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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 10, 1999
-------------------------
ESOFT, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 00-23527 84-0938960
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
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295 INTERLOCKEN BOULEVARD, SUITE 500
BROOMFIELD, COLORADO 80021
(303) 444-1600
(Address and Telephone Number of Registrant's Principal Executive Office)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 10, 1999, the Company consummated a merger with
Technologic, Inc., a Georgia corporation ("Technologic"), pursuant to which
Technologic became a wholly-owned subsidiary of the Company. In consideration
for the merger, upon its completion, each share of Technologic common stock was
converted into the right to receive .308659 shares of eSoft common stock, for a
total of 1,244,435 shares of eSoft common stock, and each outstanding and
unexercised option to purchase a share of Technologic common stock was converted
into an option or a right to purchase .308659 shares of eSoft common stock, for
a total of 180,565 shares of eSoft common stock. Immediately following the
consummation of the merger, Technologic stockholders owned approximately 11.5%
of the combined company and eSoft stockholders owned approximately 88.5% of the
combined company. Assuming that all eSoft and Technologic options and warrants
are exercised, Technologic security holders will own approximately 10.4% of the
combined company and eSoft security holders will own approximately 89.6% of the
combined company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Financial Statements of Technologic, Inc. will be filed within 60 days
of September 25, 1999.
(b) Pro Forma Financial Information.
Pro forma financial information will be filed within 60 days of
September 25, 1999.
(c) Exhibits.
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EXHIBIT
NUMBER Description of Exhibits
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2.1 Agreement and Plan of Merger dated September 10, 1999 between eSoft, Inc., eSoft Acquisition
Corporation and Technologic, Inc.
2.2 Form of Stockholders Agreement executed by Technologic, Inc. stockholders in connection with the
merger.
2.3 Form of Escrow Agreement executed by eSoft, Inc., Brian E. Cohen and Norwest Bank, N.A.
2.4 Employment Agreement by and between eSoft, Inc. and Brian E. Cohen.
2.5 Employment Agreement by and between eSoft, Inc. and Perry B. Flinn.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
eSoft, Inc.
Date: September 24, 1999 By: /s/ Jeffrey Finn
------------------------------------
Name: Jeffrey Finn
Title: President and Chief Executive
Officer
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EXHIBIT INDEX
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EXHIBIT
NUMBER Description of Exhibits
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2.1 Agreement and Plan of Merger dated September 10, 1999 between eSoft, Inc., eSoft Acquisition
Corporation and Technologic, Inc.
2.2 Form of Stockholders Agreement executed by Technologic, Inc. stockholders in connection with the
merger.
2.3 Form of Escrow Agreement executed by eSoft, Inc., Brian E. Cohen and Norwest Bank, N.A.
2.4 Employment Agreement by and between eSoft, Inc. and Brian E. Cohen.
2.5 Employment Agreement by and between eSoft, Inc. and Perry B. Flinn.
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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
BETWEEN
eSOFT, INC.,
eSOFT ACQUISITION CORPORATION
AND
TECHNOLOGIC, INC.
DATED AS OF SEPTEMBER 10, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER.........................................................................1
1.1 The Merger.........................................................................1
1.2 The Closing........................................................................1
1.3 Effective Time.....................................................................2
1.4 Subsequent Actions. ..............................................................2
ARTICLE II ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.................2
2.1 Articles of Incorporation..........................................................2
2.2 Bylaws.............................................................................2
ARTICLE III DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION................................2
3.1 Directors of the Surviving Corporation.............................................2
3.2 Officers...........................................................................2
ARTICLE IV EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE COMPANY...................3
4.1 Merger Sub Stock...................................................................3
4.2 The Company Securities.............................................................3
4.3 Exchange of Certificates Representing the Company Common Stock.....................4
4.4 Adjustment of Exchange Ratio.......................................................6
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................6
5.1 Existence, Good Standing, Corporate Authority, Compliance With Law.................6
5.2 Authorization, Validity, and Effect of Agreements..................................6
5.3 Capitalization.....................................................................7
5.4 Other Interests....................................................................7
5.5 No Violation.......................................................................7
5.6 Financial Statements...............................................................8
5.7 Absence of Undisclosed Liabilities.................................................8
5.8 Absence of Certain Changes or Events...............................................8
5.9 List of Properties, Contracts, Etc................................................10
5.10 Title to Assets...................................................................12
5.11 Adequacy of Assets................................................................12
5.12 Condition of Inventory, Property, Plant, and Equipment............................13
5.13 Accounts Receivable and Accounts Payable..........................................13
5.14 Litigation........................................................................13
5.15 Taxes.............................................................................13
5.16 Proprietary Rights................................................................14
5.17 Royalties.........................................................................16
5.18 Year 2000 Compliance..............................................................16
5.19 Labor Relations. ................................................................17
5.20 Certain Employee Matters. .......................................................17
5.21 Transactions With Affiliates......................................................17
5.22 Permits; Compliance With Laws.....................................................17
5.23 Environmental Matters.............................................................18
5.24 Fees and Liabilities to Certain Creditors.........................................18
5.25 Books and Records.................................................................18
5.26 ERISA.............................................................................18
5.27 Pooling of Interests Treatment....................................................19
5.28 Insurance.........................................................................20
5.29 Disclosure........................................................................20
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........................20
6.1 Existence; Good Standing; Corporate Authority; Compliance with Law................20
6.2 Authorization, Validity, and Effect of Agreements.................................21
6.3 Capitalization....................................................................21
6.4 No Violation......................................................................21
6.5 SEC Documents.....................................................................21
6.6 No Consent or Approval Required...................................................22
6.7 Absence of Change.................................................................22
6.8 Brokerage.........................................................................22
6.9 Accounts Receivable and Accounts Payable..........................................22
6.10 Litigation........................................................................22
6.11 Proprietary Rights................................................................23
6.12 Royalties.........................................................................23
6.13 Year 2000 Compliance..............................................................23
6.14 Labor Relations. ................................................................23
6.15 Certain Employee Matters. .......................................................23
6.17 ERISA.............................................................................24
6.18 Pooling of Interests Treatment....................................................24
ARTICLE VII COVENANTS.........................................................................25
7.1 Written Consent of Stockholders...................................................25
7.2 Notification to Stockholders......................................................25
7.3 Blue Sky..........................................................................25
7.4 Board Nomination..................................................................25
7.5 Notices to Holders of Company Options.............................................25
7.6 Filings; Other Action.............................................................25
7.7 Reserved. ........................................................................25
7.8 Publicity.........................................................................25
7.9 Listing Application...............................................................25
7.10 Further Action....................................................................25
7.11 Release of Certain Guaranties.....................................................26
7.12 Expenses..........................................................................26
7.13 Fees to Brokers...................................................................26
7.14 Pooling...........................................................................26
7.15 Publication of Financials.........................................................26
7.16 Tax Matters.......................................................................26
7.17 Employment Agreements.............................................................26
7.18 Banking Matters...................................................................27
7.19 Termination of 401(k) Plan........................................................27
ARTICLE VIII CONDITIONS........................................................................27
8.1 Conditions to Each Party's Obligation to Effect the Merger........................27
8.2 Conditions to Obligation of the Company to Effect the Merger......................28
8.3 Conditions to Obligation of Parent and Merger Sub to Effect the Merger............28
ARTICLE IX ESCROW; LIMITS ON LIABILITY.......................................................30
9.1 Delivery of Parent Common Stock to the Escrow Agent...............................30
9.2 Dividends Declared After the Effective Time.......................................30
9.3 Survival of Representations.......................................................30
9.4 Indemnity.........................................................................31
9.5 Application by Parent to Escrow Agent for Payment of Claims.......................31
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9.6 Distribution of Deferred Merger Consideration to the Company's Stockholders.......31
9.7 Unclaimed Funds...................................................................31
9.8 Limits on Liability...............................................................31
ARTICLE X GENERAL PROVISIONS................................................................31
10.1 Confidentiality...................................................................31
10.2 Notices...........................................................................32
10.3 Assignment, Binding Effect........................................................32
10.4 Entire Agreement..................................................................32
10.5 Amendment.........................................................................32
10.6 Governing Law.....................................................................33
10.7 Counterparts......................................................................33
10.8 Headings..........................................................................33
10.9 Interpretation....................................................................33
10.10 Waivers...........................................................................33
10.11 Incorporation of Exhibits.........................................................33
10.12 Severability......................................................................33
10.13 Enforcement of Agreement..........................................................33
10.14 Subsidiaries......................................................................33
10.15 Consent...........................................................................34
EXHIBIT A
A-1 Cohen Employment Agreement
A-2 Flinn Employment Agreement
EXHIBIT B Escrow Agreement
EXHIBIT C Opinion of Parent Counsel
EXHIBIT D Opinion of Company Counsel
EXHIBIT E Stockholders Agreement
EXHIBIT F Optionholders Agreement
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INDEX OF DEFINITIONS
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activities.............................................................................................18
Agreement...............................................................................................1
CERCLA.................................................................................................18
Certificate.............................................................................................3
Closing.................................................................................................1
Closing Date............................................................................................2
Commission.............................................................................................22
Company.................................................................................................1
Company Balance Sheet...................................................................................8
Company Common Stock....................................................................................3
Company Insurance Coverage.............................................................................20
Company Material Adverse Effect.........................................................................8
Company Real Property..................................................................................11
Deferred Merger Consideration Fund.....................................................................31
Deferred Merger Consideration...........................................................................4
Dissenting Share........................................................................................3
Documentation..........................................................................................11
Effective Time..........................................................................................2
Environmental Requirement..............................................................................19
ERISA..................................................................................................19
ERISA Affiliate........................................................................................19
Escrow Agent............................................................................................4
Escrow Agreement.......................................................................................28
Exchange Act...........................................................................................22
Exchange Agent..........................................................................................4
Exchange Fund...........................................................................................4
Exchange Ratio..........................................................................................3
GBCC....................................................................................................1
hazardous waste........................................................................................24
hazardous waste........................................................................................18
Hazardous Material.....................................................................................19
Initial Merger Consideration............................................................................4
knowledge...............................................................................................7
Material Contracts.....................................................................................12
Merger..................................................................................................1
Merger Sub..............................................................................................1
Multiemployer Plan.....................................................................................19
Multiple Employer Plan.................................................................................19
Multiple Employer Plan.................................................................................25
Option..................................................................................................3
Options.................................................................................................3
parachute payments.....................................................................................14
Parent..................................................................................................1
Parent Common Stock.....................................................................................3
Parent Material Adverse Effect.........................................................................23
Parent Preferred Stock.................................................................................22
Parent Real Property...................................................................................24
Parent Reports.........................................................................................22
Parent Stock Option.....................................................................................3
Pension Plan...........................................................................................20
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Plan...................................................................................................19
Product................................................................................................17
Proprietary Rights......................................................................................9
RCRA...................................................................................................18
Regulatory Filings......................................................................................8
Securities Act.........................................................................................22
Software...............................................................................................11
Stock Option Plans......................................................................................3
Stockholders Agreement.................................................................................31
Subsidiary.............................................................................................34
Surviving Corporation...................................................................................1
System.................................................................................................16
Taxes..................................................................................................14
tools..................................................................................................11
Unfunded Pension Liability.............................................................................20
Year 2000 Compliant....................................................................................17
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 10, 1999 between eSoft, Inc., a Delaware corporation ("Parent"), eSoft
Acquisition Corporation, a Georgia corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Technologic, Inc., a Georgia corporation (the
"Company").
RECITALS
A. The Boards of Directors of Parent, Merger Sub and the Company each
have determined that a business combination among Parent, Merger Sub and the
Company is fair to and in the best interests of their respective companies and
stockholders and accordingly, have agreed to effect the merger provided for
herein upon the terms and subject to the conditions set forth herein.
B. In connection with the merger provided for herein, a total of
1,500,000 shares of Parent's common stock will be issued or reserved for
issuance. Of such shares, 1,425,000 shares will be issued in exchange for all of
the issued and outstanding shares of the Company's common stock or will be held
in reserve for issuance upon the exercise of options to purchase Parent's common
stock, and 75,000 shares will be issued to the Company's investment bankers in
satisfaction of their fees.
C. This merger is intended (but not conditioned on) for financial
accounting purposes to qualify as a pooling of interests and intended for tax
purposes to qualify as a non-taxable reorganization under Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code").
D. Parent, Merger Sub, and the Company desire to make certain
representations, warranties, and agreements in connection with the merger.
E. As an inducement to the agreement of Parent and Merger Sub to effect
the merger provided for herein, certain officers and key employees of the
Company have agreed to execute employment and non-competition agreements as set
forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants, and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as hereinafter defined), Merger Sub shall be merged with
and into the Company in accordance with this Agreement, and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). The
Company shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"), and as of the Effective Time, shall
be a wholly owned subsidiary of Parent. The Merger shall have the effects
specified in Article 11 of the Georgia Business Corporation Code (the "GBCC").
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Davis, Graham & Stubbs LLP at 370 17th Street, Suite 4700, Denver, Colorado
80202 at 10:00 a.m., local time, on (i) the later of the second business day
following the date on which the last to be satisfied or waived of the conditions
set forth in Article VIII (other than those conditions that by their nature are
to be satisfied at the
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Closing, but subject to the satisfaction or, where permitted, waiver of those
conditions) shall be satisfied or waived in accordance with this Agreement, or
September 10, 1999, or (ii) or at such other time, date, or place as Parent and
the Company may mutually agree. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article VIII shall have been fulfilled or waived in accordance herewith, on the
Closing Date, the parties hereto shall execute and file a Certificate of Merger
meeting the requirements of Section 14-2-1105 of the GBCC. The Merger shall
become effective at the time of filing of the Certificate of Merger with the
Secretary of State of the State of Georgia in accordance with the GBCC, or at
such later time which the parties hereto shall have agreed upon and designated
in such filing as the effective time of the Merger (the "Effective Time").
1.4 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation's right, title or interest, in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise carry out the
intent of this Agreement.
ARTICLE II
ARTICLES OF INCORPORATION AND BYLAWS OF
THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of Merger
Sub in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable law.
2.2 BYLAWS. At the Effective Time, the Surviving Corporation shall take
such action as is necessary to amend and restate the Bylaws of the Surviving
Corporation to be the same as the Bylaws of Merger Sub hereto, until duly
amended in accordance with applicable law.
ARTICLE III
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 DIRECTORS OF THE SURVIVING CORPORATION. Parent, as the sole
shareholder of the Surviving Corporation, shall take such action as is necessary
to elect as directors of the Surviving Corporation immediately following the
Effective Time: Brian Cohen, Jeffrey Finn and Philip Becker, until their
successors are duly appointed or elected in accordance with applicable law.
3.2 OFFICERS. The Surviving Corporation shall take or cause to be taken
such action as is necessary to elect as the officers of the Surviving
Corporation immediately following the Effective Time: Jeffrey Finn, President,
Brian Cohen, Vice President and Philip Becker, Secretary, until their successors
are duly appointed or elected in accordance with applicable law.
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ARTICLE IV
EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB
AND THE COMPANY
4.1 MERGER SUB STOCK. At the Effective Time, each share of common
stock, no par value, of Merger Sub outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Parent, be converted into and exchanged for one validly issued, fully paid
and non-assessable share of common stock, no par value, of the Surviving
Corporation.
4.2 THE COMPANY SECURITIES.
(a) Subject to the provisions of Article IX hereof, at the
Effective Time, each share of common stock of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time (other
than any share of Company Common Stock as to which any stockholder has exercised
its dissenters rights under the GBCC (a "Dissenting Share")) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive .308659 (the "Exchange Ratio") of one
validly issued, fully paid and non-assessable share of common stock of Parent,
$.01 par value ("Parent Common Stock").
(b) Each Dissenting Share shall not be converted as set forth
in Section 4.2(a) above, but shall be converted into the right to receive such
consideration from Parent as may be determined to be due with respect to such
Dissenting Share pursuant to the GBCC; provided, however, that each Dissenting
Share in respect of which a claim for appraisal is irrevocably withdrawn after
the Effective Time shall be deemed to be converted, as of the Effective Time,
into the right to receive shares of Parent Common Stock at the Exchange Ratio,
subject to the provisions of Article IX hereof.
(c) As a result of the Merger and without any action on the
part of the holder thereof, at the Effective Time, all shares of the Company
Common Stock shall cease to be outstanding and shall be canceled and retired,
and each holder of shares of the Company Common Stock shall thereafter cease to
have any rights with respect to such shares of the Company Common Stock, except
the right to receive, without interest, the Parent Common Stock in accordance
with Sections (4.2(a), 4.3(b), 4.3(e) and Article IX hereof (and cash in lieu of
any fractional shares pursuant to Section 4.3(c) hereof) upon the surrender of a
certificate (a "Certificate") representing such shares of the Company Common
Stock or, with respect to a Dissenting Share, the right to receive such
consideration per Dissenting Share as such holders of Dissenting Shares may be
determined to be entitled pursuant to the GBCC.
(d) Each share of the Company Common Stock issued and held in
the Company's treasury at the Effective Time shall, by virtue of the Merger,
cease to be outstanding and shall be canceled and retired without payment of any
consideration therefor.
(e) All options to purchase Company Common Stock
(individually, a "Company Option" and collectively, the "Company Options")
outstanding at the Effective Time under any Company stock option plan or
agreement (the "Company Stock Option Plans") shall, at the Effective Time,
automatically and without further action on the part of any holder thereof, be
converted into an option to purchase Parent Common Stock (individually, a
"Parent Stock Option" and collectively, the "Parent Options"). Each option
granted by Parent hereunder shall be exercisable upon the same terms and
conditions as under the applicable Company Stock Option Plan and the applicable
option agreement issued thereunder (including any acceleration of vesting
provisions), except that (i) each such Company Option shall be exercisable for
that whole number of shares of Parent Common Stock (to the nearest whole share)
determined by multiplying the number of shares of the Company Common Stock
subject to such Company Option immediately prior to the Effective Time times the
Exchange Ratio, (ii) the exercise price per share with respect to the Parent
Options shall be calculated by dividing the exercise price per share of the
Company Common Stock subject to such Company Options in effect immediately prior
to the Effective Time by the Exchange Ratio. No fractional shares shall be
issued; provided, however, that Parent shall pay cash in lieu of any fractional
share that is equal to the product of such fractional interest times the last
sales price of Parent Common Stock on the Closing Date as reported by the Nasdaq
quotation system. Except as set forth on Schedule 4.2(e) of
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the Company Disclosure Schedule attached to this Agreement (the "Company
Disclosure Schedule"), from and after the date of this Agreement, no additional
options shall be granted by Company under the Company Stock Option Plans or
otherwise.
(f) Parent shall take all corporate action (including all
necessary stockholder approvals) necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of Parent
Options in accordance with Section 4.2(e). As soon as practicable following the
Closing Date, Parent shall file a registration statement on Form S-8 with the
Securities and Exchange Commission with respect to the shares of Parent Common
Stock subject to such Parent Options, and shall use reasonable efforts to have
such registration statement declared effective and to maintain the effectiveness
of such registration statement (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such Parent Options
remain outstanding.
4.3 EXCHANGE OF CERTIFICATES REPRESENTING THE COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall deposit,
or shall cause to be deposited, with an exchange agent selected by Parent, which
shall be Parent's Transfer Agent or such other party reasonably satisfactory to
the Company (the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock (other than Dissenting Shares), for exchange in accordance
with this Article IV, certificates representing ninety percent (90%) of the
shares of Parent Common Stock (together with any unpaid dividends or
distributions with respect thereto relating to record dates for such dividends
or distributions after the Effective Time, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 4.2 and paid in exchange for
outstanding shares of Company Common Stock other than Dissenting Shares (the
"Initial Merger Consideration").
(b) At or prior to the Effective Time, Parent shall deposit,
or shall cause to be deposited, with an escrow agent selected by Parent, which
escrow agent shall be reasonably satisfactory to the Company (the "Escrow
Agent"), for the benefit of the holders of shares of Company Common Stock, for
distribution in accordance with Article IX, certificates representing ten
percent (10%) of the shares of Parent Common Stock (together with any dividends
or other distributions with respect thereto relating to record dates for such
dividends or distributions after the Effective Time) to be issued pursuant to
Section 4.2 and paid in exchange for outstanding shares of Company Common Stock
(the "Deferred Merger Consideration"). Any dividends or distributions with
respect to the Deferred Merger Consideration relating to record dates for such
dividends or distributions after the Effective Time shall be deposited with the
Exchange Agent and shall constitute part of the Deferred Merger Consideration.
(c) Within 10 days after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record of shares of Company
Common Stock other than Dissenting Shares (i) a letter of transmittal that shall
specify that delivery shall be effected, and risk of loss and title to such
shares of the Company Common Stock shall pass, only upon delivery of the
Certificates representing such shares to the Exchange Agent and which shall be
in such form and have such other provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of such Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed and completed, in accordance with the
instructions thereto, the holder of the shares represented by such Certificate
shall be entitled to receive in exchange therefor (w) a certificate representing
that number of whole shares of Parent Common Stock equal to the product of the
Exchange Ratio times the number of shares so surrendered (rounded down to the
nearest whole number), (x) cash in lieu of any fractional share that is equal to
the product of such fractional interest times the last sales price of Parent
Common Stock on the Closing Date as reported by the Nasdaq quotation system, (y)
unpaid dividends and distributions, if any, that such holder has the right to
receive in respect of the Initial Merger Consideration or the Deferred Merger
Consideration, after giving effect to any required withholding tax, and (z) the
right to receive a fractional interest in any Deferred Merger Consideration
payable to stockholders of the Company, all in accordance with Article IX
hereof, the numerator of which fractional interest is the number of shares
represented by the Certificate so surrendered and the denominator which is the
number of shares of Company Common Stock outstanding at the Effective Time. The
shares represented by the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the cash for unpaid dividends
and distributions, if any, payable to holders of shares of Company Common Stock.
In the event of a transfer of ownership of
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Company Common Stock that is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent Common
Stock may be issued to such a transferee if the Certificate representing such
Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
(d) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions declared after the Effective Time on Parent
Common Stock shall be paid with respect to any shares of Company Common Stock
represented by a Certificate until such Certificate is surrendered for exchange
as provided herein. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of Parent Common Stock and
not paid, less the amount of any withholding taxes that may be required thereon,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Parent Common Stock, less the amount of any withholding taxes which
may be required thereon. Notwithstanding the foregoing, any dividends or other
distributions with respect to the Parent Common Stock comprising the Deferred
Merger Consideration that are declared after the Effective Time but prior to the
date any Deferred Merger Consideration is distributed to the Company's
stockholders in accordance with Article IX hereof, shall be paid by Parent to
the Escrow Agent and shall be distributed by the Escrow Agent in accordance with
Article IX.
(e) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Company
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates of shares of
Parent Common Stock deliverable in respect thereof pursuant to this Agreement,
together with a cash payment (net of any applicable tax withholdings) in lieu of
fractional shares, if any, in accordance with Section 4.3(c), and a cash payment
in accordance with Section 4.3(e) of dividends or distributions, if any, only if
the Certificate or Certificates that immediately prior to the Effective Time
represented such Company Common Stock are surrendered as provided in this
Article IV.
(f) No fractional shares of Parent Common Stock shall be
issued pursuant hereto. Parent shall pay in lieu of the issuance of any
fractional share of Parent Common Stock an amount that is equal to the product
of such fractional interest times the last sales price of Parent Common Stock on
the Closing Date as reported by the Nasdaq quotation system.
(g) Any portion of the Exchange Fund (including the proceeds
of any investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the Effective
Time shall be delivered to Parent. Any former stockholders of the Company who
have not theretofore complied with this Article IV shall thereafter look only to
Parent for payment of their shares of Parent Common Stock, and any unpaid
dividends and distributions on the Parent Common Stock deliverable in respect of
each share of the Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
(h) None of Parent, Merger Sub, the Company, the Surviving
Corporation, the Exchange Agent, the Escrow Agent, or any other person shall be
liable to any former holder of shares of Company Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(i) In the event any Certificate shall have been lost, stolen,
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen, or destroyed and, if required by
the Exchange Agent, the posting by such person of a bond in such reasonable
amount as the Exchange Agent may require as indemnity against any claim that may
be made against the Company, the Exchange Agent, Parent, or the Surviving
Corporation with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen, or destroyed Certificate the shares of Parent
Common Stock (and cash in lieu of fractional shares, if any) and unpaid
dividends and distributions on shares of Parent Common Stock deliverable in
respect thereof pursuant to this Agreement.
