, pledge, lien, encumbrance,
\ncharge, or other security interest, other than (a) mechanic’s, materialmen’s,
\nand similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
\nthe taxpayer is contesting in good faith through appropriate proceedings, (c)
\npurchase money liens and liens securing rental payments under capital lease
\narrangements, and (d) other liens arising in the Ordinary Course of Business and
\nnot incurred in connection with the borrowing of money.<\/p>\n
‘Subsidiary’ means any corporation or other entity with respect to
\nwhich a specified Person (or a Subsidiary thereof) owns a majority of the common
\nstock or has the power to vote or direct the voting of sufficient securities to
\nelect a majority of the directors or similar governing body (e.g. managers).<\/p>\n
‘Tax’ means any federal, state, local, or foreign income, gross
\nreceipts, license, payroll, employment, excise, severance, stamp, occupation,
\npremium, windfall profits, environmental (including taxes under Code Section
\n59A), customs duties, capital stock, franchise, profits, withholding, social
\nsecurity (or similar), unemployment, disability, real property, personal
\nproperty, sales, use, transfer, registration, value added, alternative or add-on
\nminimum, estimated, or other tax of any kind whatsoever, including any interest,
\npenalty, or addition thereto, whether disputed or not.<\/p>\n
‘Tax Return’ means any return, declaration, report, claim for
\nrefund, or information return or statement relating to Taxes, including any
\nschedule or attachment thereto, and including any amendment thereof.<\/p>\n
‘Third Party Claim’ has the meaning set forth in Section 7.4 below.<\/p>\n
‘Transactional Agreements’ means this Agreement and the Investors
\nRights Agreement.<\/p>\n
‘Year 2000 Compliant’ has the meaning set forth in Section
\n3.1(m)(vi) below.<\/p>\n
2. Purchase and Sale of Company Shares and Shareholder Shares.<\/p>\n
2.1 Basic Transaction.<\/p>\n
On and subject to the terms and conditions of this Agreement, the
\nBuyer agrees to purchase from the Company, and the Company agrees to sell to the
\nBuyer, an aggregate of 5,333,333 Company Shares for the consideration specified
\nbelow in this Section 2.<\/p>\n
2.2 Purchase Price.<\/p>\n
The Buyer agrees to pay to the Company an aggregate of Six Million
\nDollars ($6,000,000) in consideration for the Company Shares (the ‘Purchase
\nPrice’). The Purchase Price shall be delivered by the Buyer to the Company in
\nthree distributions. The Buyer shall deliver<\/p>\n
4
\n 9
\nThree Million Dollars ($3,000,000) to the Company at the Closing (hereinafter
\nthe ‘Initial Distribution’). On the later of (a) the resolution of any pending
\nrecoupment pursuant to Section 7.6 or (b) six (6) months after the Closing, the
\nBuyer shall deliver to the Company One Million Five Hundred Thousand Dollars
\n($1,500,000), plus interest accrued thereon at the Applicable Rate, and less any
\namounts due Buyer under Section 7 (hereinafter the ‘Second Distribution’). On
\nthe later of (y) the resolution of any pending recoupment pursuant to Section
\n7.6 or (z) twelve (12) months after the Closing, the Buyer shall deliver to the
\nCompany One Million Five Hundred Thousand Dollars ($1,500,000), plus interest
\naccrued thereon at the Applicable Rate, and less any amounts due Buyer under
\nSection 7, to the Company (hereinafter the ‘Final Distribution’).<\/p>\n
2.3 The Closing.<\/p>\n
The closing of the transactions contemplated by this Agreement (the
\n‘Closing’) shall take place at the offices of Morrison & Foerster LLP at 19900
\nMacArthur Boulevard, Irvine, California, commencing at 9:00 a.m. local time on
\nthe later of August 6, 1999 or the second business day following the
\nsatisfaction or waiver of all conditions to the obligations of the Parties to
\nconsummate the transactions contemplated hereby (other than conditions with
\nrespect to actions the respective Parties will take at the Closing itself) or
\nsuch other date as the Buyer and the Company may mutually determine (the
\n‘Closing Date’).<\/p>\n
2.4 Deliveries at the Closing.<\/p>\n
At the Closing, (i) the Company will deliver to the Buyer the
\nvarious certificates, instruments, and documents referred to in Section 6.1
\nbelow, (ii) the Buyer will deliver to the Company the various certificates,
\ninstruments, and documents referred to in Section 6.2 below, (iii) the Company
\nwill deliver to the Buyer stock certificates representing all of the Company
\nShares, and (iv) the Buyer will deliver to the Company the consideration
\nspecified in Section 2.2 above.<\/p>\n
3. Representations and Warranties Concerning the Transaction.<\/p>\n
3.1 Representations and Warranties of the Company and its
\nSubsidiaries.<\/p>\n
The Company represents and warrants to the Buyer that the statements
\ncontained in this Section 3 are correct and complete as of the date of this
\nAgreement and will be correct and complete as of the Closing Date (as though
\nmade then and as though the Closing Date were substituted for the date of this
\nAgreement throughout this Section 3), except as set forth in the disclosure
\nschedule delivered by the Company to the Buyer on the date hereof and initialed
\nby the Parties (the ‘Disclosure Schedule’), attached hereto as Annex I. Nothing
\nin the Disclosure Schedule shall be deemed adequate to disclose an exception to
\na representation or warranty made herein, however, unless the Disclosure
\nSchedule identifies the exception and the relevant facts with reasonable detail.
\nWithout limiting the generality of the foregoing, the mere listing (or inclusion
\nof a copy) of a document or other item shall not be deemed adequate to disclose
\nan exception to a representation or warranty made herein (unless the
\nrepresentation or warranty has to do with the existence of the document or other
\nitem itself). The Disclosure Schedule will be arranged in paragraphs
\ncorresponding to the lettered and numbered paragraphs contained in this Section
\n3.<\/p>\n
(a) Organization, Qualification and Corporate Power. Each of
\nthe Company and its Subsidiaries is a corporation duly organized, validly
\nexisting, and in good<\/p>\n
5
\n 10
\nstanding under the laws of the jurisdiction of its incorporation. Each of the
\nCompany and its Subsidiaries is duly authorized to conduct business and is in
\ngood standing under the laws of each jurisdiction where such qualification is
\nrequired (except for any such jurisdiction in which the failure to be so
\nqualified, individually or in the aggregate, would not have a material adverse
\neffect on the Company or any of its Subsidiaries). Each of the Company and its
\nSubsidiaries has full corporate power and authority and all licenses, permits,
\nand authorizations necessary to carry on the businesses in which it is engaged
\nand in which it presently proposes to engage and to own and use the properties
\nowned and used by it, except for any such licenses, permits and authorizations,
\nthe failure of which to obtain, individually or in the aggregate, would not have
\na material adverse effect on the Company or any of its Subsidiaries. The Company
\nhas delivered to the Buyer correct and complete copies of the charter and bylaws
\nof each of the Company and its Subsidiaries (as amended to date). The minute
\nbooks (containing the records of meetings of the stockholders, the board of
\ndirectors, and any committees of the board of directors), the stock certificate
\nbooks, and the stock record books of each of the Company and its Subsidiaries
\nare correct and complete. None of the Company or any of its Subsidiaries is in
\ndefault under or in violation of any provision of its charter or bylaws.<\/p>\n
(b) Authorization of Transaction. The Company has full
\ncorporate power and authority to execute and deliver this Agreement, the
\nInvestors Rights Agreement and the Distribution and License Agreement and to
\nperform its obligations hereunder and thereunder. Each of the Transactional
\nAgreements constitutes the valid and legally binding obligation of the Company,
\nenforceable in accordance with their respective terms and conditions. Except for
\nfilings that may be required by applicable state securities laws, the Company
\nneed not give any notice to, make any filing with, or obtain any authorization,
\nconsent, or approval of any government or governmental agency in order to
\nconsummate the transactions contemplated by the Transactional Agreements.<\/p>\n
(c) Noncontravention. Neither the execution and the delivery
\nof the Transactional Agreements, nor the consummation of the transactions
\ncontemplated hereby and thereby, will (i) violate any constitution, statute,
\nregulation, rule, injunction, judgment, order, decree, ruling, charge, or other
\nrestriction of any government, governmental agency, or court to which any of the
\nCompany and its Subsidiaries is subject or any provision of the charter or
\nbylaws of any of the Company and its Subsidiaries, or (ii) conflict with, result
\nin a breach of, constitute a default under, result in the acceleration of,
\ncreate in any party the right to accelerate, terminate, modify, or cancel, or
\nrequire any notice under any agreement, contract, lease, license, instrument, or
\nother arrangement to which any of the Company or any of its Subsidiaries is a
\nparty or by which it is bound or to which any of their respective assets are
\nsubject (or result in the imposition of any Security Interest upon any of their
\nrespective assets).<\/p>\n
(d) Brokers’ Fees. The Company has no Liability or obligation
\nto pay any fees or commissions to any broker, finder, or agent with respect to
\nthe transactions contemplated by this Agreement for which the Buyer could become
\nliable or obligated.<\/p>\n
(e) Company Shares. The Company Shares have been duly and
\nvalidly authorized and at the Closing will be duly and validly issued,
\nnonassessable and fully paid, free and clear of any restrictions on transfer
\n(other than any restrictions under the Securities Act and state securities
\nlaws), Taxes, Security Interests, options, warrants, purchase rights,
\ncontracts,<\/p>\n
6
\n 11
\ncommitments, equities, claims, and demands, except as provided in the Investors
\nRights Agreement.<\/p>\n
(f) Title to Assets. The Company and its Subsidiaries have
\ngood and marketable title to, or a valid leasehold or license interest in, or
\nother right to use, the properties and assets used by them, located on their
\npremises, or shown on the Most Recent Balance Sheet or acquired after the date
\nthereof, free and clear of all Security Interests, except for properties and
\nassets disposed of in the Ordinary Course of Business since the date of the Most
\nRecent Balance Sheet. This subsection (f) shall not apply to Intellectual
\nProperty or any infringement, misappropriation or violation of Intellectual
\nProperty. Any warranty of the Company concerning Intellectual Property is
\nlimited to subsections (m) and (p) below.<\/p>\n
(g) Subsidiaries. Section 3.1(g) of the Disclosure Schedule
\nsets forth for each Subsidiary of the Company (i) its name and jurisdiction of
\nincorporation or organization, (ii) the number of shares of authorized capital
\nstock of each class of its capital stock, (iii) the number of issued and
\noutstanding shares of each class of its capital stock, the names of the holders
