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As filed with the Securities and Exchange Commission on August 10, 1998
Registration No. 333-58439
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BEA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0394711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
385 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089-1208
(408) 743-4000
(Address, including zip code, and telephone number, including area code, of
registrar's principal executive offices)
William T. Coleman III
Chairman, President and Chief Executive Officer
385 Moffett Park Drive
Sunnyvale, California 94089-1208
(408) 743-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Michael C. Phillips, Esq.
Cori M. Allen, Esq.
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
(650) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated August 10, 1998
PROSPECTUS
- ----------
560,704 Shares
BEA Systems, Inc.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by the holders
of up to 560,704 shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock") of the Company. The Shares were issued in connection
with a stock purchase agreement, dated as of April 27, 1998 among the Company,
the Leader Group, Inc., a Colorado corporation, ("Leader Group") and the former
shareholders of the Leader Group (the "Selling Stockholders") (the "Stock
Purchase Agreement"). This Prospectus has been prepared in connection with
registering the Shares to allow for sales of Shares by the applicable Selling
Stockholders to the public in accordance with the terms of the Stock Purchase
Agreement.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The Common Stock is listed on the Nasdaq National Market ("NASDAQ") under the
symbol "BEAS." On August 5, 1998, the last sale price of the Common Stock on
NASDAQ was $16.375 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 OF THIS PROSPECTUS.
The Selling Stockholders from time to time may offer and sell the Shares held
by them directly or through agents or broker-dealers on terms to be determined
at the time of sale. To the extent required, the names of any agent or broker-
dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Shares to be made directly or through agents.
The Company will not receive any of the proceeds from the sale of Shares by
the Selling Stockholders but has agreed to bear certain expenses of registration
of the Shares under federal and state securities laws.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of the Shares may be deemed to be underwriting commissions or discounts
under the Securities Act.
The date of this Prospectus is , 1998
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No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or the Selling Securityholders. Neither the delivery
of this Prospectus nor any sale made under this Prospectus shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
web site (http://www.sec.gov) containing reports, proxy and information
statements and other information of registrants, including the Company, that
file electronically with the Commission. In addition, the Common Stock is
listed on the Nasdaq National Market and similar information concerning the
Company can be inspected and copied at the offices of the National Association
of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Shares. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other documents are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Shares, reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-KSB for the year ended January 31,
1998;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1998;
c. The Company's Current Report on Form 8-K dated as of June 30, 1998;
and
d. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File no. 000-22369).
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing
such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
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Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Kevin A. Faulkner, Senior Director-Investor Relations, 385 Moffett
Park Drive, Sunnyvale, California 94089-1208, telephone number: (408) 743-4000.
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THE COMPANY
BEA Systems, Inc. ("BEA" or the "Company") is a leading provider of cross-
platform middleware solutions for enterprise applications. BEA's products and
services enable mission-critical applications to work seamlessly in distributed
computing, Internet, and legacy environments. BEA provides transactional,
messaging, and distributed object-based software for developing and deploying
these enterprise applications. In addition, BEA provides complete enterprise
middleware solutions through its partner network, and a full range of services
including consulting, training and support. The flagship of the BEA enterprise
middleware solution is BEA TUXEDO, a software platform that manages transactions
and communications for enterprise-wide applications, enabling organizations to
realize the benefits offered by distributed computing environments while
preserving the traditional advantages of mainframe-based systems. BEA products
provide a middleware software infrastructure that supports thousands of
simultaneous users distributed worldwide.
BEA's products are marketed and sold by the Company's direct sales force
through a network of 50 offices in 24 countries worldwide and also indirectly by
its distribution partners. BEA's products have been adopted by customers in a
wide variety of industries, including telecommunications, banking and finance,
manufacturing, retail, technology and transportation. The total number of
customers using the Company's products is approximately 1,400 worldwide. These
customers include: The AT&T Corp., Bell Communications Research, Inc., The
Boeing Company, Deutsche Telekom, Federal Express Corp., Fidelity Investments,
The Gap, Inc., McKesson Corp., Motorola, Inc., Nippon Telephone & Telegraph,
Norwest Corporation, United Airlines, Inc., U.K. Employment Services, Union
Pacific Railroad and Walgreen Co. In addition, the Company partners with
independent software vendors ("ISVs") such as PeopleSoft, Inc. and Clarify, Inc.
and computer hardware manufacturers such as Hewlett-Packard, IBM and Unisys to
sell BEA products to enterprise customers.
Over the past decade, the information systems of many organizations have been
evolving from traditional mainframe systems to distributed computing
environments. This evolution has been driven by the benefits offered by
distributed computing, including lower incremental technology costs, faster
application development and deployment, increased flexibility and improved
access to business information. However, the inherent technical and business
limitations of distributed computing have generally precluded its use for
complex, large-scale, mission-critical applications, such as airline
reservations, credit card processing and customer billing and support systems,
that enable and support fundamental business processes. These shortcomings
include the limited scalability, reliability and interoperability of distributed
computing environments. In addition, it has been difficult to integrate
distributed computing technologies with existing mission-critical applications,
limiting organizations' ability to leverage their substantial investments in
legacy systems and existing personnel and skills.
BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. The Company's
enterprise middleware solutions, featuring time-tested and market-proven BEA
TUXEDO technology, provide a middleware platform that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial investments in legacy systems,
significantly extending the useful lives of mainframe and programmer assets
while exploiting the benefits offered by distributed computing. The Company also
offers solutions that enable customers to quickly develop secure, reliable
applications on the Internet that interoperate with new and existing systems.
The Company's objective is to establish its middleware solutions as the
industry standard for developing, deploying and managing distributed mission-
critical applications. To this end, BEA intends to enhance its technological
leadership by adding new functionality to its products; expand its global
distribution facilities to complement its direct sales, services, training and
support capabilities; promote the embedding of BEA products into the product
offerings of ISVs to accelerate the acceptance of BEA products; leverage
strategic partnerships to augment the efforts of its direct sales force; and
provide the software and services necessary to conduct safe, reliable enterprise
transactions over the Internet.
From its inception, the Company has made a number of strategic acquisitions.
The Company acquired worldwide exclusive rights to TUXEDO from Novell, Inc.
("Novell") in February 1996, acquired Information Management Company ("IMC") and
Independence Technologies, Inc. ("ITI"), two leading distributors of TUXEDO, in
September 1995 and November 1995, respectively, and acquired a number of other
TUXEDO distribution, sales and support organizations between May 1996 and
December 1996. In March 1997, the Company acquired exclusive rights to MessageQ,
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ObjectBroker and other related products from Digital Equipment Corporation
("Digital"). See Note 4 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-KSB. In the quarter ended January 31, 1998,
the Company acquired a business unit of Nocom Nordic Communications AB
("Nocom"), and in the quarter ended April 30, 1998, the Company acquired a
business unit of Penta Systems Technology, Inc. ("Penta"). In April 1998, the
Company acquired the Leader Group, Inc. ("Leader Group"), a Denver-based
consulting services firm. Most recently, on June 16, 1998, the Company purchased
the TOP END enterprise middleware technology and product family ("TOP END") from
NCR Corporation ("NCR"). See "Risk Factors--Past and Future Acquisitions; Risks
Associated with TOP END Acquisition."
The Company was incorporated in Delaware in January 1995 under the name BEA
Enterprises, Inc. and changed its name to BEA Systems, Inc. in September 1995.
References herein to "BEA" or the "Company" refer to BEA Systems, Inc., its
subsidiaries and predecessor entities acquired in previous acquisitions. The
Company's headquarters are located at 385 Moffett Park Drive, Sunnyvale,
California 94089-1208, and its telephone number is (408) 743-4000.
RECENT EVENTS
ACQUISITION OF TOP END
On June 16, 1998, the Company completed an Asset Purchase Agreement (the
"Asset Purchase Agreement") with NCR under which the Company purchased the TOP
END enterprise middleware technology and product family (the "Acquisition") from
NCR for approximately $92.4 million in cash. TOP END coordinates and connects
end users to the databases they are accessing, often spanning multiple computer
networks and hardware in different geographic locations. The Company expects the
Acquisition to strengthen the range of open, robust middleware solutions offered
by BEA. The Company also believes that the addition of TOP END to BEA's
middleware product family will enable the Company to better meet the needs of
customers for comprehensive, scalable enterprise middleware solutions.
CONVERTIBLE SUBORDINATED DEBT OFFERING
On June 12, 1998, the Company completed the sale of $200 million of its 4%
Convertible Subordinated Notes (the "Notes") due June 15, 2005 in an offering to
qualified institutional investors. The Company granted the initial purchasers a
30-day option to purchase an additional $50 million of notes to cover
overallotments, which option was exercised in full in a transaction completed
on July 7, 1998. The Notes are subordinated to all existing and future
senior indebtedness of the Company and are convertible into Common Stock of the
Company at a conversion price of $26.41 per share. The Company has agreed to
file a shelf registration statement with respect to the Notes and the Common
Stock issuable upon conversion thereof within 90 days after the date of original
issuance of the Notes. The Notes are redeemable at the option of the Company in
whole or in part at any time on or after June 5, 2001, in cash plus accrued
interest through the redemption date, if any, subject to certain events. The
net proceeds of the offering have been added to working capital and will be used
for general corporate purposes. A portion of the proceeds may be used to fund
acquisitions of complimentary businesses, products or technologies. See "Risk
Factors Significant Leverage; Debt Service."
ACQUISITION OF LEADER GROUP
In April 1998, BEA acquired the Leader Group, Inc. ("Leader Group"), a
Denver-based corporation specializing in consulting services for the
development, deployment and delivery of mission-critical distributed object
software applications, in a stock-for-stock merger (the "Merger"). In the
Merger, BEA issued 560,704 shares of its common stock (the "Shares") in
exchange for all of the outstanding stock of Leader Group. Based on the market
price of BEA stock at the closing date, the Merger was valued at approximately
$14.5 million, and BEA accounted for the Merger using the pooling of interests
method. The consolidated results of operations for periods prior to the Merger
have not been restated for the pooling of interests, as the operation of the
Leader Group were not material in relation to those of BEA.
The BEA Shares issued in the Merger were issued in a private placement
exempt from registration under the Securities Act of 1993, as amended. As a
part of the Merger agreement, the Company agreed to file a registration
statement to register the BEA Shares issued in the Merger.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Shares by
the Selling Stockholders, but has agreed to bear certain expenses of
registration of the Shares under federal and state securities laws. This
Registration Statement is intended to satisfy certain of the Company's
obligations under the Stock Purchase Agreement entered into with the Leader
Group and the Selling Stockholders.
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RISK FACTORS
In addition to the other information contained in this Prospectus, investors
should carefully consider the following risk factors in evaluating an investment
in the Common Stock offered hereby. This Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements other than statements of historical fact
are "forward-looking statements" for purposes of these provisions, including any
projections of earnings, revenues or other financial items, any statements of
the plans and objectives of management for future operations, any statements
concerning proposed new products or services, any statements regarding future
economic conditions or performance, and any statement of assumptions underlying
any of the foregoing. In some cases, forward-looking statements can be
identified by the use of terminology such as "may," "will," "expects," "plans,"
"anticipates," "estimates," "potential," or "continue," or the negative thereof
or other comparable terminology. Although the Company believes that the
expectations reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from these projected or assumed in the forward-looking
statements. The Company's future financial condition and results of operations,
as well as any forward-looking statements, are subject to inherent risks and
uncertainties, including but not limited to the risk factors set forth below and
for the reasons described elsewhere in this Prospectus. All forward-looking
statements and reasons why results may differ included in this Prospectus are
made as of the date hereof, and the Company assumes no obligation to update
any such forward-looking statement or reason why actual results might differ.
LIMITED OPERATING HISTORY; INTEGRATION OF ACQUISITIONS; NO ASSURANCE OF
PROFITABILITY
The Company was incorporated in January 1995 and, accordingly, has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Revenues generated by the Company to date have been derived primarily
from sales of BEA TUXEDO, a product to which the Company acquired worldwide
rights in February 1996, and from fees for related services. Since its
inception, the Company has acquired a number of businesses, technologies and
products. Prior to the consummation of these acquisitions, the Company had no
revenues and limited business activities. Accordingly, the Company is subject to
the risks inherent both in the operation of a business with a limited operative
history and the integration of a number of separate and independent business
operations and there can be no assurance that the Company will be able to
address these risks successfully. Although the Company has experienced recent
substantial revenue growth and has been profitable for each of the two previous
quarters ended January 31, 1998 and April 30, 1998, the Company has incurred
significant net losses including losses of approximately $22.0 million and $88.7
million for the fiscal years ended January 31, 1998 and 1997, respectively. At
April 30, 1998, the Company had an accumulated deficit of approximately $127.9
million. In addition, in connection with certain acquisitions completed prior to
April 30, 1998, the Company recorded approximately $129.0 million as intangible
assets, approximately $114.4 million of which has already been amortized and
approximately $14.6 million of which is expected to be amortized in future
periods through the Company's fiscal year ending January 31, 2003. The amount of
such intangible assets to be expensed to cost of revenues and general and
administrative expense in future periods, for intangible assets acquired prior
to April 30, 1998 (excluding amounts, if any, relating to the pending
acquisition of TOP END enterprise middleware technology and product family from
NCR), is expected to be $10.1 million and $5.3 million in the fiscal years
ending January 31, 1999 and 2000, respectively. In May 1998, the Company
entered into an agreement to acquire the TOP END enterprise middleware
technology and product family from NCR, which was completed on June 16, 1998.
This acquisition will result in significant additional amortization of
intangible assets and potentially a one-time expense for acquired in-process
research and development, the amounts of which are not yet determinable. To the
extent the Company makes additional acquisitions of businesses, products and
technologies in the future, the Company may report additional, potentially
significant, expenses related thereto. To the extent future events result in
the impairment of any capitalized intangible assets, amortization expenses may
occur sooner than the Company expects. For the foregoing reasons, there can be
no assurance that the Company will be profitable in any future period and recent
operating results should not be considered indicative of future financial
performance.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects that it will experience significant fluctuations in future
quarterly operating results as a result of many factors, including, among
others: the size and timing of customer orders, introduction or enhancement of
products by the Company or its competitors, market acceptance of middleware
products, the lengthy sales cycle for the Company's
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products, technological changes in computer systems and environments, the
structure and timing of future acquisitions of businesses, products and
technologies, including the acquisition of the TOP END enterprise middleware
technology and product family from NCR, the impact and duration of deteriorating
economic and political conditions in Asia and related declines in Asian currency
values, general economic conditions which can affect customers' capital
investment levels, the ability of the Company to develop, introduce and market
new products on a timely basis, changes in the Company's or its competitors'
pricing policies, customer order deferrals in anticipation of future new
products and product enhancements, the Company's success in expanding its sales
and marketing programs, mix of products and services sold, mix of distribution
channels, ability to meet the service requirements of its customers, costs
associated with acquisitions, including the acquisition of the TOP END
enterprise middleware technology and product family from NCR, the terms and
timing of financing activities, loss of key personnel and fluctuations in other
foreign currency exchange rates and interpretations of the recently introduced
statement of position on software revenue recognition. As a result of all of
these factors, the Company believes that quarterly revenues and operating
results are difficult to forecast and period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
A portion of the Company's revenues are derived from large orders as customers
deploy BEA products throughout their organizations. As the revenue size of
individual license transactions increases, the risk of fluctuation in future
quarterly results can also be expected to increase. Any inability of the
Company to generate large customer orders, or any delay or loss of such orders
in a particular quarter, will have a material adverse effect on the Company's
revenues and, more significantly on a percentage basis, its net income or loss
in that quarter. Moreover, the Company typically receives and fulfills a
majority of its orders within the quarter, with a substantial portion occurring
in the last month of a fiscal quarter. As a result, the Company may not learn
of revenue shortfalls until late in a fiscal quarter. Additionally, the
Company's operating expenses are based in part on its expectations for future
revenue and are relatively fixed in the short term. Any revenue shortfall below
expectations could have an immediate and significant adverse effect on the
results of operations.
As is common in the software industry, the Company believes that its fourth
quarter orders are favorably impacted by a variety of factors including year-end
capital purchases by larger corporate customers and sales incentive programs.
This increase typically results in first quarter customer orders being lower
than orders received in the immediately preceding fourth quarter. The Company
anticipates that this seasonal impact is likely to increase as it continues to
focus on large corporate accounts.
Similarly, shortfalls in BEA's revenues and earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock. Moreover, the Company's stock
price is subject to the volatility generally associated with software and
technology stocks and may also be affected by broader market trends unrelated to
the Company's performance.
PAST AND FUTURE ACQUISITIONS; RISKS ASSOCIATED WITH TOP END ACQUISITION
From its inception in January 1995, the Company has made a number of strategic
acquisitions. Integration of acquired companies, divisions and products involves
the assimilation of potentially conflicting operations and products, which
divert the attention of the Company's management team and may have a material
adverse effect on the Company's operating results in future quarters. In
addition, in connection with certain of its acquisitions, the Company is
required to make certain future payments. Any failure to make such payments or
otherwise perform continuing obligations relative to these acquisitions would
result in the loss of certain of its rights in the acquired businesses or
products and would have a material adverse effect on the Company's business,
operating results and financial condition. Most recently, the Company acquired
Leader Group and Penta in the quarter ended April 30, 1998 and has most recently
completed the TOP END acquisition (discussed below) in June 1998. The Company
intends to make additional acquisitions in the future, although there can be no
assurance that suitable companies, divisions or products will be available for
acquisition. Such acquisitions entail numerous risks, including an inability to
successfully assimilate acquired operations and products, an inability to retain
key employees of the acquired operations, diversion of management's attention,
and difficulties and uncertainties in transitioning the key business
relationships from the acquired entity to the Company. In addition, future
acquisitions by the Company may result in the issuance of dilutive securities,
the assumption or incurrence of debt obligations, large one-time expenses and
the creation of intangible assets that result in significant future amortization
expense. These factors could have a material adverse effect on the Company's
business, operating results and financial condition.
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The recently-completed TOP END acquisition is subject to a number of risks
that could adversely affect the Company's ability to achieve the anticipated
benefits of the TOP END acquisition. These risks may be exacerbated by the fact
that the TOP END operations and personnel are located in San Diego, California,
where the Company did not previously have any material operations. The need to
focus management's attention on establishing relationships with, and procedures
for communicating with, TOP END employees may reduce the ability of the Company
to successfully pursue other opportunities for a period of time. Any departure
of key TOP END employees or significant numbers of other TOP END employees could
have a material adverse effect on the Company. The Company may face difficulties
in retaining TOP END customers, and customers' uncertainties as to the Company's
plans and abilities to support both the TOP END products and BEA TUXEDO after
the acquisition could adversely affect the Company's ability to retain these
customers, which could have a material adverse effect on the Company. The TOP
END acquisition will also result in a potential write-off related to in-process
research and development as of the time of closing the acquisition and
substantial ongoing amortization expenses, the amounts of which are not yet
determinable, which will have a negative impact on the Company's future
operating results. See "Summary-Recent Events."
PRODUCT CONCENTRATION
The Company currently derives the majority of its license and service revenues
from BEA TUXEDO and from related products and services. These products and
services are expected to continue to account for the majority of the Company's
revenues for the foreseeable future. As a result, factors adversely affecting
the pricing of or demand for BEA TUXEDO, such as competition, product
performance or technological change, could have a material adverse effect on the
Company's business and consolidated results of operations and financial
condition. Furthermore, the Company is obligated to make certain payments to
Novell through January 1999 to acquire the perpetual rights to the BEA TUXEDO
product. Failure by the Company to make these payments for any reason could
terminate the Company's continuing rights to this product.
LENGTHY SALES CYCLE
The Company's products are typically used to integrate large, sophisticated
applications that are critical to a customer's business and the purchase of the
Company's products is often part of a customer's implementation of a distributed
computing environment. Customers evaluating the Company's software products face
complex decisions regarding alternative approaches to the integration of
enterprise applications, competitive product offerings, rapidly changing
software technologies and limited internal resources due to other information
systems requirements. For these and other reasons, the sales cycle for the
Company's products is lengthy and is subject to delays or cancellation over
which the Company has little or no control. To the extent the revenue size of
license transactions increases, customer evaluations and procurement processes
are expect to lengthen the overall sales cycle. The Company believes its sales
cycles can be affected by general economic conditions which impact customers'
capital investment decisions. Any significant change in the Company's sales
cycle could have a material adverse effect on the Company's business, results of
operations and financial condition.
Although the Company has a standard license agreement which meets the revenue
recognition criteria under current generally accepted accounting principles, the
Company must often negotiate and revise terms and conditions of this standard
agreement, particularly in larger sales transactions. Negotiation of mutually
acceptable language can extend the sales cycle and in certain situations, may
require the Company to defer recognition of revenue on the sale. In addition,
while the recently issued Statement of Position (SOP) 97-2, Software Revenue
Recognition (as amended by SOP 98-4), is not expected to have a material impact
on the Company's revenues and earnings, detailed implementation guidance of
these standards has not yet been issued. Once issued, such guidance could lead
to unanticipated changes in the Company's current revenue recognition practices
and have an adverse impact on revenues and earnings. In the event that
implementation guidance is different, the Company believes that it can adapt its
current business practice to comply with this guidance; however, there can be no
assurances that this will be the case.