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4.4 ADJUSTMENT OF EXCHANGE RATIO. If subsequent to the date of this
Agreement, but prior to the Effective Time, the outstanding shares of Parent
Common Stock or Company Common Stock, respectively, shall have been changed into
a different number of shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, combination,
exchange, recapitalization, or other similar transaction, the Exchange Ratio
shall be appropriately adjusted to provide the holders of Company Common Stock
and Company Options the same economic effect as contemplated by this Agreement
prior to such event.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as of the date of this
Agreement as follows:
5.1 EXISTENCE, GOOD STANDING, CORPORATE AUTHORITY, COMPLIANCE WITH LAW.
(a) The Company is a corporation duly incorporated, validly
existing, and in good standing (including tax good standing) under the laws of
the State of Georgia. The Company is duly licensed or qualified to do business
as a foreign corporation and is in good standing (including tax good standing)
under the laws of the jurisdictions listed in Schedule 5.1 of the Company
Disclosure Schedule, which list contains all jurisdictions in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, in each case except as would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect (as defined in Section 5.8(a)).
(b) The Company has all requisite corporate power and
authority to own, operate, and lease its properties and carry on its business as
presently conducted and as proposed to be conducted.
(c) The Company is not in violation of any law, ordinance,
governmental rule or regulation to which it or any of its properties or assets
is subject, except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, nor is the Company in
violation of any order, judgment, or decree of any court, governmental
authority, or arbitration board or tribunal.
(d) The copies of the Company's Articles of Incorporation and
Bylaws, which have been delivered to Parent, include any and all amendments made
thereto at any time prior to the date of this Agreement and are true, correct,
and complete.
(e) The Company's corporate minute books are accurate as to
their content and include therein the Articles of Incorporation and Bylaws of
the Company with any amendments thereto. The meetings of the directors or
stockholders referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the corporate
minute books are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the directors or
stockholders of the Company are omitted from such minute books that would
contain any resolutions or other actions that would be inconsistent with any of
the representations and warranties contained in Article V hereof or prevent or
limit any of the transactions contemplated by this Agreement. Schedule 5.1 of
the Company Disclosure Schedule sets forth a true and complete list of the names
of all directors of the Company and the names and offices held of all officers
of the Company as of the date hereof.
5.2 AUTHORIZATION, VALIDITY, AND EFFECT OF AGREEMENTS. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. The consummation
by the Company of the transactions contemplated hereby has been duly authorized
by all requisite corporate action of the Company. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes, and all agreements
and documents
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<PAGE> 13
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, or other similar laws relating to creditors'
rights and general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), including,
without limitation, possible unavailability of specific performance, other
injunctive relief or other equitable remedies and an implied covenant of good
faith and fair dealing.
5.3 CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of 15,000,000 shares of Company Common Stock, $.001 par
value, and no shares of preferred stock. There are (i) 4,031,750 shares of the
Company Common Stock issued and outstanding, and (ii) 585,000 shares of Company
Common Stock issuable upon exercise of outstanding Company Options. Schedule 5.3
of the Company Disclosure Schedule correctly sets forth the name of each person
who holds of record shares of Company Common Stock, the number of shares of
Company Common Stock so held, and the number of whole shares of Parent Common
Stock to be issued in exchange for such shares of Company Common Stock in
connection with the Merger. No additional shares of capital stock of the Company
will be issued, except pursuant to the exercise of options outstanding under and
vesting in accordance with the terms of the Company Stock Option Plans. The
Company has no outstanding bonds, debentures, notes, or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. All issued and outstanding shares of the Company
Common Stock are duly authorized, validly issued, fully paid, nonassessable,
free of preemptive or rescission rights, and were issued in compliance with all
applicable federal and state securities laws. Schedule 5.3 of the Company
Disclosure Schedule correctly sets forth the name of each person who holds or
has rights to receive Company Stock Options, the number of shares of Company
Common Stock issuable in respect of such Company Stock Options, the exercise
prices and terms of such Company Stock Options, and whether or not such Company
Stock Options are intended to qualify as incentive stock options or
non-statutory stock options. Except for the Company Stock Options listed on
Schedule 5.3 of the Company Disclosure Schedule, there are not, at the date of
this Agreement, any authorized, issued, or outstanding options, warrants, calls,
subscriptions, convertible securities, conversion privileges, preemptive rights,
or other rights, agreements, or commitments (whether or not presently
exercisable) that obligate the Company to issue, transfer, or sell any shares of
capital stock or other securities convertible into or evidencing the right to
purchase or otherwise acquire any capital stock of the Company. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar plans, contracts, or rights with respect to the
Company that are effective as of the date hereof or that have been executed or
agreed to as of the date hereof with an effective date after the date hereof.
Except as provided in Schedule 5.3 of the Company Disclosure Schedule, there are
no stockholders' agreements, voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company to
which the Company is a party that are presently effective or have been executed
or agreed to as of the date hereof or, to the best knowledge of the Company, to
which any officer or director of the Company or any stockholder owned or
controlled by such officer or director is or will be a party, except in
accordance with the terms hereof. Except as provided in Schedule 5.3 of Company
Disclosure Schedule, there are no restrictions upon the sale, voting, or
transfer of any shares of Company Common Stock pursuant to the Company's
Articles of Incorporation, Bylaws, or other governing instruments (other than
restrictions typically applicable to unregistered stock under the Securities Act
and applicable state securities and "Blue Sky" laws). After the Effective Time,
the Surviving Corporation will have no obligation to issue, transfer, or sell
any shares of capital stock of the Company or the Surviving Corporation pursuant
to any Plan (as defined in Section 5.27). As used in this Agreement, except as
otherwise provided in Section 5.16(d), the "knowledge" of a person shall mean
the actual knowledge of an officer or senior manager of such person after
reasonable investigation.
5.4 OTHER INTERESTS. The Company does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust, or entity other than investments in
short term investment securities.
5.5 NO VIOLATION. Neither the execution and delivery by the Company of
this Agreement and all agreements and documents contemplated hereby nor the
consummation by the Company of the transactions contemplated hereby or thereby
in accordance with the terms hereof or thereof will: (i) conflict with or result
in a breach of any provisions of the Articles of Incorporation or Bylaws of the
Company; (ii) except as set forth in Schedule 5.5 of the Company Disclosure
Schedule, violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice
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or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination or cancellation of, accelerate the
performance required by, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of the Company under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions, or provisions of any note, bond, mortgage, indenture, loan
agreement, deed of trust, or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment, or obligation to which the Company is
a party, or by which the Company or any of its properties is bound or affected;
(iii) violate any law, statute, rule, regulation, judgment, or decree applicable
to the Company; or (iv) other than the filings provided for in Article I,
filings required under the Securities Act, or applicable state securities and
"Blue Sky" laws or filings in connection with the maintenance of qualification
to do business in other jurisdictions (collectively, the "Regulatory Filings"),
require any consent, approval, or authorization of, or declaration, filing, or
registration with, any governmental or regulatory authority.
5.6 FINANCIAL STATEMENTS. The audited balance sheet and statement of
operations as of and for the twelve months ended December 31, 1997 and 1998,
accompanied by the audit report of BDO Seidman LLP, independent certified public
accountants, which are attached to Schedule 5.6 of the Company Disclosure
Schedule, were prepared in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
involved except as otherwise set forth therein and present fairly the financial
condition of the Company as of such date and the results of operations of the
Company for the year then ended. The unaudited balance sheet of the Company as
of June 30, 1998 and 1999 and the related statement of operations for the six
months ended on such dates, which are attached to Schedule 5.6 of the Company
Disclosure Schedule, were prepared in accordance with GAAP consistently applied
except as otherwise set forth therein and present fairly the financial condition
of the Company as of such date and the results of operations of the Company for
the six months then ended, except that such interim financial statements are
subject to normal year-end adjustments that are not and are not expected to be,
individually or in the aggregate, material in amount and do not include certain
notes which may be required by GAAP. The balance sheet of the Company as of June
30, 1999 is referred to in this Agreement as the "Company Balance Sheet."
5.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the Company Balance Sheet or set forth in
Schedule 5.7 of the Company Disclosure Schedule, at the date of the Company
Balance Sheet, the Company did not have any obligation or liability of any kind
(whether accrued, absolute, contingent, unliquidated, civil, criminal, or
otherwise and whether due or to become due), whether or not any such liability
or obligation would have been required to be disclosed on a balance sheet
prepared in accordance with GAAP, that, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect. A "Company
Material Adverse Effect" means a material adverse change in the business,
properties, financial condition, results of operations, or prospects of the
Company, taken as a whole. The Company Balance Sheet has accurate accruals of
all employee benefit costs, including, but not limited to, payroll, commissions,
bonuses, retirement benefits and vacation accruals.
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Company
Balance Sheet and except as set forth in Schedule 5.8(b) of the Company
Disclosure Schedule, except as specifically permitted or required by this
Agreement, the Company has not:
(i) declared, set aside, paid, or made any dividend
or other distribution on or in respect of any shares of its capital
stock or directly or indirectly redeemed, retired, purchased, or
otherwise acquired any such shares or any option, warrant, conversion
privilege, preemptive right, or other right or agreement to acquire the
same or any other securities convertible into or evidencing the right
to purchase or otherwise acquire the same;
(ii) made any amendments to its Articles of
Incorporation or Bylaws:
(iii) made any change in the number of shares of its
capital stock authorized, issued, or outstanding or authorized, issued,
granted, or made any option, warrant, conversion privilege, preemptive
right, or other right or agreement to acquire the same or any other
securities convertible into or evidencing the right to acquire the
same;
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<PAGE> 15
(iv) incurred any indebtedness for borrowed money;
(v) incurred any obligation or liability (contingent
or otherwise) except (i) normal trade or business obligations incurred
in the ordinary course of business, the performance of which will not,
individually or in the aggregate, have a Company Material Adverse
Effect and (ii) obligations under the contracts, agreements and leases
described in Schedule 5.9 of the Company Disclosure Schedule, the
performance of which will not, individually or in the aggregate, have a
Company Material Adverse Effect;
(vi) discharged or satisfied any lien or encumbrance
or paid any obligations or liability (fixed or contingent) other than
current liabilities paid to unrelated parties, wages paid to officers
and employees and director's fees paid to directors, each in the
ordinary course of business;
(vii) mortgaged, pledged, or subjected to any lien,
charge, or other encumbrance any of its properties or assets (tangible
or intangible) except for Permitted Liens (as defined in Section 5.10
below).
(viii) sold, assigned, leased, transferred or
otherwise disposed of, or agreed to sell, assign, lease, transfer or
otherwise dispose of, any of its tangible assets other than sales of
inventory in the ordinary course of business;
(ix) other than in the ordinary course of business,
sold, assigned, licensed, transferred, or otherwise disposed of, or
agreed to sell, assign, license, transfer or otherwise dispose of, any
of its patents, inventions, shop rights, know-how, trade secrets,
confidentiality agreements and confidential information, registered and
unregistered trademarks, service marks, logos, corporate names, trade
names, and other trademark rights, trade dress, or other designations
or combinations of such designations that are distinctive of its goods
or services and that are used by the Company in a manner that
identifies its goods or services and distinguishes them from the goods
or services of others, works of authorship and any registered or
unregistered copyright therein, Software or Documentation (as defined
in Section 5.9(e)), or other intangible assets, and all registrations
for, and applications for registration of, any of the foregoing
(collectively, "Proprietary Rights") or disclosed any of its
confidential Proprietary Rights to any person (other than Parent);
(x) entered into any transaction, contract, or
commitment other than in the ordinary course of business;
(xi) made any capital expenditures or any commitment
therefor in excess of $5,000 in the aggregate except as consented to by
Parent;
(xii) adopted or made any change in any executive
compensation plan, bonus plan, incentive compensation plan, deferred
compensation agreement, or other employee benefit plan or arrangement;
(xiii) entered into any employment or consulting
agreement or arrangement, or, except for normal bonuses pursuant to and
consistent with existing plans or programs, or wages or salary
increases consistent with past practices, granted or paid any bonus, or
made or granted any general wage or salary increase or any specific
increase in the wages or salary of any employee;
(xiv) suffered any casualty loss or damage, whether
or not such loss or damage shall have been covered by insurance;
(xv) canceled or compromised any debt or claim except
for adjustments made in the ordinary course of business that, in the
aggregate, are not material, or waived or released any rights that are
material;
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(xvi) terminated, amended, or modified any agreement
or instrument described in Schedule 5.9 of the Company Disclosure
Schedule;
(xvii) entered into any transaction with any
stockholder, officer, director, or key employee of the Company or any
affiliate of any such person other than the payment of wages and
salaries and other benefits under employee benefit plans in existence
prior to December 31, 1998;
(xviii) made any loans or advances to, guaranties for
the benefit of, or investments in, any person (other than customary
wage or travel advances in accordance with past practices);
(xix) made cash charitable or political contributions
in excess of $5,000 in the aggregate;
(xx) lost any supplier or suppliers which loss or
losses, individually or in the aggregate, has had, or could reasonably
be expected to have, a Company Material Adverse Effect;
(xxi) lost any customer or customers which loss or
losses, individually or in the aggregate, has had, or could reasonably
be expected to have, a Company Material Adverse Effect;
(xxii) suffered the loss of services of any employee,
whether voluntarily or involuntarily, which loss or losses,
individually or in the aggretate, has had, or could reasonably be
expected to have, a Company Material Adverse Effect;
(xxiii) had any material change in its relations with
its employees;
(xxiv) merged or consolidated with, or acquired all
or substantially all of the assets, capital stock, or business of any
other person;
(xxv) introduced any material change with respect to
the operation of its business, including its method of accounting; or
(xxvi) agreed or committed to do any of the things
described in this Section 5.8.
5.9 LIST OF PROPERTIES, CONTRACTS, ETC. Schedule 5.9 of the Company
Disclosure Schedule sets forth a true and complete list of the following:
(a) all leases of real property to which the Company is a
party, identifying the parties thereto and including in each case a brief
description of the property covered thereby, the annual rental rate, and the
termination date (all real property covered by such leases being referred to
herein as the "Company Real Property");
(b) all leases of personal property to which the Company is a
party, that (i) provide for future annual payments in excess of $5,000 or (ii)
were entered into other than in the ordinary course of business, identifying the
parties thereto and including in each case, a brief description of the property
covered thereby, the annual rental rate and the termination date and identifying
any such leases with respect to which the obligations thereunder, in accordance
with GAAP, would be required to be capitalized on a balance sheet of the Company
or for which the amount of the asset and liability thereunder, as if so
capitalized, would be required to be disclosed in a note to such balance sheet;
(c) all addresses at which inventory or other property of the
Company is located;
(d) all Proprietary Rights, if any, having a cost of $5,000 or
more, used in the business or operations of the Company; identifying the owner
thereof and in the case of any license, the parties thereto, the method of
compensating the licensor thereunder and the termination date;
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(e) all Software and Documentation owned by the Company or
used in and material to the business or operations of the Company, identifying
the owner thereof. As used herein: (i) "Software" means all computer programs,
in machine-readable object code and any and all corresponding source code, and
includes, without limitation: any and all printed listings, file formats,
interface or operating system designs, application programs, structure,
architecture, libraries, tools, functions, subroutines, and all components,
portions or modules thereof, and (ii) "Documentation" means all user manuals,
handbooks, on-line materials, development tools, specifications and any other
written or machine readable materials relating in any way to the Software, and
includes, without limitation: any and all Software specifications; programmer's
or developer's notes, and engineering or system design notes; instructions for
compiling or decompiling; and all pseudo-code, algorithms, diagrams or flow
charts whether or not directly incorporated in the Software. The Software and
Documentation owned by the Company, listed on Schedule 5.9 of the Company
Disclosure Schedule, includes the copyright registration number of all
registered copyrights therein. The list on Schedule 5.9 of the Company
Disclosure Schedule describes the extent to which the listed Software owned by
the Company is proprietary to the Company; if any such Software requires the use
of development tools, routines, libraries or the like ("tools") that are not
proprietary to the Company, such tools are identified in Schedule 5.9 of the
Company Disclosure Schedule; and if any such Software, or any portion thereof,
is required by law or any agreement to be dedicated to the public, owned or
co-owned, or licensed or otherwise authorized for use by the public or any other
person, such requirements are described in Schedule 5.9 of the Company
Disclosure Schedule;
(f) all employment and consulting agreements covering any
employee of, or consultant to, the Company that are in force as of the date
hereof;
(g) the names and current annual or monthly compensation rates
of all present employees of the Company;
(h) all deferred compensation agreements, employee stock
option plans, group life, hospitalization or disability insurance, severance
policies and other plans and arrangements providing benefits for employees of
the Company;
(i) all standard and non-standard product warranty terms and
conditions applicable to goods and services sold by the Company;
(j) all agreements with distributors or value-added resellers,
and all proposals made by the Company within the last ninety (90) days to any
distributors or value-added resellers that involve amounts over $10,000;
(k) all insurance coverage that relates to or covers the
properties, assets, business, or operations of the Company, including all
policies or binders of fire, liability, vehicular, title, workers' compensation,
and other insurance, specifying the insurer, the type of coverage, the amount of
coverage, any applicable deductibles, the expiration date and the policy number;
(l) all documents in the possession or control of the Company
pertaining to the environmental conditions (actual, potential, or threatened) of
any real property owned or leased by the Company including, without limitation,
all environmental reports, assessments, and audits and all notices, orders,
permits, or any other documents from any governmental authority that refer or
relate to any environmental condition of the Company Real Property or any
personal property owned or leased by the Company or that relate to any actual or
potential liabilities or obligations arising out of such environmental
conditions;
(m) the names and ages of (i) all retired employees, and (ii)
all employees on long-term disability of the Company, who are entitled to
receive health benefits;
(n) all bank accounts and safe deposit boxes of the Company,
indicating the names of the persons authorized to draw thereon;
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(o) all written agreements (other than inside sales
representatives) of the Company with sales representatives, distributors,
authorized service centers or other customers;
(p) all loan agreements, credit agreements, indentures, and
other documents or instruments relating to the borrowing of money by the Company
and all promissory notes and other evidences of indebtedness of the Company,
including without limitation, all such documents and instruments relating to or
evidencing any stockholder loans to the Company;
(q) all guaranties of obligations of the Company under all
loan agreements, leases, and other documents and instruments to which the
Company is a party or by which it is bound, by any officer or director of the
Company or any affiliate of any of the foregoing; and
(r) all other contracts, agreements or commitments of the
Company that (i) provide for future annual payments by the Company in excess of
$5,000 or (ii) were entered into other than in the ordinary course of business.
True and correct copies of all documents, including all amendments
thereto, referred to above (collectively, the "Material Contracts") have been
delivered or made available to Parent upon specific request therefor. Each
Material Contract is a valid obligation of and enforceable against the Company
and, to the Company's knowledge, the other parties thereto, in accordance with
its terms for the period stated therein. There is no existing material breach,
default, or event of default by the Company or, to the knowledge of the Company,
by any other party, under any Material Contract. There is no event that with
notice or lapse of time would constitute a default by the Company under any
Material Contract, nor has any party thereto given notice of or, to the
Company's knowledge, made a claim with respect to any breach or default. To the
Company's knowledge, there are no material deficiencies in the Company's
performance under any Material Contract. The Company does not have any knowledge
of any existing laws, regulations, or decrees, that materially and adversely
affect, or may materially and adversely affect any of the Material Contracts or
that would have a Company Material Adverse Effect. Except as set forth in
Schedule 5.9 of the Company Disclosure Schedule, no third party consents to the
execution, delivery, and consummation of this Agreement, the documents
contemplated hereby or the transactions contemplated herein are required
pursuant to the terms of any Material Contract except for those that would not
reasonably be expected to have Company Material Adverse Effect. Except as set
forth in Schedule 5.9 of the Company Disclosure Schedule, each employment
agreement to which the Company is a party is in full force and effect, and
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby shall cause or result in any default,
termination, or acceleration of any provision in any such employment agreement
or give rise to the obligation of the Company to make any severance or change of
control payment.
5.10 TITLE TO ASSETS. Except as set forth in Schedule 5.10 of the
Company Disclosure Schedule (the "Permitted Liens"), the Company has good title,
free and clear of all liens, charges, and encumbrances (except for (a) liens for
non-delinquent taxes and assessments, (b) liens of landlords and other lessors
arising under statute, and (c) other liens, claims and encumbrances or charges
that do not materially detract from the value of, or impair the use, occupancy
or ownership of, the assets and properties of the Company), to, or a valid
leasehold interest in, all of the personal property (i) reflected on the Company
Balance Sheet or acquired by the Company subsequent to the date thereof (other
than assets that have been sold or otherwise disposed of in the ordinary course
of business since the date of the Company Balance Sheet) or (ii) used in the
business or operations of the Company. Except as set forth in Schedule 5.10 of
the Company Disclosure Schedule, neither the Company nor any predecessor to the
Company has owned, leased, or operated any real property other than the Company
Real Property.
5.11 ADEQUACY OF ASSETS. The Company owns or has a valid leasehold
interest in all assets, real and personal properties, contract rights and
licenses necessary for the continued operation of the Company in substantially
the same manner in which it has been and is now operating. Except as set forth
on Schedule 5.11: (a) the Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Proprietary Rights necessary
for the operation of the business of the Company as presently conducted, (b)
each Proprietary Right owned or used by Company immediately prior to the
Effective Time hereunder will be owned or available for use by Company on
substantially similar terms and
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conditions immediately subsequent to the Effective Time hereunder, and (c)
Company has taken all commercially reasonable action to maintain and protect
each Proprietary Right that it owns or uses.
5.12 CONDITION OF INVENTORY, PROPERTY, PLANT, AND EQUIPMENT. Schedule
5.12 of the Company Disclosure Schedule sets forth a list of the fixed assets of
the Company, together with the depreciation schedule associated with such fixed
assets. The inventory of the Company consists of items of quality and quantity
usable and saleable in the ordinary course of business of the Company, except
for items reserved against or written off on the Company Balance Sheet. All
property, plant, and equipment used by the Company in the conduct of its
business has been maintained in accordance with standard industry practices and
is in good operating condition and repair, ordinary wear and tear excepted, and
there are no material defects in such property, plant, or equipment.
5.13 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts receivable
reflected on the Company Balance Sheet and all accounts receivable of the
Company that arose thereafter are valid and arose out of bona fide transactions
in the ordinary course of business. Schedule 5.13 of the Company Disclosure
Schedule sets forth a list of any such accounts receivable that the Company
considers to be doubtful accounts. To the Company's knowledge, there are no
scheduled returns from any of the Company's distributors, value-added resellers
or customers that could reasonably be expected to have a Company Material
Adverse Effect.
5.14 LITIGATION. Except as set forth in Schedule 5.14 of the Company
Disclosure Schedule, there are no claims, actions, suits, investigations, or
proceedings (public or private) pending against or affecting the Company or any
of its properties or assets, at law or in equity, before or by any federal,
state, municipal, or other governmental or non-governmental department,
commission, board, bureau, agency, court, or other instrumentality, or
arbitrator or by any private person or entity. Except as set forth in Schedule
5.14 of the Company Disclosure Schedule, to the knowledge of the Company, there
are no claims, actions, suits, investigations, or proceedings (public or
private) threatened against or affecting the Company or any of its properties or
assets, at law or in equity, before or by any federal, state, municipal, or
other governmental or non-governmental department, commission, board, bureau,
agency, court, or other instrumentality, or arbitrator or by any private person
or entity, except for any of the foregoing which would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
Except as set forth in Schedule 5.14 of the Company Disclosure Schedule, there
are no existing orders, judgments, settlements, injunctions, or decrees of any
court or governmental agency that apply to the Company or any of its assets,
properties, business, or operations. Except as set forth in Schedule 5.14 of the
Company Disclosure Schedule, since January 1, 1994, no product liability,
warranty, or similar claims have been made against the Company except routine
claims in the ordinary course of business (i.e., claims relating to defective
products that have been satisfied by the Company solely by replacement of
products or adjustment or refunding of purchase price or substantially
equivalent credit on future orders) that, in the aggregate, would not have a
Company Material Adverse Effect. Except as set forth in Schedule 5.14 of the
Company Disclosure Schedule, since January 1, 1994 the Company has not entered
into any settlement agreements relating to the compromise or dismissal of any
litigation involving the Company or any of its properties or assets. Nothing
contained in any settlement agreement to which the Company is a party prevents
the Company in any way from carrying out its business as now conducted or as
presently contemplated to be conducted, in any market, geographical area, or
application, or interferes with the Company's utilization of its Proprietary
Rights.