\nthereof, and the number of shares held by each such holder, and (iv) the number
\nof shares of its capital stock held in treasury. All of the issued and
\noutstanding shares of capital stock of each Subsidiary of the Company have been
\nduly authorized and are validly issued, fully paid, and nonassessable. The
\nCompany or its Subsidiary holds of record and owns beneficially the number of
\nshares of each Subsidiary of the Company as set forth in Section 3.1(g) of the
\nDisclosure Schedule, free and clear of any restrictions on transfer (other than
\nrestrictions under the Securities Act and state securities laws), Taxes,
\nSecurity Interests, options, warrants, purchase rights, contracts, commitments
\nequities, claims, and demands. There are no outstanding or authorized options,
\nwarrants, purchase rights, subscription rights, conversion rights, exchange
\nrights, or other contracts or commitments that could require any of the Company
\nand its Subsidiaries to sell, transfer, or otherwise dispose of any capital
\nstock of any of its Subsidiaries or that could require any Subsidiary of the
\nCompany to issue, sell, or otherwise cause to become outstanding any of its own
\ncapital stock. There are no voting trusts, proxies, or other agreements or
\nunderstandings with respect to the voting of any capital stock of any Subsidiary
\nof the Company. None of the Company and its Subsidiaries controls directly or
\nindirectly or has any direct or indirect equity participation in any
\ncorporation, partnership, trust, or other business association which is not a
\nSubsidiary of the Company.<\/p>\n
(h) Financial Statements. Attached hereto as Exhibit ‘A’ are
\nthe following financial statements (collectively the ‘Financial Statements’):
\n(i) unaudited consolidated monthly income statement for November 1998 through
\nApril 1999, and the individual monthly statements for such quarter, for the
\nCompany and its Subsidiaries; (ii) unaudited balance sheets as of June 23, 1999
\nfor the Company and its Subsidiaries; and (iii) the Company’s Business Plan
\ncovering operations from November 1, 1999 through October 31, 2001. The
\nFinancial Statements (including the notes thereto) have been prepared in
\naccordance with GAAP applied on a consistent basis throughout the periods
\ncovered thereby, and except as to the projection and Business Plan, present
\nfairly the financial condition of the Company and its Subsidiaries as of such
\ndates and the results of operations of the Company and its Subsidiaries for such
\nperiods, are correct and complete, and are consistent with the books and records
\nof the Company and its Subsidiaries (which books and records are correct and
\ncomplete), subject to normal year-end adjustments (which<\/p>\n
7
\n 12
\nwill not be material individually or in the aggregate) and lack footnotes and
\nother presentation items.<\/p>\n
(i) Events Subsequent to Most Recent Balance Sheet. Since the
\ndate of the Most Recent Balance Sheet, there has not been any adverse change in
\nthe business, financial condition, operations, results of operations, or future
\nprospects of any of the Company and its Subsidiaries. Without limiting the
\ngenerality of the foregoing, since that date:<\/p>\n
(i) none of the Company or its Subsidiaries has sold,
\n leased, transferred, or assigned any of its assets, tangible or
\n intangible, other than in the Ordinary Course of Business and in the
\n reasonable business judgment of the Company for a fair consideration;<\/p>\n
(ii) none of the Company or its Subsidiaries has entered
\n into any agreement, contract, lease, or license (or series of related
\n agreements, contracts, leases, and licenses) either involving more than
\n $100,000 or outside the Ordinary Course of Business;<\/p>\n
(iii) no party (including any of the Company and its
\n Subsidiaries) has accelerated, terminated, modified, or cancelled any
\n agreement, contract, lease, or license (or series of related agreements,
\n contracts, leases, and licenses) involving more than $100,000 to which any
\n of the Company and its Subsidiaries is a party or by which any of them is
\n bound;<\/p>\n
(iv) none of the Company or its Subsidiaries has imposed
\n any Security Interest upon any of its assets, tangible or intangible;<\/p>\n
(v) none of the Company or its Subsidiaries has made any
\n capital expenditure (or series of related capital expenditures) either
\n involving more than $100,000 or outside the Ordinary Course of Business;<\/p>\n
(vi) none of the Company or its Subsidiaries has made
\n any capital investment in, any loan to, or any acquisition of the
\n securities or assets of, any other Person (or series of related capital
\n investments, loans, and acquisitions) either involving more than $100,000
\n or outside the Ordinary Course of Business;<\/p>\n
(vii) none of the Company or its Subsidiaries has issued
\n any note, bond, or other debt security or created, incurred, assumed, or
\n guaranteed any indebtedness for borrowed money or capitalized lease
\n obligation either involving more than $250,000 singly or $1,000,000 in the
\n aggregate;<\/p>\n
(viii) none of the Company or its Subsidiaries has
\n delayed or postponed the payment of accounts payable and other Liabilities
\n outside the Ordinary Course of Business;<\/p>\n
(ix) none of the Company or its Subsidiaries has
\n cancelled, compromised, waived, or released any right or claim (or series
\n of related rights and claims) either involving more than $100,000 or
\n outside the Ordinary Course of Business;<\/p>\n
(x) except as set forth in Section 3.1(i)(x) of the
\n Disclosure Schedule, none of the Company or its Subsidiaries has granted
\n any license or sublicense of any rights under or with respect to any
\n Intellectual Property;<\/p>\n
8
\n 13
\n (xi) there has been no change made or authorized in the
\n charter or bylaws of any of the Company and its Subsidiaries;<\/p>\n
(xii) none of the Company or its Subsidiaries has
\n experienced any material damage, destruction, or loss (whether or not
\n covered by insurance) to its property;<\/p>\n
(xiii) none of the Company or its Subsidiaries has made
\n any loan to, or entered into any other transaction with, any of its
\n directors, officers, and employees outside the Ordinary Course of
\n Business;<\/p>\n
(xiv) except as set forth on Section 3.1(i)(xiv) of the
\n Disclosure Schedule, none of the Company or its Subsidiaries has entered
\n into any employment contract or collective bargaining agreement, written
\n or oral, or modified the terms of any existing such contract or agreement;<\/p>\n
(xv) none of the Company or its Subsidiaries has granted
\n any increase in the base compensation of any of its directors, officers,
\n and employees outside the Ordinary Course of Business;<\/p>\n
(xvi) none of the Company or its Subsidiaries has
\n adopted, amended, modified, or terminated any bonus, profit-sharing,
\n incentive, severance, or other plan, contract, or commitment for the
\n benefit of any of its directors, officers, and employees (or taken any
\n such action with respect to any other Employee Benefit Plan);<\/p>\n
(xvii) none of the Company or its Subsidiaries has made
\n any other change in employment terms for any of its directors, officers,
\n and employees outside the Ordinary Course of Business;<\/p>\n
(xviii) none of the Company or its Subsidiaries has made
\n or pledged to make any charitable or other capital contribution outside
\n the Ordinary Course of Business;<\/p>\n
(xix) there has not been any other occurrence, event,
\n incident, action, failure to act, or transaction outside the Ordinary
\n Course of Business involving any of the Company and its Subsidiaries; and<\/p>\n
(xx) none of the Company or its Subsidiaries has
\n committed to any of the foregoing.<\/p>\n
(j) Undisclosed Liabilities. None of the Company or its
\nSubsidiaries has any Liability (and there is no Basis for any present or future
\naction, suit, proceeding, hearing, investigation, charge, complaint, claim, or
\ndemand against any of them giving rise to any Liability), except for (i)
\nLiabilities set forth on the face of the Most Recent Balance Sheet (rather than
\nin any notes thereto) and (ii) Liabilities which have arisen after the date of
\nthe Most Recent Balance Sheet in the Ordinary Course of Business (none of which
\nresults from, arises out of, relates to, is in the nature of, or was caused by
\nany breach of contract, breach of warranty, tort, infringement, or violation of
\nlaw).<\/p>\n
(k) Legal Compliance. Each of the Company, its Subsidiaries,
\nand their respective predecessors and Affiliates, has complied with all
\napplicable laws (including rules, regulations, codes, plans, injunctions,
\njudgments, orders, decrees, rulings, and charges thereunder)<\/p>\n
9
\n 14
\nof federal, state, local, and foreign governments (and all agencies thereof),
\nand no action, suit, proceeding, hearing, investigation, charge, complaint,
\nclaim, demand, or notice has been filed or commenced against any of them
\nalleging any failure so to comply.<\/p>\n
(1) Tax Matters. The Company and its Subsidiaries have filed
\nall Tax Returns that each was required to file. All such Tax Returns were
\ncorrect and complete in all respects. All Taxes owed by the Company and any of
\nits Subsidiaries (whether or not shown on any Tax Return) have been paid.
\nNeither of the Company nor any of its Subsidiaries currently is the beneficiary
\nof any extension of time within which to file any Tax Return. No claim has ever
\nbeen made by an authority in a jurisdiction where the Company or any of its
\nSubsidiaries does not file Tax Returns that the Company or such Subsidiary is or
\nmay be subject to taxation by that jurisdiction. There are no Security Interests
\non any of the assets of the Company or any of its Subsidiaries imposed by any
\ntax authority.<\/p>\n
(i) Each of the Company and its Subsidiaries has
\n withheld and paid all Taxes required to have been withheld and paid in
\n connection with amounts paid or owing to any employee, independent
\n contractor, creditor, stockholder, or other third party.<\/p>\n
(ii) Neither the Company nor any director or officer (or
\n employee responsible for Tax matters) of any of the Company and its
\n Subsidiaries expects any authority to assess any additional Taxes for any
\n period for which Tax Returns have been filed. There is no dispute or claim
\n concerning any Tax Liability of any of the Company and its Subsidiaries
\n either (A) claimed or raised by any authority in writing or (B) as to
\n which any of the Shareholder, the Company and the directors and officers
\n (and employees responsible for Tax matters) of the Company and its
\n Subsidiaries has Knowledge based upon personal contact with any agent of
\n such authority.<\/p>\n
(iii) The Company has not waived any statute of
\n limitations in respect of Taxes or agreed to any extension of time with
\n respect to a Tax assessment or deficiency.<\/p>\n
(iv) Neither of the Company nor any of its Subsidiaries
\n has filed a consent under Code Section 341(f) concerning collapsible
\n corporations. Neither of the Company nor any of its Subsidiaries has made
\n any payments, is obligated to make any payments, or is a party to any
\n agreement that under certain circumstances could obligate it to make any
\n payments that will not be deductible under Code Sections 162(m) or 280G.
