As Filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
_________________
QAD INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0105228
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
6450 Via Real
Carpinteria, California 93013
(805) 684-6614
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Karl F. Lopker
Chief Executive Officer
QAD Inc.
6450 Via Real
Carpinteria, California 93013
(805) 685-9880
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
_________________
Copies to:
Theodore R. Maloney, Esq.
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
_________________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered on the form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum
Amount of Shares Offering Price per Aggregate Offering Amount of
Title of Securities to be Registered to be Registered Share(1) Price(1) Registration Fee
- --------------------------------------- ------------------- -------------------- ------------------- -------------------
Common Stock, par value $.001 per share 120,000 $9.00 $1,080,000 $286
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(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee on the basis of the average of the high and
low reported sale prices of a share of common stock of $9.00 on January 31,
2000, as reported by the Nasdaq National Market.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHNAGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURIITES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
Subject to Completion
120,000 Shares
QAD Inc.
Common Stock
________________
Shares of common stock of QAD Inc. registered pursuant to the registration
statement of which this prospectus is a part, may be sold from time to time for
the accounts of and by the persons named under the caption "Selling
Shareholders." The Selling Shareholders have advised us that the shares may be
sold from time to time on the Nasdaq National Market or in negotiated
transactions, in each case at prices satisfactory to the seller. The Selling
Shareholders and the brokers and dealers through which the sales of the shares
may be made may be deemed to be "underwriters" within the meaning set forth in
the Securities Act, and their commissions and discounts and other compensation
may be regarded as underwriters' compensation. See "Plan of Distribution." We
have issued the shares in accordance with certain private placement
transactions.
We will not receive any proceeds from the sale of shares by the Selling
Shareholders. All expenses incurred in connection with this offering are being
borne by us, other than any commissions or discounts paid or allowed by the
Selling Shareholders to underwriters, dealers, brokers or agents.
Our common stock is traded on the Nasdaq under the symbol "QADI." On
January 31, 2000, the last sale price of the common stock as reported by the
Nasdaq was $9.00.
The common stock offered by this prospectus involves a high degree of risk.
See "Risk Factors" beginning on page 4.
These Securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy and adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
February __, 2000
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AVAILABLE INFORMATION
QAD is subject to the informational requirements of the Securities Exchange
Act of 1934 and files reports, proxy statements and other information with the
Securities and Exchange Commission. Reports, proxy statements and other
information filed by us can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies can be obtained
at prescribed rates from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other materials that
are filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. This Web site can be accessed at http://www.sec.gov.
Our common stock is listed on the Nasdaq and the reports, proxy statements and
other information filed by us also can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act with respect to the common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statement, portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance readers should refer to the copy of
that contract or other document filed or incorporated by reference as an exhibit
to the registration statement. Each of those statements is qualified in all
respects by this reference to the registration statement and the exhibits and
schedules to the registration statement. For further information pertaining to
QAD or the common stock offered by this prospectus, we refer you to the
registration statement and the exhibits and schedules to the registration
statement, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the Public Reference Branch of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus incorporates documents by reference that are not presented
in or delivered with this prospectus, as indicated below. We will provide
without charge to each person to whom a copy of this prospectus has been
delivered, upon written or oral request, a copy of any or all of the documents
referred to below which are incorporated in this prospectus by reference (other
than exhibits to those documents, unless they are specifically incorporated by
reference into the documents). Requests for copies should be directed to Daniel
Lender, QAD Inc., 6450 Via Real, Carpinteria, California 93013. Telephone number
(805) 684-6614.
The following documents filed with the Commission by QAD under File No.
333-48381 pursuant to the Exchange Act are incorporated in this prospectus by
reference:
o Annual report on Form 10-K for the fiscal year ended January 31,
1999;
o Quarterly report on Form 10-Q for the fiscal quarter ended April
30, 1999;
o Quarterly report on Form 10-Q for the fiscal quarter ended July
31, 1999;
o Quarterly report on Form 10-Q for the fiscal quarter ended
October 31, 1999;
o Definitive proxy statement dated May 17, 1999; and
o Current report on Form 8-K dated August 13, 1999.
All documents filed by QAD with the Commission under Section 13(a), 13(c),
14 or 15(d) of the Exchange Act on or after the date of this prospectus and
prior to the termination of the offering of the common stock offered by this
prospectus, shall be deemed to be incorporated by reference in this prospectus
and to be a part of this prospectus from the date of filing of these documents.
See "Available Information." Any statement contained in a document incorporated
or deemed to be incorporated by reference in this prospectus shall be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
incorporated or deemed to be incorporated in this prospectus by reference, which
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statement is also incorporated in this prospectus by reference, modifies or
supersedes the statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
No person is authorized in connection with any offering made by this
prospectus to give any information or to make any representation not contained
in this prospectus, and, if given or made, that information or representation
must not be relied upon as having been authorized by us or any Selling
Shareholder. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted. Neither the delivery of this prospectus nor any sale made
under this prospectus shall under any circumstances create any implication that
the information contained in this prospectus is correct as of any date
subsequent to the date of this prospectus.
QAD INC.
QAD is a developer and supplier of industry-specific e-business solutions
for manufacturers and distributors. Primary among its offerings is the MFG/PRO
software, a leading supply-chain-enabled Enterprise Resource Planning, or ERP,
software for mid-range and large multinational manufacturing companies. Our
software solutions are designed to facilitate global management of resources and
information to allow manufacturers to reduce order fulfillment cycle times and
inventories, improve operating efficiencies between supply chain links and
measure critical company performance criteria against defined business plan
objectives. Our solution's flexibility, electronic commerce capability and
scalability also helps manufacturers adapt to growth, organizational change,
business process reengineering, supply chain management and other challenges. In
the latter part of fiscal 1999, we established QAD Global Services in response
to customer requests for direct implementation and integration support from QAD.
QAD's principal products address ERP and supply chain needs in an
electronic commerce environment. The MFG/PRO software is specifically designed
for deployment at the plant or operations levels of mid-range and multinational
manufacturers in four targeted industry segments: automotive, consumer products,
electronics/industrial, and medical. The MFG/PRO software provides multinational
organizations with an integrated ERP solution that is based on an open system,
Internet-enabled manufacturing, distribution, financial, and service/support
management applications.
We currently are focused on extending our presence in multisite
manufacturing by developing a line of optimized supply chain management
solutions, formerly known as On/Q software, now being marketed as QAD eQ
software and QAD Supply Chain Optimizer software. Our initial on/Q software
product, Advanced Planning and Scheduling, or APS, is now part of the QAD Supply
Chain Optimizer software suite and is designed to improve asset utilization at
every link of the supply chain. We released Advanced Planning and Scheduling in
September 1998. We are also developing QAD eQ software, formerly known as On/Q
Outbound Logistics. This is an innovative business-to-business, or B2B, Internet
order management and exchange applications suite. QAD eQ software will allow for
consolidation of orders, contract management, shipping and logistics management.
QAD eQ software is currently in beta test phase, and we expect our initial
release to be generally commercially available in the spring of 2000.
As of January 31, 1999, QAD had licensed QAD software at more than 4,000
sites in more than 80 countries. QAD's customers include Cargill, Colgate-
Palmolive, Johnson Controls, Johnson & Johnson, Lucent Technologies, Philips
Electronics, St. Jude Medical, Unilever, Lear Seating, Genzyme and Stryker.
We were founded in 1979 and were incorporated in California as qad.inc in
1986. In February 1997, we changed our name to QAD Inc. and in August 1997 we
reincorporated in Delaware. Our executive offices are located at 6450 Via Real,
Carpinteria, California 93013, and our telephone number is (805) 684-6614.
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RISK FACTORS
This prospectus contains forward-looking statements that involve risks and
uncertainties. QAD's actual results could differ materially from those
anticipated in these forward-looking statements as a result of numerous factors,
including those set forth in the following risk factors and elsewhere in this
prospectus. In evaluating our business, you should consider carefully the
following factors in addition to the other information set forth in this
prospectus.
Our quarterly revenue, expenses and operating results have varied significantly
in the past, and we anticipate that such fluctuations will continue in the
future as a result of a number of factors, many of which are outside our
control
The factors affecting these fluctuations include demand for our products
and services, the size, timing and structure of significant licenses by
customers, market acceptance of new or enhanced versions of our software
products and products that operate with our products, the publication of
opinions about us, our products and technology by industry analysts, the entry
of new competitors and technological advances by competitors, delays in
localizing our products for new markets, delays in sales as a result of lengthy
sales cycles, changes in operating expenses, foreign currency exchange rate
fluctuations, changes in pricing policies by us or our competitors, customer
order deferrals in anticipation of product enhancements or new product offerings
by us or our competitors, the timing of the release of new or enhanced versions
of our software products and products that operate with our products, changes in
the method of product distribution and licensing (including the mix of direct
and indirect channels), product life cycles, changes in the mix of products and
services licensed or sold by us, customer cancellation of major planned software
development programs and general economic factors.
We have also historically recognized a substantial portion of our revenue
from sales booked and shipped in the last month of a quarter. As a result, the
magnitude of quarterly fluctuations in license fees may not become evident until
late in, or at the end of, a particular quarter. If sales forecasted from a
specific customer for a particular quarter are not realized in that quarter, we
are unlikely to be able to generate revenue from alternate sources in time to
compensate for the shortfall. As a result, a lost or delayed sale could have an
adverse effect on our quarterly operating results. To the extent that
significant sales occur earlier than expected, operating results for subsequent
quarters may be adversely affected. We have also historically operated with
little backlog for licenses because our products are generally shipped as orders
are received. As a result, revenue from license fees in any quarter is
substantially dependent on orders booked and shipped in that quarter and on
sales by our distributors and other resellers. Sales derived through indirect
channels are harder to predict and may have lower profit margins than direct
sales.
A significant portion of our revenue in any quarter may be derived from a
limited number of large, non-recurring license sales
We expect to continue to experience from time to time large, individual
license sales which may cause significant variations in quarterly license fees.
We also believe that the purchase of our products is relatively discretionary
and generally involves a significant commitment of a customer's capital
resources. Therefore, a downturn in any potential customer's business could
result in order cancellations which could have a significant adverse impact on
our revenue and quarterly results. Moreover, declines in general economic
conditions could precipitate significant reductions in corporate spending for
information technology, which could result in delays or cancellations of orders
for our products.
Our recent acquisitions of service-related revenue may not reduce the quarterly
fluctuations in our revenue
In the latter part of fiscal 1999, we initiated QAD Global Services, as
well as substantially increased the portion of our business related to services
through the acquisition of several of our distributors. As the percentage of
revenue derived from maintenance and services increases and the less predictable
license fees become a smaller proportion of our overall revenues, our overall
quarterly revenue fluctuations may diminish. While the expenses associated with
services operations are relatively predictable, the revenues are dependant upon
the timing and size of customer orders to provide the services. To the extent
that these services operations fail to secure orders from customers to provide
services on a regular basis, our results may be negatively affected.
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Our expense level is relatively fixed and is based, in significant part, on
expectations of future revenue
Because our expense level is relatively fixed, if revenue levels are below
expectations, expense levels could be disproportionately high as a percentage of
total revenue, and operating results would be immediately and adversely affected
and losses could occur.
Because of the significant fluctuations in our revenue, period-to-period
comparisons may not be meaningful
Based upon the factors described above, we believe that our quarterly
revenue, expenses and operating results are likely to vary significantly in the
future, that period-to-period comparisons of our results of operations are not
necessarily meaningful and that, as a result, such comparisons should not be
relied upon as indications of future performance. Moreover, although our revenue
has generally increased in recent periods, there can be no assurance that our
revenue will grow in future periods, at past rates or at all, or that we will be
profitable on a quarterly or annual basis. We have in the past experienced and
may in the future experience quarterly losses.
Our recent restructuring efforts may not be successful in addressing quarterly
fluctuations
In response to changes in customers' manufacturing capital software
spending patterns, we undertook a restructuring program in October 1998 that
would, among other things, more closely align costs with sales expectations.
This program was continued in fiscal year 2000 with an additional charge of $1.2
million, representing $0.9 million in employee reduction costs and $0.3 of
facility consolidation costs recorded in the second quarter. There can be no
assurance that these changes will alleviate the quarterly or other fluctuations
in our financial results.
Our products involve a very long sales cycle and the timing of sales is
difficult to predict
Because the license of our products generally involves a significant
commitment of capital (which ranges from approximately $50,000 to several
million dollars), the sales cycle associated with a customer's purchase of our
products is generally lengthy (with a typical duration of four to 15 months),
varies from customer to customer and is subject to a number of significant risks
over which the Company has little or no control. These risks include customers'
budgetary constraints, timing of budget cycle, concerns about the introduction
of new products by us or our competitors and general economic downturns which
can result in delays or cancellations of information systems investments. Due in
part to the strategic nature of our products, potential customers are typically
cautious in making product acquisition decisions. The decision to license our
products generally requires us to provide a significant level of education to
prospective customers regarding the uses and benefits of our products, and we
must frequently commit substantial presales support resources. We have
historically relied on third parties for implementation and systems support
services, which in the past caused sales cycles to be lengthened and may have
resulted in the loss of sales. Since the launch of QAD Global Services in late
1998, we no longer rely exclusively on third parties for implementation and
systems integration services, which should significantly mitigate these risks.
However, uncertain outcome of our sales efforts and the length of our sales
cycles could result in substantial fluctuations in operating results. If sales
forecasted from a specific customer for a particular quarter are not realized in
that quarter, then we are unlikely to be able to generate revenue from
alternative sources in time to compensate for the shortfall. As a result, and
due to the relatively large size of some orders, a lost or delayed sale could
have an adverse effect on our quarterly operating results.
Our product mix is changing but is still weighted in favor of software
licensing
We have historically derived substantially all of our revenue from the
licensing and maintenance of MFG/PRO software and third party software. In the
fiscal years 1998 and 1999, this revenue equaled approximately 91 percent and 89
percent, respectively, of our total revenue. As a result of our acquisition of
distributors in fiscal 1999, as well as the launch of QAD Global Services in the
latter part of that fiscal year, we expect that revenue from services will
increase from approximately six percent of revenue to 20 to 25 percent of total
revenue. In addition, if we are successful in releasing the remainder of our
planned QAD Supply Chain Optimizer and QAD eQ software components, we anticipate
that the demand for service revenue will increase accordingly.
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We are dependent on third-party products, particularly Progress software
Our MFG/PRO software is written in a programming language that is
proprietary to Progress Software Corporation. We have entered into a license
agreement with Progress that provides us and each of our subsidiaries, among
other things, with the perpetual, worldwide, royalty-free right to use the
Progress programming language to develop, market, distribute and license our
software products. The agreement also provides for continued software support
from Progress through June 2002 without charge to us. Progress may only
terminate the agreement upon our adjudication as bankrupt, liquidation or other
similar event, or if we have ceased business operations in full. Our success is
dependent upon Progress continuing to develop, support and enhance this
programming language, its tool set and database, as well as the continued market
acceptance of Progress as a standard database program. We have in the past and
may in the future experience product release delays because of delays in the
release of Progress products or product enhancements. Any of these delays could
have a adverse effect on our business, operating results and financial
condition. MFG/PRO software employs Progress programming interfaces which allow
MFG/PRO software to operate with Oracle Corporation database software. However,
our software programs do not run within programming environments other than
Progress and our customers must acquire rights to Progress Software in order to
use MFG/PRO software.
Our QAD Supply Chain Optimizer and QAD eQ software products are not
dependant on Progress technology. The commercially available QAD Supply Chain
Optimizer APS products are primarily based upon products from Paragon Management
Systems, Inc. The QAD eQ software, which is currently in beta testing, is
dependent on Gemstone technology.
We also maintain a number of development and product alliances with other
third parties. These alliances include software developed to be sold in
conjunction with QAD software products, technology developed to be included in
or encapsulated within QAD software products and numerous third-party software
programs that generally are not sold with QAD software but interoperate directly
with QAD software through application program interfaces. We generally enter
into joint development agreements with our third-party software development
partners that govern ownership of the technology collectively developed. Each of
our partner agreements and third party development or re-seller agreements
contain strict confidentiality and non-disclosure provisions for the service
provider, end user and third-party developer and our third-party development
agreements contain restrictions on the use of QAD technology outside of the
development process. Any failure to establish or maintain successful
relationships with these third-party software providers or third-party
installation, implementation and development partners or to failure of these
third-party software providers to develop and support their software could have
an adverse effect on us.
The market for our software products is characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements
Customer requirements for products can change rapidly as a result of
innovations or changes within the computer hardware and software industries, the
introduction of new products and technologies (including new hardware platforms
and programming languages) and the emergence, evolution or widespread adoption
of industry standards. For example, increasing commercial use of the Internet is
giving rise to new customer requirements and new industry standards. Our future
success will depend upon our ability to continue to enhance our current product
line and to develop and introduce new products that keep pace with technological
developments, satisfy increasingly sophisticated customer requirements and
achieve market acceptance. In particular, we believe our future success will
depend on our ability to convert our products to object-oriented technology as
well as our ability to develop products that will operate across the Internet.
We can not ensure that we will be successful in developing and marketing, on a
timely and cost-effective basis, product enhancements or new products that
respond to technological advances by others. Our products may also not achieve
market acceptance. Our failure to successfully develop and market product
enhancements or new products could have an adverse effect on us.
New software releases and enhancements may adversely affect our software sales
While we generally takes steps to avoid interruptions of sales due to the
pending availability of new products, customers may delay their purchasing
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decisions in anticipation of the general availability of new or enhanced QAD
software, which could have a adverse effect on our business, operating results
and financial condition. The actual or anticipated introduction of new products,
technologies and industry standards can also render existing products obsolete
or unmarketable or result in delays in the purchase of such products. As a
result, the life cycles of our products are difficult to estimate. We must
respond to developments rapidly and incur substantial product development
expenses. Any failure by QAD to anticipate or respond adequately to technology
developments or customer requirements, or any significant delays in introduction
of new products, could result in a loss of revenue. Moreover, significant delays
in the general availability of new releases, significant problems in the
installation or implementation of new releases, or customer dissatisfaction with
new releases could adversely affect us.
Our supply chain solutions are still under development
A significant element of our strategy is our development of QAD Supply
Chain Optimizer software and QAD eQ software, a series of new products targeted
at the supply chain management needs of manufacturing companies. Over the past
three fiscal years, we have devoted substantial resources to developing our QAD
eQ software and working with third parties to develop software components which
may be included as part of or encapsulated within QAD Supply Chain Optimizer
software and QAD eQ software. Our first QAD Supply Chain Optimizer software
product, APS, was released in September 1998. We have successfully performed
preliminary tests on our first QAD eQ software release an innovative
business-to-business (B2B) Internet order management and exchange applications
suite, and we have commenced beta testing. However, we can not ensure that the
QAD Supply Chain Optimizer software, the initial release of QAD eQ software or
our other planned releases for these software products, whether developed by us
or third parties, will achieve the performance standards required for
commercialization. In addition, these products may not achieve market acceptance
or be profitable. If QAD Supply Chain Optimizer software, QAD eQ software or our
other planned supply chain management software products do not achieve such
performance standards or do not achieve market acceptance, we would be adversely
affected.
The underlying technology for our new applications is new and dependent on
specific technologies
On December 16, 1999, we acquired Enterprise Engines, Inc. of San Mateo,
California pursuant to a stock purchase agreement. Prior to the acquisition we
had been working jointly with Enterprise Engines, Inc. to develop QAD eQ
software. QAD eQ software is being designed and built using the object-oriented
technology of Sun Microsystems - Enterprise Java Beans. QAD eQ software depends
on the commercial success of platforms that support Enterprise Java Beans in
Application Server environments such as the Gemstone/J Application Server
supplied by Gemstone of Beaverton, Oregon. Similar to the way our MFG/PRO
software is dependent upon Progress language and database technology, our new
QAD eQ software is dependent on Java, Enterprise Java Beans, and technology
supplied by Gemstone.
Object-oriented applications, such as QAD eQ software, are characterized by
technology development style and programming languages that differ from those
used in traditional software applications, including the current version of
MFG/PRO software. We believe that the flexibility inherent in object-based
functionality will play a key role in the competitive manufacturing,
distribution, financial, planning and service/support management information
technology strategies of customers in our targeted industry segments. We can not
ensure that we will be successful in developing our new supply chain management
software on a timely basis, if at all, or that if developed this software will
achieve market acceptance.
Our target markets are concentrated and, as a result, we are dependent upon
achieving success in those markets
We have made a strategic decision to concentrate our product development
and sales and marketing in four primary vertical industry segments:
electronics/industrial, consumer products, medical and automotive. An important
element of our strategy is to achieve technological and market leadership
recognition for our software products in these segments. The failure of our
products to achieve or maintain substantial market acceptance for our software
products in one or more of these segments could have a adverse effect on us. If
any of the industry segments targeted by our experiences a material downturn in
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expansion or in prospects for future growth, such downturn would adversely
affect the demand for our products and will adversely affect us.
We are dependent upon key personnel, and need to hire additional personnel in
all areas
Our future operating results depend in significant part upon the continued
service of a relatively small number of key technical and senior management
personnel, including Founder, Chairman of the Board and President Pamela M.