5.15 TAXES. Except as set forth in Schedule 5.15 of the Company
Disclosure Schedule, all returns and reports of all Taxes (as hereinafter
defined) required to be filed by the Company have been timely filed and are
true, correct, and complete in all material respects, and all Taxes payable
pursuant thereto have been timely paid. Except as set forth in Schedule 5.15 of
the Company Disclosure Schedule, no deficiency or adjustment in respect of any
Taxes that was assessed against the Company remains unpaid and no such claim or
assessment is pending or, to the knowledge of the Company, threatened. The
Company has made all withholding of Taxes required to be made under all
applicable federal, state, and local tax regulations and such withholdings have
either been paid on a timely basis to the respective governmental agencies or
set aside in accounts for such purpose or accrued, reserved against and entered
upon the books of the Company. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any tax return or
tax liability of the Company, and to the knowledge of the Company, there is no
proposed liability for any Taxes for which there is not an adequate reserve
reflected on the Company Balance Sheet. The Company has not filed any consent
with the Internal
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Revenue Service described in Section 341(f) of the Code. The unpaid Taxes of the
Company (i) did not, as of the end of the most recent period for which financial
statements have been prepared, exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income), and (ii) do not exceed that reserve as adjusted for the
passage of time through the Effective Time in accordance with the past custom
and practice of the Company in filing its Tax returns. The Company does not
reasonably expect any authority to assess any additional Taxes for any period
for which Tax returns have been filed. There is no dispute or claim concerning
any Tax liability of the Company either (i) claimed or raised by any authority
in writing, or (ii) as to which the Company has knowledge. The Company has
delivered to Parent correct and complete copies of all federal and state income
Tax returns of the Company, examination reports and statements of deficiencies
assessed against or agreed to by the Company for all years beginning in or after
1992. The Company is not a party to any Tax allocation or sharing agreement. The
Company has not been a member of an affiliated group filing federal income Tax
Returns, and does not have any liability for the Taxes of any person (other than
the Company) under Treas. Reg. Section 1.1502-6 or any similar provision of
state, local or foreign law, as a transferee or successor, by contract or
otherwise. No item of income attributable to transactions occurring on or before
the Effective Time will be required to be included in taxable income by the
Company in a subsequent taxable year by reason of the Company reporting income
on the installment sales method of accounting, the cash method of accounting,
the completed contract method of accounting or the percentage of
complete-capitalized cost method of accounting. The Company has not made, and is
under no obligation to make, payments that are or, if made, would be, "parachute
payments" under Section 280G of the Code, and no such obligation will arise as a
result of this Agreement or other agreements entered into in connection with
this Agreement. "Taxes" shall mean all federal, state, county, local, foreign
and other taxes and governmental assessments, including but not limited to,
income taxes, estimated taxes, withholding taxes, transfer taxes, excise taxes,
sales taxes, real and personal property taxes, ad valorem taxes, payroll-related
taxes, employment taxes, franchise taxes and import duties, together with any
related liabilities penalties, fines or additions to tax and interest.
5.16 PROPRIETARY RIGHTS.
(a) Except as set forth on Schedule 5.16(a) of the Company
Disclosure Schedule: (i) to the Company's knowledge, the Company has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Proprietary Rights of third parties, (ii) the Company (and its
employees with responsibility for Proprietary Rights matters) has not received
any written charge, complaint, claims, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Proprietary Rights of
any third party), (iii) to the knowledge of the Company (and employees with
responsibility for Proprietary Rights matters), there is no basis for any as-yet
unasserted charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Proprietary Rights of
any third party), or (iv) to the knowledge of the Company (and employees with
responsibility for Proprietary Rights matters), no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of the Company.
(b) Schedule 5.16(b) of the Company Disclosure Schedule
identifies each material Proprietary Right that the Company owns. Schedule
5.16(b) of the Company Disclosure Schedule identifies each registration that has
been issued to Company with respect to any of its Proprietary Rights, identifies
each pending application for registration that the Company has made with respect
to any of its Proprietary Rights, identifies each item of copyrightable
Proprietary Rights (whether or not registration has been sought), and identifies
each license, agreement, or other permission which Company has granted to any
third party with respect to any of its Proprietary Rights and all agreements
relating to any of the Software owned by the Company, including any service,
nondisclosure or escrow agreements (together with any exceptions). The Company
has delivered or upon Parent's request has made available to Parent upon
specific request therefor correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date). Schedule 5.16(b) of the Company Disclosure Schedule also identifies
each trade name or unregistered trademark used by Company in connection with its
business. Except as set forth in Schedule 5.16(b) of the Company Disclosure
Schedule, with respect to each Proprietary Right required to be identified in
Schedule 5.16(b) of the Company Disclosure Schedule and with respect to each
item of copyrightable Proprietary Rights:
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(i) the Company possesses all right, title, and
interest in and to the Proprietary Right, free and clear of any lien,
license, or other restriction;
(ii) the Proprietary Right is not subject to any
outstanding injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to
the knowledge of Company, threatened, that challenges the legality,
validity, enforceability, manufacture, use or the ability to authorize
the use (including use by way of reproduction of copies, distribution
of copies, preparation of derivative works, public performance or
display, or any other use of any kind or nature), sale or ownership of
the Proprietary Right; and
(iv) the Company has never agreed to indemnify any
person for or against any interference, infringement, misappropriation,
or other conflict with respect to the Proprietary Right.
(c) Schedule 5.16(c) of the Company Disclosure Schedule
identifies each Proprietary Right that any third party owns and that Company
uses pursuant to license, sublicense, agreement, or permission. The Company has
delivered or upon Parent's request made available to Parent correct and complete
copies of all such licenses, sublicenses, agreements, and permissions (as
amended to date). Except as set forth on Schedule 5.16(c) of the Company
Disclosure Schedule, with respect to each Proprietary Right required to be
identified in Schedule 5.16(c) of the Company Disclosure Schedule:
(i) the license, sublicense, agreement, or permission
covering the Proprietary Right is legal, valid, binding, enforceable
against the Company and, to the Company's knowledge, against the other
parties thereto, and in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable
against the Company and, to the Company's knowledge, against the other
parties thereto, and in full force and effect on substantially similar
terms following the Effective Time;
(iii) to the Company's knowledge, no party to the
license, sublicense, agreement, or permission is in breach or default,
and, to the Company's knowledge, no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement,
or permission has repudiated in writing any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through
(iv) above are true and correct with respect to the underlying license;
(vi) to the Company's knowledge, the underlying
Proprietary Right is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(vii) to the Company's knowledge, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
is pending or, to the knowledge of Company, threatened, that challenges
the legality, validity, or enforceability of the underlying Proprietary
Right;
(viii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission; and
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<PAGE> 22
(ix) no such licenses, agreements or permissions
commit the Company to continued maintenance, support, improvement,
upgrade or similar obligation with respect to any of the Proprietary
Rights, which obligation cannot be terminated by the Company upon
notice of ninety (90) days or less.
(d) Schedules 5.16(b) and 5.16(c) of the Company Disclosure
Schedule identify every material Proprietary Right used by the Company in the
conduct of its business. Except as set forth in Schedule 5.16(b) of the Company
Disclosure Schedule, all Software owned by the Company performs substantially as
described in all Documentation for such Software insofar as such Documentation
has to do with the performance, specifications or design of such Software; and
in addition, all Software owned by the Company that has been licensed to any
third party performs in accordance with the warranties, if any, given by the
Company in respect of such Software. Except as set forth in Schedule 5.16(c) of
the Company Disclosure Schedule, all Software owned by any third party and used
by the Company pursuant to license, sublicense, agreement or permission performs
in accordance with the warranties, if any, given by such third party to the
Company, and to the knowledge of the Company (and its employees with
responsibility for use and maintenance or service thereof) such Software
performs substantially as required for the conduct of the Company's business. It
is understood and agreed that "Software owned by the Company" shall include all
Software owned by the Company, whether developed in house by the Company or
purchased by the Company from any third party.
5.17 ROYALTIES. Except as set forth on Schedule 5.17 of the Company
Disclosure Schedule, all royalties, license fees, and other fees relating to the
Company's use of Proprietary Rights have been timely paid. Except as set forth
in Schedule 5.17 of the Company Disclosure Schedule, to the Company's knowledge,
the method used by the Company to calculate all royalties, license fees, and
other fees relating to the Company's use of Proprietary Rights is correct and
accurate and in accordance with the terms of any agreements the Company has with
any third party relating to the use of such party's Proprietary Rights.
5.18 YEAR 2000 COMPLIANCE. Except as set forth on Schedule 5.18 of the
Company Disclosure Schedule, each system of the Company, comprised of software,
hardware, databases, or embedded control systems (microprocessor controlled,
robotic or other device) (collectively, a "System"), that constitutes any part
of, or is used in connection with the use, operation or enjoyment of any
material tangible or intangible asset or real property of the Company and each
product licensed, sold or otherwise distributed by the Company, including
software, hardware, databases, or embedded control systems (collectively, a
"Product") (a) is designed (or has been modified) to be used prior to and after
January 1, 2000, (b) will operate without error arising from the creation,
recognition, acceptance, calculation, display, reporting, storage, retrieval,
accessing, comparison, sorting, manipulation, processing or other use of dates,
or date-based, date-dependent or date-related data, including but not limited to
century recognition, day-of-the-week recognition, leap years, date values and
interfaces of date functionalities, and (c) will not be adversely affected by
the advent of the year 2000 or subsequent years, the advent of the twenty-first
century or the transition from the twentieth century through the year 2000 and
into the twenty- first century (collectively, items (a) through (c) are referred
to herein as "Year 2000 Compliant"). Except as set forth on Schedule 5.18 of the
Company Disclosure Schedule, all licenses for the use of any System-related
software, hardware, databases or embedded control system are certified by the
manufacturer to be Year 2000 Compliant and to contain the capabilities required
to enable Year 2000 Compliance within the Company's computer systems (hardware
and software), or the licenses permit the Company or a third party to make all
modifications, bypasses, de-bugging, work-around, repairs, replacements,
conversions or corrections necessary to permit the System to operate compatibly,
in conformance with their respective specifications, and to be Year 2000
Compliant. Except as set forth on Schedule 5.18 of the Company Disclosure
Schedule, no System that is material to the business, finances, or operations of
the Company receives data from or communications with any component or system
external to itself (whether or not such external component or system is the
Company's or any third party's) that is not itself Year 2000 Compliant excepting
the parts of the external component or system within which noncompliance to Year
2000 Compliance will have no effect on the data or communications sent to the
Company, nor on the Systems of the Company. Except as set forth on Schedule 5.18
of the Company Disclosure Schedule, the Company has no reason to believe that it
may incur material expenses arising from or relating to the failure of any of
its Systems or Products as a result of not being Year 2000 Compliant.
Notwithstanding anything in this Section 5.18 to the contrary, any
representation with respect to a System or Product that was developed wholly by
a third party and not by the Company shall be deemed to qualified in its
entirety to the Company's knowledge regarding the facts or events set forth in
such representation.
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<PAGE> 23
5.19 LABOR RELATIONS. There are no material controversies pending or,
to the knowledge of the Company, threatened, between the Company and any of its
respective employees, former employees, or applicants for employment. The
Company has complied in all respects with all laws relating to the employment of
labor, including any provisions thereof relating to wages, hours, equal
employment opportunity, collective bargaining, federal immigration law, and the
payment of social security and similar taxes, except as would not be reasonably
expected to have a Company Material Adverse Effect. The Company is not liable
for any arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing, except as would not be reasonably expected to have a
Company Material Adverse Effect. None of the employees of the Company are
covered by any collective bargaining agreement and, to the knowledge of the
Company, there are no organizational efforts currently being made or threatened
involving any employees of the Company. All employee severance or change of
control policies covering any employee of the Company are described in Schedule
5.19 of the Company Disclosure Schedule and no such employee is entitled to any
severance or change of control benefits not described therein.
5.20 CERTAIN EMPLOYEE MATTERS.
(a) Except as set forth on Schedule 5.20(a) of the Company
Disclosure Schedule, all current and former members of management, key
(including sales and recruiting) personnel and consultants (whether employees or
independent contractors) of the Company have executed and delivered to the
Company a confidential information agreement restricting such person's right to
disclose confidential information of the Company. Except as set forth on
Schedule 5.20(a) of the Company Disclosure Schedule, all such members of
management, key personnel and consultants of the Company have been party to a
"work-for-hire" arrangement or Proprietary Rights agreement with the Company
pursuant to which either (i) in accordance with applicable federal and state
law, the Company has been accorded full, effective, exclusive and original
ownership of all tangible and intangible property thereby arising or (ii) there
has been conveyed to the Company by appropriately executed instruments of
assignment full, effective and exclusive ownership of all tangible and
intangible property thereby arising. No employee, agent, consultant or
contractor of the Company who has contributed to or participated in the
conception and development of Proprietary Rights of the Company has asserted in
writing or, to the Company's knowledge, threatened any claim against the Company
in connection with such person's involvement in the conception and development
of the Proprietary Rights of the Company and, to the knowledge of the Company,
no such person has a reasonable basis for any such claim.
(b) Schedule 5.20(b) of the Company Disclosure Schedule
identifies all employees, independent contractors and other personnel of the
Company, their respective rates of pay at the date hereof, and, with respect to
all bill consultants (employees or independent contractors), the billing rate of
each such consultant. Unless otherwise noted on Schedule 5.20(b) of the Company
Disclosure Schedule, each of the Company's personnel identified on Schedule
5.20(b) of the Company Disclosure Schedule is working full time and none of such
personnel has expressly stated to the Company's management that he or she
intends to resign or cease working with the Company after Closing. Other than
increases granted in the ordinary course of business, the Company has not
committed to increase in any manner the compensation of any of its personnel
beyond the amount identified on Schedule 5.20(b) of the Company Disclosure
Schedule.
(c) Except as set forth on Schedule 5.20(c) of the Company
Disclosure Schedule, all current and former (terminated within twelve (12)
months of the date hereof) members of management and key (including sales and
recruiting) personnel of the Company have executed and delivered to the Company
a nonsolicitation agreement restricting such person's right to solicit
employees, customers, clients and prospective customers and clients of the
Company during the term of such person's or entity's employment and for at least
six (6) months thereafter.
5.21 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 5.21
of the Company Disclosure Schedule, the Company is not a party to any contract,
lease, agreement, or other commitment with any officer, director, or stockholder
of the Company or any affiliate of any such person, and there are no loans
outstanding from the Company to, or to the Company from, any such person or any
affiliate of any such person.
5.22 PERMITS; COMPLIANCE WITH LAWS. Schedule 5.22 of the Company
Disclosure Schedule contains a true, correct, and complete list of all permits,
licenses, consents, and authorizations of any government or governmental
authority
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<PAGE> 24
held by the Company. Except as set forth in Schedule 5.22 of the Company
Disclosure Schedule, the Company holds all permits, licenses, consents, and
authorizations issued by any government or governmental authority that are
necessary for the conduct of its business , except for any failure to hold that
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. The Company has not received any written notice
of any violation of any law, ordinance, regulation, or order applicable to the
Company or the business conducted by it. The conduct of the business of the
Company, as presently conducted, complies with all applicable laws, ordinances,
regulations, and orders, including, but not limited to, all laws, ordinances,
regulations or orders relating to the exportation or importation of Products ,
except for any noncompliance that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
5.23 ENVIRONMENTAL MATTERS. During the period in which the Company has
owned and/or occupied the Company Real Property, to the Company's knowledge,
there has been no "release or threatened release of a hazardous substance" (as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA")) or any other release, emission, disposal, or
discharge into the environment or any use, storage, transport or handling
(collectively, "activities") of Hazardous Material (as defined below) on, under,
about, or from the Company Real Property other than those activities that have
not resulted and could not reasonably be expected to result in any material
liability on the part of the Company. To the knowledge of the Company, all
"hazardous waste" (as defined in the Resource Conservation and Recovery Act of
1976, as amended ("RCRA") and the regulations thereunder) generated at the
Company's properties have been disposed of at sites that maintain valid permits
under RCRA and any other applicable Environmental Requirement (as defined
below). To the knowledge of the Company and except as set forth in Section 5.23
of the Company Disclosure Schedule, there are no underground tanks, PCBs, or
asbestos containing materials on the Company Real Property. Except as set forth
in Schedule 5.23 of the Company Disclosure Schedule, the Company does not have
any written notice of any pending formal or informal assertion by any
governmental agency or other person that the Company or any predecessor business
or owner or operator of the Company Real Property may be a responsible or
potentially responsible party in connection with any violation or obligation
arising under any Environmental Requirement at any site or facility (including
the Company Real Property itself.) "Hazardous Material" shall mean any substance
(i) the presence of which requires reporting, investigation or remediation under
any applicable statute, regulation, ordinance or order; or (ii) which is defined
as a "hazardous waste", "hazardous substance", pollutant or contaminant under
any statute, regulation, rule, or ordinance of any governmental authority having
jurisdiction; or (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated by any governmental authority having jurisdiction. "Environmental
Requirement" shall mean all applicable statutes, laws, regulations, rules,
ordinances, codes, licenses, permits, orders, standards, guidelines, policies,
and similar items of any governmental authority having jurisdiction and all
applicable judicial, administrative, and regulatory decrees, judgments, and
orders and common law relating to the protection of human health or the
environment including, without limitation, all requirements pertaining to the
reporting, licensing, permitting, use, handling, generation, storage, treatment,
transportation, disposal, release, discharge, investigation, and remediation of
Hazardous Material.
5.24 FEES AND LIABILITIES TO CERTAIN CREDITORS. Except as set forth in
Schedule 5.24 of the Company Disclosure Schedule, there are no claims for legal,
accounting, financial advisory, or investment bankers' fees, brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company. As of the Effective Time, the
Company's aggregate liability to BSDI, Secure Computing and First Union (the
"Identified Creditors") does not exceed $155,000.
5.25 BOOKS AND RECORDS. Except as set forth in Schedule 5.25 of the
Company Disclosure Schedule, the financial books, records, and work papers of
the Company are complete and correct in all material respects, have been
maintained in accordance with good business practice and accurately reflect the
bases for the consolidated financial condition and results of operations of the
Company set forth in the financial statements referred to in Section 5.6 hereof.
5.26 ERISA. Neither the Company nor any trade or business (whether or
not incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code) (an "ERISA
Affiliate") of the Company maintains or contributes to or is obligated to
contribute to, and has ever maintained or contributed to or been obligated to
contribute to,
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<PAGE> 25
(i) any "multiemployer plan", within the meaning of Section 4001 (a)(3) of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
promulgated and rulings issued thereunder ("ERISA"), to which any person or any
ERISA Affiliate of such person makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made, or been
obligated to make, contributions (a "Multiemployer Plan"), (ii) any single
employer plan, as defined in Section 4001 (a)(15) of ERISA, that (a) is
maintained for employees of a person or any ERISA Affiliate of such person and
at least one person other than such person and any ERISA Affiliate of such
person or (b) was so maintained and in respect of which such person or an ERISA
Affiliate of such person could have liability under Section 4064 of ERISA in the
event such plan has been or were to be terminated (a "Multiple Employer Plan")
or (iii) except as set forth in Schedule 5.26 of the Company Disclosure
Schedule, any employee benefit plan (as defined in Section 3(3) of ERISA)
sponsored or maintained by the Company or to which the Company makes, is making,
or is obligated to make contributions (a "Plan"), including but not limited to a
Pension Plan (as defined below). With respect to the Plan(s) disclosed in
Schedule 5.26 of the Company Disclosure Schedule:
(i) Each such Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code, and other
federal or state law. Except as set forth on Schedule 5.26 of the
Company Disclosure Schedule, any such Plan which is intended to qualify
under Section 401(a) of the Code has received a favorable determination
letter from the IRS and to the knowledge of the Company, nothing has
occurred that would cause the loss of such qualification. The Company
and each ERISA Affiliate of the Company has made all required
contributions to any such Plan subject to Section 412 of the Code, and
no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect
to any such Plan.
(ii) There are no pending claims (other than routine
claims for benefits) or, to the knowledge of the Company, threatened
claims, actions, or lawsuits, or action by any governmental authority,
with respect to any such Plan, and there has been no prohibited
transaction or violation of the fiduciary responsibility rules with
respect to any such Plan.
(iii) (1) the execution of, and the performance of
the transactions contemplated in, this Agreement will not constitute an
event under any Plan that will or is reasonably expected to result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee;
(2) no such Plan which constitutes a Pension Plan (as defined below)
has any Unfunded Pension Liability (as defined below); (3) neither the
Company nor any ERISA Affiliate of the Company has incurred, or
reasonably expects to incur, any material liability under Title IV of
ERISA with respect to any such Plan which constitutes a Pension Plan
(other than premiums due and not delinquent under Section 4007 of
ERISA); (4) neither the Company nor any ERISA Affiliate of the Company
has incurred, or reasonably expects to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 or 4243 of
ERISA with respect to a Multiemployer Plan; and (5) neither the Company
nor any ERISA Affiliate of the Company has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA. "Pension
Plan" shall mean a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA that a person sponsors, maintains, or to
which it makes, is making, or is obligated to make contributions, or in
the case of a Multiple Employer Plan has made contributions at any time
during the immediately preceding five (5) plan years. "Unfunded Pension
Liability" shall mean the excess of a Plan's benefit liabilities under
Section 4001(a)(16) of ERISA, over the current value of that Plan's
assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
5.27 POOLING OF INTERESTS TREATMENT. To the Company's knowledge,
neither the Company nor any of its affiliates has taken or agreed to take any
action or is aware of any condition other than as represented or specified in
the Company's representation letter to BDO Seidman LLP dated September 10, 1999
delivered in connection with BDO Seidman LLP's letter concerning the accounting
for the transactions provided for herein as a pooling-of-interests under APB
Opinion No. 16 (a "Pooling of Interests").
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5.28 INSURANCE. The business, properties, and employees of the Company
are insured by the insurers or through the funds and with the types and amounts
of insurance (including, but not limited to, property, product liability,
automobile, workers compensation, business interruption, and excess indemnity
insurance) set forth in Schedule 5.28 of the Company Disclosure Schedule (the
"Company Insurance Coverage"). To the Company's knowledge, the Company Insurance
Coverage is in such amount and on such terms as to adequately cover the risks
attendant to the Company's business. Since January 1, 1997 the Company has not
been denied coverage by any insurance carrier or has failed or currently fails
to maintain any insurance coverage that may be required by the laws of the
states in which the Company sells or manufactures Products or provides services.
The premiums due on the Company Insurance Coverage that covers calendar year
1998 have been paid in full and the premiums due for the period from January 1,
1999 to the Effective Time, to the extent due and payable, have been timely paid
in full. All such insurance complies in all material respects with the terms of
each of its leases and each of the mortgages, deeds of trust, service agreements
with third parties and/or loan agreements to which the Company is a party.
5.29 DISCLOSURE. To the Company's knowledge, no representation or
warranty by the Company in this Agreement and no statement contained in any
document, certificate, or other writing prepared by the Company or its
representatives and furnished by the Company to Parent pursuant to the
provisions hereof, affirmatively misstates a material fact or omits a material
fact necessary to make the statements contained herein or therein not
misleading. No holder of the Company's equity securities will make any claim
against Parent, Merger Sub or the Company based upon the information concerning
the Exchange Ratio set forth in that certain Information Statement dated August
30, 1999 and delivered to the holders of the Company's equity securities in
connection with the Merger.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as of the
date of this Agreement as follows:
6.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE WITH LAW.
(a) Each of Parent and Merger Sub is a corporation duly
incorporated, validly existing, and in good standing (including tax good
standing) under the laws of Delaware and Georgia, respectively. Parent is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of the jurisdictions listed in Schedule 6.1 of the
disclosure letter delivered by Parent to the Company at or prior to the
execution hereof (the "Parent Disclosure Schedule"), which list contains all
jurisdictions in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary, in
each case except as would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect (as defined in Section 6.7 of
this Agreement).
(b) Parent and Merger Sub have all requisite corporate power
and authority to own, operate, and lease its properties and carry on its
business as presently conducted and as proposed to be conducted.
(c) Neither Parent nor Merger Sub is not in violation of any
law, ordinance, governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect, nor
is Parent or Merger Sub in violation of any order, judgment, or decree of any
court, governmental authority, or arbitration board or tribunal.
(d) The copies of Parent's and Merger Sub's respective
Articles of Incorporation and Bylaws, which have been delivered to the Company,
include any and all amendments made thereto at any time prior to the date of
this Agreement and are true, correct, and complete.
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(e) Parent's and Merger Sub's respective corporate minute
books are accurate as to their content and include therein the Articles of
Incorporation and Bylaws of Parent with any amendments thereto. The meetings of
the directors or stockholders referred to in the corporate minute books were
duly called and held. The signatures appearing on all documents contained in the
corporate minute books are the true signatures of the persons purporting to have
executed the same and no minutes of meetings or written consents of the
directors or stockholders of Parent or Merger Sub, as applicable, are omitted
from such minute books that would contain any resolutions or other actions that
would be inconsistent with any of the representations and warranties contained
in Article VI hereof or prevent or limit any of the transactions contemplated by
this Agreement. Schedule 6.1 of the Parent Disclosure Schedule sets forth a true
and complete list of the names of all directors of Parent and the names and
offices held of all officers of the Parent as the date hereof.
