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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 19, 1998
SCM MICROSYSTEMS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 0-22689 77-0444317
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(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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131 ALBRIGHT WAY
LOS GATOS, CALIFORNIA 95032
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(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(408) 370-4888
NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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Item 5. Other Events.
On May 19, 1998, the registrant acquired all of the issued and
outstanding capital stock, and other securities exercisable for shares of
capital stock, of Intermart Systems, K.K., a Japanese corporation ("Intermart"),
from Intermart's stockholders in exchange for aggregate consideration of US$8.0
million, of which US$4.86 million was paid in cash and US$3.14 million was paid
upon the issuance of 46,551 shares of the registrant's Common Stock (such
transaction being referred to herein as the "Intermart Acquisition"). In
addition, the selling stockholders are entitled to receive up to an additional
US$4.0 million in shares of the registrant's Common Stock based upon Intermart's
performance during the first full-year of post-acquisition operations. The
Intermart Acquisition will be accounted for under the "purchase" method of
accounting.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated as of May 19, 1998, by and
among the registrant, Robert Thomson, Yasuyuki Akamatsu,
Intermart Systems Employee Stockholders Club, SCM Venture
Club and Intermart Systems, K.K., a Japanese entity.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
The registrant's issuance of shares of its Common Stock in connection
with the Intermart Acquisition (as described in Item 5 hereof) was exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") in reliance upon the exemption from registration provided by
Rule
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903 of Regulation S promulgated thereunder. The exemption from registration
under the Securities Act provided by Rule 903 of Regulation S was available for
the issuance by the registrant of shares of its Common Stock in connection with
the Intermart Acquisition on the basis of the following: (i) the offer and sale
of the registrant's Common Stock was made in an offshore transaction to persons
and entities outside the United States; (ii) no directed selling efforts were
made in the United States by the registrant, a distributor, any of their
respective affiliates, or any person acting on behalf of any of the foregoing;
(iii) the registrant is a reporting person under the Securities Exchange Act of
1934, as amended; (iv) offering restrictions were implemented in respect of the
shares of Common Stock issued; and (v) the offer and sale of the registrant's
Common Stock were not made to a U.S. person or for the account or benefit of a
U.S. person.
In connection with the Intermart Acquisition, as noted in Item 5 hereof
the selling stockholders are also entitled to receive up to an additional US$4.0
million in shares of the registrant's Common Stock based upon Intermart's
performance during the first full-year of post-acquisition operations. In the
event that the registrant is required to issue additional shares of its Common
Stock to Intermart's stockholders based upon Intermart's performance during the
first full year of post-acquisition operations, the registrant anticipates that
it will issue such shares in reliance upon the exemption from registration
provided by Rule 903 of Regulation S promulgated under the Securities Act, or
pursuant to another exemption from registration provided by or under the
Securities Act. The exemption from registration under the Securities Act
provided by Rule 903 of Regulation S would be available for this issuance by the
registrant of shares of its Common Stock for the same reasons noted above.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCM MICROSYSTEMS, INC.
A Delaware Corporation
Dated: June 3, 1998 By: /s/ John Niedermaier
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Title: Vice President, Finance
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Document
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2.1 Stock Purchase Agreement, dated as of May 19, 1998, by and
among the registrant, Robert Thomson, Yasuyuki Akamatsu,
Intermart Systems Employee Stockholders Club, SCM Venture
Club and Intermart Systems, K.K., a Japanese entity.
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STOCK PURCHASE AGREEMENT
BY AND AMONG
SCM MICROSYSTEMS, INC.
A DELAWARE CORPORATION
AND
ROBERT THOMSON
YASUYUKI AKAMATSU
INTERMART SYSTEMS EMPLOYEE STOCKHOLDERS CLUB
SCM VENTURE CLUB
AND
INTERMART SYSTEMS, K.K.
A JAPANESE ENTITY
MAY 19, 1998
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ARTICLE I PURCHASE AND SALE OF THE SECURITIES................................................2
1.1 Purchase and Sale of the Securities.............................................2
1.2 Escrow Deposit..................................................................3
1.3 Additional Consideration........................................................3
1.4 Closing.........................................................................6
1.5 Closing Deliveries..............................................................6
1.6 Post-Closing Deliveries.........................................................8
1.7 Further Assurances..............................................................8
1.8 Related Agreements..............................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING SECURITYHOLDERS..............................................................9
2.1 Company Organization and Good Standing..........................................9
2.2 Company Capital Structure.......................................................9
2.3 Company Subsidiaries...........................................................10
2.4 Authority of the Company and Selling Securityholders...........................10
2.5 No Conflicts...................................................................12
2.6 Company Financial Statements...................................................13
2.7 No Undisclosed Liabilities.....................................................13
2.8 Deferred Compensation..........................................................13
2.9 No Changes.....................................................................14
2.10 Tax Matters....................................................................16
2.11 Restrictions on Business Activities............................................18
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment......................................................................18
2.13 Intellectual Property..........................................................19
2.14 Agreements, Contracts and Commitments..........................................20
2.15 Interested Party Transactions..................................................22
2.16 Governmental Authorization.....................................................23
2.17 Permits........................................................................23
2.18 Legal Proceedings..............................................................23
2.19 Accounts Receivable; Inventory.................................................23
2.20 Customers and Suppliers........................................................24
2.21 Minute Books...................................................................24
2.22 Environmental Matters..........................................................25
2.23 Employee Matters; Employee Benefit Plans.......................................26
2.24 Insurance......................................................................28
2.25 Compliance with Laws...........................................................29
2.26 Warranties; Indemnities........................................................29
2.27 Complete Copies of Materials...................................................29
2.28 Brokers' and Finders' Fees.....................................................29
2.29 Foreign Offering Representations...............................................29
2.30 Investment Representations.....................................................31
2.31 Representations Complete.......................................................32
2.32 SCSI Controller Chip Procurement...............................................32
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................33
3.1 Organization, Standing and Power...............................................33
3.2 Authority......................................................................33
3.3 No Conflicts...................................................................33
3.4 Brokers' and Finder's Fees.....................................................34
3.5 Capitalization.................................................................34
3.6 SEC Reports....................................................................34
3.7 Financial Statements...........................................................35
3.8 No Material Adverse Change.....................................................35
3.9 Actions and Proceedings........................................................35
ARTICLE IV ADDITIONAL AGREEMENTS............................................................35
4.1 Confidentiality................................................................35
4.2 Working Capital Commitments to the Company.....................................36
4.3 Transfer Restrictions..........................................................36
4.4 Exchange Act Reports...........................................................38
4.5 Purchaser Reporting Requirements...............................................38
4.6 Selling Securityholder Reporting Obligations...................................39
4.7 Best Efforts...................................................................39
4.8 Employee Benefit Matters.......................................................39
4.9 Board of Directors.............................................................40
ARTICLE V CONDITIONS TO THE PURCHASE AND SALE OF THE SHARES.................................40
5.1 Conditions to Obligations of the Parties.......................................40
5.2 Additional Conditions to the Obligations of the Purchaser......................41
5.3 Additional Conditions to Obligations of the Company and the Selling
Securityholders................................................................43
ARTICLE VI SURVIVAL AND INDEMNIFICATION ....................................................45
6.1 Survival.......................................................................45
6.2 Indemnification by the Selling Securityholders.................................45
6.3 Indemnification by the Purchaser...............................................48
6.4 Materiality Exceptions.........................................................48
6.5 Insurance Proceeds.............................................................49
6.6 Notice.........................................................................49
6.7 Third Party Claims.............................................................49
6.8 The Representative.............................................................51
ARTICLE VII GENERAL PROVISIONS..............................................................53
7.1 Further Assurances.............................................................53
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7.2 Notices........................................................................54
7.3 Interpretation.................................................................55
7.4 Expenses.......................................................................55
7.5 Counterparts...................................................................55
7.6 Entire Agreement; Assignment...................................................55
7.7 Severability...................................................................56
7.8 Other Remedies.................................................................56
7.9 Governing Law..................................................................56
7.10 Rules of Construction..........................................................56
7.11 Amendment......................................................................56
7.12 Extension; Waiver..............................................................56
7.13 Interpretation of Knowledge....................................................57
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INDEX OF EXHIBITS
Exhibit A-1 Schedule of Pre-Closing Securityholders
Exhibit A-2 Schedule of Selling Securityholders and Allocation of Consideration
Exhibit B Pre-Closing Transfer Agreements
Exhibit C Form of Escrow Agreement
Exhibit D Company Business Plan
Exhibit E Form of Employment and Non-Competition Agreement
[Principal Securityholders]
Exhibit F Schedule of Capital Contribution Payments
Exhibit G Schedule of Key Employees
Exhibit H Form of Employment and Non-Competition Agreement
[Key Employees]
Exhibit I Form of Legal Opinion of Tetsurou Miyahara
[Counsel to the Company and Selling Securityholders]
Exhibit J Form of Representation Statement
Exhibit K Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
[Counsel to the Purchaser]
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of May 19, 1998 by and among SCM Microsystems, Inc., a Delaware
corporation (the "PURCHASER"), Robert Thomson and Yasuyuki Akamatsu (together,
the "PRINCIPAL SECURITYHOLDERS"), Intermart Systems Employee Stockholders Club
and SCM Venture Club (together with the Principal Securityholders, the "SELLING
SECURITYHOLDERS"), and Intermart
Systems, K.K., a Japanese entity (the "COMPANY").
WITNESSETH
WHEREAS, immediately prior to the execution and delivery of this
Agreement, the Principal Securityholders and certain other holders of the
Company's capital stock set forth on Exhibit A-1 hereto (collectively, the
"PRE-CLOSING SECURITYHOLDERS") owned beneficially or of record an aggregate of
130,000 shares of Common Stock of the Company (the "COMPANY SHARES"),
representing all of the issued and outstanding shares of all classes and series
of capital stock of the Company, and warrants to purchase an additional 80,000
shares of Common Stock of the Company (the "COMPANY WARRANTS"), representing all
of the issued and outstanding securities of the Company convertible into, or
exercisable or exchangeable for, shares of capital stock of the Company.
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Pre-Closing Securityholders are effecting certain transfers of Company
Shares and Company Warrants on the terms and subject to the conditions set forth
in the agreements attached hereto as Exhibit B (the "PRE-CLOSING TRANSFER
AGREEMENTS"), pursuant to which each of the Selling Securityholders will own
beneficially and of record that number of Company Shares and Company Warrants
set forth on Exhibit A-2 hereto, representing all of the issued and outstanding
shares of all classes and series of capital stock of the Company and all issued
and outstanding securities convertible into, or exercisable or exchangeable for,
shares of capital stock of the Company.
WHEREAS, upon the terms and subject to the conditions hereof, the
Selling Securityholders wish to sell to the Purchaser, and the Purchaser wishes
to purchase from the Selling Securityholders, all of the Company Shares and the
Company Warrants (including, but not limited to, the Company Shares and the
Company Warrants acquired by the Selling Securityholders from the Pre-Closing
Securityholders pursuant to the terms and subject to the conditions set forth in
the Pre-Closing Transfer Agreements) for an aggregate purchase price of US$8
million (the "BASE CONSIDERATION"), of which US$4.86 million shall be payable in
cash and US$3.14 million shall be payable in shares of Common Stock of the
Purchaser, and a contingent payment of up to US$4 million (the "ADDITIONAL
CONSIDERATION"), payable in shares of Common Stock of the Purchaser upon the
satisfaction by the Company of certain performance criteria herein described.
WHEREAS, the parties hereto have agreed that a portion of the Base
Consideration shall be placed in escrow by the Purchaser for purposes of
satisfying liabilities, damages,
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losses, expenses and other similar charges which result from a breach of the
representations, warranties, covenants and agreements of the Company and the
Selling Securityholders contained in this Agreement.
WHEREAS, the parties hereto desire to make certain representations and
warranties and other covenants and agreements in connection with the
transactions contemplated hereby.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the
representations and warranties, covenants and other agreements hereinafter set
forth, the mutual benefits to be gained by the performance thereof, and other
good and valuable consideration, the receipt and legal sufficiency of which are
hereby acknowledged and accepted, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SECURITIES
1.1 Purchase and Sale of the Securities. On the Closing Date and
effective as of the Closing (each as defined in Section 1.4 hereof), upon the
terms and subject to the conditions of this Agreement, each of the Selling
Securityholders shall severally, and not jointly, sell, convey, assign, transfer
and deliver to the Purchaser, and the Purchaser shall purchase from each of the
Selling Securityholders, that number of Company Shares and that number of
Company Warrants, each as set forth opposite the name of such Selling
Securityholder on Exhibit A-2 hereto, free and clear of all options, pledges,
security interests, voting agreements, trusts or similar arrangements, liens,
charges or other encumbrances or restrictions on voting or transfer thereof
("ENCUMBRANCES"), in exchange for an aggregate purchase price of US$8 million
(as defined in the recitals hereto, the "BASE CONSIDERATION"), payable by the
Purchaser to the Selling Securityholders in accordance with the following:
(a) US$4.86 million of the Base Consideration shall be payable in
cash (the "BASE CASH CONSIDERATION"); and
(b) US$3.14 million of the Base Consideration shall be payable in
that number of shares of Common Stock of the Purchaser (the "BASE SHARE
CONSIDERATION") determined by dividing (x) US$3.14 million by (y) the
average of the closing prices per share for shares of Common Stock of
the Purchaser on the Nasdaq National Market during the thirty (30)
calender day period ending two (2) business days immediately prior to
the Closing Date (the "AVERAGE PRICE"); provided, however, that in the
event that the actual closing price for shares of Common Stock of the
Purchaser on the Nasdaq National Market on the business day immediately
prior to the Closing Date (the "ACTUAL PRICE") is more than fifteen
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percent (15%) greater than the Average Price, the Average Price shall be
adjusted upward by an amount equal to fifteen percent (15%) of the
Average Price; and provided further that in the event that the Actual
Price is more than fifteen percent (15%) less than the Average Price,
the Average Price shall be adjusted downward by an amount equal to
fifteen percent (15%) of the Average Price.
(c) The Base Cash Consideration and the Base Share Consideration
shall be allocated among the Selling Securityholders in accordance with,
and in the manner set forth on, Exhibit A-2 hereto.
The obligations of the Selling Securityholders under this Section 1.1
shall be several, and not joint; provided, however, that in addition to the
other conditions to the obligations of the Purchaser set forth in Article V
hereof, the Purchaser shall not be obligated to purchase any Company Shares or
Company Warrants pursuant to and in accordance with this Agreement unless and
until each of the Selling Securityholders tenders to the Purchaser at the
Closing all of the Company Shares and Company Warrants, if any, held by such
Selling Securityholder, in each case as set forth on Exhibit A-2 hereto.
1.2 Escrow Deposit. Notwithstanding the foregoing provisions of Section
1.1 hereof and anything to the contrary contained in this Agreement, the
Purchaser shall withhold an aggregate of ten percent (10%) of the Base Cash
Consideration (the "ESCROWED BASE CASH CONSIDERATION") and ten percent (10%) of
the Base Share Consideration (the "ESCROWED BASE SHARE CONSIDERATION") from the
respective cash and share amounts payable to the Selling Securityholders
pursuant to Section 1.1 hereof, and the Purchaser shall deposit the Escrowed
Base Cash Consideration and the Escrowed Base Share Consideration into an escrow
account (the "ESCROW FUND"), representing the aggregate of those portions of the
respective cash and share amounts payable to each of the Selling Securityholders
pursuant to Section 1.1 hereof, to be governed by the terms hereof and the terms
of the Escrow Agreement attached hereto as Exhibit C (the "ESCROW AGREEMENT" and
the escrow agent designated therein, the "ESCROW AGENT").
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1.3 Additional Consideration.