\n Neither of the Company nor any of its Subsidiaries has been a United
\n States real property holding corporation within the meaning of Code
\n Section 897(c)(2) during the applicable period specified in Code Section
\n 897(c)(1)(A)(ii). The Company and each of its Subsidiaries has disclosed
\n on its federal income Tax Returns all positions taken therein that could
\n give rise to a substantial understatement of federal income Tax within the
\n meaning of Code Section 6662. Neither of the Company nor any of its
\n Subsidiaries is a party to any Tax allocation or sharing agreement.
\n Neither of the Company nor any of its Subsidiaries (A) has been a member
\n of an Affiliated Group filing a consolidated federal income Tax Return
\n (other than a group the common parent of which was the Shareholder) and
\n (B) does not have any Liability for the Taxes of any Person (other than
\n the Company or any of its Subsidiaries) under Reg. Section 1.1502-6 (or
\n any similar provision of state, local, or<\/p>\n
10
\n 15
\n foreign law), as a transferee or successor, by contract, or otherwise. The
\n Company and each of its Subsidiaries is in compliance with the terms and
\n conditions of any applicable Tax exemptions, agreements or orders of any
\n government to which it may be subject or which it may have claimed, and
\n the transaction contemplated by this Agreement will not have any adverse
\n effect on such compliance.<\/p>\n
(v) The unpaid Taxes of the Company and its Subsidiaries
\n (A) did not, as of the date of the Most Recent Balance Sheet, exceed the
\n reserve for Tax Liability (rather than any reserve for deferred Taxes
\n established to reflect timing differences between book and Tax income) set
\n forth on the face of the Most Recent Balance Sheet (rather than in any
\n notes thereto) and (B) do not exceed that reserve as adjusted for the
\n passage of time through the Closing Date in accordance with the past
\n custom and practice of the Company and its Subsidiaries in filing their
\n Tax Returns.<\/p>\n
(m) Intellectual Property. The Company, its Subsidiaries and
\ntheir products have not infringed and do not infringe the copyrights of any
\nthird party. Neither the Company nor its Subsidiaries has misappropriated or is
\nmisappropriating any trade secrets or proprietary confidential information of
\nany third party, and the products of the Company and its Subsidiaries do not
\ninclude or embody any trade secret or proprietary confidential information
\nmisappropriated by the Company or its Subsidiaries from any Third Party. To the
\nKnowledge of the Company, each of the Company and its Subsidiaries and their
\nrespective products have not infringed and do not infringe any patents,
\ntrademarks, service marks, or trade names of any third party. Each item of
\nIntellectual Property owned by or licensed to the Company and its Subsidiaries
\nimmediately prior to the Closing hereunder will be owned by or licensed to the
\nCompany and the Subsidiary on identical terms and conditions immediately
\nsubsequent to the Closing hereunder (i.e., identical to any applicable terms and
\nconditions immediately prior to the Closing).<\/p>\n
(i) None of the Company or its Subsidiaries or their
\n directors and officers (and employees with responsibility for Intellectual
\n Property matters) has ever received any charge, complaint, claim, demand,
\n or notice alleging any such infringement, misappropriation, or violation
\n of Intellectual Property (including any claim that the Company and its
\n Subsidiaries must license or refrain from using any Intellectual Property
\n rights of any third party). To the Knowledge of the Company and its
\n Subsidiaries and the directors and officers (and employees with
\n responsibility for Intellectual Property matters) of the Company and its
\n Subsidiaries, no third party has infringed, misappropriated, or otherwise
\n violated any Intellectual Property rights of the Company and its
\n Subsidiaries.<\/p>\n
(ii) Section 3.1(m) of the Disclosure Schedule
\n identifies (a) each patent which has been issued or assigned to the
\n Company and its Subsidiaries, (b) each pending patent application which
\n has been filed by or for the Company and its Subsidiaries, (c) each
\n trademark or service mark registration issued or assigned to the Company
\n and its Subsidiaries, (d) each pending trademark or service mark
\n application which has been filed by or for the Company and its
\n Subsidiaries, (e) each copyright registration issued or assigned to the
\n Company and its Subsidiaries, (f) each pending copyright application which
\n has been filed by or for the Company and its Subsidiaries, and (g) each
\n license which the Company and its Subsidiaries has granted to any third
\n party with respect to any of the Company’s Intellectual Property excluding
\n licenses to end users of Company products<\/p>\n
11
\n 16
\n granted in the Ordinary Course of Business. The Company has delivered to
\n the Buyer correct and complete copies of all such patents, registrations,
\n applications, and licenses (as amended to date). Section 3.1(m) of the
\n Disclosure Schedule also identifies each trade name and each unregistered
\n trademark or service mark used by any of the Company and its Subsidiaries
\n in connection with any of their businesses. With respect to each patent,
\n application, and registration (each an ‘item’) identified in Section
\n 3.1(m) of the Disclosure Schedule:<\/p>\n
(A) the Company and its Subsidiaries possess all
\n right, title, and interest in and to the item, free and clear of any
\n Security Interest, license, or other restriction;<\/p>\n
(B) the item is not subject to any outstanding
\n injunction, judgment, order, decree, ruling, or charge;<\/p>\n
(C) no action, suit, proceeding, hearing,
\n investigation, charge, complaint, claim, or demand is pending or, to
\n the Knowledge of any of the Company, the directors and officers (and
\n employees with responsibility for Intellectual Property matters) of
\n the Company and its Subsidiaries, is threatened which challenges the
\n legality, validity, enforceability, use, or ownership of the item;
\n and<\/p>\n
(D) none of the Company and its Subsidiaries has
\n ever agreed to indemnify any Person for or against any interference,
\n infringement, misappropriation, or other conflict with respect to
\n the item.<\/p>\n
(iii) Section 3.1(m) of the Disclosure Schedule
\n identifies each item of Intellectual Property that any third party owns
\n and licenses to any of the Company and its Subsidiaries, excluding
\n licenses to commercially available software products (e.g., Windows,
\n Microsoft Office, etc.) used by any of the Company and its Subsidiaries as
\n an end user. The Company has delivered to the Buyer correct and complete
\n copies of all agreements applicable to such licenses (as amended to date).
\n The term ‘license’ is intended to include ‘sublicense.’ With respect to
\n each such license and agreement required to be identified in Section
\n 3.1(m) of the Disclosure Schedule, to the Knowledge of the Company:<\/p>\n
(A) the license and agreement are legal, valid,
\n binding, enforceable, and in full force and effect;<\/p>\n
(B) the license and agreement will continue to be
\n legal, valid, binding, enforceable, and in full force and effect on
\n identical terms on the day immediately following the Closing;<\/p>\n
(C) no party to the agreement is in breach or
\n default, and no event has occurred which with notice or lapse of
\n time would constitute a breach or default or permit termination,
\n modification, or acceleration thereunder;<\/p>\n
(D) no party to the agreement has repudiated any
\n provision thereof;<\/p>\n
12
\n 17
\n (F) the license is not subject to any outstanding
\n injunction, judgment, order, decree, ruling, or charge; and<\/p>\n
(G) no action, suit, proceeding, hearing,
\n investigation, charge, complaint, claim, or demand is pending or is
\n threatened which challenges the legality, validity, or
\n enforceability of the license or agreement.<\/p>\n
(iv) To the Knowledge of any of the Company and the
\n directors and officers (and employees with responsibility for Intellectual
\n Property matters) of the Company and its Subsidiaries, neither the Company
\n nor any of its Subsidiaries will infringe, misappropriate, or otherwise
\n violate any Intellectual Property rights of third parties as a result of
\n the continued operation of its businesses as presently conducted and as
\n presently proposed to be conducted.<\/p>\n
(v) To the Knowledge of the Company, the Year 2000
\n Readiness Disclosure as currently published by the Company on its web site
\n is accurate. A copy of this Year 2000 Readiness Disclosure is included in
\n Section 3.1(m) of the Disclosure Schedule. The Company makes no other
\n representation or warranty concerning any Year 2000 issue.<\/p>\n
(vi) Notwithstanding anything in this Agreement to the
\n contrary, this subsection (m) and subsection (p) below are the sole,
\n exclusive and entire representation and warranty of the Company concerning
\n Intellectual Property or any infringement, misappropriation or violation
\n of Intellectual Property. No other representation or warranty in this
\n Agreement shall be construed as applying to Intellectual Property or any
\n infringement, misappropriation or violation of Intellectual Property.<\/p>\n
(n) Tangible Assets. The Company and its Subsidiaries own or
\nlease all buildings, machinery, equipment, and other tangible assets necessary
\nfor the conduct of their business as presently conducted and as presently
\nproposed to be conducted.<\/p>\n
(o) Powers of Attorney. There are no outstanding powers of
\nattorney executed on behalf of any of the Company and its Subsidiaries outside
\nthe Ordinary Course of Business.<\/p>\n
(p) Litigation. Section 3.1(p) of the Disclosure Schedule sets
\nforth each instance in which any of the Company and its Subsidiaries (i) is
\nsubject to any outstanding injunction, judgment, order, decree, ruling, or
\ncharge or (ii) is a party or, to the Knowledge of any of the Company, the
\ndirectors and officers (and employees with responsibility for litigation
\nmatters) of the Company and its Subsidiaries, is threatened to be made a party
\nto any action, suit, proceeding, hearing, or investigation of, in, or before any
\ncourt or quasi-judicial or administrative agency of any federal, state, local,
\nor foreign jurisdiction or before any arbitrator. None of the actions, suits,
\nproceedings, hearings, and investigations set forth in Section 3.1(p) of the
\nDisclosure Schedule alone or in the aggregate could result in any adverse change
\nin the business, financial condition, operations, results of operations, or
\nfuture prospects of any of the Company and its Subsidiaries. None of the Company
\nthe directors and officers (and employees with responsibility for litigation
\nmatters) of the Company and its Subsidiaries has any reason to believe that any
\nsuch action, suit, proceeding, hearing, or investigation may be brought or
\nthreatened against any of the Company and its Subsidiaries.<\/p>\n
13
\n 18
\n (q) Employees. To the Knowledge of the Company, the directors
\nand officers (and employees with responsibility for employment matters) of the
\nCompany and its Subsidiaries, no executive, key employee, or group of employees