6.2 AUTHORIZATION, VALIDITY, AND EFFECT OF AGREEMENTS. Each of Parent
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby and
thereby. The consummation by Parent and Merger Sub of the transactions
contemplated hereby has been duly authorized by all requisite corporate action
of Parent. This Agreement has been duly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by the
Company, constitutes, and all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto for value received) will constitute, the
valid and legally binding obligations of Parent and Merger Sub enforceable in
accordance with their respective terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, moratorium, or other
similar laws relating to creditors' rights and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), including, without limitation, possible unavailability of
specific performance, other injunctive relief or other equitable remedies and an
implied covenant of good faith and fair dealing.
6.3 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock and 5,000,000 shares of preferred
stock, $.01 par value ("Parent Preferred Stock"). As of June 30, 1999, there
were (a) 9,348,794 shares of Parent Common Stock issued and outstanding, (b) no
shares of Parent Preferred Stock issued and outstanding, (c) 1,754,750 shares of
Parent Common Stock issuable upon exercise of outstanding options to purchase
Parent Common Stock, and (d) 1,435,268 shares of Parent Common Stock issuable
upon exercise of outstanding warrants, (e) 766,773 shares of Parent Common Stock
issuable upon converstion of outstanding convertible debt.
6.4 NO VIOLATION. Neither the execution and delivery by Parent and
Merger Sub of this Agreement and all agreements and documents contemplated
hereby, nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby or thereby in accordance with the terms hereof or thereof,
will: (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation, as amended, or Bylaws of Parent or the Articles of
Incorporation or Bylaws of Merger Sub; (ii) violate any law, statute, rule,
regulation, judgment, or decree applicable to Parent (iii) except as set forth
in Schedule 6.4 of the Parent Disclosure Schedule, violate, conflict with,
result in a breach of any provision of, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, result
in the termination or in a right of termination or cancellation of, accelerate
the performance required by, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of Parent under, or result in
being declared void, voidable, or without further binding effect, any of the
terms, conditions, or provisions of any note, bond, mortgage, indenture, loan
agreement, deed of trust, or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment, or obligation to which Parent is a
party, or by which Parent or any of its properties is bound or affected; (iii)
violate any law, statute, rule, regulation, judgment, or decree applicable to
Parent; or (iv) other than the Regulatory Filings, require any consent,
approval, or authorization of, or declaration, filing, or registration with, any
governmental or regulatory authority.
6.5 SEC DOCUMENTS. Since the date on which a registration statement
with respect to Parent Common Stock became effective with the Securities and
Exchange Commission (the "Commission") to the date hereof, Parent has filed all
forms, reports, and other documents (including all exhibits, schedules and
annexes thereto) required to be filed by Parent with the Commission
(collectively, the "Parent Reports"). Except to the extent that information
contained in any Parent Report has been revised or superseded by a later Parent
Report filed and publicly available prior to the date of this Agreement, as of
their respective dates, the Parent Reports (a) were (and any Parent Reports
filed after the date hereof will be) in all material respects in accordance with
the requirements of the Securities Act of 1933, as amended (the "Securities
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Act") or the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as the case may be, and the rules and regulations promulgated thereunder, and
(b) as of their respective filing dates did not (and any Parent Reports filed
after the date hereof will 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 the light of the circumstances under which
they were made, not misleading. The financial statements of Parent included in
such reports (or incorporated therein by reference) were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto and subject to normal year-end
adjustments) and fairly present in all material respects the financial position
of Parent and its consolidated subsidiaries as of the dates thereof and the
periods then ended.
6.6 NO CONSENT OR APPROVAL REQUIRED. Except for compliance with any
applicable Blue Sky Laws, federal securities regulations, and Nasdaq
requirements, no consent, approval, or authorization of, or declaration to or
filing with, any governmental or regulatory authority is required for the valid
execution and delivery by Parent of this Agreement or any other agreement or
instrument to be executed and delivered by Parent hereunder, the consummation of
the transactions provided for herein or therein or the issuance and delivery of
the Parent Common Stock.
6.7 ABSENCE OF CHANGE. Since June 30, 1999, no event or events have
occurred, which individually or in the aggregate have had a Parent Material
Adverse Effect, as hereafter defined, and there exists no condition or
contingency that could reasonably be expected to result in a Parent Material
Adverse Effect. A "Parent Material Adverse Effect" means a material adverse
change in the business, properties, financial condition, results of operations,
or prospects of the Parent, taken as a whole.
6.8 BROKERAGE. Except as set forth on Schedule 6.8 of the Parent
Disclosure Schedule, there are no claims for financial advisory or investment
bankers' fees, brokerage commissions, finders' fees, or similar compensation in
connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Parent.
6.9 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts receivable
reflected on the balance sheet contained in the latest Parent Report filed with
the Commission immediately preceding the date hereof pursuant to the Exchange
Act and all accounts receivable of Parent that arose thereafter are valid and
arose out of bona fide transactions in the ordinary course of business. Schedule
6.9 of the Parent Disclosure Schedule sets forth a list of any such accounts
receivable that Parent considers to be doubtful accounts. To Parent's knowledge,
there are no scheduled returns from any of Parent's distributors, value-added
resellers or customers, except for such returns that could not reasonably be
expected to have a Parent Material Adverse Effect.
6.10 LITIGATION. Except as set forth in Schedule 6.10 of the Parent
Disclosure Schedule, there are no claims, actions, suits, investigations, or
proceedings (public or private) pending against or affecting Parent or any of
its properties or assets, at law or in equity, before or by any federal, state,
municipal, or other governmental or non-governmental department, commission,
board, bureau, agency, court, securities exchange or other instrumentality, or
arbitrator or by any private person or entity. Except as set forth in Schedule
6.10 of the Parent Disclosure Schedule, to the knowledge of Parent, there are no
claims, actions, suits, investigations, or proceedings (public or private)
threatened against or affecting Parent or any of its properties or assets, at
law or in equity, before or by any federal, state, municipal, or other
governmental or non-governmental department, commission, board, bureau, agency,
court, or other instrumentality, or arbitrator or by any private person or
entity, except for any of the foregoing which would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect.
Except as set forth in Schedule 6.10 of the Parent Disclosure Schedule, there
are no existing orders, judgments, settlements, injunctions, or decrees of any
court or governmental agency that apply to Parent or any of its assets,
properties, business, or operations. Except as set forth in Schedule 6.10 of the
Parent Disclosure Schedule, since January 1, 1994, no product liability,
warranty, or similar claims have been made against Parent except routine claims
in the ordinary course of business (i.e., claims relating to defective products
that have been satisfied by Parent solely by replacement of products or
adjustment or refunding of purchase price or substantially equivalent credit on
future orders) that, in the aggregate, would not have a Parent Material Adverse
Effect. Except as set forth in Schedule 6.10 of the Parent Disclosure Schedule,
since January 1, 1994 Parent has not entered into any settlement agreements
relating to the compromise or dismissal of any litigation involving Parent or
any of its properties or assets. Nothing contained in any
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settlement agreement to which Parent is a party prevents Parent in any way from
carrying out its business as now conducted or as presently contemplated to be
conducted, in any market, geographical area, or application, or interferes with
Parent's utilization of its Proprietary Rights.
6.11 PROPRIETARY RIGHTS. Except as set forth on Schedule 6.11 of the
Parent Disclosure Schedule: (i) to Parent's knowledge, Parent has not interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of third parties, (ii) Parent (and its employees with
responsibility for Proprietary Rights matters) has not received any written
charge, complaint, claims, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Parent
must license or refrain from using any Proprietary Rights of any third party),
(iii) to the knowledge of Parent (and employees with responsibility for
Proprietary Rights matters), there is no basis for any as-yet unasserted charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Parent
must license or refrain from using any Proprietary Rights of any third party),
or (iv) to the knowledge of Parent (and employees with responsibility for
Proprietary Rights matters), no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Proprietary Rights of
Parent.
6.12 ROYALTIES. All royalties, license fees, and other fees relating to
Parent's use of Proprietary Rights have been or will be paid in full as and when
due. Except as set forth in Schedule 6.12 of the Parent Disclosure Schedule, to
Parent's knowledge, the method used by Parent to calculate all royalties,
license fees, and other fees relating to Parent's use of Proprietary Rights is
correct and accurate and in accordance with the terms of any agreements Parent
has with any third party relating to the use of such party's Proprietary Rights.
6.13 YEAR 2000 COMPLIANCE. The disclosure contained in the latest
Parent Report filed with the Commission immediately preceding the date hereof
pursuant to the Exchange Act concerning the Year 2000 Compliance of the Systems
and Products utilized and distributed by Parent is true and correct, except for
such misstatements or omissions that would not, individually or in the
aggregate, reasonably be likely to have a Parent Material Adverse Effect.
6.14 LABOR RELATIONS. Except as set forth in Schedule 6.14 of the
Parent Disclosure Schedule, there are no material controversies pending or, to
the knowledge of Parent, threatened, between Parent and any of its respective
employees, former employees, or applicants for employment. Parent has complied
in all respects with all laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, equal employment opportunity,
collective bargaining, federal immigration law, and the payment of social
security and similar taxes, except as would not be reasonably expected to have a
Parent Material Adverse Effect. Parent is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing. None of
the employees of Parent are covered by any collective bargaining agreement and,
to the knowledge of Parent, there are no organizational efforts currently being
made or threatened involving any employees of Parent. All employee severance or
change of control policies covering any employee of Parent or Merger Sub are
described in or filed as exhibits to the Parent Reports and no such employee is
entitled to any severance or change of control benefits not described therein.
6.15 CERTAIN EMPLOYEE MATTERS. Except as set forth on Schedule 6.15 of
the Parent Disclosure Schedule, all current and former members of management,
key (including sales and recruiting) personnel and consultants (whether
employees or independent contractors) of Parent have executed and delivered to
Parent a confidential information agreement restricting such person's right to
disclose confidential information of Parent. Except as set forth on Schedule
6.15 of the Parent Disclosure Schedule, all such members of management, key
personnel and consultants of Parent have been party to a "work-for-hire"
arrangement or proprietary rights agreement with Parent pursuant to which either
(i) in accordance with applicable federal and state law, Parent has been
accorded full, effective, exclusive and original ownership of all tangible and
intangible property thereby arising or (ii) there has been conveyed to Parent by
appropriately executed instruments of assignment full, effective and exclusive
ownership of all tangible and intangible property thereby arising. No employee,
agent, consultant or contractor of Parent who has contributed to or participated
in the conception and development of proprietary rights of Parent has asserted
in writing or, to Parent's knowledge, threatened any claim against Parent in
connection with such person's involvement in the conception and development of
the proprietary rights of Parent and, to the knowledge of Parent, no such person
has a reasonable basis for any such claim.
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6.16 ENVIRONMENTAL MATTERS. There has been no "release or threatened
release of a hazardous substance" (as defined in CERCLA) or any other activities
of Hazardous Material on, under, about, or from any real property owned or
leased by Parent (collectively, the "Parent Real Property") other than those
activities that have not resulted and could not reasonably be expected to result
in any material liability on the part of Parent. To the knowledge of Parent, all
hazardous waste generated at Parent's properties have been disposed of at sites
that maintain valid permits under RCRA and any other applicable Environmental
Requirement. To the knowledge of Parent and except as set forth in Section 6.16
of the Parent Disclosure Schedule, there are no underground tanks, PCBs, or
asbestos containing materials on the Parent Real Property. Except as set forth
in Schedule 6.16 of the Parent Disclosure Schedule, Parent does not have any
written notice of any pending formal or informal assertion by any governmental
agency or other person that Parent or any predecessor business or owner or
operator of Parent Real Property may be a responsible or potentially responsible
party in connection with any violation or obligation arising under any
Environmental Requirement at any site or facility (including the Parent Real
Property itself).
6.17 ERISA. Neither Parent nor any ERISA Affiliate of Parent maintains
or contributes to or is obligated to contribute to, and has ever maintained or
contributed to or been obligated to contribute to, (i) any Multiemployer Plan,
(ii) any a Multiple Employer Plan or (iii) except as set forth in Schedule 6.17
of the Parent Disclosure Schedule, any Plan, including but not limited to a
Pension Plan. With respect to the Plan(s) disclosed in Schedule 6.17 of the
Parent Disclosure Schedule:
(i) Each such Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code, and other
federal or state law. Any such Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination
letter from the IRS and to the knowledge of Parent, nothing has
occurred that would cause the loss of such qualification. Parent and
each ERISA Affiliate of Parent has made all required contributions to
any such Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any
such Plan.
(ii) There are no pending claims (other than routine
claims for benefits) or, to the knowledge of Parent, threatened claims,
actions, or lawsuits, or action by any governmental authority, with
respect to any such Plan, and there has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any
such Plan.
(iii) (1) the execution of, and the performance of
the transactions contemplated in, this Agreement will not (either alone
or upon the occurrence of any additional or subsequent events)
constitute an event under any Plan that will or is reasonably expected
to result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
employee; (2) no such Plan which constitutes a Pension Plan (as defined
below) has any Unfunded Pension Liability; (3) neither Parent nor any
ERISA Affiliate of Parent has incurred, or reasonably expects to incur,
any material liability under Title IV of ERISA with respect to any such
Plan which constitutes a Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (4) neither Parent nor any
ERISA Affiliate of Parent has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability)
under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (5) neither Parent nor any ERISA Affiliate of Parent has
engaged in a transaction that could be subject to Section 4069 or
4212(c) of ERISA.
6.18 POOLING OF INTERESTS TREATMENT. To Parent's knowledge, neither
Parent nor any of its affiliates has taken or agreed to take any action or is
aware of any condition which would prevent Parent from accounting for the
transactions provided for herein as a Pooling-of-Interests.
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ARTICLE VII
COVENANTS
7.1 WRITTEN CONSENT OF STOCKHOLDERS. The Company will take all action
necessary in accordance with applicable law and its charter documents to obtain
written consent of its stockholders to approve this Agreement and to consummate
the transactions contemplated hereby. The Board of Directors of the Company
shall recommend such approval and the Company shall take all lawful action to
solicit such approval.
7.2 NOTIFICATION TO STOCKHOLDERS. Within ten (10) days after the
Effective Date, Parent shall prepare and deliver to each of the Company's
stockholders who did not execute a written consent as contemplated in Section
7.1 hereof a notification of such consent in accordance with Sections
14-2-704(f) and (g) of the GBCC.
7.3 BLUE SKY. Parent shall use all reasonable efforts to obtain, prior
to the Effective Date, all necessary state securities law or "Blue Sky" permits
or approvals required to carry out the transactions contemplated by this
Agreement, and Parent will pay all expenses incident thereto. Parent will advise
the Company, promptly after it receives notice, of the issuance of any stop
order, the suspension of the qualification of the Parent Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or
requests by any state securities regulatory authority for additional
information.
7.4 BOARD NOMINATION. The Board of Directors of Parent shall appoint
Brian E. Cohen to serve as a Class II director of Parent upon the consummation
of the Merger.
7.5 NOTICES TO HOLDERS OF COMPANY OPTIONS. The Company will take all
actions necessary in accordance with applicable law and the terms of the Company
Option Plans to provide all required notice of the Merger to the holders of
Company Options.
7.6 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and Parent shall and shall cause any appropriate other
party to: (a) use all reasonable efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits, or authorizations are required to
be obtained prior to the Effective Time from governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits, or
authorizations, (b) to timely file with the Commission all reports and documents
and take such other actions required to enable the Stockholders (as defined in
the Stockholders Agreement) to sell under Rule 144 of the Securities Act, all
Parent Common Stock held by them, and (c) use all reasonable efforts to take, or
cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper, or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
7.7 RESERVED.
7.8 PUBLICITY. Each of Parent and the Company shall, subject to
Parent's legal obligations (including requirements of stock exchanges and other
similar regulatory bodies), consult with each other before issuing any press
release or otherwise making public statements with respect to the transactions
contemplated hereby.
7.9 LISTING APPLICATION. Parent shall promptly prepare and submit to
the Nasdaq a listing application covering the shares of Parent Common Stock
issuable in the Merger, and shall use its best efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Common Stock, subject to
official notice of issuance.
7.10 FURTHER ACTION. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions set forth
herein or the waiver thereof, directly or by or through its officers or
directors, perform such further
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acts and execute such documents whether before or after the Effective Time as
may be reasonably required to effect the Merger. In addition, subject to the
limitations set forth in this Agreement, and unless specifically prohibited by
applicable law, each party will use its best efforts to cause all of the
conditions to Closing set forth in this Agreement that are within its control to
be satisfied prior to the Closing Date and will not take any action inconsistent
with its obligations under this Agreement or which could hinder or delay the
consummation of the transactions contemplated by this Agreement or that would
cause any representation, warranty, or covenant made by it in this Agreement or
in any certificate, list, exhibit, or other instrument furnished or to be
furnished pursuant hereto, or in connection with the transaction contemplated
hereby, to be untrue in any material respect as of the Effective Time.
7.11 RELEASE OF CERTAIN GUARANTIES. Within a reasonable time after the
Closing. Parent shall cause Brian Cohen, Perry Flinn and Eric Bleke to be
released from any and all obligations and/or liabilities under any and all
agreements whereby they personally guaranty the Company obligation's to the
Identified Creditors.
7.12 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses;
provided, however, that prior to the Effective Time, the stockholders of the
Company shall take such action to pay, from funds other than those of the
Company, all liabilities to any person who provided legal services to the
Company (the "Professional Creditors") such that, at the Effective Time, the
Company's aggregate liability to the Professional Creditors does not exceed
$75,000; provided, however, that Parent shall pay to Smith, Gambrell & Russell,
LLP at the Closing $37,500 of liability by wire transfer of immediately
available funds, and shall pay any remaining liability to the Professional
Creditors (subject to the $75,000 cap referred to above) within 30 days
following the Closing.
7.13 FEES TO BROKERS. At the Effective Time, Parent shall pay to the
investment bankers identified in Schedule 5.25 of the Company Disclosure
Schedule (the "Brokers"), in satisfaction of the fees owed to the Brokers by the
Company, 75,000 shares of Parent Common Stock pursuant to a Subscription
Agreement satisfactory to Parent.
7.14 POOLING. From and after the date hereof and until the expiration
of the Restricted Period (as defined below), neither Parent nor the Company
shall or shall permit any of its subsidiaries or controlled affiliates to take,
and Parent and the Company shall use their respective best efforts to cause
their other affiliates not to take, any action, or fail to take any action, that
would jeopardize the treatment of the Merger as a Pooling of Interests. For
purposes hereof, the Restricted Period shall mean the period commencing on the
date hereof and terminating on the date on which thirty days of combined
operations are publicly announced by Parent in accordance with the provisions of
Section 7.15 hereof. The Company agrees to cause its officers to execute such
representations and covenants necessary to cause BDO Seidman LLP to issue a
pooling letter prior to the Closing.
7.15 PUBLICATION OF FINANCIALS. As promptly as reasonably practicable
after the first complete fiscal quarter after the Effective Time that includes
at least 30 days of combined operations of the Company and Parent, Parent will
cause to be publicly reported in a Quarterly Report on Form 10-QSB financial
statements of Parent that include such combined operations.
7.16 TAX MATTERS. Parent and Merger Sub covenant and agree that: (i)
they will treat and cause the Surviving Corporation to treat the Merger as a
reorganization qualifying under Section 368(a)(2)(E) of the Code and will file
and cause the Surviving Corporation to file all returns and reports (including
without limitation those required under Treasury Regulation Section 1.368-3) as
required and in a manner consistent with such treatment and (ii) they will take
no action that will prevent or be inconsistent with treating the Merger as a
reorganization qualifying under Section 368(a)(2)(E) of the Code. After the
Closing, Parent shall afford the Representative (as defined in the Stockholders
Agreement contemplated by Section 9.4 hereof) and his agents reasonable access
to the books and records of the Company for the purposes of preparing any
short-period tax returns required to be filed by the Company.
7.17 EMPLOYMENT AGREEMENTS. Concurrently with the execution of this
Agreement, each of Brian E. Cohen and Perry Flinn shall enter into the
employment agreements set forth as Exhibit A-1 and A-2, respectively, to become
effective after the Effective Time.
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7.18 BANKING MATTERS. The Company shall take all such action to remove
the current authorized signatories from the Company's bank accounts and credit
lines and to substitute Jeffrey Finn and Amy Beth Hansman as such authorized
signatories as of the Effective Time.
7.19 TERMINATION OF 401(K) PLAN. Parent agrees that any surrender
charges or other fees incurred as a result of its termination of either of the
Company's 401(k) plans will not be paid out of any such plan's proceeds.
ARTICLE VIII
CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved in the manner required by applicable law by the holders
of the issued and outstanding shares of capital stock of Company and of Parent
and Merger Sub.
(b) None of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction that prohibits the
consummation of the transactions contemplated by this Agreement. In the event
any such order or injunction shall have been issued, each party agrees to use
its reasonable efforts to have any such injunction lifted or order reversed.
(c) No action, suit, proceeding, or investigation to suspend
the offering of Parent Common Stock in connection with the Merger shall have
been initiated and be continuing, and all necessary approvals under state
securities laws relating to the issuance or trading of the Parent Common Stock
to be issued to the Company stockholders in connection with the Merger shall
have been received.
(d) All consents, authorizations, orders, and approvals of (or
filings or registrations with) any governmental commission, board, or other
regulatory body required in connection with the execution, delivery, and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to be
filed after the Effective Time.
(e) The Parent Common Stock to be issued to the Company
stockholders in connection with the Merger shall have been approved for listing
on the Nasdaq, subject only to official notice of issuance.
(f) No action, suit, or proceeding shall be pending or
threatened by or before any court or governmental body in which an unfavorable
judgment, order, or decree would prevent any of the transactions contemplated
hereby or cause any such transaction to be declared unlawful or rescinded or
that could reasonably be expected to cause a Company Material Adverse Effect or
a Parent Material Adverse Effect.
(g) Parent, Merger Sub, the Company, and the Escrow Agent
shall have entered into the escrow agreement set forth as Exhibit B hereto (the
"Escrow Agreement").
(h) Davis, Graham & Stubbs LLP shall have rendered an opinion,
in form and substance reasonably satisfactory to Parent and the Company, that
the Merger qualifies as a tax-free reorganization under Section 368(a) of the
Code (which shall be supported in part by customary certificates of officers of
Parent and the Company).
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(i) All documents and instruments to be delivered by the
parties in connection with the transactions contemplated hereby shall be in form
and substance reasonably satisfactory to the parties and their respective
counsel, and the parties shall have received such other documents and
instruments as they may reasonably request in connection therewith.
8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. In
addition to the conditions set forth in Section 8,1 above, the obligation of the
Company to effect the Merger shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions:
(a) Parent shall have performed in all respects its agreements
contained in this Agreement required to be performed on or prior to the Closing
Date, the representations and warranties of Parent and Merger Sub contained in
this Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and Company shall have received a
certificate of the President or a Vice President of Parent, dated the Closing
Date, certifying to such effect; provided, however, that notwithstanding
anything herein to the contrary, this Section 8.2(a) shall be deemed to have
been satisfied even if such performance has not occurred or such representations
or warranties are not true and correct, unless the failure to perform or the
failure of any of the representations or warranties to be so true and correct
would have or would be reasonably likely to have a Parent Material Adverse
Effect.
(b) There shall have been delivered to the Company
certificates, dated within five days of the Closing Date, of the Secretary of
State of the State of Delaware and the State of Georgia, with respect to the
incorporation, subsistence, and good legal standing of Parent and Merger Sub,
respectively.
(c) All consents and approvals of any third parties required
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
and delivered to the Company.
(d) There shall have been delivered to the Company
certificates, dated the Closing Date, of the President or Vice President and
Secretary, respectively, of Parent and Merger Sub (i) to the effect that the
Certificate of Incorporation of Parent and Articles of Incorporation of Merger
Sub have not been amended since the date of the Certificates referred to in
Section 8.2(b) above, (ii) attaching a true and complete copy of the Bylaws of
Parent and Merger Sub as in effect on the Closing Date, and (iii) attaching a
true and complete copy of the resolutions of the Board of Directors of Parent
and Merger Sub approving the execution and delivery of this Agreement and
authorizing the consummation of the transactions contemplated hereby.
(e) There shall have been delivered to the Company
certificates, dated the Closing Date, with respect to the incumbency and
signatures of all officers of Parent and Merger Sub signing this Agreement and
any other certificate, agreement, or instrument delivered on behalf of Parent in
connection with this Agreement.
(f) Parent shall have executed and delivered to the Company
the Stockholders Agreement (as defined in Section 9.4).
(g) Parent shall have delivered to the Company an opinion of
its counsel in the form attached hereto as Exhibit C.
(h) Parent shall have executed and delivered to each of Brian
E. Cohen and Perry Flinn the employment agreements set forth as Exhibit A-1 and
A-2, respectively.