(a) Subject to the terms and conditions of this Section 1.3, as
additional consideration for the sale and delivery of the Company Shares
and the Company Warrants by the Selling Securityholders to the Purchaser
pursuant to and in accordance with the terms and provisions of this
Agreement, as soon as practicable following the preparation by the
Company and delivery to the Purchaser of the financial statements of the
Company reporting its financial results as of and for the twelve-month
period ending April 30, 1999 (but in no event later than May 31, 1999)
(the "PAYOUT DATE") the Purchaser shall make an additional payment to
the Selling Securityholders in an amount equal to the Additional Payout
Dollar Value (as defined
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in Section 1.3(b) hereof) (the "ADDITIONAL CONSIDERATION"), payable in
shares of Common Stock of the Purchaser in accordance with the
following:
(i) the Additional Consideration shall be payable in that
number of shares of Common Stock of the Purchaser determined by
dividing (x) the Additional Payout Dollar Value by (y) the
average of the closing prices per share for shares of Common
Stock of the Purchaser on the Nasdaq National Market during the
sixty (60) calender day period ending two (2) business days prior
to the Payout Date (the "PAYOUT AVERAGE PRICE"); provided,
however, that in the event that the actual closing price for
shares of Common Stock of the Purchaser on the Nasdaq National
Market on the business day immediately prior to the Payout Date
(the "PAYOUT ACTUAL PRICE") is more than fifteen percent (15%)
greater than the Payout Average Price, the Payout Average Price
shall be adjusted upward by an amount equal to fifteen percent
(15%) of the Payout Average Price; and provided further that in
the event that the Payout Actual Price is more than fifteen
percent (15%) less than the Payout Average Price, the Payout
Average Price shall be adjusted downward by an amount equal to
fifteen percent (15%) of the Payout Average Price.
(ii) The Additional Consideration shall be allocated among
the Selling Securityholders in accordance with, and in the manner
set forth on, Exhibit A-2 hereto.
(b) For all purposes of and under this Agreement, the "ADDITIONAL
PAYOUT DOLLAR VALUE" shall be an amount determined by adding (x) the
Revenue Component, and (y) the Gross Margin Component, each as defined
below; provided, however, that in no event shall the Additional Payout
Dollar Value exceed US$4 million in the aggregate:
(i) For purposes of this Section 1.3, the "REVENUE
COMPONENT" means an amount equal to the product of (x) 0.25,
multiplied by (y) that portion of the Company's revenues in
excess of US$8,700,000 for the twelve-month period ending April
30, 1999, as determined in accordance with United States
generally accepted accounting principles ("GAAP"); provided,
however, that in no event shall the Revenue Component be less
than US$0 or greater than US$1 million; and provided further that
in the case of products sold by the Company to the Purchaser or
other companies controlled by the Purchaser (collectively,
"AFFILIATES") revenues of the Company shall be calculated on the
basis of the Company's actual sales price to the end customer.
(ii) For purposes of this Section 1.3, the "GROSS MARGIN
COMPONENT" means an amount equal to the product of (x) 2.1,
multiplied by
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(y) that portion of the Company's gross margins in excess of
US$3,000,000 for the twelve-month period ending April 30, 1999,
as determined in accordance with United States GAAP; provided,
however, that in no event shall the Gross Margin Component be
less than US$0 or greater than US$3 million; and provided further
that in the case of products sold by the Company to the Purchaser
or Affiliates of the Purchaser, gross margins of the Company
shall be calculated on the basis of the actual sales price of the
Purchaser or any such Affiliate of the Purchaser to the end
customer, and in the case of products purchased by the Company
from the Purchaser or Affiliates of the Purchaser, gross margins
shall be calculated on the basis of the cost to the Purchaser and
its Affiliates used in calculating the gross margins of the
Purchaser and such Affiliates, as determined in accordance with
United States GAAP.
(iii) For purposes of converting the Company's revenues
and gross margins into US$ under this Section 1.3 for any given
quarter, the exchange rate between Yen and US$ shall be based
upon the average of (x) the exchange rate in effect as of the
Closing Date, as reported in The Wall Street Journal, and (y) the
exchange rate used by the Purchaser to convert the revenues of
the Company from Yen into US$ in accordance with United States
GAAP as applied by the Purchaser for purposes of its financial
reporting obligations, which exchange rate is determined is
follows: (A) for purposes of financial reporting on balance
sheets, the exchange rate in effect as of the date of any such
balance sheet, as reported in The Wall Street Journal, and (B)
for purposes of financial reporting on income statements and
statements of cash flow, the average of the exchange rates in
effect on each day during the period covered by any such income
statement or statement of cash flow, as reported in The Wall
Street Journal.
(c) The parties hereto hereby agree that from the date hereof and
at all times during the period ending on the earlier to occur of (i) the
termination of either of the Principal Securityholders' employment by
the Company and/or the Purchaser, as the case may be, and (ii) the
payment by the Purchaser of the Additional Consideration to the Selling
Securityholders pursuant to and in accordance with this Section 1.3, the
Principal Securityholders shall retain their current positions as
executive officers of the Company under the terms of their respective
Employment and Non-Competition Agreements, their current positions on
the Board of Directors of the Company, and primary management control
over the operations of the Company, and provided that the Principal
Securityholders continue to operate the Company in all material respects
in accordance with the financial and other terms of the Business Plan
attached hereto as Exhibit D (the "BUSINESS PLAN"), the Principal
Securityholders shall not be obligated to obtain the consent, approval,
permission or other authorization of or from the Purchaser to operate
the business of the Company
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in all material respects in accordance with the financial and other
terms of the Business Plan. In furtherance and not in limitation of the
foregoing agreement, the Purchaser hereby agrees to supply the operating
capital provided for under Section 4.2 hereof in order to allow for
successful implementation of the Business Plan by the Principal
Securityholders during the aforementioned period. Notwithstanding the
foregoing, or anything to the contrary set forth in this Agreement, the
parties hereto agree that, at all times from and after the Closing, in
the sole discretion of the Purchaser a majority of the Board of
Directors of the Company shall be designated and elected by the
Purchaser, and that the Board of Directors of the Company shall have
ultimate and paramount control over the business, management and other
affairs of the Company.
1.4 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Article V hereof, the consummation of the transactions contemplated
hereby pursuant to the terms and provisions hereof (the "CLOSING") shall take
place simultaneously with the execution and delivery of this Agreement at the
offices of Morrison & Foerster LLP, located at AIG Building, Seventh Floor,
1-1-3 Marunouchi, Chiyoda-ku, Tokyo, Japan 100, at 10:00 a.m. Tokyo time, on the
later to occur of (i) June 30, 1998, and (ii) the first business day after
satisfaction or waiver of the conditions set forth in Article V hereof, or at
such other place, time and date as shall be mutually agreed upon in writing by
the parties hereto. The date upon which the Closing shall actually occur shall
be referred to herein as the "CLOSING DATE."
1.5 Closing Deliveries.
(a) At the Closing, on the terms and subject to the conditions
set forth herein and in reliance on the representations and warranties,
covenants and other agreements set forth herein, each of the Selling
Securityholders shall severally, and not jointly, deliver, or cause to
be delivered, to the Purchaser each of the following:
(i) a copy of this Agreement, duly and validly executed by
such Selling Securityholder;
(ii) a certificate or certificates, registered in the name
of such Selling Securityholder, as set forth on Exhibit A-2
hereto, representing the number of Company Shares to be sold by
such Selling Securityholder, if any, to the Purchaser pursuant to
and in accordance with the terms of this Agreement;
(iii) a warrant certificate or certificates, registered in
the name of such Selling Securityholder, as set forth on Exhibit
A-2 hereto, representing the Company Warrants to be sold by such
Selling Securityholder, if any, to the Purchaser pursuant to and
in accordance with the terms of this Agreement;
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(iv) a copy of the Escrow Agreement, duly and validly
executed by such Selling Securityholder;
(v) as to each of the Principal Securityholders, a copy of
the Employment and Non-Competition Agreement, in the form
attached hereto as Exhibit E (the "EMPLOYMENT AND NON-COMPETITION
AGREEMENT"), duly and validly executed by such Principal
Securityholder; and
(vi) such other agreements, instruments, certificates and
other documents as may be necessary or reasonably appropriate to
effectuate completely the transactions contemplated hereby and by
each of the Related Agreements.
(b) At the Closing, on the terms and subject to the conditions
set forth herein and in reliance on the representations and warranties,
covenants and other agreements set forth herein, the Company shall
deliver, or cause to be delivered, to the Purchaser each of the
following:
(i) a copy of this Agreement, validly executed by a duly
authorized officer of the Company;
(ii) a copy of the Escrow Agreement, validly executed by a
duly authorized officer of the Company; and
(iii) such other agreements, instruments, certificates and
other documents as may be necessary or reasonably appropriate to
effectuate completely the transactions contemplated hereby and by
each of the Related Agreements.
(c) At the Closing, on the terms and subject to the conditions
set forth herein and in reliance on the representations and warranties,
covenants and other agreements set forth herein, the Purchaser shall
deliver, or cause to be delivered, to the Selling Securityholders,
and/or the Escrow Agent, as appropriate, each of the following:
(i) a copy of this Agreement, validly executed by a duly
authorized officer of the Purchaser;
(ii) subject to the provisions of Section 1.2 hereof, the
Base Cash Consideration payable by check, bank draft or wire
transfer of immediately available funds to an account or accounts
designated in writing by each of the Selling Securityholders;
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(iii) the Escrowed Base Cash Consideration, payable by
wire transfer of immediately available funds to the escrow
account designated in the Escrow Agreement;
(iv) a copy of the Escrow Agreement, validly executed by a
duly authorized officer of the Purchaser;
(v) a copy of each of the Employment and Non-Competition
Agreements with each of the Principal Securityholders, validly
executed by a duly authorized officer of the Purchaser; and
(vi) such other agreements, instruments, certificates and
other documents as may be necessary or reasonably appropriate to
effectuate completely the transactions contemplated hereby and by
each of the Related Agreements.
1.6 Post-Closing Deliveries. As soon as practicable following the
Closing, on the terms and subject to the conditions set forth herein and in
reliance on the representations and warranties, covenants and other agreements
set forth herein, the Purchaser shall deliver, or cause to be delivered, to the
Selling Securityholders, and/or the Escrow Agent, as appropriate, each of the
following:
(a) subject to the provisions of Section 1.2 hereof, certificates
representing the Base Share Consideration, validly executed by the
appropriate duly authorized officers of the Purchaser; and
(b) certificates representing the Escrowed Base Share
Consideration, validly executed by the appropriate duly authorized
officers of the Purchaser.
1.7 Further Assurances. On and after the Closing, upon the reasonable
request of any of the other parties hereto, the parties hereto shall prepare,
execute and deliver such other and further agreements, instruments,
certificates, and other documents, and take, do and perform such other and
further actions, as may be necessary or appropriate in order to effectuate
completely the purposes and intent of this Agreement and to fully consummate the
transactions contemplated hereby.
1.8 Related Agreements. For all purposes under this Agreement, the term
"RELATED AGREEMENTS" shall mean and refer to (i) the Escrow Agreement, (ii) the
Employment and Non-Competition Agreements, and (iii) the Employment Agreements
(as defined in Section 5.2(i) hereof).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SELLING SECURITYHOLDERS
Each of the Selling Securityholders (as to him or itself) and the
Company hereby severally, but not jointly, represent and warrant to the
Purchaser, subject to the exceptions and qualifications specifically set forth
in the disclosure schedule delivered by the Company and the Selling
Securityholders to the Purchaser at the Closing (the "DISCLOSURE SCHEDULE"), as
follows. All references in this Article II to the Company shall be deemed to
refer to the Company and its subsidiaries, unless otherwise indicated or the
context otherwise requires.
2.1 Company Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Company has the corporate power to own
its properties and to carry on its business as now being conducted. The Company
is duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified or be
in good standing would have a Material Adverse Effect (as defined below) on the
Company. The Company has delivered, or caused to be delivered, to the Purchaser
and its counsel a true, correct and complete copy of the Company's Articles of
Incorporation as amended to date and as in full force and effect on the date
hereof. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" shall mean any
material adverse change in, or material adverse effect on, the business, assets,
results of operations, or financial or other condition of the Company and its
subsidiaries (taken as a whole), or any event or circumstance which would likely
prevent, hinder or materially delay the consummation of any of the transactions
contemplated by this Agreement or any of the Related Agreements.
2.2 Company Capital Structure; Title to Company Shares and Company
Warrants.
(a) The authorized capital stock of the Company consists of
520,000 shares of Common Stock, of which 130,000 shares have been issued
and are outstanding as of the date hereof. All shares of the Company's
issued and outstanding capital stock are held by the persons and in the
amounts set forth on Exhibit A-2 hereto. All issued and outstanding
shares of the Company's Common Stock were duly authorized and validly
issued, are fully paid and non-assessable, were issued in compliance
with all applicable securities laws of Japan and any other foreign
governmental authority of applicable jurisdiction, and are not subject
to any preemptive rights created by statute, the Articles of
Incorporation of the Company or any agreement to which the Company is a
party or by which it is bound.
(b) Except as set forth in Section 2.2(b) of the Disclosure
Schedule, there are no options, warrants, calls, rights, commitments or
agreements of any kind or character, whether written or oral, to which
the Company is a party or by which it is bound pursuant to which the
Company is or may become obligated to issue, deliver,
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<PAGE> 15
sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company
or pursuant to which the Company is or may become obligated to grant,
extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such option, warrant, call, right, commitment or
agreement.
(c) The Company Shares and the Company Warrants are owned
beneficially and of record by the Selling Securityholders in the
respective amounts set forth in Exhibit A-2 of the Stock Purchase
Agreement, free and clear of any and all Encumbrances of any kind or
nature whatsoever, other than restrictions imposed by securities laws of
Japan and any other foreign governmental authority of applicable
jurisdiction. The Company Shares comprise all of the issued and
outstanding shares of capital stock of the Company, and the Company
Warrants comprise all of the issued and outstanding securities
convertible into, or exercisable or exchangeable for, shares of capital
stock of the Company. Upon the consummation of the transactions
contemplated by this Agreement and each of the Related Agreements, the
Purchaser will own beneficially and of record all right, title and
interest in and to the Company Shares and the Company Warrants, free and
clear of all Encumbrances of any kind or nature whatsoever, other than
restrictions imposed by securities laws of Japan and any other foreign
governmental authority of applicable jurisdiction.
2.3 Company Subsidiaries. Except as set forth in Section 2.3 of the
Disclosure Schedule, the Company does not have and has never had any
subsidiaries or affiliated companies, does not otherwise own and has never
otherwise owned any shares of capital stock or any other equity or ownership
interest in, and does not otherwise control, directly or indirectly, and has
never otherwise controlled any other corporation, partnership, association,
joint venture or other legal entity. Each subsidiary of the Company set forth in
Section 2.3 of the Disclosure Schedule (each, a "SUBSIDIARY") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has the corporate power to
own its properties and to carry on its business as now being conducted. Each
Subsidiary is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
or be in good standing would have a Material Adverse Effect.
2.4 Authority of the Company and Selling Securityholders.
(a) The Company has all requisite corporate power and authority
to enter into this Agreement and each of the Related Agreements to which
it is a party, to perform fully its obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Company of this Agreement and
each of the Related Agreements to which it is a party, the performance
by the Company of its obligations hereunder and thereunder,
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<PAGE> 16
and the consummation by the Company of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate
action on the part of the Company. This Agreement has been duly executed
and delivered by the Company, and constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance
with the terms hereof, except as such enforceability may be limited by
principles of general application relating to bankruptcy, insolvency,
creditor's rights, and the relief of debtors, and rules of law governing
specific performance, injunctive relief or other equitable remedies.