Lopker, and Chief Executive Officer Karl F. Lopker, neither of whom is bound by
an employment agreement. Pamela and Karl Lopker are married to each other and
jointly own approximately 55 percent of QAD's outstanding common stock. The loss
of one or more of these or other key individuals could have an adverse effect on
QAD. We do not currently have key individual insurance.
Our future success also depends on our continuing ability to attract and
retain other highly qualified technical and managerial personnel. Competition
for these personnel is intense, and we have at times in the past experienced
difficulty in recruiting qualified personnel. There can be no assurance that we
will retain our key technical and managerial employees or that we will be
successful in attracting, assimilating and retaining other highly qualified
technical and managerial personnel in the future. The loss of any member of our
key technical and senior management personnel or the inability to attract and
retain additional qualified personnel could have a adverse effect on our
business, operating results and financial condition.
We are dependent upon the development and maintenance of sales and marketing
channels
We sell and support our products through direct and indirect sales
organizations throughout the world. We have made significant expenditures in
recent years in the expansion of our sales and marketing force, primarily
outside the United States, and we plan to continue to expand our sales and
marketing force. Our future success will depend in part upon the productivity of
our sales and marketing force and our ability to continue to attract, integrate,
train, motivate and retain new sales and marketing personnel. Competition for
sales and marketing personnel in the software industry is intense. We can not
ensure that we will be successful in hiring these personnel in accordance with
our plans. Neither can there be assurance that our recent and other planned
expenses in sales and marketing will ultimately prove to be successful or that
the incremental revenue generated will exceed the significant incremental costs
associated with these efforts. In addition, there can be no assurance that our
sales and marketing organization will be able to compete successfully against
the significantly more extensive and better funded sales and marketing
operations of many of our current and potential competitors. If we are unable to
develop and manage our sales and marketing force expansion effectively, our
business, operating results and financial condition would be adversely affected.
Our indirect sales channel consists of approximately 30 distributors
worldwide. We do not grant exclusive distribution rights to any of our
distributors. Our distributors primarily sell independently to companies within
their geographic territory but may also work in conjunction with our direct
sales organization. We will need to maintain and expand our relationships with
our existing distributors and enter into relationships with additional
distributors in order to expand the distribution of our products. There can be
no assurance that current or future distributors will provide the level and
quality of expertise and service required to successfully license QAD software
products, that we will be able to maintain effective, long-term relationships
with distributors, or that selected distributors will continue to meet our sales
needs. Further, there can be no assurance that these distributors will not
market software products in competition with us in the future or will not
otherwise reduce or discontinue their relationships with or support of us and
our products. This may become more likely as we compete with some of our
distributors through our own acquisition of distributors. Any failure to
maintain successfully our existing distributor relationships or to establish new
relationships in the future would have an adverse effect on us. In addition, if
any of our distributors exclusively adopts a product other than QAD software
products, or if any distributor reduces its sales efforts relating to QAD
software products or increases such support for competitive products, we could
be materially and adversely affected.
We are faced with very intense competition in all segments of our target
markets with companies with significant resources
The ERP software market is highly competitive, rapidly changing and
affected by new product introductions and other market activities of industry
participants, including consolidations among industry participants. We compete
in the ERP software market primarily on the basis of functionality, ease of use
8
<PAGE>
and implementation, technology (including connectivity and adaptability), time
to benefit, supplier viability, service and cost. We intend to continue to
acquire, develop and allocate our resources to focus on these targeted
competitive areas, as well as to identify additional or different areas where we
perceive competitive advantage.
We currently compete primarily with:
o vendors such as Baan, J.D. Edwards and Symix, that market
software focused on the specific needs of manufacturing plants
and distribution sites of multinational manufacturing companies;
o smaller independent companies that have developed or are
attempting to develop advanced planning and scheduling software
which complement or compete with ERP or supply chain solutions;
o internal development efforts by corporate information technology
departments; and
o companies offering standardized or customized products on
mainframe and/or mid-range computer systems.
We expect that competition for MFG/PRO software will increase as other
large companies like Oracle and SAP, as well as other business application
software vendors, enter the market for plant and operations-level ERP solutions.
We may also face market resistance from potential customers with installed
legacy systems because of the reluctance of these potential customers to commit
the time, effort and resources necessary to convert to an open systems ERP
solution or because of their own internal attempts to address Y2K issues.
With our strategic entry into the supply chain management software market,
we expect to meet substantial additional competition from companies presently
serving that market, including i2, IMI and Manugistics. We also expect
competition to come from broad-based solution providers like Baan, Oracle,
PeopleSoft and SAP who state they are increasingly focusing on this segment. In
addition, some of our competitors, such as Baan, Oracle, PeopleSoft and SAP,
have well-established relationships with our current or potential customers.
Further, as the supply chain management solution market continues to develop,
companies with significantly greater resources could attempt to increase their
presence in these markets by acquiring or forming strategic alliances with our
competitors or our partners or potential partners.
Increased competition in these markets is likely to result in price
reductions, reduced operating margins and loss of market share, any one of which
could adversely affect us. Many of our present or future competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products.
Although we believe we offer and will continue to offer products that are
competitive, we can make no assurance that we will be able to compete
successfully with existing or new competitors or that competition will not
adversely affect us.
We are reliant on and need to develop additional relationships with third
parties
We have established strategic relationships with a number of consulting and
systems integration organizations that we believe are important to our worldwide
sales, marketing, service and support activities and the implementation of our
products. We are aware that these third-party providers do not provide systems
integration services exclusively for our products and in many instances these
firms have similar, and often more established, relationships with our principal
competitors. We expect to continue to utilize third-party system integrators.
Beginning in the fourth quarter of fiscal 1999, we created QAD Global
Services to offer implementation and integration services to our customers. We
have designed our service organization so that we can subcontract our services
to partners for specific technical needs and also subcontract services from our
partners to meet our capacity requirements. We believe this method allows for
additional flexibility in ensuring our customer's needs for implementation and
installation services are met. These relationships also assist us in keeping
pace with the technological and marketing developments of major software
vendors, and, in certain instances, provide us with technical assistance for our
product development efforts.
Organizations providing consulting and systems integration and
implementation services in connection with QAD software products include Arthur
9
<PAGE>
Andersen, Deloitte & Touche, Ernst & Young, Origin Technology, Sligos and STCS
Systems. In most cases distributors also will deliver consulting and systems
integration services. These and other third parties may not provide the level
and quality of service required to meet the needs of our customers, we may not
be able to maintain an effective, long-term relationship with these third
parties, or these third parties may not continue to meet the needs of our
customers. Further, we can not ensure that these third-party implementation
providers, many of which have significantly greater financial, technical,
personnel and marketing resources than QAD, will not market software products in
competition with us in the future or will not otherwise reduce or discontinue
their relationships with or support of us and our products. Any failure to
maintain our existing relationships or to establish new relationships in the
future, or the failure of these third parties to meet the needs of our
customers, could have an adverse effect on us. In addition, if these third
parties exclusively adopt a product or technology other than QAD software
products or technology, or if these third parties reduce their support of QAD
software products and technology or increase such support for competitive
products or technology, we could be adversely affected.
We typically enter into separate agreements with each of our installation
and implementation partners that provide these partners with the non-exclusive
right to promote and market QAD software products, and to provide training,
installation, implementation and other services for QAD software products,
within a defined territory for a specified period of time (generally two years).
Our installation and implementation partners generally do not receive fees for
the sale of QAD software products unless they participate actively in a sale as
a sales agent. However, they generally are permitted to set their own rates for
their installation and implementation services, and we typically do not collect
a royalty or percentage fee from these partners on services performed. We also
enter into similar agreements with our distribution partners that grant these
partners the non-exclusive right, within a specified territory, to market,
license, deliver and support QAD software products. In exchange for these
distributors' services, we grant a discount to the distributor for the license
of our software products.
We also rely on third parties for the development or interoperation of key
components of our software so that users of QAD software products will obtain
the functionality demanded. These research and product alliances develop
software to be sold in conjunction with QAD software products, technology to be
included in or encapsulated within QAD software products and numerous
third-party software programs that generally are not sold with QAD software
products but interoperate directly with QAD software through application program
interfaces. We generally enter into reseller or joint development agreements
with our third-party software development partners that govern ownership of the
technology collectively developed. Each of our partner agreements and
third-party development agreements contain strict confidentiality and
non-disclosure provisions for the service provider, end user and third-party
developer and our third-party development agreements contain restrictions on the
use of our technology outside of the development process. Any failure to
establish or maintain successful relationships with these third-party software
providers or these third-party installation, implementation and development
partners or the failure of these third-party software providers to develop and
support their software could have an adverse effect on us.
Our success is dependent upon our proprietary technology and other intellectual
property
We rely primarily on a combination of the protections provided by
applicable copyright, trademark and trade secret laws, as well as on
confidentiality procedures and licensing arrangements, to establish and protect
our rights in our software and related materials and information. We enter into
license agreements with each of our customers. Each of these license agreements
provides for the non-exclusive license of QAD software. These licenses generally
are perpetual and contain strict confidentiality and non-disclosure provisions,
a limited warranty covering the QAD software and indemnification for the
customer from infringement actions related to the QAD software.
The pricing policy under each license is based on a standard price list and
may vary based on such parameters as the number of end-users, number of sites,
number of modules, number of languages, the country in which the license is
granted and level of ongoing support, training and services to be provided by
QAD. Payment terms are generally 30 days from the date of shipment. We have no
patents or pending patent applications.
In order to facilitate the customization required by most of our customers,
we generally license our MFG/PRO software to end-users in both object code
10
<PAGE>
(machine-readable) and source code (human-readable) format. While this practice
facilitates customization, making software available in source code also makes
it easier for third parties to copy or modify our software for non-permitted
purposes. Distributors or other persons may independently develop a modified
version of our software. Our license agreements generally allow the use of our
software solely by the customer for internal purposes without the right to
sublicense or transfer the software to third parties.
We believe that these measures afford only limited protection. Despite our
efforts, it may be possible for third parties to copy certain portions of our
products or reverse engineer or obtain and use information that we regard as
proprietary. In addition, the laws of certain countries do not protect our
proprietary rights to the same extent as the laws of the United States.
Accordingly, there can be no assurance that we will be able to protect our
proprietary software against unauthorized third-party copying or use, which
could adversely affect our competitive position. Furthermore, there can be no
assurance that our competitors will not independently develop technology similar
to ours.
We may be faced with or need to bring infringement claims to protect our rights
We have in the past been subject to claims of intellectual property
infringement and may increasingly be subject to these types of claims as the
number of products and competitors in our targeted vertical markets grows and
the functionality of products in other industry segments overlaps. Although we
do not believe that any of our products infringes upon the proprietary rights of
third parties, there can be no assurance that third parties will not claim
infringement by us with respect to current or future products. In addition, we
periodically acquire intellectual property from third parties. In some instances
this intellectual property is prepared on a work-for-hire or similar basis, and
in some instances we license the intellectual property. We have in the past and
expect to in the future to be party to disputes about ownership, license scope
and royalty or fee terms with respect to such intellectual property. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require us to enter into royalty or licensing
agreements, any of which could have an adverse effect upon us. We may also
initiate claims or litigation against third parties for infringement of our
proprietary rights or to establish the validity of our proprietary rights which
could result in significant expense to us and divert the efforts of our
technical and management personnel from productive tasks, whether or not such
litigation were determined in our favor.
Our intellectual property rights may be significantly affected by third-party
relationships and actions
We have in the past and may in the future resell certain software, which we
license from third parties. In addition, we have in the past and may in the
future jointly develop software in which we will have co-ownership or
cross-licensing rights. There can be no assurance that these third-party
software arrangements and licenses will continue to be available to us on terms
that: 1) provide us with the third-party software we require, 2) provide
adequate functionality in our products, on terms that adequately protect QAD's
proprietary rights, or 3) are commercially favorable to us. The loss of or
inability to maintain or obtain any of these software licenses, including a loss
as a result of a third-party infringement claim, could result in delays or
reductions in product shipments until equivalent software, if any, could be
identified, licensed and integrated. This could materially and adversely affect
us.
Our operations are international in scope, which exposes us to additional risk,
including currency related risk
We derived approximately 39 percent and 48 percent of our total revenue
from sales outside the United States in the fiscal years 1998 and 1999,
respectively. Based upon the acquisitions completed during fiscal 1999 and
fiscal 2000, we expect the percentage of business of outside the United States
to continue to increase. Of our more than 4,000 licensed sites in more than 80
countries as of January 31, 1999, over 70 percent are outside the United States.
Historically, our revenue from international operations has primarily been
denominated in United States dollars. We have historically priced our products
in United States dollars and over 90 percent of our sales in the fiscal years
1998 and 1999, were denominated in United States dollars, with the remainder in
approximately ten different currencies. We expect that a growing percentage of
our business will be conducted in currencies other than the United States
dollar. We also incur a significant portion of our expenses in currencies other
than the United States dollar. As a result, fluctuations in the values of the
respective currencies relative to the other currencies in which we generate
revenue could adversely affect us. While we may in the future change our pricing
practices, an increase in the value of the United States dollar relative to
foreign currencies could make QAD software products more expensive and,
11
<PAGE>
therefore, less competitive in other markets. Fluctuations in currencies
relative to the United States dollar will affect period-to-period comparisons of
our reported results of operations. In the fiscal years 1998 and 1999, foreign
currency transaction (gains) and losses totaled $(879,000) and $61,000,
respectively. Due to the constantly changing currency exposures and the
volatility of currency exchange rates, there can be no assurance that we will
not experience currency losses in the future, nor can we predict the effect of
exchange rate fluctuations upon future operating results. Although we do not
currently undertake hedging transactions, we may choose to hedge a portion of
our currency exposure in the future as we deem appropriate.
Our principal stockholders may control our management decisions
Pamela and Karl Lopker jointly beneficially own approximately 55% of our
outstanding common stock. Recovery Equity Investors II, L.P. owns approximately
8% of our outstanding common stock. Current directors and executive officers as
a group own approximately 66% of the common stock. The Lopkers currently
constitute two of the six members of board and therefore have significant
influence in directing the actions of the board of directors.
We may be exposed to product liability claims
While our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims,
it is possible that the limitation of liability provisions may not be effective
under the laws of certain jurisdictions. Although we have not experienced any
product liability claims to date, there can be no assurance that we will not be
subject to claims in the future. We have an errors and omissions insurance
policy with a sublimit for Y2K related claims. However, there can be no
assurance that this insurance will continue to be available to us on
commercially reasonable terms or at all. A successful product liability or
errors or omissions claim brought against us could have an adverse effect us.
Moreover, defending a suit, regardless of its merits, could entail substantial
expense and require the time and attention of key management personnel, either
of which could have an adverse effect on us.
Year 2000 compliance
Our business operations are significantly dependent upon the same
proprietary software products we license to customers. Our management believes
we have successfully addressed Y2K readiness in our proprietary software
products and does not anticipate any business interruptions associated with
these applications. However, uncertainty exists in the software industry
concerning the potential effects associated with Y2K readiness. Although we
currently offer software products that are designed and have been tested to be
ready for the Year 2000, there can be no assurance that our software products
contain all necessary date code changes. Furthermore, litigation may still arise
surrounding business interruptions associated with Y2K issues. It is uncertain
whether, or to what extent, this type of litigation may affect us. Additionally,
third party software, computer and other equipment used internally may adversely
impact us if it is not Y2K compliant.
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SELLING SHAREHOLDERS
The following table sets forth information with respect to the number of
shares beneficially owned by each of the Selling Shareholders, the number of
shares that may be offered hereby by each Selling Shareholder and the number of
shares of common stock to be owned after the offering, assuming all the shares
offered are sold to persons not affiliated with the Selling Shareholders. None
of the Selling Shareholders, has, or in the past has had, any other position,
office or relationship with QAD (other than as a security holder) or any of its
affiliates. As of January 31, 2000, there were 33,007,085 shares of our common
stock issued and outstanding.
The shares set forth below as beneficially owned and offered by David A.
Taylor represent shares issued in connection with the Stock Purchase Agreement
entered into with David A. Taylor in December 1999.
<TABLE>
<S> <C> <C> <C>
Shares Beneficially Number Shares Beneficially
Owned Prior to Offering of Shares Offered Owned After Offering
----------------------- ----------------- --------------------
Shares
Name Owned Percent Number Percent
- --------------------- ------- ------- ------- -------
David A. Taylor 120,000 0.36% 120,000 0 0.00%
</TABLE>
PLAN OF DISTRIBUTION
The shares may be sold from time to time by the Selling Shareholders or
their pledgees or donees. See "Selling Shareholders." Those sales may be made on
the Nasdaq or in negotiated transactions, at prices and on terms then prevailing
or at prices related to the then current market price or at negotiated prices.
The methods by which the shares may be sold may include, but are not limited to,
the following:
o Block trades in which the broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o Purchases by a broker or dealer as principal and resale by the broker
or dealer for its account;
o Ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o Privately negotiated transactions;
o Short sales; and
o A combination of any these methods of sale.
In effecting sales, brokers or dealers engaged by the Selling Shareholders
may receive commissions or discounts from the Selling Shareholders or from the
purchasers in amounts to be negotiated immediately prior to the sale.
QAD has agreed to maintain the effectiveness of the registration of the
shares offered by this prospectus until the earlier of the date upon which all
of the shares have been sold without restriction on resale, or the date on which
the shares offered by this prospectus, in the opinion of counsel, may be
immediately sold by the Selling Shareholders without registration or restriction
on resale, including pursuant to Rule 144 under the Securities Act. We cannot
ensure that the Selling Shareholders will sell any or all of the shares offered
by this prospectus.
QAD is bearing all of the costs relating to the registration of the shares.
Any commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
shares will be borne by the Selling Shareholders. We will not receive any of the
proceeds from this offering.
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Pursuant to the registration rights granted to the Selling Shareholders, we
have agreed to indemnify those Selling Shareholders, any person who controls
those Selling Shareholders, and any underwriters for those Selling Shareholders,
against specified liabilities and expenses arising out of or based upon the
information set forth or incorporated by reference in this prospectus, and the
registration statement of which this prospectus is a part, including liabilities
under the Securities Act and the Exchange Act. The Selling Shareholders and any
brokers participating in the sales of the shares may be deemed to be
underwriters within the meaning of the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker, dealer, underwriter, agent
or market maker and, if any broker, dealer, underwriter, agent or market maker
purchases any of the shares as principal, any profits received on the resale of
those shares, may be deemed to be underwriting commissions or discounts under
the Securities Act.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus has been passed upon for QAD by Nida & Maloney, LLP, Santa Barbara,
California.
EXPERTS
Our consolidated financial statements as of January 31, 1999 and 1998, and
for each of the years in the three-year period ended January 31, 1999, and all
related schedules, have been incorporated by reference in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference, and upon the authority of said firm as
experts in accounting and auditing.
14
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================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, THAT INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY QAD, THE UNDERWRITERS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PAGE
Available Information................................ 2
Incorporation of Certain
Documents By Reference.......................... 2
QAD Inc. ............................................ 3
Risk Factors......................................... 4
Selling Shareholders................................. 13
Plan of Distribution................................. 13
Legal Matters........................................ 14
Experts.............................................. 14
120,000 Shares
QAD Inc.
Common Stock
_____
P R O S P E C T U S
_____
February ___, 2000
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other expenses of issuance and distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being registered
hereby:
SEC registration fee.....................................$ 286
Nasdaq National Market listing fee....................... 2,400
Accounting fees and expenses............................. 5,000
Legal fees and expenses.................................. 10,000
Printing expenses........................................ 2,500
Miscellaneous............................................ 2,814
-----------
TOTAL..............................................$ 23,000
Item 15. Indemnification of directors and officers.
Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware
Law") permits a corporation to provide in its certificate of incorporation that
directors of the corporation shall not be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. Our Certificate of Incorporation contains such a
provision.
Section 145 of the Delaware Law provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation a "derivative action"), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such action, and the statute requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Under Section 145, a
corporation shall indemnify an agent of the corporation for expenses actually
and reasonably incurred if and to the extent such person was successful on the
merits in a proceeding or in defense of any claim, issue or matter therein.
Section 145 of the Delaware Law provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, bylaws,
disinterested director vote, shareholder vote, agreement or otherwise. The
limitation of liability contained in the Registrant's Certificate of
Incorporation and the indemnification provision included in the Registrant's
Bylaws are consistent with Delaware Law Sections 102(b)(7) and 145. The
Registrant has also entered into separate indemnification agreements with its
directors and officers that could require the Registrant, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, including liabilities that may arise under the Securities Act of
1933. In addition, we have purchased directors and officers insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to such provisions, we have been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
II-1
<PAGE>
Item 16. Exhibits.
See Index to Exhibits at page II-6.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(2) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
II-2
<PAGE>
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Carpinteria, State of California, on February 2,
2000.
QAD Inc.