\nhas any plans to terminate employment with any of the Company and its
\nSubsidiaries. None of the Company and its Subsidiaries is a party to or bound by
\nany collective bargaining agreement, nor has any of them experienced any
\nstrikes, grievances, claims of unfair labor practices, or other collective
\nbargaining disputes. None of the Company and its Subsidiaries has committed any
\nunfair labor practice. None of the directors and officers (and employees with
\nresponsibility for employment matters) of the Company and its Subsidiaries has
\nany Knowledge of any organizational effort presently being made or threatened by
\nor on behalf of any labor union with respect to employees of any of the Company
\nand its Subsidiaries.<\/p>\n
(r) Guaranties. None of the Company or its Subsidiaries is a
\nguarantor or otherwise is liable for any Liability or obligation (including
\nindebtedness) of any other Person.<\/p>\n
(s) Certain Business Relationships with the Company and Its
\nSubsidiaries. None of the Company’s Affiliates has been involved in any business
\narrangement or relationship with any of the Company or its Subsidiaries within
\nthe past twelve (12) months, and none of the Company’s Affiliates owns any
\nasset, tangible or intangible, which is used in the business of any of the
\nCompany or its Subsidiaries.<\/p>\n
(t) Capitalization, Etc.<\/p>\n
(i) The authorized capital stock of the Company consists
\n of 50,000,000 shares of common stock, no par value, 16,000,000 shares of
\n which have been issued and are outstanding, 4,000,000 shares of which have
\n been reserved for issuance pursuant to the Company’s employee stock option
\n plan and 1,000,000 additional shares of which are contemplated to be
\n reserved for issuance pursuant to the Company’s employee stock option
\n plan.<\/p>\n
(ii) All of the Company’s outstanding shares of Common
\n Stock (i) have been duly authorized and validly issued, (ii) are fully
\n paid and nonassessable, and (iii) have been issued in compliance with all
\n applicable securities laws and other applicable legal requirements.<\/p>\n
(iii) Except as set forth in Section 3.1(t) of the
\n Disclosure Schedule, there are no:<\/p>\n
(A) outstanding derivative securities;<\/p>\n
(B) contracts, agreements or other arrangements
\n under which the Company is or may become obligated to sell or
\n otherwise issue any shares of its capital stock or any derivative
\n securities; or<\/p>\n
(C) conditions or circumstances that would
\n directly or indirectly give rise to or provide a basis for the
\n assertion of a claim by any Person to the effect that such Person is
\n entitled to acquire or receive any shares of capital stock or other
\n securities of the Company.<\/p>\n
14
\n 19
\n (iv) The Company has never repurchased, redeemed or
\n otherwise reacquired (and has not agreed, committed or offered (in writing
\n or otherwise) to reacquire) any shares of its capital stock or any
\n derivative securities.<\/p>\n
(u) Real Property; Leases. The Company does not own any real
\nproperty or any interest in real property, except for the leaseholds created
\nunder the real property leases identified in Section 3.1(u) of the Disclosure
\nSchedule. Section 3.1(u) of the Disclosure Schedule accurately and completely
\ndescribes the premises covered by said leases and the facilities located on such
\npremises. The Company enjoys peaceful and undisturbed possession of such
\npremises. All leases to which the Company is a party are valid, binding and
\nenforceable in accordance with their respective terms and are in full force and
\neffect; there are no material existing defaults by the Company or the other
\nparty thereunder, and no event of default has occurred which (whether with or
\nwithout notice, lapse of time or the happening or occurrence of any other event)
\nwould constitute a material default thereunder.<\/p>\n
(v) Environmental Matters. The Company is in compliance with
\nall applicable Environmental Health and Safety Requirements. The Company has not
\nreceived any notice or other communication (in writing or otherwise) that
\nalleges that the Company is not in compliance with any Environmental Health and
\nSafety Requirements and to the Company’s Knowledge there are no circumstances
\nthat are reasonably likely to prevent or interfere with the Company’s compliance
\nwith any Environmental Health and Safety Requirements in the future.<\/p>\n
(w) Sale of Products; Performance of Services. To the
\nKnowledge of the Company, no distributor, customer, end-user, consumer or other
\nPerson has ever asserted or threatened to assert any material claim against the
\nCompany (i) under or based upon any warranty provided by or on behalf of the
\nCompany, or (ii) relating to any product sold by the Company or any services
\nperformed by the Company. No event has occurred, and no condition or
\ncircumstance exists, that could (with or without notice or lapse of time)
\ndirectly or indirectly give rise to or serve as a basis for the assertion of any
\nsuch claim.<\/p>\n
(x) Full Disclosure.<\/p>\n
(i) None of the representations and warranties of the
\n Company in this Agreement (including the Disclosure Schedule) contains or
\n will contain as of the Closing Date any untrue statement of material fact
\n or omits or will omit as of the Closing Date to state any fact necessary
\n to make any of the representations, warranties or statements contained
\n therein not misleading. To the extent such representations permit omission
\n of items otherwise required to be discussed because they are not material
\n or do not or would not have Adverse Consequences, such omissions in the
\n aggregate will not as of the Closing Date and do not have Adverse
\n Consequences.<\/p>\n
(ii) As of the date of this Agreement, the Company has
\n provided the Buyer with full and complete access to all of the Company’s
\n records and other documents and data requested by it.<\/p>\n
(iii) There is no fact within the Knowledge of the
\n Company or its directors, officers or employees (other than publicly known
\n facts or facts within the Knowledge of Buyer) that have Adverse
\n Consequences.<\/p>\n
15
\n 20
\n (iv) All of the written information set forth in the
\n Disclosure Schedule, and all other information regarding the Company and
\n its business, condition, assets, liabilities, operation, financial
\n performance, net income and prospects that has been furnished to Buyer or
\n any of its representatives by or on behalf of Company or any of the
\n Company’s representatives, is accurate and complete in all material
\n respects. The Company acknowledges and agrees that although Buyer may
\n tender certain assistance to Company in the preparation of the Disclosure
\n Schedule, the provision of such assistance shall not be deemed to
\n constitute an admission by Buyer of the accuracy of the same or any basis
\n for any modification of any covenant, representation or warranty of
\n Company and Buyer contained in this Agreement.<\/p>\n
(y) Customers and Suppliers. As of the date hereof, no
\ncustomer that individually accounted for more than five percent (5%) of the
\nCompany’s gross revenues during the 12-month period preceding the date hereof
\nhas notified the Company that it will stop, or decrease the rate of, buying
\nservices or products of the Company, or has at any time on or after December 31,
\n1998 decreased materially its purchase of the products of the Company. As of the
\ndate hereof, no supplier of the Company has notified the Company that it will
\nstop, or decrease the rate of, supplying materials, products or services to the
\nCompany. The Company has not knowingly breached any contract with, or engaged in
\nany fraudulent conduct with respect to, any customer or supplier of the Company.<\/p>\n
(z) Inventories. The inventories of the Company that are
\nreflected in the Financial Statements consist of items that are usable or
\nsalable in the Ordinary Course of Business and do not include below-standard
\nquality, damaged, defective or obsolete items the value of which has not been
\nfully written down or with respect to which adequate reserves have not been
\nprovided, adjusted for operations and transactions through the Closing in
\naccordance with the past custom and practice of the Company.<\/p>\n
(aa) Financial Projections. The Company’s business plan as
\nheretofore provided to Buyer has been prepared by the Company based on the
\nCompany’s good faith estimates (based on reasonable investigation) of the
\nprojected financial performance of the Company following the Closing and certain
\nassumptions set forth therein, which assumptions the Company believes are
\nreasonable. The Company has concluded after reasonable investigation that the
\nassumptions and conclusions of the Company’s business plan constitute reasonable
\nestimates of the Company’s actual performance. However, such estimates and
\nprojections are not guaranteed or warranted.<\/p>\n
3.2 Representations and Warranties of the Shareholder.<\/p>\n
The Shareholder represents and warrants to the Buyer that the
\nstatements contained in this Section 3.2 are correct and complete as of the date
\nof this Agreement and will be correct and complete as of the Closing Date (as
\nthough made then and as though the Closing Date were substituted for the date of
\nthis Agreement throughout this Section 3.2) with respect to itself, except as
\nset forth in Annex II attached hereto.<\/p>\n
(a) Authorization of Transaction. The Shareholder has full
\npower and authority to execute and deliver this Agreement and the Investors
\nRights Agreement, and to perform its obligations hereunder and thereunder. Each
\nof the Transactional Agreements<\/p>\n
16
\n 21
\nconstitutes the valid and legally binding obligation of the Shareholder,
\nenforceable in accordance with their respective terms and conditions. The
\nShareholder need not give any notice to, make any filing with, or obtain any
\nauthorization, consent, or approval of any government or governmental agency in
\norder to consummate the transactions contemplated by the Transactional
\nAgreements.<\/p>\n
(b) Noncontravention. Neither the execution and the delivery
\nof the Transactional Agreements, nor the consummation of the transactions
\ncontemplated hereby and thereby, will (i) violate any constitution, statute,
\nregulation, rule, injunction, judgment, order, decree, ruling, charge, or other
\nrestriction of any government, governmental agency, or court to which the
\nShareholder is subject or (ii) conflict with, result in a breach of, constitute
\na default under, result in the acceleration of, create in any party the right to
\naccelerate, terminate, modify, or cancel, or require any notice under any
\nagreement, contract, lease, license, instrument, or other arrangement to which
\nthe Shareholder is a party or by which it is bound or to which any of its assets
\nis subject.<\/p>\n
(c) Company Representations. To Shareholder’s Knowledge and
\nsubject to the matters described in the Disclosure Schedule, the representations
\nand warranties of the Company in Section 3.1 are true and correct in all
\nmaterial respects.<\/p>\n
3.3 Representations and Warranties of the Buyer.<\/p>\n
The Buyer represents and warrants to the Company and the Shareholder
\nthat the statements contained in this Section 3.3 are correct and complete as of