When delivered in accordance with the terms and conditions hereof, each
of the Related Agreements to which the Company is a party will have been
duly executed and delivered by the Company, and all such Related
Agreements will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with the
respective terms thereof, except as such enforceability may be limited
by principles of general application relating to bankruptcy, insolvency,
creditor's rights, and the relief of debtors, and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(b) Each of the Selling Securityholders has all requisite power
and authority to enter into this Agreement and each of the Related
Agreements to which such Selling Securityholder is a party, to perform
fully his or its respective obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The
execution and delivery by each of the Selling Securityholders of this
Agreement and each of the Related Agreements to which each such Selling
Securityholder is a party, the performance by each such Selling
Securityholder of his or its respective obligations hereunder and
thereunder, and the consummation by each such Selling Securityholder of
the transactions contemplated hereby and thereby, have been duly
authorized by all necessary action on the part of each such Selling
Securityholder. This Agreement has been duly executed and delivered by
each of the Selling Securityholders, and constitutes the valid and
binding obligation of each such Selling Securityholder enforceable
against each such Selling Securityholder in accordance with the terms
hereof, except as such enforceability may be limited by principles of
general application relating to bankruptcy, insolvency, creditor's
rights, and the relief of debtors, and rules of law governing specific
performance, injunctive relief or other equitable remedies. When
delivered in accordance with the terms and conditions hereof, each of
the Related Agreements to which any of the Selling Securityholders is a
party will have been duly executed and delivered by each such Selling
Securityholder, and all such Related Agreements will constitute the
valid and binding obligation of each such Selling Securityholder
enforceable against each such Selling Securityholder in accordance with
the respective terms thereof, except as such enforceability may be
limited by principles of general application relating to bankruptcy,
insolvency, creditor's rights, and the relief of debtors, and rules of
law governing specific performance, injunctive relief or other equitable
remedies.
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<PAGE> 17
2.5 No Conflicts.
(a) The execution and delivery by the Company and each of the
Selling Securityholders of this Agreement and each of the Related
Agreements to which the Company and/or any of Selling Securityholders is
a party does not, and will not, (i) conflict with, or result in any
violation of, or constitute a default under (with or without notice or
lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of
any benefit under (any such event, a "CONFLICT") (A) any provision of
the Articles of Incorporation of the Company, as amended and in full
force and effect as of the date hereof, or (B) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or its properties or
assets, or (ii) violate any order, injunction, judgment, ruling, law or
regulation of any court, administrative agency or commission or other
federal, state, county, local or foreign governmental authority,
instrumentality, agency or commission, including, without limitation,
any governmental authority, instrumentality, agency or commission of
Japan or the United States (each, a "GOVERNMENTAL ENTITY"), applicable
to the Company or any of its properties or assets. Except as set forth
in Section 2.5(a) of the Disclosure Schedule, no consent, waiver,
approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any third party, including,
without limitation, a party to any agreement with the Company, is
required by or with respect to the Company in connection with the
execution and delivery by the Company and the Selling Securityholders of
this Agreement or any of the Related Agreements, the performance by the
Company and the Selling Securityholders of their respective obligations
hereunder and thereunder, or the consummation by the Company and the
Selling Securityholders of the transactions contemplated hereby and
thereby.
(b) The execution and delivery by each of the Selling
Securityholders of this Agreement and each of the Related Agreements to
which any of them is a party does not, and will not, (i) give rise to
any Conflict in respect of (A) any provision of the charter documents of
any such Selling Securityholder, if applicable, as amended and in full
force and effect as of the date hereof, or (B) any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to any of the Selling Securityholders or
their respective properties and assets, or (ii) violate any order,
injunction, judgment, ruling, law or regulation of any Governmental
Entity applicable to any of the Selling Securityholders or any of their
respective properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity or any third party, including, without limitation, a
party to any agreement with any of the Selling Securityholders, is
required by or with respect to any of the Selling Securityholders
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<PAGE> 18
in connection with the execution and delivery by the Selling
Securityholders of this Agreement or any of the Related Agreements, the
performance by the Selling Securityholders of their respective
obligations hereunder and thereunder, or the consummation by the Selling
Securityholders of the transactions contemplated hereby and thereby.
2.6 Company Financial Statements. Section 2.6 of the Disclosure Schedule
includes a copy of the Company's unaudited financial statements, including
balance sheets, income statements and statements of cash flows, as of and for
the fiscal years ending March 31, 1998, 1997 and 1996 (collectively, the
"FINANCIAL STATEMENTS"). Except for customary year end adjustments (which will
not be material in amount when taken as a whole) the Financial Statements are
complete and correct and have been prepared in accordance with Japanese GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other. The Financial Statements present fairly the financial condition
and results of operations of the Company as of the dates and during the periods
indicated therein except for customary year end adjustments (which will not be
material in amount when taken as a whole). The unaudited balance sheet of the
Company as of March 31, 1998 is hereinafter referred to as the "UNAUDITED
BALANCE SHEET."
2.7 No Undisclosed Liabilities. Except for obligations incurred in the
ordinary course of its business and in a manner consistent with its past
practices which are not material to the financial condition or results of
operations of the Company and which are not required under Japanese GAAP to be
set forth or reflected on a balance sheet or the notes thereto, the Company does
not have any liability, indebtedness, obligation, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, contingent,
matured, unmatured or otherwise (whether or not required to be reflected in
financial statements in accordance with Japanese GAAP), which individually or in
the aggregate, (i) has not been reflected in the Unaudited Balance Sheet, or
(ii) has not been specifically described in this Agreement or in the Disclosure
Schedule and specifically identified herein or therein as not being included in
the Unaudited Balance Sheet, or (iii) has not arisen in the ordinary course of
the Company's business since the date of the Unaudited Balance Sheet.
2.8 Deferred Compensation. Section 2.8 of the Disclosure Schedule
includes a complete and accurate list of the names of all directors and
employees (including executive officers) of the Company, and consultants to the
Company, and the amount of money each is entitled to receive from the Company as
a result of deferred compensation, bonuses or Company expenses payable to the
director, employee or consultant, other than stock options. Other than the names
and amounts listed in Section 2.8 of the Disclosure Schedule, no other
compensation is owed by the Company to the directors or employees of the
Company, or consultants to the Company, other than ordinary payroll payable by
the Company at the end of each pay period.
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<PAGE> 19
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule, since March 31, 1998, there has not been, occurred or arisen:
(a) any transaction by the Company except in the ordinary course
of its business and in a manner consistent with its past practices;
(b) any capital expenditure or commitment by the Company
exceeding US$10,000 in any individual case and US$100,000 in the
aggregate;
(c) any destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by
insurance);
(d) any labor trouble or claim of wrongful discharge of which the
Company has received written notice, or of which the Company is aware,
or other unlawful labor practice or action;
(e) any change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies
or rates) by the Company;
(f) any revaluation by the Company of any of its assets other
than depreciation as required by Japanese GAAP and as reflected on the
Unaudited Balance Sheet;
(g) any declaration, setting aside for payment, or payment of any
dividends on or any other distribution (whether in cash, stock or
property) in respect of any of the Company's capital stock, or any
split, combination or reclassification of any of the Company's capital
stock or the issuance or authorization of the issuance of any of the
securities in respect of, in lieu of or in substitution for shares of
the capital stock of the Company, or the repurchase, redemption or other
acquisition, directly or indirectly, of any shares of the Company's
capital stock, or any options, warrants, or other rights exercisable or
exchangeable therefor.
(h) any increase in the salary or other compensation payable, or
to become payable, by the Company to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment, by the Company, of a bonus or
other additional salary or compensation to any such person, except for
increases granted in connection with the Company's ordinary employee
review and evaluation policies and consistent with the Company's past
practices, which increases did not exceed five percent (5%) of
pre-existing base salary in any individual case, and except as otherwise
contemplated by this Agreement;
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<PAGE> 20
(i) any sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of
its business and in a manner consistent with its past practices;
(j) any material amendment, termination or violation of any
distribution agreement or any material contract, agreement or license to
which the Company is a party or by which it is or may become bound,
other than amendment or termination by the Company pursuant to the terms
thereof in the ordinary course of its business and in a manner
consistent with its past practices;
(k) any loan by the Company to any person or entity, other than
advances to employees for travel and business expenses in the ordinary
course of its business and in a manner consistent with its past
practices, or, except for loans to the Company made by the Purchaser,
any incurring by the Company of any indebtedness other than trade debt
in the ordinary course of its business and in a manner consistent with
its past practices, or any guaranty by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing
of any debt securities of others;
(l) any waiver or release of any material right or claim of the
Company, including, without limitation, any write-off or other
compromise of any account receivable of the Company in excess of
US$5,000 in any individual case and US$50,000 in the aggregate;
(m) any notice or commencement of, or threat of commencement of,
any lawsuit, violation of any operating permit or proceeding against or
investigation of the Company or its affairs;
(n) any knowledge or receipt of any claim of ownership by a third
party, whether written or oral, of the Company's Intellectual Property
Rights (as defined in Section 2.13 hereof) or infringement by the
Company of any intellectual property rights of any third party;
(o) any issuance, sale or exemption by the Company of any of its
shares of capital stock, or securities exchangeable, convertible or
exercisable therefor, or of any other securities except for issuances or
sales as a result of rights previously granted to purchase shares of the
Company's capital stock;
(p) any transactions by the Company with any of its officers,
directors or employees (other than payment of normal compensation) or
with any persons or entities affiliated with any of its officers,
directors or employees;
(q) any event or condition of any character that has, or could be
reasonably expected to have, a Material Adverse Effect on the Company;
or
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<PAGE> 21
(r) any negotiation or agreement by the Company, or any director,
officer or employees thereof, to take, or cause to be taken, any of the
actions described in the preceding Sections 2.9(a) - (q), other than by
negotiations with the Purchaser and its representatives regarding the
transactions contemplated by this Agreement and each of the Related
Agreements.
2.10 Tax Matters.
(a) Definitions. For the purposes of this Agreement, (i) the term
"TAX" or, collectively, "TAXES," means any and all federal, state, local
and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including, without limitation, taxes
assessed by the government of Japan, and including further, without
limitation, taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such
amounts and further including any liability for taxes of a predecessor
entity, (ii) the term "CODE" means the United States Internal Revenue
Code of 1986, as amended, and (iii) the term "IRS" means the United
States Internal Revenue Service, or any successor agency of the United
States federal government.
(b) Tax Returns and Audits.
(i) The Company has prepared and timely filed, or made a
timely request for extension for filing of, all federal, state,
local and foreign returns, estimates, information statements and
reports required by applicable law (including, without
limitation, the laws of Japan) relating to any and all Taxes
concerning or attributable to the Company or its operations
(each, a "RETURN" and, collectively, the "RETURNS"), and all such
Returns are true and correct and have been completed in
accordance with applicable law.
(ii) The Company (A) has paid or accrued all Taxes it is
required to pay or accrue in accordance with applicable law
(including, without limitation, the laws of Japan) and Japanese
GAAP, and (B) has withheld and timely remitted with respect to
its employees all federal, state, local and foreign income Taxes
(including, without limitation, Taxes assessed by the government
of Japan), and other Taxes required to be withheld and remitted
by applicable law (including, without limitation, the laws of
Japan).
(iii) The Company has not been delinquent in the payment
of any Tax concerning or attributable to the Company or its
operations, nor is there any Tax deficiency outstanding, assessed
or, to the knowledge of the
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<PAGE> 22
Company and the Principal Securityholders, proposed against the
Company concerning or attributable to the Company or its
operations, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the
assessment or collection of any Tax concerning or attributable to
the Company or its operations.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been
notified by any federal, state local or foreign governmental
authority (including, without limitation, any governmental
authority of Japan) of any request for such an audit or other
examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes (including, without
limitation, Taxes assessed by the government of Japan) which have
not been accrued or reserved against in accordance with Japanese
GAAP on the Unaudited Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(vi) The Company has made available to the Purchaser or
its representatives copies of all foreign, federal and state
income, and all state sales and use Returns, filed since January
1, 1995, or with respect to any non-U.S. Returns, for all periods
as to which the applicable statute of limitations has not expired
with respect thereto.
(vii) There are no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("LIENS") on
the assets of the Company relating to or attributable to Taxes
concerning or attributable to the Company or its operations,
other than Liens for taxes not yet due and payable.
(viii) The Company and the Principal Securityholders have
no knowledge of any reasonable basis for the assertion of any
claim relating or attributable to Taxes concerning or
attributable to the Company or its operations which, if adversely
determined, would result in any Lien on the assets of the
Company.
(ix) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under
any such agreement.
(x) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other
federal income tax deductions is properly reflected on the
Company's tax books and records.
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<PAGE> 23
2.11 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. Section
2.11 of the Disclosure Schedule includes a complete and accurate list of notice
requirements to which the Company is subject pursuant to any such agreement,
commitment, judgment, injunction, order or decree.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) Section 2.12(a) of the Disclosure Schedule includes a
complete and accurate list of all real property currently owned (the
"OWNED REAL PROPERTY") and leased by the Company (the "LEASED REAL
PROPERTY" and, together with the Owned Real Property, the "REAL
PROPERTY"), and, with respect to the Leased Real Property, the name of
the lessor, the date of the lease and each amendment thereto and the
aggregate annual rental and/or other fees payable under any such lease.
All leases for Leased Real Property are in full force and effect, are
valid and effective in accordance with their respective terms, and there
is not any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default) under any
of such leases.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, free and clear of any Liens, except as
reflected in the Financial Statements and except for liens for Taxes not
yet due and payable and such imperfections of title and encumbrances, if
any, which are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere with the
present use and enjoyment, of the property subject thereto or affected
thereby.
(c) The equipment (the "EQUIPMENT") owned or leased by the
Company is, taken as a whole, (i) adequate for the conduct of the
business of the Company as currently conducted, (ii) in good operating
condition, subject to normal wear and tear, and (iii) reasonably
maintained.
(d) To the knowledge of the Company and the Principal
Securityholders, there are no material physical or mechanical defects of
the Real Property, including, without limitation, the structural and
load-bearing components of the Real Property. The improvements on the
Real Property, including, without limitation, the roofs, the parking
lot, the plumbing, heating, air conditioning, water, sewer, gas, and
electrical and life safety systems are in good operating condition and
repair, are in compliance in all material respects with all applicable
Legal Requirements (as defined below in
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Section 2.22(a)(viii) hereof) have been reasonably maintained in a
manner consistent in all material respects with standards generally
followed in the industry, ordinary wear and tear excepted, and are
structurally sound and suitable for their present uses.
(e) The Company and the Principal Securityholders have no
knowledge of any condemnation, environmental, zoning or other land-use
regulation proceedings, either instituted or planned to be instituted
with respect to the Real Property or any portion thereof, nor have the
Company and the Principal Securityholders received notice of any special
assessment proceedings affecting the Real Property.
(f) The Company has obtained all licenses, permits, variances,
approvals, authorizations, easements and rights of way, including proof
of dedication, required from all Governmental Entities having
jurisdiction over the Real Property or from private parties to insure
vehicular and pedestrian ingress to and egress from the Real Property at
current levels of use, except where the failure to so obtain any such
license, permit, variance, approval, authorization, easement or right of
way would not have a Material Adverse Effect.
(g) There are no outstanding written or oral contracts made by
the Company for any alterations or improvements on or to the Real
Property, which have not been fully paid for, and all mechanics' and
materialmens' liens arising from any labor or materials furnished to the
Real Property prior to the time of Closing have been discharged.
2.13 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material that are used in the
business of the Company as currently conducted (the "INTELLECTUAL
PROPERTY RIGHTS").