By: /s/ Karl F. Lopker
-------------------------------
Karl F. Lopker
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Karl F. Lopker and Roland B. Desilets, or
either of them, his or her attorneys-in-fact and agents, each with full power of
substitution for him or her and in his or her name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement and
any registration statements for the same offering effective upon filing pursuant
to Rule 462(b), and to file the same with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each of said attorneys-in-fact and agents full power and authority
to do so and perform each and every act and thing requisite and necessary to be
done in connection with such registration statements, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that either of said attorneys-in-fact and agents, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Name Title Date
- --------------------------- --------------------------- -------------------
/s/ Pamela M. Lopker
- ---------------------- Chairman of the Board and President February 2, 2000
Pamela M. Lopker (Principal Executive Officer) and Director
/s/ Karl F. Lopker
- ----------------------- Director and Chief Executive Officer February 2, 2000
Karl F. Lopker
/s/ A. J. Moyer
- ----------------------- Chief Financial Officer (Principal February 2, 2000
A.J. Moyer Financial Officer)
/s/ Cheryl S. Slomann
- ----------------------- Controller; Principal Accounting Officer February 2, 2000
Cheryl S. Slomann
/s/ Evan Bishop
- ----------------------- Director February 2, 2000
Evan M. Bishop
/s/ Koh Boon Hwee
- ----------------------- Director February 2, 2000
Koh Boon Hwee
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Peter von Cuylenburg
- ----------------------- Director February 2, 2000
Peter von Cuylenburg
/s/ Jeffrey Lipkin
- ----------------------- Director February 2, 2000
Jeffrey Lipkin
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit
Number Description
- ---------- ---------------------------
5.1 Opinion of Nida & Maloney, LLP
10.1 Stock Purchase Agreement dated December 15, 1999 between the Registrant and David A. Taylor
10.2 Promissory Note dated December 15, 1999 between the Registrant and David A. Taylor
10.3 Escrow Agreement dated December 15, 1999 between the Registrant and David A. Taylor
10.4 Consulting Agreement dated December 15, 1999 between the Registrant and David A. Taylor
10.5 Release dated December 15, 1999 between the Registrant and David A. Taylor
10.6 Non-competition Agreement dated December 15, 1999 between the Registrant and David A. Taylor
23.1 Consent of KPMG LLP
23.2 Consent of Nida & Maloney, LLP (included in Exhibit 5.1)
24 Power of Attorney (set forth on page II-4)
</TABLE>
II-6
<PAGE>
NIDA & MALONEY, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Telephone: (805) 568-1151
Facsimile: (805) 568-1955
February 2, 2000
QAD Inc.
6450 Via Real
Carpinteria, CA 93013
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 proposed to be
filed by you with the Securities and Exchange Commission (the "Commission") on
or about February 2, 2000 (as such may be amended or supplemented, the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of up to 120,000 shares of your
Common Stock (the "Shares"). The Shares are to be sold by the Selling
Shareholders as described in such Registration Statement. All of the Shares
being sold were or will be sold by QAD to the Selling Shareholders and will be
sold by the Selling Shareholders to the public. As counsel in connection with
this transaction, we have examined the proceedings proposed to be taken by you
in connection with the issuance and sale of the shares.
Based on the foregoing, it is our opinion that the registration and
issuance of the Shares has been duly authorized and that the Shares that have
been issued are legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
which has been approved by us, as such may be further amended or supplemented,
or incorporated by reference in any Registration Statement relating to the
prospectus filed pursuant to Rule 462(b) of the Act.
We hereby consent to the inclusion of our opinion as Exhibit 5.1 to the
Registration Statement and further consent to the reference to this firm in the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
NIDA & MALONEY, LLP
/s/ Nida & Maloney, LLP
ENTERPRISE ENGINES, INC.
STOCK PURCHASE AGREEMENT
dated as of December 15, 1999
by and among
QAD INC.
("Purchaser")
and
DAVID A. TAYLOR
("Seller")
and
ENTERPRISE ENGINES, INC.
("Company")
with respect to
One Hundred Percent of the Outstanding Common Stock of
ENTERPRISE ENGINES, INC.
<PAGE>
TABLE OF CONTENTS
(Continued)
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
ARTICLE I SALE OF SHARES AND CLOSING.............................................................................1
1.1 Purchase and Sale. ............................................................................1
1.2 Purchase Price. ...............................................................................1
1.3 Closing. ......................................................................................1
1.4 Further Assurances; Post-Closing Cooperation. .................................................2
1.5 Seller's Retention of Certain Rights. .........................................................2
1.6 Company Source Code. ..........................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER..............................................................2
2.1 Authority. ....................................................................................3
2.2 Organization of the Company. ..................................................................3
2.3 Capital Stock. ................................................................................3
2.4 Subsidiaries. .................................................................................3
2.5 No Conflicts. .................................................................................3
2.6 Governmental Approvals and Filings. ...........................................................4
2.7 Books and Records. ............................................................................4
2.8 Financial Statements; Assets and Liabilities. .................................................4
2.9 Absence of Changes. ...........................................................................5
2.10 No Undisclosed Liabilities. ...................................................................6
2.11 Taxes. ........................................................................................6
2.12 Legal Proceedings...............................................................................7
2.13 Compliance With Laws and Orders. ..............................................................7
2.14 Benefit and Compensation Plans. ...............................................................7
2.15 Real Property...................................................................................7
2.16 Tangible Personal Property; Investment Assets...................................................8
2.17 Intellectual Property...........................................................................8
2.18 Contracts. ...................................................................................10
2.19 Licenses. ....................................................................................10
2.20 Insurance. ...................................................................................11
2.21 Affiliate Transactions. ......................................................................11
2.22 Employees; Labor Relations. ..................................................................11
2.23 Environmental Matters. .......................................................................11
2.24 Bank and Brokerage Accounts; Investment Assets. ..............................................12
2.25 No Powers of Attorney. .......................................................................12
2.26 Accounts Receivable. .........................................................................13
2.27 Brokers. .....................................................................................13
2.28 Disclosure. ..................................................................................13
2.29 Warranties and Indemnities. ..................................................................13
2.30 Confidentiality Agreements. ..................................................................13
2.31 Products. ....................................................................................14
2.32 Product Liability. ...........................................................................14
2.33 Year 2000 Compliance. ........................................................................14
2.34 Seller's Investment Representations. .........................................................14
i
<PAGE>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................................................15
3.1 Organization. ................................................................................15
3.2 Authority. ...................................................................................15
3.3 No Conflicts. ................................................................................15
3.4 Governmental Approvals and Filings. ..........................................................15
3.5 QAD Stock. ...................................................................................15
3.6 Reports; Financial Statements. ...............................................................15
3.7 Absence Of Certain Changes. ..................................................................16
ARTICLE IV COVENANTS OF SELLER, THE COMPANY AND
PURCHASER....................................................................................16
4.1 Regulatory and Other Approvals. ..............................................................16
4.2 Investigation by Purchaser. ..................................................................17
4.3 No Solicitations. ............................................................................17
4.4 Conduct of Business. .........................................................................17
4.5 Financial Statements and Reports; Filings......................................................18
4.6 Certain Restrictions. ........................................................................18
4.7 Affiliate Transactions. ......................................................................19
ARTICLE V COVENANT OF PURCHASER.................................................................................20
5.1 Form S-3. ....................................................................................20
ARTICLE VI CONDITIONS TO OBLIGATIONS OF PURCHASER
AND SELLER...................................................................................20
6.1 Conditions to Obligations of Purchaser. ......................................................20
6.2 Conditions to Obligations of Seller. .........................................................22
ARTICLE VII SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS...............................................................................24
7.1 Survival of Representations, Warranties, Covenants and
Agreements. ..................................................................................24
ARTICLE VIII INDEMNIFICATION....................................................................................24
8.1 Indemnification................................................................................24
8.2 Method of Asserting Claims. ..................................................................25
ARTICLE IX TERMINATION..........................................................................................27
9.1 Termination. .................................................................................27
9.2 Effect of Termination. .......................................................................28
ARTICLE X DEFINITIONS...........................................................................................28
10.1 Definitions....................................................................................28
ii
<PAGE>
ARTICLE XI MISCELLANEOUS........................................................................................34
11.1 Notices. .....................................................................................34
11.2 Entire Agreement. ............................................................................35
11.3 Expenses. ....................................................................................35
11.4 Public Announcements. ........................................................................35
11.5 Confidentiality. .............................................................................36
11.6 Waiver. ......................................................................................36
11.7 Amendment. ...................................................................................36
11.8 No Third Party Beneficiary. ..................................................................36
11.9 No Assignment; Binding Effect. ...............................................................37
11.10 Headings. ....................................................................................37
11.11 Arbitration. .................................................................................37
11.12 Consent to Jurisdiction and Service of Process. ..............................................37
11.13 Invalid Provisions. ..........................................................................38
11.14 Governing Law. ...............................................................................38
11.15 Post-Closing Operation of Business. ..........................................................38
11.16 Counterparts. ................................................................................38
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of December 15, 1999 is made and
entered into by and among QAD Inc., a Delaware corporation ("Purchaser") and
DAVID A. TAYLOR ("Seller") and ENTERPRISE ENGINES, INC. (the "Company").
Capitalized terms not otherwise defined herein have the meanings set forth in
Section 9.1.
WHEREAS, Seller owns Two Million One Hundred (2,000,100) shares of common
stock, without par value, of the Company, constituting One Hundred Percent
(100%) of the issued and outstanding shares of common stock of the Company (such
shares being referred to herein as the "Shares"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, all of
the Shares on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.1 Purchase and Sale. Seller agrees to sell to Purchaser, and Purchaser
agrees to purchase from Seller, all of the right, title and interest of Seller
in and to the Shares at the Closing on the terms and subject to the conditions
set forth in this Agreement.
1.2 Purchase Price. The consideration for the purchase of the Shares is:
(i) ONE MILLION DOLLARS ($1,000,000), payable FIVE HUNDRED THOUSAND DOLLARS
($500,000) in immediately available funds at the Closing, as hereinafter
defined, in the manner provided in Section 1.3, together with a one (1) year
Promissory Note in the form attached hereto as Exhibit A (the "Promissory
Note"), and (ii) the issuance of up to One Hundred Twenty Thousand (120,000)
shares of the Purchaser's common stock, upon the achievement of the Milestones
as set forth in the Escrow Agreement in the form attached hereto as Exhibit B
(the "QAD Stock") to be deposited in escrow with Santa Barbara Bank & Trust and
to be released as the Milestones are reached or returned to the Purchaser if the
Milestones are not achieved (the cash payment, the Promissory Note and the QAD
Stock are collectively referred to as the "Purchase Price"). The Seller will be
responsible for all ordinary income taxes and capital gains taxes which may be
due as a result of receipt of the Purchase Price.
1.3 Closing. The Closing will take place at the offices of Purchaser, 6450
Via Real, Carpenteria, California, U.S.A. 93103, or at such other place as
Purchaser and Seller mutually agree, on the Closing Date, as hereinafter
defined. At the Closing, Purchaser will pay the Purchase Price by wire transfer
of immediately available funds to such account as Seller may reasonably direct
by written notice delivered to Purchaser by Seller at least two (2) Business
Days before the Closing Date. Simultaneously, Seller will assign and transfer to
<PAGE>
Purchaser all of Seller's right, title and interest in and to the Shares by
delivering to Purchaser a certificate or certificates representing the Shares,
in genuine and unaltered form, duly endorsed in the name of Purchaser or its
designee. At the Closing, there shall also be delivered to Seller and Purchaser
the opinions, certificates and other documents and instruments to be delivered
under Article VI.
1.4 Further Assurances; Post-Closing Cooperation. At any time or from time
to time after the Closing, Seller shall execute and deliver to Purchaser such
other documents and instruments, provide such materials and information and take
such other actions as Purchaser may reasonably request more effectively to vest
title to the Shares in Purchaser and, to the full extent permitted by Law, to
put Purchaser in actual possession and operating control of the Company and its
Assets and Properties and Books and Records, and otherwise to cause Seller to
fulfill his obligations under this Agreement to which he is a party. The
obligation of Seller under this Section 1.4 shall survive until two (2) years
following the Closing Date.
1.5 Seller's Retention of Certain Rights. The Seller wishes to secure
certain Intellectual Property rights from the Company which the Seller was
instrumental in creating, and Purchaser is agreeable to the Company's divestment
of such Intellectual Property rights, as follows. The Company hereby agrees to
assign, effective as of immediately following the Closing without any further
action required on the part of any of Seller, Purchaser or the Company, all its
right, title and interest in and to (collectively, the "Divested IP"): (i) the
trademark "Convergent Engineering" (the "Name"); (ii) the copyright to the book,
"Business Engineering With Object Technology" (the "Book"); and (iii) any
royalty or license agreements associated with the Name and/or the Book. Company
and Purchaser agree to execute any documents reasonably necessary to vest in the
Seller all such right, title and interest in and to the Divested IP. Except for
the Divested IP, Seller has no other rights to the Company or its Assets and
Properties. The Company shall retain, and, together with Seller, hereby grants
to Purchaser, effective as of the Closing, transferable, worldwide,
non-exclusive, royalty-free, licenses to make, use and sell the Divested IP in
the state Divested IP exists at the Closing, whether or not utilized
independently or included in the Purchaser's software products. The license
includes all rights necessary to utilize the Company's and the Purchaser's
software and create derivative works in and to the Divested IP and to create
appropriate documentation, training and marketing materials. The parties hereto
agree and acknowledge that the value of the Divested IP is $5,000.00. Except as
provided herein, the Seller has no other rights to the Company or its Assets and
Properties.
1.6 Company Source Code. The Seller acknowledges that it has deposited into
Escrow with Robert Stephens the Company's Enterprise Engine Source Code which
will be delivered by Robert Stephens to the Purchaser upon the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except with respect to any contract, arrangement or understanding between
the Company and Purchaser, as to which Seller makes no representation, warranty
or covenant, Seller hereby represents and warrants to Purchaser as follows:
2
<PAGE>
2.1 Authority. The execution and delivery by Seller of this Agreement to
which he is a party, and the performance by Seller of his obligations hereunder
and thereunder, have been duly and validly authorized by the Seller, no other
action on the part of Seller being necessary. This Agreement has been duly and
validly executed and delivered by Seller and constitutes the legal, valid and
binding obligations of Seller enforceable against Seller in accordance with its
terms.
2.2 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the State of California,
and has full corporate power and authority to conduct its business as and to the
extent now conducted and to own, use and lease its Assets and Properties.
Section 2.2 of the Disclosure Schedule lists all lines of business in which the
Company is participating or engaged. The Company is duly qualified, licensed or
admitted to do business and is in good standing in the State of California,
which is the only jurisdiction in which the ownership, use or leasing of its
Assets and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for those jurisdictions
in which the adverse effects of all such failures by the Company to be
qualified, licensed or admitted and in good standing can in the aggregate be
eliminated without material cost or expense by the Company, as the case may be,
becoming qualified or admitted and in good standing. The name of each director
and officer of the Company on the date hereof, and the position with the Company
held by each, are listed in Section 2.2 of the Disclosure Schedule. Seller has
prior to the execution of this Agreement delivered to Purchaser true and
complete copies of the Articles of Incorporation and the Bylaws of the Company
as in effect on the date hereof.
2.3 Capital Stock. The authorized capital stock of the Company consists
solely of Forty Million (40,000,000) shares of Common Stock, of which only the
Shares have been issued, and of which the Shares represent One Hundred Percent
(100%) of the entire outstanding common stock of the Company, and Twenty Million
(20,000,000) shares of Preferred Stock. Shares of Series A Preferred Stock have
been authorized, of which One Million (1,000,000) is outstanding. The Shares are
duly authorized, validly issued, outstanding, fully paid and nonassessable.
Seller owns the Company Shares, beneficially and of record, free and clear of
all Liens. Except for options or warrants disclosed in Section 2.3 of the
Disclosure Schedule, there are no outstanding stock options or warrants or other
securities or debt which is convertible into common stock. The delivery of a
certificate or certificates at the Closing representing the Shares in the manner
provided in Section 1.3 will transfer to Purchaser good and valid title to the
Shares, free and clear of all Liens.
2.4 Subsidiaries. The Company does not have, nor has it ever had, any
Subsidiaries.
2.5 No Conflicts. The execution and delivery by Seller of this Agreement do
not conflict with the performance by Seller of his obligations under this
Agreement and the consummation of the transactions contemplated hereby and
thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws
(or other comparable corporate charter documents) of the Company or any
Subsidiary;
3
<PAGE>
(b) conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Seller, the Company or any
Subsidiary or any of their respective Assets and Properties; or
(c) except as disclosed in Section 2.5 of the Disclosure Schedule, (i)
conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require
Seller, the Company or any Subsidiary to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a
result or under the terms of, (iv) result in or give to any Person any
right of termination, cancellation, acceleration or modification in or with
respect to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments
under, or (vi) result in the creation or imposition of any Lien upon the
Company or any Subsidiary or any of their respective Assets and Properties
under, any material Contract or License to which Seller, the Company or any
Subsidiary is a party or by which any of their respective Assets and
Properties is bound.
2.6 Governmental Approvals and Filings. No consent, approval or action of,
filing with or notice to any Governmental or Regulatory Authority on the part of
Seller, the Company or any Subsidiary is required in connection with the
execution, delivery and performance of this Agreement to which it is a party or
the consummation of the transactions contemplated hereby or thereby.
2.7 Books and Records. The minute books and other similar records of the
Company as made available to Purchaser prior to the execution of this Agreement
contain a true and complete record, in all material respects, of all action
taken at all meetings and by all written consents in lieu of meetings of the
stockholders, the boards of directors and committees of the boards of directors
of the Company. The stock transfer ledgers, stock option schedules, and other
similar records of the Company as made available to Purchaser prior to the
execution of this Agreement accurately reflect all record transfers prior to the
execution of this Agreement in the capital stock of the Company. The Company has
not recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held any of its Books and Records by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company.
2.8 Financial Statements; Assets and Liabilities. Prior to the execution of
this Agreement, Seller has delivered to Purchaser a true and complete copy of
the unaudited balance sheet of the Company as of November 30, 1999, a copy of
which is attached hereto as Exhibit C, and the related unaudited statements of
operations, stockholders' equity and cash flows for the portion of the fiscal
year then ended.
Except as set forth in the notes thereto, all such financial statements (i)
were prepared in accordance with GAAP, (ii) fairly present the consolidated
financial condition and results of operations of the Company as of the
respective dates thereof and for the respective periods covered thereby, and
(iii) were compiled from the Books and Records of the Company regularly
maintained by management and used to prepare the financial statements of the
Company in accordance with the principles stated therein. The Company has
4
<PAGE>
maintained its Books and Records in a manner sufficient to permit the
preparation of financial statements in accordance with GAAP.
2.9 Absence of Changes. Except for the execution and delivery of this
Agreement and the transactions to take place pursuant hereto and thereto on or
prior to the Closing Date, since the Financial Statement Date there has not been
any material adverse change, or any event or development which, individually or
together with other such events, could reasonably be expected to result in a
material adverse change, in the Business or Condition of the Company. Without
limiting the foregoing, there has not occurred between the Financial Statement
Date and the date hereof:
(i) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
such capital stock of or any Option with respect to the Company;
(ii) any authorization, issuance, sale or other disposition by the
Company of any shares of capital stock of or Option with respect to the
Company, or any modification or amendment of any right of any holder of any
outstanding shares of capital stock of or Option with respect to the
Company;
(iii) (A) incurrences by the Company of Indebtedness in an aggregate
principal amount exceeding $25,000 (net of any amounts discharged during
such period), or (B) any voluntary purchase, cancellation, prepayment or
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiver of any right of the Company under, any Indebtedness
of or owing to the Company;
(iv) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the real or personal property
or equipment of the Company or any Subsidiary in an aggregate amount
exceeding $25,000;
(v) any material change in (x) any pricing, investment, accounting,
financial reporting, inventory, credit, allowance or Tax practice or policy
of the Company, or (y) any method of calculating any bad debt, contingency
or other reserve of the Company for accounting, financial reporting or Tax
purposes, or any change in the fiscal year of the Company;
(vi) any write-off or write-down of or any determination to write off
or write down any of the Assets and Properties of the Company in an
aggregate amount exceeding $25,000;
(vii) any acquisition or disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of the Company,
other than in the ordinary course of business consistent with past
practice;
(viii) any (x) amendment of the certificate or acts of incorporation
or by-laws (or other comparable corporate charter documents) of the
Company, (y) recapitalization, reorganization, liquidation or dissolution
of the Company or (z) merger or other business combination involving the
Company and any other Person;
5
<PAGE>
(ix) any entering into, amendment, modification, termination (partial
or complete) or granting of a waiver under or giving any consent with
respect to (A) any Contract which is required (or had it been in effect on
the date hereof would have been required) to be disclosed in the Disclosure
Schedule pursuant to Section 2.18(a) or (B) any material License held by
the Company;
(x) capital expenditures or commitments for additions to property,
plant or equipment of the Company constituting capital assets in an
aggregate amount exceeding $25,000;
(xi) any commencement or termination by the Company of any line of
business;
(xii) any transaction by the Company with Seller, any officer,
director or Affiliate (other than the Company) of Seller (A) other than on
an arm's-length basis, other than pursuant to any Contract in effect on the
Financial Statement Date and disclosed pursuant to Section 2.18(a)(vii) of
the Disclosure Schedule;
(xiii) any entering into of a Contract to do or engage in any of the
foregoing after the date hereof;
(xiv) any other transaction involving or development affecting the
Seller outside the ordinary course of business consistent with past
practice; or
(xv) any increase in the annual level of compensation of any employee
whose compensation from the Company in the last preceding fiscal year
exceeded $50,000, or any grant of any unusual or extraordinary bonuses,
benefits or other forms of direct or indirect compensation to any current
or former employee, officer, director or consultant, except in amounts in
keeping with past practices by formulas or otherwise.