\nthe date of this Agreement and will be correct and complete as of the Closing
\nDate (as though made then and as though the Closing Date were substituted for
\nthe date of this Agreement throughout this Section 3.3), except as set forth in
\nAnnex III attached hereto.<\/p>\n
(a) Organization of the Buyer. The Buyer is a corporation duly
\norganized, validly existing, and in good standing under the laws of the
\njurisdiction of its incorporation.<\/p>\n
(b) Authorization of Transaction. The Buyer has full power and
\nauthority (including full corporate power and authority) to execute and deliver
\nthis Agreement and the Investors Rights Agreement and to perform its obligations
\nhereunder and thereunder. This Agreement and the Investors Rights Agreement
\nconstitute the valid and legally binding obligation of the Buyer, enforceable in
\naccordance with their respective terms and conditions. The Buyer need not give
\nany notice to, make any filing with, or obtain any authorization, consent or
\napproval of any government or governmental agency in order to consummate the
\ntransactions contemplated by this Agreement or the Investors Rights Agreement.<\/p>\n
(c) Noncontravention. Neither the execution and the delivery
\nof this Agreement or the Investors Rights Agreement, nor the consummation of the
\ntransactions contemplated hereby and thereby, will (i) violate any constitution,
\nstatute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
\nor other restriction of any government, governmental agency, or court to which
\nthe Buyer is subject or any provision of its charter or bylaws or (ii) conflict
\nwith, result in a breach of, constitute a default under, result in the
\nacceleration of, create in any party the right to accelerate, terminate, modify,
\nor cancel, or require any notice under any agreement, contract, lease, license,
\ninstrument, or other arrangement to which the Buyer is a party or by which it is
\nbound or to which any of its assets is subject.<\/p>\n
17
\n 22
\n (d) Brokers’ Fees. The Buyer has no Liability or obligation to
\npay any fees or commissions to any broker, finder, or agent with respect to the
\ntransactions contemplated by this Agreement for which the Company could become
\nliable or obligated.<\/p>\n
(e) Investment. The Buyer (i) understands that the Company
\nShares have not been, and will not be, registered under the Securities Act, or
\nunder any state securities laws, and are being offered and sold in reliance upon
\nfederal and state exemptions for transactions not involving any public offering,
\n(ii) is a sophisticated investor with knowledge and experience in business and
\nfinancial matters, (iii) has received certain information concerning the Company
\nand has had the opportunity to obtain additional information as desired in order
\nto evaluate the merits and the risks inherent in holding the Company Shares,
\n(iv) is able to bear the economic risk and lack of liquidity inherent in holding
\nthe Company Shares, and (v) is an Accredited Investor who is acquiring the
\nCompany Shares for investment purposes, for its own account, not as a nominee or
\nagent and not with a view to the resale or distribution of any part thereof, and
\nit has no present intention of selling, granting any participation in, or
\notherwise distributing the same.<\/p>\n
4. Pre-Closing Covenants.<\/p>\n
The Parties agree as follows with respect to the period between the
\nexecution of this Agreement and the Closing.<\/p>\n
4.1 General.<\/p>\n
Each of the Parties will use its best efforts to take all action and
\nto do all things necessary, proper, or advisable in order to consummate and make
\neffective the transactions contemplated by this Agreement (including
\nsatisfaction, but not waiver, of the closing conditions set forth in Section 6
\nbelow).<\/p>\n
4.2 Notices and Consents.<\/p>\n
The Company and its Subsidiaries will give any notices to third
\nparties and use its best efforts to obtain any third party consents, that the
\nBuyer may reasonably request in connection with the matters referred to in
\nSection 3.1 above. Each of the Parties will give any notices to, make any
\nfilings with, and use its best efforts to obtain any authorizations, consents,
\nand approvals of governments and governmental agencies in connection with the
\nmatters referred to in Section 3.1(b), Section 3.2(a) and Section 3.3(b) above.<\/p>\n
4.3 Operation of Business.<\/p>\n
The Company and its Subsidiaries will not engage in any practice,
\ntake any action, or enter into any transaction outside the Ordinary Course of
\nBusiness. Without limiting the generality of the foregoing, the Company will not
\n(a) declare, set aside, or pay any dividend or make any distribution with
\nrespect to its capital stock or redeem, purchase, or otherwise acquire any of
\nits capital stock, or (b) otherwise engage in any practice, take any action, or
\nenter into any transaction of the sort described in Section 3.1(i) above.<\/p>\n
4.4 Preservation of Business.<\/p>\n
The Company and its Subsidiaries will keep their business and
\nproperties substantially intact, including its present operations, physical
\nfacilities, working conditions, and relationships with lessors, licensors,
\nsuppliers, customers, and employees.<\/p>\n
18
\n 23
\n 4.5 Full Access.<\/p>\n
The Company and its Subsidiaries will permit representatives of the
\nBuyer to have fall access at all reasonable times, and in a manner so as not to
\ninterfere with the normal business operations of the Company and its
\nSubsidiaries, to all premises, properties, personnel, books, records (including
\nTax records), contracts, and documents of or pertaining to each of the Company
\nand its Subsidiaries. Information disclosed by the Company and its Subsidiaries
\nto the Buyer or learned by the Buyer or its representatives from the access
\nprovided under this Section 4.5 shall be subject to Section 10.16.<\/p>\n
4.6 Notice of Developments.<\/p>\n
The Company and Shareholder will give prompt written notice to the
\nBuyer of any material adverse development causing a breach of any of the
\nrepresentations and warranties in Section 3.1 and Section 3.2 above. Each Party
\nwill give prompt written notice to the others of any material adverse
\ndevelopment causing a breach of any of his or its own representations and
\nwarranties in Section 3 above. No disclosure by any Party pursuant to this
\nSection 4.6, however, shall be deemed to amend or supplement Annex I, Annex II,
\nor Annex III or to prevent or cure any misrepresentation, breach of warranty, or
\nbreach of covenant.<\/p>\n
4.7 Exclusivity.<\/p>\n
None of the Company or Shareholder will (i) solicit, initiate, or
\nencourage the submission of any proposal or offer from any Person relating to
\nthe acquisition of control of a majority of any capital stock or other voting
\nsecurities, or any substantial portion of the assets, of the Company and its
\nSubsidiaries (including any acquisition structured as a merger, consolidation,
\nor share exchange) or (ii) participate in any discussions or negotiations
\nregarding, furnish any information with respect to, assist or participate in, or
\nfacilitate in any other manner any effort or attempt by any Person to do or seek
\nany of the foregoing. Shareholder will not vote the Shareholder Shares in favor
\nof any such acquisition structured as a merger, consolidation, or share
\nexchange. The Company and Shareholder will notify the Buyer immediately if any
\nPerson makes any proposal, offer, inquiry, or contact with respect to any of the
\nforegoing. This Section 4.7 shall terminate 60 days from the date of this
\nAgreement.<\/p>\n
5. Post-Closing Covenants.<\/p>\n
5.1 General.<\/p>\n
In case at any time after the Closing any further action is
\nnecessary to carry out the purposes of this Agreement, each of the Parties will
\ntake such further action (including the execution and delivery of such further
\ninstruments and documents) as any other Party may reasonably request, all at the
\nsole cost and expense of the requesting Party (unless the requesting Party is
\nentitled to indemnification therefor under Section 7 below).<\/p>\n
5.2 Consultation.<\/p>\n
Buyer shall be entitled to reasonably consult with and advise
\nmanagement of the Company on significant business issues, including management’s
\nproposed annual operating plans, and management will meet with Buyer from time
\nto time at the Company’s facilities at Buyer’s expense at mutually agreeable
\ntimes for such consultation and advice and to review<\/p>\n
19
\n 24
\nprogress in achieving said plans. The Company has no obligation to comply with
\nany advice or directions from Buyer. Information disclosed to Buyer pursuant to
\nthis Section 5.2 will be subject to Section 10.16. The rights set forth in
\nthis Section 5.2 shall terminate upon the earlier of the following: (i) if at
\nany time the Buyer ceases to own and control at least ten percent (10%) of the
\nissued and outstanding capital stock of the Company; (ii) the closing of any
\ninitial public offering of the capital stock of the Company pursuant to an
\neffective registration statement under the Securities Act; or (iii) the date the
\nCompany becomes subject to the reporting requirements of the Securities Exchange
\nAct.<\/p>\n
5.3 Records.<\/p>\n
Buyer may examine the books and records of the Company and inspect
\nits facilities and may request information at reasonable times and intervals
\nconcerning the general status of the Company’s financial condition and
\noperations, provided that access to confidential or proprietary information and
\nfacilities need not be provided. Information disclosed to or learned by the
\nBuyer pursuant to this Section 5.3 is subject to Section 10.16. The rights set
\nforth in this Section 5.3 shall terminate upon the earlier of the following: (i)
\nif at any time the Buyer ceases to own and control at least ten percent (10%)
\nof the issued and outstanding capital stock of the Company; (ii) the closing of
\nan initial public offering of the capital stock of the Company pursuant to an
\neffective registration statement under the Securities Act; or (iii) the date the
\nCompany becomes subject to the reporting requirements of the Securities Exchange
\nAct.<\/p>\n
5.4 Observer Rights<\/p>\n
If Buyer is not represented on the Company’s Board of Directors by
\nan affiliate of Buyer, the Company shall give a representative of Buyer copies
\nof all notices, minutes, consents and other material that the Company provides
\nto its directors and the Company shall invite a representative of Buyer to
\nattend all meetings of the Board of Directors in a non-voting observer capacity,
\nexcept that Buyer may be excluded from access to any material or meeting or
\nportion thereof if the Company believes, in good faith, that such exclusion is
\nreasonably necessary to preserve the attorney-client privilege, to protect
\nhighly confidential or proprietary information, to protect the interests of the
\nCompany or for other similar reasons. Upon reasonable notice and at a scheduled
\nmeeting of the Board of Directors or such other time, if any, as the Board of
\nDirectors may determine in its sole discretion, such representative may address,
\nsubject to reasonable limitations, the Board of Directors with respect to
\nBuyer’s concerns regarding significant business issues facing the Company.