8.3 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO EFFECT THE
MERGER. In addition to the conditions set forth in Section 8.1 above, the
obligations of Parent and Merger Sub to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) The Company shall have performed in all respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date, the representations and warranties of the Company contained in
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this Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date as if made on the Closing Date, and
Parent shall have received a certificate of the President or a Vice President of
the Company, dated the Closing Date, certifying to such effect; provided,
however, that notwithstanding anything herein to the contrary, this Section
8.3(a) shall be deemed to have been satisfied even if such performance has not
occurred or such representations or warranties are not true and correct, unless
the failure to perform or the failure of any of the representations or
warranties to be so true and correct would have or would be reasonably likely to
have a Company Material Adverse Effect.
(b) The status of any litigation of the Company as described
in Schedule 5.14 of the Company Disclosure Schedule and/or the terms of any
agreements relating to the compromise or dismissal of any action, suit or
proceeding described in Schedule 5.14 of the Company Disclosure Schedule
(subject to any restrictions on the disclosure of such terms) shall be
satisfactory to Parent.
(c) Other than with respect to a default identified in the
Company Disclosure Schedule as of the date of this Agreement, the Company shall
not be in default of any obligation, where said default cannot be cured by the
Closing Date, under any of the Material Contracts, unless any such defaults,
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect, and Parent shall have received a certificate of
the President or a Vice President of the Company, dated the Closing Date,
certifying to such effect.
(d) All consents and approvals of any third parties required
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
and delivered to Parent unless otherwise waived by Parent.
(e) The number of Dissenting Shares shall not consist of more
than five percent (5%) of the issued and outstanding Company Common Stock.
(f) The holders of Company Options shall have executed and
delivered the Optionholders Agreement set forth as Exhibit F hereto.
(g) Each of Brian E. Cohen and Perry Flinn shall have executed
and delivered to the Company the employment agreements set forth as Exhibit A-1
and A-2, respectively.
(h) The holders of at least ninety-five percent (95%) of the
issued and outstanding Company Common Stock shall have executed and delivered to
the Company the written consent contemplated by Section 7.1 of this Agreement
and executed and delivered to Parent the Stockholders Agreement.
(i) There shall have been delivered to Parent a certificate,
dated within fifteen days of the Closing Date, of the Secretary of State of the
State of Georgia, listing all charter documents of the Company on file in the
office of said Secretary of State and copies of the Articles of Incorporation of
the Company and all amendments thereto, certified as true and correct by said
Secretary of State within fifteen days of the Closing Date.
(j) There shall have been delivered to Parent a certificate,
dated within fifteen days of the Closing Date, of the Secretary of State of the
State of Georgia, with respect to the incorporation, subsistence, and good legal
standing of the Company.
(k) There shall have been delivered to Parent a certificate,
dated the Closing Date, of the Secretary of the Company (i) to the effect that
the Company's Articles of Incorporation have not been amended since the date of
the Certificate referred to in Section 8.3(i) above, (ii) attaching a true and
complete copy of the Company's Bylaws as in effect on the Closing Date, and
(iii) attaching a true and complete copy of the resolutions of the Company's
Board of Directors approving the execution and delivery of this Agreement and
authorizing the consummation of the transactions contemplated hereby.
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(l) There shall have been delivered to Parent a certificate,
dated the Closing Date, with respect to the incumbency and signatures of all
officers of the Company signing this Agreement and any other certificate,
agreement or instrument delivered on behalf of the Company in connection with
this Agreement.
(m) There shall have been no change in the financial condition
or results of operations of the Company from that reflected in the Company
Balance Sheet so as to result in a Company Material Adverse Effect.
(n) The Company shall have delivered to Parent an opinion of
its counsel in the form attached hereto as Exhibit D.
(o) Representatives of the Company shall have performed a
successful live build demonstration of the Software. Immediately following the
build demonstration of the Software, the Company shall deliver to the Company's
counsel a source code version of each of the Software deliverables hereunder..
(p) Parent shall have received a subscription agreement, in
form and substance satisfactory to Parent, from each of the Brokers, in which
the Brokers shall agree to accept the delivery of 75,000 shares of Parent Common
Stock as payment in full of any fees owed to them by the Company.
ARTICLE IX
ESCROW; LIMITS ON LIABILITY
9.1 DELIVERY OF PARENT COMMON STOCK TO THE ESCROW AGENT. As of the
Effective Time, Parent shall deposit, or shall cause to be deposited, with the
Escrow Agent, for the benefit of the holders of shares of the Company Common
Stock (other than Dissenting Shares), for distribution in accordance with this
Article IX, the Deferred Merger Consideration (the "Deferred Merger
Consideration Fund"). For tax purposes, the Parent Common Stock held by the
Escrow Agent shall be treated as owned by the beneficial holders of the Parent
Common Stock (rather than by the Parent or any affiliate of the Parent). The
beneficial holders of the Parent Common Stock shall be entitled to direct the
manner in which the Escrow Agent shall vote the shares of Parent Company Common
Stock held in the Deferred Merger Consideration Fund.
9.2 DIVIDENDS DECLARED AFTER THE EFFECTIVE TIME. Any dividends or other
distributions with respect to the Parent Common Stock comprising the Deferred
Merger Consideration that are declared after the Effective Time but prior to the
date any Deferred Merger Consideration is paid by the Escrow Agent to the
Company's stockholders shall be paid to the Escrow Agent, deposited by the
Escrow Agent into the Deferred Merger Consideration Fund, and distributed by the
Escrow Agent in accordance with this Article IX.
9.3 SURVIVAL OF REPRESENTATIONS. Notwithstanding any examination made
by or on behalf of Parent or Merger Sub, the knowledge of Parent or Merger Sub
or any of the respective officers, directors, stockholders, employees, or agents
of Parent or Merger Sub, or the acceptance by any party of any certificate or
opinion, the representations, warranties, covenants, and agreements of the
Company set forth in this Agreement, or in any writing delivered by the Company
in connection with this Agreement, shall survive the consummation of the
transactions contemplated hereby and shall expire on the date that is the
earlier of twelve months after the Effective Date or the date on which Parent
publishes audited financial statements for the fiscal year ended December 31,
1999. Notwithstanding any examination made by or on behalf of the Company, the
knowledge of the Company or any of its officers, directors, stockholders,
employees, or agents of the Company, or the acceptance by any party of any
certificate or opinion, the representations, warranties, covenants, and
agreements of Parent or Merger Sub set forth in this Agreement, or in any
writing delivered by Parent or Merger Sub in connection with this Agreement,
shall survive the consummation of the transactions contemplated hereby and shall
expire on the date that is twelve months after the Effective Date.
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9.4 INDEMNITY. On or prior to the Closing Date, the holders of at least
ninety-five percent (95%) of the issued and outstanding Company Common Stock
shall have executed and delivered to the Company an agreement with respect to
the indemnification of Parent and Merger Sub with respect to breaches of the
terms and conditions of this Agreement (the "Stockholders Agreement"), which
Stockholders Agreement shall be substantially in the form of Exhibit E attached
hereto. Except for the rights granted to Parent pursuant to Section 9.5 hereof,
the Escrow Agreement and the Stockholders Agreement shall govern Parent's rights
in the event of a breach of any representation, warranty, covenant, or agreement
contained in this Agreement or any document contemplated hereby. Subject to
Sections 9.3 and 9.8 of this Agreement, the Stockholders Agreement shall govern
the rights of each stockholder who executes such agreement in the event of (i)
any breach of any covenant or agreement of Parent or Merger Sub contained in
this Agreement or (ii) any inaccuracy in any representation or warranty of
Parent or Merger Sub contained in this Agreement, the Parent Disclosure
Schedule, or any other agreement or instrument executed by Parent pursuant to
this Agreement.
9.5 APPLICATION BY PARENT TO ESCROW AGENT FOR PAYMENT OF CLAIMS. On or
prior to the Closing Date, the Company, Parent, Merger Sub, and a designated
representative of the holders of the Company Common Stock shall execute and
deliver the Escrow Agreement, which Escrow Agreement shall provide for Parent's
right to seek payment for a breach of any representation, warranty, covenant, or
agreement contained in this Agreement or any document contemplated hereby from
the Deferred Merger Consideration Fund. Parent's right to seek payment of any
such claim from the Deferred Merger Consideration Fund shall be governed by the
Escrow Agreement and the Stockholders Agreement.
9.6 DISTRIBUTION OF DEFERRED MERGER CONSIDERATION TO THE COMPANY'S
STOCKHOLDERS. The Escrow Agent shall, in accordance with and the times provided
in the Escrow Agreement, deliver to the Company's stockholders (other than
holders of Dissenting Shares) each stockholder's pro rata share of any cash and
securities constituting Deferred Merger Consideration remaining after the
payment of any claims by Parent for breaches of any representation, warranty,
covenant, or agreement of the Company contained in this Agreement or any
document contemplated hereby.
9.7 UNCLAIMED FUNDS. Any portion of the Deferred Merger Consideration
Fund (including the proceeds of any investments thereof and any shares of Parent
Common Stock) that remains unclaimed by the former stockholders of the Company
two years after the Effective Time shall be delivered to the Surviving
Corporation. Any former stockholders of the Company who have not theretofore
complied with this Article IX and the Escrow Agreement shall thereafter look
only to the Surviving Corporation for payment of their shares of Parent Common
Stock, and any unpaid dividends and distributions on the Parent Common Stock
deliverable in respect of each share of the Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
9.8 LIMITS ON LIABILITY. The limitations on the liability of the former
stockholders of the Company shall be set forth in the Stockholders' Agreement.
Notwithstanding anything to the contrary in this Agreement or any agreement or
document contemplated hereby, Parent's aggregate liability for breaches of the
representations, warranties or covenants made in this Agreement, or in any
agreement or document contemplated hereby, shall not exceed $600,000; provided,
however, that such $600,000 limitation shall not apply to Parent's violation or
non-compliance with any applicable state or federal securities laws or rules and
regulations of any national securities exchange on which the Parent Common Stock
is traded, and any Stockholder shall be entitled to pursue a claim against
Parent for any such violation and/or non-compliance to the full extent permitted
by applicable law.
ARTICLE X
GENERAL PROVISIONS
10.1 CONFIDENTIALITY. The Company agrees that it shall, and it shall
direct and use its best efforts to cause its officers, directors, stockholders,
employees, agents, and representatives to, keep the existence of this Agreement
and the terms of the transactions contemplated hereby strictly confidential and
to not disclose such matters to any third party without Parent's prior written
consent. The Company acknowledges that Parent has certain reporting obligations
as a public company, and agrees that Parent may make public disclosure of the
existence of this Agreement and the terms of the
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transactions contemplated hereby at such time as it believes it to be prudent to
do so, based upon the advice of counsel and with notice to and consultation with
the Company.
10.2 NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by same day or
overnight courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to Parent or Merger Sub: If to the Company:
eSoft, Inc. Technologic, Inc.
Suite 500 Suite 950
295 Interlocken Boulevard 2990 Gateway Drive
Broomfield, Colorado 80021 Norcross, Georgia 30071
Attn: President Attn: Brian E. Cohen
Telephone: (303) 444-1600 Telephone: (770) 448-0334
Facsimile: (303) 444-1640 Facsimile: (770) 448-4547
With copies to: With copies to:
Davis, Graham & Stubbs LLP Smith, Gambrell& Russell, LLP
370 17th Street, Suite 4700 1230 Peachtree Street, N.E., Suite 3100
Denver, Colorado 80202 Atlanta, Georgia 30309
Attn: Lester R. Woodward, Esq. Attn: Brian T. Nash, Esq.
Telephone: (303) 892-7392 Telephone: (404) 815-3712
Facsimile: (303) 893-1379 Facsimile: (404) 685-7012
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered, or delivered by courier or on the third
day after the mailing thereof.
10.3 ASSIGNMENT, BINDING EFFECT. Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto and certain stockholders of the Company (as to Article IX of this
Agreement) and other named beneficiaries of covenants or agreements in this
Agreement, or their respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement.
10.4 ENTIRE AGREEMENT. This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the confidentiality
agreements between the parties hereto and any schedules or agreements delivered
or to be delivered in connection with this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No information previously provided, or any addition to or modification
of any provision of this Agreement shall be binding upon any party hereto unless
made in writing and signed by all parties hereto.
10.5 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company, Parent and Merger Sub, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
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10.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
10.7 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Executed counterparts transmitted by fax shall be effective as originals.
10.8 HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.9 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 INCORPORATION OF EXHIBITS. The Company Disclosure Schedule, the
Parent Disclosure Schedule and all Exhibits and schedules attached hereto and
referred to herein are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
10.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction unless the same is
material to the terms of this Agreement, in the judgment of either party to this
Agreement, in which case the parties shall negotiate in good faith to revise the
same so as to be valid or enforceable. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
10.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
10.14 SUBSIDIARIES. As used in this Agreement, the word "Subsidiary"
when used with respect to any Party means any corporation, partnership, or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner; provided, however, that in the case of Parent, a
Subsidiary shall not include any corporation to be acquired by it concurrently
with or subsequent to the acquisition of the Company.
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10.15 CONSENT. Whenever the consent or approval of a party is required
by the terms of this Agreement, unless otherwise provided, the same shall not be
unreasonably withheld or delayed.
SIGNATURE PAGE FOLLOWS
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<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
"PARENT"
eSOFT, INC.
By: /s/ Jeffrey Finn
--------------------------
Name: Jeffrey Finn
Title: President
"MERGER SUB"
eSOFT ACQUISITION CORPORATION
By: /s/ Jeffrey Finn
--------------------------
Name: Jeffrey Finn
Title: President
"THE COMPANY"
TECHNOLOGIC, INC.
By: /s/ Brian E. Cohen
--------------------------
Name: Brian E. Cohen
Title: President
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<PAGE> 1
EXHIBIT 2.2
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of September 10,
1999 is by and among eSoft, Inc., a Delaware corporation ("Parent"), the
stockholders executing the signature pages hereof (each, a "Stockholder" and
together, the "Stockholders"), each of whom is a Stockholder of Technologic,
Inc., a Georgia corporation (the "Company"), and, with respect solely to Article
II hereof, Croft & Bender LLC ("Croft & Bender"), a consultant to the Company .
RECITALS
A. The Boards of Directors of Parent and the Company each have
determined that a business combination between Parent and the Company is fair
and in the best interests of their respective companies and Stockholders, and
accordingly have agreed to effect the merger (the "Merger") provided for in that
certain Agreement and Plan of Merger (the "Merger Agreement") between Parent,
the Company, and eSoft Acquisition Corporation, a Georgia corporation and wholly
owned subsidiary of Parent ("Merger Sub"), dated as of September 10, 1999 upon
the terms and subject to the conditions set forth in the Merger Agreement.
B. Each Stockholder will receive in the Merger shares of
common stock, $.01 par value, of Parent ("Parent Common Stock"), which Parent
Common Stock will not be registered with the Securities and Exchange Commission
(the "Commission") and will constitute Restricted Securities.
C. The Parent Common Stock issued to Stockholders in the
Merger shall be issued pursuant to an exemption from registration pursuant to
Rule 506 of the Securities Act of 1933, as amended (the "Securities Act").
D. In consideration of Parent's agreement to enter into the
Merger Agreement and consummate the transactions contemplated thereby, and grant
the Stockholders certain registration rights as set forth herein with respect to
the Parent Common Stock to be received by the Stockholders, the Stockholders
have agreed to make certain representations and warranties, and to indemnify
Parent and Merger Sub with respect to certain matters under the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants, and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
INDEMNIFICATION
1.1 SURVIVAL OF REPRESENTATIONS, ETC. Each Stockholder agrees
that, notwithstanding any examination made by or on behalf of Parent or Merger
Sub, the knowledge of Parent or Merger Sub or any of the respective officers,
directors, Stockholders, employees, or agents of Parent or Merger Sub, or the
acceptance by any party of any certificate or opinion, in each case with respect
to the Company, the representations, warranties, covenants, and agreements of
the Company set forth the Merger Agreement, or in any writing delivered by the
Company in connection with the Merger Agreement, shall survive the consummation
of the transactions contemplated thereby and shall expire on the date that is
the earlier of twelve months from the Closing Date or the date on which Parent
publishes audited financial statements for the fiscal year ended December 31,
1999 (the "Survival Date"). Notwithstanding any examination made by or on behalf
of the Company, the knowledge of the Company or any of its officers, directors,
stockholders, employees, or agents of the Company, or the acceptance by any
party of any certificate or opinion, the representations, warranties, covenants,
and agreements of Parent or Merger Sub set forth in the Merger Agreement, or in
any writing delivered by Parent or Merger Sub
<PAGE> 2
in connection with the Merger Agreement, shall survive the consummation of the
transactions contemplated hereby and shall expire on the date that is twelve
months after the Effective Date.
1.2 INDEMNITY. Subject to the terms and conditions of this
Article, each Stockholder shall indemnify and hold Parent harmless from and
against all demands, claims, causes of action, assessments, including any
Federal or state tax audits, losses, damages, liabilities, costs, and expenses,
including, without limitation, reasonable attorneys' fees and any expenses
incident to the investigation or enforcement of this Article 1 (collectively,
"Losses"), that Parent may suffer, sustain or become subject to by reason of or
arising out of (i) any breach of any covenant or agreement of the Company
contained in the Merger Agreement or (ii) any inaccuracy in any representation
or warranty of the Company contained in the Merger Agreement, the Company
Disclosure Schedule, or any other agreement or instrument executed by the
Company pursuant to the Merger Agreement. All of the foregoing are hereinafter
collectively referred to as "Claims." Subject to Sections 9.3 and 9.8 of the
Merger Agreement, Parent shall indemnify and hold each Stockholder harmless from
and against all demands, claims, causes of action, assessments, including any
Federal or state tax audits, losses, damages, liabilities, costs, and expenses,
including, without limitation, reasonable attorneys' fees and any expenses
incident to the investigation or enforcement of this Article 1, that such
Stockholder may suffer, sustain or become subject to by reason of or arising out
of (i) any breach of any covenant or agreement of Parent or Merger Sub contained
in the Merger Agreement or (ii) any inaccuracy in any representation or warranty
of Parent or Merger Sub contained in the Merger Agreement, the Parent Disclosure
Schedule, or any other agreement or instrument executed by Parent pursuant to
the Merger Agreement.
1.3 LIMITATIONS ON INDEMNIFICATION. The indemnification
provided for in Section 1.2 hereof shall be subject to the following limitations
and conditions:
(a) No Stockholder shall be liable for indemnification of
Parent under Section 1.2 of this Agreement for any Losses incurred by Parent
unless the aggregate amount of all Losses incurred by Parent and otherwise
subject to indemnification pursuant to said Section 1.2 exceeds $100,000 and
thereafter only for the amount of Losses in excess of $100,000.
(b) No Stockholder shall be liable for any Losses resulting
from any inaccuracy in any representation or warranty of the Company contained
in the Merger Agreement unless written notice of entitlement to make a Claim
(whether or not any monetary Losses have actually been suffered) with respect to
such Losses is given by Parent to Stockholder on or prior to the expiration of
the survival of the particular representation or warranty at issue, as set forth
in Section 1.1 above.
(c) Each Stockholder's aggregate liability for any and all
Losses shall not exceed such Shareholder's Pro Rata Share of the Deferred Merger
Consideration. Parent agrees that it shall seek to recover any Losses for which
Stockholder is liable pursuant to this Article I only from such Stockholder's
Pro Rata Share of the Deferred Merger Consideration without any right of
recourse against such Stockholder for any amount of Losses that exceed the
dollar amount of such Stockholder's Pro Rata Share of the Merger Consideration
as valued in paragraph (d) immediately following this paragraph.
(d) In the event that a Stockholder is required to make any
payment under this Agreement, Parent shall be entitled to recover the amount so
determined from the Deferred Merger Consideration in accordance with this
Agreement and the Escrow Agreement. Any Parent Common Stock so recovered by
Parent shall be valued at a price of $4.00 per share. If there should be a
dispute as to the amount or manner of determination of any indemnity obligation
owed under this Agreement, Parent shall be entitled to recover such portion, if
any, of the obligation as shall not be subject to dispute. The difference, if
any, between the amount of the obligation ultimately determined as properly
payable under this Agreement and the portion, if any, theretofore paid shall
bear interest at a rate of eight percent (8%) per annum. Upon the payment in
full of any claim, either by setoff or otherwise, Stockholder shall be
subrogated to the rights of Parent against any person, firm, corporation, or
other entity with respect to the subject matter of such claim.
(e) Notwithstanding anything to the contrary in the foregoing,
each Stockholder shall be severally liable for any Losses as a result of any
breach of the representation and warranty set forth in Section 5.24 of the
Merger
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Agreement or the representation and warranty contained in the last sentence of
Section 5.29 of the Merger Agreement, and the limitations set forth in Section
1.3(a) through 1.3(d) above shall not apply with respect to any Claim regarding
such Losses.
1.4 CONDITIONS OF INDEMNIFICATION OF THIRD PARTY CLAIMS. The
obligations and liabilities of the parties hereunder with respect to Claims
resulting from the assertion of liability by third parties ("Third Party
Claims") shall be subject to the following terms and conditions:
(a) Each Stockholder hereby irrevocably makes, constitutes,
and appoints Brian Cohen as its agent (the "Representative") and authorizes and
empowers him to fulfill the role of Representative hereunder. In the event of
the resignation of the Representative, the resigning Representative shall
appoint a successor either from among the Stockholders or who shall otherwise be
acceptable to Parent and who shall agree in writing to accept such appointment,
and the resigning Representative's resignation shall not be effective until such
a successor shall exist. If the Representative should die or become
incapacitated, his successor shall be appointed within 30 days of his death or
incapacity by a majority of the Stockholders, and such successor either shall be
a Stockholder or shall otherwise be reasonably acceptable to Parent. The choice
of a successor Representative appointed in any manner permitted above shall be
final and binding upon all of the Stockholders and Parent. The decisions and
actions of any successor Representative shall be, for all purposes, those of the
Representative as if originally named herein.
(b) Each Stockholder hereby irrevocably makes, constitutes,
and appoints the Representative as such person's true and lawful attorney in
fact and agent, for such person and in such person's name, (i) to receive all
notices and communications directed to such Stockholder under this Agreement and
to take any action (or to determine to take no action) with respect thereto as
he may deem appropriate as effectively as such Stockholder could act for himself
or herself, including without limitation, the settlement or compromise of any
dispute or controversy, and (ii) to execute and deliver all instruments and
documents of every kind incident to the foregoing to all intents and purposes
and with the same effect as such Stockholder could do personally, and each such
Stockholder hereby ratifies and confirms as his or her own act, all that the
Representative shall do or cause to be done pursuant to the provisions hereof.
All notices and all other communications directed to Stockholders under this
Agreement shall be given to the Representative.
(c) Each Stockholder irrevocably consents to the service of
any process, pleading, notices, or other papers by the mailing of copies thereof
by registered, certified, or first class mail, postage prepaid, to the
Representative at such person's address set forth herein.
(d) Except as otherwise provided by applicable law, the death
or incapacity of any Stockholder shall not terminate the authority and agency of
the Representative.
(e) Each Stockholder hereby agrees to indemnify the
Representative and to hold him harmless against any loss, liability, or expense
incurred without negligent conduct or bad faith on the part of the
Representative and arising out of or in connection with his duties as
Representative, including the costs and expenses (including, without limitation,
attorneys's fees) incurred by such Representative in defending against any claim
of liability in connection herewith.
(f) In the event that any claim or demand for which the
Stockholders would be liable to Parent or Merger Sub hereunder is asserted
against or sought to be collected by a third party, Parent shall promptly notify
the Representative of such claim or demand, specifying the nature of such claim
or demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim or demand) (the "Claim Notice"). The Representative shall promptly provide
notice of each Claim Notice to each Stockholder owning more than 5% of the
Company Common Stock (as defined in the Merger Agreement) at the Effective Time
and shall consult with such holders concerning whether or not to dispute
liability to Parent hereunder with respect to such claim or demand. The
Representative shall have 10 business days from its receipt of the Claim Notice
(the "Notice Period") to notify Parent (i) whether or not the Stockholders
dispute their liability to Parent hereunder with respect to such claim or
demand, and (ii) if they do not dispute such liability, whether or not they
desire, at their sole cost and expense, to defend Parent against
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such claim or demand; provided, however, Parent is hereby authorized prior to
and during the Notice Period to file any motion, answer, or other pleading that
it shall deem necessary or appropriate to protect its interests; provided
further, however, that Parent shall use its reasonable efforts to provide the
Representative with prior notice of any such filing and a reasonable opportunity
to comment thereon. In the event that the Representative notifies Parent within
the Notice Period that the Stockholders do not dispute such liability and desire
to defend against such claim or demand, then except as hereinafter provided, the
Representative shall have the right to defend by appropriate proceedings, which
proceedings shall be promptly settled or prosecuted to a final conclusion in
such a manner as to avoid any risk of Parent becoming subject to liability for
any other matter. If Parent desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and expense. If, in the
reasonable opinion of Parent, any such claim or demand involves an issue or
matter that could have a material adverse effect on the business, operations,
assets, properties, or prospects of the Company or Parent or an affiliate of
Parent, Parent shall have the right to control the defense or settlement of any
such claim or demand, and its reasonable costs and expenses thereof shall be
included as part of the indemnification obligations of the Stockholders
hereunder. If the Representative disputes the Stockholders' liability with
respect to such claim or demand or elects not to defend against such claim or
demand, whether by not giving timely notice as provided above or otherwise, then
the amount of any such claim or demand, or, if the same be contested by the
Representative or by Parent (but Parent shall not have any obligation to contest
any such claim or demand), then that portion thereof as to which such defense is
unsuccessful shall be conclusively deemed to be a liability of the Stockholders
hereunder (subject, if the Representative has timely disputed liability, to a
determination that the disputed liability is covered by these indemnification
provisions).