COMPETITION
The market for middleware software and related services is highly competitive.
The Company's competitors are diverse and offer a variety of solutions directed
at various segments of the middleware software marketplace. These competitors
include system and database vendors such as IBM and database vendors such as
Oracle, which offer their own middleware functionality for use with their
proprietary systems. Microsoft has released a product that includes certain
middleware functionality and has demonstrated and announced that it intends to
include this functionality in future versions of its
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Windows NT operating system. In addition, there are companies offering and
developing middleware and integration software products and related services
that directly compete with products offered by the Company. Further, the
software development tool vendors typically emphasize the broad versatility of
their toolsets and, in some cases, offer complementary middleware software that
supports these tools and performs messaging and other basic middleware
functions. Last, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those offered by the Company. A number of the Company's competitors and
potential competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company.
The Company's principal competitors currently include hardware vendors who
bundle their own middleware software products with their computer systems and
database vendors that advocate client/server networks driven by the database
server. IBM is the primary hardware vendor who offers a line of middleware and
database solutions for its customers. The bundling of middleware functionality
in IBM proprietary hardware and database systems requires the Company to compete
with IBM in its installed base, where IBM has certain inherent advantages due to
its significantly greater financial, technical, marketing and other resources,
greater name recognition and the integration of its enterprise middleware
functionality with its proprietary hardware and database systems. The Company
needs to differentiate its products based on functionality, interoperability
with non-IBM systems, performance and reliability and establish its products as
more effective solutions to customers' needs. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
the Company's enterprise middleware solutions. There can be no assurance that
the Company will compete successfully with hardware, database, or other vendors,
or that the products offered by such vendors will not achieve greater market
acceptance than the Company's products.
Microsoft has demonstrated certain middleware functionality and announced that
it intends to include this functionality in future versions of its Windows NT
operating system. Microsoft has also introduced a product that includes certain
middleware functionality. The bundling of middleware functionality in Windows
NT will require the Company to compete with Microsoft in the Windows NT
marketplace, where Microsoft will have certain inherent advantages due to its
significantly greater financial, technical, marketing and other resources,
greater name recognition, its substantial installed base and the integration of
its middleware functionality with Windows NT. If Microsoft successfully
incorporates middleware software products into Windows NT or separately offers
middleware applications, the Company will need to differentiate its products
based on functionality, interoperability with non-Microsoft platforms,
performance and reliability and establish its products as more effective
solutions to customers' needs. There can be no assurance that the Company will
be able to successfully differentiate its products from those offered by
Microsoft, or that Microsoft's entry into the middleware market will not
materially adversely affect the Company's business, operating results and
financial condition.
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's current and prospective customers. Accordingly, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional software licenses and
maintenance, consulting and support services on terms favorable to the Company.
Further, competitive pressures could require the Company to reduce the price of
its products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
INTERNATIONAL OPERATIONS
International revenues accounted for 55 percent and 51 percent of consolidated
revenues in the quarter ended April 30, 1998 and the quarter ended April 30,
1997, respectively. The Company sells its products and services through a
network of branches and subsidiaries located in 24 countries worldwide. In
addition, the Company also markets through distributors in Europe and the
Asia/Pacific region. Management believes that its success depends upon continued
expansion of its international operations. The Company's international business
is subject to a number of risks, including unexpected changes in regulatory
practices and tariffs, greater difficulties in staffing and managing foreign
operations, longer collection cycles, seasonality, potential changes in tax
laws, greater difficulty in protecting intellectual property and the impact of
fluctuating exchange rates between the US dollar and foreign currencies in
markets where BEA does business, in particular the French franc, the German
mark, the British pound, the Japanese yen, the Australian dollar and the Korean
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won. The Company's international revenues may also be impacted by general
economic and political conditions in these foreign markets. Since the late
summer of 1997, a number of Pacific Rim countries have experienced economic,
banking and currency difficulties that have led to economic downturns in those
countries. Among other things, the decline in value of Asian currencies,
together with difficulties obtaining credit, has resulted in a decline in the
purchasing power of the Company's Asian customers, which in turn has resulted in
the delay of orders for the Company's products from certain Asian customers and
is likely to result in further delays and, possibly the cancellation, of such
orders. As a result of such delays, the Company's revenues from Asia for the
quarter ended April 30, 1998 comprised a lower percentage of total revenues than
the Company has historically experienced. The Company anticipates that its
financial results will continue to be adversely impacted by the weak Asian
economic conditions. The extent of the future impact of these conditions is
difficult to predict. There can be no assurances that these factors and other
factors will not have a material adverse effect on the Company's future
international revenues and consequently on the Company's business and
consolidated financial condition and results of operations.
MANAGEMENT OF GROWTH
The Company currently is continuing to experience a period of rapid and
substantial growth that has placed, and is expected to continue to place, a
strain on the Company's administrative and operational infrastructure. The
number of Company employees has increased from 120 employees in three offices in
the United States at January 31, 1996 to over 950 employees in 50 offices in 24
countries at April 30, 1998. The Company's ability to manage its staff and
growth effectively will require continued improvement in its operational,
financial and management controls, reporting systems and procedures. In this
regard, the Company is currently updating its management information systems to
integrate financial and other reporting among the Company's multiple domestic
and foreign offices. In addition, the Company intends to continue to increase
its staff worldwide and to continue to improve financial reporting and controls
for the Company's global operations. There can be no assurance that the Company
will be able to successfully implement improvements to its management
information and control systems in an efficient or timely manner or that, during
the course of this implementation, deficiencies in existing systems and controls
will be discovered. If management of the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be materially adversely affected.
DEPENDENCE ON GROWTH OF MARKET FOR MIDDLEWARE
The middleware market, in which the Company conducts its business, is emerging
and is characterized by continuing technological developments, evolving industry
standards and changing customer requirements. BEA's success is dependent in
large part on the Company's middleware software products' achieving market
acceptance by large customers with substantial legacy mainframe systems. The
Company's future financial performance will depend in large part on continued
growth in the number of companies extending their mainframe-based, mission-
critical applications to an enterprise-wide distributed computing environment
through the use of middleware technology. There can be no assurance that the
market for middleware technology and related services will continue to grow. If
the middleware market fails to grow or grows more slowly than the Company
currently anticipates, or if the Company experiences increased competition in
this market, the Company's business, results of operations and financial
condition will be adversely affected.
DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL
The Company believes its future success will depend upon its ability to
attract and retain highly skilled personnel including the Company's founders,
Messrs. William T. Coleman III, Edward W. Scott, Jr., Alfred S. Chuang and key
members of management. Competition for such personnel is intense and there can
be no assurance that the Company will be able to retain its key employees or
that it will be successful in attracting, assimilating and retaining them in the
future. As the Company seeks to expand its global organization, the hiring of
qualified sales, technical and support personnel will be difficult due to the
limited number of qualified professionals. Failure to attract, assimilate and
retain key personnel would have a material adverse effect on the Company's
business, results of operations and financial condition.
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES
To date, the Company has sold its products principally through its direct
sales force, as well as through indirect sales channels, such as ISVs, hardware
OEMs, systems integrators, independent consultants and distributors. The
Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in expanding its direct
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sales force and in further establishing and maintaining relationships with
distributors, ISVs and OEMs. In particular, a significant element of the
Company's strategy is to embed its technology in products offered by the
Company's ISV customers. The Company intends to seek distribution arrangements
with other ISVs to embed the Company's technology in their products and expects
that these arrangements will account for a significant portion of the Company's
revenues in future periods. There can be no assurance that the Company will be
able to successfully expand its direct sales force or other distribution
channels, secure license agreements with additional ISVs on commercially
reasonable terms or at all, or otherwise further develop its relationships with
distributors and ISVs, or that any such expansion or additional license
agreements would result in an increase in revenues. Although the Company
believes that its investments in the expansion of its direct sales force and in
the establishment of other distribution channels through third parties
ultimately will improve the Company's operating results, to the extent that such
investments are made and revenues do not correspondingly increase, the Company's
business, results of operations and financial condition will be materially and
adversely affected.
The Company relies on informal relationships with a number of consulting and
systems integration firms to enhance its sales, support, service and marketing
efforts, particularly with respect to implementation and support of its products
as well as lead generation and assistance in the sale process. The Company will
need to expand its relationships with third parties in order to support license
revenue growth. Many such firms have similar, and often more established,
relationships with the Company's principal competitors. There can be no
assurance that these and other third parties will provide the level and quality
of service required to meet the needs of the Company's customers, that the
Company will be able to maintain an effective, long term relationship with such
third parties, or that such third parties will continue to meet the needs of the
Company's customers.
RAPID TECHNOLOGY CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
The market for the Company's products is highly fragmented, competitive with
alternative computing architectures and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
the Company's success depends upon its ability to enhance existing products,
respond to changing customer requirements and develop and introduce in a timely
manner new products that keep pace with technological developments and emerging
industry standards. There can be no assurance that the Company's products will
adequately address the changing needs of the marketplace or that the Company
will be successful in developing and marketing enhancements to its existing
products or products incorporating new technology on a timely basis. Failure to
develop and introduce new products, or enhancements to existing products, in a
timely manner in response to changing market conditions or customer
requirements, will materially and adversely affect the Company's business,
results of operations and financial condition.
RISK OF SOFTWARE DEFECTS
The software products offered by the Company are internally complex and,
despite extensive testing and quality control, may contain errors or defects,
especially when first introduced. Such defects or errors could result in
corrective releases for the Company's software products, damage to the Company's
reputation, loss of revenue, product returns or order cancellations, or lack of
market acceptance of its products, any of which could have a material and
adverse effect on the Company's business, results of operations and financial
condition.
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the sale and support of its products may
entail the risk of such claims, which could be substantial in light of the use
of such products in mission-critical applications. A successful product
liability claim brought against the Company could have a material adverse effect
on the Company's business, results of operations and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company's success depends upon its proprietary technology. The Company
relies on a combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
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its proprietary rights. No assurance can be given that competitors will not
successfully challenge the validity or scope of the Company's patents or that
such patents will provide a competitive advantage to the Company.
As part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and corporate
partners and into license agreements with respect to its software, documentation
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar technology
independently. In particular, the Company has, in the past, provided certain
hardware OEMs with access to its source code and any unauthorized publication or
proliferation of this source code could materially adversely affect the
Company's business, operating results and financial condition. Policing
unauthorized use of the Company's products is difficult, and although the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or other
intellectual property rights of the Company.
The Company does not believe that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could result in costly
litigation that could absorb significant management time, which could have a
material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into
royalty or license agreements. Such royalty or license agreements, if required,
may not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, operating results
and financial condition.
CONTROL BY MANAGEMENT AND CURRENT STOCKHOLDERS
As of April 30, 1998, the Company's officers and directors and their
affiliates, in the aggregate, had voting control over approximately 62 percent
of the Company's voting Common Stock. In particular, Warburg, Pincus Ventures,
L.P. ("Warburg") had voting control over approximately 49 percent of the
Company's voting Common Stock and beneficially owned approximately 64 percent of
the Company's Common Stock (which includes the non-voting Class B Common Stock
owned by Warburg). As a result, these stockholders will be able to control all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. The voting power of Warburg and
the Company's officers and directors under certain circumstances could have the
effect of delaying or preventing a change in control of the Company.
SIGNIFICANT LEVERAGE; DEBT SERVICE
In connection with the sale of 4% Convertible Subordinated Notes, the Company
incurred $250 million indebtedness. As a result of this indebtedness, the
Company's principal and interest payment obligations will increase
substantially. The degree to which the Company will be leveraged could
materially and adversely affect the Company's ability to obtain financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent upon the
Company's future performance, which will be subject to financial, business and
other factors affecting the operations of the Company, many of which are
beyond its control.
The Company will require substantial amounts of cash to fund scheduled
payments of interests on the Notes, payment of the principal amount of the
Notes, payment of principal and interest on the Company's other indebtedness,
future capital expenditures and any increased working capital requirements. If
the Company is unable to meet its cash requirements out of cash flow from
operations, there can be no assurance that it will be able to obtain alternative
financing. In the absence of such financing, the Company's ability to respond
to changing business and economic conditions, to make future acquisitions, to
absorb adverse operating results or to fund capital expenditures or increased
working capital requirements may be adversely affected. If the Company does not
generate sufficient increases in cash flow from operations to repay the Notes at
maturity, it could attempt to refinance the Notes; however, no assurance can be
given that such a refinancing would be available on terms acceptable to the
Company, if at all. Any failure by the Company to satisfy its obligations with
respect to the Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of
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interest or required repurchases) would constitute a default under the Indenture
and could cause a default under agreements governing other indebtedness, if any,
of the Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 120,000,000 shares, $0.001 par value,
divided into two classes designated "Common Stock" and "Preferred Stock." Of
such shares authorized, 5,000,000 are designated as Preferred Stock and
115,000,000 shares are designated as Common Stock, of which 35,000,000 shares
are designated Class B Common Stock.
COMMON STOCK
As of June 24, 1998, there were 43,047,480 shares of Common Stock outstanding
that were held of record by approximately 250 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Company does
not have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor as well as any distributions to the stockholders. See "Price
Range of Common Stock and Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets of the Company remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive or other subscription of
conversion rights. There are no redemption or sinking fund provisions applicable
to the Common Stock.
CLASS B COMMON STOCK
As of June 24, 1998, there were 23,323,554 shares of Class B Common Stock
outstanding, all of which shares were held by Warburg. The Class B Common Stock
has the same rights, preferences, privileges and restrictions as the Common
Stock, except that the Class B Common Stock is convertible into Common Stock,
has no voting rights (except as required by Delaware law) and has no right to
vote for the election of directors. The shares of Class B Common Stock are, upon
any transfer of such shares by Warburg, convertible into a like number of shares
of Common Stock, subject to adjustment upon certain events with respect to the
Common Stock. The shares of Class B Common Stock are also convertible at the
option of Warburg into Common Stock, so long as such conversion results in
Warburg holding equal to or less than 49% of the Company's outstanding voting
securities.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of Directors
will have the authority, without further action by the stockholders, to issue up
to 5,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, any or all of which may be greater than the
rights of Common Stock, without any further vote or action by stockholders. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any shares of Preferred Stock after consummation of the
offering.
REGISTRATION RIGHTS
Pursuant to an investor rights agreement (the "Founders Registration Rights
Agreement") entered into in September 1995 between the Company and holders (the
"Founding Holders") of a total of approximately 47,512,087 shares of the
Company's Common Stock and Class B Common Stock as of June 24, 1998, including
William T. Coleman III, Alfred S. Chuang, Edward W. Scott, Jr., and Warburg, the
Founding Holders are entitled to certain rights with respect to the registration
of such shares under the Securities Act of 1933, as amended (the "Securities
Act"). If the Company proposes to
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register any of its securities under the Securities Act, either for its own
account or the account of other security holders, the Company is required to
notify such Founding Holders and to use its best efforts to effect the
registration, and such Founding Holders are entitled to include at the Company's
expense their Registrable Securities (as such term is defined in the Founders
Registration Rights Agreement) in such registration, subject to certain
conditions and limitations. In addition, Founding Holders may also require the
Company to file a registration statement under the Securities Act at the
Company's expense with respect to their shares, and the Company is required to
use its diligent reasonable efforts to effect such registration. Further,
Founding Holders may require the Company to file registration statements on Form
S-3 at the Company's expense, when such form is available for use by the
Company. These rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration and the right of the Company not to effect a
requested registration within six months following a registered offering of the
Company's securities. In addition, the Founding Holders have waived their rights
to include their Registrable Securities in the Registration Statement, and have
agreed not to exercise their rights to require the Company to file a
registration statement with respect to their Registrable Securities until
September 6, 1998.
The Company has also entered into a registration rights agreement with the
initial purchasers of the Notes (the "Noteholders Registration Rights
Agreement") pursuant to which the Company will, at the Company's expense, for
the benefit of the holders of the Notes and the shares of Common Stock issuable
upon conversion thereof (together, the "Noteholders Securities"), (i) file with
the Securities and Exchange Commission (the "Commission"), on or before
September 6, 1998, a registration statement (the "Noteholders Shelf Registration
Statement") covering resales of the Noteholders Securities, (ii) use all
reasonable efforts to cause the Noteholders Shelf Registration Statement to be
declared effective under the Securities Act on or before December 5, 1998
(subject to the right of the Company to postpone having the Noteholders Shelf
Registration Statement declared effective for an additional 90 days in certain
limited circumstances) and (iii) use all reasonable efforts to keep effective
the Noteholders Shelf Registration Statement until two years after the date it
is declared effective or, if earlier, until there are no outstanding Noteholders
Securities (the "Effectiveness Period"). The Company will be permitted to
suspend the use of the prospectus which is part of the Noteholders Shelf
Registration Statement in connection with the sales of Noteholders Securities
during certain periods of time under certain circumstances relating to pending
corporate developments, public filings with the Commission and other events.
The Company may also, upon written notice to all the noteholders, postpone
having the Noteholders Shelf Registration Statement declared effective as
required by the Noteholders Registration Rights Agreement for a reasonable
period not to exceed 90 days if the Company possesses material non-public
information the disclosure of which would have a material adverse effect on the
Company and its subsidiaries taken as a whole.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
The Certificate of Incorporation of the Company provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors will be elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms. Stockholders have no cumulative voting
rights, and the Company's stockholders representing a majority of the shares of
Common Stock outstanding are able to elect all of the directors. The Company's
Bylaws also provide that all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing; the Bylaws
provide that only the Company's Chief Executive Officer, the President of the
Company and the Board of Directors may call a special meeting of stockholders.
The classification of the Board of Directors and lack of cumulative voting
will make it more difficult for the Company's existing stockholders to replace
the Board of Directors as well as for another party to obtain control of the
Company by replacing the Board of Directors. Since the Board of Directors has
the power to retain and discharge officers of the Company, these provisions
could also make it more difficult for existing stockholders or another party to
effect a change in management.
These and other provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company. These provisions
are intended to enhance the likelihood of continued stability in the composition
of the Board of Directors and in the policies furnished by the Board of
Directors and to discourage certain types of transactions that may involve an
actual or threatened change of control of the Company. These provisions are
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit
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fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 or the Delaware General Corporation Law
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested holder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
In general, Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder or (v) the receipt
by the interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines interested stockholder as an entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person. See "--Anti-Takeover Effects of Provisions of the Company's Charter and
Bylaws."
15
<PAGE>
SELLING STOCKHOLDERS
The following table provides the names of and the number of shares of Common
Stock beneficially owned by each Selling Stockholder, and the number of shares
of Common Stock beneficially owned by each Selling Stockholder upon completion
of the offering or offerings pursuant to this Prospectus, assuming each Selling
Stockholder offers and sells all of its or his/her respective Shares. Selling
Stockholders may, however, offer and sell all, or some or none of their Shares.
No Selling Stockholder beneficially owns one percent or greater of the Company's
outstanding Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER THE OFFERING
----------------- NUMBER OF SHARES ------------------
NUMBER OF SHARES OFFERED NUMBER OF SHARES
----------------- ---------------- ------------------
<S> <C> <C> <C>
Ken Allen 180,332 180,332 0
Mark Campbell 711 711 0
Scott Elder 717 717 0
John Funk 6,287 6,287 0
Laura Ferkel 107 107 0
Bob Hensle 819 819 0
Dave Leichner 6,645 6,645 0
Greg Mally 676 676 0
Tim Ortt 450 450 0
Jeff Peotter 180,332 180,332 0
Jeff Ryan 180,332 180,332 0
Matt Rice 424 424 0
Carolyn Sampson 798 798 0
Jeff Smith 460 460 0
Tim Uttormark 862 862 0
John Graves 355 355 0
Charlie Therit 397 397 0
</TABLE>
16
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the holders
of up to 560,704 shares of Common Stock. The Shares were issued in connection
with a stock purchase agreement, dated as of April 27, 1998 among the Company,
Leader Group, and the Selling Stockholders. This Prospectus has been prepared in
connection with registering the Shares to allow for sales of Shares by the
applicable Selling Stockholders to the public in accordance with the terms of
the Stock Purchase Agreement. The Company has registered the Shares for sale
pursuant to the terms of the Stock Purchase Agreement, but registration of such
Shares does not necessarily mean that any of such Shares will be offered and
sold by the holders thereof.
The Company will not receive any proceeds from the offering by the Selling
Stockholders. The Shares may be sold from time to time to purchasers directly
by any of the Selling Stockholders. Alternatively, the Selling Stockholders may
from time to time offer the Shares through dealers or agents, who may receive
compensation in the form of commissions from the Selling Stockholders and/or the
purchasers of Shares for whom they may act as agent. The Selling Stockholders
and any dealers or agents that participate in the distribution of Shares may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of Shares by them and any commissions received by any such
dealers or agents might be deemed to be underwriting commissions under the
Securities Act.
At a time a particular offer of Shares is made, a Prospectus Supplement, if
required, will be distributed that will set forth the name and names of any
dealers or agents and any commissions and other terms constituting compensation
from the Selling Stockholders and any other required information. The Shares
may be sold from time to time at varying prices determined at the time of sale
or at negotiated prices.