(b) Section 2.13 of the Disclosure Schedule includes a complete
and accurate list of all patents, trademarks, registered copyrights,
trade names and service marks, and any applications therefor in respect
of any of the foregoing, included in the Intellectual Property Rights,
and specifies, where applicable, the jurisdictions in which each such
Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including
the respective registration or application numbers and the names of all
registered owners. Section 2.13 of the Disclosure Schedule also includes
a complete and accurate list
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of all material licenses, sublicenses and other agreements as to which
the Company is a party and pursuant to which the Company or any other
person is authorized by the Company to use any Intellectual Property
Right or other trade secret material to the Company. The Company is not
in material violation of any license, sublicense or agreement described
on such list. The execution and delivery by the Company of this
Agreement and each of the Related Agreements, the performance by the
Company of its obligations hereunder and thereunder, and the
consummation by the Company of the transactions contemplated hereby and
thereby, (i) will not cause the Company to be in violation or default
under any such license, sublicense or agreement, (ii) entitle any other
party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement or (iii) require the
Company to repay any funds already received by it from a third party. No
claims with respect to the Intellectual Property Rights have been
asserted against the Company, nor to the knowledge of the Company, are
threatened against the Company or have been asserted or threatened
against a third party, nor is the Company aware of any reasonable basis
for any claims (A) to the effect that the manufacture, sale, licensing
or use of any of the products of the Company as now manufactured, sold
or licensed or used or proposed for manufacture, use, sale or licensing
by the Company infringes on any copyright, patent, trade mark, service
mark, trade secret or other proprietary right of any third party, (B)
against the use by the Company of any trademarks, service marks, trade
names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's
business as currently conducted or (C) challenging the validity,
effectiveness, or ownership by the Company of any of the Intellectual
Property Rights. All registered patents, trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the
knowledge of the Company, there is no unauthorized use, infringement or
misappropriation of any of the Intellectual Property Rights owned by the
Company by any third party, including any employee or former employee of
the Company. No Intellectual Property Right or product of the Company is
subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the licensing thereof by the Company. The
Company has not entered into any agreement under which the Company is
restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Section 2.14 of the Disclosure
Schedule, the Company does not have continuing obligations under, is not
a party to, nor is it bound by:
(i) any collective bargaining agreements;
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(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
other than as contemplated herein or in the Employment and
Non-Competition Agreements and the Employment Agreements;
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans
or arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or
commitment with a firm or other organization, other than oral
agreements terminable at will which consist solely of agreements
by the Company to employ any employee, and corresponding
agreements by any employee to conduct work for the Company;
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement, except as provided herein;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having annual lease
payments individually in excess of US$10,000;
(viii) any agreement of indemnification or guaranty other
than in the ordinary course of business;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any
line of business or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of
US$10,000 in the aggregate;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in
any business enterprise outside the ordinary course of the
Company's business;
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<PAGE> 27
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of
credit, including any guarantees;
(xiii) any purchase order or contract for the purchase of
raw materials involving US$10,000 or more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing or development
agreement;
(xvi) any agreement, contract or commitment with any
customer which, during the last two fiscal years of the Company,
accounted for, or during the Company's current fiscal year is
expected to account for, more than one percent (1%) of the
Company's revenue or trade payables; or
(xvii) any other agreement, contract or commitment that
involves US$10,000 or more or is not cancelable without penalty
within thirty (30) days.
(b) The Company has not breached, violated or defaulted under, or
received notice that it has breached, violated or defaulted under, any
of the material terms or conditions of (i) any agreement, contract or
commitment set forth in Section 2.14 of the Disclosure Schedule, or (ii)
any other agreement, contract or commitment to which it is a party or by
which it is bound (any such agreement, contract or commitment, a
"CONTRACT"). Each Contract is in full force and effect and is not
subject to any default thereunder of which the Company or any of the
Principal Securityholders is aware by any party obligated to the Company
pursuant thereto. The Company has obtained, or will obtain prior to the
Closing, all necessary consents, waivers and approvals of parties to any
Contract as are required in connection with the transactions
contemplated hereby and by each of the Related Agreements, or as are
required or advisable in order to remain in effect without modification
after the consummation of the transactions contemplated hereby and
thereby.
2.15 Interested Party Transactions. Except as set forth in Section 2.15
of the Disclosure Schedule, no officer or director or, to the knowledge of the
Company and the Principal Securityholders, no employee or stockholder (nor, to
the knowledge of the Company and the Principal Securityholders, any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an interest in any entity which furnished
or sold, or furnishes or sells, services or products that the Company furnishes
or sells, or proposes to furnish or sell, or (ii) any interest in any entity
that purchases from or
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<PAGE> 28
sells or furnishes to, the Company, any goods or services, or (iii) a beneficial
interest in any contract or agreement set forth in Section 2.14 of the
Disclosure Schedule.
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
includes a complete and accurate list of each material consent, license, permit,
grant or other authorization issued to the Company by any Governmental Entity
(i) pursuant to which the Company currently operates or holds any interest in
any of its properties, or (ii) which is required for the operation of its
business or the holding of any such interest (collectively, the
"AUTHORIZATIONS"), which Authorizations are in full force and effect and
constitute all Authorizations required to permit the Company to operate or
conduct its business or hold any interest in its properties or assets.
2.17 Permits. Section 2.17 of the Disclosure Schedule contains a
complete and accurate list of all material permits (including, without
limitation, those relating to the occupancy or use of the Real Property) issued
to or held by the Company by any Governmental Entity (collectively, the
"PERMITS"). The Permits are the only permits that are required for the Company
to conduct its business as presently conducted and as currently proposed to be
conducted, except for those the absence of which would not have a Material
Adverse Effect. Each such Permit is in full force and effect and, to the
knowledge of the Company and the Principal Securityholders, no suspension or
cancellation of any such Permit is threatened, and the Company is not aware of
any basis for believing that such Permits will not be renewable upon the
expiration thereof.
2.18 Legal Proceedings. Except as set forth in Section 2.18 of the
Disclosure Schedule, there is no action, suit, claim or proceeding of any nature
pending or, to the knowledge of the Company and the Principal Securityholders,
threatened against the Company, its properties or any of its officers or
directors, in their capacities as agents of the Company. There is no
investigation pending or, to the knowledge of the Company and the Principal
Securityholders, threatened against the Company, its properties or any of its
officers or directors, in their capacities as agents of the Company by or before
any Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.19 Accounts Receivable; Inventory.
(a) Section 2.19 of the Disclosure Schedule includes a complete
and accurate list of all of the Company's accounts receivable as
reflected on the Unaudited Balance Sheet (the "ACCOUNTS RECEIVABLE"),
together with a range of days elapsed since invoice (i.e., an aging
report).
(b) All of the Accounts Receivable arose in the ordinary course
of the Company's business, are carried at values determined in
accordance with Japanese
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<PAGE> 29
GAAP consistently applied and, to the knowledge of the Company and the
Principal Securityholders, are collectible except to the extent of
reserves therefor set forth in the Unaudited Balance Sheet. No person
has any Lien on any of the Accounts Receivable, and no request or
agreement for deduction or discount has been made with respect to any of
the Accounts Receivable.
(c) All of the inventories of the Company reflected on the
Unaudited Balance Sheet and the Company's books and records on the date
hereof were purchased, acquired or produced in the ordinary and regular
course of the Company's business and in a manner consistent with the
Company's regular inventory practices and are set forth on the Company's
books and records in accordance with the practices and principles of the
Company consistent with the method of treating said items in prior
periods. None of the inventory of the Company reflected on the Unaudited
Balance Sheet or on the Company's books and records as of the date
hereof (in either case net of the reserve therefor) is obsolete,
defective or in excess of the needs of the business of the Company
reasonably anticipated for the normal operation of the business
consistent with its past practices and outstanding customer contracts.
The presentation of inventory on the Unaudited Balance Sheet conforms to
Japanese GAAP and such inventory is stated at the lower of cost
(determined using the first-in, first-out method) or net realizable
value.
2.20 Customers and Suppliers. No unfilled customer order or commitment
obligating the Company to process or deliver products or perform services will
result in a loss to the Company upon completion of performance. No purchase
order or commitment of the Company is in excess of normal requirements, nor are
prices provided therein in excess of current market prices for the products or
services to be provided thereunder. No material supplier of the Company has
given notice within the past year that it will stop, or decrease the rate of,
supplying materials, products or services to them, and no material customer of
the Company has given notice within the past year that it will stop, or decrease
the rate of, buying materials, products or services from them. Section 2.20 of
the Disclosure Schedule includes a complete and accurate list of (i) each
customer that accounted for more than five percent (5%) of the revenues of the
Company during the calender year ended December 31, 1997, and (ii) each supplier
that is the sole supplier of any significant product or materials to the
Company.
2.21 Minute Books. The minute books of the Company, made available to
counsel for the Purchaser, are the only minute books of the Company and contain
an accurate summary of all proceedings of meetings of the Board of Directors of
the Company and the committees thereof, and all proceedings of meetings of the
shareholders of the Company, or actions by written consent of either the Board
of Directors or the shareholders of the Company, in each case since the date of
organization of the Company.
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2.22 Environmental Matters.
(a) There are no Hazardous Materials (as defined below)
generated, used, handled or stored by the Company, the proper disposal
of which in accordance with any and all (i) statutes, rules, ordinances,
regulations or common laws of any local, state, federal, provincial,
national or international jurisdiction (including the laws of Japan and
the United States) relating to the environment, public health and
safety, worker health and safety, (ii) orders, injunctions, decrees or
rulings issued by a court of competent jurisdiction or other
Governmental Entity relating to the environment, public health and
safety, worker health and safety, and (iii) obligations arising under
consent decrees, settlement agreements, contracts, leases, covenants
running with the land or equitable servitudes relating to the
environment, public health and safety, worker health and safety
(collectively, "ENVIRONMENTAL LAWS"), will require any expenditure by
the Company. There has not been at any time, nor is there as of the date
hereof, (x) any generation, use, handling, storage or disposal of any
Hazardous Materials in violation of any applicable Environmental Law at
any property owned or premises leased by the Company, or (y) any release
of any Hazardous Materials on or at any property owned or premises
leased by the Company (whether or not in violation of any applicable
Environmental Law, and whether or not giving rise to an obligation to
report or remediate such release) in each case during the period of the
Company's ownership or lease thereof. As of the date hereof, there is no
threat of release of any Hazardous Materials on or at any property owned
or premises leased by the Company. For all purposes of an under this
Agreement, the term "HAZARDOUS MATERIALS" shall mean and refer to any
material that has been designated by any Governmental Entity to be
radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment, or that is regulated or prohibited
under any Environmental Law, including, without limitation, any
"hazardous waste" as that term is defined either the United States
Resource Conservation and Recovery Act or regulations adopted pursuant
thereto, and any "hazardous substance" or "hazardous materials" as such
terms are defined in the United States Comprehensive Environmental
Response, Compensation and Liability Act.
(b) The activities of the Company have complied at all times in
the past, and do comply as of the date hereof, in all material respects
with all applicable Environmental Laws.
(c) Section 2.22(c) of the Disclosure Schedule contains a
complete and accurate list of all of the environmental site and risk
investigations, assessments, studies, audits, tests, reviews or other
analysis and documentation concerning the property owned or premises
leased by the Company, or the activities of the Company involving or
relating to Hazardous Materials, in each case conducted by or at the
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<PAGE> 31
direction of Company or, to the knowledge of the Company and the
Principal Securityholders, by any other person.
(d) Except as provided in Section 2.22(d) of the Disclosure
Schedule, no suit, proceeding, administrative action, writ, injunction,
governmental investigation or governmental or third party claim is
pending or, to the knowledge of the Company and the Principal
Securityholders, is threatened with respect to any activities of the
Company involving or relating to Hazardous Material conducted on or
about the property owned or premises leased by the Company, and to the
knowledge of the Company and the Principal Securityholders, no fact or
circumstance exists with respect to the property owned or the premises
leased by the Company which will involve the Purchaser or its successor
or assigns in any such suit, proceeding, action, writ, injunction,
investigation or claim, or impose upon the Purchaser or its successor or
assigns any environmental liability. There are no Liens under any
Environmental Laws on the property owned or the premises leased by
Company and, to the knowledge of the Company and the Principal
Securityholders, no governmental actions have been taken or are in the
process of being taken, which could subject such properties to such
Liens.
(e) There are no environmental health or safety matters or
circumstances that could have a Material Adverse Effect.
2.23 Employee Matters; Employee Benefit Plans.
(a) Schedule. Section 2.23(a) of the Disclosure Schedule includes
a complete and accurate list of (i) each director, officer and other
employee of the Company, and any affiliate of the Company, as of March
31, 1998 (collectively, "EMPLOYEES"), (ii) each employment, severance,
consulting or similar agreement or contract between the Company, or any
affiliate of the Company, and any Employee ("EMPLOYEE AGREEMENTS"),
(iii) all rules of employment (Shugyo Kisoku) and other internal rules
applicable to any of the Employees with respect to the terms and
conditions of employment between the Company, or any affiliate of the
Company, and of the Employees ("RULES OF EMPLOYMENT"), and (iv) each any
plan, program, policy, practice, contract, agreement or other
arrangement providing for bonuses, severance, termination pay, pension,
performance awards, stock or stock-related awards, fringe benefits or
other employee benefits of any kind, whether formal or informal, funded
or unfunded and whether or not legally binding (including without
limitation, each "employee benefit plan," within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), which is or has been maintained, contributed to, or required
to be contributed to, by the Company, or any affiliate of the Company,
for the benefit of any Employee, and pursuant to which the Company, or
any affiliate of the Company, has or may have any material liability,
whether contingent or otherwise ("EMPLOYEE PLANS"). The
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<PAGE> 32
Company does not have any plan or commitment, whether or not legally
binding, to enter into any new Employee Agreement, establish any new
Rule of Employment of Employee Plan, or to modify any Employee
Agreement, Rule of Employment or Employee Plan (except to the extent
required by law or to conform any such Employee Agreement, Rule of
Employment or Employee Plan to the requirements of any applicable law,
in each case as previously disclosed to the Purchaser in writing, or as
required by this Agreement), nor does it have any intention or
commitment to do any of the foregoing. The Company does not now, nor has
it ever, maintained, established, sponsored, participated in, or
contributed to, any "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA. At no time has the Company contributed to or
been requested to contribute to any "multiemployer plan" within the
meaning of Section 3(37) of ERISA.
(b) Documents. The Company has provided to the Purchaser true,
correct and complete copies of all documents embodying or relating to
each Employee Agreement, Rule of Employment and Employee Plan,
including, without limitation, all amendments thereto, copies of all
forms of agreement and enrollment used in connection therewith and
copies of all reports and other forms filed with any Governmental Entity
in connection therewith.
(c) Compliance. The Company has performed in all material
respects all obligations required to be performed by it under each
Employee Agreement, Rule of Employment and Employee Plan, and each Rule
of Employment and Employee Plan has been established and maintained in
all material respects in accordance with its terms and in compliance
with all applicable laws, statutes, orders, rules and regulations of any
Governmental Entity (including, without limitation, the laws of Japan
and the United States).
(d) No Post-Employment Obligations. No Rule of Employment or
Employee Plan provides, or contains any commitment to provide, life
insurance, medical or other employee benefits to any Employee upon his
or her retirement or termination of employment for any reason, except as
may be required by statute, and the Company has never represented,
promised or contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to
the extent required by statute.