\nInformation disclosed to or learned by the Buyer pursuant to this Section 5.4 is
\nsubject to Section 10.16. The rights set forth in this Section 5.4 shall
\nterminate upon the earlier of the following: (i) if at any time the Buyer ceases
\nto own and control at least ten percent (10%) of the issued and outstanding
\ncapital stock of the Company; (ii) the closing of an initial public offering of
\nthe capital stock of the Company pursuant to an effective registration statement
\nunder the Securities Act; or (iii) the date the Company becomes subject to the
\nreporting requirements of the Securities Exchange Act.<\/p>\n
5.5 Legends.<\/p>\n
To the extent applicable, each certificate or other document
\nevidencing any of the Company Shares shall be endorsed with the legend set forth
\nbelow, and Buyer covenants that, except for the transfer of shares pursuant to
\nRule 144, the removal of the legend set forth in this<\/p>\n
20
\n 25
\nSection 5.5 pursuant to Rule 144, the transfer or the distributions to any
\nAffiliate, and to the extent such restrictions are waived by the Company, Buyer
\nshall not transfer the shares represented by any such certificate without
\ncomplying with the restrictions on transfer described in the legends endorsed on
\nsuch certificate:<\/p>\n
‘THE SECURITIES REPRESENTED BY TIES CERTIFICATE HAVE NOT BEEN
\n REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
\n AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND
\n SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
\n PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS
\n PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
\n REGISTRATION AND QUALIFICATION UNDER FEDERAL AND STATE SECURITIES
\n LAWS IS NOT REQUIRED.’<\/p>\n
5.6 Distribution and License Agreement.<\/p>\n
The Company and Buyer shall enter into a reciprocal Distribution and
\nLicense Agreement in the form attached hereto as Exhibit ‘D’.<\/p>\n
5.7 Further Actions. The Company shall, within 90 days after the
\nClosing Date, provide to Buyer evidence of the Company’s ownership of its
\nSubsidiaries to Buyer’s reasonable satisfaction.<\/p>\n
6. Conditions to Obligation to Close.<\/p>\n
6.1 Conditions to Obligation of the Buyer.<\/p>\n
The obligation of the Buyer to consummate the transactions to be
\nperformed by it in connection with the Closing is subject to satisfaction of the
\nfollowing conditions:<\/p>\n
(a) each of the representations and warranties set forth in
\nSections 3.1 and 3.2 above that is qualified by materiality shall be true and
\ncorrect at and as of the Closing Date, and each of the representations and
\nwarranties set forth in Sections 3.1 and 3.2 above that is not so qualified
\nshall be true and correct in all material respects at and as of the Closing
\nDate;<\/p>\n
(b) the Company and Shareholder shall have performed and
\ncomplied with all of their covenants hereunder in all material respects through
\nthe Closing;<\/p>\n
(c) the Company and its Subsidiaries shall have procured all
\nof the third party consents specified in Section 3.1 above;<\/p>\n
(d) no action, suit, or proceeding shall be pending or
\nthreatened before any court or quasi-judicial or administrative agency of any
\nfederal, state, local, or foreign jurisdiction or before any arbitrator wherein
\nan unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
\nprevent consummation of any of the transactions contemplated by this Agreement,
\n(ii) cause any of the transactions contemplated by this Agreement to be
\nrescinded following consummation, (iii) affect adversely the right of the Buyer
\nto own the Company Shares, or (iv) affect adversely the right of any of the
\nCompany and its Subsidiaries to own its assets and to operate its businesses
\n(and no such injunction, judgment, order, decree, ruling, or charge shall be in
\neffect);<\/p>\n
21
\n 26
\n (e) the Company Shares that are being purchased by the Buyer,
\nwhen issued, sold and delivered in accordance with the terms of this Agreement
\nfor the consideration expressed herein, will be duly and validly issued,
\nnonassessable and free from rights of first refusal or other restrictions.<\/p>\n
(f) the Company shall have delivered to the Buyer a
\ncertificate to the effect that the conditions specified above in Section
\n6.1(a)-(e) are satisfied in all respects;<\/p>\n
(g) all applicable waiting periods (and any extensions
\nthereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
\nterminated and the Parties, including the Company’s Subsidiaries, shall have
\nreceived all other authorizations, consents, and approvals of governments and
\ngovernmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
\n3.3(b) above;<\/p>\n
(h) the Buyer shall have received from counsel to the Company
\nan opinion in form and substance as set forth in Exhibit ‘B’ attached hereto,
\naddressed to the Buyer, and dated as of the Closing Date;<\/p>\n
(i) the Buyer shall have obtained on terms and conditions
\nsatisfactory to it all of the financing it needs in order to consummate the
\ntransactions contemplated hereby;<\/p>\n
(j) the Company and Shareholder shall have entered into and
\ndelivered an Investors Rights Agreement substantially in the form attached as
\nExhibit ‘C’;<\/p>\n
(k) the Company and the Buyer shall have entered into and
\ndelivered the Distribution and License Agreement substantially in the form
\nattached as Exhibit ‘D’; and<\/p>\n
(l) all actions to be taken by the Company and Shareholder in
\nconnection with consummation of the transactions contemplated hereby and all
\ncertificates, opinions, instruments, and other documents required to effect the
\ntransactions contemplated hereby will be satisfactory in form and substance to
\nthe Buyer.<\/p>\n
The Buyer may waive any condition specified in this Section 6.1.<\/p>\n
6.2 Conditions to Obligation of the Company and Shareholder.<\/p>\n
The obligation of the Company and Shareholder to consummate the
\ntransactions to be performed by them in connection with the Closing is subject
\nto satisfaction of the following conditions:<\/p>\n
(a) the representations and warranties set forth in Section
\n3.3 above shall be true and correct in all material respects at and as of the
\nClosing Date;<\/p>\n
(b) the Buyer shall have performed and complied with all of
\nits covenants hereunder in all material respects through the Closing;<\/p>\n
(c) no action, suit, or proceeding shall be pending wherein
\nan unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
\nprevent consummation of any of the transactions contemplated by this Agreement
\nor (ii) cause any of the transactions contemplated by this Agreement to be
\nrescinded following consummation (and no such injunction, judgment, order,
\ndecree, ruling, or charge shall be in effect);<\/p>\n
22
\n 27
\n (d) the Buyer shall have delivered to the Company a
\ncertificate to the effect that each of the conditions specified above in Section
\n6.2(a)-(c) is satisfied in all respects;<\/p>\n
(e) all applicable waiting periods (and any extensions
\nthereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
\nterminated and the Parties, including the Company’s Subsidiaries, shall have
\nreceived all other authorizations, consents, and approvals of governments and
\ngovernmental agencies referred to in Section 3.1(b), Section 3.2(a), and Section
\n3.3(b) above; and<\/p>\n
(f) the Company and the Buyer shall have entered into and
\ndelivered the Distribution and License Agreement substantially in the form
\nattached as Exhibit ‘D’;<\/p>\n
(g) all actions to be taken by the Buyer in connection with
\nconsummation of the transactions contemplated hereby and all certificates,
\nopinions, instruments, and other documents required to effect the transactions
\ncontemplated hereby will be reasonably satisfactory in form and substance to the
\nCompany and Shareholder.<\/p>\n
The Company and Shareholder may waive any condition specified in
\nthis Section 6.2.<\/p>\n
7. Remedies for Breaches of this Agreement.<\/p>\n
7.1 Survival of Representations and Warranties.<\/p>\n
All of the representations and warranties of the Parties contained in
\nSections 3.1(a) through (e) and 3.3 of this Agreement shall survive the Closing
\nhereunder (even if the damaged Party knew or had reason to know of any
\nmisrepresentation or breach of warranty or covenant at the time of Closing) and
\ncontinue in full force and effect forever thereafter. The representations and
\nwarranties of the Company contained in Section 3.1(1) (with respect to taxes)
\nshall survive the Closing hereunder and shall continue in full force and effect
\nthereafter, as they relate to any taxable year of the Company, until sixty (60)
\ndays after the expiration of the statute of limitations applicable to the making
\nof adjustments or assessments by any taxing authority as the same may be
\nextended by the Company. All of the other representations, warranties and
\ncovenants of the Parties contained in this Agreement shall survive the Closing
\nhereunder (even if the damaged Party knew or had reason to know of any
\nmisrepresentation or breach of warranty or covenant at the time of Closing) and
\ncontinue in full force and effect thereafter until two years from the Closing
\nDate. Except as otherwise provided in the first sentence of this Section 7.1,
\nafter said survival period, all representations and warranties shall terminate,
\nand no party shall have any Liability or obligation with respect to any
\nrepresentation or warranty under this Agreement, provided that once notice of
\nany claim has been timely given, additional related claims arising out of
\nsubstantially the same circumstances may be made at any time prior to the
\nresolution of such claim (by means of a final, non-appealable judgment of a
\ncourt of competent jurisdiction, a binding arbitration decision or a settlement
\napproved by the parties involved) even if such resolution occurs after the
\nexpiration or termination date, if any, prescribed for such representation or
\nwarranty in this Section 7.1.<\/p>\n
7.2 Indemnification Provisions for Benefit of the Buyer.<\/p>\n
(a) In the event that (i) the Company breaches any of its
\nrepresentations, warranties, and covenants contained herein, then the Company
\nagrees to indemnify the Buyer from and against any Adverse Consequences the
\nBuyer may suffer through and after the date of the claim<\/p>\n
23
\n 28
\nfor indemnification (including any Adverse Consequences the Buyer may suffer
\nafter the end of any applicable survival period) resulting from, arising out of
\nor caused by such breach by the Company of any of its representations,
\nwarranties or covenants made herein, or (ii) the Shareholder breaches any of its
\nrepresentations, warranties, and covenants contained herein, then the
\nShareholder agrees to indemnify the Buyer from and against any Adverse
\nConsequences the Buyer may suffer through and after the date of the claim for
\nindemnification (including any Adverse Consequences the Buyer may suffer after
\nthe end of any applicable survival period) resulting from, arising out of or
\ncaused by such breach by the Shareholder of any of its representations,
\nwarranties or covenants made herein.<\/p>\n
(b) In the event that a third party asserts any claim against
\nthe Company alleging that the Company has violated the Intellectual Property
\nrights of such third party based on acts that occurred during the two year
\nperiod following the Closing Date, then the Company agrees to indemnify the
\nBuyer from and against any Adverse Consequences the Buyer may suffer through and
\nafter the date of the claim for indemnification (including any Adverse
\nConsequences the Buyer may suffer after the end of any applicable survival
\nperiod) resulting from, arising out of or caused by such third party claim.<\/p>\n
(c) Notwithstanding the foregoing provisions of this Section
\n7.2, no indemnification shall be payable by the Company or the Shareholder with
\nrespect to any claim for breach of any representation, warranty or covenant made
\nherein or claim by any third party until the total of such claims for
\nindemnification shall exceed US$75,000 (the ‘Deductible’), in which event the
\nBuyer shall be entitled to recover the amount of such claims in excess of the
\nDeductible; and provided, further, that the aggregate liability of either the
\nCompany or the Shareholder for indemnification payable hereunder shall not
\nexceed the amount of (i) the Purchase Price, plus (ii) reasonable attorneys’
\nfees and expenses incurred by the Buyer in seeking indemnification under this
\nSection 7.<\/p>\n
7.3 Indemnification Provisions for Benefit of the Company and
\nShareholder.<\/p>\n
In the event the Buyer breaches any of its representations,
\nwarranties, and covenants contained herein, then the Buyer agrees to indemnify
\neach of the Company and Shareholder from and against the entirety of any Adverse
\nConsequences they may suffer through and after the date of the claim for
\nindemnification (including any Adverse Consequences they may suffer after the
\nend of any applicable survival period) resulting from, arising out of or caused
\nby the breach; provided, however, that no indemnification shall be payable by