In order to comply with the securities laws of certain states, if applicable,
the Shares may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the Shares may not be sold unless they have been
registered or qualified for sale in such state or an exemption from such
registration or qualification requirement is available and is complied with.
The Shares may also be sold in one or more of the following transactions: (a)
block transactions (which may involve crosses) in which a broker-dealer may sell
all or a portion of such stock as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b) purchases
by any such broker-dealer as principal and resale by such broker-dealer for its
own account pursuant to a Prospectus Supplement; (c) ordinary brokerage
transactions and transactions in which any such broker-dealer solicits
purchasers; (d) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (e)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers
engaged by the Selling Stockholders may arrange for other broker-dealers to
participate.
EXPERTS
The consolidated financial statements of BEA Systems, Inc. included in the
Company's Annual Report on Form 10-KSB for the year ended January 31, 1998 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon, included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated by reference herein in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered pursuant to
this Prospectus will be passed upon for the Company by Morrison & Foerster LLP,
Palo Alto, California. Certain attorneys at Morrison & Foerster LLP own an
aggregate of 34,500 shares of Common Stock of the Company.
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable by the
Company in connection with the issuance and distribution of the Common Stock
registered hereby. All of such fees and expenses are estimates, except the
Securities Act registration fee.
<TABLE>
<S> <C>
Securities Act Registration Fee................................................... $ 3,474
Printing and duplicating fees..................................................... 25,000
Legal fees and expenses........................................................... 20,000
Accounting fees and expenses...................................................... 12,000
Miscellaneous expenses............................................................ 5,000
-------
*Total........................................................................... $65,474
=======
</TABLE>
* None of the expenses listed above will be borne by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extend permissible under Delaware law. Pursuant to Delaware law,
this includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its Stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the securities laws or
state or federal environmental laws. The Registrant maintains a policy of
directors' and officers' liability insurance that insures the Company's
directors and officers against the cots of defense, settlement or payment of a
judgment under certain circumstances.
Pursuant to written agreement between the respective Selling Securityholders
and the Company, the directors and officers of the Company are indemnified by
such Selling Securityholders against certain civil liabilities that they may
incur under the Securities Act in connection with this Registration Statement
and the related Prospectus.
II-1
<PAGE>
ITEM 16. EXHIBITS
4.1 - Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to Registrant's Registration Statement on
Form SB-2 (File No. 333-20791))
4.2 - Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to
Registrant's Registration Statement on Form SB-2 (File No. 333-20791))
*5.1 - Opinion of Morrison & Foerster LLP
10.1 - Stock Purchase Agreement among BEA Systems, Inc. and Leader Group,
Inc., Jeffrey D. Peotler, Jeffrey M. Ryan, Kenneth R. Allen and
shareholders listed on Schedule I thereto
23.1 - Consent of Ernst & Young LLP, Independent Auditors
23.2 - Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
*24.1 - Power of Attorney (included on signature page hereto)
* Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) any deviation from the low or high and of the estimated
maximum offering price may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement; provided,
however, that subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
these securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, when applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference to this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance under Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, State of California on
August 10, 1998.
BEA SYSTEMS, INC.
By: William T. Coleman III*
---------------------------
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
William T. Coleman III* President, Chief Executive Officer, Chairman of the August 10, 1998
- ----------------------------------- Board and Director (Principal Executive Officer)
William T. Coleman III
Edward W. Scott, Jr.* Executive Vice President of Worldwide Field August 10, 1998
- ----------------------------------- Operations, Assistant Secretary and Director
Edward W. Scott, Jr.
/s/ Steve L. Brown Executive Vice President, Chief Financial Officer and August 10, 1998
- ----------------------------------- Secretary (Principal Financial and Accounting Officer)
Steve L. Brown
Carol A. Bartz*
- ----------------------------------- Director August 10, 1998
Carol A. Bartz
Cary J. Davis*
- ----------------------------------- Director August 10, 1998
Cary J. Davis
Stewart K.P. Gross*
- ----------------------------------- Director August 10, 1998
Stewart K.P. Gross
William H. Janeway*
- ----------------------------------- Director August 10, 1998
William H. Janeway
Dean O. Morton*
- ----------------------------------- Director August 10, 1998
Dean O. Morton
*By /s/ Steve L. Brown
---------------------------------
Steve L. Brown
Attorney-in-fact
</TABLE>
II-4
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
AMONG
BEA SYSTEMS, INC.,
AND
LEADER GROUP, INC.,
JEFFREY D. PEOTTER, JEFFREY M. RYAN, KENNETH R. ALLEN
AND
THE SHAREHOLDERS LISTED ON SCHEDULE 1 HERETO
----------------------------
----------------------------
DATED AS OF APRIL 27, 1998
- --------------------------------------------------------------------------------
<PAGE>
-----------------------------
TABLE OF CONTENTS
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS.......................................................................... 1
ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.01. Purchase and Sale................................................... 4
Section 2.02. Purchase Price...................................................... 4
Section 2.03. Payment of Purchase Price........................................... 5
Section 2.04. Escrow Deposit...................................................... 5
Section 2.05. Closing............................................................. 5
Section 2.06. Closing Deliveries................................................. 6
Section 2.07. Further Assurances.................................................. 8
Section 2.08. Consummation of Closing............................................. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE CONTROLLING SHAREHOLDERS
Section 3.01. Corporate Existence and Power....................................... 8
Section 3.02. Corporate Authorization and Authority............................... 8
Section 3.03. Governmental Authorization.......................................... 9
Section 3.04. Effect of Agreement on the Company.................................. 9
Section 3.05. Capitalization...................................................... 9
Section 3.06. Subsidiaries........................................................ 10
Section 3.07. Financial Statements................................................ 10
Section 3.08. Absence of Certain Changes.......................................... 10
Section 3.09. No Undisclosed Material Liabilities................................. 12
Section 3.10. Related Party Transactions.......................................... 12
Section 3.11. Material Contracts.................................................. 13
Section 3.12. Litigation.......................................................... 15
Section 3.13. Compliance with Laws and Court Orders; No Defaults.................. 15
Section 3.14. Properties.......................................................... 15
Section 3.15. Products............................................................ 16
Section 3.16. Intellectual Property............................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 3.17. Insurance Coverage.................................................. 19
Section 3.18. Licenses and Permits................................................ 19
Section 3.19. Inventories......................................................... 20
Section 3.20. Loans, Notes, Accounts Receivable and Accounts Payable.............. 20
Section 3.21. Projections......................................................... 20
Section 3.22. Finders' Fees....................................................... 21
Section 3.23. Employees........................................................... 21
Section 3.24. Labor Matters....................................................... 21
Section 3.25. Environmental Matters............................................... 21
Section 3.26. Certain Practices................................................... 21
Section 3.27. Records............................................................. 22
Section 3.28. No Indemnification Liabilities...................................... 22
Section 3.29 Full Disclosure..................................................... 22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Section 4.01. Title to Shares..................................................... 22
Section 4.02. Shareholder Power and Authority..................................... 22
Section 4.03. Effect of Agreement on Shareholders................................. 23
Section 4.04. Litigation.......................................................... 23
Section 4.05. Shareholder Agreements.............................................. 23
Section 4.06 Investment Representations.......................................... 23
Section 4.07. Full Disclosure..................................................... 24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 5.01. Corporate Existence and Power....................................... 25
Section 5.02. Corporate Authorization and Authority............................... 25
Section 5.03. Governmental Authorization.......................................... 25
Section 5.04. Effect of Agreement on Buyer........................................ 25
Section 5.05. Finders' Fees....................................................... 26
Section 5.06. Issuance of Common Stock............................................ 26
Section 5.07. Disclosure.......................................................... 26
Section 5.08. Full Disclosure..................................................... 26
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. Best Efforts........................................................ 26
Section 6.02. Certain Filings..................................................... 27
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 6.03. Public Announcements................................................ 27
Section 6.04. Noncompetition; Nonsolicitation..................................... 27
Section 6.05. Confidentiality..................................................... 28
Section 6.06. Transfer Restrictions............................................... 28
Section 6.07. Additional Restrictions on Sale of Buyer's Common Stock............ 29
Section 6.08. Registration Statement.............................................. 29
Section 6.09. Registration Procedures............................................. 30
Section 6.10. Indemnification..................................................... 32
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
Section 7.01. Tax Definitions..................................................... 33
Section 7.02. Tax Representations and Covenants................................... 33
ARTICLE VIII
EMPLOYEE BENEFITS
Section 8.01. Employee Benefits Definitions....................................... 35
Section 8.02. Representations and Warranties Regarding the Plans.................. 36
Section 8.03. Representations and Covenants Regarding No Third-Party Beneficiaries 36
ARTICLE IX
COVENANTS OF THE COMPANY
AND THE SHAREHOLDERS
Section 9.01. Cooperation......................................................... 37
Section 9.02. Access.............................................................. 37
Section 9.03. Insurance........................................................... 38
Section 9.04. Compliance with Laws................................................ 38
Section 9.05. Keeping of Books and Records........................................ 38
Section 9.06. Actions Prior to Closing............................................ 38
Section 9.07. Notice of Changes; Updates.......................................... 40
Section 9.08. Preservation of Business............................................ 41
Section 9.09. Litigation.......................................................... 41
Section 9.10. Continued Effectiveness of Representations and Warranties........... 41
Section 9.11. Obligations of Affiliates........................................... 41
Section 9.12. No Negotiations..................................................... 42
Section 9.13. Consents............................................................ 42
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
CONDITIONS TO CLOSING
<S> <C>
Section 10.01. Conditions to Obligations of the Parties..................... 42
Section 10.02. Conditions to Obligation of Buyer............................ 43
Section 10.03. Conditions to Obligation of the Company and the Shareholders. 44
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. Survival...................................................... 45
Section 11.02. Indemnification Obligations................................... 45
Section 11.03. Method of Asserting Claims, Etc............................... 47
Section 11.04. Arbitration................................................... 49
Section 11.05. Payment....................................................... 49
Section 11.06. No Contribution............................................... 50
Section 11.07. Equitable Relief.............................................. 50
Section 11.08. The Representative............................................ 50
ARTICLE XII
TERMINATION
Section 12.01. Grounds for Termination....................................... 52
Section 12.02 Effect of Termination......................................... 52
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Notices....................................................... 53
Section 13.02. Modifications and Amendments.................................. 54
Section 13.03. Waivers and Consents.......................................... 54
Section 13.04. Interpretation................................................ 54
Section 13.05. Reliance...................................................... 55
Section 13.06. Expenses...................................................... 55
Section 13.07. Successors and Assigns........................................ 55
Section 13.08. Governing Law................................................. 55
Section 13.09. Counterparts; Third Party Beneficiaries....................... 55
Section 13.10. Entire Agreement.............................................. 56
Section 13.11. Specific Performance.......................................... 56
Section 13.12. Knowledge..................................................... 56
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SCHEDULE 1-The Leader Group-Shareholders...................................... 1-1
Exhibit A--Escrow Agreement................................................... A-1
Exhibit B--Buyer's Officer's Certificate...................................... B-1
Exhibit C--Morrison & Foerster LLP Opinion.................................... C-1
Exhibit D--Subscription Agreement............................................. D-1
Exhibit E--Kutak Rock Opinion................................................. E-1
Exhibit F--Officer's Certificate.............................................. F-1
Exhibit G-1--Controlling Shareholders' Termination and Release...............G-1-1
Exhibit G-2--Employee Termination and Release................................G-2-1
Exhibit H--Employment Agreements.............................................. H-1
Exhibit I--Acknowledgement.................................................... I-1
Exhibit J--Projections........................................................ J-1
</TABLE>
v
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of April 27, 1998
("Effective Date") among BEA Systems, Inc., a Delaware corporation (the
"Buyer"), Leader Group, Inc., a Colorado corporation (the "Company"), and
Messrs. Jeffrey D. Peotter ("Peotter"), Jeffrey M. Ryan ("Ryan"), Kenneth R.
Allen ("Allen") (collectively, the "Controlling Shareholders") and those persons
listed on Schedule 1 (individually, each a "Shareholder" and collectively, the
"Shareholders").
W I T N E S S E T H :
WHEREAS, the Shareholders own all of the outstanding shares of the no par
value common stock of the Company (the "Shares"), with each Shareholder owning
the number of Shares set forth opposite each Shareholder's name in column B of
Schedule 1; and
WHEREAS, Buyer is willing to buy and the Shareholders are willing to sell
the Shares at Closing on the terms and conditions and in reliance on the
representations and warranties herein set forth; and.
WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated by this Agreement shall constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following meanings:
"Accelerated Processes/TM/" means the Company's proprietary methodology
which enhances the probability of success of the Company's software
implementation projects and which the Company believes differentiates it from
its competition. This term includes the process and methods referred to and
encompassed within the following session topics and any and all subsequent
upgrades, modifications, enhancements and releases thereof: Accelerated
Requirements Methods, Accelerated Technical Feasibility Assessment, Accelerated
Risk Reduction Strategy, Accelerated Project Planning, Accelerated Requirements
Inspection Method and Accelerated Product Definition, as well as the following
product ideas, which are currently at the conceptual stage and have not been
developed and may never be developed, Accelerated Business Strategy, Accelerated
Business Planning, and Executive AMR as such terms are referred to in that
certain letter from Sparks Dix, P.C. to Mr. Richard P. Hubbard dated May 4,
1997.
1
<PAGE>
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
provided that no party to this Agreement shall be deemed to be an Affiliate of
any other party to this Agreement (including, without limitation, the Company)
solely by reason of its ownership of Common Stock.
"Balance Sheet" means the balance sheet of the Company as of March 31,
1998.
"Balance Sheet Date" means March 31, 1998.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and any regulations promulgated thereunder.
"Closing Date" means the date of the Closing.
"Common Stock" means the common stock, no par value, of the Company.
"Confidential Information" means any information relating to the
properties, prospects, products, services or operations of the Company or any
direct or indirect Affiliate thereof that is not generally known, is proprietary
to the Company or such Affiliate and is made known to such Person or learned or
acquired by such Person while such Person was an officer, director, employee or
independent contractor of the Company, including, without limitation,
information relating to the software developed by the Company, information as to
sources of, and arrangements for, hardware supplied to customers or clients of
the Company, submission and proposal procedures of the Company, customer or
contact lists, information concerning trade secrets of the Company, or any of
its Affiliates and any improvements relating to the products of the Company in
accounting, marketing, selling, leasing, financing and other business methods
and techniques.
However, Confidential Information shall not include (i) at the time of
disclosure to any Person such information that was in the public domain or later
entered the public domain other than as a result of a breach of an obligation
herein; or (ii) subsequent to disclosure to any Person, such Person received
such information from a third party under no obligation to maintain such
information in confidence, and the third party came into possession of such
information other than as a result of a breach of an obligation herein.
"Controlling Shareholders" means individually and jointly Messrs. Peotter,
Ryan and Allen.
"Controlling Shareholders' Agreement" means that certain Shareholders'
Agreement dated September 24, 1996 between the Company and the Controlling
Shareholders.
"Employee Shareholders' Agreement" means that certain Shareholders'
Agreement entered into from time to time by the Company and an employee upon the
purchase by such employee of shares of Common Stock.
2
<PAGE>
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, now in effect,
relating to human health, the environment or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Substances or wastes into the
environment, including without limitation ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Environmental Liabilities" means any and all liabilities of or relating to
the Company (including any entity which is, in whole or in part, a predecessor
of the Company), whether vested or unvested, contingent or fixed, actual or
potential, known or unknown, which (a) arise under or relate to matters covered
by Environmental Laws and (b) relate to actions occurring or conditions existing
on or prior to the Closing Date.
"Environmental Permits" means all permits, licenses, authorizations,
certificates and approvals of governmental authorities relating to or required
by Environmental Laws and necessary or proper for the business of the Company as
currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulation promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Hazardous Substances" means any toxic, radioactive, corrosive or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics, including, without limitation, any substance
regulated under Environmental Laws.
"Immediate Family Member" means, with respect to any Person, such Person's
spouse, parents, children and siblings.
"Intellectual Property Right" means any trademark, copyright, service mark,
trade name, patent, maskworks, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible and intangible proprietary information or material
(including any registrations or applications for registration of any of the
foregoing).
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or
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asset. For the purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any property or asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such property or
asset.
"Material Adverse Effect" means any material adverse change in, or material
adverse effect on, the business, assets, prospects, results of operations, value
or financial or other condition of the Company, or any event or circumstance
that would likely prevent, hinder or materially delay the consummation of any of
the transactions contemplated by this Agreement and the Transaction Documents.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Company.
"Transaction Documents" means this Agreement and any other document
contemplated hereby or thereby, including, without limitation, the Letter of
Intent dated April 8, 1998, by and among, Buyer and Messrs. Peotter, Ryan and
Allen.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
Section 2.01. PURCHASE AND SALE. Upon the basis of the representations
and warranties herein contained and on the terms and subject to the conditions
of this Agreement, on the Closing Date and effective as of the Closing (as
defined in Section 2.05 herein) each of the Shareholders shall sell, convey,
assign, transfer and deliver to Buyer and Buyer shall purchase from each
Shareholder, that number of Shares, each as set forth opposite the name of such
Shareholder in column B of Schedule 1 hereto, free and clear of all Liens, in
exchange for the Purchase Price (as defined below).
Section 2.02. PURCHASE PRICE. The purchase price for the Shares shall be
$14,480,000 (the "Purchase Price"), payable in shares of the Buyer's $.001 par
value common stock ("Buyer's Common Stock"). No fractional shares or scrip
representing fractional shares ("Fractional Shares") shall be issuable to the
Shareholders. All Fractional Shares shall be payable in cash in an amount equal
to the Fractional Share owned multiplied by the Average Price (as defined and
determined in Section 2.03(a)). The Purchase Price shall be paid as provided in
Section 2.03.
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Section 2.03. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
payable as follows:
(a) $14,480,000 payable to the Shareholders in that number of shares
of Buyer's Common Stock determined by dividing (x) $14,480,000 by (y) the
average of the closing price per share of Buyer's Common Stock on the
Nasdaq National Market during the five consecutive trading days on which
such Common Stock was actually traded, ending on the trading day
immediately preceding the Effective Date (the "Average Price"); provided,
however, that in the event that the Average Price is less than $22.00, the
Average Price will be deemed to be $22.00, and if the Average Price is
greater than $32.00, the Average Price will be deemed to be $32.00;
(b) cash consideration equal to the Fractional Shares otherwise
issuable to the Shareholders multiplied by the Average Price, as determined
in Section 2.03(a), in immediately available funds by wire transfer to an
account designated by Shareholder by notice to Buyer not later than two
business days prior to the Closing Date (or if not so designated, then by
certified or official bank check payable in immediately available funds to
the order of the Shareholder in such amount); and
(c) Buyer's Common Stock and any cash consideration payable for
Fractional Shares shall be allocated among the Shareholders in accordance
with, and in the manner set forth on, Schedule 1 hereto. The obligations
of the Shareholders under Section 2.01 hereof shall be several, and not
joint; provided, however, that in addition to other closing conditions set
forth herein, Buyer shall not be obligated to purchase the Shares unless
and until each Shareholder tenders such Shares listed in Schedule 1 in
accordance with the terms and provisions of this Agreement.
Section 2.04. ESCROW DEPOSIT. Notwithstanding the foregoing provisions of
Section 2.03 hereof and anything to the contrary contained in this Agreement,
Buyer shall withhold an aggregate of ten percent (10%) of the Purchase Price
payable to the Controlling Shareholders (the "Escrow Shares") from the
respective share amounts payable to the Controlling Shareholders pursuant to
Section 2.03 hereof, and Buyer shall deposit the Escrow Shares into an account
(the "Escrow"), to be governed by the terms hereof and the terms of the Escrow
Agreement attached hereto as Exhibit A (the "Escrow Agreement" and the escrow
agent designated therein, the "Escrow Agent").
Section 2.05. CLOSING. Subject to the satisfaction or waiver of each of
the conditions set forth in Articles X, the closing (the "Closing") of the
purchase and sale of the Shares hereunder shall take place at the offices of
Morrison & Foerster LLP, 370 Seventeenth Street, Suite 5200, Denver, Colorado
80202, on the first mutually agreeable business day following the fulfillment or
waiver of the conditions set forth in Article X, or at such other time and place
as the parties shall mutually agree, but in no event later than April 30, 1998
(such date and time being called the "Closing Date").