(e) Effect of Transaction. The execution and delivery by the
Company of this Agreement and each of the Related Agreements, the
performance by the Company of its obligations hereunder and thereunder,
and the consummation by the Company of the transactions contemplated
hereby and thereby, will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Employee
Agreement, Rule of Work or Employee Plan, that will or may
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<PAGE> 33
result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(f) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable laws, rules and regulations of
Japan, the United States or any other Governmental Entity of applicable
jurisdiction respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect
to Employees, (ii) has withheld, and paid to the relevant Governmental
Entity if so required, all social security and other amounts required by
law or by agreement to be withheld from the wages, salaries and other
payments to Employees, (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the
foregoing, and (iv) is not liable for any payment to any trust or other
fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security or other benefits for Employees
(other than routine payments to be made in the normal course of business
and consistent with past practice).
(g) Labor. No work stoppage or labor strike against the Company
is pending or, to the knowledge of the Company and the Principal
Securityholders, threatened. The Company is not involved in or, to the
knowledge of the Company and the Principal Securityholders, threatened
with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in
the aggregate, result in any liability to the Company. The Company has
not engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company.
The Company is not presently, nor has it been in the past, a party to,
or bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.24 Insurance. Section 2.24 of the Disclosure Schedule includes a
complete and accurate list of all insurance policies and fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
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. All premiums due and
payable under all such policies and bonds have been paid and the Company is
otherwise in material compliance with the terms of such policies and bonds. The
Company and the Principal Securityholders have no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
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2.25 Compliance with Laws. The Company has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any statute, law or
regulation of any Governmental Entity (including without limitation, the
government of Japan and the United States) with respect to the conduct of its
business, or the ownership or operation of its business, assets or properties.
2.26 Warranties; Indemnities. Section 2.26 of the Disclosure Schedule
indicates all warranty and indemnity claims in excess of US$5,000 by any one
customer made against the Company.
2.27 Complete Copies of Materials. The Company has delivered or made
available to the Purchaser true and complete copies of each agreement, contract,
commitment or other document that is referred to in the Disclosure Schedule or
that has been requested by the Purchaser or its counsel. Without in any way
limiting the generality of the foregoing, to the extent that the Company has
delivered any of the foregoing to the Purchaser, such copies are true and
complete.
2.28 Brokers' and Finders' Fees. Neither the Company nor any of the
Selling Securityholders has incurred, nor will they incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any of the Related
Agreements, or the consummation of the transactions contemplated hereby of
thereby. The Purchaser will not incur any liability for any brokerage or
finders' fee or agents' commissions or any similar charges by virtue of any act
of the Company and/or any of the Selling Securityholders in connection with the
consummation of the transactions contemplated hereby or by any of the Related
Agreements.
2.29 Foreign Offering Representations.
(a) No offer or solicitation of an offer was made by the
Purchaser, any of its affiliates or any other person acting for or on
behalf of the Purchaser, to any of the Selling Securityholders to enter
into this Agreement, or to consummate the transactions contemplated
hereby (including, without limitation, the issuance of shares of the
Purchaser's Common Stock as Base Share Consideration and Additional
Consideration pursuant hereto), while any such Selling Securityholder
was inside the United States and, at the time of the execution and
delivery by the Selling Securityholders of this Agreement, each of the
Selling Securityholders was outside the United States.
(b) In making the decision to invest in the shares of the
Purchaser's Common Stock to be issued as Base Share Consideration or
Additional Consideration pursuant hereto, none of the Selling
Securityholders has relied upon any materials received in connection
with any "directed selling efforts" of the
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Purchaser, any of its affiliates or any person acting for or on behalf
of the Purchaser, as such term is defined in Rule 902(b) under
Regulation S ("REGULATION S") promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), including, without limitation,
any printed materials distributed in a publication with a general
circulation within the United States, or advertisements with radio or
television stations broadcasting within the United States, in each case
which discuss the terms of this Agreement or the transactions
contemplated hereby (including, without limitation, the issuance of
shares of the Purchaser's Common Stock as Base Share Consideration and
Additional Consideration pursuant hereto).
(c) In making the decision to invest in the shares of the
Purchaser's Common Stock to be issued as Base Share Consideration or
Additional Consideration pursuant hereto, none of the Selling
Securityholders has relied upon any "Distributors", as such term is
defined in Rule 902(c) of Regulation S, including, without limitation,
any underwriter or dealer.
(d) Each of the Selling Securityholders understands and
acknowledges that the shares of the Purchaser's Common Stock to be
issued as Base Share Consideration or Additional Consideration pursuant
hereto are being issued in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Regulation
S, that such shares will not be registered under the Securities Act or
any state securities or "blue sky" law, and that such shares may not be
offered or sold in the United States or to any "U.S. Person", as such
term is defined in Rule 902(o) of Regulation S (a "U.S. PERSON"), or
otherwise disposed of, except in accordance with the provisions of Rules
903 and 904 of Regulation S, pursuant to registration of such shares
under the Securities Act, or pursuant to another available exemption
from the registration requirements of the Securities Act.
(e) None of the Selling Securityholders is a U.S. Person, and
none of the Selling Securityholders is acquiring the shares of the
Purchaser's Common Stock to be issued as Base Share Consideration and
Additional Consideration pursuant hereto for the account or benefit of
any U.S. Person.
(f) Each of the Selling Securityholder's understands and
acknowledges that such Selling Securityholder may not resell any of the
shares of the Purchaser's Common Stock to be issued as Base Share
Consideration or Additional Share Consideration pursuant hereto unless
any such resale is effected in accordance with the provisions of Rule
904 of Regulation S, pursuant to registration of such resale under the
Securities Act, or pursuant to another available exemption from the
registration requirements of the Securities Act.
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2.30 Investment Representations.
(a) Except to the extent otherwise provided for in connection
with, or otherwise not applicable in light of, the express provisions of
any of the Related Agreements, the shares of the Purchaser's Common
Stock to be issued as Base Share Consideration or Additional
Consideration pursuant hereto are being acquired by each of the Selling
Securityholders pursuant to the terms and subject to the conditions of
this Agreement for each such Selling Securityholder'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.
(b) Each of the Selling Securityholders understands and
acknowledges that the shares of the Purchaser's Common Stock to be
issued as Base Share Consideration or Additional Consideration pursuant
hereto will not be registered under the Securities Act or any state
securities or "blue sky" law, and that, in the event that the issuance
of the shares of the Purchaser's Common Stock as Base Share
Consideration and Additional Consideration pursuant hereto shall be
deemed not to qualify for the exemption from the registration
requirements of the Securities Act afforded by Regulation S for any
reason, such shares may not be sold or otherwise disposed of,
notwithstanding the failure to so qualify for the registration exemption
afforded by Regulation S, except pursuant to registration under the
Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act.
(c) Each of the Selling Securityholders has such knowledge and
experience in financial and business matters that such parties are
capable of evaluating the merits and risks of the prospective investment
in the shares of the Purchaser's Common Stock to be issued as Base Share
Consideration or Additional Consideration pursuant hereto, that such
parties are able to bear the economic consequences thereof, and that
each of such parties qualify as an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Securities
Act.
(d) In making the decision to invest in the shares of the
Purchaser's Common Stock to be issued as Base Share Consideration or
Additional Consideration pursuant hereto, each of the Selling
Securityholders has relied upon independent investigations made by such
Selling Securityholder and, to the extent believed by such Selling
Securityholder to be appropriate, such Selling Securityholder's
representatives, including such Selling Securityholder's own
professional, tax and other advisors, and has not relied upon any
representation or warranty from the Purchaser or any of its directors,
officers, employees, agents, affiliates or representatives with respect
to the value of such shares or the tax
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<PAGE> 37
consequences of the transactions contemplated by this Agreement or any
of the Related Agreements.
(e) Each of the Selling Securityholders and such Selling
Securityholder's representatives have been given a full opportunity to
examine all documents relating to the transactions contemplated hereby
and by each of the Related Agreements, and to ask questions of, and to
receive answers from, the Purchaser and its representatives concerning,
the terms of the transactions contemplated by this Agreement and each of
the Related Agreements and such other information as such Selling
Securityholder desires in order to evaluate an investment in the shares
of the Purchaser's Common Stock to be issued as Base Share Consideration
or Additional Consideration pursuant hereto, and all such questions have
been answered to the full satisfaction of such Selling Securityholder.
2.31 Representations Complete. None of the representations or warranties
made by the Company or the Selling Securityholders (as modified by the
Disclosure Schedule hereunder), nor any statement made in any schedule or
certificate furnished by the Company or the Selling Securityholders pursuant to
this Agreement, contains or will contain at the Closing, any untrue statement of
a material fact, or omits or will omit at the Closing, to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
2.32 SCSI Controller Chip Procurement. Section 2.32 of the Disclosure
Schedule contains a Plan of SCSI Controller Chip Procurement (the "CHIP
PROCUREMENT PLAN"). The Chip Procurement Plan represents an accurate description
of the Company's plan for the procurement of SCSI Controller Chips during the
Company's fiscal year ending March 31, 1999. The Chip Procurement Plan is a
viable strategy and achievable plan for the procurement of SCSI controller chips
necessary to satisfy the Company's SCSI controller chip requirements on a timely
basis at all times during its fiscal year ending March 31, 1999. The Company
will successfully execute the Chip Procurement Plan and procure the SCSI
Controller Chips on a timely basis as described therein. Notwithstanding any
breach of the foregoing, in the event that the Company shall fail to
successfully execute the Chip Procurement Plan and procure the SCSI Controller
Chips on a timely basis as described therein, there shall not be any liability
under this Section 2.32 if the Company does not experience any material
disruption in its operations or any other Material Adverse Effect as a result of
such breach.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company and the
Selling Securityholders as follows:
3.1 Organization, Standing and Power. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser has the corporate power to own its properties
and to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a material adverse effect on the business, assets,
financial condition, or results of operations of the Purchaser or the ability of
the Purchaser to consummate the transactions contemplated hereby and by each of
the Related Agreements.
3.2 Authority. The Purchaser has all requisite corporate power and
authority to enter into this Agreement and each of the Related Agreements to
which it is a party, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by the Purchaser of this Agreement and each of the Related Agreements,
the performance by the Company of its obligations hereunder and thereunder, and
the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement has been duly executed and delivered by the
Purchaser, and constitutes the valid and binding obligation of the Purchaser
enforceable against it in accordance with terms hereof, except as such
enforceability may be limited by principles of general application relating to
bankruptcy, insolvency, creditor's rights, and the relief of debtors, and rules
of law governing specific performance, injunctive relief or other equitable
remedies. When delivered in accordance with the terms and conditions hereof,
each of the Related Agreements to which the Purchaser is a party will have been
duly executed and delivered by the Purchaser, and all such agreements will
constitute the valid and binding obligation of the Purchaser enforceable against
it in accordance with the respective terms thereof, except as such
enforceability may be limited by principles of general application relating to
bankruptcy, insolvency, creditor's rights, and the relief of debtors, and rules
of law governing specific performance, injunctive relief or other equitable
remedies.
3.3 No Conflicts. The execution and delivery by the Purchaser of this
Agreement and each of the Related Agreements to which the Purchaser is a party,
the performance by the Purchaser of its obligations hereunder and thereunder,
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby, will not (i) give rise to a Conflict under (A) any provision of the
Certificate of Incorporation or Bylaws of the Purchaser, or (B) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Purchaser or its properties or assets, other than
any such
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conflicts, violations, defaults, terminations, cancellations, modifications,
accelerations or losses which would not have a material adverse effect on the
ability of the Purchaser to consummate the transactions contemplated hereby, or
(ii) violate any order, injunction, judgment, ruling, law or regulation of any
Governmental Entity applicable to the Purchaser or any of its properties or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any third party,
including, without limitation, a party to any agreement with the Purchaser, is
required by or with respect to the Purchaser in connection with the execution
and delivery by the Purchaser of this Agreement and each of the Related
Agreements to which the Purchaser is a party, the performance by the Purchaser
of its obligations hereunder and thereunder, and the consummation by the
Purchaser of the transactions contemplated hereby and thereby, except for (x)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under the securities laws of Japan and any other
foreign governmental authority of applicable jurisdiction, and (y) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated hereby.
3.4 Brokers' and Finder's Fees. The Purchaser has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any of the Related Agreements, or the consummation of the transactions
contemplated hereby of thereby. The Company and the Selling Securityholders will
not incur any liability for any brokerage or finders' fee or agents' commissions
or any similar charges by virtue of any act of the Purchaser in connection with
the consummation of the transaction contemplated hereby or by any of the Related
Agreements.
3.5 Capitalization. Purchaser is authorized to issue 40,000,000 shares
of its Common Stock, par value $0.001 per share, of which 11,198,331 shares were
issued and outstanding as of March 31, 1998, and 10,000,000 shares of its
Preferred Stock, par value $0.001 per share, none of which are outstanding as of
the date hereof. As of March 31, 1998, except for an aggregate of 1,087,101
shares of the Purchaser's Common Stock reserved for issuance under various stock
option and stock purchase plans of the Purchaser, there are no outstanding
rights, subscriptions, warrants, calls, preemptive rights, options or other
agreements of any kind or character to purchase or otherwise to receive from the
Purchaser any shares of the capital stock or any other securities of the
Purchaser, and there are no outstanding securities of any kind or character
convertible into or exchangeable for such capital stock. Upon the issuance of
the shares of the Purchaser's Common Stock comprising the Base Share
Consideration and the Additional Consideration pursuant to and in accordance
with the terms of this Agreement, such shares will be validly issued, fully
paid, non-assessable and free of any preemptive rights.
3.6 SEC Reports. The Purchaser has previously delivered to the Company
its (i) Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the United
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States Securities and Exchange Commission (the "SEC"), and (ii) all other
reports filed by the Purchaser with the SEC under the Securities Act or the
Exchange Act since December 31, 1997 (collectively, the "PURCHASER SEC
REPORTS"). As of their respective dates, the Purchaser SEC Reports complied in
all material respects with applicable SEC requirements and did not 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, in light of the
circumstances under which they were made, not misleading.
3.7 Financial Statements. The consolidated financial statements
contained in the Purchaser SEC Reports were prepared from, and are in accordance
with, the books and records of the Purchaser and present fairly, in all material
respects, the consolidated financial condition and results of operations of the
Purchaser and its subsidiaries as of and for the periods presented therein, all
in conformity with United States GAAP applied on a consistent basis, except as
otherwise noted therein and subject to normal year-end adjustments, which are
not, in the aggregate, material.
3.8 No Material Adverse Change. Since December 31, 1997, there has not
been any material adverse change in the business, financial results or results
of operations of the Purchaser except as otherwise set forth in the Purchaser
SEC Reports filed after December 31, 1997.
3.9 Actions and Proceedings. Except as set forth in the Purchaser SEC
Reports, there are no actions, suits or claims or legal, administrative or
arbitration proceedings pending or, to the knowledge of the Purchaser,
threatened against the Purchaser or any other corporation or legal entity of
which Purchaser owns, directly or indirectly, fifty percent (50%) or more of the
voting capital stock, or other equity interest entitled to vote for the election
of directors thereof, that individually or in the aggregate would have a
material adverse effect upon the transactions contemplated by this Agreement or
the business of Purchaser. To the knowledge of the Purchaser, there is no fact,
event or circumstance now in existence that reasonably could be expected to give
rise to any suit, action, claim, investigation or proceeding that individually
or in the aggregate would have a material adverse effect upon the transactions
contemplated by this Agreement or the business of the Purchaser.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Confidentiality. From and after the Closing, the Company and the
Selling Securityholders shall, and shall cause their respective representatives,
agents and affiliates, if any, to (i) hold in strict confidence all
confidential, proprietary or other non-public information or trade secrets
relating to the Company and/or the Purchaser or any products offered by the
Company and/or the Purchaser and any of their respective affiliates (the
"CONFIDENTIAL INFORMATION"), unless and to the extent specifically compelled to
disclose by
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judicial or administrative process or, in the reasonable opinion of its counsel,
by other requirements of law, and (ii) not, directly or indirectly, except at
the request of the Purchaser, use for their own benefit or purposes, or release
or disclose to any other person or entity, any such Confidential Information
(except, to the extent reasonably required, for disclosure to accountants,
attorneys and other representatives who agree to be bound by the provisions of
this Section 4.1); provided, however, that notwithstanding anything to the
contrary in this Section 4.1 or elsewhere in this Agreement, in the event of a
conflict between the terms of this Section 4.1 and the terms of any Employment
and Non-Competition Agreement of either of the Principal Securityholders, or the
Employment Agreement of any of the key employees listed on Exhibit G hereto, the
terms of such Employment and Non-Competition Agreements or the terms of such
Employment Agreements, as the case may be, shall prevail. Notwithstanding the
foregoing, the term "CONFIDENTIAL INFORMATION" shall not include information (A)
which is or becomes generally available to the public (other than as a result of
the disclosure of such information by the Seller or any of its respective
representatives and affiliates), or (B) becomes available to the recipient of
such information on a non-confidential basis from a source which is not, to the
recipient's knowledge, bound by a confidentiality or other similar agreement, or
by any other legal, contractual or fiduciary obligation which prohibits
disclosure of such information.