(g) In the event that Parent should have a claim against the
Stockholders hereunder that does not involve a claim or demand being asserted
against or sought to be collected from it by a third party, Parent shall
promptly send a Claim Notice with respect to such claim to the Representative.
If the Representative does not notify Parent within the Notice Period that he
disputes such claim, then the amount of such claim shall be conclusively deemed
a liability of the Stockholders hereunder.
(h) Nothing herein shall be deemed to prevent Parent from
making a claim hereunder for potential or contingent claims or demands provided
the Claim Notice sets forth the specific basis for any such potential or
contingent claim or demand and the estimated amount thereof to the extent then
feasible and Parent has reasonable grounds to believe that such a claim or
demand will be made.
1.5 ARBITRATION. Any dispute between the Representative and
Parent with respect to Parent's right to seek indemnification with respect to
any Claim pursuant to the provisions of this Article I shall be resolved by
binding arbitration in accordance with the following provisions of this Section
1.5; provided, however, that either the Representative or Parent may seek
injunctive relief or other equitable relief to preserve the status quo pending
arbitration.
(a) The Representative or Parent may submit any dispute that
is subject to arbitration under this Section 1.5 by giving written notice to the
other parties to such dispute. Within ten business days after receipt of such
notice by such other parties, the Representative shall appoint one arbitrator
and Parent shall appoint one arbitrator and within ten Business Days thereafter
the two arbitrators so appointed shall select a third arbitrator. If the
Representative or Parent shall fail to make such appointment within such ten-day
period, the other party may request the American Arbitration Association to
appoint the second arbitrator. The American Arbitration Association may
thereupon appoint the second arbitrator. If the two appointed arbitrators shall
fail to select a third arbitrator within said ten-day period, the Representative
and Parent shall mutually select the third arbitrator. If the Representative and
Parent are unable to agree upon the third arbitrator, then either party may,
upon at least five Business Days' prior written notice to the other party,
request the American Arbitration Association to appoint the third arbitrator.
The American Arbitration Association may thereupon appoint the third arbitrator.
All arbitrators shall be experienced in corporate and financial matters and
shall be impartial and unrelated, directly or indirectly, so far as employment
of services or ownership of interests is concerned to any of the parties or any
of their respective Affiliates. The arbitration shall be conducted in Denver,
Colorado in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as then in effect, except as otherwise provided in this
Section 1.5.
(b) The three arbitrators shall investigate the facts and
shall hold hearings at which the parties may conduct limited discovery, present
evidence and arguments, be represented by counsel, and conduct cross
examination. The
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three arbitrators shall render a written decision on the matter presented to
them by majority vote as soon as practicable after the appointment of the third
arbitrator and in any event not more than 45 days after such appointment. The
decision of the arbitrators, which may include equitable relief, shall be final
and binding on the parties hereto, and judgment upon the decision may be entered
in any court having jurisdiction thereof. If the three arbitrators shall fail to
render a decision within said 45-day period, either party may institute such
action or proceeding in such court as shall be appropriate in the circumstances
and upon the institution of such action, the arbitration proceeding shall be
terminated and shall be of no further force and effect. The prevailing party
shall be awarded reasonable attorneys' fees, expert and nonexpert witness costs
and expenses, and other costs and expenses incurred in connection with the
arbitration, and the fees and costs of the arbitrators shall be borne by the
nonprevailing party unless, in either case, the arbitrators for good cause
determine otherwise. In resolving any dispute, the arbitrators shall apply the
provisions of this Agreement, without varying therefrom in any respect. The
arbitrators shall not have the power to add to, modify, or change any of the
provisions of this Agreement.
ARTICLE 2
REGISTRATION RIGHTS; POOLING RESTRICTIONS
2.1 POOLING. Each Stockholder acknowledges that the Merger is
intended to be treated for financial accounting purposes as a "pooling of
interests" in accordance with generally accepted accounting principles. Each
Stockholder listed on Exhibit A hereto hereby represents, warrants and agrees
that Stockholder (i) will not make any sale, transfer or other disposition of
Company Common Stock owned by such Stockholder during the period from the date
hereof and ending at the earlier of the Effective Time and the termination of
the Merger Agreement, and (ii) will not make any sale, transfer or other
disposition of Parent Common Stock owned by such Stockholder after the Effective
Time until such time as financial statements that include at least 30 days of
combined operations of the Company and Parent after the Merger shall have been
publicly reported, unless Stockholder shall have delivered to Parent prior to
any such sale, transfer or other disposition, a written opinion from its
independent public accountants, in form and substance reasonably satisfactory to
Parent, to the effect that such sale, transfer or other disposition will not
cause the Merger not to be treated as a "pooling of interests" for financial
accounting purposes in accordance with generally accepted accounting principles
and the rules, regulations and interpretations of the Commission, and (iii) will
not make any sale, transfer or other disposition of any shares of Parent Common
Stock received by such Stockholder pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated thereunder.
2.2 NOTICE OF PROPOSED DISPOSITIONS. Prior to any proposed
disposition of any Restricted Securities (unless there is in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement) Stockholder shall give written notice to Parent of Stockholder's
intention to effect such disposition. Each such notice shall describe the manner
and circumstances of the proposed disposition, and shall be accompanied by
either (i) a written opinion of legal counsel addressed to Parent and reasonably
satisfactory in form and substance to Parent, to the effect that the proposed
disposition of Restricted Securities may be effected without registration of
such Restricted Securities or (ii) a "no action" letter from the Commission to
the effect that such disposition without registration of such Restricted
Securities will not result in a recommendation by the staff of the Commission
that enforcement action be taken with respect thereto, whereupon Stockholder
shall be entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by Stockholder to Parent. The provisions of this
Section 2.2 shall not apply to any Restricted Securities which are then freely
tradeable pursuant to Rule 144(k) under the Securities Act, as amended from time
to time, or any similar successor rule that may be promulgated by the
Commission.
2.3 DEMAND REGISTRATION.
(a) Subject to the terms and provisions hereof, at any time
during the period after January 24, 2000 and ending on the second anniversary of
the Closing Date, if Parent shall receive a written request (specifying that it
is being made pursuant to this Section 2.3) from any holder or holders (a
"Holder") of at least 200,000 shares of Registrable Securities (as defined
herein) that Parent file a registration statement under the Securities Act
covering the registration of
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at least 200,000 shares (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like) of the Registrable Securities, then Parent shall promptly notify all other
Holders of such request and shall include all Registrable Securities that
Holders have requested within 30 days after receipt of Parent's notice of such
written request. Parent shall use its reasonable best efforts to file such
additional registration statements within 45 days of its receipt of a qualifying
original notice. Parent shall be obligated to effect no more than two
registrations pursuant to this Section 2.3. As used herein, the term
"Registrable Securities" means (i) all shares of Parent Common Stock issued
pursuant to the Merger, (ii) any Parent Common Stock issued as a dividend or
other distribution with respect to, or in exchange for, or in replacement of,
Parent Common Stock issued pursuant to the Merger, but shall not include any
shares of Parent Common Stock that (w) have been previously registered and sold
to the public, (x) that may be distributed to the public pursuant to Rule 144
(or any similar provision then in force), (y) that have been sold in a private
transaction in which the transferor's rights under this Agreement were not
transferred, or (z) that have been transferred and a new certificate or other
evidence of ownership for the same not bearing the legend set forth in Section
3.2 has been delivered by or on behalf of Parent and the shares evidenced
thereby are not subject to any stop transfer order or similar restriction on
resale.
(b) Notwithstanding the foregoing, Parent shall not be
obligated to effect a registration pursuant to Section 2.3(a) with respect to a
proposed distribution of Registrable Securities by a Holder thereof (i) during
the period starting with the date 30 days prior to the Parent's estimated date
of filing of, and ending on a date 90 days following the effective date of, a
registration statement pertaining to a public offering of securities for the
account of Parent, provided that Parent is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that Parent's estimate of the date of filing of such Registration is made in
good faith, (ii) within a period of 90 days after the effective date of any
previous Registration by Parent with respect to which Holders of Registrable
Securities were given the opportunity pursuant to this Article 2 of this
Agreement to include therein Registrable Securities, or (iii) during a period of
up to 90 days if in the good faith judgment of the Board of Directors of Parent,
such Registration would materially interfere with a pending financing,
acquisition or disposition transaction, or other material transaction, and
provided further, that Parent may not defer its obligation in the manner
provided in this clause (iii) more than twice in any 12-month period. In
addition, in the event of a deferral of a registration requested by a Holder
pursuant to the provisions of this Section 2.3(b), the period provided for in
the first sentence of Section 2.3(a) shall be extended for a period of time
equal to the period of such deferral.
(c) Any registration statement filed pursuant to this Section
2.3 may include other securities of Parent, including securities with respect to
which registration rights have been granted.
2.4 "PIGGYBACK" REGISTRATION.
(a) If at any time after the date hereof, Parent registers
under the Securities Act any of its Parent Common Stock for sale on its own
account other than on Form S-4 or S-8 or their then equivalents, and if, within
20 days after the date of filing of the registration statement relating to such
Parent Common Stock, Holder(s) of at least 200,000 shares of Parent Common Stock
shall so request in writing, Parent, subject to the provisions of this
Agreement, shall use its best efforts to include in such registration statement
all or any part of the Registrable Securities such Holder requests to be
registered (a "Piggyback Registration") and to cause such registration statement
to become effective. Subject to the terms and provisions hereof, at any time
during the period after the Closing Date and ending on the second anniversary of
the Closing Date, the holders of Registrable Securities may make an unlimited
number of requests for inclusion of their Registrable Securities in Piggyback
Registrations.
(b) If a Piggyback Registration is an underwritten
registration initiated on behalf of Parent, and the managing underwriter advises
Parent in writing that in its opinion the number of securities requested to be
included in such registration exceeds the number that can be sold in such
offering, Parent will give priority for inclusion in such registration to (a)
first, the securities Parent proposes to sell, (b) second, securities that are
held by persons with registration rights that are superior to the Holders
pursuant to the issuance by Parent of its 5% Convertible Subordinated Debentures
due 2002, (c) third, securities that are Registrable Securities, pro rata among
the holders of such securities on the basis of the number of shares so requested
to be included therein, and (d) fourth, other securities requested to be
included in such registration, if any.
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(c) The investment banker(s) and manager(s) who shall
administer an underwritten offering in which the Stockholders exercise piggyback
registration rights shall be selected by Parent.
(d) Any registration statement filed pursuant to this Section
2.4 may include other securities of Parent, including securities with respect to
which registration rights have been granted.
2.5 EXPENSES OF REGISTRATION. All expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for Parent, fees under Blue Sky
laws, and expenses of any regular or special audits incident to or required by
any such registration (but shall not include underwriting discounts and selling
commission applicable to the sale of Registrable Securities and fees and
disbursements of counsel to the Holders) ("Registration Expenses") incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.2, 2.3 and 2.4 hereof shall be borne by Parent. All underwriting
discounts and selling commission applicable to the sale of Registrable
Securities (which discounts and selling commissions shall not exceed 10% of the
proceeds from the sale of the Registrable Securities) and fees and disbursements
of any counsel to the Holders ("Selling Expenses") relating to the Registrable
Securities so registered shall be borne by the Holders of such Registrable
Securities pro rata on the basis of the number of shares of Registrable
Securities so registered on their behalf.
2.6 REGISTRATION PROCEDURES. In the case of each registration
effected by Parent pursuant to this Article 2, Parent will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, Parent will:
(a) Keep such registration effective until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto or until the securities covered by such registration statement
cease to be "Registrable Securities" ;
(b) Notify each Holder of the need to, and prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement;
(c) Timely make all appropriate filings as necessary to comply
with the provisions of the Securities and Exchange Act of 1934, as amended;
(d) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(e) Register or qualify the securities covered by such
registration statement under the Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered thereby;
(f) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing; and
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
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2.7 AGREEMENTS OF HOLDERS. The Holder or Holders of
Registrable Securities included in any registration shall furnish to Parent such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as Parent may request in writing and as shall be
reasonably required in connection with any Registration, qualification or
compliance referred to in this Article 2. Each Holder agrees to refrain from
sales pursuant to any Registration during the pendency of any notice from Parent
as contemplated by Sections 2.6(b) or 2.6(e).
2.8 INDEMNIFICATION.
(a) Parent will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Article 2; and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus (including any related registration statement, notification, or the
like) incident to any such registration, qualification, or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by Parent of the Securities Act or any rule or regulation
thereunder applicable to Parent and relating to action or inaction required of
Parent in connection with any such registration, qualification, or compliance,
and will reimburse each such Holder, each of its officers, directors, partners,
legal counsel, and accountants and each person controlling such Holder, each
such underwriter, and each Person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability,
or action, provided that Parent will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to Parent by or on behalf of any Holder or underwriter specifically
for use in such registration, qualification or compliance. It is agreed that the
indemnity agreement contained in this Section 2.8(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Parent (which consent has not been
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify Parent, each of its
directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of Parent's securities covered by such a registration
statement, each Person who controls Parent or such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder, and each of
their officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse Parent and such Holders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to Parent by such Holder, provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section
2.8 (the "Article 2 Indemnified Party") shall give notice to the party required
to provide indemnity (the "Article 2 Indemnifying Party") promptly after such
Article 2 Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Article 2 Indemnifying Party to
assume the defense of such claim or any litigation resulting therefrom, provided
that counsel for the Article 2 Indemnifying Party, who shall be experienced in
the defense of securities actions of the type brought and conduct the defense of
such claim or any litigation resulting therefrom, shall be approved by the
Article 2 Indemnified Party (whose approval shall not unreasonably be withheld),
and the Article 2 Indemnified Party may participate in such defense
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at such party's expense, and provided further that the failure of any Article 2
Indemnified Party to give notice as provided herein shall not relieve the
Article 2 Indemnifying Party of its obligations under this Article 2, to the
extent such failure is not prejudicial. No Article 2 Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Article 2 Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Article 2 Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Article 2 Indemnified
Party shall furnish such information regarding itself or the claim in question
as an Article 2 Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 2.8 is
held by a court of competent jurisdiction to be unavailable to an Article 2
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Article 2 Indemnifying Party, in lieu of
indemnifying such Article 2 Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Article 2 Indemnified Party hereunder as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative benefit received by the Article 2
Indemnifying Party on the one hand and of the Article 2 Indemnified Party on the
other in connection with any registration or qualification effected pursuant to
this Article 2 as well as any other relevant equitable considerations.
(e) The obligations of the parties under this Section 2.8
shall survive the completion of the offering of Registrable Securities under the
registration statement and otherwise.
2.9 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Article 2.
2.10 SUSPENSION OF REGISTRATION RIGHTS. No Holder may request
registration pursuant to Section 2.3 at a time that all Registrable Securities
held by such Holder may immediately be sold under Rule 144 during any 90-day
period.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
3.1 REPRESENTATION AND WARRANTIES OF THE STOCKHOLDERS. In
connection with Parent's delivery of shares of Parent Common Stock pursuant to
the Merger Agreement, each Stockholder hereby represents and warrants as
follows:
(a) Such Stockholder has had the opportunity to read carefully
and review the Information Statement dated August 30, 1999 and the information
concerning Parent filed by Parent with the Commission.
(b) Such Stockholder confirms that no representations or
warranties have been made to Stockholder other than those contained in the
Merger Agreement and that Stockholder has not relied upon any representations or
warranties not contained therein (other than the information concerning Parent
filed with the Commission described in paragraph (a) above) in in voting on the
Merger or entering into this Agreement.
(c) Such Stockholder is acquiring the Parent Common Stock
solely for investment, for Stockholder's own account and not with a view to, or
for sale in connection with, the distribution thereof in violation of law.
(d) Such Stockholder has been advised and understands that an
investment in the Parent Common Stock involves a degree of risk.
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(e) Such Stockholder confirms that all documents, records and
books pertaining to Parent and to the investment requested by such Stockholder
and/or such Stockholder's purchaser representative have been made available to
such Stockholder and/or such Stockholder's purchaser representative(s), if any,
and such Stockholder also confirms that such Stockholder and the purchaser
representative(s) have been given an opportunity to make any further inquiries
of Parent and its representatives that such Stockholder or the purchaser
representative(s) desires to make in order to make a fully informed investment
decision concerning investment in the Parent Common Stock.
(f) Such Stockholder, if an individual, is at least twenty-one
(21) years of age, or, if under twenty- one (21) years of age, this Agreement is
being signed on behalf of such Stockholder by such Stockholder's legal
representative, which representative is at least twenty-one (21) years of age.
(g) If such Stockholder is a partnership, corporation, trust
or other entity, the person executing this Agreement has the necessary power and
authority to do so.
(h) If such Stockholder has relied upon the advice of a
purchaser representative, such Stockholder has so indicated on the signature
page hereof and has provided the name and address of such purchaser
representative thereon; if so, such Stockholder hereby confirms to Parent that
Stockholder has heretofore received advice from each purchaser representative of
such Stockholder stating that such purchaser representative is not an affiliate,
director, officer or other employee of Parent, or beneficial owner of 10 percent
or more of any class of the equity securities or 10 percent or more of the
equity interest in Parent.
(i) Such Stockholder is aware of and understands the
following:
(1) That no federal or state agency has made a
finding or determination as to the fairness of an investment in the Parent
Common Stock or any recommendation or endorsement of the securities;
(2) The Parent Common Stock has not been registered
for sale under the Securities Act, or any state "Blue Sky" law; and
(3) There are substantial restrictions on the
transferability of the Parent Common Stock; the Parent Common Stock cannot be
transferred unless registered under the Securities Act, or an exemption from
such registration is available and established to the satisfaction of Parent;
the Stockholder will not be able to avail himself of the provisions of Rule 144
adopted by the Commission under the Securities Act, unless the conditions of
Rule 144 are met, and, accordingly, Stockholder may have to hold the Parent
Common Stock and bear the economic risk of this investment for an indefinite
period.
(4) The statements and information provided in the
Investor Questionnaire that accompanies this Agreement and all other information
provided by Stockholder are complete and accurate in all respects.
(5) Such Stockholder represents that the address of
such Stockholder set forth at the end of this Agreement is the true and correct
residence address of such Stockholder, and such Stockholder has no present
intention of becoming a resident or domiciliary of any other state or
jurisdiction.
Each Stockholder agrees that the representations and
warranties set forth in this Section 3.1 shall survive the Merger and the
delivery of shares as contemplated thereby.
3.2 LEGEND ON CERTIFICATE. Each Stockholder acknowledges and
agrees that each certificate representing Parent Common Stock will be endorsed
with a restrictive legend similar to the following:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAW. THE SECURITIES CANNOT
BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN
10
<PAGE> 11
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFERABILITY CONTAINED
IN THE STOCKHOLDERS AGREEMENT RELATING TO THE SECURITIES AND
APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND NO TRANSFER
WILL BE RECOGNIZED UNLESS MADE IN COMPLIANCE WITH SUCH LAWS.
In addition, certificates representing such securities will
bear such other legends as may be required by the securities laws of the state
in which Stockholder resides.
3.3 INDEMNIFICATION. Each Stockholder acknowledges that he
understands the meaning and legal consequences of the representations,
warranties and agreements contained in Section 3.1 hereof, that Parent is
relying on the accuracy of the representations, warranties and agreements by
Stockholder as contained herein, and that he would not be permitted to acquire
any Parent Common Stock if any representation or warranty were known to be
materially false or inaccurate. Accordingly, each Stockholder hereby agrees to
indemnify and hold harmless Parent from and against any and all loss, damage,
liability, cost or expense (including attorneys' fees) relating to or arising
out of a breach of any representation, warranty or agreement of such Stockholder
contained in Section 3.1 of this Agreement.
3.4 NO ASSIGNMENT OR TRANSFER. Each Stockholder agrees not to
transfer or assign this Agreement, or any interest of Stockholder therein.
ARTICLE 4
GENERAL PROVISIONS
4.1 BOARD OBSERVATION RIGHTS. During the period beginning on
the Closing Date and ending on the date that is two years following the Closing
Date, for so long as Brian E. Cohen or any other Stockholder is not otherwise
serving as a director of Parent, Parent shall (a) timely notify the
Representative of the time and place of all meetings of the Board of Directors
of Parent, (b) deliver to the Representative all materials provided by Parent to
members of Parent's Board of Directors, (c) shall afford the Representative the
opportunity to attend all meetings of Parent's Board of Directors (except for
such meetings or portions of meetings in which, in the opinion of counsel to
Parent, matters protected by attorney-client or other privilege are being
discussed and the Representative's presence would interfere with the
protections afforded by such privilige), and (d) shall pay the Representative's
reasonable direct expenses incurred in attending such board meetings using the
same guidelines governing the payment of expenses of other members of Parent's
Board of Directors.
4.2 "PRO RATA SHARE; OTHER CAPITALIZED TERMS." As used in this
Agreement, the term "Pro Rata Share" of any amount shall mean the fraction that
is determined by dividing the number of shares of Company Common Stock held by a
Stockholder immediately prior to the Effective Time of the Merger by the total
number of shares of Company Common Stock held immediately prior to the Effective
Time of the Merger by all Stockholders who are parties to this Agreement. Other
capitalized terms used, but not defined herein, shall have the meanings ascribed
to them in the Merger Agreement.
4.3 NOTICES. Any notice required to be given hereunder shall
be sufficient if in writing, and sent by facsimile transmission and by same day
or overnight courier service (with proof of service), hand delivery or certified
or registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
11
<PAGE> 12
If to Parent or Merger Sub: If to the Stockholders:
eSoft, Inc. Brian E. Cohen
Suite 500 Technologic, Inc.
295 Interlocken Boulevard Suite 950
Broomfield, Colorado 80021 2990 Gateway Drive
Attn: Jeffrey Finn Norcross, Georgia 30071
Telephone: (303) 444-1600 Telephone: (770) 448-0334
Facsimile: (303) 444-1640 Facsimile: (770) 448-4547
With copies to: With copies to:
Davis, Graham & Stubbs LLP Smith, Gambrell & Russell, LLP
370 17th Street, Suite 4700 1230 Peachtree Street, N.E., Suite 3100
Denver, Colorado 80202 Atlanta, Georgia 30309
Attn: Lester R. Woodward, Esq. Attn: Brian T. Nash, Esq.
Telephone: 303-892-7392 Telephone: (404) 815-3712
Facsimile: 303-893-1379 Facsimile: (404) 685-7012
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered, or delivered by courier or on the third
day after the mailing thereof.
4.4 ASSIGNMENT, BINDING EFFECT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties.
4.5 ENTIRE AGREEMENT. This Agreement and any schedules or
agreements delivered in connection with this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No information previously provided, addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
4.6 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
4.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws.
4.8 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto. Executed counterparts transmitted by fax shall be effective as
originals.
4.9 HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
12
<PAGE> 13
4.10 INTERPRETATION. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
4.11 WAIVERS. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
4.12 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction
unless the same is material to the terms of this Agreement, in the judgment of
either party to this Agreement, in which case the parties shall negotiate in
good faith to revise the same so as to be valid or enforceable. If any provision
of this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
4.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
4.14 CONSENT. Whenever the consent or approval of a party is
required by the terms of this Agreement, unless otherwise provided, the same
shall not be unreasonably withheld or delayed
* * * * * * *
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement
and caused the same to be duly delivered on their behalf on the day and year
first written above.
"PARENT"
eSOFT, INC.
By: /s/ Jeffrey Finn
----------------------------
Name: Jeffrey Finn
Title: President
Croft & Bender LLC executes this Agreement and agrees to be bound solely by the
provisions of Article II of this Agreement.