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Section 2.06. CLOSING DELIVERIES. At the Closing on the terms and subject
to the conditions set forth herein and in reliance on the representations,
warranties, covenants and other agreements set forth herein, the parties to this
Agreement shall deliver the following:
(a) Buyer shall deliver to the Company, the Shareholders or the Escrow
Agent, as the case may be:
(i) a copy of this Agreement, duly and validly executed by an
authorized officer of Buyer;
(ii) a copy of the Escrow Agreement, duly and validly executed by
an authorized officer of Buyer;
(iii) certificates representing shares of Buyer's Common Stock
to the Shareholders in the amounts set forth in column D of Schedule
1;
(iv) certificates representing the Escrow Shares to the Escrow
Agent in the amounts set forth in column F of Schedule 1;
(v) cash consideration for the Fractional Shares to the
Shareholders in the amounts set forth in column E of Schedule 1;
(vi) an officer's certificate in the form attached hereto as
Exhibit B, duly executed by an executive officer of Buyer (the
"Buyer's Officer's Certificate"); and
(vii) an opinion of Morrison & Foerster LLP, counsel to Buyer,
dated as of the Closing Date, substantially identical in form and
substance to Exhibit C attached hereto (the "Morrison Foerster
Opinion"); and
(viii) such other agreements, instruments, certificates and
other documents as may be reasonably necessary or appropriate to
effectuate completely the transactions contemplated hereby and each of
the Transaction Documents.
(b) Each Shareholder or the Representative, as the case may be, shall
deliver to Buyer:
(i) a certificate or certificates, registered in the name of such
Shareholder, as set forth on Schedule 1 hereto, representing the
number of Shares to be sold by such Shareholder to Buyer in accordance
with the terms of this Agreement;
(ii) a copy of the Escrow Agreement, duly and validly executed by
the Representative, on behalf of the Controlling Shareholders;
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(iii) an executed subscription agreement ("Subscription
Agreement") in the form attached hereto as Exhibit D;
(iv) such other agreements, instruments, certificates and other
documents as may be reasonably necessary or appropriate to effectuate
completely the transactions contemplated hereby and each of the
Transaction Documents; and
(v) a termination and mutual release of the Controlling
Shareholders' Agreement (the "Controlling Shareholders' Termination
and Release") and Employee Shareholders' Agreement (the "Employee
Termination and Release"), in the forms attached hereto as Exhibits G-
1 and G-2, respectively, duly and validly executed by an authorized
officer of the Company.
(c) The Company shall deliver to Buyer or the Shareholders the
following:
(i) a copy of this Agreement, duly and validly executed by an
authorized officer of the Company;
(ii) an opinion of Kutak Rock, counsel to the Company, dated as
of the Closing Date, substantially identical in form and substance to
Exhibit E attached hereto (the `Kutak Rock Opinion");
(iii) an officer's certificate, in the form attached hereto as
Exhibit F, duly executed by an executive officer of the Company (the
"Officer's Certificate");
(iv) the Controlling Shareholders' Termination and Release and
the Employee Termination and Release, duly and validly executed by the
respective Shareholders;
(v) a copy of the countersigned employment offer letters, in the
form attached hereto as Exhibit H, duly and validly executed by such
employees as are mutually designated by the Company and Buyer (the
"Employment Agreements");
(vi) an acknowledgment in the form of Exhibit I from Updata
Capital, Inc. (the "Acknowledgment");
(vii) an assignment of the term key man insurance policies to
the respective Controlling Shareholders (the "Assignment"); and
(viii) such other agreements, instruments, certificates and
other documents as may be reasonably necessary or appropriate to
effectuate
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completely the transactions contemplated hereby and each of the
Transaction Documents.
Section 2.07. FURTHER ASSURANCES. At any time and from time to time after
the Closing Date, at the request of Buyer and without further consideration,
each Shareholder (and, as and to the extent necessary or appropriate, the
Company or its officers) will execute and deliver such other instruments of
sale, transfer, conveyance, assignment and confirmation as may be reasonably
requested in order to more effectively transfer, convey and assign to the Buyer
and to confirm the Buyer's title to the Shares.
Section 2.08. CONSUMMATION OF CLOSING. All acts, deliveries and
confirmations comprising the Closing regardless of chronological sequence shall
be deemed to occur contemporaneously and simultaneously upon the occurrence of
the last act, delivery or confirmation of the Closing and none of such acts,
deliveries, or confirmations shall be effective unless and until the last of the
same shall have occurred.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE CONTROLLING SHAREHOLDERS
The Company and the Controlling Shareholders jointly and severally
represent and warrant to Buyer as of the date hereof and as of the Closing Date
as follows:
Section 3.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted and as contemplated to be conducted by the
Company. The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except for those jurisdictions where failure to be so qualified,
individually or in the aggregate, would not have a Material Adverse Effect. The
Company has heretofore delivered or, on or prior to the Closing Date, will
deliver, to Buyer true and complete copies of the articles of incorporation and
bylaws of the Company as currently in effect.
Section 3.02. CORPORATE AUTHORIZATION AND AUTHORITY. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party. This Agreement, and the
other Transaction Documents to which it is a party, have been duly authorized
and approved by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company (assuming that it
has been duly executed and delivered by Buyer), constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to
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judicial discretion. Each of the Transaction Documents to which the Company is a
party, when executed and delivered in accordance with the terms hereof (and
assuming that each such Transaction Document has been duly executed and
delivered by the other parties thereto), will constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Section 3.03. GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
3.03, the execution, delivery and performance by the Company of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official.
Section 3.04. EFFECT OF AGREEMENT ON THE COMPANY. Except as set forth in
Schedule 3.04, neither the execution and delivery of this Agreement or the
Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) result in the acceleration,
breach or termination of, or the creation in any party of the right to
accelerate, terminate, modify, cancel or require any notice under, any material
contract, lease, license, instrument or other arrangement, or other material
obligation or liability to which the Company is a party or is bound or to which
the Company's assets are subject, (ii) conflict with, violate or result in a
breach of any provision of the articles of incorporation or bylaws of the
Company, (iii) conflict with or violate any law, rule, regulation, ordinance,
order, writ, injunction or decree applicable to the Company or by which any of
their respective properties or assets is bound or affected, except where such
conflict or violation could not reasonably be expected to have a Material
Adverse Effect, or (iv) result in the creation of any Lien upon the Shares or
any assets, tangible or intangible, of the Company.
Section 3.05. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 1,000,000
shares of Common Stock. As of the date hereof, there were outstanding
777,310 shares of Common Stock. All of the issued and outstanding shares
of Common Stock are held of record by the Shareholders in the amounts set
forth opposite each Shareholders name in Schedule 1, free and clear of all
Liens. There are no shares of Common Stock held in the corporate treasury.
(b) The Shares have been duly authorized and validly issued, are fully
paid and non-assessable shares of Common Stock and the holders thereof are
not, or will not be, entitled to any preemptive or other similar rights.
Except as set forth in this Section 3.05 and except as set forth in
Schedule 3.05, there are no outstanding or authorized (i) shares of capital
stock or voting securities of the Company, (ii) securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company or (iii) options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, stock
appreciation, phantom stock, profit participation, or similar rights to
acquire from the Company, or similar obligations of the
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Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
the Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Shares"). There are no outstanding obligations
of the Company to repurchase, redeem or otherwise acquire any Company
Shares. Except as set forth on Schedule 3.05, there are no voting trusts,
proxies, or other agreements or understandings with respect to the voting
of the capital stock of the Company.
Section 3.06. SUBSIDIARIES. The Company does not own, and has never
owned, any interest in any corporation or other business entity and, except as
set forth in Schedule 3.06, the Company is not a participant, and has never been
a participant, in any partnership or any joint venture with any third party.
Section 3.07. FINANCIAL STATEMENTS. The Company has delivered to Buyer
(i) an audited (a) balance sheet as of December 31, 1997, (b) related statements
of income, changes in stockholders equity, and cash flows for the fiscal year
then ended, and (c) all related notes and schedules; (ii) (a) a balance sheet as
of December 31, 1996, (b) related statements of income, changes in stockholders
equity, and cash flows for the fiscal year then ended, and (c) all related notes
and schedules, all of which have been reviewed, but not audited by the Company's
independent public accountant; and (iii) the unaudited (x) Balance Sheet, and
(y) related statement of income, changes in stockholders equity, and cash flows
for the period then ended (collectively, the "Financial Statements"). Except as
set forth on Schedule 3.07, the Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, subject to any qualifications set forth in the applicable notes
and schedules, present fairly, in all material respects, the financial condition
of the Company as of such dates and the results of operations of the Company for
such periods, include all adjustments that are necessary for a fair,
presentation of the information shown, are correct and complete in all material
respects, and are consistent with the books and records of the Company (which
books and records are true and complete in all material respects). The
Financial Statements reflect reserves appropriate and adequate for all known
material liabilities and reasonably anticipated losses as required by GAAP
(including appropriate and adequate reserves for inventory, bad debt and accrued
liabilities.) The Company has disclosed to Buyer all material facts relating to
the preparation of the Financial Statements, including the basis of accounting
for affiliated transactions, and the Company has delivered to Buyer complete and
correct copies of all letters of representation from the Company to its
accountants in connection with the audited Financial Statements and all
management letters from the accountants to the Company.
Section 3.08. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.08, since the Balance Sheet Date, the Company has conducted its business in
the ordinary course consistent with past practices and, except pursuant to or as
contemplated under any Transaction Documents, there has not been any Material
Adverse Effect and there is no condition or development or contingency of any
kind existing that could reasonably be expected to result in any such Material
Adverse Effect in the business or future prospects of the Company. Without
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limiting the foregoing, except as set forth in Schedule 3.08, since the Balance
Sheet Date, there has not been, occurred or arisen:
(a) any issuance or sale or authorization of the issuance or sale of
any shares of capital stock or other securities of the Company or Company
Shares relating to shares of capital stock or other securities of the
Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
any direct or indirect repurchase, redemption, retirement, purchase or
other acquisition by the Company of any outstanding shares of capital stock
or other securities of, or other ownership interests in, the Company;
(c) any amendment of any material term of any outstanding security of
the Company;
(d) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money, other than in the ordinary course of
business, exceeding $10,000;
(e) any creation or assumption by the Company of any Lien on any
material asset of the Company;
(f) any making of any loan, advance or capital contributions to or
investment in any Person;
(g) any material damage, destruction or other casualty loss affecting
the business or assets of the Company not covered by insurance;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including
the acquisition or disposition of any assets) or any relinquishment by the
Company of any contract or other right (direct or indirect, whether
alleged, contingent or otherwise), in either case, material to the Company,
taken as a whole, other than transactions and commitments in the ordinary
course of business consistent with past practices;
(i) any sale, assignment, transfer or grant of any license or
sublicense with respect to any Intellectual Property Right or other
intangible asset used or useful in the business of the Company;
(j) any incurrence or payment of any material obligation or liability
(absolute, accrued or contingent) other than current liabilities shown on
the Balance Sheet and current liabilities incurred since the Balance Sheet
Date in the ordinary course of business consistent with past practice;
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(k) any change in any method of accounting or accounting practice by
the Company, except for any such change after the date hereof required by
reason of a concurrent change in GAAP;
(l) any (i) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any director, officer or
employee of the Company (or any amendment to any such existing agreement),
(ii) grant of any severance or termination pay to any director, officer or
employee of the Company , or (iii) change in compensation or other benefits
payable to any director, officer or employee of the Company pursuant to any
severance or retirement plans or policies thereof;
(m) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company, which employees were not subject to
a collective bargaining agreement at the Balance Sheet Date, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to any employees of the Company;
(n) any other material occurrence, event, incident, action, failure to
act, or transaction outside the ordinary course of business involving the
Company; and
(o) the Company has not committed to any of the foregoing.
Section 3.09. NO UNDISCLOSED MATERIAL LIABILITIES. There are no material
liabilities of the Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than:
(a) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(b) liabilities disclosed on Schedule 3.09; and
(c) liabilities incurred for accounts payable and any accruals of
current liabilities since the Balance Sheet Date in each case in type and
amounts which are accrued in the ordinary course of the Company's business.
Section 3.10. RELATED PARTY TRANSACTIONS. Schedule 3.10 contains a
complete list of all transactions and agreements between the Company, on the one
hand, and any Shareholders, suppliers, customers or other parties ("Related
Parties"), on the other hand, where an officer, director, employee or holder of
5% or more of the outstanding equity of such Related Party is an Immediate
Family Member of an officer, director, employee or holder of 5% or more of the
outstanding capital stock of the Company.
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Section 3.11. MATERIAL CONTRACTS.
(a) Except as disclosed in Schedule 3.11 and except pursuant to or as
contemplated under any of the Transaction Documents, the Company is not
currently a party to or bound by:
(i) any lease (whether of real or personal property) providing
for annual rentals of $10,000 or more;
(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets that provides for either
(A) annual payments by the Company of $5,000 or more or (B) aggregate
payments by the Company of $10,000 or more;
(iii) any consulting services, sales, distribution or other
similar agreement providing for the sale by the Company of materials,
supplies, goods, services, equipment or other assets that provides for
either (A) annual payments to the Company of $50,000 or more or (B)
aggregate payments to the Company of $100,000 or more;
(iv) any partnership, joint venture or other similar agreement
or arrangement;
(v) any agreement relating to the acquisition or disposition
of any business (whether by merger, sale of stock, sale of assets or
otherwise);
(vi) any agreement relating to indebtedness for borrowed money
or the deferred purchase price of property (in either case, whether
incurred, assumed, guaranteed or secured by any asset), except any
such agreement (A) with an aggregate outstanding principal amount not
exceeding $10,000 and (B) which may be prepaid on not more than 30
days notice without the payment of any penalty;
(vii) any license, franchise or similar agreement that
provides for either (A) annual payments to or from the Company of
$10,000 or more or (B) aggregate payments to or from the Company of
$10,000 or more;
(viii) any agency, dealer, sales representative, marketing or
other similar agreement for that provides for either (A) annual
payments by the Company of $25,000 or more or (B) aggregate payments
by the Company of $50,000 or more;
(ix) any agreement that limits the freedom of the Company to
compete in any line of business or with any Person or in any area or
which would so limit the freedom of the Company;
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(x) any agreement with any other Person directly or
indirectly owning, controlling or holding with power to vote 5% or
more of the outstanding voting securities of any Affiliate;
(xi) any agreement with any director, officer or employee of
the Company or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and
16a-1 of the Exchange Act) of any such director, officer or employee;
(xii) any other agreement, commitment, arrangement or plan
not made in the ordinary course of business that is material to the
Company, taken as a whole; or
(xiii) any agreement under which the consequences of a default
or termination would have a Material Adverse Effect.
(b) The Company has paid in full all amounts due and required to be
paid as of the date hereof under each agreement identified in Schedule 3.11
(a "Material Agreement") and will have satisfied in full all of its
respective liabilities and obligations thereunder due and required to be
paid prior to the Closing. All of the Material Agreements listed are in
full force and effect. The Company and, to the knowledge of the
Controlling Shareholders, each other party thereto have performed all of
the obligations required to be performed by them to date, have received no
notice of default and are not in default (with due notice or lapse of time
or both) under any Material Agreement except where such failures to perform
and defaults could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has no present
exception or intention of not fully performing all of its obligations under
each Material Agreement, and the Controlling Shareholders have no knowledge
of any breach or anticipated breach by the other party to any contract or
commitment to which the Company is a party. There exists no actual or, to
the knowledge of the Controlling Shareholders, threatened termination,
cancellation or limitation of the business relationship of the Company with
any party to any such Material Agreement.
(c) The Company has listed in Schedule 3.11 its ten largest customers
for the fiscal year ended December 31, 1997 and for the three month period
ended March 31, 1998 (determined on the basis of both revenues and bookings
during such periods), and the revenues and bookings for each customer
during those periods. Except as set forth on Schedule 3.11, none of these
customers has reduced or terminated, or has notified the Company in writing
that it intends to reduce or terminate, the amount of its business with the
Company.
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Section 3.12. LITIGATION.
(a) There is no action, suit, investigation or proceeding pending
against (or to the knowledge of the Controlling Shareholders, any basis
therefor) or, to the knowledge of the Controlling Shareholders, threatened
against or affecting, the Company or any of its properties before any court
or arbitrator or any governmental body, agency or official. None of the
Company, the Controlling Shareholders or any director or officer has any
reason to believe that any such action, suit, investigation or proceeding
will be brought against the Company.
(b) Except as disclosed on Schedule 3.12, no director, officer, key
management employee or sales representative or Immediate Family Member of
an director, officer, key management employee or sales representative of
the Company has been convicted in a criminal proceeding, is a named subject
of a criminal proceeding which is presently pending (excluding traffic
violations and other minor offenses) or is to the knowledge of such Person
the subject of a criminal investigation.
Section 3.13. COMPLIANCE WITH LAWS AND COURT ORDERS; NO DEFAULTS. The
Company is not in violation of, and has not since the Balance Sheet Date
violated, any provisions of any laws, statutes, ordinances, regulations,
administrative interpretations, judgements, injunctions, orders, policies or
decrees of any court or governmental or administrative authority that are
applicable to the Company, except for violations that have not had and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
Section 3.14. PROPERTIES.
(a) Except as set forth on Schedule 3.14, the Company has good title
to, or in the case of leased property has valid leasehold interests in, all
personal property and assets (whether tangible or intangible) reflected on
the Balance Sheet or acquired after the Balance Sheet Date, except for
property and assets sold since the Balance Sheet Date in the ordinary
course of business consistent with past practices. The Company has a valid
and insurable fee simple title to, or in the case of leased real property
has valid leasehold interests in, all real property reflected on the
Balance Sheet or acquired after the Balance Sheet Date. None of such
property or assets (whether real or personal) is subject to any Liens,
except:
(i) Liens disclosed on the Balance Sheet; or
(ii) Liens for taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been
established on the Balance Sheet).
(b) To the knowledge of the Controlling Shareholders, there are no
developments affecting any such property or assets (whether real or
personal) pending or threatened, which might materially detract from the
value of such property or assets, or materially interfere with any present
use of any such property or assets.
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(c) Except as set forth in Schedule 3.14, the plant and equipment
owned by the Company has been reasonably maintained consistent with
standards generally followed in the industry (giving due account to the age
and length of use of same, ordinary wear and tear excepted) and are
adequate and suitable for their present uses and, in the case of plants,
buildings and other structures (including the roofs thereof), are
structurally sound.
(d) All real property currently has access to (i) public roads or
valid easements for such ingress to and egress from all such real property
and (ii) water supply, storm and sanitary sewer facilities, telephone, gas
and electrical connections, fire protection, drainage and other public
utilities, in each case as is necessary for the conduct of the businesses
of the Company as heretofore conducted and none of the structures on any
such owned or leased real property encroaches upon real property of another
person, and no structure of any other person substantially encroaches upon
any of such owned or leased real property.
(e) Except as disclosed in Schedule 3.14, the property and assets
owned or leased by the Company, or which it otherwise has the right to use,
constitutes all of the property and assets held for use or used in
connection with the business of the Company and is generally adequate to
conduct such business as currently conducted by the Company.
Section 3.15. PRODUCTS.
(a) Each of the products produced, developed or sold by the Company
is, and at all times up to and including the sale thereof by the Company
has been (a) in compliance in all material respects with all applicable
federal, state, and local laws and regulations and (b) conforms in all
material respects to any promises or affirmations of fact made on the
container or label for such product or in connection with its sale, subject
to returns, repairs, defects and allowances consistent with past practice.
(b) There is no design defect with respect to any of such products
and, to the knowledge of the Company or the Controlling Shareholders, each
of such products contains adequate warnings, presented in a reasonably
prominent manner, in accordance with applicable laws, rules and regulations
and current industry practice with respect to its contents and use.
(c) Schedule 3.15(c) contains a list of all proprietary software
developed by the Company and currently sold, licensed or otherwise used by
the Company in its business, and any and all enhancements, upgrades,
customizations, modifications and maintenance thereof (the "Software").
The Software containing or calling on a calendar function including without
limitation, any function indexed to the CPU clock, and any function
providing specific dates or days, or calculating spans of dates or days,
shall
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record, store, process, provide, and, where appropriate, insert true and
accurate dates and calculations for dates and spans including January 1,
2000.
(d) The Software and, to the knowledge of the Controlling
Shareholders, any non-proprietary software used by the Company, is free
from significant programming errors and operates in substantial conformity
with its user documentation and other descriptions and standards applicable
thereto provided by the Company, and the Software does not contain any
known virus, timer, clock, counter or other limiting design, instruction or
routine, that would erase data, programming or become inoperable or
otherwise incapable of being used in the full manner for which it was
designed and created nor have the Controlling Shareholders been informed
that the non-proprietary software has any such problems.
Section 3.16. INTELLECTUAL PROPERTY.
(a) Schedule 3.16 contains a list of all Intellectual Property Rights
owned or licensed and used or held for use by the Company ("Company
Intellectual Property Rights"), specifying as to each, as applicable: (i)
the nature of such Intellectual Property Right; (ii) the owner of such
Intellectual Property Right; (iii) the jurisdictions by or in which such
Intellectual Property Right is recognized without regard to registration or
has been issued or registered or in which an application for such issuance
or registration has been filed, including the respective registration or
application numbers; and (iv) licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which any Person is
authorized to use such Intellectual Property Right, including the identity
of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty and the term thereof.
(b) The Company Intellectual Property Rights constitute all
Intellectual Property Rights necessary for the operation of the Company's
business as presently conducted and as presently proposed to be conducted.