2.10 No Undisclosed Liabilities. To the Knowledge of Seller, Except as
reflected or reserved against in the balance sheet included in the Financial
Statements or in the notes thereto or as disclosed in Section 2.10 of the
Disclosure Schedule, there are no Liabilities against, relating to or affecting
the Company or any of its Assets and Properties, other than Liabilities which,
individually or in the aggregate, are not material to the Business or Condition
of the Company.
2.11 Taxes. The Company has filed all Tax Returns which are required to
have been filed in any jurisdiction, and have paid all Taxes shown to be due and
payable on the Tax Returns and all other Taxes payable by the Company to the
extent the same have become due and payable and before they have become
delinquent. The Seller knows of no proposed material Tax assessment against the
Company and all Tax liabilities are adequately provided for on the Books and
Records of the Company. There are no pending or, to the Knowledge of Seller,
threatened Actions or Proceedings against the Company with respect to any Taxes.
With respect to any Tax audits, the Company has not received any adverse notice
or communication of any kind or nature whatsoever from any Governmental or
Regulatory Authority with respect to any Tax Returns filed by the Company. No
Liens for Taxes (other than with respect to Taxes not yet due and payable)
encumber any of the Assets and Properties of the Company.
6
<PAGE>
2.12 Legal Proceedings.
(a) there are no Actions or Proceedings pending or, to the Knowledge of
Seller, threatened against, relating to or affecting Seller, the Company or any
Subsidiary or any of their respective Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or otherwise result in a
material diminution of the benefits contemplated by this Agreement, or (ii) if
determined adversely to the Company, could reasonably be expected to result in
(x) any injunction or other equitable relief against the Company that would
interfere in any material respect with its business or operations or (y) Losses
by the Company or any Subsidiary, individually or in the aggregate with Losses
in respect of other such Actions or Proceedings, exceeding $5,000;
(b) there are no facts or circumstances Known to Seller that could
reasonably be expected to give rise to any Action or Proceeding that would be
required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against the Company.
2.13 Compliance With Laws and Orders. The Company is not and has not at any
time within the last five (5) years been, or has received any notice that it is
or has at any time within the last five (5) years been, in violation of or in
default under, in any material respect, any Law or Order applicable to the
Company or any of its Assets and Properties.
2.14 Benefit and Compensation Plans. The Company has a Section 401-K
Employee Benefit Plan, a copy of which has been made available to Purchaser, and
has no other employee benefit or compensation plans except as set forth in
Section 2.14 of the Disclosure Schedule.
2.15 Real Property.
(a) Section 2.15(a) of the Disclosure Schedule contains a true and correct
list of each parcel of real property leased by the Company. The Company owns no
real property.
(b) The Company has adequate rights of ingress and egress with respect to
the real property listed in Section 2.15(a) of the Disclosure Schedule and all
buildings, structures, facilities, fixtures and other improvements thereon. To
the Knowledge of Seller, none of such real property, buildings, structures,
facilities, fixtures or other improvements, or the use thereof, contravenes or
violates any building, zoning, administrative, occupational safety and health or
other applicable Law in any material respect (whether or not permitted on the
basis of prior nonconforming use, waiver or variance).
(c) The Company has a valid and subsisting leasehold estate in and the
right to quiet enjoyment of the real properties leased by it for the full term
of the lease thereof. Each lease referred to in paragraph (a) above is a legal,
valid and binding agreement, enforceable in accordance with its terms, of the
Company and, to the Knowledge of Seller, of each other Person that is a party
thereto, and, there is no, and the Company has not received notice of any,
default (or any condition or event which, after notice or lapse of time or both,
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would constitute a default) thereunder. The Company does not owe any brokerage
commissions with respect to any such leased space.
(d) Seller has delivered to Purchaser prior to the execution of this
Agreement true and complete copies of all leases (including any amendments and
renewal letters).
(e) The improvements on the real property identified in Section 2.15(a) of
the Disclosure Schedule are in good operating condition and in a state of good
maintenance and repair, ordinary wear and tear excepted, are adequate and
suitable for the purposes for which they are presently being used and, to the
Knowledge of Seller, there are no condemnation or appropriation proceedings
pending or threatened against any of such real property or the improvements
thereon.
2.16 Tangible Personal Property; Investment Assets.
(a) The Company is in possession of and has good title to, or has valid
leasehold interests in or valid rights under Contract to use, all tangible
personal property used in or reasonably necessary for the conduct of their
business, including all tangible personal property reflected on the balance
sheet included in the Financial Statements and tangible personal property
acquired since the Financial Statement Date other than property disposed of
since such date in the ordinary course of business consistent with past
practice. All such tangible personal property is free and clear of all Liens,
other than Permitted Liens, and is in good working order and condition, ordinary
wear and tear excepted, and its use complies in all material respects with all
applicable Laws.
(b) Section 2.16(b) of the Disclosure Schedule describes each Investment
Asset owned by the Company on the date hereof. Except as disclosed in Section
2.16(b) of the Disclosure Schedule, all such Investment Assets are owned by the
Company free and clear of all Liens other than Permitted Liens.
2.17 Intellectual Property.
(a) To the Knowledge of Seller, Company owns, or is licensed or otherwise
entitled to exercise pursuant to the terms of a license or other similar
agreement identified in Section 2.17(a) of the Disclosure Schedule, all rights
to all Intellectual Property used in the Business as currently conducted or in
connection with products to be used in the Business currently under development
without any conflict or infringement of the rights of others. The source code
created by Company and included within the Assets and Properties of the Company
constitutes a trade secret of Company, and as a whole, is not part of the public
knowledge or literature, and Company has taken reasonable action to protect such
source code as a trade secret and has not been disclosed to any party or
retained by any party other than the Company. In addition, Company has taken
reasonable and practicable steps (including, without limitation, entering into
confidentiality and non-disclosure agreements with all officers and employees of
and consultants to Seller) to maintain the secrecy and confidentiality of and
its proprietary rights in, Company's trade secrets. Furthermore, all of the
employees of Company that have participated in the development or creation of
any of the Company's Intellectual Property are listed in Section 2.17(a) of the
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Disclosure Schedule, and each such employee has already entered, or will prior
to the Closing enter, into agreements with Company whereby each such employee
assigns any and all of his or her rights in the Intellectual Property created
pursuant to his or her employment with the Company.
(b) In addition to the foregoing, Section 2.17(b) of the Disclosure
Schedule lists (i) all patents and patent applications and all registered
copyrights, trade names, trademarks, service marks and other company, product or
service identifiers included in Company's Intellectual Property, and specifies
the jurisdictions in which each such Company's Intellectual Property has been
registered, including the respective registration numbers; (ii) other than
nonexclusive end user licenses entered into in the ordinary course of business,
all licenses, sublicenses and other agreements as to which Company is a party
and pursuant to which Company or any other person is authorized to use any of
Company's Intellectual Property; and (iii) all licenses relating to the Business
under which Company is or may be obligated to make royalty or other payments.
Copies of all licenses, sublicenses, and other agreements identified pursuant to
clauses (ii) and (iii) above have been delivered by Company to Purchaser.
(c) To the Knowledge of Seller, Company is not in violation in any material
respect of any license, sublicense or agreement described in Section 2.17 of the
Disclosure Schedule. As a result of the execution and delivery of this Agreement
or the performance of Company's obligations hereunder or thereunder, to
Company's and Seller's knowledge, Company will not be in violation in any
material respect of any license, sublicense or agreement described in Section
2.17 of the Disclosure Schedule, or lose or in any way impair any rights
pursuant thereto.
(d) To the Knowledge of Seller, Company is the owner or a licensee of, with
all necessary right, title and interest in and to (free and clear of any liens,
encumbrances or security interests) all Intellectual Property being used or
proposed to be used in the Business in connection with products currently under
development, and has rights to the use, sale, license or disposal thereof in
connection with the services or products in respect of which such Intellectual
Property are used.
(e) No claims with respect to the Intellectual Property used in the
Business have been asserted to Company, or, to Company's and Seller's knowledge,
are threatened by any person, and Seller knows of no claims (i) to the effect
that Company in the conduct of the Business infringes any copyright, patent,
trade secret, or other intellectual property right of any third party or
violates any license or agreement with any third party, (ii) contesting the
right of Company to use, sell, license or dispose of any Intellectual Property
used in the Business, or (iii) challenging the ownership, validity or
effectiveness of any of the Intellectual Property used in the Business.
(f) To the Knowledge of Seller, all trademarks, service marks, and other
company, product or service identifiers held by Company and used in the Business
are valid and subsisting.
(g) To the Knowledge of Seller, there has not been and there is not now any
unauthorized use, infringement or misappropriation of any of Company's
Intellectual Property by any third party, including, without limitation, any
service provider of Company; Company has not been sued or, to Company's and
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Seller's knowledge, charged as a defendant in any claim, suit, action or
proceeding that involves a claim of infringement of any patents, trademarks,
service marks, copyrights or other intellectual property rights. To Company's
and Seller's knowledge, Company does not have any infringement liability due to
its conduct of the Business with respect to any patent, trademark, service mark,
copyright or other intellectual property right of another.
(h) To the Knowledge of Seller, none of Company's Intellectual Property is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting in any material manner the licensing thereof by Company. Company has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property, except in the ordinary course of
business. Company has not entered into any agreement granting any third party
the right to bring infringement actions with respect to, or otherwise to enforce
rights with respect to, any of Company's Intellectual Property. Company has the
exclusive right to file, prosecute and maintain all applications and
registrations with respect to Company's Intellectual Property developed or owned
by Company.
(i) No person has a license to use or the right to acquire a license to use any
future version of any Company product used in or sold by the Business or any
such Company product that is under development, and no agreement to which
Company is a party will restrict Purchaser from charging customers for any such
new version. Section 2.17(i) of the Disclosure Schedule separately identifies
each exclusive arrangement between Company and any third party to use, license,
sublicense, sell or distribute any of Company's Intellectual Property or any
Company products sold or distributed by the Business.
2.18 Contracts. Section 2.18 of the Disclosure Schedule contains a true and
complete list of each of Contracts or other arrangements (true and complete
copies or reasonably complete and accurate written descriptions of, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been made available to Purchaser prior to the execution of this
Agreement), to which the Company is a party or by which any of its Assets and
Properties are bound which (i) has a value in excess of $10,000.00 and (ii) is
not listed in any other section of the Disclosure Schedule.
2.19 Licenses. Section 2.19 of the Disclosure Schedule contains a true and
complete list of all Licenses used in and material, individually or in the
aggregate, to the business or operations of the Company (and all pending
applications for any such Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each. Prior to the execution of
this Agreement, Seller has delivered to Purchaser true and complete copies of
all such Licenses. Except as disclosed in Section 2.19 of the Disclosure
Schedule:
(i) the Company owns or validly holds all Licenses that are material,
individually or in the aggregate, to its business or operations;
(ii) each License listed in Section 2.19 of the Disclosure Schedule is
valid, binding and in full force and effect; and
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(iii) neither the Company is, or has received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any such License.
2.20 Insurance. Section 2.20 of the Disclosure Schedule contains a true and
complete list of all liability, property, workers' compensation, directors' and
officers' liability and other insurance policies currently in effect that insure
the business, operations or employees of the Company or affect or relate to the
ownership, use or operation of any of the Assets and Properties of the Company
and that (i) have been issued to the Company or (ii) have been issued to any
Person (other than the Company) for the benefit of the Company. The insurance
coverage provided by any of the policies described in clause (i) above will not
terminate or lapse by reason of the transactions contemplated by this Agreement.
Each policy listed in Section 2.20 of the Disclosure Schedule is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid and neither the Company, nor the Person to whom such policy has been issued
has received any notice of cancellation or termination in respect of any such
policy or is in default thereunder. The insurance policies listed in Section
2.20 of the Disclosure Schedule are, in light of the respective business,
operations and Assets and Properties of the Company, in amounts and have
coverages that are reasonable and customary for Persons engaged in such
businesses and operations and having such Assets and Properties. Neither the
Company, nor the Person to whom such policy has been issued has received notice
that any insurer under any policy referred to in this Section is denying
liability with respect to a claim thereunder or defending under a reservation of
rights clause.
2.21 Affiliate Transactions. Except as disclosed in Section 2.18(a)(vii) or
Section 2.21(a) of the Disclosure Schedule, (i) there are no intercompany
Liabilities between the Company, on the one hand, and Seller, any present or
former officer, director or Affiliate (other than the Company) of Seller, on the
other, (ii) neither Seller nor any such present or former officer, director or
Affiliate provides or causes to be provided any assets, services or facilities
to the Company, (iii) the Company does not provide or cause to be provided any
assets, services or facilities to Seller or any such present or former officer,
director or Affiliate and (iv) the Company does not beneficially own, directly
or indirectly, any Investment Assets issued by Seller or any such present or
former officer, director or Affiliate. Except as disclosed in Section 2.21(b) of
the Disclosure Schedule, each of the Liabilities and transactions listed in
Section 2.21(a) of the Disclosure Schedule was incurred or engaged in, as the
case may be, on an arm's-length basis. Except as disclosed in Section 2.21(c) of
the Disclosure Schedule, since the Financial Statement Date, all settlements of
intercompany Liabilities between the Company, on the one hand, and Seller or any
such present or former officer, director or Affiliate, on the other, have been
made, and all allocations of intercompany expenses have been applied, in the
ordinary course of business consistent with past practice. Since November 30,
1999, the Company has not made any distributions to Seller other than normal
payroll or expense reimbursement.
2.22 Employees; Labor Relations. There are no outstanding claims pending
or, to the Knowledge of Seller, asserted by or against the Company by any
employee, consultant or former employee or former consultant of the Company.
2.23 Environmental Matters. To the Knowledge of Seller, the Company has
obtained all Licenses which are required under applicable Environmental Laws in
connection with the conduct of the business or operations of the Company. Each
of such Licenses is in full force and effect and the Company is in compliance in
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all material respects with the terms and conditions of all such Licenses and
with any applicable Environmental Law. In addition, to the Knowledge of Seller:
(a) No Order has been issued, no Environmental Claim has been filed, no
penalty has been assessed and no investigation or review is pending or, to the
Knowledge of Seller, threatened by any Governmental or Regulatory Authority with
respect to any alleged failure by the Company to have any License required under
applicable Environmental Laws in connection with the conduct of the business or
operations of the Company or with respect to any generation, treatment, storage,
recycling, transportation, discharge, disposal or Release of any Hazardous
Material generated by the Company or any Subsidiary, and to the Knowledge of
Seller, there are no facts or circumstances in existence which could reasonably
be expected to form the basis for any such Order, Environmental Claim, penalty
or investigation.
(b) The Company has not transported or arranged for the transportation of
any Hazardous Material to any location that is the subject of enforcement
actions by Governmental or Regulatory Authorities that may lead to Environmental
Claims against the Company.
(c) No Hazardous Material generated by the Company has been recycled,
treated, stored, disposed of or Released by the Company at any location.
(d) No Liens have arisen under or pursuant to any Environmental Law on any
site or facility owned, operated or leased by the Company, and no Governmental
or Regulatory Authority action has been taken or, to the Knowledge of Seller, is
in process that could subject any such site or facility to such Liens, and the
Company would not be required to place any notice or restriction relating to the
presence of Hazardous Materials at any site or facility owned by it in any deed
to the real property on which such site or facility is located.
(e) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, or that are in the possession of,
the Company in relation to any site or facility now or previously owned,
operated or leased by the Company which have not been delivered to Purchaser
prior to the execution of this Agreement.
2.24 Bank and Brokerage Accounts; Investment Assets. Section 2.24 of the
Disclosure Schedule sets forth (a) a true and complete list of the names and
locations of all banks, trust companies, securities brokers and other financial
institutions at which the Company has an account or safe deposit box or
maintains a banking, custodial, trading or other similar relationship; (b) a
true and complete list and description of each such account, box and
relationship, indicating in each case the account number and the names of the
respective officers, employees, agents or other similar representatives of the
Company having signatory power with respect thereto; and (c) a list of each
Investment Asset, the name of the record and beneficial owner thereof, the
location of the certificates, if any, therefor, the maturity date, if any, and
any stock or bond powers or other authority for transfer granted with respect
thereto.
2.25 No Powers of Attorney. Except as set forth in Section 2.25 of the
Disclosure Schedule, the Company does not have any powers of attorney or
comparable delegations of authority outstanding.
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2.26 Accounts Receivable. Except as set forth in Section 2.26 of the
Disclosure Schedule, the accounts and notes receivable of the Company reflected
on the balance sheet included in the Financial Statements, and all accounts and
notes receivable arising subsequent to the Financial Statement Date, (i) arose
from bona fide sales transactions in the ordinary course of business and are
payable on ordinary trade terms, (ii) are legal, valid and binding obligations
of the respective debtors enforceable in accordance with their terms, (iii) are
not subject to any valid set-off or counterclaim, (iv) do not represent
obligations for goods sold on consignment, on approval or on a sale-or-return
basis or subject to any other repurchase or return arrangement, (v) are
collectible in the ordinary course of business consistent with past practice in
the aggregate recorded amounts thereof, net of any applicable reserve reflected
in the balance sheet included in the Financial Statements, and (vi) are not the
subject of any Actions or Proceedings brought by or on behalf of the Company.
Section 2.26 of the Disclosure Schedule sets forth a description of any security
arrangements and collateral securing the repayment or other satisfaction of
receivables of the Company. All steps necessary to render all such security
arrangements legal, valid, binding and enforceable, and to give and maintain for
the Company, as the case may be, a perfected security interest in the related
collateral, have been taken.
2.27 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Seller directly with
Purchaser without the intervention of any Person on behalf of Seller in such
manner as to give rise to any valid claim by any Person against Purchaser or the
Company for a finder's fee, brokerage commission or similar payment.
2.28 Disclosure. To the Knowledge of Seller, all material facts relating to
the Business or Condition of the Company have been disclosed by the Seller to
the Purchaser in or in connection with this Agreement. No representation or
warranty contained in this Agreement, and no statement contained in the
Disclosure Schedule or in any certificate, list or other writing furnished to
Purchaser pursuant to any provision of this Agreement (including without
limitation the Financial Statements), contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which they
were made, not misleading.
2.29 Warranties and Indemnities. Section 2.29 of the Disclosure Schedule
sets forth a summary of all warranties and indemnities, express or implied,
relating to products sold or services rendered by the Company, and no warranty
or indemnity has been given by the Company that is not listed on Section 2.29 of
the Disclosure Schedule or which differs therefrom in any respect. The Company
is in compliance with all warranties described in Section 2.29 of the Disclosure
Schedule. Section 2.29 of the Disclosure Schedule also indicates all warranty
and indemnity claims currently pending against the Company.
2.30 Confidentiality Agreements. All present or former employees,
consultants, officers and directors of the Company that have had access to the
Proprietary Assets of the Company are parties to a written agreement (a
"Confidentiality Agreement"), under which each such Person (i) is obligated to
disclose and transfer to the Company, without the receipt by such Person of any
additional value therefor (other than normal salary or fees for consulting
services), all inventions, developments and discoveries which, during the period
of employment with or performance of services for the Company, he or she makes
or conceives of either solely or jointly with others, that relate to any subject
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matter with which his or her work for the Company may be concerned, and (ii) is
obligated to maintain the confidentiality of proprietary information of the
Company. To the Knowledge of Seller, none of the Company's present or former
employees, consultants, officers or directors is obligated under any Contract
(including licenses, covenants or commitments of any nature), or subject to any
judgment, decree or Order of any Governmental or Regulatory Authority, that
would conflict with their obligation to promote the interests of the Company
with regard to their business or the proprietary assets. To the Knowledge of
Seller, neither the execution nor the delivery of this Agreement, nor the
carrying on of the Company's business by its present or former employees and
consultants, will conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such Persons are now obligated. It is currently
not necessary nor will it be necessary for the Company to utilize any inventions
of any of such Persons (or Persons the Company currently intends to hire) made
or owned prior to their employment by or affiliation with the Company, nor is it
or will it be necessary to utilize any other assets or rights of any such
persons or entities (or Persons the Company currently intends to hire) made or
owned prior to their employment with or engagement by the Company, in violation
of any registered patents, trade names, trademarks or copyrights or any other
limitations or restrictions to which any such persons or entity is a party or to
which any of such assets or rights may be subject. To the Knowledge of Seller,
none of the Company's present or former employees, consultants, officers,
directors or shareholders that has had knowledge or access to information
relating to the proprietary assets has taken, removed or made use of any
Proprietary Assets, or any other tangible item from his or her previous employer
relating to the proprietary assets by such previous employer which has resulted
in the Company's access to or use of such proprietary items included in the
Proprietary Assets, and the Company will not gain access to or make use of any
such proprietary items in their business.