4.2 Working Capital Commitments to the Company. Following the Closing,
in furtherance and not in limitation of the Purchaser's obligations under
Section 1.3(c) hereof, the Purchaser shall provide or otherwise make available
to the Company on a timely basis up to an aggregate of US$3,600,000, in the
respective amounts and on the respective dates set forth on the Schedule of
Capital Contribution Payments attached hereto as Exhibit F, to satisfy the
working capital requirements of the Company during the twelve-month period
ending April 30, 1999. The parties hereto acknowledge that the foregoing amount
and payment schedule of such commitment is based upon the Business Plan of the
Company, a copy of which is attached hereto as Exhibit D.
4.3 Transfer Restrictions.
(a) Without limiting the representations set forth herein, the
Selling Securityholders 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 to be issued as Base Share
Consideration or Additional Consideration pursuant hereto unless and
until:
(i) there is a registration statement filed by the
Purchaser with, and declared or ordered effective by, the
Commission under the Securities Act, covering such proposed
Transfer of such shares and such Transfer is made pursuant to
such registration statement and in accordance with the Securities
Act;
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(ii) such Transfer is effected in accordance with the
provisions of Rule 903 of Regulation S; or
(iii) such Transfer is effected in accordance with another
available exemption from the registration requirements of the
Securities Act;
provided, however, that in the event that a Selling
Securityholder shall propose to Transfer any such shares in reliance
upon Section 4.3(a)(ii) or Section 4.3(a)(iii) hereof, such Selling
Securityholder also shall have (A) notified the Purchaser in writing of
its intention to effect such proposed Transfer of such shares, (B)
furnished the Purchaser with a statement in reasonable detail of the
manner and circumstances of such proposed Transfer, and (C) furnished
the Purchaser with an written opinion of legal counsel reasonably
satisfactory to the Purchaser, in form and substance reasonably
satisfactory to the Purchaser, opining that such proposed Transfer may
be effected without registration thereof under the Securities Act; and
provided further, that in the event that a Selling Securityholder shall
propose to Transfer any such shares in reliance upon Section 4.3(a)(iii)
hereof, in addition to the requirements of the foregoing proviso, such
Selling Securityholder also shall have caused the proposed transferee of
such shares to agree in advance to take and hold such shares on the
terms and subject to the conditions set forth in this Section 4.3
(b) Each certificate or instrument representing the shares to be
issued as Base Share Consideration or Additional Consideration 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 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) IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER
THE SECURITIES ACT, OR (III) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
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THE SECURITIES ACT, AND IN THE CASE OF ANY SALE, OFFER OF SALE,
PLEDGE, HYPOTHECATION OR OTHER DISTRIBUTION EFFECTED PURSUANT TO
CLAUSE (II) AND (III) 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.
(c) The Purchaser shall not register any Transfer of the shares
to be issued as Base Share Consideration or Additional Consideration
pursuant hereto, and shall instruct its transfer agent to disregard any
attempted or proposed Transfer of such shares, unless the conditions set
forth in this Section 4.3 are satisfied to the extent applicable to any
such Transfer. The Selling Securityholders hereby consent to (i) the
entry of a notation on the records of the Purchaser, and (ii) the
delivery of instructions to the transfer agent of such shares which the
Purchaser may deem necessary or advisable in order to effectuate and
implement the restrictions on transfer of such shares set forth in this
Section 4.3.
4.4 Exchange Act Reports. The Purchaser shall use its reasonable best
efforts to timely file all reports required to be filed under the Exchange Act
during the period commencing on the date hereof and ending on the second
anniversary of the Closing Date, including, without limitation, any report on
Form 8-K or otherwise required to be filed under the Exchange Act in accordance
with the instructions thereto in connection with the issuance of shares of the
Purchaser's Common Stock to the Selling Securityholders as Base Share
Consideration and Additional Consideration pursuant to and in accordance with
the terms and conditions hereof, in each case in reliance on the exemption from
the registration requirements of the Securities Act afforded by Regulation S
promulgated thereunder.
4.5 Purchaser Reporting Requirements. As promptly as practicable
following the Closing, but in no event more than fifteen (15) days following
Closing, the Purchaser shall prepare and file, or cause to be filed, with the
Japanese Ministry of Finance a post-transaction report (the "PURCHASER REPORT")
pursuant to the requirements of the Foreign Exchange Law of Japan to report the
consummation of the transactions contemplated by this Agreement and each of the
Related Agreements. The Purchaser shall promptly respond to any request by the
Japanese Ministry of Finance for additional information or documentation
relating to the Purchaser Report or the transactions contemplated by this
Agreement and each of the Related Agreements. The Company and the Selling
Securityholders shall cooperate in all respects to
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assist the Purchaser with its compliance obligations under the Foreign Exchange
Law of Japan, and any filings or responses made in connection therewith.
4.6 Selling Securityholder Reporting Obligations. As promptly as
practicable following the Closing, but in no event more than twenty (20) days
following Closing, each of the Selling Securityholders shall prepare and file,
or cause to be filed, with the Japanese Ministry of Finance a post-transaction
report (the "SELLING SECURITYHOLDERS' REPORT") pursuant to the requirements of
the Foreign Exchange Law of Japan to report the consummation of the transactions
contemplated by this Agreement and each of the Related Agreements. Each of the
Selling Securityholders shall promptly respond to any request by the Japanese
Ministry of Finance for additional information or documentation relating to the
Selling Securityholders' Report or the transactions contemplated by this
Agreement and each of the Related Agreements. The Purchaser shall cooperate in
all respects to assist the Selling Securityholders with their respective
compliance obligations under the Foreign Exchange Law of Japan, and any filings
or responses made in connection therewith.
4.7 Best Efforts. Subject to the terms and conditions hereof, each of
the parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things which are
necessary, proper or advisable under applicable laws and regulations (including,
without limitation, the laws and regulations of the United States and Japan) or
otherwise in order to consummate and effectuate completely the transactions
contemplated by this Agreement and each of the Related Agreements. In
furtherance and not in limitation of the foregoing, each of the parties hereto
shall execute and deliver, or cause to be executed and delivered, all
agreements, certificates, instruments and other documents, and shall use its
reasonable best efforts promptly to obtain all waivers, permits, consents,
approvals and other authorizations from, and to effect all registrations,
filings and notices with or to, any Governmental Entity or other persons which
are necessary or appropriate in connection with the consummation and complete
effectuation of the transactions contemplated by this Agreement and each of the
Related Agreements.
4.8 Employee Benefit Matters. Subject to the limitations set forth in
this Section 4.8, as soon as practicable following the Closing, the Purchaser
shall execute all such instruments, certificates and other documents, take all
such actions and do all such other things as may be necessary or appropriate to
enable the employees of the Company to participate in the Purchaser's 1997
Employee Stock Purchase Plan for Non-U.S. Employees (the "INTERNATIONAL ESPP");
provided, however, that notwithstanding the foregoing or anything to the
contrary contained in this Agreement, the Purchaser shall not be required to
execute any instruments, certificates or other documents, to take any actions or
to do any other things that may be necessary or advisable to enable the
employees of the Company to participate in the International ESPP, and the
Purchaser shall not be required to permit any such employees of the Company to
participate in the International ESPP, in the event that the participation of
any such employees of the Company in the International ESPP would subject the
Purchaser to any unduly burdensome liabilities, obligations or other expenses
under the
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laws of Japan. In addition, the Purchaser acknowledges that, upon consummation
of the transactions contemplated by this Agreement, the employees of the Company
will be eligible to participate in the Purchaser's 1997 Stock Plan.
4.9 Board of Directors. As soon as practicable following the Closing,
the Principal Securityholders, acting in their capacity as directors of the
Company, shall execute all such instruments, certificates and other documents,
take all such actions and do all such other things as may be necessary or
appropriate to assist the Purchaser, acting in its capacity as the sole
shareholder of the Company, in fixing the number of directors constituting the
entire Board of Directors of the Company at seven (7) directors (including,
without limitation, amending the Company's Articles of Incorporation), and
electing the following individuals to serve as members of the Board of Directors
until the next annual meeting of shareholders of the Company and until their
successors are duly elected and qualified, or until the earlier of their
respective death, resignation or removal by the sole shareholder of the Company:
Robert Thomson, Yasuyuki Akamatsu, Masahisa Endo, Steve Humphreys, John
Niedermaier, Robert Schneider and Bernd Meier.
ARTICLE V
CONDITIONS TO THE PURCHASE AND SALE OF THE SHARES
5.1 Conditions to Obligations of the Parties. The respective obligations
of each party to this Agreement shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(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 Related Agreements 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.
(b) Government Approvals. The Purchaser, the Company and the
Selling Securityholders 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 this Agreement.
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(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 Related Agreements including, without limitation, any
consents required under contracts and agreements listed on Section 2.5
of the Disclosure Schedules 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 Selling
Securityholders may not invoke the terms of this Section 5.1(c) in order
to refuse to close the transactions contemplated by this Agreement and
each of the Related Agreements unless and until each such party has used
all commercially reasonable efforts to obtain such consents, approvals
and authorizations under any third party contracts to which the Company
or the Selling Securityholders, as the case may be, is a party or by
which its assets are or may become bound.
5.2 Additional Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by the Purchaser:
(a) Representations, Warranties, Covenants and Conditions. The
representations and warranties of the Company and the Selling
Securityholders contained in this Agreement shall be true and correct in
all respects, the Company and the Selling Securityholders shall have
performed and complied in all material respects with all agreements,
covenants and obligations contained in this Agreement required to be
performed and complied with by such parties as of the Closing Date, and
the conditions to the obligations of the Purchaser contained in this
Agreement shall have been satisfied in all respects as of the Closing
Date.
(b) Officer's Certificate. The Purchaser shall have a received
certificate, validly executed by a duly authorized officer of the
Company and each of the Selling Securityholders, certifying as the
satisfaction of the conditions to the obligations of the Purchaser set
forth in Sections 5.1(b)-(c) and 5.2(k), (m) and (n).
(c) Tender of Share Certificates and Warrant Certificates. Each
of the Selling Securityholders shall have tendered for sale to the
Purchaser certificates for all of the Company Shares and Company
Warrants, if any, held by such Selling Securityholder, in each case as
set forth on Exhibit A-2 hereto.
(d) Pre-Closing Securityholder Certificates. The Purchaser shall
have received certificates representing all of the Company Shares and
Company Warrants held by the Pre-Closing Securityholders prior to the
consummation of the transactions contemplated by the Pre-Closing
Transfer Agreements.
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(e) Certificate of Registration. The Purchaser shall have
received a copy of the registration of the Company (tokibo tohon),
certified by the Commercial Registry / Ministry of Justice of Japan as
of a recent date.
(f) President's Certificate. The Purchaser shall have received a
certificate, dated as of the Closing Date, duly and validly executed on
behalf of the Company by the President of the Company certifying that:
(i) attached thereto are the true, correct and complete
copy of the Articles of Incorporation of the Company, as in
effect as of the Closing Date, and that neither the Board of
Directors nor the shareholders of the Company have taken any
action to repeal, alter or amend the same; and
(ii) attached thereto are the true, correct and complete
copy of the resolutions of the Board of Directors of the Company
authorizing the execution and delivery by the Company of this
Agreement and each of the Related Agreements to which the Company
is a party, the performance by the Company of its obligations
hereunder and thereunder, and the consummation by the Company of
the transactions contemplated hereby and thereby, and that
neither the Board of Directors nor the shareholders of the
Company have taken any action to repeal, alter or amend the same.
(g) Escrow Agreement. The Purchaser shall have received a copy of
the Escrow Agreement, duly and validly executed by each of the Selling
Securityholders, or a duly authorized officer thereof.
(h) Employment and Non-Competition Agreements - Principal
Securityholders. The Purchaser shall have received a separate copy of
the Employment and Non-Competition Agreement, duly and validly executed
by each of the Principal Securityholders.
(i) Employment Agreements - Key Employees. The Purchaser shall
have received a separate copy of the Employment and Non-Competition
Agreement, in the form attached as Exhibit H hereto (the "EMPLOYMENT
AGREEMENTS"), duly and validly executed by each of the persons listed on
Exhibit G hereto.
(j) Board of Directors of the Company. The Purchaser shall have
received (A) resolutions duly adopted by the Board of Directors of the
Company, effective as of the Closing Date, fixing the number of
directors constituting the entire Board of Directors of the Company at
seven (7) directors, and (B) resignations from all members of the Board
of Directors of the Company, effective as of the Closing Date, from all
members of the Board of Directors of the Company other than the
Principal Securityholders and Masahisa Endo.
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(k) Lien Releases. The Purchaser shall have received a duly and
validly executed copy of all agreements, instruments, certificates and
other documents necessary or appropriate to evidence the release of any
and all liens and other encumbrances on the assets of the Company
arising or resulting from, or in connection with, any loans, guarantees
or other similar arrangements between the Company and any of the Selling
Securityholders and the Pre-Closing Securityholders, and all such liens
and other encumbrances shall have been released as provided therein.
(l) Legal Opinion. The Purchaser shall have received an opinion
from Tetsurou Miyahara, legal counsel to the Company and the Selling
Securityholders in Japan, substantially in the form attached hereto as
Exhibit I.
(m) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the
Company, its properties or any of its officers or directors, arising out
of, or in any way connected with, the transactions contemplated by this
Agreement or any of the Related Agreements.
(n) Claims. There shall be no claims outstanding (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or by any of the
Related Agreements, or which may materially and adversely affect the
assets (including intangible assets), financial condition or results of
operations of the Company, except as set forth on the Disclosure
Schedule.
(o) Employee Stock Purchase Plan. The Company's obligations to
the Employee Stock Purchase Plan of the Company (including, without
limitation, any obligations to make matching contributions to such plan)
shall have been terminated, effective upon the Closing, and the
Purchaser shall have received all documentation evidencing such
termination to the satisfaction of the Purchaser.
(p) Representation Statements. The Purchaser shall have received
a copy of a Representation Statement, in the form attached hereto as
Exhibit J, duly and validly executed by each of the Pre-Closing
Securityholders that is not a Selling Securityholder.
5.3 Additional Conditions to Obligations of the Company and the Selling
Securityholders. The obligations of the Company and the Selling Securityholders
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, by all, but
not less than all, of the Selling Securityholders:
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(a) Representations, Warranties and Covenants. The
representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all respects, the Purchaser shall
have performed and complied in all material respects with all
agreements, covenants and obligations of the Purchaser contained in this
Agreement required to be performed and complied with by it as of the
Closing Date, and the conditions to the obligations of the Company and
the Selling Securityholders shall have been satisfied in all respects as
of the Closing Date.