The Company Intellectual Property Rights will be owned or available for use
by the Company on identical terms and conditions immediately subsequent to
the Closing hereunder. No Company Intellectual Property Rights are
involved in any interference or re-examination or cancellation or
opposition proceeding and neither the Company nor any Controlling
Shareholder, has been notified or alerted that any such proceeding will
hereafter be commenced. Except as set forth in Schedule 3.16, neither the
Company nor any Shareholder, as to itself, has any basis for provoking or
initiating an interference or opposition proceeding with respect to any
Intellectual Property Right held or used by others, and does not have any
basis for believing that any of the Company Intellectual Property Rights
are being infringed by others.
(c) The Company has not been a defendant in any action, suit,
investigation or proceeding relating to, or otherwise been notified of, any
alleged claim or infringement of the Company Intellectual Property Rights,
and the Company and the Controlling Shareholders have no knowledge of any
such infringement by the Company or the
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Company Intellectual Property Rights with the intellectual property of
others, and (ii) the Company and the Controlling Shareholders have no
knowledge of any continuing infringement by any other Person of any Company
Intellectual Property Rights. Except as set forth on Schedule 3.16, the
Company has not entered into any agreement to indemnify any other Person
against any charge of infringement, misappropriation or other conflict with
respect to any Intellectual Property Right.
(d) The Company has delivered to Buyer correct and complete copies of
all Company patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) relating to Company Intellectual Property
Rights and has made available to Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such Company Intellectual Property Right. With respect
to each Intellectual Property Right that the Company owns:
(i) all patents, copyrights and trademarks included in the
Company Intellectual Property Rights are valid and in full force and
all applications listed on Schedule 3.16 as pending have been
prosecuted in good faith as required by law and are in good standing;
(ii) the Company possesses all right, title, and interest in and
to the item;
(iii) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge; and
(iv) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demands pending or to the knowledge of the
Company and the Controlling Shareholders (and employees with
responsibility for Intellectual Property Right matters) is threatened
which challenges the legality, validity, enforceability, use, or
ownership of the Intellectual Property Right.
(e) The Company has supplied Buyer with correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (as amended to
date) with respect to such Intellectual Property Right. With respect to
each such Intellectual Property Right:
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the Closing;
(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time
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would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true
and correct with respect to the underlying license;
(vi) the underlying item of the Intellectual Property Right is
not subject to any outstanding judgment, order, decree, stipulation,
injunction, or charge; and
(vii) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending, or to the knowledge of any
of the Company and the Controlling Shareholders and officers (and
employees with responsibility for Intellectual Property Right matters)
is threatened which challenges the legality, validity, or
enforceability of the underlying item of the Intellectual Property
Right.
(f) Without limiting the representations set forth herein, the Company
has obtained full right, title and interest to the Accelerated Processes,
without any obligation to make any future payment of any consideration to
any party. Schedule 3.16 contains a copy of all agreements relating to
ownership or other rights in the Accelerated Processes /TM/ entered into by
the Company.
Section 3.17. INSURANCE COVERAGE. Schedule 3.17 correctly describes each
insurance policy and fidelity bond relating to the assets, business, operations,
employees, officers or directors of the Company. There is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds or in respect of which such underwriters have reserved their rights. All
premiums payable under all such policies and bonds have been paid timely and the
Company has otherwise complied fully with the terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies and
bonds providing substantially similar insurance coverage) are in full force and
effect. Such policies and bonds are of the type and in amounts customarily
carried by Persons conducting businesses similar to those of the Company. The
Company does not know of any threatened termination of, premium increase with
respect to, or material alteration of coverage under, any of such policies or
bonds. Except as disclosed in Schedule 3.17, the Company shall after the
Closing continue to have coverage under such policies and bonds with respect to
events occurring prior to the Closing.
Section 3.18. LICENSES AND PERMITS.
(a) Schedule 3.18 correctly describes each license, franchise, permit
or other similar authorization affecting, or relating in any way to, the
assets or business of the
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Company which are material to the Company taken as a whole (the "Permits")
together with the name of the government agency or entity issuing such
Permit. Except as set forth on the Schedule 3.18, such Permits are valid
and in full force and effect and none of the Permits will be terminated or
impaired or become terminable, in whole or in part, as a result of the
transactions contemplated hereby.
(b) The Company has all licenses, franchises, permits or other similar
authorizations, and all approvals of governmental or regulatory authorities
as are required to operate its business as presently conducted and as
presently proposed to be conducted in each state of the United States where
it is engaged in such activity.
Section 3.19. INVENTORIES. Except as listed on Schedule 3.19, all of the
inventory of the Company reflected on the Balance Sheet or thereafter acquired
(and not subsequently sold in the ordinary course of business) consists of items
of a quality and quantity useable or saleable in the ordinary course of the
Company's business, subject to appropriate reserves for inventory write-down
which are set forth on the face of the Balance Sheet, at prices having a value
equal to the amounts reflected on the Balance Sheet or, with respect to after-
acquired inventory, at least equal to the cost thereof plus markups consistent
with past practice. Each item of such inventory is valued on the Balance Sheet
at the lower of cost (on a first-in-first-out basis) or market, in accordance
with GAAP. Except as listed on Schedule 3.19, all items of inventory are
located on premises owned or leased by the Company. The inventories and
supplies of the Company are on the date hereof, at normal and adequate levels
for the continuation of such business in the ordinary course of business.
Section 3.20. LOANS, NOTES, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE.
Schedule 3.20 provides an accurate and complete breakdown and aging of all
accounts receivable, notes receivable and other receivables of the Company as of
the Balance Sheet Date. Except as set forth on Schedule 3.20 and except for the
receivables payable by Buyer, all receivables (a) have arisen only from bona
fide transactions in the ordinary course of business consistent with past
practice, (b) represent valid obligations, and (c) are current and are expected
to be collectible in the aggregate face amounts thereof without any counterclaim
or set-off when due, except to the extent of the normal allowance for doubtful
accounts with respect to accounts receivable that are computed in a manner
consistent with GAAP and past practice and as reflected in the Balance Sheet or
with respect to receivables arising subsequent to the Balance Sheet Date, the
books and records of the Company, and (d) except as set forth on Schedule 3.20
are owned by the Company free of all Liens. No discount or allowance from any
receivable has been made or agreed to (other than customary payment discounts in
the ordinary course of business consistent with past practice), and none
represents billings prior to actual sale of goods or provision of services.
Accounts payable of the Company reflected on the Balance Sheet and all accounts
payable arising after the Balance Sheet Date arose, and have arisen, from bona
fide transactions.
Section 3.21. PROJECTIONS. The financial projections relating to the
Company and delivered to Buyer as set forth in Exhibit J hereto, were made in
good faith and are based upon reasonable assumptions, and the Company is not
aware of any fact or set of circumstances that would lead it to believe that
such projections are incorrect or misleading in any material respect.
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Section 3.22. FINDERS' FEES. Except for the broker's fee payable to
Updata Capital, Inc. in the amount of $320,000 (the "Broker's Fee"), which fee
shall be paid at Closing by the Company, no investment banker, broker, finder or
other intermediary is entitled to any fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
Section 3.23. EMPLOYEES. Schedule 3.23 sets forth a true and complete
list of the names, titles, annual salaries and other compensation of all
officers of the Company and all other employees of the Company, and none of such
employees and no other key employee of the Company has provided notice, written
or oral, to the Company or the Controlling Shareholders that he or she intends
to resign or retire as a result of the transactions contemplated by this
Agreement or otherwise within three years after the Closing Date. To the
Company's knowledge, no employee of the Company is subject to any secrecy or
noncompetition agreement or any agreement or restriction of any kind that would
impede in any material way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of the Company as
currently operated after the Closing Date. To the Company's knowledge, no third
party has claimed that any person employed by or affiliated with the Company has
violated or may be violating any of the terms or conditions of his past
employment, noncompetition or nondisclosure agreement with such third party, or
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party or interfered or
may be interfering in the employment relationship between such third party and
any of its present or former employees.
Section 3.24. LABOR MATTERS. The Company is in compliance with all
currently applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and is not engaged in any
unfair labor practice, failure to comply with which or engagement in which, as
the case may be, would reasonably be expected to have a Material Adverse Effect.
There is no unfair labor practice complaint pending or, to the knowledge of the
Controlling Shareholders, threatened against the Company before the National
Labor Relations Board.
Section 3.25. ENVIRONMENTAL MATTERS. The Company is not in violation of
any federal, state, or local Environmental Laws applicable to it or its
properties, or any material limitations, restrictions, conditions, standards,
obligations or timetables contained in any Environmental Law. No notice or
action alleging such violation is pending or, to the Company's knowledge,
threatened, and no past or present condition or practice of the businesses
conducted by the Company would prevent continued compliance with any
Environmental Permits or give rise to any common law or statutory liability or
otherwise from the basis of any claim, action or proceeding with respect to the
Company involving any Hazardous Substances. To the Company's knowledge, the
Company has no Environmental Liability.
Section 3.26. CERTAIN PRACTICES. To the knowledge of the Controlling
Shareholders, neither the Company nor any of its directors, officers or
employees has, directly or indirectly, given nor agreed to give any significant
rebate, gift or similar benefit to any supplier, customer,
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governmental employee or other person who was, is or may be in a position to
help or hinder the Company (or assist in connection with any actual or proposed
transaction).
Section 3.27. RECORDS. The minute books, stock certificate books and
stock transfer ledgers of the Company are complete and correct in all material
respects with respect to the matters set forth therein.
Section 3.28. NO INDEMNIFICATION LIABILITIES. There are no known existing
liabilities that require the Company to indemnify its officers or directors for
acts or omissions by such persons acting on behalf of the Company or, except for
the Company's Articles of Incorporation and Bylaws, existing agreements to
provide indemnification for such liabilities.
Section 3.29. FULL DISCLOSURE. No representation or warranty of the
Company made in this Agreement, nor any written statement furnished to Buyer
pursuant hereto, or in connection with the transactions contemplated hereby,
heretofore furnished to Buyer by the Company, contains or will contain any
statement which constitutes an untrue statement of a material fact or fails or
will fail to state a material fact which was necessary to make the statements or
facts contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby severally represents and warrants to Buyer,
as to himself or herself only, as of the date hereof and as of the Closing Date,
as follows:
Section 4.01. TITLE TO SHARES. Each Shareholder owns the Shares set forth
opposite its name in column B of Schedule 1 hereto (which in the aggregate
represent all of the issued and outstanding shares of capital stock of the
Company) free and clear of any Lien, restriction on sale or transfer (other than
restrictions imposed by applicable securities laws), preemptive right,
limitations on voting rights or option and has the authority to dispose of such
Shares pursuant to this Agreement.
Section 4.02. SHAREHOLDER POWER AND AUTHORITY. Each Shareholder has the
power and authority to execute, deliver and perform this Agreement and the other
Transaction Documents to which such Shareholder is a party. This Agreement has
been duly executed and delivered by each Shareholder, constitutes a legal, valid
and binding obligation of such Shareholder, enforceable against the Shareholder
in accordance with its terms, except as enforcement thereof may be limited by
liquidation, conservatorship, bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally from
time to time in effect and except that equitable remedies are subject to
judicial discretion. Each of the Transaction Documents to which such Shareholder
is a party, when executed and delivered in accordance with the terms hereof,
will constitute the legal, valid and binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with its terms, except as
enforcement thereof may be limited by liquidation, conservatorship, bankruptcy,
insolvency,
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reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
Section 4.03. EFFECT OF AGREEMENT ON THE SHAREHOLDERS. Neither the
execution and delivery of this Agreement nor the Transaction Documents to which
each Shareholder is a party nor the consummation of the transactions
contemplated hereby or thereby will (i) result in the acceleration, breach or
termination of, or the creation in any party of the right to accelerate,
terminate, modify, cancel or require any notice under, any contract, lease,
license, instrument or other arrangement, or other obligation or liability to
which such Shareholder is a party or is bound or to which the Shareholder's
assets are subject, (ii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction or decree applicable to the Shareholder by
which any of his or her respective properties or assets is bound or affected,
(iv) or result in the creation of any Lien upon the Shares or any assets,
tangible or intangible, of such Shareholder.
Section 4.04. LITIGATION. There are no claims, actions, suits,
arbitrations, grievances, proceedings or investigations pending or, to the
knowledge of each Shareholder, threatened against such Shareholder, at law, in
equity or before any federal, state, municipal or other governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, involving the transactions contemplated
hereby.
Section 4.05. SHAREHOLDER AGREEMENTS. Except as set forth on Schedule
4.05, there are no agreements, written or oral, between the Company and any
Shareholder or between the Shareholders, relating to the acquisition (including
without limitation rights of first refusal or pre-emptive rights), disposition,
registration under the Securities Act, as amended, or voting of the capital
stock of the Company.
Section 4.06. INVESTMENT REPRESENTATIONS.
(a) Each Shareholder understands and acknowledges that the shares of
Buyer's Common Stock to be issued to such Shareholder are being issued in
reliance upon the exemption for the registration requirements of the
Securities Act afforded by Section 4(2) and/or Regulation D, and that such
shares will not be registered under the Securities Act or any state
securities or "blue sky" law.
(b) Except to the extent otherwise provided for in connection with, or
otherwise not applicable in light of, the express provisions of any of the
Transaction Documents, the shares of Buyer's Common Stock to be issued as
consideration pursuant hereto are being acquired by each Shareholder
pursuant to the terms and subject to the conditions of this Agreement for
each Shareholder's own account and for investment purposes only, and not
with a view to any public resale, public distribution or other public
offering thereof, in each case within the meaning of the Securities Act or
any state securities or "blue sky" law.
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(c) Each Shareholder understands and acknowledges that the shares of
Buyer's Common Stock to be issued as consideration pursuant hereto may not
be sold or otherwise disposed of, except pursuant to registration under the
Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act.
(d) Each Shareholder has such knowledge and experience in financial
and business matters that such Shareholder is capable of evaluating the
merits and risks of the prospective investment in Buyer's Common Stock, and
each Shareholder is able to bear the economic consequences thereof.
(e) In making the decision to invest in Buyer's Common Stock, each
Shareholder has relied upon independent investigations made by such
Shareholder and, to the extent believed by such Shareholder to be
appropriate, such Shareholder's representative, including the Shareholder's
own professional, tax and other advisors, and has not relied upon any
representation or warranty from the Buyer or any of its directors, officer,
employees, agents, affiliates or representatives with respect to the value
of Buyer's Common Stock or the tax consequences of the transactions
contemplated by this Agreement or any of the Transaction Documents.
(f) Each Shareholder and such Shareholder's representative, if any,
has been given a full opportunity to examine all documents relating to the
transactions contemplated by this Agreement and the Transaction Documents,
and to ask questions of, and to receive answers from, the Buyer and its
representatives concerning the terms of the transactions contemplated by
this Agreement and each of the Transaction Documents and such other
information as such Shareholder desires in order to evaluate an investment
in Buyer's Common Stock and all such questions have been answered to the
full satisfaction of such Shareholder. Each Shareholder acknowledges that
the information provided to the Shareholder or information which such
Shareholder has had an opportunity to review, includes, without limitation:
(i) a copy of Buyer's Prospectus dated July 21, 1997, which forms a part of
Buyer's Registration Statement on Form SB-2 (Registration No. 333-29961);
(ii) a draft copy of Buyer's audited financial statements for the year
ended January 31, 1998; (iii) Buyer's Quarterly Report on Form 10-QSB for
the period ended October 31, 1997; and (iv) all other reports filed by
Buyer with the Securities and Exchange Commission under the Exchange Act
since October 31, 1997.
Section 4.07. FULL DISCLOSURE. No representation or warranty of the
Shareholders made in this Agreement, nor any written statement furnished to
Buyer pursuant hereto, or in connection with the transactions contemplated
hereby, heretofore furnished to Buyer by the Shareholders, contains or will
contain any statement which constitutes an untrue statement of a material fact
or fails or will fail to state a material fact which was necessary to make the
statements or facts contained herein or therein not misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the Shareholders as
follows:
Section 5.01. CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted and as contemplated to be conducted by Buyer.
Buyer is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualify, individually or in the
aggregate, would not have a Material Adverse Effect. Buyer has heretofore
delivered or, on or prior to the Closing Date, will deliver, to the Company true
and complete copies of the certificate of incorporation and bylaws of Buyer as
currently in effect.
Section 5.02. CORPORATE AUTHORIZATION AND AUTHORITY. Buyer has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party. This Agreement, and the
other Transaction Documents to which it is a party, have been duly authorized
and approved by all necessary corporate action on the part of Buyer. This
Agreement has been duly executed and delivered by Buyer (assuming that it has
been duly executed and delivered by the Company and the Shareholders),
constitutes a legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, except as enforcement thereof may be limited
by liquidation, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally from time to time in effect and except that equitable remedies are
subject to judicial discretion. Each of the Transaction Documents to which
Buyer is a party, when executed and delivered in accordance with the terms
hereof (and assuming that each such Transaction Document has been duly executed
and delivered by the other parties thereto), will constitute the legal, valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms, except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Section 5.03. GOVERNMENTAL AUTHORIZATION. Except as set forth in Schedule
5.03, the execution, delivery and performance by Buyer of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official, except for federal or state securities laws and the rules
of the NASDAQ Stock Market.
Section 5.04. EFFECT OF AGREEMENT ON BUYER. Except as set forth in
Schedule 5.04, neither the execution and delivery of this Agreement nor the
Transaction Documents to which it is a party nor the consummation of the
transactions contemplated hereby or thereby will (i) result in the acceleration,
breach or termination of, or the creation in any party of the right to
accelerate,
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terminate, modify, cancel or require any notice under, any contract, lease,
license, instrument or other arrangement, or other obligation or liability to
which Buyer is a party or is bound or to which Buyer's assets are subject, (ii)
conflict with, violate or result in a breach of any provision of the certificate
of incorporation or bylaws of Buyer, or (iii) conflict with or violate any law,
rule, regulation, ordinance, order, writ, injunction or decree applicable to
Buyer or by which any of their respective properties or assets is bound or
affected.
Section 5.05. FINDERS' FEES. Except as previously disclosed by Buyer to
the Company, no investment banker, broker, finder or other intermediary is
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by Buyer.
Section 5.06 ISSUANCE OF COMMON STOCK. The shares of Buyer's Common
Stock, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration set forth herein, will be duly authorized and
validly issued, fully paid and nonassessable.
Section 5.07 DISCLOSURE. Buyer has furnished or made available to the
Company and each Shareholder of the Company a copy of (i) Buyer's prospectus
dated July 21, 1997, which forms a part of Buyer's Registration Statement on
Form SB-2 (Registration No. 333-29961); (ii) a draft copy of Buyer's audited
financial statements for the year ended January 31, 1998; (iii) Buyer's
Quarterly Report on Form 10-QSB for the period ended October 31, 1997; and (iv)
all other reports filed by Buyer with the Securities and Exchange Commission
("Commission") under the Exchange Act since October 31, 1997 (collectively, the
"SEC Reports"). The SEC Reports comply in all material respects with the
applicable Commission rules and regulations relating thereto, and, as of the
date of this Agreement, no additional filing or amendment to any previous
Commission filing is required under such rules and regulations. The SEC Reports
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained therein not
misleading.
Section 5.08 FULL DISCLOSURE. No representation or warranty of Buyer made
in this Agreement, nor any written statement furnished to the Controlling
Shareholders pursuant hereto, or in connection with the transactions
contemplated hereby, heretofore furnished to the Controlling Shareholders by
Buyer, contains or will contain any statement which constitutes an untrue
statement of a material fact or fails or will fail to state a material fact
which was necessary to make the statements or facts contained herein or therein
not misleading.
ARTICLE VI
COVENANTS OF THE PARTIES
Section 6.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of the parties will use its best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Each of the parties agrees to execute and
deliver such other documents, certificates, agreements and other writings and to
take
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such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.
Section 6.02. CERTAIN FILINGS. Each of the parties shall cooperate with
one another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
Section 6.03. PUBLIC ANNOUNCEMENTS. Each of the parties acknowledges the
importance of appropriate disclosures in positioning the relationship between
the two companies to the distribution channel, the press, customers and others.
The Company and the Shareholders agree to make no press releases or other public
announcements regarding this Agreement without Buyer's prior written consent.
Section 6.04. NONCOMPETITION; NONSOLICITATION. In order that Buyer may
have and enjoy the benefit of the acquisition of the Company, the Controlling
Shareholders shall not directly or indirectly, for a period of three years
commencing on the Closing Date, (a) engage (as owner, stockholder, partner or
otherwise, except as a holder of fewer than 5% of the outstanding shares or
other equity interests of a company whose shares or other equity interests are
publicly traded) in any business which directly or indirectly competes with the
business of the Company as now conducted by the Company or for which the Company
has developed a written business plan; (b) solicit work from, or perform work
for, any customer of the Company or any of its Affiliates for work substantially
similar to work performed by the Company or any of its Affiliates for the
customer; (c) induce any employee of the Company or any of its Affiliates to
engage in any activity in which the Controlling Shareholders are prohibited from
engaging by clause (a) or to terminate his or her employment with the Company or
any of its Affiliates, and will not directly or indirectly employ or offer
employment to any person who was employed by the Company or any of its
Affiliates unless such person shall have been terminated without cause or ceased
to be employed by the Company and any of its Affiliates for a period of at least
12 months; or (d) make any statement or take any action intended to impair the
goodwill or the business reputation of the Company or any of its Affiliates, or
to be otherwise detrimental to the interests of the Company or any of its
Affiliates, including any action or statement intended, directly or indirectly,
to benefit a competitor of the Company or any of its Affiliates. It is
expressly understood and agreed that although the Controlling Shareholders and
Buyer consider the restrictions contained in this Section 6.04 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time and territory or any other restriction contained in this Section
6.04 is an unenforceable restriction against the Controlling Shareholders, the
provisions of this Section 6.04 shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any restriction
contained in this Section 6.04 is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect
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the enforceability of any of the other restrictions contained herein. For
purposes of the Section 6.04, Buyer shall be deemed to be an Affiliate of the
Company.