2.31 Products. Each of the products and services produced, sold or provided
by the Company is, and at all times has been, in compliance in all material
respects with all applicable Laws and, to the Knowledge of the Seller, at all
relevant times has been fit for the ordinary purposes for which it is intended
to be used and conforms in all material respects to any promises or affirmations
of fact made in connection with the sale of such product or service.
2.32 Product Liability. There are no claims, actions, suits, inquiries,
proceedings or investigations pending by or against the Company, or threatened
by or against relating to the Company's products and containing allegations that
such products are defective or were improperly designed or manufactured or
improperly labeled or otherwise improperly described for use.
2.33 Year 2000 Compliance. Seller represents and warrants that Seller owned
and controlled business systems ("Seller's Systems") that are part of the
Business will not have a material interruption of operations due to a Year 2000
problem provided items not owned and controlled by Seller properly exchange date
data with the Seller's Systems. Such warranty shall remain in place up to and
including one hundred eighty (180) days following January 1, 2000.
2.34 Seller's Investment Representations. The Seller understands that the
sale of the QAD Stock has not been registered under the Securities Act of 1933,
as amended (the "Securities Act") or qualified under the California Corporations
Code (the "Code") in reliance upon exemptions therefrom the nonpublic offerings.
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The Seller understands that the QAD Stock must be held indefinitely unless the
sale thereof is subsequently registered or qualified under the Act and the Code
and applicable state securities laws or exemptions from such registration or
qualification are available. The QAD Stock is being purchased solely for the
Seller's own account for investment and not for the account of any other person
and not for distribution, assignment or resale to others or a view to
distribution to others and no other person has a direct or indirect beneficial
interest in the QAD Stock, and the certificates representing the QAD Stock will
bear appropriate restrictive legends.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.1 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Purchaser
has full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
3.2 Authority. The execution and delivery by Purchaser of this Agreement,
and the performance by Purchaser of its obligations hereunder, have been duly
and validly authorized by the Board of Directors of Purchaser, no other
corporate action on the part of Purchaser or its stockholders being necessary.
This Agreement has been duly and validly executed and delivered by Purchaser and
constitutes a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms.
3.3 No Conflicts. The execution and delivery by Purchaser of this Agreement
and the performance by the Purchaser of its obligations under this Agreement and
the consummation of the transactions contemplated hereby will not conflict with
or result in a violation or breach of any of the terms, conditions or provisions
of the certificate of incorporation or by-laws (or other comparable corporate
charter document) of Purchaser.
3.4 Governmental Approvals and Filings. Except for routine filings with the
Securities and Exchange Commission (the "SEC") that may be required pursuant to
the Securities Exchange Act of 1934, as amended, no consent, approval or action
of, filing with or notice to any Governmental or Regulatory Authority on the
part of Purchaser is required in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
3.5 QAD Stock. The QAD Stock will be duly authorized, issued and
outstanding, and fully paid and non-assessable.
3.6 Reports; Financial Statements. Each registration statement, report,
proxy statement or information statement prepared by Purchaser since January 31,
1999, including Purchaser's Annual Report on Form 10-K for the years ended
January 31, 1999 and Purchaser's Quarterly Reports on Form 10-Q for the quarters
ended April 30, 1999 and July 31, 1999 in the form (including exhibits, annexes
and any amendments thereto) filed with the SEC (collectively, including any such
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reports filed subsequent to the date of this Agreement, "Purchaser's Reports")
complied as to form with all applicable requirements under the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder 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 made therein, in light of the circumstances in
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into Purchaser's Reports (including the
related notes and schedules) fairly presents the consolidated financial position
of Purchaser and its Subsidiaries as of its date and each of the consolidated
statements of income, shareholders' investment and cash flows included in or
incorporated by reference into Purchaser's Reports (including any related notes
and schedules) fairly presents the consolidated results of operations, statement
of shareholders' investment and cash flows, as the case may be, of Purchaser and
its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to the absence of notes (to the extent permitted by the
rules applicable to Form 10-Q) and to normal year-end audit adjustments that
will not be material in amount or effect), in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein.
3.7 Absence Of Certain Changes. Except as disclosed in Purchaser's Reports
filed prior to the date of this Agreement or in any press releases made by
Purchaser, since January 31, 1999, there has not been: (i) any material change
in the financial condition, liabilities and assets (taken together), business or
results of operations of Purchaser and its Subsidiaries; (ii) any material
damage, destruction or other casualty loss with respect to any asset or property
owned, leased or otherwise used by Purchaser or any of its Subsidiaries, whether
or not covered by insurance; or (iii) any change by Purchaser in accounting
principles, practices or methods, except as required by GAAP.
ARTICLE IV
COVENANTS OF SELLER, THE COMPANY AND PURCHASER
The Seller and the Company covenant and agree with the Purchaser that, at
all times from and after the date hereof until the Closing, they will comply
with the following covenants:
4.1 Regulatory and Other Approvals. The Seller and the Company will as
promptly as practicable (a) take all commercially reasonable steps necessary or
desirable to obtain all consents, approvals or actions of, make all filings with
and give all notices to Governmental or Regulatory Authorities or any other
Person required of the Seller, the Company to consummate the transactions
contemplated hereby, including without limitation those described in Sections
2.6 and 2.7 of the Disclosure Schedule, (b) provide such other information and
communications to such Governmental or Regulatory Authorities or other Persons
as the Purchaser or such Governmental or Regulatory Authorities or other Persons
may reasonably request in connection therewith and (c) cooperate with Purchaser
in connection with the performance of its obligations under Sections 6.1(b) and
(c). The Seller and the Company will provide prompt notification to the
Purchaser when any such consent, approval, action, filing or notice referred to
in clause (a) above is obtained, taken, made or given, as applicable, and will
advise the Purchaser of any communications (and, unless precluded by Law,
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provide copies of any such communications that are in writing) with any
Governmental or Regulatory Authority or other Person regarding any of the
transactions contemplated by this Agreement.
4.2 Investigation by Purchaser. The Seller and the Company (a) provide the
Purchaser and its officers, directors, employees, agents, counsel, accountants,
financial advisors, consultants and other representatives (together
"Representatives") with full access, upon reasonable prior notice and during
normal business hours, to all officers, employees, agents and accountants of the
Company and its Assets and Properties and Books and Records, and (b) furnish the
Purchaser and such other Persons with all such information and data (including
without limitation copies of Contracts, Benefit Plans and other Books and
Records) concerning the business and operations of the Company as the Purchaser
or any of such other Persons reasonably may request in connection with such
investigation.
4.3 No Solicitations. The Seller and the Company will not take, nor will
they permit the Company or any Affiliate of Seller (or authorize or permit any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Seller, the Company or any such
Affiliate) to take, directly or indirectly, any action to solicit, encourage,
receive, negotiate, assist or otherwise facilitate (including by furnishing
confidential information with respect to the Company or permitting access to the
Assets and Properties and Books and Records of the Company ) any offer or
inquiry from any Person concerning an Acquisition Proposal. If the Seller, the
Company or any such Affiliate (or any such Person acting for or on their behalf)
receives from any Person any offer, inquiry or informational request referred to
above, the Seller and the Company will promptly advise such Person, by written
notice, of the terms of this Section 4.3 and will promptly, orally and in
writing, advise the Purchaser of such offer, inquiry or request and deliver a
copy of such notice to the Purchaser.
4.4 Conduct of Business. The Seller and the Company will cause the Company
to conduct business only in the ordinary course consistent with past practice.
Without limiting the generality of the foregoing, Seller and the Company will:
(a) cause the Company to use commercially reasonable efforts to (i)
preserve intact the present business organization and reputation of the Company,
(ii) keep available (subject to dismissals and retirements in the ordinary
course of business consistent with past practice) the services of the present
officers, employees and consultants of the Company, (iii) maintain the Assets
and Properties of the Company in good working order and condition, ordinary wear
and tear excepted, (iv) maintain the good will of customers, suppliers, lenders
and other Persons to whom the Company sells goods or provides services or with
whom the Company otherwise has significant business relationships and (v)
continue all current sales, marketing and promotional activities relating to the
business and operations of the Company;
(b) except to the extent required by applicable Law, (i) cause the Books
and Records to be maintained in the usual, regular and ordinary manner, (ii) not
permit any material change in (A) any pricing, investment, accounting, financial
reporting, inventory, credit, allowance or Tax practice or policy of the
Company, or (B) any method of calculating any bad debt, contingency or other
reserve of the Company for accounting, financial reporting or Tax purposes and
(iii) not permit any change in the fiscal year of the Company;
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(c) (i) use, and will cause the Company to use, commercially reasonable
efforts to maintain in full force and effect until the Closing substantially the
same levels of coverage as the insurance afforded under the Contracts listed in
Section 2.18 of the Disclosure Schedule, (ii) to the extent requested by the
Purchaser prior to the Closing Date, use all commercially reasonable efforts to
cause such insurance coverage held by any Person (other than the Company) for
the benefit of the Company to continue to be provided at the expense of the
Company for at least ninety (90) days after the Closing on substantially the
same terms and conditions as provided on the date of this Agreement and (iii)
cause any and all benefits under such Contracts paid or payable (whether before
or after the date of this Agreement) with respect to the business, operations,
employees or Assets and Properties of the Company to be paid to the Company; and
(d) cause the Company to comply, in all material respects, with all Laws
and Orders applicable to the business and operations of the Company, and
promptly following receipt thereof to give the Purchaser copies of any notice
received from any Governmental or Regulatory Authority or other Person alleging
any violation of any such Law or Order.
4.5 Financial Statements and Reports; Filings.
(a) As promptly as practicable after the date hereof and before the Closing
Date, the Seller will deliver to the Purchaser true and complete copies of such
financial statements, reports and analyses as may be prepared or received by
Seller or the Company relating to the business or operations of the Company or
as the Purchaser may otherwise reasonably request.
(b) As promptly as practicable, the Seller will deliver copies of all
License applications and other filings made by the Company after the date hereof
and before the Closing Date with any Governmental or Regulatory Authority (other
than routine, recurring filings made in the ordinary course of business
consistent with past practice).
4.6 Certain Restrictions. Except as contemplated by this Agreement, the
Seller will cause the Company to refrain from:
(a) amending its articles of incorporation or by-laws (or other comparable
corporate charter documents) or taking any action with respect to any such
amendment or any recapitalization, reorganization, liquidation or dissolution of
any such corporation;
(b) authorizing, issuing (except pursuant to the exercise of outstanding
options to purchase Common Stock of the Company), selling or otherwise disposing
of any shares of capital stock of or any Option with respect to the Company, or
modifying or amending any right of any holder of outstanding shares of capital
stock of or Option with respect to the Company;
(c) declaring, setting aside or paying any dividend or other distribution
in respect of the capital stock of the Company, or directly or indirectly
redeeming, purchasing or otherwise acquiring any capital stock of or any Option
with respect to the Company;
(d) acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on, any Assets and Properties;
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(e) (i) entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with respect to (A)
any Contract that would, if in existence on the date of this Agreement, be
required to be disclosed in the Disclosure Schedule pursuant to Section 2.18 or
(B) any material License or (ii) granting any irrevocable powers of attorney;
(f) violating, breaching or defaulting under in any material respect, or
taking or failing to take any action that (with or without notice or lapse of
time or both) would constitute a material violation or breach of, or default
under, any term or provision of any License held or used by the Company or any
Contract to which the Company is a party or by which any of its Assets and
Properties is bound;
(g) (i) incurring Indebtedness in an aggregate principal amount exceeding
$10,000 (net of any amounts of Indebtedness discharged during such period), or
(ii) voluntarily purchasing, canceling, prepaying or otherwise providing for a
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiving any right of the Company under, any Indebtedness of or
owing to the Company;
(h) engaging with any Person in any merger or other business combination;
(i) making capital expenditures or commitments for additions to property,
plant or equipment constituting capital assets in an aggregate amount exceeding
$10,000;
(j) making any change in the lines of business in which they participate or
are engaged;
(k) writing off or writing down any of their Assets and Properties;
(l) except as set forth in Section 4.6(l) of the Disclosure Schedule,
modifying any compensation terms or paying any bonuses to a current or former
employee, director, consultant or Affiliate; or
(m) entering into any Contract to do or engage in any of the foregoing.
4.7 Affiliate Transactions. Except as set forth in Section 4.7 of the
Disclosure Schedule, immediately prior to the Closing, all Indebtedness and
other amounts owing under Contracts between the Seller, the Company, any
officer, director or Affiliate (other than the Company) of Seller, on the one
hand, and the Company, on the other, will be paid in full, and Seller will
terminate and will cause any such officer, director or Affiliate to terminate
each Contract with the Company. Prior to the Closing, the Company will not enter
into any Contract or amend or modify any existing Contract, and will not engage
in any transaction outside the ordinary course of business consistent with past
practice or not on an arm's-length basis (other than pursuant to Contracts
disclosed pursuant to Section 2.21 of the Disclosure Schedule), with Seller, or
any such officer, director or Affiliate.
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ARTICLE V
COVENANT OF PURCHASER
5.1 Form S-3. No later than 30 days after the Closing Date, Purchaser shall
file with the SEC, at Purchaser's expense a Registration Statement on Form S-3
(the "Registration Statement") or other appropriate form under the Securities
Act to register the QAD Stock. Purchaser shall use commercially reasonable
efforts to cause the Registration Statement to remain continuously effective,
including without limitation by timely making all required filings with the SEC
and supplementing the prospectus related to the QAD Stock as necessary, until
the earlier to occur of the following: (i) Seller has disposed of all of the
shares of QAD Stock; and (ii) all of the shares of QAD Stock are can be sold
within a given 30-day period pursuant to Rule 144 of the Securities Act.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PURCHASER AND SELLER
6.1 Conditions to Obligations of Purchaser. The obligations of Purchaser
hereunder to purchase the Shares are subject to the fulfillment, at or before
the Closing, of each of the following conditions (all or any of which may be
waived in whole or in part by Purchaser in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Seller in this Agreement (other than those made as of a
specified date earlier than the Closing Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date, and any representation or
warranty made as of a specified date earlier than the Closing Date shall have
been true and correct in all material respects on and as of such earlier date.
(b) Performance. Seller shall have performed and complied with, in all
material respects, each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Seller at or before the
Closing.
(c) Seller's Certificates. Seller shall have delivered to Purchaser a
certificate, dated the Closing Date and executed in the name and on behalf of
Seller, substantially in the form and to the effect of Exhibit D hereto.
(d) Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
which could reasonably be expected to otherwise result in a material diminution
of the benefits of the transactions contemplated by this Agreement, and there
shall not be pending or threatened on the Closing Date any Action or Proceeding
in, before or by any Governmental or Regulatory Authority which could reasonably
be expected to result in the issuance of any such Order or the enactment,
promulgation or deemed applicability to Purchaser, the Company, or the
transactions contemplated by this Agreement of any such Law.
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(e) Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Seller to perform his obligations under this Agreement
and to consummate the transactions contemplated hereby and thereby (a) shall
have been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to Purchaser, (c) shall not be subject to the
satisfaction of any condition that has not been satisfied or waived and (d)
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement, shall
have occurred.
(f) Third Party Consents. All consents (or in lieu thereof waivers) to the
performance by Purchaser or Seller of their obligations under this Agreement or
to the consummation of the transactions contemplated hereby and thereby as are
required under any Contract to which Purchaser, Seller or the Company is a party
or by which any of their respective Assets and Properties are bound (a) shall
have been obtained, (b) shall be in form and substance reasonably satisfactory
to Purchaser, (c) shall not be subject to the satisfaction of any condition that
has not been satisfied or waived and (d) shall be in full force and effect,
except where the failure to obtain any such consent (or in lieu thereof waiver)
could not reasonably be expected, individually or in the aggregate with other
such failures, to materially adversely affect Purchaser or the Business or
Condition of the Company or otherwise result in a material diminution of the
benefits of the transactions contemplated by this Agreement.
(g) Due Diligence. Purchaser's due diligence investigation of the Company
shall not have disclosed any matter or matters which, individually or in the
aggregate, could reasonably be expected to materially adversely affect the
Company or the Business or Conditions of the Company.
(h) Resignations of Directors and Officers. Such members of the boards of
directors and such officers of the Company as are designated in a written notice
delivered prior to the Closing Date by Purchaser to Seller shall have tendered,
effective at the Closing, their resignations as such directors and officers.
(i) Consulting Agreement. Seller will execute a Consulting Agreement in the
form attached hereto as Exhibit E (the "Consulting Agreement").
(j) Release Agreement. Seller will deliver a Release Agreement, in the form
attached hereto as Exhibit F, releasing the Company and the Purchaser from all
claims and liabilities, except for this Agreement, the Promissory Note, the QAD
Stock, the Consulting Agreement and the Noncompetition Agreement (as defined
below).
(k) Employment Agreements. The employees listed in Section 6.1(k) of the
Disclosure Schedule will have executed employment agreements in a form
satisfactory to the Purchaser, together with the cancellation of any existing
options to purchase shares of the Company.
(l) Proceedings. All proceedings to be taken on the part of Seller in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
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substance to Purchaser, and Purchaser shall have received copies of all such
documents and other evidences as Purchaser may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(m) Source Code. The Seller shall have delivered the Source Code for
Enterprise Engines to Robert Stephens.
(n) Purchaser's Lender and Board of Directors Approval. The Purchaser's
lender and the Purchaser's Board of Directors has consented to or approved this
Agreement.
(o) Noncompetition Agreement. The Seller shall have executed the
Noncompetition Agreement in the form attached hereto as Exhibit G (the
"Noncompetition Agreement").
(p) Gemstone Agreement. The Value-Added Remarketer Agreement between the
Company and Gemstone Systems, Inc. (the "Gemstone Agreement") shall remain in
effect and shall be unaffected by the transactions contemplated herein such that
the Purchaser has determined that the Company may receive the full benefit of
the Gemstone Agreement and that it is valid and in full force and effect.
6.2 Conditions to Obligations of Seller. The obligations of Seller
hereunder to sell the Shares are subject to the fulfillment, at or before the
Closing, of each of the following conditions (all or any of which may be waived
in whole or in part by Seller in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Purchaser in this Agreement (other than those made as of a
specified date earlier than the Closing Date) shall be true and correct in all
material respects on and as of the Closing Date as though such representation or
warranty was made on and as of the Closing Date, and any representation or
warranty made as of a specified date earlier than the Closing Date shall have
been true and correct in all material respects on and as of such earlier date.
(b) Performance. Purchaser shall have performed and complied with, in all
material respects, each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Seller at or before the
Closing.
(c) Purchaser's Certificate. Purchaser shall have delivered to Seller a
certificate, dated the Closing Date and executed in the name and on behalf of
Seller, substantially in the form and to the effect of Exhibit H hereto.
(d) Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
which could reasonably be expected to otherwise result in a material diminution
of the benefits of the transactions contemplated by this Agreement, and there
shall not be pending or threatened on the Closing Date any Action or Proceeding
in, before or by any Governmental or Regulatory Authority which could reasonably
be expected to result in the issuance of any such Order or the enactment,
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promulgation or deemed applicability to Purchaser, the Company, or the
transactions contemplated by this Agreement of any such Law.
(e) Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Purchaser to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby and thereby (a)
shall have been duly obtained, made or given, (b) shall be in form and substance
reasonably satisfactory to Seller, (c) shall not be subject to the satisfaction
of any condition that has not been satisfied or waived and (d) shall be in full
force and effect, and all terminations or expirations of waiting periods imposed
by any Governmental or Regulatory Authority necessary for the consummation of
the transactions contemplated by this Agreement, shall have occurred.
(f) Third Party Consents. All consents (or in lieu thereof waivers) to the
performance by Seller or Purchaser of their obligations under this Agreement or
to the consummation of the transactions contemplated hereby and thereby as are
required under any Contract to which Seller, Purchaser or the Company is a party
or by which any of their respective Assets and Properties are bound (a) shall
have been obtained, (b) shall be in form and substance reasonably satisfactory
to Seller, (c) shall not be subject to the satisfaction of any condition that
has not been satisfied or waived and (d) shall be in full force and effect,
except where the failure to obtain any such consent (or in lieu thereof waiver)
could not reasonably be expected, individually or in the aggregate with other
such failures, to materially adversely affect Seller or the Business or
Condition of the Company or otherwise result in a material diminution of the
benefits of the transactions contemplated by this Agreement.
(g) Consulting Agreement. Purchaser shall have executed the Consulting
Agreement.
(h) Proceedings. All proceedings to be taken on the part of Purchaser in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Seller, and Seller shall have received copies of all such documents
and other evidences as Seller may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
(i) The Company's Board of Directors Approval. The Company's Board of
Directors shall have consented to or approved this Agreement.
(j) Noncompetition Agreement. Purchaser shall have executed the
Noncompetition Agreement.