\nthe Buyer with respect to any claim for breach of any representation, warranty
\nor covenant made herein until the total of such claims for indemnification shall
\nexceed US$75,000, in which event the Company and the Shareholder, as the case
\nmay be, shall be entitled to recover the amount of such claims in excess of the
\nDeductible; and provided, further, that the aggregate liability of the Buyer for
\nindemnification payable hereunder shall not exceed $1 million, except for any
\nbreach of Buyer’s obligation to pay the Purchase Price under Section 2.<\/p>\n
7.4 Matters Involving Third Parties.<\/p>\n
(a) If any third party shall notify any Party (the
\n‘Indemnified Party’) with respect to any matter (a ‘Third Party Claim’) which
\nmay give rise to a claim for indemnification against any other Party (the
\n‘Indemnifying Party’) under this Section 7, then the<\/p>\n
24
\n 29
\nIndemnified Party shall promptly notify each Indemnifying Party thereof in
\nwriting; provided, however, that no delay on the part of the Indemnified Party
\nin notifying any Indemnifying Party shall relieve the Indemnifying Party from
\nany obligation hereunder unless (and then solely to the extent) the Indemnifying
\nParty thereby is prejudiced.<\/p>\n
(b) Any Indemnifying Party will have the right to defend the
\nIndemnified Party against the Third Party Claim with counsel of its choice
\nreasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
\nParty notifies the Indemnified Party in writing within 15 days after the
\nIndemnified Party has given notice of the Third Party Claim that the
\nIndemnifying Party will indemnify the Indemnified Party from and against the
\nentirety of any Adverse Consequences the Indemnified Party may suffer resulting
\nfrom, arising out of, or caused by the Third Party Claim, (ii) the Indemnifying
\nParty provides the Indemnified Party with evidence reasonably acceptable to the
\nIndemnified Party that the Indemnifying Party will have the financial resources
\nto defend against the Third Party Claim and fulfill its indemnification
\nobligations hereunder, (iii) the Third Party Claim involves only money damages
\nand does not seek an injunction or other equitable relief, (iv) settlement of,
\nor an adverse judgment with respect to, the Third Party Claim is not, in the
\ngood faith judgment of the Indemnified Party, likely to establish a precedential
\ncustom or practice materially adverse to the continuing business interests of
\nthe Indemnified Party, and (v) the Indemnifying Party conducts the defense of
\nthe Third Party Claim actively and diligently.<\/p>\n
(c) So long as the Indemnifying Party is conducting the
\ndefense of the Third Party Claim in accordance with Section 7.4(b) above, (A)
\nthe Indemnified Party may retain separate co-counsel at its sole cost and
\nexpense and participate in the defense of the Third Party Claim, (B) the
\nIndemnified Party will not consent to the entry of any judgment or enter into
\nany settlement with respect to the Third Party Claim without the prior written
\nconsent of the Indemnifying Party (not to be withheld unreasonably), and (C) the
\nIndemnifying Party will not consent to the entry of any judgment or enter into
\nany settlement with respect to the Third Party Claim without the prior written
\nconsent of the Indemnified Party (not to be withheld unreasonably).<\/p>\n
(d) In the event any of the conditions in Section 7.4(b) above
\nis or becomes unsatisfied, however, (i) the Indemnified Party may defend
\nagainst, and consent to the entry of any judgment or enter into any settlement
\nwith respect to, the Third Party Claim in any manner it reasonably may deem
\nappropriate (and the Indemnified Party need not consult with, or obtain any
\nconsent from, any Indemnifying Party in connection therewith), (ii) the
\nIndemnifying Parties will reimburse the Indemnified Party promptly and
\nperiodically for the costs of defending against the Third Party Claim (including
\nreasonable attorneys’ fees and expenses), and (iii) the Indemnifying Parties
\nwill remain responsible for any Adverse Consequences the Indemnified Party may
\nsuffer resulting from, arising out of or caused by the Third Party Claim to the
\nfullest extent provided in this Section 7.<\/p>\n
7.5 Determination of Adverse Consequences.<\/p>\n
The Parties shall take into account the time cost of money (using
\nthe Applicable Rate as the discount rate) in determining Adverse Consequences
\nfor purposes of this Section 7.<\/p>\n
25
\n 30
\n 7.6 Recoupment Against Purchase Price.<\/p>\n
(a) The Buyer shall have the option of recouping all or any
\npart of any Adverse Consequences it may suffer (in lieu of seeking any
\nindemnification to which it is entitled under this Section 7) at any time or
\nfrom time to time by providing the Company with at least thirty (30) days’
\nnotice (a ‘Reduction Notice’) of Buyer’s intent to reduce the amount of Purchase
\nPrice due to the Company in the Second Distribution and the Final Distribution,
\ntogether with all documentation and information reasonably necessary to
\nsubstantiate Buyer’s Adverse Consequences and Buyer’s claim for satisfaction of
\nsuch Adverse Consequences.<\/p>\n
(b) On or prior to the thirtieth (30th) day following the
\ndelivery of a Reduction Notice, the Company may deliver to Buyer a written
\nstatement (a ‘Reduction Disputing Notice’) setting forth with reasonable
\nspecificity any disagreement with any of the amounts contained in the Reduction
\nNotice which could affect the necessity or amount of any reduction of the
\nportion of the Purchase Price due to the Company in the Second Distribution and
\nthe Final Distribution. The sole basis for any disagreement with a Reduction
\nNotice shall be either (i) that the Adverse Consequences claimed by Buyer do not
\ngive rise to a claim for indemnification under this Section 7 or (ii) that there
\nhas been an arithmetical error in adding the Adverse Consequences. If the
\nCompany does not submit a Reduction Disputing Notice on or prior to such
\nthirtieth (30th) day, then the portion of the Purchase Price due to the Company
\nin the Second Distribution and the Final Distribution shall be deemed to have
\nbeen reduced for purposes of this Agreement in the amount set forth in the
\nReduction Notice. If the Company does submit a Reduction Disputing Notice on or
\nprior to such thirtieth (30th) day, any amounts contained in such Reduction
\nNotice which are not disputed by the Reduction Disputing Notice shall be deemed
\nto have been finally determined for purposes of this Agreement.<\/p>\n
(c) For a period of sixty (60) days, Buyer and the Company
\nshall attempt to resolve in good faith any dispute or disagreement between a
\nReduction Notice and a Reduction Disputing Notice. Amounts contained on a
\nReduction Notice and resolved by such attempts shall be deemed to have been
\nfinally determined for purposes of this Agreement. After such sixty (60) day
\nperiod, either party may commence legal proceedings to resolve any such dispute.<\/p>\n
7.7 Exclusive Remedy for Non-Intentional Violations.<\/p>\n
The foregoing indemnification provisions shall be the sole and
\nexclusive remedy for claims relating to any breach of the representations,
\nwarranties and covenants made herein by the respective Parties with respect to
\nthe transactions contemplated herein. Notwithstanding the foregoing limitation,
\nin the case of any intentional or knowing breach of the representations,
\nwarranties or covenants made by the respective Parties herein or intentionally
\nfraudulent or tortious conduct (‘Intentional Violations’), the indemnification
\nprovisions herein are in addition to, and not in derogation of, any statutory,
\nequitable or common law remedy (including without limitation any such remedy
\narising under Environmental, Health and Safety Requirements) any Party may have
\nwith respect to the Buyer, the Company, its Subsidiaries or the transactions
\ncontemplated by this Agreement.<\/p>\n
26
\n 31
\n 8. Tax Matters.<\/p>\n
8.1 Certain Taxes.<\/p>\n
All transfer, documentary, sales, use, stamp, registration and other
\nsuch Taxes and fees (including any penalties and interest) incurred in
\nconnection with the sale of the Company Shares under this Agreement (including
\nany gains tax or transfer tax imposed in state or subdivision), shall be paid by
\nthe Company when due, and the Company will, at its own expense, file all
\nnecessary Tax Returns and other documentation with respect to all such transfer,
\ndocumentary, sales, use, stamp, registration and other Taxes and fees, and, if
\nrequired by applicable law, Buyer will, and will cause its affiliates to, join
\nin the execution of any such Tax Returns and other documentation.<\/p>\n
9. Termination.<\/p>\n
9.1 Termination of Agreement.<\/p>\n
Certain of the Parties may terminate this Agreement as provided
\nbelow:<\/p>\n
(a) the Buyer and the Company may terminate this Agreement by
\nmutual written consent at any time prior to the Closing;<\/p>\n
(b) the Buyer may terminate this Agreement by giving written
\nnotice to the Company prior to the Closing if the Buyer is not satisfied with
\nthe results of its continuing business, legal, environmental, and accounting due
\ndiligence regarding the Company and its Subsidiaries;<\/p>\n
(c) the Buyer may terminate this Agreement by giving written
\nnotice to the Company at any time prior to the Closing (i) in the event any of
\nthe Company or the Shareholder has breached any material representation,
\nwarranty, or covenant contained in this Agreement in any material respect, the
\nBuyer has notified the Company or the Shareholder of the breach, and the breach
\nhas continued without cure for a period of 30 days after the notice of breach or
\n(ii) if the Closing shall not have occurred on or before August 31, 1999, by
\nreason of the failure of any condition precedent under Section 6.1 hereof
\n(unless the failure results primarily from the Buyer itself breaching any
\nrepresentation, warranty, or covenant contained in this Agreement); and<\/p>\n
(d) the Company may terminate this Agreement by giving written
\nnotice to the Buyer at any time prior to the Closing (i) in the event the Buyer
\nhas breached any material representation, warranty, or covenant contained in
\nthis Agreement in any material respect, the Company has notified the Buyer of
\nthe breach, and the breach has continued without cure for a period of 30 days
\nafter the notice of breach or (ii) if the Closing shall not have occurred on or
\nbefore August 31, 1999, by reason of the failure of any condition precedent
\nunder Section 6.2 hereof (unless the failure results primarily from any of the
\nCompany or the Shareholder themselves breaching any representation, warranty, or
\ncovenant contained in this Agreement).<\/p>\n
9.2 Effect of Termination.<\/p>\n
If any Party terminates this Agreement pursuant to Section 9.1
\nabove, all rights and obligations of the Parties hereunder shall terminate
\nwithout any Liability of any Party to any other Party (except for any Liability
\nof any Party then in breach).<\/p>\n
27
\n 32
\n 10. Miscellaneous.<\/p>\n
10.1 Press Releases and Public Announcements.<\/p>\n
No Party shall issue any press release or make any public
\nannouncement relating to the subject matter of this Agreement without the prior
\nwritten approval of the Buyer and the Company; provided, however, that any Party
\nmay make any public disclosure it believes in good faith is required by
\napplicable law or any listing or trading agreement concerning its
\npublicly-traded securities (in which case the disclosing Party will use its
\nreasonable best efforts to advise the other Parties prior to making the
\ndisclosure).<\/p>\n
10.2 No Third-Party Beneficiaries.<\/p>\n
This Agreement shall not confer any rights or remedies upon any
\nPerson other than the Parties and their respective successors and permitted
\nassigns.<\/p>\n
10.3 Entire Agreement.<\/p>\n
This Agreement (including the documents referred to herein)
\nconstitutes the entire agreement among the Parties and supersedes any prior
\nunderstandings, agreements, or representations by or among the Parties, written
\nor oral, to the extent they related in any way to the subject matter hereof.<\/p>\n
10.4 Succession and Assignment.<\/p>\n
This Agreement shall be binding upon and inure to the benefit of the
\nParties named herein and their respective successors and permitted assigns. No
\nParty may assign either this Agreement or any of his or its rights, interests,
\nor obligations hereunder without the prior written approval of the Buyer, the
\nCompany and the Shareholder; provided, however, that the Buyer may (a) assign
\nany or all of its rights and interests hereunder to one or more of its
\nAffiliates, (b) designate one or more of its Affiliates to perform its
\nobligations hereunder (in any or all of which cases the Buyer nonetheless shall
\nremain responsible for the performance of all of its obligations hereunder), and
\n(c) assign any or all of its rights and interests hereunder in connection with
\nany merger or sale of all or substantially all of its assets or capital stock.