Section 6.05. CONFIDENTIALITY. Each individual Shareholder will treat and
hold as such all Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Company or destroy, at the request and option of the Company,
all tangible embodiments (and all copies) of the Confidential Information which
are in his or its possession. In the event that any Shareholder is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that individual will promptly
notify the Company of the request or requirement so that the Company may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6.05. If, in the absence of a protective order or the receipt of a
waiver hereunder, any Shareholder is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that individual may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing individual shall use his or her
best efforts to obtain, at the request of the Buyer, an order or other assurance
that confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate.
Section 6.06. TRANSFER RESTRICTIONS.
(a) Without limiting the representations set forth herein, the
Shareholders hereby further agree not to sell, assign, transfer, convey,
dispose of, pledge or otherwise encumber (each, a "Transfer") all or any
portion of the shares of Buyer's Common Stock to be issued to the
Shareholders pursuant hereto (i) until Buyer has released its financial
results for the first full fiscal quarter of combined operations of Buyer
and the Company, and (ii) either (x) the Registration Statement (as defined
in Section 6.08 below) is declared or ordered effective by the Commission
covering such proposed Transfer of such shares and such Transfer is made
pursuant to such registration statement and in accordance with the
Securities Act, or (y) pursuant to another available exemption from the
registration requirements of the Securities Act, accompanied by an opinion
of counsel, reasonably satisfactory to Buyer, that registration under the
Securities Act is not required with respect to such Transfer.
(b) Each certificate or instrument representing shares of Buyer's
Common Stock issued pursuant hereto, and any other securities issued on or
in respect of such shares in connection with, (i) any stock split, stock
dividend, subdivision, combination, consolidation, reclassification or
other similar event, or (ii) any merger, consolidation, reorganization or
other similar event, shall be stamped or otherwise imprinted with a legend,
in addition to any other legends required under applicable state "blue sky"
securities laws, in substantially the following form.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ARE "RESTRICTED
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SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE SECURITIES
ACT. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISTRIBUTED EXCEPT (I) PURSUANT TO A
REGISTRATION STATEMENT DECLARED OR ORDERED EFFECTIVE BY THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT, OR (II) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND IN THE CASE OF ANY SALE, OFFER OF SALE, PLEDGE,
HYPOTHECATION OR OTHER DISTRIBUTION EFFECTED PURSUANT TO CLAUSE (II)
ABOVE, PURSUANT TO AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER OF SUCH SECURITIES THAT REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT AS TO SUCH SALE, OFFER OF SALE, PLEDGE,
HYPOTHECATION OR OTHER DISTRIBUTION. THIS CERTIFICATE MUST BE
SURRENDERED TO THE ISSUER HEREOF OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE TRANSFER OF ANY INTEREST IN THE SECURITIES
REPRESENTED HEREBY.
Section 6.07. ADDITIONAL RESTRICTIONS ON SALE OF BUYER'S COMMON
STOCK. The Shareholders and Buyer hereby covenant and agree to use their best
efforts to prohibit the sale, transfer or assignment of any shares of Buyer's
Common Stock held by the Shareholders or Affiliates of Buyer until the Company
has released to the public one month of combined financial results of the
Company and Buyer.
Section 6.08. REGISTRATION STATEMENT.
(a) Buyer shall use its best efforts to file or cause to be filed
with the Commission on or prior to July 15, 1998 a registration statement
on Form S-3 (the "Registration Statement") to cover resales of the shares
of Buyer's Common Stock to be issued to the Shareholders pursuant hereto
(the "Registered Shares"). Buyer shall use its best efforts to cause such
Registration Statement to be declared effective as soon as practicable
thereafter. Buyer shall use its best efforts to keep such Registration
Statement continuously effective, supplemented and amended to the extent
necessary to ensure that it is available for resales of the Registered
Shares for a period ending one year from the Closing Date.
(b) Buyer will bear the costs of all Registration Expenses. For the
purposes hereof, "Registration Expenses" shall mean all expenses incident
to Buyer's preparation and filing of the Registration Statement, including,
without limitation, all registration and filing fees, fees and expenses of
compliance with federal securities laws or state blue sky laws, printing
expenses, messenger and delivery expenses, fees and disbursements of
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custodians and fees and disbursements of counsel for Buyer and all
independent certified public accountants, and other persons retained by
Buyer (but not of Holder's counsel).
Section 6.09. REGISTRATION PROCEDURES. In connection with the
registration and sale of the Registered Shares the Company will:
(a) prepare and file with the Commission the Registration
Statement as set forth above;
(b) provide to each Holder a copy of the Registration Statement
and related Prospectus, including each preliminary Prospectus, and each
amendment and supplement thereto.
(c) use its best efforts to register or qualify the Registered
Shares under such other securities or blue sky laws of such jurisdictions
as each Holder may reasonably request and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder
to consummate the disposition in such jurisdictions of the Registered
Shares owned by such Holder; provided, however, that Buyer will not be
required to (i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this subsection (c),
(ii) subject itself to taxation in any such jurisdiction, or (iii) consent
to general service of process in any such jurisdiction;
(d) Upon the occurrence of any event that would cause the
Registration Statement (i) to contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) to be not
effective and useable for resale of the Registered Shares during the period
that such Registration Statement is required to be effective and useable,
Buyer upon knowledge of such an event, shall as promptly as practicable
file an amendment to the Registration Statement, in the case of clause (i),
correcting any such misstatement or mission, and, in the case of either
clause (i) or (ii), use its best efforts to cause such amendment to be
declared effective and such Registration Statement to become useable as
soon as practicable thereafter;
(e) Notwithstanding anything to the contrary in this Section
6.09, Buyer may prohibit offers and sales of the Registered Shares pursuant
to the Registration Statement at any time if (A) (i) it is in possession
of material non-public information, (ii) the Board of Directors of Buyer
determines based on advice of counsel (which counsel shall be experienced
in securities laws matters) that such prohibition is necessary in order to
avoid a requirement to disclose such material non-public information, and
(iii) the Board of Directors of Buyer determines in good faith that
disclosure of such material non-public information would not be in the best
interests of Buyer and its stockholders or (B) Buyer has made a public
announcement relating to an acquisition or business combination transaction
including Buyer and/or one or more of its subsidiaries (i) that is material
to Buyer and its subsidiaries taken as a whole, and (ii) the Board of
Directors of Buyer
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determines in good faith that offers and sales of the Registered Shares
pursuant to the Registration Statement prior to the consummation of such
transaction (or such earlier date as the Board of Directors shall
determine) is not in the best interests of Buyer and its stockholders (the
period during which any such prohibition of offers and sales of Registered
Shares pursuant to the Registration Statement is in effect pursuant to
clause (A) or (B) of this subsection 6.09(e) is referred to herein as a
"Suspension Period"). A Suspension Period shall commence on and include the
date on which Buyer provides written notice to Holders covered by the
Registration Statement that offers and sales of Registered Shares cannot be
made thereunder in accordance with this Section and shall end three
Business Days after the earlier to occur of (x) the date on which such
material information is disclosed to the public or ceases to be material or
Buyer is able to so comply with its disclosure obligations and Commission
requirements, or (y) 45 days after written notice is provided by Buyer to
the Holders of such Suspension Period. Each notice shall state to the
extent, if any, as is practicable, an estimate of the expected duration of
the Suspension Period;
(f) Each Holder shall furnish to Buyer such information regarding
the distribution of its Registered Shares as is required by law to be
disclosed in the Registration Statement (the "Requisite Information") prior
to effecting any sale pursuant to such Registration Statement. Each Holder
as to which any Registration Statement is being effected agrees prior to
effecting any sale of the Registered Shares thereunder to furnish promptly
to Buyer all information required to be disclosed in order to make any
Requisite Information previously furnished to Buyer by such Holder not
materially misleading or necessary to cause such Registration Statement not
to omit a material fact with respect to such Holder necessary in order to
make the statements therein not misleading;
(g) Each Holder agrees by acquisition of such Registered Shares
that, upon receipt of any notice from Buyer of the existence of any fact of
the kind described in subsections 6.09(d) and (e) hereof (an "Amendment
Notice"), such Holder will forthwith discontinue disposition of Registered
Shares until such Holder's receipt of (i) copies of the supplemented or
amended Prospectus contemplated by subsection 6.09(d) hereof, or until
counsel for Buyer shall have determined that such disclosure is not
required due to subsequent events, (ii) notice in writing from Buyer that
the use of the Prospectus may be resumed, (iii) copies of any additional or
supplemental filings with respect to the Prospectus, or (iv) the expiration
of the Suspension Period. In the event Buyer shall give any such notice,
the time period regarding the filing of the Registration Statement set
forth in subsection 6.08(a) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to subsection 6.09(e) hereof to and including the date when each
Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by this
subsection (g); and
(h) Buyer agrees to use its best efforts to cause the Registered
Shares covered by the Registration Statement to be registered with or
approved by such other
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governmental agencies or authorities as may be necessary to enable the
Holders thereof to consummate the disposition of such Registered Shares,
subject to the proviso contained in subsection (c) above, and cause all
Registered Shares to be listed on each securities exchange or national
quotation system on which Buyer's Common Stock is then listed.
Section 6.10. INDEMNIFICATION.
(a) Buyer agrees to indemnify, to the extent permitted by law,
each Holder against all losses, claims, damages, liabilities and expenses
including, without limitation, reasonable attorneys' fees, caused by any
untrue or alleged untrue statement of material fact contained in the
Registration Statement, any prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to Buyer by such
Holder expressly for use therein or by such Holder's negligence, willful
misconduct or failure to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto.
(b) In connection with the Registration Statement, each Holder will
furnish to Buyer in writing such information and affidavits as Buyer
reasonably requests for use in connection with the Registration Statement
or prospectus contained therein and, to the extent permitted by law, will
indemnify Buyer, its directors and officers and each person who controls
Buyer (within the meaning of the Act) against any and all losses, claims,
damages, liabilities and expenses, including, without limitation,
reasonable attorneys' fees, caused by any untrue or alleged untrue
statement of material fact contained in the Registration Statement, any
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, insofar as such losses, claims, damages, liabilities and
expenses are caused by any such untrue statement or omission or alleged
untrue statement or omission furnished in writing to Buyer for use therein
or Holder's failure to provide the prospective purchaser with a copy of the
current prospectus; provided, however, that the obligation to indemnify
will be several, not joint and several among the Holders, and the liability
of each Holder will be in proportion to and limited to the net amount
received by such Holder from the sale of Registered Shares pursuant to the
Registration Statement.
ARTICLE VII
TAX REPRESENTATIONS AND COVENANTS
The Company and the Controlling Shareholders jointly and severally
represent, warrant and covenant to Buyer as of the date hereof and as of the
Closing Date as follows:
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Section 7.01. TAX DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means any Tax period ending on or before the close
of business on the Closing Date or, in the case of any Tax period which
includes, but does not end on, the Closing Date, the portion of such period up
to and including the Closing Date.
"Tax" means (a) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest, penalty, addition-
to-tax or additional amount imposed by any governmental authority (domestic or
foreign) responsible for the imposition of any such tax (a "Taxing Authority"),
(b) any liability of the Company for the payment of any amount of the type
described in clause (a) above as a result of being a member of an affiliated,
consolidated, combined or unitary group, and (c) any liability of the Company
for the payment of any amount as a result of being party to any Tax Sharing
Agreement or with respect to the payment of any amounts of the type described in
clauses (a) or (b) above as a result of any express or implied obligation to
indemnify any other Person.
"Tax Asset" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction carryover or any other credit
or tax attribute which could reduce Taxes (including, without limitation,
credits or other tax attributes which could reduce alternative minimum Taxes).
"Tax Sharing Agreement" means any existing Tax sharing agreements or
arrangements (whether or not written) binding the Company and any other
agreement or arrangement (including any arrangement required or permitted by
law) which (a) requires the Company to make any Tax payment to or for the
account of any other person, (b) affords any other person to utilize any Tax
Asset of the Company to reduce such other person's Taxes, (c) affords the
Company to utilize any Tax Asset of any other person to reduce any Taxes of the
Company, (d) requires or permits the transfer or assignment of income, revenues,
receipts, or gains, or (e) requires or permits the Company to determine its Tax
liability by taking into account or by reference to the Tax liability, income,
revenues, receipts or gains of any other person.
Section 7.02. TAX REPRESENTATIONS AND COVENANTS.
(a) Except as set forth in the Balance Sheet (including the notes
thereto) or on Schedul e 7.02(a).
(i) all Tax returns, statements, reports and forms (including
estimated tax or information returns and reports) required to be filed
with any Taxing Authority with respect to any Pre-Closing Tax Period
by or on behalf of the
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Company (collectively, the "Returns") have been or will be timely
filed when due in accordance with all applicable laws, except where
the failure to file would not subject the Company to any liabilities
(including any interest, penalties or addition-to-tax);
(ii) as of the time of filing, the Returns correctly reflected
(and, as to any Returns not filed as of the date hereof, will
correctly reflect) in all material respects the facts regarding the
income, business, assets, operations, activities and status of the
Company and any other information, as required to be shown therein;
(iii) all Taxes shown as due and payable on the Returns that
have been filed have been timely paid, or withheld and remitted to the
appropriate Taxing Authority;
(iv) the charges, accruals and reserves for Taxes with respect
to the Company for any Pre-Closing Tax Period (including any Pre-
Closing Tax Period for which no Return has yet been filed) reflected
on the Balance Sheet and the books of the Company (excluding any
provision for deferred income taxes) are adequate to cover such Taxes;
(v) the Company is not delinquent in the payment of any Tax or
has requested any extension of time within which to file any Return,
which Return has not yet been filed;
(vi) the Company (or any member of any affiliated, consolidated,
combined or unitary group of which the Company is or has been a
member) has not granted any extension or waiver of the statute of
limitations period applicable to any Return, which period (after
giving effect to such extension or waiver) has not yet expired;
(vii) there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened (including, any issues that,
to the knowledge of the Controlling Shareholders, may be raised by any
Taxing Authority) against or with respect to the Company in respect of
any Tax or Tax Asset;
(viii) the Company has not filed any request for ruling or
determination of any Taxing Authority in respect of any Tax which has
been denied during the past five years or which is pending;
(ix) the Company does not own any interest in real property in
the State of New York or in any other jurisdiction in which a Tax is
imposed on the transfer of a controlling interest in an entity that
owns any interest in real property;
(x) the Company has not been a member of an affiliated,
consolidated, combined or unitary group;
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(xi) all information set forth in the notes to the Balance
Sheet relating to Tax matters is true and complete;
(xii) the Company is not a party to any Tax Sharing Agreement
or is otherwise under any obligation to pay any third party an amount
with respect to any Tax;
(xiii) since the Balance Sheet Date, neither the Company nor
any Affiliate of the Company has, to the extent it may affect or
relate to the Company, made or changed any tax election, changed any
annual tax accounting period, adopted or changed any method of tax
accounting, filed any amended Return, entered into any closing
agreement, settled any Tax claim or assessment, surrendered any right
to claim a Tax refund, or consented to any extension or waiver of the
limitation period applicable to any Tax claim or assessment, if any
such action would have the effect of increasing the Tax liability or
decreasing any Tax Asset of the Company; and
(xiv) since the Balance Sheet Date, the Company has not
reserved any amount for or made any payment of Taxes to any other
person or any Taxing Authority except for such Taxes as were due or
payable to the Taxing Authority or had been properly estimated in
accordance with applicable law as applied in a manner consistent with
past practice of the Company.
(b) Schedule 7.02(b) contains a list of all jurisdictions (whether
foreign or domestic) to which any Tax is properly payable by the Company.
(c) Schedule 7.02(c) contains an accurate description of current audit
issues relating to any Tax, and Schedule 7.02(c) contains copies of revenue
agent's or similar reports furnished by any Taxing Authority for the
taxable years which have not been examined and closed or with respect to
which the applicable period for assessment under applicable law, after
giving effect to extensions or waivers, has expired.
ARTICLE VIII
EMPLOYEE BENEFITS
The Company and the Controlling Shareholders jointly and severally
represent, warrant and covenant to Buyer as of the date hereof and as of the
Closing Date as follows:
Section 8.01. EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used
herein, shall have the following meanings:
"Benefit Arrangement" means each employment, severance or other similar
contract, arrangement or policy or any plan or arrangement (whether or not
written) providing for
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severance benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, pension or retirement benefits or for
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (a) is entered into, maintained or
contributed to, as the case may be, by the Company or any of its Affiliates and
(b) covers any employee or former employee of the Company.
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company or any of its ERISA
Affiliates and (iii) covers any employee or former employee of the Company.
Benefit Arrangements and Employee Plans are sometimes referred to herein as a
"Plan" or "Plans."
Section 8.02. REPRESENTATIONS AND WARRANTIES REGARDING THE PLANS.
Schedule 8.02 sets forth a complete list of all Plans maintained by the Company.
The Company does not contribute to any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and the Company has not incurred any material
liability under Sections 4062, 4063 or 4201 of ERISA. Any Plan maintained by
the Company which is intended to be qualified under either Section 401(a) or
501(c)(9) of the Code is so qualified. Each Plan has been administered in all
material respects in accordance with the terms of such Plan and the provisions
of any and all applicable statutes, orders or governmental rules or regulations,
including without limitation ERISA and the Code, and to the knowledge of the
Company nothing has been done or omitted to be done with respect to any Plan
that would result in any material liability on the part of the Company under
Title I of ERISA or Section 4975 of the Code. All reports required to be filed
with respect to all Plans have been timely filed, except where the failure to so
file would not have a Material Adverse Effect. No "reportable event" as defined
at Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any pension plan
subject to Title IV of ERISA. With respect to all pension plans subject to
Title IV of ERISA, such plans have no unfunded benefit liabilities, all
contributions to such plans under the minimum funding requirements of Section
412 of the Code have been made and all premium payments to the Pension Benefit
Guaranty Corporation with respect to such plans have been made. All claims for
welfare benefits incurred by employees on or before the Closing are or will be
fully covered by third-party insurance policies or programs. Except for
continuation of health coverage to the extent required under Section 4980B of
the Code or as otherwise set forth in this Agreement, there are no obligations
under any Benefit Arrangement providing benefits after termination of
employment. Except as disclosed in writing to Buyer prior to the date hereof,
there has been no amendment to employee participation or coverage under any
Benefit Arrangement which would increase materially the expense of maintaining
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the most recent fiscal year.
Section 8.03. REPRESENTATIONS AND COVENANTS REGARDING NO THIRD PARTY
BENEFICIARIES. No provision of this Article VIII shall create any third-party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company
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in respect of continued employment (or resumed employment) with the Company and
no provision of this Article VIII shall create any such rights in any such
Persons in respect of any benefits that may be provided, directly or indirectly,
under any Benefit Arrangement or any plan or arrangement that may be established
by the Company after the Closing Date. No provision of this Agreement shall
constitute a limitation on rights to amend, modify or terminate after the
Closing Date any Plan of the Company.
ARTICLE IX
COVENANTS OF THE COMPANY
AND THE SHAREHOLDERS
The Company and the Shareholders (or certain of them, as applicable)
covenant and agree with Buyer that at all times prior to the Closing or
termination of this Agreement except as specifically provided in Section
9.02(b):
Section 9.01. COOPERATION. The Shareholders shall use all commercially
reasonable efforts in good faith to perform and fulfill and to cause the Company
to perform and fulfill, all conditions and obligations to be fulfilled or
performed by them hereunder to the end that the transactions contemplated hereby
will be fully and timely consummated. The Shareholders shall not take any
action that is intended or could reasonably be expected to cause the Company or
any Shareholder to fail to perform and fulfill all conditions and obligations to
be fulfilled or performed by the Company or any Shareholder hereunder, or that
is intended or could reasonably be expected to cause the transactions
contemplated hereby not to be fully and timely consummated. Each Shareholder
shall use all commercially reasonably efforts in good faith to satisfy, perform
and fulfill all conditions and obligations to be fulfilled or performed by them
hereunder, to the end that the transactions contemplated hereby will be fully
and timely consummated. Each Shareholder agrees to vote and shall vote in favor
of or consent to any and all actions required to be approved by them in order to
consummate the transactions contemplated hereby.
Section 9.02. ACCESS.