(k) Termination of Employment Agreement. The Company and Seller shall have
terminated the Employment Agreement, dated March 26, 1997, between the Company
and Seller.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
7.1 Survival of Representations, Warranties, Covenants and Agreements. The
representations, warranties, covenants and agreements of Seller and Purchaser
contained in this Agreement will survive the Closing for eighteen (18) months;
provided that an Indemnified Party shall be entitled to indemnification in
accordance with the terms of this Agreement provided that a Claim Notice or
Indemnity Notice (as applicable) is timely given under Article VIII on or prior
to May 15, 2001.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification.
(a) Subject to paragraph (c) of this Section and the other Sections of this
Article VIII, the Seller shall indemnify the Purchaser Indemnified Parties in
respect of, and hold each of them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to any breach of
representation or warranty or nonfulfillment of or failure to perform any
covenant or agreement on the part of Seller, contained in this Agreement.
(b) Subject to the other Sections of this Article VIII, Purchaser shall
indemnify the Seller Indemnified Parties in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to any breach of representation or warranty or nonfulfillment of
or failure to perform any covenant or agreement on the part of Purchaser
contained in this Agreement.
(c) No amounts of indemnity shall be payable in the case of a claim by an
Indemnified Party, as the case may be, under Section 8.2(a) unless and until the
Seller or Purchaser Indemnified Parties, as the case may be, have suffered,
incurred, sustained or become subject to Losses referred to in such Section in
excess of $10,000 in the aggregate; in which event the Indemnified Parties shall
be entitled to claim indemnity for the full amount of such Losses; provided in
no event shall the aggregate liability under this Article VIII of Purchaser or
Seller to indemnify, defend or hold harmless all Indemnified Parties exceed Five
Hundred Thousand Dollars ($500,000.00).
(d) The indemnification provisions of this Article VIII shall constitute
the sole and exclusive remedy of each party hereto with respect to the breach or
falsity of any representation or warranty, or the failure to perform or comply
with any covenant or agreement to be performed on or prior to the Closing Date,
made by another party hereto in this Agreement or in any certificate delivered
pursuant to this Agreement.
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8.2 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 8.2 will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an Indemnified
Party might seek indemnity under Section 8.2 is asserted against or sought to be
collected from such Indemnified Party by a Person other than Seller or any
Affiliate of Seller or of Purchaser (a "Third Party Claim"), the Indemnified
Party shall deliver a Claim Notice with reasonable promptness to the
Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice
with reasonable promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
8.2 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 8.2(a), then the Indemnifying Party will have the right to defend,
with counsel reasonably satisfactory to the Indemnified Party, at the sole
cost and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously and
diligently prosecuted by the Indemnifying Party to a final conclusion or
will be settled at the discretion of the Indemnifying Party (but only with
the consent of the Indemnified Party, which consent will not be
unreasonably withheld, in the case of any settlement that provides for any
relief other than the payment of monetary damages as to which the
Indemnified Party will be indemnified in full). The Indemnifying Party will
have full control of such defense and proceedings, including (except as
provided in the immediately preceding sentence) any settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and
expense of the Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first sentence of this
clause (i), file any motion, answer or other pleadings or take any other
action that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnifying Party in contesting any Third Party Claim
that the Indemnifying Party elects to contest. The Indemnified Party may
retain separate counsel to represent it in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and the Indemnified Party will bear its own
costs and expenses with respect to such separate counsel, except as
provided in the preceding sentence and except that the Indemnifying Party
will pay the costs and expenses of such separate counsel if (x) in the
Indemnified Party's good faith judgment, it is advisable, based on advice
of counsel, for the Indemnified Party to be represented by separate counsel
because a conflict or potential conflict exists between the Indemnifying
Party and the Indemnified Party which makes representation of both parties
inappropriate under applicable standards of professional conduct or (y) the
named parties to such Third Party Claim include both the Indemnifying Party
and the Indemnified Party and the Indemnified Party determines in good
faith, based on advice of counsel, that defenses are available to it that
are unavailable to the Indemnifying Party. Notwithstanding the foregoing,
the Indemnified Party may retain or take over the control of the defense or
settlement of any Third Party Claim the defense of which the Indemnifying
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Party has elected to control if the Indemnified Party irrevocably waives
its right to indemnity under Section 8.1 with respect to such Third Party
Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to Section 8.2(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or
settle the Third Party Claim, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party,
the Third Party Claim by all appropriate proceedings, which proceedings
will be prosecuted by the Indemnified Party in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including (except as provided in the immediately preceding sentence) any
settlement thereof; provided, however, that if requested by the Indemnified
Party, the Indemnifying Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnified Party
and its counsel in contesting any Third Party Claim which the Indemnified
Party is contesting. Notwithstanding the foregoing provisions of this
clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its
liability hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the Indemnifying
Party in the manner provided in clause (iii) below, the Indemnifying Party
will not be required to bear the costs and expenses of the Indemnified
Party's defense pursuant to this clause (ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party will reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation.
(iii) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability to the Indemnified Party with respect to the
Third Party Claim under Section 8.1 or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party disputes its
liability to the Indemnified Party with respect to such Third Party Claim,
the Loss arising from such Third Party Claim will be conclusively deemed a
liability of the Indemnifying Party under Section 8.1 and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand
following its final determination. If the Indemnifying Party has timely
disputed its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations within
the Resolution Period, such dispute shall be resolved by arbitration in
accordance with Section 11.11.
(b) In the event any Indemnified Party should have a claim under Section
8.1 against any Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party to
give the Indemnity Notice shall not impair such party's rights hereunder except
to the extent that an Indemnifying Party demonstrates that it has been
irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
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Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss arising from the claim specified in such Indemnity Notice will
be conclusively deemed a liability of the Indemnifying Party under Section 8.1
and the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand following its final determination. If the Indemnifying Party has
timely disputed its liability with respect to such claim, the Indemnifying Party
and the Indemnified Party will proceed in good faith to negotiate a resolution
of such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration in accordance with Section
11.11.
(c) The amount which an Indemnifying Party is required to pay to, for, or
on behalf of any other party pursuant to this Article VIII shall be reduced
(including, without limitation, retroactively) by any insurance proceeds
actually recovered (after making a good faith effort for such recovery) by or on
behalf of such Indemnified Party and other amounts paid by any other person in
reduction of the related indemnifiable loss (the "Indemnifiable Loss"). Amounts
required to be paid, as so reduced, are hereafter sometimes called an "Indemnity
Payment." If an Indemnified Party shall have received or shall have paid on its
behalf an Indemnity Payment in respect of an Indemnifiable Loss and shall
subsequently receive directly or indirectly insurance proceeds or other amounts
in respect of such Indemnifiable Loss, then such Indemnified Party shall
promptly pay to the Indemnifying Party a sum equal to the amount of such
insurance proceeds or other amounts provided the same does not exceed an amount
equal to the payment actually made by the Indemnifying Party.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of Seller
and Purchaser;
(b) at any time before the Closing, by Seller or Purchaser, in the event
(i) of a material breach hereof by the non-terminating party if such
non-terminating party fails to cure such breach within five (5) Business Days
following notification thereof by the terminating party or (ii) upon
notification of the non-terminating party by the terminating party that the
satisfaction of any condition to the terminating party's obligations under this
Agreement becomes impossible or impracticable with the use of commercially
reasonable efforts if the failure of such condition to be satisfied is not
caused by a breach hereof by the terminating party; or
(c) at any time after December 15, 1999 by Seller or Purchaser upon
notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not caused by a breach of this Agreement by the terminating party.
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9.2 Effect of Termination. If this Agreement is validly terminated pursuant
to Section 9.1, this Agreement will forthwith become null and void, and there
will be no liability or obligation on the part of Seller, the Company or
Purchaser (or any of their respective officers, directors, employees, agents or
other representatives or Affiliates), except as provided in the next succeeding
sentence and except that the provisions with respect to expenses in Section 11.3
and confidentiality in Section 11.5 will continue to apply following any such
termination. Notwithstanding any other provision in this Agreement to the
contrary, upon termination of this Agreement pursuant to Section 9.1(b) or (c),
Seller will remain liable to Purchaser for any breach of this Agreement by
Seller existing at the time of such termination, and Purchaser will remain
liable to Seller for any breach of this Agreement by Purchaser existing at the
time of such termination, and Seller or Purchaser may seek such remedies,
including damages and fees of attorneys, against the other with respect to any
such breach as are provided in this Agreement or as are otherwise available at
Law or in equity.
ARTICLE X
DEFINITIONS
10.1 Definitions.
(a) Defined Terms. As used in this Agreement, the following defined terms
have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or
audit.
"Affiliate" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this
definition, control of a Person means the power, direct or indirect,
to direct or cause the direction of the management and policies of
such Person whether by Contract or otherwise and, in any event and
without limitation of the previous sentence, any Person owning ten
percent (10%) or more of the voting securities of another Person shall
be deemed to control that Person.
"Agreement" means this Stock Purchase Agreement and the Exhibits, the
Disclosure Schedule and the Schedules hereto and the certificates
delivered in accordance with Article VI, as the same shall be amended
from time to time.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute,
accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, operated, owned or leased by
such Person, including without limitation cash, cash equivalents,
Investment Assets, accounts and notes receivable, chattel paper,
documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of the
Company, including without limitation financial statements, Tax
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Returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute
books, stock certificates and books, stock transfer ledgers,
Contracts, Licenses, customer lists, computer files and programs,
retrieval programs, operating data and plans and environmental studies
and plans.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or
obligated to close.
"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, Assets and Properties
of the Company taken as a whole.
"Claim Notice" means written notification pursuant to Section 9.2(a)
of a Third Party Claim as to which indemnity under Section 9.1 is
sought by an Indemnified Party, enclosing a copy of all papers served,
if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim against the Indemnifying
Party under Section 9.1, together with the amount or, if not then
reasonably determinable, the estimated amount, determined in good
faith, of the Loss arising from such Third Party Claim.
"Closing" means the closing of the transactions contemplated by
Section 1.3.
"Closing Date" means the earlier of (a) December 15, 1999, (b) as soon
as practicable after the last of the consents, approvals, actions,
filings, notices or waiting periods described in or related to the
filings described in Article VI has been obtained, made or given or
has expired, as applicable, or (c) such other date as Purchaser and
Seller mutually agree upon in writing.
"Common Stock" means the common stock, no par value per share, of the
Company.
"Company" has the meaning ascribed to it in the forepart of this
Agreement.
"Company Shares" has the meaning ascribed to it in the forepart of
this Agreement.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other
contract (whether written or oral).
"Disclosure Schedule" means the record delivered to Purchaser by
Seller herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are
required to be included therein by Seller pursuant to this Agreement.
"Dispute Period" means the period ending thirty (30) days (or such
shorter period as required by law) following receipt by an
Indemnifying Party of either a Claim Notice or an Indemnity Notice.
"Environmental Claim" means, with respect to any Person, any written
or oral notice, claim, demand or other communication (collectively, a
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"claim") by any other Person alleging or asserting such Person's
liability for investigatory costs, cleanup costs, Governmental or
Regulatory Authority response costs, damages to natural resources or
other property, personal injuries, fines or penalties arising out of,
based on or resulting from (a) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not
owned by such Person, or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law. The term
"Environmental Claim" shall include, without limitation, any claim by
any Governmental or Regulatory Authority for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to
any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury
to health, safety or the environment.
"Environmental Law" means any Law or Order relating to the regulation
or protection of human health, safety or the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient
air, soil, surface water, ground water, wetlands, land or subsurface
strata), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes.
"Financial Statements" means the financial statements of the Company
delivered to Purchaser pursuant to Section 2.8.
"Financial Statement Date" means November 30, 1999.
"GAAP" means United States generally accepted accounting principles,
consistently applied throughout the specified period and in the
immediately prior comparable period as determined by the Purchaser's
independent auditors.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any domestic or foreign state,
county, city or other political subdivision.
"Hazardous Material" means (A) any petroleum or petroleum products,
flammable explosives, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls (PCBs); (B) any
chemicals or other materials or substances which are now or hereafter
become defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import under any Environmental
Law; and (C) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated
by any Governmental or Regulatory Authority under any Environmental
Law.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or
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services (other than trade payables or accruals incurred in the
ordinary course of business), (iv) under capital leases and (v) in the
nature of guarantees of the obligations described in clauses (i)
through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under
any provision of Article IX.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article IX.
"Indemnity Notice" means written notification pursuant to Section
9.2(b) of a claim for indemnity under Article IX by an Indemnified
Party, specifying the nature of and basis for such claim, together
with the amount or, if not then reasonably determinable, the estimated
amount, determined in good faith, of the Loss arising from such claim.
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights,
service marks and service mark rights, service names and service name
rights, brand names, inventions, processes, formulae, copyrights and
copyright rights, trade dress, business and product names, logos,
slogans, trade secrets, industrial models, processes, designs,
methodologies, computer programs (including all source codes) and
related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending
applications for and registrations of patents, trademarks, service
marks and copyrights.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities),
interests in joint ventures and general and limited partnerships,
mortgage loans and other investment or portfolio assets owned of
record or beneficially by the Company and issued by any Person other
than the Company (other than trade receivables generated in the
ordinary course of business of the Company).
"Knowledge of Seller" or "Known to Seller" means the knowledge of the
Seller; provided however, that the parties expressly agree that any
intellectual property claims arising from, or related to, Adam
Springer and/or Steven T. Abell shall be deemed to be within the
knowledge of the Seller.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States or
any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed
or otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental or Regulatory
Authority.
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"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, or any conditional sale Contract, title retention Contract or
other Contract to give any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses (including without limitation
interest, court costs, fees of attorneys, accountants and other
experts or other expenses of litigation or other proceedings or of any
claim, default or assessment).
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract
that gives the right to (i) purchase or otherwise receive or be issued
any shares of capital stock of such Person or any security of any kind
convertible into or exchangeable or exercisable for any shares of
capital stock of such Person or (ii) receive or exercise any benefits
or rights similar to any rights enjoyed by or accruing to the holder
of shares of capital stock of such Person, including any rights to
participate in the equity or income of such Person or to participate
in or direct the election of any directors or officers of such Person
or the manner in which any shares of capital stock of such Person are
voted.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Permitted Lien" means (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with
GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of Law with respect to a Liability that is not
yet due or delinquent and (iii) any minor imperfection of title or
similar Lien which individually or in the aggregate with other such
Liens does not materially impair the value of the property subject to
such Lien or the use of such property in the conduct of the business
of the Company.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services,
cafeteria, life, health, accident, disability, workmen's compensation
or other insurance, severance, separation or other employee benefit
plan, practice, policy or arrangement of any kind, whether written or
oral.
"Proprietary Assets" means any Assets and Properties of the Company of
a proprietary nature, including, without limitation, know-how,
formulas, processes, ideas, inventions (whether or not patentable),
schematics and other technical, business, financial, customer and
product development plans related to the Company's products or
services.
"Purchase Price" has the meaning ascribed to it in Section 1.2.
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"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"Purchaser Indemnified Parties" means Purchaser and its officers,
directors, employees, agents and Affiliates.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air,
soil, surface water, ground water, wetlands, land or subsurface
strata.
"Resolution Period" means the period ending thirty (30) days following
receipt by an Indemnified Party of a written notice from an
Indemnifying Party stating that it disputes all or any portion of a
claim set forth in a Claim Notice or an Indemnity Notice.
"Seller" has the meaning ascribed to it in the forepart of this
Agreement.
"Seller Indemnified Parties" means the Seller.
"Shares" has the meaning ascribed to it in the forepart of this
Agreement.
"Tax or Taxes" shall mean any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, environmental, customs duties,
capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, estimated, or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with
or submitted to, any Governmental or Regulatory Authority in
connection with the determination, assessment, collection or payment
of any Tax or in connection with the administration, implementation or
enforcement of or compliance with any Laws relating to any Tax.
"Third Party Claim" has the meaning ascribed to it in Section 9.2(a).
"Year 2000 Compliant" has the meaning ascribed to it in Section 2.33.
(b) Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other gender;
(ii) words using the singular or plural number also include the plural or
singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
practice of the Company. Whenever this Agreement refers to a number of days,
such number shall refer to calendar days unless Business Days are specified. All
accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP as interpreted by the Purchaser's independent
auditors.
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ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Purchaser, to:
QAD Inc.
6450 Via Real
Carpinteria, California USA 93103
Facsimile No.: (805) 684-1890
Attn.: General Counsel
with a copy to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Facsimile No.: (805) 568-1955
Attn.: Joseph E. Nida, Esq.
If to Seller, to:
David A. Taylor
4008 Bayview Avenue
San Mateo, California 94403
Facsimile No.: none
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attn: Sarah A. O'Dowd
Facsimile No.: (650) 324-0638
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If to the Company, to:
Enterprise Engines, Inc.
990 Baker Way
San Mateo, California 94404
Attn: President
Facsimile No.: (650) 525-2828
with a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attn: Sarah A. O'Dowd
Facsimile No.: (650) 324-0638
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
11.2 Entire Agreement. This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof and
thereof, including without limitation that certain letter of intent; between the
parties dated November 24, 1999, and contains the sole and entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
11.3 Expenses. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in Section 10.2), whether or not the
transactions contemplated hereby are consummated, the Purchaser will pay its own
costs and expenses, and the Company shall pay the actual documented costs and
expenses, including any broker's, finder's or investment banking fees and
counsel fees not to exceed $100,000, incurred in connection with the negotiation
and closing of this Agreement and the transactions contemplated hereby and
thereby.
11.4 Public Announcements. At all times at or before the Closing, Seller
and Purchaser will not issue or make any reports, statements or releases to the
public or generally to the customers, suppliers or other Persons to whom the
Company sells goods or provides services or with whom the Company otherwise has
significant business relationships with respect to this Agreement or the
transactions contemplated hereby without the consent of the other, which consent
shall not be unreasonably withheld. If either party is unable to obtain the
approval of its public report, statement or release from the other party and
such report, statement or release is, in the opinion of legal counsel to such
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party, required by Law in order to discharge such party's disclosure
obligations, then such party may make or issue the legally required report,
statement or release and promptly furnish the other party with a copy thereof.
Seller and the Purchaser will also obtain the other parties prior approval of
any press release to be issued immediately following the Closing announcing the
consummation of the transactions contemplated by this Agreement.
11.5 Confidentiality. Each party hereto will hold, and will use its best
efforts to cause its Affiliates, and their respective Representatives to hold,
in strict confidence from any Person (other than any such Affiliate or
Representative), unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the transactions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided that following the Closing the
foregoing restrictions will not apply to Purchaser's use of documents and
information concerning the Company furnished by Seller hereunder. In the event
the transactions contemplated hereby are not consummated, upon the request of
the other party, each party hereto will, and will cause its Affiliates and their
respective Representatives to, promptly redeliver or cause to be redelivered all
copies of documents and information furnished by the other party in connection
with this Agreement or the transactions contemplated hereby and destroy or cause
to be destroyed all notes, memoranda, summaries, analyses, compilations and
other writings related thereto or based thereon prepared by the party furnished
such documents and information or its Representatives.
11.6 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.7 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
11.8 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person other than any
Person entitled to indemnity under Article IX.
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11.9 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other party hereto and any attempt to do so will be
void, except (a) for assignments and transfers by operation of Law and (b) that
Purchaser may assign any or all of its rights, interests and obligations
hereunder (including without limitation its rights under Article IX) to (i) a
wholly-owned subsidiary, provided that any such subsidiary agrees in writing to
be bound by all of the terms, conditions and provisions contained herein, (ii)
any post-Closing purchaser of all of the issued and outstanding stock of the
Company or a substantial part of its assets or (iii) any financial institution
providing purchase money or other financing to Purchaser or the Company from
time to time as collateral security for such financing, but no such assignment
referred to in clause (i) shall relieve Purchaser of its obligations hereunder.
Subject to the preceding sentence, this Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors and assigns.
11.10 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
11.11 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration before
one (1) arbitrator in San Francisco, California, administered by the American
Arbitration Association under its Commercial Arbitration Rules and judgment on
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
11.12 Consent to Jurisdiction and Service of Process. Seller agrees to
appoint, within ten (10) days of any written request by Purchaser, its lawful
agent and attorney in the State of California to accept and acknowledge service
of any and all process against it in any action, suit or proceeding arising out
of or relating to this Agreement or any of the transactions contemplated hereby
and upon whom such process may be served, with the same effect as if such party
were a resident of the State of California and had been lawfully served with
such process in such jurisdiction, and waives all claims of error by reason of
such service, provided that in the case of any service upon such agent and
attorney, the party effecting such service shall also deliver a copy thereof to
the other party at the address and in the manner specified in Section 11.1.
Seller will enter into such agreements with such agents as may be necessary to
constitute and continue the appointment of such agents hereunder. In the event
that any such agent and attorney resigns or otherwise becomes incapable of
acting as such, such party will appoint a successor agent and attorney in the
State of California, reasonably satisfactory to the other party, with like
powers. Subject to the arbitration provisions set forth in Section 11.11, each
party hereby irrevocably submits to the exclusive jurisdiction of the United
States District Court for the Northern District of California or any court of
the State of California located in the City of San Francisco, California, in any
action, suit or proceeding arising out of or relating to this Agreement or any
of the transactions contemplated hereby, and agrees that any such action, suit
or proceeding shall be brought only in such court, provided, however, that such
consent to jurisdiction is solely for the purpose referred to in this Section
11.12 and shall not be deemed to be a general submission to the jurisdiction of
said courts or in the State of California other than for such purpose. Each
party hereby irrevocably waives, to the fullest extent permitted by Law, any
objection that it may now or hereafter have to the laying of the venue of any
such action, suit or proceeding brought in such a court and any claim that any
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such action, suit or proceeding brought in such a court has been brought in an
inconvenient forum.