(b) Officer's Certificate. The Company and the Selling
Securityholders shall have a received certificate, validly executed by a
duly authorized officer of the Purchaser, certifying as the satisfaction
of the conditions to the obligations of the Company and the Selling
Securityholders set forth in Section 5.3(h) hereof.
(c) Certificate of Good Standing. The Company and the Selling
Securityholders shall have a received a long form certificate of good
standing of the Purchaser, certified as of a recent date by the
Secretary of State of the State of Delaware.
(d) Employment and Non-Competition Agreements - Principal
Securityholders. The Principal Securityholders shall have received a
separate copy of the Employment and Non-Competition Agreement, validly
executed by a duly authorized officer of each of the Purchaser and the
Company.
(e) Employment Agreements - Key Employees. The persons listed on
Exhibit G hereto shall have received a separate copy of the Employment
Agreements, validly executed by a duly authorized officer of each of the
Purchaser and the Company.
(f) Escrow Agreement. The Company and the Selling Securityholders
shall have received a copy of the Escrow Agreement, validly executed by
a duly authorized officer of the Purchaser.
(g) Legal Opinion. The Selling Securityholders shall have
received an opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, legal counsel to the Purchaser, substantially in the form
attached hereto as Exhibit K.
(h) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the
Purchaser, or any of its officers or directors, arising out of, or in
any way connected with, the transactions contemplated by this Agreement
or any of the Related Agreements.
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ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.1 Survival. Notwithstanding anything to the contrary contained herein,
and regardless of any investigations made by the parties hereto, (i) the
representations and warranties of the Company and the Selling Securityholders
contained in Article II of this Agreement, and the representations of the
Purchaser contained in Article III of this Agreement, shall survive the
execution and delivery of this Agreement for the period commencing on the date
hereof and continuing until the date on which the Company announces financial
results for the first full calender quarter commencing after the Closing;
provided, however, that the representations and warranties of the Selling
Securityholders contained in Section 2.2(c) and 2.4(b) hereof shall survive
until the expiration of the relevant statutes of limitations, and (ii) each
covenant and other agreement contained in this Agreement which by its terms is
to be performed after the Closing shall survive the execution and delivery of
this Agreement and shall continue for a period commencing on the date hereof and
continuing until the expiration of the relevant statute of limitations. The
representations and warranties of the Company and the Selling Securityholders
contained herein shall not be limited, restricted or otherwise impaired by any
examination or investigation made for or on behalf of the Purchaser or by the
knowledge of any of the Purchaser's officers, directors, stockholders, employees
or agents. Notwithstanding anything to the contrary in this Agreement, if a
claim for indemnification is duly made under this Article VI before the
expiration of the periods of survival set forth in this Section 6.1, then
notwithstanding the expiration of such time period of survival the
representation or warranty applicable to such claim shall survive until the
final resolution of such claim and the satisfactory performance of all
obligations with respect thereto.
6.2 Indemnification by the Selling Securityholders.
(a) Subject to the terms and conditions of this Article VI,
notwithstanding anything to the contrary contained herein, the Selling
Securityholders (for purposes of this Article VI other than Section 6.3
hereof, collectively, as the "INDEMNITORS") shall indemnify the
Purchaser, and its respective officers, directors, agents and
representatives (for purposes of this Article VI other than Section 6.3
hereof, each an "INDEMNITEE" and collectively, the "INDEMNITEES"), for
and in respect of, and hold the Indemnitees harmless from and against,
any and all damages, fines, penalties, losses, liabilities, judgments,
deficiencies and expenses (including, without limitation, amounts paid
in settlement, interest, court costs, costs of investigators, reasonable
fees and expense of attorneys and accountants and other expenses of
litigation) ("DAMAGES") incurred or suffered by any of the Indemnitees
resulting from, relating to or in connection with (i) any inaccuracy of
any representation, breach of any warranty or failure to perform any
covenant or agreement of the Company or the Selling Securityholders
contained in any provision of this Agreement other than Sections 2.1,
2.2, 2.4, 2.28 and 7.4 hereof, and (ii) any inaccuracy of any
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representation, breach of any warranty or failure to perform any
covenant or agreement of the Company or the Selling Securityholders
contained in Sections 2.1, 2.2, 2.4, 2.28 and 7.4 hereof; provided,
however, that in no event shall the Indemnitors, considered as a group,
be liable to the Indemnitees under the foregoing clause (i) of this
Section 6.2(a) for any Damages incurred or suffered by any of the
Indemnitees unless and until the amount of all such Damages incurred or
suffered by the Indemnitees, in the aggregate, exceeds US$100,000, in
which event the Indemnitors shall indemnify the Indemnitees for an in
respect of, and hold the Indemnitees harmless from and against, any and
all such Damages; and provided further, however, that in no event shall
the Indemnitors, considered as a group, be liable to the Indemnitees
under the foregoing clause (i) of this Section 6.2(a) for any Damages in
the aggregate in excess of the amounts held in the Escrow Fund;
provided, however, that notwithstanding the foregoing provisos of this
Section 6.2(a) or anything to the contrary contained in this Agreement,
nothing contained in this Section 6.2(a) 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 the Indemnitees may be entitled
as a result of actual fraud by an Indemnitor, but only as to that
Indemnitor.
(b) Subject to the terms and conditions of this Article VI,
notwithstanding anything to the contrary contained herein, the
Indemnitors shall indemnify the Indemnitees for and in respect of, and
hold the Indemnitees harmless from and against, any and all Damages
incurred or suffered by any of the Indemnitees directly resulting from
the dispute between the Company and Daniel Klang described in the
Disclosure Schedule; provided, however, that in no event shall the
Indemnitors, considered as a group, be liable to the Indemnitees under
this Section 6.2(b) for any Damages incurred or suffered by any of the
Indemnitees unless and until the amount of all such Damages incurred or
suffered by the Indemnitees, in the aggregate, exceeds US$20,000, in
which event the Indemnitors shall indemnify the Indemnitees for an in
respect of, and hold the Indemnitees harmless from and against, any and
all such Damages in excess of US$20,000; provided further, however, that
notwithstanding the foregoing provisos of this Section 6.2(b) or
anything to the contrary contained in this Agreement, nothing contained
in this Section 6.2(b) 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 the Indemnitees may be entitled as a result of
actual fraud by an Indemnitor, but only as to that Indemnitor, and
provided, further, however, that for purposes of this Section 6.2(b) the
amounts indicated as "Reserve for the Klang Matter" in the Business Plan
for loaned amounts due from Mr. Klang (i.e., (Y)18,504,000) shall not
constitute Damages for which the Indemnitors are liable to the
Indemnitees under this Section 6.2(b).
(c) Subject to the terms and conditions of this Article IV,
notwithstanding anything to the contrary contained herein, the
Indemnitors shall indemnify the Purchaser for all Shortfall Damages (as
defined below) resulting from the Company's
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failure to meet its net sales target of (Y)620,750,000 (as set forth in
the Business Plan) for the six-month period ending September 30, 1998
with an average gross margin of no less than thirty five percent (35%)
on such net sales; provided, however, that in no event shall the
Indemnitors, considered as a group, be liable to the Purchaser under
this Section 6.2(c) for any Shortfall Damages unless and until the
amount of all such Shortfall Damages, in the aggregate, exceeds
(Y)31,000,000, in which event the Indemnitors shall indemnify the
Purchaser for and in respect of any and all such Shortfall Damages; and
provided further, however, that in no event shall the Indemnitors,
considered as a group, be liable to the Indemnitees under this Section
6.2(c) for any Shortfall Damages in the aggregate in excess of the
amounts held in the Escrow Fund. For all purposes of and under this
Section 6.2(c), (i) the term "SHORTFALL DAMAGES" shall mean and refer to
the product of (x) the difference between (A) (Y)620,750,000 and (B) an
amount equal to the Qualified Aggregate Net Sales (as defined below) of
the Company for the six-month period ending September 30, 1998,
multiplied by (y) 0.87, and (ii) the term "QUALIFIED AGGREGATE NET
SALES" shall mean and refer to that portion of the Company's aggregate
net sales with an average gross margin of no less than thirty five
percent (35%).
(d) To secure the indemnification obligations of the Selling
Securityholders to the Indemnitees set forth in this Sections 6.2(a) and
6.2(c) hereof, the Escrowed Base Cash Consideration and the Escrowed
Base Share Consideration shall be deposited into the Escrow Fund with
the Escrow Agent in accordance with Section 1.2 hereof and the terms of
the Escrow Agreement. In the event that any amounts are due and owing to
the Purchaser under the indemnification provisions of Sections 6.2(a)
and/or 6.2(c) hereof as a result of the inaccuracy of any
representation, the breach of any warranty, or the failure to perform
any covenant or agreement of the Company and/or the Selling
Securityholders contained in this Agreement, the Purchaser shall (i) be
entitled to offset such amounts, pursuant to the terms and provisions of
the Escrow Agreement, against all of the amounts held in the Escrow Fund
for the account of the Selling Securityholders; provided, however, that
in the event that the amounts due and owing to the Purchaser under the
indemnification provisions of Sections 6.2(a) and/or 6.2(c) hereof are
less, in the aggregate, than the amounts held in the Escrow Fund, such
offset shall be made against the amounts held in the Escrow Fund pro
rata on the basis of each Selling Securityholder's relative ownership
interest in the Company immediately preceding the Closing as set forth
in Exhibit A-2 hereof, and (ii) not be entitled to seek any
indemnification amounts in excess of the amount held in the Escrow Fund,
except (A) as otherwise expressly permitted under the terms and
provisions of this Agreement with respect to claims of actual fraud by
the Selling Securityholders; provided, however, that the Purchaser shall
only be entitled to indemnification from the Selling Securityholder who
committed such fraud, and (B) with respect to indemnification claims for
Damages incurred or suffered by the Indemnitees for any inaccuracy in
any representation, breach of any warranty, or failure to perform any
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covenant or agreement of the Company and/or the Selling Securityholders
contained in Sections 2.1, 2.2, 2.4, 2.28 and 7.4 hereof, which claims
shall not be limited to the amounts held in the Escrow Fund; provided,
however, that to the extent such claims exceed the amounts held in the
Escrow Fund, the liability of the Selling Securityholders shall be
several, and not joint, but only with respect to the amount of such
claims in excess of the amounts held in the Escrow Fund.
(e) The Selling Securityholders 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 VI shall not
entitle the Selling Securityholders, 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, this Agreement or
any of the Related Agreements.
6.3 Indemnification by the Purchaser. Subject to the terms and
conditions of this Article VI, notwithstanding anything to the contrary
contained herein, the Purchaser (for purposes of this Article VI other than
Section 6.2 hereof, the "INDEMNITOR") shall indemnify the Selling
Securityholders, and their respective officers, directors, agents and
representatives, if any, (for purposes of this Article VI other than Section 6.2
hereof, each an "INDEMNITEE" and collectively, the "INDEMNITEES"), for and in
respect of, and hold the Indemnitees harmless from and against, any and all
Damages incurred or suffered by any of the Indemnitees resulting from, relating
to or in connection with any inaccuracy of any representation, breach of any
warranty or failure to perform any covenant or agreement of the Purchaser
contained in this Agreement; provided, however, that in no event shall the
Purchaser be liable to the Indemnitees under this Section 6.2 for any Damages
incurred or suffered by any of the Indemnitees unless and until the amount of
all such Damages incurred or suffered by the Indemnitees, in the aggregate,
exceeds US$100,000, in which event the Purchaser shall indemnify the Indemnitees
for an in respect of, and hold the Indemnitees harmless from and against, any
and all such Damages.
6.4 Materiality Exceptions. For purposes of the indemnification
obligations of any Indemnitor under this Article VI in respect of any Damages
incurred or suffered by any Indemnitee, any inaccuracy in any representation or
any breach of any warranty contained in this Agreement shall be deemed to
constitute an inaccuracy in such representation or a breach of such warranty
notwithstanding any limitation or qualification on the scope, accuracy or
completeness contained in such representation or warranty with respect to
materiality or a Material Adverse Effect, it being the intention of the parties
hereto that all parties hereto shall be indemnified for and in respect of, and
held harmless from and against, any and all Damages arising out of, based upon
or with respect to the failure of any such representation or warranty to be
true, correct and complete in any respect.
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6.5 Insurance Proceeds. Notwithstanding anything to the contrary
contained herein, the amount of any Damages incurred or suffered by any
Indemnitee for which indemnification is otherwise available against any
Indemnitor(s) under this Article VI shall be reduced by the amount of any
insurance proceeds (minus all reasonably allocable costs, charges and expenses
incurred by such Indemnitee in obtaining such recovery) actually recovered in
respect thereof. Any such insurance recovery by the Indemnitee shall be promptly
repaid by the Indemnitee to the Indemnitor(s) following the time at which such
amounts are actually recovered, realized or received by this Indemnitee;
provided, however, that in the event that any such insurance recovery is set
aside or disallowed and the Indemnitee has paid any amounts to any Indemnitor(s)
in respect thereof (or the amount by which the Indemnitee was indemnified by any
Indemnitor(s) was reduced in respect thereof), then the obligation of the
Indemnitor(s) to indemnify such Indemnitee with respect to such amounts shall be
reinstated immediately and such amounts shall be paid promptly to the Indemnitee
in accordance with the terms and provisions of this Article VI.
6.6 Notice. Each Indemnitee shall give prompt written notice (the "CLAIM
NOTICE") to the Indemnitor(s), and, in the case of claims under Section 6.2
hereof, to the Escrow Agent, of any claim or event known to such Indemnitee
which gives rise, or may give rise, to a claim for indemnification under this
Article VI by such Indemnitee against the Indemnitor(s) (an "INDEMNIFIABLE
CLAIM"), specifying the nature and estimated amount of such Damages (the
"CLAIMED AMOUNT"). The failure of any Indemnitee to give such notice as provided
in this Section 6.6 shall not relieve the Indemnitor(s) of their obligations
under this Article VI, except to the extent that such failure materially and
adversely affects the rights of such Indemnitor(s). In the case of any claim for
indemnification under Section 6.2 or 6.3 hereof arising out of a claim, action,
suit or proceeding brought by any third party that is not a party to this
Agreement (a "THIRD-PARTY CLAIM"), the Indemnitee also shall give the
Indemnitor(s) copies of any written claims, process or legal pleadings with
respect to such Third-Party Claim promptly after such documents are received by
such Indemnitee.
6.7 Third Party Claims.
(a) Except as otherwise provided in Section 6.7(c) hereof, in the
event of any Third-Party Claim, the Indemnitor(s) may elect, but shall
not be obligated, to compromise or defend any such Third-Party Claim at
such Indemnitor(s)' sole cost and expense and with such Indemnitor(s)'
own counsel reasonably satisfactory to the Indemnitee, provided that (i)
such Indemnitor(s) provide the Indemnitee with reasonable evidence that
such Indemnitor(s) will have the financial resources to defend against
such claim and fulfill their indemnification obligations under this
Article VI in respect of such Third-Party Claim, and (ii) the delivery
of a Defense Notice (as defined below) by such Indemnitor(s) shall
constitute an acknowledgment by such Indemnitor(s) of their obligation
to indemnify the Indemnitee with respect to such Third-Party Claim in
accordance with the terms of this Article VI, and (iii) any costs and
expenses incurred by the Indemnitor(s) in connection with the
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foregoing shall constitute Damages incurred or suffered by the
Indemnitee(s) within the meaning of this Article VI. If the
Indemnitor(s) shall elect to compromise or defend a Third-Party Claim,
such Indemnitor(s) shall, within thirty (30) days of receipt of a Claim
Notice (or sooner, if the nature of such Third-Party Claim so requires),
provide written notice to the Indemnitee of its intent to do so (a
"DEFENSE NOTICE"), and such Indemnitee shall reasonably cooperate in the
compromise of, or defense against, such Third-Party Claim. The
Indemnitor(s) shall be responsible for the payment of such Indemnitee's
actual out-of-pocket expenses incurred in connection with such
cooperation, and such expenses shall constitute Damages incurred or
suffered by the Indemnitee within the meaning of this Article VI.