(a) Until the Closing, the Shareholders shall:
(i) give and shall cause the Company to give Buyer, its
attorneys, accountants and other authorized representative complete
access, upon reasonable notice and at reasonable times, to the
Company's offices, properties, customers, suppliers, employees,
products, technology, business and financial records, contracts,
business plans, budgets and projections, agreements, commitments and
other documents and information concerning the Company and persons
employed by or doing business with the Company;
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(ii) furnish and cause the Company to furnish Buyer and its
representatives during such period all such information as such
representatives may reasonably request;
(iii) reasonably cooperate and cause the officers, employees,
consultants, agents, accountants and attorneys of the Company to
reasonably cooperate fully with the representatives of Buyer in
connection with such review and examination; and
(iv) promptly make full disclosure to Buyer of all material
facts, affecting the financial condition, business operations,
properties and prospects of the Company that could reasonably be
expected to have a Material Adverse Effect.
(b) At or promptly following the Closing, if requested by Buyer, the
Shareholders shall deliver or shall cause to be delivered to Buyer all
records relating to the Company that are in their possession or in the
possession of their accountants, attorneys and other third parties.
Section 9.03. INSURANCE. The Company shall maintain with its current
insurers or with other financially sound insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated.
Section 9.04. COMPLIANCE WITH LAWS. The Company should conduct its
business in compliance, in all material respects, with all laws, rules,
regulations, statutes, ordinances and other legal requirements.
Section 9.05. KEEPING OF BOOKS AND RECORDS. The Company shall keep and
maintain adequate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied, reflecting, in all
material respects, all financial transactions and in which all proper reserves
for depreciation, depletion, obsolescence, amortization, Taxes, bad debts and
other purposes in connection with its business shall be made.
Section 9.06. ACTIONS PRIOR TO CLOSING. Except as consented to in writing
by Buyer, the Company shall conduct its business pending the Closing only in the
ordinary and usual course of business consistent with past practice. Except as
expressly contemplated by this Agreement or as consented to in writing by Buyer,
from the Effective Date to the Closing Date:
(a) no Shareholder shall sell, transfer or pledge, or authorize or
propose the sale, transfer or pledge, of any Share or other equity
interests relating to the Shares or consent to the Shares becoming subject
to any Lien;
(b) the Company shall not take any action to cause, and shall not:
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(i) issue, sell, transfer or pledge, or authorize or propose
the issuance, sale, transfer or pledge, of (A) shares of capital stock
of any class (including the Common Stock), or other securities
relating to the capital stock or other securities of the Company, or
(B) any other securities in respect of, in lieu of or in substitution
for the Shares;
(ii) redeem, repurchase or otherwise reacquire, any of its
outstanding securities (including the Common Stock);
(iii) declare, accrue, set aside, make or pay any dividend or
distribution (whether in cash, stock or property) on or in respect of
any share of capital stock or other securities of the Company, except
for distributions to the Shareholders of an aggregate amount not to
exceed $600,000 for the payment of income taxes by such Shareholders;
(iv) make any acquisition of assets or securities, any
disposition of assets or securities, or any change in its
capitalization, or enter into any material contract or release or
relinquish any material contract or other rights;
(v) incur, assume or guarantee any indebtedness for borrowed
money other than in the ordinary course of business exceeding $10,000
or permit the Company's assets to become subject to any Lien;
(vi) propose or adopt any amendments or restatements to the
articles of incorporation or bylaws of the Company;
(vii) enter into, consummate or become a party to any
transaction for the merger or consolidation of or by the Company with
any other corporation or entity, or any acquisition by it of all or
any part of the stock or the business or assets, other than inventory
or equipment in the ordinary course of business consistent with past
practice, of any other natural person, firm, association, corporation
or other entity or business organization;
(viii) enter into, consummate or become party to any
recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(ix) create or take any action relating to the creation of,
any subsidiary or purchase or take any action relating to the purchase
of any equity interest in any other entity;
(x) enter into, consummate or become party to any material
transaction (which shall mean any transaction or series of
transactions totaling $5,000 or more);
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(xi) execute, amend or modify in any material respect any
material contract, agreement, franchise, permit, or license;
(xii) waive any right or rights of the Company (alleged,
contingent or otherwise), or of any payment, direct or indirect, of
any liability of the Company;
(xiii) enter into, amend, restate or modify in any respect
any employment agreement or adopt, amend, restate or modify in any
respect any employee benefit plans other than the Employment
Agreements and the Principal Employment Agreements;
(xiv) loan or advance to, or enter into an agreement,
arrangement or transaction with any of the officers, directors,
consultants, or employees (or to or with any of their Immediate Family
Members) of the Company or its Affiliates, or any business or entity
in which any of their officers, directors, consultants, agents or
employees (or any Immediate Family Member) has any direct or indirect
interest in excess of 5% except for compensations at rates not
exceeding the rates of compensation in effect as of March 31, 1998 and
advances made to officers, directors, consultants, agents or employees
of the Company for ordinary and customary business expenses in
reasonable amounts;
(xv) except as required by law or GAAP after notification to
and consultation with Buyer, change any of its accounting methods,
principles or practices or change any depreciation or amortization
policies or rates;
(xvi) except as required by law after notification to and
consultation with Buyer, make any Tax election; or
(xvii) agree in writing or orally to take any of the
foregoing actions or any other action which would cause any
representation or warranty in this Agreement to be untrue.
(c) the Company shall take all actions necessary to terminate the
401(k) Plan and assist Buyer in accomplishing (1) a trust-to-trust transfer
of assets from the 401(k) Plan, or (2) a direct rollover of participant
accounts from the 401(k) Plan.
(d) the Company shall take all actions necessary to terminate its
Employee Stock Plan and Flexible Profit Sharing Plan as disclosed in the
Employee Stock Plan Description dated September 1997.
Section 9.07. NOTICE OF CHANGES; UPDATES.
(a) Until the Closing, the Shareholders and the Company shall notify
Buyer in writing of any change in the business of the Company that could
have a Material Adverse
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Effect as soon as it becomes apparent to any of such parties that any such
change has occurred or could reasonably be expected to occur.
(b) The Company and the Shareholders shall give Buyer prompt written
notice if the Company or any Shareholder becomes aware of any event,
condition, fact or circumstance: (i) that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes a material
inaccuracy in or a material breach of any representation or warranty made
by the Company or any Shareholder under this Agreement and which was
unknown to the Company or any Shareholder on the date of this Agreement; or
(ii) that occurs or arises or exists after the date of this Agreement and
that causes a material inaccuracy in or a material breach of any
representation or warranty made by the Company or any Shareholder in this
Agreement.
Section 9.08. PRESERVATION OF BUSINESS. Until the Closing, the Company
will use all commercially reasonable efforts to preserve its business
organization intact, and to preserve its goodwill. Without limiting the
generality of the foregoing or any other covenant contained herein, the Company
will timely perform in all material respects all obligations required of the
Company under the contracts and permits listed or required to be listed on the
schedules to this Agreement:
Section 9.09. LITIGATION. The Company and the Shareholders will promptly
notify the Buyer in writing of any lawsuits claims, proceedings or
investigations which are threatened or commenced against or by the Company or
against any employee, consultant or director of the Company or against the
Shareholders or their Affiliates in connection with their ownership of the
Shares or the transactions contemplated hereby.
Section 9.10. CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
From the date hereof up to and including the Closing Date or the termination of
this Agreement: (a) the Company shall conduct its business in a manner such that
the representations and warranties contained herein shall continue to be true
and correct on and as of the Closing Date as if made on and as of the Closing
Date, except for changes and the consequences of events arising in the ordinary
and usual course of business consistent with past practice after the date hereof
or which are permitted or contemplated in this Article IX and none of which
could reasonably be expected to have a Material Adverse Effect; and (b) the
Shareholders will advise Buyer promptly in writing of any condition or
circumstance occurring from the date hereof up to and including the Closing Date
which could cause any representation or warranty of the Company or the
Shareholders to become untrue.
Section 9.11. OBLIGATIONS OF AFFILIATES. Except as specifically set forth
in this Agreement or pursuant to the Employment Agreements, on or before the
Closing Date, each Shareholder shall cause the Company to and each Shareholder
(severally and jointly) will and will cause its Affiliates to: (a) cause all
debts owed by any Shareholder or of its Affiliates to the Company, to be paid or
discharged in full; and (b) terminate any ongoing agreements (except
indemnification obligations of the Company to its officers and directors
pursuant to its bylaws) between the Company on the one hand and such Shareholder
and its Affiliates on the other, all
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without any expense to the Company (or any reduction in the gross assets
reflected on the Balance Sheet or acquired since the date thereof), so that
following the Closing Date the Company shall have no obligations of any kind or
nature to the Shareholder or their Affiliates except for those specified in this
Agreement. Moreover, the Shareholders hereby release and forever discharge the
Company, and its respective directors, officers, employees, agents, successors
and assigns from and against any and all claims, demands, liabilities,
obligations, damages, costs, expenses, actions and causes of action, in law or
in equity, known or unknown, which the Shareholders ever had or now have against
the Company as of the date hereof. Notwithstanding the foregoing, the
Shareholders do not release the Company from (i) claims directly resulting from
the Company's willful misconduct or fraud; (ii) covenants, obligations, or
liabilities explicitly set forth in this Agreement; (iii) the Company's
obligations under any agreement to which they are a party, which is intended to
remain in effect after the Closing; or (iv) the Shareholders' rights under this
Agreement or any agreement or certificate delivered expressly pursuant thereto.
Section 9.12. NO NEGOTIATIONS. Until the termination of this Agreement in
accordance with its terms, neither the Company nor the Shareholders shall
initiate discussions with, engage in negotiations with, or provide any
information to any corporation, partnership, person or other entity or group
involving the possible sale, directly or indirectly, transfer or joint venture
with the Company, its business or assets, or the capital stock of the Company to
any person or entity other than Buyer.
Section 9.13. CONSENTS. The Company shall use all commercially reasonable
efforts to obtain the consents to the transactions contemplated by this
Agreement as required by the agreements listed or required to be listed on
Schedule 3.04.
ARTICLE X
CONDITIONS TO CLOSING
Section 10.01. CONDITIONS TO OBLIGATIONS OF THE PARTIES. The obligations
of each of the parties to consummate the Closing shall be conditioned upon the
satisfaction or waiver (in whole or in part) of each of the following conditions
concurrently with or prior to Closing:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions contemplated by
this Agreement or any of the Transaction Documents shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the sales contemplated hereby, which makes the
consummation of such sales unlawful, void, voidable or unenforceable under
applicable law, rules and regulations of any governmental authority,
domestic or foreign.
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(b) Government Approvals. Buyer, the Company and the Shareholders
shall have obtained all other authorizations, consents, orders and
approvals required from or of, or declarations or filings with, or
expirations of waiting periods imposed by, any governmental authorities
required for the consummation of the transactions contemplated by the
Agreement.
(c) Contractual Consents. The Company shall have given all notices
to, and obtained all consents, approvals or authorizations of or from, any
individual, corporation or other party which is necessary to permit the
consummation of the transactions contemplated hereby and by each of the
Transaction Documents including, without limitation, any consents required
under contracts and agreements listed on Schedule 3.11 to which the Company
is a party or by which it is bound, or which may be required to permit the
change of ownership of the Company; provided, however, that the Company and
the Shareholders may not invoke the terms of this Section 10.01(c) unless
and until each such party has used all commercially reasonably efforts to
obtain such consents, approvals and authorizations under any third party
contracts to which the Company is a party or by which its assets are or may
become bound.
(d) Exhibits. Buyer, the Company and the Shareholders, as the case
may be, shall have delivered all Exhibits referred to herein required to be
provided to each other party, in such form as shall be reasonably
acceptable to the receiving party, no later than Tuesday, April 28, 1998.
Section 10.02. CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer
to consummate the Closing shall be conditioned upon the satisfaction or waiver
(in whole or in part) of each of the following conditions concurrently with or
prior to Closing:
(a) the Company and the Shareholders shall have performed and complied
with in all material respects all of their obligations hereunder required
to be performed or complied with by them on or prior to the Closing Date,
and the representations and warranties of the Company and the Shareholders
contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto, shall be true and correct in all
respects at and as of the Closing Date.
(b) Buyer shall have received the Kutak Rock Opinion.
(c) All requisite approvals from governmental agencies and consents
from third parties listed or required to be listed on Schedule 3.03 shall
have been obtained.
(d) The Company shall have title to the Accelerated Processes free and
clear of any Liens or restrictions.
(e) Buyer shall have received the Officer's Certificate.
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(f) Buyer shall have received an executed copy of the Controlling
Shareholders' Termination and Release and the Employee Termination and
Release.
(g) Buyer shall have received a copy of the Employment Agreements,
duly and validly executed by such employees mutually designated by Buyer
and the Company.
(h) Buyer shall have received a certificate of good standing and a
copy of the Company's Articles of Incorporation, each certified by the
Secretary of State of the State of Colorado, as of a date within fifteen
(15) days preceding the Closing Date.
(i) Buyer shall have received an executed copy of the Acknowledgement;
(j) Buyer shall have received an executed copy of the Subscription
Agreement from each Shareholder.
(k) Nothing shall have occurred or be threatened that could reasonably
be expected to have a Material Adverse Effect.
(l) The Company and the Shareholders shall have delivered the
Schedules referred to herein to Buyer, in such form as shall be acceptable
to Buyer, in its sole discretion, no later than Tuesday, April 28, 1998.
(m) All actions, proceedings, consents, instruments and documents
required to be delivered by, at the behest or direction of, the Company and
the Shareholders hereunder or incident to its or their performance
hereunder, and all other related matters, shall be reasonably satisfactory
as to form and substance to Buyer and its counsel.
Section 10.03. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE
SHAREHOLDERS. The obligation of the Company and the Shareholders to consummate
the Closing shall be conditioned upon the satisfaction or waiver (in whole or in
part) of each of the following conditions concurrently with or prior to Closing:
(a) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, and the representations and warranties of Buyer contained in
this Agreement and in any certificate or other writing delivered by Buyer
pursuant hereto shall be true and correct as of the Closing Date.
(b) The Company shall have received the Buyer's Officer's Certificate.
(c) The Company shall have received the Morrison Foerster Opinion;
(d) Buyer has delivered certificates representing shares of Buyer's
Common Stock to the Shareholders in the amounts set forth in column D of
Schedule 1;
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(f) The Company has received evidence that Buyer has delivered
certificates representing the Escrow Shares to the Escrow Agent in the
amounts set forth in column F of Schedule 1;
(g) Buyer has delivered cash consideration for the Fractional Shares
to the Shareholders in the amounts set forth in column E of Schedule 1;
(h) All actions, proceedings, consents, instruments and documents
required to be delivered by, at the behest or direction of, Buyer hereunder
or incident to its performance hereunder, and all other related matters,
shall be reasonably satisfactory as to form and substance to the Company
and its counsel.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
Section 11.01. SURVIVAL. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing (i) for a period from the Closing Date through the
receipt of a copy of Buyer's audited financial statements for the fiscal year
ending January 31, 1999; (ii) the covenants, agreements, representations and
warranties contained in Sections 6.04, 6.05, 6.06 and 6.07 shall survive for the
period of time specified therein; and (iii) the covenants, agreements,
representations and warranties contained in Articles VII and VIII shall survive
until expiration of the statute of limitations applicable to the matters covered
thereby (giving effect to any waiver, mitigation or extension thereof).
Notwithstanding the preceding sentence, any covenant, agreement, representation
or warranty in respect of which indemnity may be sought under this Agreement
shall survive the time at which it would otherwise terminate pursuant to the
preceding sentence, if notice of the inaccuracy or breach thereof giving rise to
such right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.
Section 11.02. INDEMNIFICATION OBLIGATIONS.
(a) Indemnification by the Controlling Shareholders.
(i) The Controlling Shareholders jointly and severally shall
indemnify, defend and hold harmless Buyer and its Affiliates (the
"Indemnification Obligation") from, against and in respect of any and
all claims, damages, losses, deficiencies, liabilities, assessments,
judgments, costs, fees and expenses (including reasonable attorneys
fees) (collectively, "Damages") resulting from, relating to or arising
out of (A) any misrepresentation, inaccuracy in or breach of
representations or warranties; (B) any failure to perform, satisfy, or
observe or the non-fulfillment of any agreement or covenant on the
part of the Company or the Shareholders, (C) any claim by any former
or other equity interest owner of the Company for any prior
transaction involving shares of
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capital stock or other equity interests of the Company or any
predecessor entity, (D) the Company's failure to obtain non-disclosure
agreements with all persons and entities (including without
limitation, employees and customers of the Company) to whom the
Company has disclosed or provided access to the Company's Intellectual
Property Rights, under which such parties would have agreed to hold
such information in confidence and not disclose the same, directly or
indirectly, to any person not having authorized access to such
information, without the express authorization of the Company; (E)
from the Company's failure to have taken all actions reasonably
necessary or desirable to protect the Company's Intellectual Property
Rights; or (F) any and all actions, suits, proceedings, demands,
assessments, judgments, costs (including attorneys' fees) and legal
and other expenses incident to any of the foregoing or to the
enforcement of this Article XI; provided, however, that in no event
shall the Controlling Shareholders be liable to Buyer for any Damages
incurred or suffered by Buyer unless and until the amount of all such
Damages incurred or suffered by the Buyer, in the aggregate, exceed
$100,000, in which event the Controlling Shareholders shall indemnify
the Buyer for and in respect of, and hold the Buyer harmless from and
against, any and all such Damages back to and including the first
dollar of such Damages, up to the amount held in the Escrow Fund;
provided, however, that notwithstanding the foregoing proviso of this
Section 11.02 or anything to the contrary contained in this Agreement,
nothing contained in this Section 11.02 shall be deemed to limit or
restrict in any manner (whether by time, amount, procedure or
otherwise) any remedy at law or in equity to which Buyer may be
entitled as a result of actual fraud by the Shareholders or the
Company.
(ii) The Indemnification Obligation shall survive the Closing
as follows: (A) with respect to Section 11.01(i) for the period from
the Closing Date through receipt of a copy of Buyer's audited
financial statements for the fiscal year ending January 31, 1999; and
(B) with respect to 11.01(ii) and (iii) for the period of time
specified therein.
(b) The Controlling Shareholders acknowledge that their
indemnification obligations hereunder relate solely to their capacity as
former Shareholders of the Company, and accordingly, such indemnification
obligations set forth in this Article XI shall not entitle the
Shareholders, or any current or former officer, director or employee of the
Company, to any indemnification from the Company under the Company's
Articles of Incorporation and Bylaws, this Agreement or any of the
Transaction Documents.
(c) Indemnification by Buyer. Buyer shall indemnify, defend and hold
harmless the Controlling Shareholders from, against and in respect of any
and all Damages resulting from, relating to or arising out of any (i)
misrepresentation, (ii) any failure to perform, satisfy, or observe or the
non-fulfillment of any agreement or covenant on the part of Buyer, or (iii)
any and all actions, suits, proceedings, demands,
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assessments, judgments, costs (including attorneys' fees) and legal and
other expenses incident to any of the foregoing or to the enforcement of
this Article XI.
Section 11.03. METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification under this Article XI shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an indemnifying
party would be liable to an indemnified party hereunder is asserted against
or sought to be collected by a third party, the indemnified party shall:
(i) promptly notify the indemnifying party of such claim or
demand, specifying the nature of such claim or demand and the amount
or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim or
demand) (the "Claim Notice"); provided, however, that the failure of
an indemnified party to give notice as provided herein shall not
relieve an indemnifying party of its obligations under this Article
XI, except to the extent the indemnifying party is prejudiced thereby;
(ii) an indemnifying party shall have fifteen (15) calendar days
from their receipt of the Claim Notice (the "Notice Period") to notify
the indemnified party (x) whether or not the indemnifying party
disputes its liability to the indemnified party hereunder with respect
to such claim or demand, and (y) if they do not dispute such
liability, whether or not they desire, at their sole cost and expense,
to defend the indemnified party against such claim or demand;
provided, however, that the indemnified party is hereby authorized
prior to and during the Notice Period to file any motion, answer or
other pleading which it shall deem necessary or appropriate to protect
its interests;
(iii) in the event that the indemnifying party notifies the
indemnified party within the Notice Period that the indemnifying party
does not dispute such liability and desires to defend against such
claim or demand, then except as hereinafter provided, the indemnifying
party shall have the right to defend by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted to a final
conclusion in such a manner as to avoid any risk of the indemnified
party becoming subject to liability for any other matter;
(iv) if the indemnified party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost
and expense; provided, however, that the indemnifying party shall pay
such expense if representation of the indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party
and any other party represented by such counsel in such proceeding;
(v) if, in the reasonable opinion of the indemnified party, any
such claim or demand involves an issue or matter which could have a
Material Adverse
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Effect on the business, operations, assets, properties or prospects of
the indemnified party, or Affiliate of the indemnified party, the
indemnified party shall have the right to control the defense or
settlement of any such claim or demand, and its reasonable costs and
expenses thereof shall be included as part of the indemnification
obligations of the indemnified party hereunder and, with respect to
subsections (iv) and (v) the indemnifying party shall make available
to the indemnified party any documents and materials in his or her
possession or control that may be necessary or useful to such defense;
(vi) if the indemnifying party disputes the indemnifying party'
liability with respect to such claim or demand or elects not to defend
against such claim or demand, whether by not giving timely notice as
provided above or otherwise, then the amount of any such claim or
demand, or, if the same be contested by the indemnifying party or by
the indemnified party (but the indemnified party shall not have any
obligation to contest any such claim or demand), then that portion
thereof as to which such defense is unsuccessful, shall be
conclusively deemed to be a liability of the indemnifying party
hereunder (subject, if the indemnifying party has timely disputed
liability, to a determination that the disputed liability is covered
by these indemnification provisions).