11.13 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable provision or
by its severance herefrom.
11.14 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of California applicable to a Contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
11.15 Post-Closing Operation of Business. The parties acknowledge that
following the Closing, the Purchaser, as the sole shareholder, shall be entitled
to operate the Company in the manner it determines.
11.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to Purchaser or its counsel and
Purchaser or its counsel will provide all of the parties hereto with a copy of
the entire Agreement.
[Signature Page to Follow]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above
written.
PURCHASER:
QAD Inc., a Delaware corporation
By: /s/ A.J. Moyer
------------------------------
Albert J. Moyer,
Chief Financial Officer
SELLER:
/s/ David A. Taylor
------------------------------
David A. Taylor
COMPANY:
ENTERPRISE ENGINES, INC.
By: /s/ David A. Taylor
----------------------------
David A. Taylor,
President
CONSENT OF SPOUSE
I consent to and join in the foregoing.
Date: December 15, 1999 /s/ Nina J. Hamberg
----------------------------
MRS. NINA J. HAMBERG
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[EXHIBITS OMITTED]
UNSECURED PROMISSORY NOTE
$500,000 December 15, 1999
Santa Barbara, CA
The undersigned, QAD Inc. (the "Maker"), promises to pay to DAVID A. TAYLOR
(the "Holder"), or order, at such address as the Holder designates, the
principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000), together with
interest as described below, in four (4) equal quarterly installments of
principal and interest as follows:
Date Payment Interest Total
March 15, 2000 $125,000 $10,000 $135,000
June 15, 2000 $125,000 $7,500 $132,500
September 15, 2000 $125,000 $5,000 $130,000
December 15, 2000 $125,000 $2,500 $127,500
Total: $500,000 $25,000 $525,000
1. PAYMENTS AND INTEREST.
1.1 Interest and Payments. The Maker shall pay interest on this Note to the
Holder on the amount outstanding hereunder on each quarterly payment as set
forth above. All payments under this Note shall be made in lawful currency of
the United States of America at 4008 Bayview Avenue, San Mateo, California
94403.
1.2 Interest Rate. This Note shall bear interest at Eight Percent (8%) per
annum.
2. DEFAULT AND ACCELERATION. Upon failure to pay any principal or interest or
any other amount described hereunder when due or to perform when due any
obligation, covenant or agreement in this Note, then all principal and accrued
interest will become immediately due and payable, at the Holder's option. The
Holder may exercise this option to accelerate during any default by the Maker
regardless of any forbearance.
3. PREPAYMENT. This Note may be prepaid at any time without penalty or fee.
4. ASSUMPTION. This Note may be assumed only after a default by Maker of any of
Maker's payment obligations hereunder.
5. ATTORNEYS' FEES. The Maker agrees to pay the following costs, expenses, and
attorneys' fees paid or incurred by the Holder, or adjudged by a court: (i)
reasonable costs of collection, costs, and expenses, and attorneys' fees paid or
incurred in connection with the collection or enforcement of this Note, whether
or not suit is filed; and (ii) costs of suit and such sum as the court may
adjudge as attorneys' fees in any action to enforce payment of this Note or any
part of it.
<PAGE>
6. SEVERABILITY. If any provision of this Note is invalid by operation of any
law or interpretation placed thereon by any court, this Note shall be construed
as not containing such provision and all other provisions of this Note which are
otherwise lawful shall remain in full force and effect, and to this end the
provisions of this Note are declared to be severable.
7. GOVERNING LAW. This Note shall be governed by and construed in accordance
with the laws of the State of California as those laws are applied to written
contracts between residents of such jurisdiction to be performed within such
jurisdiction.
8. NO ASSIGNMENT. The Holder may sell, assign, or otherwise transfer, either in
part or in its entirety, this Note only after a default by Maker of any of
Maker's payment obligations hereunder.
9. FORBEARANCE NOT A WAIVER. No delay or omission on the part of the Holder in
exercising any rights under this Note, on default by the Maker, shall operate as
a waiver of such right or of any other right under this Note or other
agreements, for the same default or any other default. The Maker and any
sureties or guarantors of this Note consent to all extensions without notice for
any period or periods of time and to the acceptance of partial payments before
or after maturity, and to the acceptance, release and substitution of security,
all without prejudice to the Holder. The Holder shall similarly have the right
to deal in any way, at any time, with one or more of the foregoing parties
without notice to any other party, and to grant any such party any extensions of
time for payment of any of the indebtedness, or to grant any other indulgences
or forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any such party.
10. MANNER OF NOTIFICATION. Any notice to the Maker provided for in this Note
shall be given by personal delivery or by mailing such notice by first class or
certified mail, return receipt requested, addressed to the Maker at the property
address stated above, or to such other address as the Maker may designate by
written notice to the Holder. Any notice to the Holder shall be given by
personal delivery or by mailing such notice by first class or certified mail,
return receipt requested, to the Holder at the address stated in the first
paragraph of this Note, or at such other address as may have been designated by
written notice to the Maker. Mailed notices shall be deemed delivered and
received three (3) days after deposit in accordance with this provision in the
United States mails.
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<PAGE>
11. TIME. Time is of the essence for each and every obligation under this Note.
MAKER:
QAD Inc.
By:/s/ A.J. Moyer
-------------------------------
Name: Albert J. Moyer
Title: Chief Financial Officer
3
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement"), dated as of December 15,
1999 is among QAD INC., a Delaware corporation ("QAD"), DAVID A. TAYLOR
("Taylor") and SANTA BARBARA BANK & TRUST as the Escrow Agent (the "Escrow
Agent").
WHEREAS:
A. Contemporaneous with the execution and delivery of this Escrow
Agreement, QAD is acquiring all of the outstanding Common Stock of ENTERPRISE
ENGINES, INC. ("EEI") in accordance with the Stock Purchase Agreement among QAD,
EEI and Taylor dated December 15, 1999 (the "Purchase Agreement"). Capitalized
terms not defined herein shall have the meaning ascribed in the Purchase
Agreement; and
B. The Purchase Agreement provides for the delivery into escrow of One
Hundred Twenty Thousand (120,000) shares of QAD's Common Stock (the "Stock").
NOW, THEREFORE, QAD and the Escrow Agent hereby agree as follows:
1. APPOINTMENT OF ESCROW AGENT; DEPOSIT OF STOCK. QAD and Taylor hereby
constitute and appoint the Escrow Agent as, and the Escrow Agent hereby agrees
to assume and perform the duties of, the escrow agent under and pursuant to this
Escrow Agreement. The Escrow Agent acknowledges receipt of the Stock as
evidenced by __ (__) certificates in the name of Taylor representing the shares
of Stock.
2. STOCK. The Stock is to be held by the Escrow Agent in trust and
delivered to Taylor or QAD depending upon whether the Milestones set forth in
Exhibit A hereto have or have not been met.
3. RELEASE OF STOCK. The Escrow Agent is authorized to release the Stock
when it has received from Taylor a written statement that a specific Milestone
set forth in Exhibit A to the Purchase Agreement has been reached. Upon receipt
of the notice by Taylor, in the form attached hereto as Exhibit B, the Escrow
Agent will forward to QAD such notice, as provided in Paragraph 8, and QAD shall
have ten (10) business days from receipt to accept or reject the notice by
written notice to the Escrow Agent. Unless QAD accepts or rejects the notice as
set forth in the immediately preceding sentence within such ten business (10)
day period, the Escrow Agent shall release to Taylor the portion of the Stock
subject to the notice and such action shall be conclusive and binding on all
parties hereto. If the parties are unable to agree on the achievement of one or
more of the Milestones, then the parties will resolve the matter by arbitration
as provided in the Purchase Agreement. Except as set forth above, the Escrow
Agent can only deliver Stock to Taylor if it has received the written approval
of QAD, unless the matter has been resolved by arbitration and a certified copy
of the arbitrator's decision has been tendered to the Escrow Agent. If all Stock
is not released by January 31, 2001, the Escrow Agent will return the Stock to
QAD and this Escrow will terminate.
<PAGE>
4. DUTIES AND OBLIGATIONS OF ESCROW AGENT. The duties and obligations of
the Escrow Agent shall be limited to, and determined solely by, the provisions
of this Escrow Agreement, and the Escrow Agent is not charged with knowledge of
or any duties or responsibilities in respect of any other agreement or document.
In furtherance and not in limitation of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request,
waiver, consent, receipt or other document that the Escrow Agent
reasonably believes to be genuine and duly authorized, executed and
delivered;
(ii) the Escrow Agent shall not be liable for any error of
judgment, or for any act done or omitted by it, or for any mistake in
fact or law, or for anything that it may do or refrain from doing in
connection herewith in good faith and with such care, including
reasonable inquiry, as an ordinarily prudent person in like position
would use under similar circumstances; provided, however, that,
notwithstanding any other provision of this Escrow Agreement, the
Escrow Agent shall be liable for its breach of this Escrow Agreement;
(iii) the Escrow Agent may seek the advice of legal counsel,
selected with reasonable care and given full information as to the
context in which an issue arises, in the event of any dispute or
question as to the construction of any of the provisions of this
Escrow Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the opinion
of such counsel;
(iv) in the event that the Escrow Agent shall in any instance,
after seeking the advice of legal counsel pursuant to the immediately
preceding clause, in good faith be uncertain as to its duties or
rights hereunder, it shall be entitled to refrain from taking any
action in that instance and its sole obligation, in addition to those
of its duties hereunder as to which there is no such uncertainty,
shall be to keep safely the Stock until it shall be directed otherwise
in writing by QAD and Taylor in the event that the Escrow Agent has
not received such written direction or court order within sixty (60)
calendar days after requesting the same, it shall have the right to
interplead QAD and Taylor in any court of competent jurisdiction and
request that such court determine its rights and duties hereunder;
(v) the Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either
directly or by or through agents or attorneys selected with reasonable
care, nothing in this Escrow Agreement shall be deemed to impose upon
the Escrow Agent any duty to qualify to do business or to act as
fiduciary or otherwise in any jurisdiction other than the State of
California and the Escrow Agent shall not be responsible for and shall
not be under a duty to examine into or pass upon the validity, binding
effect, execution or sufficiency of this Escrow Agreement or of any
agreement amendatory or supplemental hereto; and
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<PAGE>
(vi) the general provisions of the Escrow Agent are attached
hereto as Exhibit C.
5. COOPERATION. QAD and Taylor shall provide to the Escrow Agent all
instruments and documents within their respective powers necessary for the
Escrow Agent to perform its duties and responsibilities hereunder.
6. INDEMNITY; EXPENSES. QAD and Taylor shall jointly and severally
indemnify the Escrow Agent against and hold the Escrow Agent harmless from any
costs, damages, judgments, attorney's fees, expenses, obligations and
liabilities of any kind or nature that may be suffered or incurred by the Escrow
Agent as a result of, in connection with, or arising from or out of the acts or
omissions of the Escrow Agent in the operation, administration, enforcement or
performance of or pursuant to this Escrow Agreement in accordance with the
standards of care applicable under this Escrow Agreement; provided, however,
that neither QAD nor Taylor shall be obligated to indemnify the Escrow Agent for
any costs, damages, judgments, attorney's fees, expenses, obligations or
liabilities caused by the negligence or willful misconduct of the Escrow Agent
or caused by the breach of this Escrow Agreement by the Escrow Agent. If any
controversy arises between QAD and Taylor or with any third person with respect
to the subject matter of this Escrow Agreement or its terms or conditions, the
Escrow Agent shall not be required to determine the same or take any action
thereupon, but may await the settlement of any such controversy. In such event,
the Escrow Agent shall not be liable for interest or damages.
7. RESIGNATION AND REMOVAL OF ESCROW AGENT.
(a) The Escrow Agent may resign as escrow agent under this Escrow
Agreement by delivering written notice thereof to QAD and Taylor at least
thirty (30) calendar days prior to the stated effective date thereof. In
addition, the Escrow Agent may be removed and replaced on a date designated
in a written instrument signed by QAD and Taylor and delivered to the
Escrow Agent. Notwithstanding the foregoing, no such resignation or removal
shall be effective until a successor escrow agent has acknowledged its
appointment as such as provided in paragraph (c) below. In either event,
upon the effective date of such resignation or removal, the Escrow Agent
shall deliver the Stock (or any remaining portion thereof) to such
successor escrow agent, together with such records maintained by the Escrow
Agent in connection with its duties hereunder and other information with
respect to the Escrow Fund as such successor may reasonably request.
(b) If a successor escrow agent shall not have acknowledged its
appointment as such as provided in paragraph (c) below, in the case of a
resignation, prior to the expiration of thirty (30) calendar days following
the date of a notice of resignation or, in the case of a removal, on the
date designated for the Escrow Agent's removal, as the case may be, because
QAD and Taylor are unable to determine an appropriate successor escrow
agent, or for any other reason, the Escrow Agent may select a successor
escrow agent and any such resulting appointment shall be binding upon all
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<PAGE>
of the parties to and beneficiaries of this Escrow Agreement, provided that
any such successor selected by the Escrow Agent shall be a Bank.
(c) Upon written acknowledgment by a successor escrow agent appointed
in accordance with the foregoing provisions of this Section 7 of its
agreement to serve as escrow agent hereunder and the receipt of the
property then comprising the Escrow Fund, the Escrow Agent shall be fully
released and relieved of all duties, responsibilities and obligations under
this Escrow Agreement, subject to the proviso contained in clause (ii) of
Section 4 hereof, and such successor escrow agent shall for all purposes
hereof be the Escrow Agent.
8. NOTICES. All notices permitted or required by this Escrow Agreement
shall be in writing and shall be deemed to be delivered and received (a)
when personally delivered, (b) on the third (3rd) business day after the
date on which deposited in the United States Mail, postage prepaid,
certified or registered mail, return receipt requested, (c) on the date on
which transmitted by facsimile or other electronic means generating a
receipt evidencing a successful transmission or (d) on the next business
day after the date on which deposited with a regulated public carrier of
recognized national standing (e.g., Federal Express), carriage prepaid, for
overnight delivery, addressed to the party for whom intended at the address
or facsimile set forth below, or such other address, facsimile or
electronic transmission address, notice of which is provided in a manner
permitted by this Section 10 (provided, however, that, notwithstanding the
foregoing, a copy each such notice shall be provided to each party by
facsimile concurrently with delivery by any other means):
If to QAD, to: QAD Inc.
6450 Via Real
Carpinteria, California 93013
Attention: General Counsel
Facsimile: 805-566-6080
If to Taylor, to: David A. Taylor
4008 Bayview Avenue
San Mateo, California 94403
Facsimile: none
with a copy to: Heller Ehrman White and McAuliffe
525 University Avenue
Palo Alto, California 94301
Attn: Sarah A. O'Dowd
Facsimile: (650) 324-0638
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<PAGE>
If to the Escrow
Agent, to: Santa Barbara Bank & Trust
_______________________
_______________________
Attn:___________________
Facsimile:_______________
Any notice or communication directed to Subscribers shall be made in the manner
provided for communications to the Holders hereunder.
9. AMENDMENTS, ETC. This Escrow Agreement may only be amended or modified
by a written agreement signed by the parties hereto. No waiver by any party of
any term or condition contained of this Escrow Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Escrow Agreement on any future occasion.
10. GOVERNING LAW. THIS ESCROW AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
11. MISCELLANEOUS. This Escrow Agreement is binding upon and will inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. The headings used in this Escrow Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
This Escrow Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the date first above written.
QAD:
QAD Inc.,
a Delaware corporation
By:/s/ A.J. Moyer
-----------------------------
Name: Albert J. Moyer
Title: Chief Financial Officer
TAYLOR:
/s/ David A. Taylor
------------------------------
DAVID A. TAYLOR
ESCROW AGENT:
SANTA BARBARA BANK & TRUST
By:
---------------------------
Name:
Title:
<PAGE>
Exhibit A
to
Escrow Agreement
MILESTONES
Upon achieving each of the following six objectives (the completion of
which shall be to the reasonable satisfaction of QAD), David Taylor will receive
20,000 shares of QAD stock as consideration for his Enterprise Engines shares.
Where sub-objectives are specified, the indicated number of shares will be
awarded as each sub-objective is achieved.
1. Shipping AT&T
* Delivery of AT&T Wireless functionality by 12/15/99 (20,000)
Delivery requires sign-off from AT&T that eQ was delivered with
promised functionality, as described in the attachment, and that eQ
works to specification at AT&T Wireless, except, however, that the
functionality described as "Send production order to MFG/PRO" will not
be considered in determining whether this objective has been met.
2. eQ Marketing
* eQ Vision presentation (3,000)
Completion by January 31, 2000 of a PowerPoint vision presentation
with a presenter's script for the eQ product line for collaborative
applications.
* eQ Product presentation (2,000 ea.)
Completion by January 31, 2000 of a PowerPoint product presentation
along with a presenter's script of eQ v2.
Completion by Q4 2000 (or per development schedule for eQ v3 Beta) of
a PowerPoint product presentation along with a presenter's script of
eQ v3.
* eQ Product Demonstration (1,800 ea.)
Completion by January 31, 2000 of a Demonstration script for eQ v2.
Completion by Q4 2000 (or per development schedule for eQ v3 Beta) of
a demonstration script for eQ v3.
* eQ Product Brochure (1,800 ea.)
Completion by April 30, 2000 of an updated eQ Product Brochure for eQ
v2 for conceptual images and text.
<PAGE>
Completion by Q4 2000 (or per development schedule for eQ v3 Beta) of
an updated eQ Product Brochure for eQ v3 for conceptual images and
text.
* eQ Documentation (4,000 or 2,000 ea.)
Completion in accordance with development schedule for eQ Beta and GA
deliverables of high-level product documentation for a manager's guide
to eQ consisting of 30 to 40 pages. This can be used for training
materials as well as excerpts for product brochures. This high level
documentation or managers guide is for eQ v2 and eQ v3. Documentation
is for eQ's functionality and technology.
* eQ General Sales Presentations and review of QAD Marketing Materials (1800
total with 150 Per month)
Completion of general sales presentations as required as well as
review of QAD marketing materials for improvement.
3. IBM Partnership
* Benefits article (4,000 upon completion of article, 2,000 upon acceptance
for publication of article)
Completion by September 30, 2000, and acceptance for publication, by
December 31, 2000, of an article on the benefits of Internet order
management using eQ and SF as an example.
* Collateral review (6,000)
Completion by June 30, 2000 of a promotional paper and review, with
proposals for, other collateral materials produced by QAD for the
promotion of eQ through IBM's channels.
* IBM Presentations (4,000)
Completion in accordance with Q1 through Q3 2000 launch plan roll-out
of six presentations (which may be at IBM facilities duration and may
be 1 to 2 days each) on the benefits of eQ and eQ developed on IBM's
middle-ware products to IBM personnel, customers and business
partners.
* IBM Road Show (4,000)
Completion in accordance with Q1 through Q3 2000 launch plan roll-out
schedule of a 6 to 8 city international road show to promote eQ to IBM
personnel, customers and business partners.
<PAGE>
4. Industry and Security Analysts
* Analyst strategy (5,000)
Completion by April 30, 2000 of a strategic plan and supporting
presentation for selling the vision and the reality of eQ to such
industry analysts as AMR, Gartner, Forrester, Metagroup, and Yankee
Group.
* Analysts white paper (5,000)
Completion by April 30, 2000 of an illustrated white paper of
approximately 10-15 pages that communicates the key advantages of eQ
to analysts.
* Positive Press (2,500 per write-up)
Publication by December 31, 2000 of two one-page write-ups of eQ by
the industry analysts (2500 shares per write-up).
* Promotional Road Show (5,000)
Completion in accordance with Q1 through Q3 launch plan roll-out
schedule of a 6 to 8 city promotional road show for Industry and
Security Analysts.
5. Convergent Engineering Class
* Course update (8,000)
Completion by May 30, 2000 of an update to the CE 3 day course for eQ
v2 and v3) to reflect current industry trends and to incorporate the
advanced concepts used in eQ (roles, relationships, etc.) as well as
any concepts from IBM SF.
* Train the Trainer (7,000)
Completion by September 30, 2000 of training of designated QAD
personnel (4 to 5 personnel) on CE to be a certified CE trainer.
* Course presentations (5,000)
Completion between Q2 and Q4 2000 of teaching along with or providing
assistance to QAD's trainer in connection with the updated course at
five sessions (1000 shares per session).
6. Gartner
Placement by Gartner of QAD in the "4th" quadrant of either its
large-company ERP matrix or its new collaborative matrix. (20,000)
<PAGE>
Exhibit B
to
Escrow Agreement
The undersigned hereby declares, under penalty of perjury, that the
following Milestone has been achieved:
Date Achieved Milestone Description Number of Shares Basis for Achievement
- ------------- --------------------- ---------------- ---------------------
Executed at San Mateo, California.