\nAfter the Closing and without any prior approval of any other Party, this
\nAgreement may be assigned by any Party to any successor to its business or to
\nany purchaser or transferee of substantially all of its assets; provided,
\nhowever, that such assignment shall not be deemed to relieve the assigning Party
\nof any of its obligations hereunder.<\/p>\n
10.5 Counterparts.<\/p>\n
This Agreement may be executed in one or more counterparts, each of
\nwhich shall be deemed an original but all of which together will constitute one
\nand the same instrument.<\/p>\n
10.6 Headings.<\/p>\n
The Section headings contained in this Agreement are inserted for
\nconvenience only and shall not affect in any way the meaning or interpretation
\nof this Agreement.<\/p>\n
10.7 Notices.<\/p>\n
All notices, requests, demands, claims, and other communications
\nhereunder will be in writing. Any notice, request, demand, claim, or other
\ncommunication hereunder shall be deemed<\/p>\n
28
\n 33
\nduly given if (and then two business days after) it is sent by registered or
\ncertified mail, return receipt requested, postage prepaid, and addressed to the
\nintended recipient as set forth below:<\/p>\n
If to the Company: Copy to:
\n Caldera Systems, Inc. Parsons, Behle & Latimer
\n 240 West Center Street 1 South Main Street
\n Orem, Utah 84057 Suite 1800
\n Attn: Ransom Love, President & Salt Lake City, Utah 84145
\n Chief Executive Officer Attn: Brent Christensen, Esq.<\/p>\n
If to the Shareholder: Copy to:
\n The Canopy Group, Inc. Parsons, Behle & Latimer
\n 240 West Center Street 1 South Main Street
\n Orem, Utah 84057 Suite 1800
\n Attn: Ray Noorda and Ralph Yarro Salt Lake City, Utah 84145
\n Attn: Brent Christensen, Esq.<\/p>\n
If to the Buyer: Copy to:
\n MTI Technology Corporation Morrison & Foerster LLP
\n 4905 East La Palma Avenue 19900 MacArthur Boulevard
\n Anaheim, California 92807 Irvine, California 92612
\n Attn: Chief Financial Officer Attn: Tamara Powell Tate, Esq.<\/p>\n
Any Party may send any notice, request, demand, claim, or other communication
\nhereunder to the intended recipient at the address set forth above using any
\nother means (including personal delivery, expedited courier, messenger service,
\ntelecopy, telex, ordinary mail, or electronic mail), but no such notice,
\nrequest, demand, claim, or other communication shall be deemed to have been duly
\ngiven unless and until it actually is received by the intended recipient. Any
\nParty may change the address to which notices, requests, demands, claims, and
\nother communications hereunder are to be delivered by giving the other Parties
\nnotice in the manner herein set forth.<\/p>\n
10.8 Governing Law.<\/p>\n
This agreement is to be construed in accordance with and governed by
\nthe internal laws of the State of California (as permitted by Section 1646.5 of
\nthe California Civil Code or any similar successor provision) without giving
\neffect to any choice of law rule that would cause the application of the laws of
\nany jurisdiction other than the internal laws of the State of California to the
\nrights and duties of the parties.<\/p>\n
10.9 Amendments and Waivers.<\/p>\n
No amendment of any provision of this Agreement shall be valid
\nunless the same shall be in writing and signed by the Buyer, the company and the
\nShareholder. No waiver by any Party of any default, misrepresentation, or breach
\nof warranty or covenant hereunder, whether intentional or not, shall be deemed
\nto extend to any prior or subsequent default, misrepresentation, or breach of
\nwarranty or covenant hereunder or affect in any way any rights arising by virtue
\nof any prior or subsequent such occurrence.<\/p>\n
29
\n 34
\n 10.10 Severability.<\/p>\n
Any term or provision of this Agreement that is invalid or
\nunenforceable in any situation in any jurisdiction shall not affect the validity
\nor enforceability of the remaining terms and provisions hereof or the validity
\nor enforceability of the offending term or provision in any other situation or
\nin any other jurisdiction.<\/p>\n
10.11 Expenses.<\/p>\n
Each of the Parties will bear its own costs and expenses (including
\nlegal fees and expenses) incurred in connection with this Agreement and the
\ntransactions contemplated hereby.<\/p>\n
10.12 Construction.<\/p>\n
The Parties have participated jointly in the negotiation and
\ndrafting of this Agreement. In the event an ambiguity or question of intent or
\ninterpretation arises, this Agreement shall be construed as if drafted jointly
\nby the Parties and no presumption or burden of proof shall arise favoring or
\ndisfavoring any Party by virtue of the authorship of any of the provisions of
\nthis Agreement. Any reference to any federal, state, local, or foreign statute
\nor law shall be deemed also to refer to all rules and regulations promulgated
\nthereunder, unless the context requires otherwise. The word ‘including’ shall
\nmean including without limitation. The Parties intend that each representation,
\nwarranty, and covenant contained herein shall have independent significance. If
\nany Party has breached any representation, warranty, or covenant contained
\nherein in any respect, the fact that there exists another representation,
\nwarranty, or covenant relating to the same subject matter (regardless of the
\nrelative levels of specificity) which the Party has not breached shall not
\ndetract from or mitigate the fact that the Party is in breach of the first
\nrepresentation, warranty, or covenant.<\/p>\n
10.13 Incorporation of Exhibits, Annexes, and Schedules.<\/p>\n
The Exhibits, Annexes, and Schedules identified in this Agreement
\nare incorporated herein by reference and made a part hereof. However, the
\nDistribution and License Agreement shall be deemed a separate and complete
\nagreement and shall exist and be governed independent of this Agreement.<\/p>\n
10.14 Specific Performance.<\/p>\n
Each of the Parties acknowledges and agrees that the other Parties
\nwould be damaged irreparably in the event any of the provisions of this
\nAgreement are not performed in accordance with their specific terms or otherwise
\nare breached. Accordingly, each of the Parties agrees that the other Parties
\nshall be entitled to an injunction or injunctions to prevent breaches of the
\nprovisions of this Agreement and to enforce specifically this Agreement and the
\nterms and provisions hereof in any action instituted in any court of the United
\nStates or any state thereof having jurisdiction over the Parties and the matter
\n(subject to the provisions set forth in Section 10.15 below), in addition to
\nany other remedy to which they may be entitled, at law or in equity.<\/p>\n
10.15 Submission to Jurisdiction.<\/p>\n
Each of the Parties submits to the jurisdiction of any state or
\nfederal court sitting in Orange County, California, in any action or proceeding
\narising out of or relating to this Agreement<\/p>\n
30
\n 35
\nand agrees that all claims in respect of the action or proceeding may be heard
\nand determined in any such court. Each Party also agrees not to bring any action
\nor proceeding arising out of or relating to this Agreement in any other court.
\nEach of the Parties waives any defense of inconvenient forum to the maintenance
\nof any action or proceeding so brought and waives any bond, surety, or other
\nsecurity that might be required of any other Party with respect thereto. Any
\nParty may make service on any other Party by sending or delivering a copy of the
\nprocess to the Party to be served at the address and in the manner provided for
\nthe giving of notices in Section 10.7 above.<\/p>\n
10.16 Confidentiality.<\/p>\n
Each of the Parties and their respective representatives and
\nemployees shall keep strictly confidential and shall not disclose or use for any
\npurpose other than this Agreement, any and all confidential and proprietary
\ninformation (‘Confidential Information’) disclosed by any of the Parties (an
\n‘Informing Party’) to any other Party (an ‘Informed Party’) or learned by the
\nInformed Party from the premises, properties, personnel, books, records
\n(including Tax records), contracts, and documents to which it is given access.
\nEach Party shall limit disclosure of Confidential Information to its
\nrepresentatives, financial advisors and employees on a need to know basis. The
\nterm ‘Confidential Information’ does not include information which (i) is or
\nbecomes generally available to the public other than as a result of a disclosure
\nby the Informed Party or its representatives, (ii) was available to the Informed
\nParty on a non-confidential basis prior to its disclosure to the Informed Party
\nby the Informing Party or its representatives, or (iii) becomes available to the
\nInformed Party on a non-confidential basis from a source other than the
\nInforming Party or its representatives, provided, however, that such source is
\nnot bound by a confidentiality agreement with the Informing Party or its
\nrepresentatives. Each of the Parties shall ensure that its representatives and
\nemployees comply with this Section 10.16.<\/p>\n
10.17 California Corporate State Securities Law.<\/p>\n
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
\nHAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
\nCALIFORNIA OR UTAH AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT
\nOF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION
\nIS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
\nSECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
\nALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION
\nBEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.<\/p>\n
31
\n 36
\n IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
\nthe date first above written.<\/p>\n
MTI TECHNOLOGY CORPORATION, a Delaware
\n corporation<\/p>\n
By: \/s\/ DALE R. BORD
\n ————————————
\n Title: Chief Financial Officer<\/p>\n
CALDERA SYSTEMS, INC., a Utah corporation<\/p>\n
By: \/s\/ RANSOM H. LOVE
\n ————————————-
\n Title: President & CEO<\/p>\n
THE CANOPY GROUP, INC., a Utah corporation<\/p>\n
By: \/s\/ RALPH YARRO
\n ————————————-
\n Title: President & CEO<\/p>\n
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