(b) In the event the indemnified party should have a claim against the
indemnifying party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
indemnified party shall promptly send a Claim Notice with respect to such
claim to the indemnifying party. If the indemnifying party does not notify
the indemnified party within the Notice Period that they dispute such
claim, the amount of such claim shall be conclusively deemed a liability of
the indemnifying party hereunder.
(c) Nothing herein shall be deemed to prevent any indemnified party
from making a claim hereunder for potential or contingent claims or demands
provided the Claim Notice sets forth the specific basis for any such
potential or contingent claim or demand and the estimated amount thereof to
the extent then feasible and the indemnified party has reasonable grounds
to believe that such a claim or demand will be made.
(d) A final determination of a disputed claim as to Damages shall be
(i) as to third party claims, a judgment of any court determining the
validity of a disputed claim, if no appeal is pending from such judgment
or if the time to appeal therefrom has elapsed, (ii) as between the
Company, the Shareholders and/or the Buyer an award of any arbitration
determining the validity of such disputed claim; (iii) a written agreement
as to the termination of the dispute with respect to such claim signed by
all of the parties thereto or their attorneys, (iv) a written
acknowledgement of the indemnifying party that he or it no longer disputes
the validity of such claim, or (v) such other evidence of final
determination of a disputed claim as shall be acceptable to the parties.
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Section 11.04. ARBITRATION. All disputes under this Article XI and all
other controversies or claims arising out of or relating to this Agreement, or
the breach thereof, not subject to a third-party claim, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in San Francisco, California. One arbitrator shall be
selected by the indemnifying party or parties, one arbitrator shall be selected
by the indemnified party, and the third arbitrator shall be chosen by the first
two arbitrators chosen. The cost and expense of arbitration shall be shared
equally by the parties to the arbitration, regardless of which party or parties
prevail. The arbitration shall be conducted in accordance with the following
time schedule unless otherwise mutually agreed to in writing by the parties:
(i) parties to the arbitration proceeding shall each appoint their respective
arbitrator within fifteen (15) business days after the end of the Notice Period;
(ii) within five (5) business days thereafter, such arbitrators shall appoint
the third arbitrator; (iii) within ten (10) business days after the appointment
of the third arbitrator, parties to the arbitration proceeding shall provide all
documents, records and supporting information reasonably necessary to resolve
the dispute; and (iv) within fifteen (15) business days after the date the above
records are due, the arbitrators shall render their decision The decision or
award of the arbitrators shall be final and binding upon the parties hereto to
the same extent and to the same degree as if the matter had been adjudicated by
a court of competent jurisdiction and shall be enforceable under the Federal
Arbitration Act.
Section 11.05. PAYMENT.
(a) To secure the indemnification obligations of the Controlling
Shareholders to Buyer set forth in Section 11.02, the Escrow Shares shall
be deposited into the Escrow in accordance with Section 2.04 hereof and the
terms of the Escrow Agreement. In the event that any amounts are due and
owing to Buyer under the indemnification provisions of this Article XI,
Buyer shall (i) be entitled to offset such amounts against the Escrow
Shares pursuant to the terms and provisions of the Escrow Agreement, and
(ii) not be entitled to seek any indemnification amounts in excess of the
amount held in the Escrow, except as otherwise expressly permitted under
the terms and provisions of this Agreement with respect to claims of actual
fraud by the Shareholders or the Company and indemnification claims for
Damages incurred or suffered by Buyer for any inaccuracy in any
representation or any breach of any warranty contained in Sections 3.01,
3.02, 3.05, 4.01, 4.02 and 4.03 hereof.
(b) Except as set forth in Section 11.05(a), in the event that any
party is required to make any payment under this Article XI, such party
shall promptly pay the indemnified party the amount so determined. If any
Damages are suffered by Buyer, its Affiliates or the Company, resulting in
any insurance recovery to such parties, (provided, however, that the
Controlling Shareholders covenant and agree that such parties are not
obligated to pursue or make any such insurance claim) then the amount of
such Damages payable by the Controlling Shareholders shall be limited, in
addition to the other limitations set forth herein, to the excess over and
above any insurance proceeds actually received by such parties. If there
should be a dispute as to the amount or manner of determination of any
indemnity obligation owed under this Article XI, the party from which
indemnification is due shall nevertheless pay when due such portion, if
any, of the
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obligation as shall not be subject to dispute. The difference, if any,
between the amount of the obligation ultimately determined as properly
payable under this Article XI and the portion, if any, theretofore paid
shall bear interest as provided in Section 11.05(d). Upon the payment in
full of any claim, either by setoff or otherwise, the party or entity
making payment shall be subrogated to the rights of the indemnified party
against any person, firm, corporation or other entity with respect to the
subject matter of such claim.
(c) The foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory or common law remedy any party may have
for breach of representation, warranty, or covenant.
(d) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the indemnifying party or parties
shall pay the indemnified party or parties interest on the unpaid amount of
the obligation for each day from the date the amount became due until
payment in full, payable on demand, at the fluctuating rate per annum,
which at all times shall be the lowest rate of interest generally charged
from time to time by the Bank of America and publicly announced by such
bank as its so-called "prime rate."
Section 11.06. NO CONTRIBUTION. Each Shareholder waives, and acknowledges
and agrees, that he, she, it and they will not have and will not exercise or
assert (or attempt to exercise or assert), any right of contribution, right of
subrogation, right of indemnity or other similar right or remedy against the
Company, with respect to any action or failure to act by the Company occurring
on or prior to the Closing or in connection with any actual or alleged breach of
any representation, warranty, covenant or other obligation or agreement set
forth in this Agreement or any certificate delivered in connection with this
Agreement.
Section 11.07. EQUITABLE RELIEF. In the event of a breach or threatened
breach by the Shareholders of Sections 6.04, 6.05, 6.06 and 6.07 hereof,
regarding noncompetition, nonsolicitation and restrictions on transfer, each
Shareholder hereby consents and agrees that Buyer shall be entitled to an
injunction or similar equitable relief restraining the breaching party from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by such Shareholder
under any such provision, without the necessity of showing any actual damage or
that money damages would not afford an adequate remedy and without the necessity
of posting any bond or other security. Nothing herein shall be construed as
prohibiting Buyer, the Company or the Shareholders from pursuing any other
remedies at law or in equity which it may have.
Section 11.08. THE REPRESENTATIVE.
(a) The Shareholders hereby authorize, direct and appoint Jeffrey D.
Peotter to act as the sole and exclusive agent, attorney-in-fact and
representative of the Shareholders (the "Representative"), and hereby
further authorize and direct the Representative (i) to take any and all
actions (including, without limitation, executing and delivering any and
all agreements, instruments, certificates and other documents, incurring
any and all costs
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and expenses for the account of the Shareholders (which costs and expenses
shall constitute Damages incurred or suffered by Buyer within the meaning
of this Article XI) and making any and all determinations which may be
required or permitted by this Agreement or any of the Transaction Documents
to be taken by the Shareholders or the Representative, (ii) to exercise
such other rights, power and authority as are authorized, delegated and
granted to the Representative hereunder in connection with the transactions
contemplated hereby and thereby, and (iii) to exercise such rights, power
and authority as are incidental to the foregoing. Any such actions taken,
exercises of rights, power or authority, and any decision or determination
made by the Representative consistent therewith, shall be absolutely and
irrevocably binding on each Shareholder as if such Shareholder personally
had taken such action, exercised such rights, or authority or made such
decision or determination in such Shareholder's individual capacity.
Notwithstanding anything to the contrary contained in this Agreement, with
respect to the specific matters set forth in this Article XI, (i) each
Shareholder hereby irrevocably relinquishes such Shareholder's right to act
independently and other than through the representative, except with
respect to the removal of the Representative or appointment of a successor
Representative as provided in Section 11.08(b) hereof, and (ii) no
Shareholder shall have any right under this Agreement or otherwise to
institute any suit, action or proceeding against the Company or the Buyer,
with respect to any such matter, any such right being irrevocably and
exclusively delegated to the Representative. The Representative hereby
acknowledges and accepts the foregoing authorization and appointment and
agrees to serve as the Representative in accordance with the terms of this
Agreement.
(b) The Representative shall serve as Representative until his
resignation, removal from such position of responsibility, incapacity or
death; provided, however, that the Representative shall not have the right
to resign without (i) prior written notice to the Shareholders, and (ii)
selecting a successor representative reasonably satisfactory to the Buyer
who shall serve until a successor thereto is elected by the Shareholders.
The Representative may be removed at any time, and a successor
representative reasonably satisfactory to Buyer may be appointed pursuant
to written action by the Shareholders who, immediately prior to the Closing
Date, held shares of Common Stock constituting at least 66.66% of all such
shares then outstanding. Any successor to the Representative shall, for
purposes of this Agreement, be deemed to be, from the time of the
appointment thereof in accordance with the terms hereof, the
Representative, and from and after such time, the term "Representative" as
used herein and therein shall be deemed to refer to such successor. No
appointment of a successor shall be effective unless and until such
successor agrees in writing to be bound by the terms of this Agreement.
(c) The Representative shall be permitted to independently retain
counsel, consultants and other advisors and shall promptly notify Buyer
after retaining any such person.
(d) The provisions of this Section 11.08 shall in no way impose any
obligations on the Buyer, and notwithstanding any notice received by Buyer
to the
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contrary (except any notice of the appointment of a successor
Representative approved by the Buyer in accordance with Section 11.08(b)
hereof), Buyer (i) shall be entitled to rely upon and shall be fully
protected in relying upon, and shall have no liability to the Shareholders
with respect to, and shall be indemnified by the Shareholders for, from and
against any and all liability arising out of actions, decisions and
determination of the Representative, which liabilities shall constitute
Damages within the meaning of this Article XI, and (ii) shall be entitled
to assume that all actions, decisions and determinations of the
Representative are fully authorized by the Shareholders for all purposes
under this Agreement.
(e) The Representative shall not be liable to the Shareholders for the
performance of any act, or the failure to act, provided the Representative
acted or failed to act in good faith and in a manner such Representative
reasonably believed to be in the scope of such Representative's authority
under this Agreement and for a purpose which such Representative reasonably
believed to be in the best interests of the Shareholders, considered
together as a group.
ARTICLE XII
TERMINATION
Section 12.01. GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of the parties;
(b) by any party if the Closing shall not have been consummated on or
before April 30, 1998;
(c) by any party if there shall be any law or regulation that makes
consummation of the transactions contemplated hereby illegal or otherwise
prohibited or if consummation of the transactions contemplated hereby would
violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(d) by Buyer if there has been, since the date of this Agreement, any
Material Adverse Effect, or any development reasonably expected to result
in a prospective Material Adverse Effect in the business affairs or
business prospects of the Company, whether or not arising in the ordinary
course of business.
Section 12.02. EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 12.01, termination shall be without liability of either
party (or any Shareholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement. The
provisions of Sections 3.22, 5.05 and 13.06 shall survive any termination hereof
pursuant to Section 12.01. Notwithstanding the foregoing, in the event of (i)
the willful failure
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<PAGE>
by either party to fulfill a condition to the performance of the obligations of
the other party or (ii) the breach by either party in the performance of such
party's covenants or agreements hereunder, the party who has failed to fulfill
such condition or who has breached any such covenants or agreement shall be
fully liable for any and all Damages incurred or suffered by the other party as
a result of such failure or breach.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be deemed to have been given if delivered personally, mailed by certified
mail (return receipt requested) or sent by cable, telegram, telecopier or
recognized overnight delivery service to the parties at the following addresses
or at such other addresses as, specified by the parties by like notice:
If to Buyer: BEA Systems, Inc.
Attention: General Counsel
385 Moffett Park Drive
Sunnyvale, California 94089
Telephone: (408) 542-4000
Fax: (408) 734-9234
With a copy to: Morrison & Foerster LLP
370 17th Street, Suite 5200
Denver, Colorado 80202
Attention: Warren L. Troupe
Telephone: (303) 592-1500
Fax: (303) 592-1510
To the Company: Leader Group, Inc.
5200 DTC Parkway
Suite 500
Englewood, CO 80111-2720
Telephone: (303) 773-9700
Fax: (303) 773-9610
With a copy to: Kutak Rock
717 17th Street, Suite 2900
Denver, Colorado 80202
Attention: Dominic Lloyd
Telephone: (303) 292-7736
Fax: (303) 292-7799
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<PAGE>
If to the Shareholders Leader Group, Inc.
or the Controlling 5200 DTC Parkway
Shareholders: Suite 500
Englewood, CO 80111-2720
Attention: Jeffrey D. Peotter
Telephone: (303) 773-9700
Fax: (303) 773-9610
Notice so given shall be deemed given and received (i) if by mail on the fourth
calendar day after posting; (ii) by cable, telegram, telecopier, telex of
personal delivery on the date of actual transmission or (as the case may be)
personal or other delivery; and (iii) if by overnight courier, on the next
business day following the day such notice is delivered to the courier service.
Section 13.02. MODIFICATIONS AND AMENDMENTS. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties affected by such amendment.
Section 13.03. WAIVERS AND CONSENTS. No failure or delay by a party
hereto in exercising any right, power or remedy under this Agreement, and no
course of dealing between the parties hereto, shall operate as a waiver of any
such right, power or remedy of the party. No single or partial exercise of any
right, power or remedy under this Agreement by a party hereto, nor any
abandonment or discontinuance of steps to enforce any such right, power or
remedy, shall preclude such party from any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. Subject to the
limitations set forth herein, the election of any remedy by a party hereto shall
not constitute a waiver of the right of such party to pursue other available
remedies. No notice to or demand on a party not expressly required under this
Agreement shall entitle the party receiving such notice or demand to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such notice or demand. The terms
and provisions of this Agreement may be waived, or consent for the departure
therefrom granted, only by written document executed by the party entitled to
the benefits of such terms or provisions. No such waiver or consent shall be
deemed to be or shall constitute a waiver or consent with respect to any other
terms or provisions of this Agreement, whether or not similar. Each such waiver
or consent shall be effective only in the specific instance and for the purpose
for which it was given, and shall not constitute a continuing waiver or consent.
Section 13.04. INTERPRETATION. The parties hereto acknowledge and agree
that: (a) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement (except with respect to the disclosure schedules,
which are the sole responsibility of the Company) and have contributed to its
revision; (b) the rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement; and (c) the terms and provisions of this Agreement shall be
construed fairly as to all parties
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<PAGE>
hereto and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
Section 13.05. RELIANCE. The parties hereto agree that, notwithstanding
any right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained in this Agreement and the certificates expressly
delivered hereby.
Section 13.06. EXPENSES. Each of the parties hereto shall pay its own
fees and expenses (including the fees of any attorneys, accountants, appraisers
or others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby whether or not the transactions contemplated
hereby are consummated; provided, however, that such fees and expenses billed to
or incurred by the Company in connection with this Agreement and the
transactions contemplated hereby shall be borne by the Shareholders and not the
Company to the extent that such fees and expenses exceed $100,000. To the
extent that such fees and expenses exceed $100,000, the Buyer shall be entitled
to deduct and withhold a portion of the Purchase Price from each Shareholder
(pro rata in accordance with their interests set forth on Schedule 1) in
satisfaction thereof. To the extent that such fees and expenses exceed $100,000
and are not deducted from the Purchase Price, the Shareholders agree to pay and
shall promptly pay such amounts.
Section 13.07. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto except that Buyer may transfer or
assign, in whole or from time to time in part, to one or more direct or indirect
subsidiaries or Affiliates, any or all of its rights and obligations under this
Agreement, including but not limited to the right to purchase all or a portion
of the Shares, but no such transfer or assignment will relieve Buyer of its
obligations hereunder or adversely affect the Company or the timing of the
transactions contemplated hereby. Any purported assignment in violation of this
Agreement shall be void.
Section 13.08. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of California, without regard
to the conflicts of law rules of such state.
Section 13.09. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Signatures on this Agreement may be communicated by facsimile
transmission and shall be binding upon the parties transmitting the same by
facsimile transmission. Counterparts with original signatures shall be provided
within seven (7) days of the applicable facsimile transmission, provided,
however, that the failure to provide the original counterpart shall have no
effect on the validity or the binding nature of the Agreement. If executed in
counterparts, the Agreement shall be
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<PAGE>
effective as if simultaneously executed. No provision of this Agreement is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
Section 13.10. ENTIRE AGREEMENT. This Agreement, together with all
appendices, schedules and exhibits identified in this Agreement, constitutes the
entire agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Neither this Agreement nor any provision hereof is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Section 13.11. SPECIFIC PERFORMANCE. Each of the parties hereto agrees
that any breach by it of any provision of this Agreement would irreparably
injure the other party and that money damages would be an inadequate remedy
therefore. Accordingly, each of the parties hereto agrees that the other party
shall be entitled to one or more injunctions enjoining any such breach or
requiring specific performance of this Agreement and consents to the entry
thereof, this being in addition to any other remedy to which the non-breaching
party is entitled hereunder.
Section 13.12. KNOWLEDGE. Whenever the term to the "knowledge of" the
Company or the Controlling Shareholders, or a similar phrase, is used in this
Agreement, such phrase shall mean the (i) actual knowledge of such persons, in
addition to the knowledge of the Company's employees, which shall be imputed to
such persons, and (ii) knowledge that could have been obtained with respect to
those matters which would cause a reasonable person, in a similar position, to
investigate the matter further and which could have been obtained from such
investigation.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed or, if a
corporation, have caused this Agreement to be duly executed by their respective
authorized officers, as of the day and year first above written.
BEA SYSTEMS, INC.
By_____________________________________
Edward W. Scott, Jr.
Executive Vice President, WWFO
LEADER GROUP, INC.
By_____________________________________
Kenneth R. Allen, President
CONTROLLING SHAREHOLDERS:
_______________________________________
Jeffrey D. Peotter
_______________________________________
Jeffrey M. Ryan
_______________________________________
Kenneth R. Allen
OTHER SHAREHOLDERS:
_______________________________________
Mark Campbell
_______________________________________
Scott Elder
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<PAGE>
_______________________________________
John Funk
_______________________________________
Laura Ferkel
_______________________________________
Bob Hensle
_______________________________________
David Leichner
_______________________________________
Greg Mally
_______________________________________
Tim Ortt
_______________________________________
Matt Rice
_______________________________________
Carolyn Sampson
_______________________________________
Jeff Smith
_______________________________________
Tim Uttormark
_______________________________________
John Graves
_______________________________________
Charlie Therit
______________
*The "Other Shareholders" in signing this Agreement are acknowledging and are
bound by all provisions of this Agreement except those provisions contained in
Article III, Section 6.04 and Articles VII, VIII and XI (except Sections 11.01,
11.04, 11.06, 11.07 and 11.08 contained therein) of this Agreement.
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SCHEDULE 1
THE LEADER GROUP-SHAREHOLDERS
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
Allocation of Buyer's Shares of Buyer's
Name and Address Number of Proportionate Common Stock Common Stock
of Shareholder Shares Owned Interest (# of shares)* Fractional Shares Placed in Escrow
- -------------- ------------ -------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Ken Allen 250,000 32.162% 180,332.0 0.90 18,033
Mark Cambell 985 0.127% 711.0 0.50 N/A
Scott Elder 993 0.128% 717.0 0.72 N/A
John Funk 8,715 1.121% 6,287.0 0.66 N/A
Laura Ferkel 147 0.019% 107.0 0.97 N/A
Bob Hensle 1,135 0.146% 819.0 0.30 N/A
Dave Leichner 9,211 1.185% 6,645.0 0.88 N/A
Greg Mally 936 0.120% 676.0 0.84 N/A
Tim Ortt 623 0.080% 450.0 0.61 N/A
Jeff Peotter 250,000 32.162% 180,332.0 0.90 18,033
Jeff Ryan 250,000 32.162% 180,332.0 0.90 18,033
Matt Rice 587 0.076% 424.0 0.58 N/A
Carolyn Sampson 1,105 0.142% 798.0 0.94 N/A
Jeff Smith 637 0.082% 460.0 0.52 N/A
Tim Uttormark 1,194 0.154% 862.0 0.74 N/A
John Graves 492 0.063% 355.0 0.11 N/A
Charlie Therit 550 0.071% 397.0 0.27 N/A
------- ------- --------- ----- --------
Total 777,310 100.000% 560,704 11.34 54,099
======= ======== ========= ===== ========
</TABLE>
* Includes fractional share rounded up to nearest full share, and includes
number of shares placed in Escrow.
1-1
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-58439) and related Prospectus of BEA
Systems, Inc. for the registration of 560,704 shares of its common stock and to
the incorporation by reference therein of our report dated February 24, 1998,
with respect to the consolidated financial statements of BEA Systems, Inc.
included in its Annual Report (Form 10-KSB) for the year ended January 31, 1998,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
August 5, 1998