Following the delivery of notice by the Indemnitor(s) to an Indemnitee
indicating the Indemnitor(s)' election to assume the defense of a
Third-Party Claim, the Indemnitor(s) shall not be liable to such
Indemnitee under this Article VI for any legal expenses subsequently
incurred by such Indemnitee in connection with the defense of such
Third-Party Claim; provided, however, that such Indemnitee shall have
the right to retain a single counsel of its own selection to represent
such Indemnitee if, in such Indemnitee's reasonable judgment, a conflict
of interest between such Indemnitee and the Indemnitor(s) exists in
respect of such Third-Party Claim, in which event the reasonable fees
and expenses of such separate counsel shall be paid by the Indemnitor(s)
and shall constitute Damages incurred or suffered by the Indemnitee
within the meaning of this Article VI. If the Indemnitor shall elect not
to compromise or defend against a Third-Party Claim, or fails to notify
the Indemnitee of its election to compromise or defend against a
Third-Party Claim in accordance with this Section 6.7, such Indemnitee
may pay, compromise or defend such Third-Party Claim on behalf of and
for the account and risk of the Indemnitor(s) and any amount paid or
expenses incurred in connection therewith shall constitute Damages
incurred or suffered by the Indemnitee within the meaning of this
Article VI. The Indemnitor(s) may not consent to entry of any judgment
or enter into any settlement without the written consent of each related
Indemnitee (which consent shall not be unreasonably withheld), unless
such judgment or settlement provides solely for money damages or other
money payments for which such Indemnitee is entitled to indemnification
hereunder and includes as an unconditional term thereof the delivery by
the claimant or plaintiff to such Indemnitee of a release from all
liability in respect of such Third-Party Claim.
(b) In respect of any claim, action, suit or proceeding brought
by a taxing authority in respect of any Tax liability or obligation of
the Company (a "COMPANY TAX CLAIM"), the Selling Securityholders shall
have the sole right to control any such Company Tax Claim; provided,
however, that the Selling Securityholders shall provide the Purchaser
with copies of all correspondence with any Taxing authority in
connection with any such Tax Claim and shall keep the Purchaser
reasonably informed of all progress with such Taxing authority; and
provided further, however, that the Selling Securityholders shall
consult with the Purchaser in good faith in
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contesting any proposed adjustment and shall consider any reasonable
advice from the Purchaser concerning such Tax Claim so long as the
Selling Securityholders shall be entitled to control any such Tax Claim
concerning any indemnity obligation of the Selling Securityholders. The
Selling Securityholders shall not be entitled to compromise or settle
any Tax liability of the Company for any periods prior to the Closing
Date that would have the effect of materially decreasing the deductions
available to the Company for credits, or materially increasing the
taxable income of the Company, for any taxable year or period ending
after the Closing Date, in each case without the prior written consent
of the Purchaser, which consent shall not be unreasonably withheld.
(c) Notwithstanding anything to the contrary in this Article VI
or elsewhere in this Agreement, (i) if there is a reasonable likelihood
that a Third-Party Claim may have a material adverse effect on an
Indemnitee other than as a result of money damages or other money
payments for which such Indemnitee is entitled to indemnification under
this Article VI, such Indemnitee shall have the right, but not the
obligation, to defend such Third-Party Claim at the sole cost and
expense of the Indemnitor(s), which costs and expenses shall constitute
Damages within the meaning of this Article VI, and (ii) if any
Third-Party Claim involves a third party with whom the Indemnitor(s) has
a significant on-going or prospective relationship, the Indemnitee shall
have the right, but not the obligation, to defend such Third-Party Claim
at the sole cost and expense of the Indemnitor(s), which costs and
expenses shall constitute Damages within the meaning of this Article VI;
provided, however, that the Indemnitor(s) shall not be obligated to pay
Damages in respect of any such Third-Party Claim to the extent it is
determined (by agreement between the Indemnitor(s) and the Indemnitee or
by arbitration or court judgment) that such Third-Party Claim was
settled on terms that were not fair and reasonable to the Indemnitor(s).
(d) Any release or other distribution of amounts held in the
Escrow Fund in satisfaction of any Third Party Claim shall be made only
upon joint instruction of the Selling Securityholders (acting through
the Representative, as defined in Section 6.8 hereof) and the Purchaser
to the Escrow Agent.
6.8 The Representative.
(a) The Selling Securityholders hereby authorize, direct and
appoint Robert Thomson to act as the sole and exclusive agent,
attorney-in-fact and representative of the Selling Securityholders (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, defending any and all
Third Party Claims on behalf of the Selling Securityholders as provided
in Section 6.7 hereof,
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incurring any and all costs and expenses for the account of the Selling
Securityholders in connection with the foregoing or otherwise (which
costs and expenses shall constitute Damages incurred or suffered by
Purchaser within the meaning of this Article VI) and making any and all
determinations) which may be required or permitted by this Agreement or
any of the Related Agreements to be taken by the Selling Securityholders
or the Representative, (ii) to exercise such other rights, power and
authority as are authorized, delegated and granted to the Representative
hereunder and under the terms of the Escrow Agreement 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 Selling
Securityholder as if such Selling Securityholder personally had taken
such action, exercised such rights, power or authority or made such
decision or determination in such Selling Securityholder's individual
capacity. Notwithstanding anything to the contrary contained in this
Agreement, with respect to the specific matters set forth in this
Article VI, (i) each of the Selling Securityholders hereby irrevocably
relinquishes such Selling Securityholder'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 6.8(b) hereof, and (ii) no Selling
Securityholders shall have any right under this Agreement or otherwise
to institute any suit, action or proceeding against the Company, the
Purchaser or the Escrow Agent 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 and the Escrow 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 Selling
Securityholders, and (ii) selecting a successor representative,
acceptable to a majority in interest of the Selling Securityholders and
reasonably satisfactory to the Purchaser, who shall serve until a
successor thereto is elected by the Selling Securityholders. The
Representative may be removed at any time, and a successor
representative reasonably satisfactory to the Purchaser may be appointed
pursuant to a written instrument signed by the Selling Securityholders
holding a majority in interest of the Company Shares (calculated on a
fully diluted basis) immediately prior to the consummation of the
transactions contemplated by this Agreement. Any successor to the
Representative shall, for purposes of this Agreement and the Escrow
Agreement, be deemed to be, from the time of the appointment thereof in
accordance with the terms hereof, the Representative, and
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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 and the Escrow
Agreement.
(c) The Representative shall be permitted to independently retain
counsel, consultants and other advisors and shall promptly notify the
Purchaser after retaining any such person.
(d) The provisions of this Section 6.8 shall in no way impose any
obligations on the Purchaser, and notwithstanding any notice received by
the Purchaser to the contrary (except any notice of the appointment of a
successor Representative approved by the Purchaser in accordance with
Section 6.7(b) hereof), the Purchaser (i) shall be entitled to rely upon
and shall be fully protected in relying upon and, shall have no
liability to the Selling Securityholders with respect to, and shall be
indemnified by the Selling Securityholders for, from and against any and
all liability arising out of actions, decisions and determinations of
the Representative, which liabilities shall constitute Damages within
the meaning of this Article VI, and (ii) shall be entitled to assume
that all actions, decisions and determinations of the Representative are
fully authorized by the Selling Securityholders for all purposes under
this Agreement.
(e) The Representative shall not be liable to the Selling
Securityholders 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 under the
Escrow Agreement and for a purpose which such Representative reasonably
believed to be in the best interests of the Selling Securityholders,
considered together as a group.
ARTICLE VII
GENERAL PROVISIONS
7.1 Further Assurances. Subject to the terms and conditions contained in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws, rules and regulations in order to consummate and make effective
the transactions contemplated by this Agreement and each of the Related
Agreements, to obtain all necessary waivers, consents and approvals, to effect
all necessary registrations and filings and to remove any and all injunctions or
other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement and each of the
Related Agreements, in all
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cases for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement and each of the Related Agreements.
7.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to the Purchaser, to: SCM Microsystems, Inc.
131 Albright Way
Los Gatos, California 95032
Attention: Steve Humphreys
Telephone: (480)364-4888
Facsimile: (480) 364-8402
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Kenneth M. Siegel, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6911
(b) if to the Company, to: Intermart Systems, K.K.
Daikanyama West IF
2-17-6 Ebisu Nishi
Shibuya-ku, Tokyo, Japan 150
Attention: Robert Thomson
Telephone: 81-03-5489-8301
Facsimile: 81-03-5489-8310
with a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94301
Attention: Michael C. Phillips, Esq.
Telephone: (650) 813-5620
Facsimile: (650) 474-0792
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<PAGE> 60
(c) if to the Representative, to: Intermart Systems, K.K.
Daikanyama West IF
2-17-6 Ebisu Nishi
Shibuya-ku, Tokyo, Japan 150
Attention: Robert Thomson
Telephone: 81-03-5489-8301
Facsimile: 81-03-5489-8310
7.3 Interpretation; Headings. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement, or any of the terms and
provisions hereof.
7.4 Expenses. All fees and expenses incurred by the parties hereto in
connection with the negotiation, preparation and delivery of this Agreement and
each of the Related Agreements, the performance of the obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, all legal, accounting, financial
advisory, consulting and other transaction fees and expenses ("TRANSACTION
EXPENSES"), shall be paid by the party incurring such costs and expenses;
provided, however, that notwithstanding the foregoing, the Transaction Expenses
incurred by the Company shall be paid by the Selling Securityholders and not by
the Company; provided, however, that notwithstanding the terms of the foregoing
proviso, upon the consummation of the transactions contemplated hereby by the
parties hereto, as soon as practicable following the Closing and upon the
presentment of bills and charges therefor the Purchaser shall reimburse the
Selling Securityholders for all Transaction Expenses, in an amount not to exceed
US$70,000.00 in the aggregate, incurred by the Company (and paid by such Selling
Securityholders pursuant to and in accordance with the foregoing proviso) in
connection with the negotiation, preparation and delivery of this Agreement and
each of the Related Agreements, the performance of the obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
7.6 Entire Agreement; Assignment. This Agreement, the Related
Agreements, the Disclosure Schedule, the Purchaser Disclosure Schedule, the
exhibits hereto and thereto, the Confidentiality Agreement, dated as of January
30, 1998, by and between the Company and the Purchaser, and the other documents
and instruments and other agreements among the parties hereto referenced herein:
(i) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
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<PAGE> 61
both written and oral, among the parties with respect to the subject matter
hereof; (ii) are not intended to confer upon any other person any rights or
remedies hereunder except that the Representative and the Escrow Agent shall
have the express rights articulated in Articles VI hereof and in the Escrow
Agreement hereto; and (iii) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that the Purchaser
may assign its rights and delegate its obligations hereunder to any of its
affiliates.
7.7 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
7.8 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of the federal court encompassing the Santa Clara County, California,
in connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
7.10 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
7.11 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
7.12 Extension; Waiver. At any time, the Purchaser, the Selling
Securityholders and the Company may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the
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<PAGE> 62
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
7.13 Interpretation of Knowledge. For all purposes of and under this
Agreement and each of the Related Agreements, the phrase "to the knowledge of
the Company and the Principal Securityholders" or references to the presence or
absence of "knowledge of the Company and the Principal Securityholders" shall
mean and refer to the actual knowledge of the Company or the Principal
Securityholders, as the case may be, after reasonable investigation and due
inquiry.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 63
IN WITNESS WHEREOF, the Purchaser, the Company and the Selling
Securityholders have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
THE PURCHASER:
SCM MICROSYSTEMS, INC.
By:
---------------------------------
Name:
Title:
THE COMPANY:
INTERMART SYSTEMS, K.K.
By:
---------------------------------
Name:
Title:
THE SELLING SECURITYHOLDERS:
------------------------------------
Robert Thomson
------------------------------------
Yasuyuki Akamatsu
INTERMART SYSTEMS EMPLOYEE
STOCKHOLDERS CLUB
By:
---------------------------------
Name:
Title:
SCM VENTURE CLUB
By:
---------------------------------
Name:
Title:
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<PAGE> 64
EXHIBIT A-1
PRE-CLOSING SECURITYHOLDERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES UNDERLYING
NAME OF SECURITYHOLDER COMPANY SHARES COMPANY WARRANTS
================================================================================
<S> <C> <C>
Robert Thomson 40,000 40,000
Yasuyuki Akamatsu 40,000 40,000
CSK-2 Investment Fund 18,000 --
CSK-1(A) Investment Fund 6,000 --
CSK-1(B) Investment Fund 6,000 --
SB Investment Co., Ltd. 10,000 --
Nissay Capital Co., Ltd. 10,000 --
TOTAL: 130,000 80,000
- --------------------------------------------------------------------------------
</TABLE>
EXHIBIT A-2
SELLING SECURITYHOLDERS AND ALLOCATION OF CONSIDERATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SHARES
NAME OF UNDERLYING ALLOCATION OF ALLOCATION OF ALLOCATION OF
SELLING COMPANY COMPANY BASE CASH BASE SHARE ADDITIONAL
SECURITYHOLDER SHARES WARRANTS CONSIDERATION CONSIDERATION CONSIDERATION
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Robert Thomson 89,500 25,000 US$3,055,948.83 US$1,722,800.29 54.5%
Yasuyuki Akamatsu 40,000 25,000 US$1,053,660.27 US$1,417,199.71 31.0%
Intermart Systems 500 -- US$23,312.01 -- 0.2%
Employee
Stockholders Club
SCM Venture Club -- 30,000 US$727,078.89 -- 14.3%
TOTAL: 130,000 80,000 US$4,860,000.00 US$3,140,000.00 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 65
EXHIBIT B
PRE-CLOSING TRANSFER AGREEMENTS
<PAGE> 66
EXHIBIT C
FORM OF ESCROW AGREEMENT
<PAGE> 67
EXHIBIT D
COMPANY BUSINESS PLAN
<PAGE> 68
EXHIBIT E
FORM OF EMPLOYMENT AND NON-COMPETITION AGREEMENT
[PRINCIPAL SECURITYHOLDERS]
<PAGE> 69
EXHIBIT F
SCHEDULE OF CAPITAL CONTRIBUTION PAYMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONTRIBUTION DATE CONTRIBUTION AMOUNT (US$)
================================================================================
<S> <C>
Closing Date US$2,400,000.00
July 1, 1998 US$1,000,000.00
October 1, 1998 US$150,000.00
</TABLE>
<PAGE> 70
EXHIBIT G
SCHEDULE OF KEY EMPLOYEES
Masahisa Endo - R&D Manager & Director
Tadashi Sato - R&D Department
Takashi Yamazaki - Management Strategy Room
<PAGE> 71
EXHIBIT H
FORM OF EMPLOYMENT AND NON-COMPETITION AGREEMENT
[KEY EMPLOYEES]
<PAGE> 72
EXHIBIT I
FORM LEGAL OPINION OF TETSUROU MIYAHARA
[COUNSEL TO THE COMPANY AND SELLING SECURITYHOLDERS]
<PAGE> 73
EXHIBIT J
FORM OF REPRESENTATION STATEMENT
<PAGE> 74
EXHIBIT K
FORM OF LEGAL OPINION OF WILSON SONSINI GOODRICH & ROSATI, P.C.
[COUNSEL TO THE PURCHASER]