"CROFT & BENDER"
CROFT & BENDER LLC
By: /s/ Edward S. Croft, III
----------------------------
Name: Edward S. Croft, III
Title: Managing Director
STOCKHOLDER SIGNATURE PAGES FOLLOW
14
<PAGE> 15
<TABLE>
<CAPTION>
NAME AND
NUMBER ADDRESS OF
STOCKHOLDER OF PURCHASER STOCKHOLDER
NAME ADDRESS SHARES REPRESENTATIVE SIGNATURE
(IF ANY)
<S> <C> <C>
Brian E. Cohen 1,111,100 /s/ Brian E. Cohen
---------------------------
Perry B. Flinn 740,750 /s/ Perry B. Flinn
---------------------------
Eric S. Bleke 666,700 /s/ Eric S. Bleke
---------------------------
Michael C. McChesney 537,750 /s/ Michael C. McChesney
---------------------------
Steven M. Kramer 344,400 /s/ Steven M. Kramer
---------------------------
Robin K. Cutshaw 148,150 /s/ Robin K. Cutshaw
---------------------------
Charles T. Watt 133,300 /s/ Charles T. Watt
---------------------------
Ken "Dutch" Schultz 112,500 /s/ Ken "Dutch" Schultz
---------------------------
John R. Adams 88,850 /s/ John R. Adams
---------------------------
Nicholas Hammond 88,850 /s/ Nicholas Hammond
---------------------------
Ferrell Moultrie 44,400 /s/ Ferrell Moultrie
---------------------------
Marc Winn 15,000 /s/ Marc Winn
---------------------------
</TABLE>
15
<PAGE> 16
EXHIBIT A
<PAGE> 17
CONTROL STOCKHOLDERS
Brian E. Cohen
Perry Flinn
Michael McChesney
Eric Bleke
Charles Meyers
Any other person who has been an officer or a member of the Board of Directors
of the Company at any time during the thirty (30) days prior to the Closing.
<PAGE> 1
EXHIBIT 2.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of September
10, 1999, by and among eSoft, Inc., a Delaware corporation ("Parent"), eSoft
Acquisition Corporation, a Georgia corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), Brian E. Cohen (the "Representative") a representative of
the stockholders of Technologic, Inc., a Georgia corporation (the "Company"),
and Norwest Bank Colorado, N.A. (the "Escrow Agent").
1. This Escrow Agreement is entered into pursuant to the terms
of that certain Agreement and Plan of Merger dated as of September 10, 1999 (the
"Merger Agreement") executed by and among Parent, Merger Sub, and the Company,
pursuant to which Merger Sub shall be merged with and into the Company with the
Company surviving. This Escrow Agreement shall be without force and effect until
such time as Escrow Agent receives shares of common stock, $.01 par value, of
Parent (the "Parent Common Stock"), such Parent Common Stock to be delivered by
Parent from time to time pursuant to Section 9.1 of the Merger Agreement
(collectively, the "Stock Deposits"). The certificates representing the Stock
Deposits shall be issued in the name of the Escrow Agent or its nominee. Upon
receipt of the Stock Deposits, together with any dividends or distributions with
respect thereto relating to record dates for such dividends or distributions
after the date hereof (collectively, the "Distribution Deposits"), the Escrow
Agent shall hold the Stock Deposits and the Distribution Deposits in trust (the
Stock Deposits and the Distribution Deposits are referred to hereinafter as the
"Deferred Merger Consideration Fund"), to be disbursed as set forth under this
Escrow Agreement.
2. At any time on or before the date that is the earlier of
twelve months after the Closing Date (as defined in the Merger Agreement) or the
date on which Parent publishes audited financial statements for the fiscal year
ended December 31, 1999 (the "Survival Date"), Parent may give one or more
written notices to Escrow Agent and the Representative that Parent seeks payment
of a claim (pursuant to Section 9.5 of the Merger Agreement) from the Deferred
Merger Consideration Fund, which written notice shall state the nature and basis
of such Claim and Parent's estimate of the amount thereof. The failure to so
notify the Representative shall in no case prejudice the rights of Parent under
this Agreement unless the Stockholders (as defined in the Stockholders'
Agreement dated September 10, 1999 by and between Parent and the stockholders of
the Company listed therein (the "Stockholders' Agreement")) shall be materially
prejudiced by such failure, and then only to the extent of such prejudice. Upon
receipt of notice of any such Claim from Parent, Escrow Agent shall, on the
tenth day after receipt of such notice, deliver to Parent the amount of the
Claim stated in the notice, in securities valued at a price per share equal to
$4.00; provided, however, that if the Representative shall have delivered to the
Escrow Agent a notice of objection to the payment of a Claim, the Escrow Agent
shall not make any payment with respect to such Claim until the Escrow Agent
receives (i) a notice signed jointly by Parent and the Representative that
contains joint instructions to the Escrow Agent as to the delivery of all or any
portion of the Deferred Merger Consideration Fund with respect to such Claim, or
(ii) a final, non-appealable order of the arbitrators referred to in Sections
1.5 of the Stockholders' Agreement resolving the objection, after which the
Escrow Agent shall promptly deliver all or any portion of the Deferred Merger
Consideration Fund with respect to such Claim in accordance with the decision of
said arbitrators. Pending the receipt of such joint written instructions or
final order, Escrow Agent shall segregate from the Deferred Merger Consideration
Fund such amount in cash or securities, valued at a price per share at a price
per share equal to $4.00 per share, sufficient to discharge the Claim in full.
3. Within three business days after the Survival Date, the
Escrow Agent shall give the Representative and Parent written notice of its
intent to distribute any Deferred Merger Consideration to the Company's
Stockholders (other than holders of Dissenting Shares (as defined in the Merger
Agreement). Such notice shall state the total amount in the Deferred Merger
Consideration Fund, the amount paid by the Escrow Agent on account of Claims
presented by Parent, the amount segregated from the Deferred Merger
Consideration Fund to pay Claims that are then in dispute or disputable, and the
initial number of shares of Parent Common Stock immediately available for
distribution (the "Initial Distribution Amount") to the Company's Stockholders
(other than holders of Dissenting Shares) on such date. The Escrow Agent shall,
on the tenth day after delivery of such notice, deliver to the Company's
Stockholders (other than holders of Dissenting Shares) at such Stockholders'
last known addresses each Stockholder's pro rata share of the Initial
Distribution Amount (such pro rata share to be determined pursuant to Section 4
hereof); provided, however, that if the Representative
<PAGE> 2
or Parent shall have delivered to the Escrow Agent a notice of objection to the
distribution of the Initial Distribution Amount, the Escrow Agent shall not make
any distribution with respect to such Initial Distribution Amount until the
Escrow Agent receives joint written instructions from the Representative and
Parent or a final order from an arbitration conducted in accordance with
Sections 1.5 of the Stockholders' Agreement. Within ten days of the resolution
of all disputes involving any unpaid Claim for which Parent has delivered notice
to the Escrow Agent in accordance with Section 2 hereof, the Escrow Agent shall
calculate the remaining number of shares of Parent Common Stock available for
distribution (the "Final Distribution Amount") to the Company's Stockholders
(other than holders of Dissenting Shares) and shall provide this information to
the Representative. The Escrow Agent shall deliver to the Company's Stockholders
(other than holders of Dissenting Shares) at such Stockholders' last known
addresses each Stockholder's pro rata share of the Final Distribution Amount
(such pro rata share to be determined pursuant to Section 4 hereof).
4. Upon receipt of a notice from the Escrow Agent with respect
to any distribution to Stockholders, the Representative shall determine each
Stockholder's pro rata share of the Initial Distribution Amount and the Final
Distribution Amount by reference to the percentage interest indicated next to
each such Stockholder's name in the table of Stockholder interests attached
hereto as Exhibit A.
5. Upon the receipt by the Escrow Agent of any notice from
Parent that Parent is soliciting the vote or consent of any holder of Parent
Common Stock, the Escrow Agent shall promptly deliver to the Company's
Stockholders (other than holders of Dissenting Shares) at such Stockholders'
last known addresses a notice of such solicitation and shall request that each
such Stockholder deliver to the Escrow Agent instructions with respect to the
voting or consent of the shares of Parent Common Stock beneficially owned by
such Stockholder and held of record by the Escrow Agent. The Escrow Agent shall
timely vote the shares of Parent Common Stock held in the Deferred Merger
Consideration Fund, to the extent practicable, in accordance with instructions
received by the Escrow Agent from such Stockholders.
6. Any portion of the Deferred Merger Consideration Fund that
remains unclaimed by the former stockholders of the Company two years after the
Effective Time shall be delivered to the Company.
7. Upon delivery of the Deferred Merger Consideration Fund to
Parent or the Stockholders, as the case may be, this Escrow Agreement shall be
deemed to be terminated and the Escrow Agent shall be released and discharged
from all further obligations hereunder. Notwithstanding anything herein to the
contrary, all notices or instructions to the Escrow Agent hereunder shall be in
writing, and the Escrow Agent shall have no obligation to act on notice or
instructions that are not in writing.
8. In the event of the resignation of the Representative, the
resigning Representative shall appoint a successor either from among the
Stockholders or another person who shall otherwise be acceptable to Parent and
who shall agree in writing to accept such appointment, and the resigning
Representative's resignation shall not be effective until such a successor shall
have been appointed. If the Representative should die or become incapacitated,
his successor shall be appointed within 30 days of his death or incapacity by a
majority of the Stockholders, voting together as a class, and such successor
either shall be a Stockholder or another person otherwise acceptable to Parent.
The choice of a successor Representative appointed in any manner permitted above
shall be final and binding upon all of the Stockholders. The decisions and
actions of any successor Representative shall be, for all purposes, those of the
Representative as if originally named herein.
9. If at any time Escrow Agent shall receive a notice signed
jointly by Parent and the Representative containing instructions to Escrow Agent
regarding the disposition of the Deferred Merger Consideration Fund or any
portion thereof or any matter related thereto, Escrow Agent shall comply with
such instructions. Similarly, if at any time Escrow Agent shall receive a notice
signed jointly by Parent and the Representative that this Escrow Agreement has
been terminated, Escrow Agent shall deliver the Deferred Merger Consideration
Fund in accordance with the joint instructions contained in such notice and upon
such delivery this Escrow Agreement shall be deemed terminated and Escrow Agent
shall be released and discharged from all further obligations hereunder.
10. Escrow Agent shall not be responsible for the performance
of any agreement between the parties hereto except for those agreements and
duties that are explicitly set forth herein. It is understood and agreed that
the duties
2
<PAGE> 3
of Escrow Agent hereunder are purely ministerial in nature and that it shall not
be liable for any error or judgment regarding fact or law, or for any act done
or omitted to be done, except for its own negligence or willful misconduct.
Escrow Agent's determination as to whether an event or condition has occurred,
or been met or satisfied, or as to whether a provision of this Escrow Agreement
has been complied with, or as to whether sufficient evidence of the event or
condition or compliance with the provision has been furnished to it, shall not
subject it to any claim, liability, or obligation whatsoever, even if it shall
be found that such determination was improper or incorrect, provided only that
Escrow Agent shall not have been guilty of negligence or willful misconduct in
making such determination. The Escrow Agent shall not be obligated to take any
legal or other action hereunder that might in its judgment involve expense or
liability unless it shall have been furnished with indemnity acceptable to it.
In addition, the Escrow Agent may consult counsel satisfactory to it, and the
advice or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered, or omitted by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
11. Escrow Agent shall not be responsible for the genuineness,
accuracy, or validity of any document or item deposited with it or any notice or
instruction given to it, and it is fully protected in acting in accordance with
any written instruction or instrument given to it hereunder and reasonably
believed by it to have been signed by the proper parties. Each party hereto
represents and warrants that this Escrow Agreement has been duly and validly
authorized, executed, and delivered by such party and constitutes a valid and
binding obligation of such party, enforceable against such party in accordance
with its terms.
12. If at any time Escrow Agent shall receive conflicting
notices, claims, demands, or instructions with respect to the Deferred Merger
Consideration Fund, or if for any other reason it shall be unable in good faith
to determine the party or parties entitled to receive any part of the Deferred
Merger Consideration Fund, Escrow Agent may refuse to make any payment and
retain the Deferred Merger Consideration Fund in its possession until Escrow
Agent shall have received instructions in writing signed jointly by Parent and
the Representative, or until directed by a final, non-appealable order of the
arbitrators referred to in Sections 1.5 of the Stockholders' Agreement,
whereupon Escrow Agent shall make such disposition in accordance with such joint
instructions or order.
13. (a) Neither the Escrow Agent nor any of its
directors, officers, or employees shall be liable to anyone for any action taken
or omitted to be taken by it or any of its directors, officers, or employees
hereunder except in the case of negligence, bad faith, or willful misconduct.
Parent covenants and agrees to indemnify the Escrow Agent and hold it harmless
without limitation from and against any loss, liability, or expense of any
nature incurred by the Escrow Agent arising out of or in connection with this
Escrow Agreement or with the administration of its duties hereunder, including,
but not limited to, legal fees and expenses and other costs and expenses of
defending or preparing to defend against any claim of liability in the premises,
unless such loss, liability, or expense shall be caused by the Escrow Agent's
negligence, bad faith or willful misconduct. In no event shall the Escrow Agent
be liable for indirect, punitive, special, or consequential damages.
(b) Parent agrees to assume any and all obligations
imposed now or hereafter by any applicable tax law with respect to the payment
of funds or other property under this Escrow Agreement, and to indemnify and
hold the Escrow Agent harmless from and against any taxes, additions for late
payment, interest, penalties, and other expenses, that may be assessed against
the Escrow Agent on any such payment or other activities under this Escrow
Agreement. Parent undertakes to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding and other taxes,
assessments, or other governmental charges, certifications, and governmental
reporting in connection with its acting as Escrow Agent under this Escrow
Agreement. Parent agrees to indemnify and hold the Escrow Agent harmless from
any liability on account of taxes, assessments, or other governmental charges,
including without limitation the withholding or deduction or the failure to
withhold or deduct same, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities, to which the
Escrow Agent may be or become subject in connection with or which arises out of
this Escrow Agreement, including costs, expenses (including reasonable legal
fees and expenses), interest, and penalties.
14. Escrow Agent may resign at any time upon giving the
parties hereto ten days' prior written notice to that effect. In such event, the
successor escrow agent shall be such person, firm, or corporation as shall be
mutually selected by Parent and the Representative. It is understood and agreed
that such resignation shall not be effective until a successor agrees to act as
escrow agent hereunder; provided, however, if no successor is appointed and
acting hereunder
3
<PAGE> 4
within ten days after such notice is given, Escrow Agent may pay and deliver the
Deferred Merger Consideration Fund into any court of competent jurisdiction and
may apply to any court of competent jurisdiction for the appointment of a
successor escrow agent. The provisions of Section 14 hereof shall survive the
resignation or removal of the Escrow Agent or the termination of this Escrow
Agreement.
15. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when personally delivered,
two days after deposit in the mail if mailed by certified mail, return receipt
requested, or when received if delivered via Federal Express or similar
overnight courier service, or by facsimile. Such notices or other communications
shall be sent to the following addresses, unless other addresses are
subsequently specified in writing:
If to Parent:
eSoft, Inc.
295 Interlocken Boulevard, Suite 500
Broomfield, Colorado 80021
Attention: Jeffrey Finn
Fax No.: (303) 444-1640
Tel. No.: (303) 444-1600
and: Davis, Graham & Stubbs LLP
370 - 17th Street, Suite 4700
Denver, Colorado 80202
Attention: Lester R. Woodward, Esq.
Fax No.: (303) 892-7392
Tel. No.: (303) 893-1379
If to the Representative:
Brian E. Cohen
Technologic, Inc.
2990 Gateway Drive, Suite 950
Norcross, Georgia 30071
Fax No.: (770) 448-0334
Tel. No.: (770) 448-4547
With a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E., Suite 3100
Atlanta, Georgia 30309
Attn: Brian T. Nash, Esq.
Fax No.: (404) 685-7012
Tel. No.: (404) 815-3712
4
<PAGE> 5
If to Escrow Agent:
Norwest Bank Colorado, N.A.
Corporate Trust and Escrow Services
1740 Broadway
MAC C7301-024
Denver, Colorado 80274
Attn: Leigh M. Lutz
Fax No.: (303) 863-5645
Tel. No.: (303) 863-6450
16. Parent agrees to pay the Escrow Agent's reasonable
compensation for its normal services hereunder in accordance with Exhibit B
attached hereto, which may be subject to change on an annual basis. The Escrow
Agent shall be entitled to reimbursement on demand for all expenses incurred in
connection with the administration of the escrow created hereby which are in
excess of its compensation for normal services hereunder, including without
limitation, payment of any legal fees and expenses incurred by the Escrow Agent
in connection with the resolution of any claim by any party hereunder.
17. Parent and Representative hereby absolutely and
irrevocably consent and submit to the jurisdiction of the courts of the State of
Colorado, and of any federal court located in said the State of Colorado having
jurisdiction over such matters, in connection with any actions or proceedings
brought against Parent and/or Representative by the Escrow Agent arising out of
or relating to this Escrow Agreement. In any such action or proceeding, Parent
and Representative hereby absolutely and irrevocably waive personal service of
any summons, complaint, declaration, or other process and hereby absolutely and
irrevocably agree that service thereof may be made by certified or registered
first class mail directed to Parent and Representative, as the case may be, at
their respective addresses in accordance with Section 15 hereof.
18. The Escrow Agent shall not be responsible for delays or
failures in performance resulting from acts beyond its control. Subject to the
limitations set forth in Section 14 above, such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
19. This Escrow Agreement and all documents relating thereto,
including, without limitation, (a) consents, waivers, and modifications which
may hereafter be executed, and (b) certificates and other information previously
or hereafter furnished may be reproduced by any photographic, photostatic,
microfilm, optical disk, micro-card, miniature photographic, or other similar
process. The parties hereto agree that any such reproduction shall be admissible
in evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such reproduction
was made by a party in the regular course of business, and that any enlargement,
facsimile, or further reproduction shall likewise to be admissible in evidence.
20. This Escrow Agreement, the Merger Agreement and the
Stockholders' Agreement contain the entire agreement among the parties with
respect to the subject matter hereof. This Escrow Agreement may not be amended,
supplemented, or discharged, and no provision hereof may be modified or waived
except by an instrument in writing signed by all of the parties hereto. No
waiver of any provision hereof by any party shall be deemed a continuing waiver
of any matter by such party.
21. This Escrow Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
22. This Escrow Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Executed counterparts transmitted by fax
shall be effective as originals.
SIGNATURE PAGE FOLLOWS
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement as of the date first set forth above, to be effective as set forth in
Section 1 hereof.
ESCROW AGENT:
Norwest Bank Colorado, N.A.
By: /s/ Leigh M. Lutz
----------------------------
Name: Leigh M. Lutz
Title: Vice President
PARENT:
eSOFT, INC.
By: /s/ Jeffrey Finn
----------------------------
Name: Jeffrey Finn
Title: President
THE REPRESENTATIVE:
/s/ Brian E. Cohen
----------------------------
Name: Brian E. Cohen
6
<PAGE> 7
EXHIBIT A
<PAGE> 8
<TABLE>
<CAPTION>
STOCKHOLDER PERCENTAGE
NAME INTEREST
<S> <C>
Brian E. Cohen 27.55%
Perry B. Flinn 18.37%
Eric S. Bleke 16.53%
Michael C. McChesney 13.33%
Steven M. Kramer 8.54%
Robin K. Cutshaw 3.67%
Charles T. Watt 3.30%
Ken "Dutch" Schultz 2.79%
John R. Adams 2.20%
Nicholas Hammond 2.20%
Ferrell Moultrie 1.10%
Marc Winn 0.37%
</TABLE>
<PAGE> 1
EXHIBIT 2.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of this 10th day of September, 1999, to become effective at the time set
forth in Section 1 hereof, between eSoft, Inc., a Delaware corporation (the
"Company"), and Brian Cohen, an individual resident of the state of Georgia (the
"Executive").
RECITAL
A. The Company desires to employ the Executive as Vice
President of Strategic Relations, and the Executive desires to be employed by
the Company in such position upon the terms and conditions set forth in this
Agreement.
B. The Executive acknowledges that during the course of the
Executive's employment the Executive will receive or be exposed to certain
confidential information and trade secrets (collectively referred to as
"Confidential Information") of the Company. The Executive also acknowledges that
this Confidential Information is among the Company's most important assets and
that the value of this Confidential Information would be diminished or
extinguished by its disclosure.
AGREEMENT
In consideration of the mutual promises contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Employment; Position; Term. The Company hereby employs the
Executive and the Executive hereby accepts employment with the Company in the
capacity of Vice President of Strategic Relations. Subject to Section 4, the
term of Executive's employment under this Agreement (the "Term") shall be for 24
months, beginning on the date on which the Company completes its merger with
Technologic, Inc. ("Technologic").
2. Duties, Responsibilities and Authority. In the capacity as
Vice President of Strategic Relations for the Company, the Executive shall have
primary responsibility for identifying and consummating relationships with
strategic partners, playing a significant role in defining and shaping the
product strategy, and being the primary contact for industry analyst
relationships, as well as providing general management functions for
Technologic, a wholly-owned subsidiary of the Company located in Atlanta,
Georgia. The Executive shall report to and be subject to the direction and
control of the President of the Company. The Executive shall devote
substantially all of Executive's full professional and managerial time and
effort to the performance of the duties as Vice President of Strategic
Relations, at such location or locations within the Metro Atlanta area as the
Company may require from time to time, and shall not engage in other business
activity or activities which, in the reasonable good-faith judgement of the
President of the Company, conflict with the performance of duties under this
Agreement.
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3. Compensation
(a) Salary. For services rendered under this
Agreement, the Company shall pay the Executive a salary at the rate of
$10,000.00 per month, payable to Executive on the Company's regular reoccurring
pay period, but in no event less than monthly installments.
(b) Bonus. The Executive shall receive a performance
bonus based upon mutually agreed upon Company and department performance
criteria for each fiscal quarter of the Company completed during the term of
this Agreement (the "Bonus"). The target bonus pay at 100% of attainment shall
be 50% of the salary paid to Executive during the quarter. The payment of the
Bonus shall be made as soon as practicable, but in no event later than sixty
(60) days following the end of the quarter on which such Bonus is calculated.
(c) Incentive Pay. The Executive shall receive an
incentive payment of two percent (2%) of the sales, net of discounts and
returns, on the Sabre Account (as defined below) (the "Incentive Pay").
Incentive Pay shall be paid to Executive monthly and will be paid so long as
Executive is employed by the Company and, in the event of the termination of
Executive's employment with the Company, for the period specified in Section 7
below; provided, however, if the Executive has resigned without Executive Cause
(as defined below) or been terminated for Company Cause (as defined below), the
Company shall have no further obligation or liability thereafter with respect to
Executive's Incentive Pay. As used herein, the term "Sabre Account" shall mean
invoices billed with respect to systems purchased directly by the Sabre Group or
by travel agencies based upon a recommendation from employees of or consultants
to the Sabre Group.
(d) Stock Options. The Company agrees to immediately
grant to the Executive on the first day of the Term of this Agreement incentive
stock options pursuant to the Company's Stock Option Plan to purchase up to
80,000 shares of the Company's common stock at an exercise price equal to the
fair market value of the Company's common stock on the day of the grant. Shares
shall vest over a 36 month period with no vesting until April 1, 2000, on which
date seven-thirty-sixths (7/36) of the options will vest, and then
one-thirty-sixth (1/36) will vest on the first day of each month thereafter;
provided, however, in the event (i) that the Executive terminates his employment
for Executive Cause or the Company terminates the Executive's employment without
Company Cause, or (ii) there is a Change in Control (as defined in Section 12 of
this Agreement), 9/36 of the options granted to the Executive by the Company not
then vested shall immediately vest. Subject to the immediately preceding
proviso, vesting shall occur as long as the Executive remains an employee of the
Company. The options, once vested shall have an expiration date of 4 years from
the date of grant of the option. In addition, the Executive may participate in
stock option programs of the Company upon such terms as the administrators of
such programs in their discretion determine.
(e) Annual Review. The Executive's salary, bonus,
options and terms of the severance in Section 7 of this Agreement shall be
reviewed annually beginning January 1, 2000 and may be increased as the Board
deems appropriate, but shall not be decreased during the term without written
mutual agreement.
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<PAGE> 3
(f) Benefits and Vacation. The Executive shall be
eligible to participate in such insurance programs (health, disability and life)
and such other health, dental, retirement or similar employee benefits programs
as the Board may approve, on a basis comparable to that available to other
officers and executive employees of the Company. The Executive shall be entitled
to the same amount and terms of paid time off as other officers and executive
employees of the Company and the Executive shall receive full credit for time
employed by Technologic in calculating years of service. Vacation time may be
accumulated for up to one year beyond the year for which it is accrued and may
be used any time during such year. Any vacation time not used during such
additional year shall be forfeited. The value of any accrued but unused and
unforfeited vacation time shall be paid in cash to the Executive upon
termination of Executive's employment for any reason.