Date:_____________ ______________________________
DAVID A. TAYLOR
<PAGE>
Exhibit C to Escrow Agreement
General Provisions
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is between DAVID A. TAYLOR (the
"Consultant") and QAD Inc., a Delaware corporation (the "Company").
BACKGROUND
A. The Consultant has the background, technical expertise, and experience
to assist the Company, and is offering his services as a consultant to the
Company on an as needed basis;
B. The Company desires to retain the Consultant as an independent
consultant; and
C. The parties hereto wish to memorialize the Consultant's consulting work
for the Company by entering into this written Agreement.
AGREEMENT
Intending to be legally bound, the parties hereto agree as follows:
1. DUTIES. The Company hereby retains the Consultant as a consultant to the
Company. It is understood and agreed, and it is the intention of the parties to
this Agreement, that the Consultant is an independent contractor, and not the
employee or agent of the Company for any purpose whatsoever.
2. INDEPENDENCE. The Company and the Consultant conduct their own
businesses each for its or his own account and risk. Neither party shall have
the power or authority to act on behalf of or incur any liability for the
account of the other party save to the extent that the same is required in the
normal course of the completion of a project. Each party hereto hereby
indemnifies and holds the other harmless from any claims resulting from a breach
of this Paragraph 2.
3. SERVICES. The Consultant will perform tasks for the Company solely as
requested by the Company and agrees to make himself available for approximately
twenty (20) hours of service per week, at such times as his schedule allows. The
Consultant will be paid a fee of ONE HUNDRED THOUSAND DOLLARS ($100,000),
payable in twelve (12) equal monthly installments, commencing on December 16,
1999. The Consultant will present an accounting of hours spent on the Company's
business, along with any reimbursable expenses and receipts for said expenses,
to the Company on a monthly basis.
In performing services under this Agreement, the Consultant, except as
otherwise provided, shall be responsible for paying all costs and expenses
1
<PAGE>
incidental to the performance of such services, except for reasonable travel
expenses and lodging accommodations based upon the Company's employee travel
policies, a copy of which will be provided, and which have been authorized in
advance by the Company.
4. BUSINESS DISCLOSURES. The Consultant agrees that during the term of this
Agreement, or thereafter, he will not disclose, other than to an employee or
director of the Company, any confidential information as to the Company,
including any information relating to the Company's business, customers, trade
or industrial practices or trade secrets or know-how, without prior consent by
the Company, and that at the termination of this Agreement, and thereafter, for
any reason, the Consultant shall not remove or retain, without the Company's
express written consent, any hardware, software, calculations or letters,
papers, drawings, blueprints or other confidential information of any type or
description related to the Company.
The Consultant retains the rights to book copyrights and royalties on
existing books, plus rights to the Convergent Engineering trademark,
intellectual property and certification process. The Company is to receive a
royalty-free license to use said intellectual property.
5. DEVELOPMENT OF INVENTIONS AND IMPROVEMENTS.
5.1 Notice. The Consultant agrees to keep the Company informed of any
inventions, discoveries, improvements, trade secrets and secret processes made
by him, in whole or in part, or conceived by the Consultant alone, or with
others, which result from any work which the Consultant may do for, or at the
request of, the Company.
5.2 Company Property. Such inventions, discoveries, improvements, trade
secrets and secret processes shall be the property of the Company, or its
nominees, whether patented or not, and the Consultant shall, without charge to
the Company, assign to the Company all right, title and interest in such
inventions, discoveries, improvements, trade secrets and secret processes, and
shall execute, acknowledge and deliver any instruments confirming the complete
ownership by the Company of such inventions, discoveries, improvements, trade
secrets and secret processes.
5.3 Confidentiality. The Consultant shall not, at any time, except as
required in the conduct of the business of the Company, or except as authorized
in writing by the Company, publish, disclose or authorize anyone else to publish
or disclose any secret or confidential matters relating to any aspect of the
business of the Company, with which the Consultant's services in any way may
acquaint the Consultant.
6. TERMINATION. The Company may terminate this Agreement should the
Consultant die, become disabled and be unable to perform his obligations
hereunder, or should the Consultant breach the terms of this Agreement, and
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<PAGE>
should the Consultant not cure the breach within thirty (30) days of the
Company's notice of the Consultant's breach of this Agreement. The Consultant
may terminate this Agreement on thirty (30) days? written notice to the Company.
7. REMEDIES. It is agreed that in the event of any breach, violation or
evasion of terms of this Agreement, such breach, violation or evasion will
result in immediate and irreparable injury and harm to the Company and will
authorize recourse by the Company to the remedies of injunction and specific
performance or either of such remedies, as well as to all legal or equitable
remedies to which the Company may be entitled.
8. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the laws
of the State of California then in effect.
9. SEVERABILITY. Any provision of this Agreement that in any way
contravenes any provision of applicable law shall, to the extent that the law is
contravened, be considered severable and not applicable and shall not alter or
affect any other provision or provisions of this Agreement.
10. COMPLETE AGREEMENT; AMENDMENT. The provisions of this Agreement
constitute the entire Agreement among the parties. This Agreement may be
amended, modified or otherwise changed only by an instrument in writing executed
by all of the parties, and no waiver, alteration or modification of any of the
provisions hereof shall be binding upon a party unless in writing and signed by
such party or his duly authorized representative. The provisions of this
Agreement supersede and revoke the provisions of any other agreement of the
parties related to the subject matter hereof.
11. TAXES AND OTHER LIABILITIES. The Consultant shall indemnify and hold
harmless the Company from and against any taxes, interests or penalties assessed
against the Company for payments made to the Consultant, or any liabilities or
obligations incurred by the Consultant which have not been authorized in
writing, in advance, by the Company.
12. ARBITRATION. Any dispute relating to this Agreement shall be resolved
in accordance with the arbitration provisions of the Enterprise Engines, Inc.
Stock Purchase Agreement dated December 15, 1999 among the Company, the
Consultant and Enterprise Engines, Inc.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Santa Barbara, California this 15th day of December, 1999.
COMPANY:
QAD Inc.,
a Delaware corporation
By: /s/ A.J. Moyer
-------------------------------
Name: Albert J. Moyer
Title: Chief Financial Officer
C0NSULTANT:
/s/ David A. Taylor
--------------------------------
David A. Taylor
4
<PAGE>
RELEASE
For and in consideration of that certain Enterprise Engines, Inc. Stock
Purchase Agreement by and among QAD INC. (the "Purchaser"), DAVID A. TAYLOR (the
"Seller") and ENTERPRISE ENGINES, INC. (the "Company") dated December 15, 1999
(the "Stock Purchase Agreement"), Purchaser, Seller and the Company hereby enter
into this Mutual Release.
1. Release by Seller. Seller does hereby fully and forever release and
discharge the Purchaser and the Company, and any and all entities owned or
controlled by any of the foregoing, and all the officers, directors, employees
and agents of those entities (collectively, the "Purchaser Releasees") from and
against any and all claims, causes of action, rights, damages, costs, losses or
expenses or any other claims, causes of action or rights of any kind whatsoever,
whether known or unknown (collectively, the "Purchaser Claims") that the Seller
may assert on the basis of facts in existence on the date hereof against the
Purchaser Releasees arising out of, or in any way related to or connected with
the Purchaser Releasees, provided, however, that the Purchaser Releasees shall
not be released and discharged of any Purchaser Claims directly related to (i)
the Stock Purchase Agreement, (ii) the Promissory Note, (ii) the QAD Stock,
(iii) the Consulting Agreement or (iv) the Noncompetion Agreement (all as
defined in the Stock Purchase Agreement).
2. Release by Purchaser and the Company. Purchaser and the Company do
hereby fully and forever release and discharge the Seller from and against any
and all claims, causes of action, rights, damages, costs, losses or expenses or
any other claims, causes of action or rights of any kind whatsoever, whether
known or unknown (collectively, the "Seller Claims") that the Purchaser or the
Company may assert on the basis of facts in existence on the date hereof against
the Seller arising out of, or in any way related to or connected with the
Seller, provided, however, that the Seller shall not be released and discharged
of any Seller Claims directly related to (i) the Stock Purchase Agreement, (ii)
the Consulting Agreement or (iii) the Noncompetion Agreement (all as defined in
the Stock Purchase Agreement).
3. Section 1542. Seller, Purchaser and the Company agree that this Mutual
Release shall also apply to those types of claims set forth in Section 1542 of
the California Civil Code, which provides:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
4. No Assignment. Each of Seller, Purchaser and the Company represents that
it has not assigned any claims that it may have and is fully able to sign this
Mutual Release. Each of Seller Purchaser and the Company further agree that it
has sought independent counsel prior to the execution of this Mutual Release.
<PAGE>
Executed this 15th day of December, 1999.
PURCHASER:
QAD Inc.
By: /s/ A.J. Moyer
--------------------------------
Name: Albert J. Moyer
Title: Chief Financial Officer
SELLER:
/s/ David A. Taylor
-----------------------------------
David A. Taylor
COMPANY:
ENTERPRISE ENGINES, INC.
By: /s/ David A. Taylor
------------------------------
Name: David A. Taylor
Title: President and Chief Executive
Officer
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into
as of this 15th day of December, 1999, by and among DAVID A. TAYLOR (the
"Seller"), QAD INC., a Delaware corporation (the "Purchaser") and ENTERPRISE
ENGINES, INC. (the "Company").
RECITALS
A. The Seller is the legal and beneficial owner of Two Million One Hundred
Thousand (2,000,100) shares of common stock, without par value, of the Company,
constituting One Hundred Percent (100%) of the issued and outstanding shares of
common stock of the Company (the "Shares");
B. The Purchaser has agreed to purchase the Shares pursuant to the terms of
the Stock Purchase Agreement dated December 15, 1999 (the "Purchase Agreement")
by and between the Seller, the Purchaser and the Company;
C. The Company has, is and plans to continue carrying on in the business of
the Company. The Company and its business, trademarks and trade names have
established a favorable reputation and/or recognition throughout the world; and
D. In order to protect the name, goodwill and business of the Company and
as a condition to and in consideration of the execution, delivery and
performance of the Purchase Agreement by the Purchaser, the Seller has agreed to
(i) refrain from competing with the Company or the Purchaser, as set forth in
this Agreement and (ii) refrain from making disparaging comments about the
Purchaser or the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. COMPETITION
1.1 Agreement Not To Compete.
(a) The Seller will refrain, for a period of two (2) years from the date
hereof, either alone or in conjunction with any other Person, or directly or
indirectly through his present or future Affiliates, from:
(i) employing, engaging or seeking to employ or engage any Person
who within the prior twelve (12) months had been an officer or
employee of the Company or the Purchaser;
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(ii) causing or attempting to cause (A) any client, customer or
supplier of the Company or the Purchaser to terminate or materially
reduce its business with the Company or the Purchaser, or (B) any
officer, employee or consultant of the Company or the Purchaser to
resign or sever a relationship with the Company or the Purchaser;
(iii) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to
the Company or the Purchaser, or any of their respective clients,
customers or suppliers; or
(iv) competing with, participating or engaging in, or otherwise
lending assistance (financial or otherwise) to any Person
participating or engaged in selling, creating or developing Enterprise
Applications Software for businesses engaged in manufacturing,
distribution or supply chain management functions which involves any
of the functionality of the E-Ware System as further described below.
EEI has designed and is currently building a set of technologies for integrating
and executing business models known as the E-Ware System. These technologies
include the following:
Application Interface: This interface surrounds all the other functionality
listed below. It is the interface to which all applications are written and
hides the details of transactions, collections, naming, events, etc. from the
application programmer.
Transactions: These are all the transactional semantics and mechanics that
control the concurrency and integrity of every unit of work in a running
application. This advanced transaction model will allow multiple transactional
views to be open for each client, allowing end users to manage multiple work
orders concurrently.
Dynamic UI: This is the infrastructure to support dynamic Java user interfaces.
The UI, which can be either a Java applet or a Java application, can respond
dynamically to changes in the model. This infrastructure also provides all the
smart caching necessary to make these UIs perform in mission critical
applications that require fast response times.
Query and Indexing: This is the subsystem necessary for the application to do
the searching and reporting on all of the data within the application.
Event Notification: this functionality allows the application programmer to send
events at a predetermined time and rate to any other object(s) within the system
Systems Interface: This is the infrastructure to support the interfaces that
will be used to communicate with external entities like other ERP or
Object Import/Export: This subsystem allows us to migrate object data from one
version of an application to another.
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<PAGE>
Business Backplane: A new architecture for business components to be developed
by EEI and integrated into the Engine. It includes components interface
definitions and supports independent component upgrades.
Electronic Exchange: A market-based message broker for identifying and selecting
among candidate providers for business requests. Exchanges may be used at levels
ranging from low-level data requests to Internet-based buying and selling.
(b) The parties hereto recognize that the Laws and public policies of
various jurisdictions may differ as to the validity and enforceability of
covenants similar to those set forth in this Section. It is the intention of the
parties that the provisions of this Section be enforced to the fullest extent
permissible under the Laws and policies of each jurisdiction in which
enforcement may be sought, and that the unenforceability (or the modification to
conform to such Laws or policies) of any provisions of this Section shall not
render unenforceable, or impair, the remainder of the provisions of this
Section. Accordingly, if any provision of this Section shall be determined to be
invalid or unenforceable, such invalidity or unenforceability shall be deemed to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such determination is made and not with respect to any
other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy at Law for any
breach of the provisions of this Section would be inadequate, and Seller hereby
consents to the granting by any court of an injunction or other equitable
relief, without the necessity of actual monetary loss being proved, in order
that the breach or threatened breach of such provisions may be effectively
restrained.
1.2 Consideration For NonCompetition Agreement. The Purchaser will pay to
the Seller ONE HUNDRED THOUSAND DOLLARS ($100,000) for this covenant payable in
twelve (12) equal monthly installments commencing on December 16, 1999.
2. REMEDIES.
2.1 Injunctive Relief. The Seller acknowledges and agrees that the
covenants and obligations contained in this Agreement relate to special, unique
and extraordinary matters, that the skills, talents, experience and knowledge of
the Seller are very valuable and, if used to compete with the Company or the
Purchaser, or if the Seller is permitted to disclose confidential information or
permitted to make negative or disparaging comments about the Company, such
competition, disclosure and/or comments will greatly decrease the value of the
business transferred to the Purchaser pursuant to the Purchase Agreement, and
that a violation of any of the terms of this Agreement will cause the Purchaser
and the Company irreparable injury for which adequate remedy at law is not
available. Therefore, in addition to other remedies that the Purchaser or the
Company may have, the Seller agrees that the Purchaser shall be entitled to an
injunction, restraining order or other equitable relief from any court of
competent jurisdiction, restraining the Seller from committing any violation of
the covenants and obligations set forth in this Agreement, together with an
award of attorneys' fees to be set by the Court.
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<PAGE>
2.2 Remedies Cumulative. The Purchaser's rights and remedies under Section
2.1 above are cumulative and are in addition to, and not in lieu of, any other
rights and remedies the Purchaser may have at law or in equity.
3. MISCELLANEOUS.
3.1 Notice. All notices, demands and requests required by this Agreement
shall be in writing and shall be deemed to have been given or made for all
purposes (i) upon personal delivery, (ii) one (1) day after being sent, when
sent by professional overnight courier service, (iii) five (5) days after
posting when sent by registered or certified mail, or (iv) on the date of
transmission when sent by telegraph, telegram, telex or other form of "hard
copy" transmission, to either party hereto at the address set forth below or at
such other address as either party may designate by notice pursuant to this
Section 3.1.
If to Purchaser: QAD Inc.
6450 Via Real
Carpinteria, CA 93013
Attn: General Counsel
Facsimile: 805-566-6080
With copy to: Joseph E. Nida, Esq.
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Facsimile No.: 805-568-1955
If to Seller: David A. Taylor
4008 Bayview Avenue
San Mateo, california 94403
Facsimile: none
With copy to: Heller, Ehrman, White & McCauliffe
525 University Avenue
Palo Alto, CA 94301
Attn: Sarah A. O'Dowd
Facsimile No.: 650-324-0638
If to Company: Enterprise Engines, Inc.
c/o QAD Inc.
10,000 Midlantic, #200 East
Mt. Laurel, NJ 08054
Attn: Roland B. Desilets
Facsimile No.: 856-850-2698
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<PAGE>
With copy to: Joseph E. Nida, Esq.
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Facsimile No.: 805-568-1955
This Agreement shall be binding on, and shall inure to the benefit of, the
parties hereto and their respective heirs, legal representatives, successors,
and assigns; provided, however, that the Seller may not assign, transfer or
delegate his rights or obligations hereunder and any attempt to do so shall be
void.
3.3 Entire Agreement. This Agreement and the Purchase Agreement contain the
entire agreement of the parties with respect to the subject matter hereof, and
all other agreements, written or verbal, are of no further force or effect.
3.4 Amendment. This Agreement may be modified or amended only by a written
agreement signed by the Purchaser and the Seller.
3.5 Waivers. No waiver of any term or provision of this Agreement will be
valid unless such waiver is in writing and signed by the party against whom
enforcement of the waiver is sought. The waiver of any term or provision of this
Agreement shall not apply to any subsequent breach of this Agreement.
3.6 Captions and Cross-references. Captions to the various sections in this
Agreement are for the convenience of the parties only and shall not affect the
meaning or interpretation of this Agreement. All cross-references in this
Agreement, unless specifically directed to another agreement or document, refer
to provisions within this Agreement.
3.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but together they shall constitute
one and the same instrument.
3.8 Severability. The terms and provisions of this Agreement shall be
deemed severable, and if any term, provision or part of any provision is held
illegal, void or invalid under applicable law, the same shall be deleted or
changed to the minimum extent necessary to make it, as so changed, or the
remainder of the provision in the case of a deletion of any part of a provision,
legal, valid and binding. If any term or provision of this Agreement is held
illegal, void or invalid in its entirety, the remaining terms and provisions of
this Agreement shall not in any way be affected or impaired but shall remain
binding in accordance with their terms. 3.9 ARBITRATION. Any dispute relating to
this Agreement shall be resolved in accordance with the arbitration provisions
set forth in the Purchase Agreement.
3.9 Arbitration. Any dispute relating ot this Agreement shall be resolved
in accordance with the arbitation provisions set forth in the Purchase
Agreement.
5
<PAGE>
3.10 Attorneys' Fees and Costs. In the event of any action at law or in
equity between the parties hereto to enforce any of the provisions hereof, the
unsuccessful party or parties to such litigation shall pay to the successful
party or parties all costs and expenses including reasonable attorneys' fees,
incurred therein by such successful party or parties, and if such successful
party or parties shall recover judgment in any such action or proceeding, such
costs, expenses, and attorneys fees may be included in and as part of such
judgment. The successful party shall be the party who is entitled to recover his
costs of suit, whether or not the suit proceeds to final judgment. If no costs
are awarded, the successful party shall be determined by the court.
3.11 GOVERNING LAW AND FORUM. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PURCHASER, THE COMPANY AND THE SELLER HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE. EXCEPT AS SET FORTH IN SECTION 3.9 ABOVE, ANY AND
ALL ACTIONS AND PROCEEDINGS ARISING OUT OF OR RELATED DIRECTLY OR INDIRECTLY TO
THIS AGREEMENT SHALL BE LITIGATED IN ANY STATE COURT OR FEDERAL COURT SITTING IN
SAN FRANCISCO, STATE OF CALIFORNIA, AND EACH PARTY HERETO HEREBY EXPRESSLY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND TO VENUE THEREIN
AND CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING BY
CERTIFIED OR REGISTERED MAILING OF THE SUMMONS AND COMPLAINT THEREIN DIRECTED TO
THE PARTIES IN THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION 3.1 HEREOF.
3.12 Covenant to Perform Necessary Acts. Each party hereto agrees to
perform any further acts and execute and deliver any further documents which may
be reasonably necessary or otherwise reasonably required to carry out the
provisions of this Agreement.
3.13 Number and Gender. Words in the singular shall include the plural, and
words in a particular gender shall include either or both genders when the
context in which such words are used indicate that such is the intent.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
PURCHASER:
QAD Inc.
By: /s/ A.J. Moyer
------------------------------
Name: Albert J. Moyer
Title: Chief Financial Officer
SELLER:
/s/ David A. Taylor
---------------------------------
David A. Taylor
COMPANY:
ENTERPRISE ENGINES, INC.
By: /s/ David A. Taylor
-------------------------------
Name: David A. Taylor
Title: President and Chief Executive
Officer
7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To Board of Directors
QAD Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of QAD Inc. of our report dated March 5, 1999 (except for Note 7, which
was as of April 26, 1999), relating to the consolidated balance sheets of QAD
Inc. and subsidiaries as of January 31, 1999, and 1998, and the related
consolidated statements of operations, retained earnings, and cash flows for
each of the years in the three-year period ended January 31, 1999, and all
related schedules, which report appears in the January 31, 1999, annual report
on Form 10-K of QAD Inc. and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG LLP
/S/ KPMG LLP
Los Angeles, California
February 2, 2000