(g) Reimbursement of Expenses. The Company shall
reimburse the Executive in a timely manner for all reasonable out-of-pocket
expenses incurred by the Executive in connection with the performance of the
Executive's duties under this Agreement; provided that the Executive presents to
the Company an itemized accounting of such expenses including reasonable
supporting data and follows the Company's written travel policies, which the
Company has provided to the Executive. Notwithstanding the above, the Executive
shall be entitled to utilize Business Class travel for international air travel
at any time, and from time to time, after the Company has reported profitable
net income for any quarterly period.
4. Termination.
(a) Termination by the Company without Company Cause.
Notwithstanding anything to the contrary contained herein but subject to Section
7 hereof, the Company may, by delivering thirty (30) days' prior written notice
to the Executive, terminate the Executive's employment at any time without
Company Cause (as hereinafter defined).
(b) Termination by the Executive without Executive
Cause. Notwithstanding anything to the contrary contained herein but subject to
Section 7 hereof, the Executive may, by delivering thirty (30) days' prior
written notice to the Company, terminate the Executive's employment hereunder.
(c) Termination by the Company for Company Cause. The
Company may terminate the Executive's employment for Company Cause immediately
upon written notice to Executive stating the basis for such termination.
"Company Cause" for termination of the Executive's employment shall only be
deemed to exist if the Executive has (i) breached any material provision of this
Agreement and if such breach continues or recurs more than thirty (30) days
after notice from the Company specifying the action which constitutes such
breach and demanding its discontinuance, (ii) exhibited willful disobedience of
lawful directions of the President or of the Board, or (iii) committed gross
malfeasance in performance of Executive's duties hereunder or acts resulting in
an indictment charging the Executive with the commission of a felony; provided
that the commission of acts resulting in such an indictment shall constitute
Company Cause only if a majority of the directors who are not also subject to
any such indictment determine that the Executive's conduct has substantially
adversely affected the Company or its reputation. A material failure to perform
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<PAGE> 4
Executive's duties hereunder that results from the disability of the Executive
shall not be considered Company Cause for Executive's termination.
(d) Termination by the Executive for Executive Cause.
The Executive may terminate employment for Executive Cause immediately upon
written notice to the Company stating the basis for such termination. "Executive
Cause" for termination of employment by the Executive shall only be deemed to
exist if the Company has breached any material provision of this Agreement and
if such breach continues or recurs more than thirty (30) days after notice from
the Executive specifying the action which constitutes such breach and demanding
its discontinuance, or if the Company is engaged in unlawful activity or
requests the Executive to engage in unlawful activity.
5. Disability. In the event of disability of the Executive
during the term hereof, the Company shall, during the continuance of Executive's
disability but only for a maximum of 90 days following the determination of
disability, (i) pay the Executive the Executive's then current salary, as
provided for in Section 3(a) above, (ii) make all payments to Executive pursuant
to Sections 3(b) and 3(c) above, and (iii) continue to provide the Executive all
other benefits provided hereunder. As used herein, the term "disability" shall
mean the complete and total inability of the Executive, due to illness, physical
or comprehensive mental impairment, to substantially perform all of Executive's
duties as described herein for a consecutive period of ninety (90) days or more.
6. Death. In the event of the death of the Executive, except
with respect to any benefits which have accrued and have not been paid to the
Executive hereunder, the provisions of this Agreement shall terminate
immediately. The Executive's estate shall have the right to receive compensation
due to the Executive as of and to the date of Executive's death and shall have
the right to receive an additional amount equal to one-twelfth (1/12th) of the
Executive's annual compensation then in effect.
7. Severance. In the event that the Executive's employment is
terminated by the Company other than for Company Cause or death of the
Executive, or in the event there is either a material change in the
responsibilities of the Executive or a loss of his position within six (6)
months after a Change of Control, or if Executive terminates this Agreement for
Executive Cause, the Executive shall be entitled to receive Executive's then
current salary, Incentive Pay and benefits, as provided for in Sections 3(a),
3(c) and 3(f) above, payable in semi-monthly installments, for the greater of
twelve (12) months or the number of months which equals the number of years that
have elapsed from the initial date of this Agreement until the date of the
Executive's termination by the Company; provided, however, that if any of such
payments would (i) constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986 (the "Code") and (ii) but for
this provision, be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"); the amount payable hereunder shall be reduced to the largest
amount which the Executive determines would not result in any portion of the
payments hereunder being subject to the Excise Tax. If the Executive voluntarily
resigns Executive's employment hereunder without Executive Cause, or if
Executive's employment is terminated for Company Cause, the Executive shall not
be entitled to any severance pay or other compensation beyond the date of
termination of Executive's employment.
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<PAGE> 5
8. Covenant Not to Compete.
(a) During the continuance of the Executive's
employment hereunder, and for a period of twelve (12) months after termination
of the Executive's employment hereunder pursuant to section 4(b) or 4(c) hereof,
the Executive shall not obtain or accept a position with any business which
competes with the Company or its affiliates anywhere in the United States or
Canada during the Executive's employment hereunder or at the time of
termination, whereby Executive will likely use Confidential Information or
whereby Executive has duties for such competitor that are the same or
substantially similar to those actually performed hereunder.
(b) The Executive shall not, for a period of twelve
(12) months after termination of the Executive's employment hereunder pursuant
to section 4(b) or 4(c) hereof, employ, engage or seek to employ or engage for
himself or any other person or entities, any individual who is or was employed
or engaged by the Company or any of its affiliates until the expiration of six
(6) months following the termination of such person's or entity's employment or
engagement with the Company or any of its affiliates.
Nothing contained in this Section 8 is intended to prevent Executive
from investing in stock or other securities listed on a national securities
exchange or actively traded on the over the counter market of any corporation
which competes with the Company; provided, however, that Executive shall not
hold more than a total of five percent (5%) of all the issued and outstanding
stock or other securities of any such corporation (other than the Company or its
affiliates).
9. Trade Secrets and Confidential Information. During
Executive's employment by the Company and for a period of five (5) years
thereafter, the Executive shall not, directly or indirectly, use, disseminate,
or disclose for any purpose other than for the purposes of the Company's
business, any Confidential Information of the Company or its affiliates, unless
such disclosure is compelled in a judicial proceeding. Upon termination of
Executive's employment, all documents, records, notebooks, and similar
repositories of records containing information relating to any Confidential
Information then in the Executive's possession or control, whether prepared by
him or by others, shall be left with the Company or, if requested, returned to
the Company. Confidential Information shall not include information that has
become generally available to the public by the act of any person who has the
right to disclose such information.
10. Severability. It is the desire and intent of the
undersigned parties that the provisions of Sections 8 and 9 shall be enforced to
the fullest extent permissible under the laws in each jurisdiction in which
enforcement is sought. Accordingly, if any particular sentence or portion of
either Section 8 or 9 shall be adjudicated to be invalid or unenforceable, the
remaining portions of such section nevertheless shall continue to be valid and
enforceable as though the invalid portions were not a part thereof. In the event
that any of the provisions of Section 8 relating to the geographic areas of
restriction or the provisions of Sections 8 or 9 relating to the duration of
such Sections shall be deemed to exceed the maximum area or period of time which
a court of competent jurisdiction would deem enforceable, the geographic areas
and times shall, for the purposes of this Agreement, be deemed to be the maximum
areas or time periods which a court of competent jurisdiction would
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<PAGE> 6
deem valid and enforceable in any state in which such court of competent
jurisdiction shall be convened.
11. Injunctive Relief. The Executive agrees that any violation
by Executive of the provisions contained in Sections 8 and 9 are likely to cause
irreparable damage to the Company, and therefore Executive agrees that if there
is a breach or threatened breach by the Executive of the provisions of said
sections, the Company shall be entitled to pursue an injunction restraining the
Executive from such breach, and Executive will make no objection to the form of
relief sought. Nothing herein shall be construed as prohibiting the Company from
pursuing any other available remedies for such breach or threatened breach.
12. Miscellaneous.
(a) Notices. Any notice required or permitted to be
given under this Agreement shall be directed to the appropriate party in writing
and mailed or delivered, if to the Company, to eSoft, Inc., to the attention of
the President, at 295 Interlocken Blvd, #500, Broomfield, Colorado 80021, and if
to the Executive, at 2827 Spalding Drive, Dunwoody, Georgia 30350. Notification
addresses may be changed with written notice provided to the other party in
accordance with this Section 12(a).
(b) Binding Effect. This Agreement is a personal
service agreement and may not be assigned by the Company or the Executive,
except that the Company may assign this Agreement to a successor of the Company
through a Change of Control. For purposes of this Agreement "Change in Control"
shall mean the occurrence of any of the following: [Insert COC Language from
Option Plan]. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, and legal representatives.
(c) Amendment. This Agreement may not be amended
except by an instrument in writing executed by each of the undersigned parties.
(d) Applicable Law. This Agreement is entered into in
the State of Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
(e) Attorney's Fees. In the event either party takes
legal action to enforce any of the terms of this Agreement, the unsuccessful
party to such action will pay the successful party's reasonable expenses,
including attorney's fees, incurred in such action.
(f) Entire Agreement. This Agreement supersedes and
replaces all prior agreements between the parties related to the employment of
the Executive by the Company.
SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the first date mentioned above.
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THE COMPANY:
By: /s/ Jeffrey Finn
---------------------------
Name: Jeffrey Finn
Title: Chief Executive Officer
THE EXECUTIVE:
By: /s/ Brian Cohen
---------------------------
Name: Brian Cohen
7
<PAGE> 1
EXHIBIT 2.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of this 10th day of September 1999, to become effective at the time set
forth in Section 1 hereof, between eSoft, Inc., a Delaware corporation (the
"Company"), and Perry B. Flinn, an individual resident of the state of Georgia
(the "Executive").
RECITAL
A. The Company desires to employ the Executive as Vice
President of Technology, and the Executive desires to be employed by the Company
in such position upon the terms and conditions set forth in this Agreement.
B. The Executive acknowledges that during the course of the
Executive's employment the Executive will receive or be exposed to certain
confidential information and trade secrets (collectively referred to as
"Confidential Information") of the Company. The Executive also acknowledges that
this Confidential Information is among the Company's most important assets and
that the value of this Confidential Information would be diminished or
extinguished by its disclosure.
AGREEMENT
In consideration of the mutual promises contained herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Employment; Position; Term. The Company hereby employs the
Executive and the Executive hereby accepts employment with the Company in the
capacity of Vice President of Technology. Subject to Section 4, the term of
Executive's employment under this Agreement (the "Term") shall be for 24 months,
beginning on the date on which the Company completes its merger with
Technologic, Inc. ("Technologic").
2. Duties, Responsibilities and Authority. In the capacity as
Vice President of Technology for the Company, the Executive shall have primary
responsibility for guiding the Company's strategic technical direction and
ensuring the architectural soundness and integrity of the Company's products.
The Executive shall report to and be subject to the direction and control of the
Vice President of Engineering of the Company. The Executive shall devote
substantially all of Executive's full professional and managerial time and
effort to the performance of the duties as Vice President of Technology, at such
location or locations within the Metro Atlanta area as the Company may require
from time to time, and shall not engage in other business activity or activities
which, in the reasonable good-faith judgement of the President of the Company,
conflict with the performance of duties under this Agreement.
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3. Compensation
(a) Salary. For services rendered under this
Agreement, the Company shall pay the Executive a salary at the rate of $8,333.33
per month, payable to Executive on the Company's regular reoccurring pay period,
but in no event less than monthly installments.
(b) Bonus. The Executive shall be eligible to receive
a performance bonus based upon mutually agreed company and department
performance criteria for each fiscal quarter of the Company completed during the
term of this Agreement. The target bonus pay at 100% of attainment is $10,000
per quarter. The payment of the Executive's incentive pay shall be made as soon
as practicable but no later than sixty (60) days following the end of the
quarter
(c) Stock Options. The Company agrees to immediately
grant to the Executive on the first day of the Term of this Agreement incentive
stock options pursuant to the Company's Stock Option Plan to purchase up to
60,000 shares of the Company's common stock at an exercise price equal to the
fair market value of the Company's common stock on the day of the grant, subject
to board approval. Shares shall vest over a 36 month period with no vesting
until April 1, 2000, on which date seven thirty-sixths (7/36) of the options
will vest, and then one thirty-sixth (1/36) will vest on the first day of each
month thereafter. In the event that prior to April 1, 2000 either (i) the
Executive terminates his employment for Executive Cause or the Company
terminates the Executive's employment without Company Cause, or (ii) there is a
Change in Control (as defined in Section 12 of this Agreement), no fewer than
nine thirty-sixths (9/36) of the options granted to the Executive by the Company
shall be deemed to have vested. Subject to the immediately preceding proviso,
vesting shall occur as long as the Executive remains an employee of the Company.
The options, once vested shall have an expiration date of 4 years from the date
of grant of the option. In addition, the Executive may participate in stock
option programs of the Company upon such terms as the administrators of such
programs in their discretion determine.
(d) Incentive Pay. The Executive shall receive an
incentive payment of two percent (1%) of the sales net of any returns, discounts
or allowances on the Sabre Account (as defined below) (the "Incentive Pay").
Incentive Pay shall be paid to Executive monthly and will be paid so long as
Executive is employed by the Company and, in the event of the termination of
Executive's employment with the Company, for the period specified in Section 7
below; provided, however, if the Executive has resigned without Executive Cause
(as defined below) or been terminated for Company Cause (as defined below), the
Company shall have no further obligation or liability thereafter with respect to
Executive's Incentive Pay. As used herein, the term "Sabre Account" shall mean
invoices billed with respect to systems purchased directly by the Sabre Group or
by travel agencies based upon a recommendation from employees of or consultants
to the Sabre Group.
(e) Annual Review. The Executive's salary, bonus,
options and terms of the severance in Section 7 of this Agreement shall be
reviewed annually beginning January 1, 2000 and may be increased as the Board
deems appropriate, but shall not be decreased during the Term without written
mutual agreement.
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<PAGE> 3
(f) Benefits and Vacation. The Executive shall be
eligible to participate in such insurance programs (health, disability and life)
and such other health, dental, retirement or similar employee benefits programs
as the Board may approve, on a basis comparable to that available to other
officers and executive employees of the Company. The Executive shall be entitled
to the same amount and terms of paid time off as other officers and executive
employees of the Company and the Executive shall receive full credit for time
employed by Technologic in calculating years of service. Vacation time may be
accumulated for up to one year beyond the year for which it is accrued and may
be used any time during such year. Any vacation time not used during such
additional year shall be forfeited. The value of any accrued but unused and
unforfeited vacation time shall be paid in cash to the Executive upon
termination of Executive's employment for any reason.
(g) Reimbursement of Expenses. The Company shall
reimburse the Executive in a timely manner for all reasonable out-of-pocket
expenses incurred by the Executive in connection with the performance of the
Executive's duties under this Agreement; provided that the Executive presents to
the Company an itemized accounting of such expenses including reasonable
supporting data and follows the Company's written travel policies, which the
Company has provided to the Executive. Notwithstanding the above, the Executive
shall be entitled to utilize Business Class travel for international air travel
at any time, and from time to time, after the Company has reported profitable
net income for any quarterly period.
4. Termination.
(a) Termination by the Company without Company Cause.
Notwithstanding anything to the contrary contained herein but subject to Section
7 hereof, the Company may, by delivering thirty (30) days' prior written notice
to the Executive, terminate the Executive's employment at any time without
Company Cause (as hereinafter defined).
(b) Termination by the Executive without Executive
Cause. Notwithstanding anything to the contrary contained herein but subject to
Section 7 hereof, the Executive may, by delivering thirty (30) days' prior
written notice to the Company, terminate the Executive's employment hereunder.
(c) Termination by the Company for Company Cause. The
Company may terminate the Executive's employment for Company Cause immediately
upon written notice to Executive stating the basis for such termination.
"Company Cause" for termination of the Executive's employment shall only be
deemed to exist if the Executive has (i) breached any material provision of this
Agreement and if such breach continues or recurs more than thirty (30) days
after notice from the Company specifying the action which constitutes such
breach and demanding its discontinuance, (ii) exhibited willful disobedience of
lawful directions of the President or of the Board, or (iii) committed gross
malfeasance in performance of Executive's duties hereunder or acts resulting in
an indictment charging the Executive with the commission of a felony; provided
that the commission of acts resulting in such an indictment shall constitute
Company Cause only if a majority of the directors who are not also subject to
any such indictment determine that the Executive's conduct has substantially
adversely affected the Company or its reputation. A material failure to perform
Executive's duties hereunder that results from the disability of the Executive
shall not be considered Company Cause for Executive's termination.
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(d) Termination by the Executive for Executive Cause.
The Executive may terminate employment for Executive Cause immediately upon
written notice to the Company stating the basis for such termination. "Executive
Cause" for termination of employment by the Executive shall only be deemed to
exist if the Company has breached any material provision of this Agreement and
if such breach continues or recurs more than thirty (30) days after notice from
the Executive specifying the action which constitutes such breach and demanding
its discontinuance, or if the Company is engaged in unlawful activity or
requests the Executive to engage in unlawful activity.
5. Disability. In the event of disability of the Executive
during the term hereof, the Company shall, during the continuance of Executive's
disability but only for a maximum of 90 days following the determination of
disability, (i) pay the Executive the Executive's then current salary, as
provided for in Sections 3(a) and 3(e) above, (ii) make all payments to
Executive pursuant to Sections 3(b), 3(c) and 3(d) above, and (iii) continue to
provide the Executive all other benefits provided hereunder. As used herein, the
term "disability" shall mean the complete and total inability of the Executive,
due to illness, physical or comprehensive mental impairment, to substantially
perform all of Executive's duties as described herein for a consecutive period
of ninety (90) days or more.
6. Death. In the event of the death of the Executive, except
with respect to any benefits which have accrued and have not been paid to the
Executive hereunder, the provisions of this Agreement shall terminate
immediately. The Executive's estate shall have the right to receive compensation
due to the Executive as of and to the date of Executive's death and shall have
the right to receive an additional amount equal to one-twelfth (1/12th) of the
Executive's annual compensation then in effect.
7. Severance. In the event that the Executive's employment is
terminated by the Company other than for Company Cause or death of the
Executive, or in the event there is either a material change in the
responsibilities of the Executive or a loss of his position within six (6)
months after a Change of Control, or if Executive terminates this Agreement for
Executive Cause, the Executive shall be entitled to receive Executive's then
current salary, Incentive Pay and benefits, as provided for in Sections 3(a),
3(b), 3(c), 3(d) and 3(f) above, payable in semi-monthly installments, for the
greater of three (3) months or the number of months which equals the number of
years that have elapsed from the initial date of this Agreement until the date
of the Executive's termination by the Company; provided, however, that if any of
such payments would (i) constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986 (the "Code") and (ii) but for
this provision, be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"); the amount payable hereunder shall be reduced to the largest
amount which the Executive determines would not result in any portion of the
payments hereunder being subject to the Excise Tax. If the Executive voluntarily
resigns Executive's employment hereunder without Executive Cause, or if
Executive's employment is terminated for Company Cause, the Executive shall not
be entitled to any severance pay or other compensation beyond the date of
termination of Executive's employment.
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8. Covenant Not to Compete.
(a) During the continuance of the Executive's
employment hereunder, and for a period of twelve (12) months after termination
of the Executive's employment hereunder, pursuant to section 4(b) or 4(c)
hereof, the Executive shall not obtain or accept a position with any business
which competes with the Company or its affiliates anywhere in the United States
or Canada during the Executive's employment hereunder or at the time of
termination, whereby Executive will likely use Confidential Information or
whereby Executive has duties for such competitor that are the same or
substantially similar to those actually performed hereunder.
(b) The Executive shall not, for a period of twelve
(12) months after termination of the Executive's employment hereunder, pursuant
to section 4(b) or 4(c) hereof, employ, engage or seek to employ or engage for
himself or any other person or entities, any individual who is or was employed
or engaged by the Company or any of its affiliates until the expiration of six
(6) months following the termination of such person's or entity's employment or
engagement with the Company or any of its affiliates.
Nothing contained in this Section 8 is intended to prevent Executive
from investing in stock or other securities listed on a national securities
exchange or actively traded on the over the counter market of any corporation
which competes with the Company; provided, however, that Executive shall not
hold more than a total of five percent (5%) of all the issued and outstanding
stock or other securities of any such corporation (other than the Company or its
affiliates).
9. Trade Secrets and Confidential Information. During
Executive's employment by the Company and for a period of five (5) years
thereafter, the Executive shall not, directly or indirectly, use, disseminate,
or disclose for any purpose other than for the purposes of the Company's
business, any Confidential Information of the Company or its affiliates, unless
such disclosure is compelled in a judicial proceeding. Upon termination of
Executive's employment, all documents, records, notebooks, and similar
repositories of records containing information relating to any Confidential
Information then in the Executive's possession or control, whether prepared by
him or by others, shall be left with the Company or, if requested, returned to
the Company. Confidential Information shall not include information that has
become generally available to the public by the act of any person who has the
right to disclose such information.
10. Severability. It is the desire and intent of the
undersigned parties that the provisions of Sections 8 and 9 shall be enforced to
the fullest extent permissible under the laws in each jurisdiction in which
enforcement is sought. Accordingly, if any particular sentence or portion of
either Section 8 or 9 shall be adjudicated to be invalid or unenforceable, the
remaining portions of such section nevertheless shall continue to be valid and
enforceable as though the invalid portions were not a part thereof. In the event
that any of the provisions of Section 8 relating to the geographic areas of
restriction or the provisions of Sections 8 or 9 relating to the duration of
such Sections shall be deemed to exceed the maximum area or period of time which
a court of competent jurisdiction would deem enforceable, the geographic areas
and times shall, for the purposes of this Agreement, be deemed to be the maximum
areas or time periods which a court of competent jurisdiction would deem valid
and enforceable in any state in which such court of competent jurisdiction shall
be convened.
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11. Injunctive Relief. The Executive agrees that any violation
by Executive of the provisions contained in Sections 8 and 9 are likely to cause
irreparable damage to the Company, and therefore Executive agrees that if there
is a breach or threatened breach by the Executive of the provisions of said
sections, the Company shall be entitled to pursue an injunction restraining the
Executive from such breach, and Executive will make no objection to the form of
relief sought. Nothing herein shall be construed as prohibiting the Company from
pursuing any other available remedies for such breach or threatened breach.
12. Miscellaneous.
(a) Notices. Any notice required or permitted to be
given under this Agreement shall be directed to the appropriate party in writing
and mailed or delivered, if to the Company, to eSoft, Inc., to the attention of
the President, at 295 Interlocken Blvd, #500, Broomfield, Colorado 80021, and if
to the Executive, at 175 Abington Drive, Atlanta, GA 30328. Notification
addresses may be changed with written notice provided to the other party in
accordance with this Section 12(a).
(b) Binding Effect. This Agreement is a personal
service agreement and may not be assigned by the Company or the Executive,
except that the Company may assign this Agreement to a successor of the Company
through a Change of Control (as defined in the Company's Equity Incentive
Plan)." Subject to the foregoing, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
and legal representatives.
(c) Career Advancement. It is understood by the
parties that, upon the position of Chief Technology Officer becoming open, the
Company will utilize reasonable efforts to promote Executive into this position
within sixty (60) days of this position becoming open. The parties also agree
that this is not a binding commitment and such decision will be based upon a
number of factors, including, but not limited to, Executive's performance and
contributions to the Company prior to such position becoming open and a
determination as to whether the duties and responsibilities of the position can
effectively be performed from a location remote from the Company's corporate
headquarters. In the event that the conditions above have been satisfied and
such promotion to Chief Technology Officer is not made on or before April 1,
2000, then a material breach shall be deemed to have occurred and the Executive
can elect to terminate this Agreement for Executive Cause. The Executive must
provide written notification to the Company of such election to terminate for
Executive Cause no later than April 15, 2000.
(d) Amendment. This Agreement may not be amended
except by an instrument in writing executed by each of the undersigned parties.
(e) Applicable Law. This Agreement is entered into in
the State of Colorado and for all purposes shall be governed by the laws of the
State of Colorado.
(f) Attorney's Fees. In the event either party takes
legal action to enforce any of the terms of this Agreement, the unsuccessful
party to such action will pay the successful party's reasonable expenses,
including attorney's fees, incurred in such action.
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(g) Entire Agreement. This Agreement supersedes and
replaces all prior agreements between the parties related to the employment of
the Executive by the Company.
SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the first date mentioned above.
THE COMPANY:
By: /s/ Robert C. Hartman
-----------------------------------
Name: Robert C. Hartman
Title: Vice President of Engineering
THE EXECUTIVE:
By: /s/ Perry B. Flinn
-----------------------------------
Name: Perry B. Flinn
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