EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of April 13,
2000 by and among Lineo, Inc., a Delaware corporation ("Buyer"), Yoshinobu
Ushiyama, an individual residing in Japan ("Mr. Ushiyama"), Tatsuya Takeuchi, an
individual residing in Japan ("Mr. Takeuchi", and together with Mr. Ushiyama,
collectively, "Principal Shareholders", and each a "Principal Shareholder") and
such other minority shareholders of United System Engineers, Inc., a Japanese
corporation (the "Company"), listed in the List of Shareholders attached hereto
as Schedule 1 (collectively, "Minority Shareholders", and together with
Principal Shareholders, collectively, "Sellers" and each "Seller"), acting
through Mr. Ushiyama as their representative ("Shareholder Representative").
RECITALS
A. Sellers collectively own 160,000 shares of common stock of the
Company, with par value of Yen 500 per share, representing all of the issued and
outstanding capital stock of the Company (the "Company Shares").
B. The Company is engaged in the business of development, design,
manufacture and sale of computer systems (the "Business").
C. Buyer desires to purchase from Sellers, and Sellers desire to sell to
Buyer, the Company Shares on the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the premises and the mutual agreements herein
contained, Sellers and Buyer agree as follows:
1. PURCHASE AND SALE OF COMPANY SHARES.
(a) TRANSACTION. On and subject to the terms and conditions set forth
herein, Buyer agrees to purchase from Sellers, and Sellers agree to
sell to Buyer, at the Closing, 160,000 Company Shares.
(b) CONSIDERATION. The total consideration to be paid by Buyer to Sellers
for all of the Company Shares hereunder shall be Three Hundred Twenty
Two Thousand Eight Hundred Twenty Nine and 13/100 Dollars
($322,829.13). Each Seller shall be entitled to such amount as
appearing opposite his or her name in Schedule 1 (the
"Consideration").
(c) THE CLOSING. Subject to satisfaction or waiver of the conditions set
forth in Section 3 hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Summit Law Group, PLLC on
April 30, 2000 or on such other date as Sellers and Buyer may mutually
agree (the "Closing Date").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) each Seller shall
deliver to Buyer certificates for the Company Shares representing such
number of the Company Shares as set forth opposite his or her name in
Schedule 1, and (ii) Buyer shall deliver to each Seller the
Consideration appearing opposite his or her name in Schedule 1.
2. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY PRINCIPAL SHAREHOLDERS. Principal
Shareholders hereby jointly and severally represent and warrant to
Buyer as follows:
(i) The Company has been duly incorporated and is validly existing and
in good standing as a joint stock corporation (KABUSHIKI KAISHA) under the
laws of Japan. It has full corporate power to carry on its business as it
is now conducted and to own, lease or operate the properties and assets it
now owns, leases or operates. It is qualified to do business, is in good
standing and has all required and appropriate licenses in each jurisdiction
in which its failure to obtain or maintain such qualification, good
standing or licensing would have a material adverse effect on the condition
(financial or otherwise), assets, properties, results of operations or
business of the Company (a "Material Adverse Effect"). The Company does not
have a subsidiary (defined to mean any entity or organization in which it
has a direct or indirect equity or ownership interest in excess of 50%).
(ii) The authorized capital stock of the Company consists solely of
one class of stock and the total number of the Company Shares authorized to
be issued by the Company is 160,000 shares, of which 160,000 Company Shares
are issued and outstanding as of the date hereof.
(iii) All of the Company Shares have been legally and validly issued
and are fully paid and nonassessable; and the Company has no outstanding
obligations, understandings, or commitments regarding the issuance of any
additional shares of capital stock, or any options, rights, or warrants
concerning the issuance of any additional shares of capital stock or
securities convertible into shares of capital stock, of the Company.
(iv) The List of Shareholders in Schedule 1 lists the names and the
number of the Company Shares held of record by each Seller as of the date
hereof.
(v) There are no permits, approvals or consents of any governmental
bodies or agencies which are necessary or appropriate to be obtained by
Sellers in order for the consummation of the transactions contemplated by
this Agreement to be in compliance with applicable laws, other than
permits, approvals and consents already obtained.
(vi) The Company has delivered to Buyer the Company's unaudited
balance sheet as of December 31, 1999 and unaudited income statement and
statement of
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disposition of loss (SONSHITSUKIN SHORI KEISANSHO) for the period then
ended, which have been approved by the shareholders of the Company at the
general meeting of the shareholders. The financial statements so delivered
have been prepared in conformity with generally accepted accounting
principles in Japan ("Japanese GAAP") applied on a consistent basis (except
for changes, if any, required by Japanese GAAP and disclosed therein). Such
financial statements present fairly the financial condition and the results
of operations of the Company as of the date and for the period stated
therein. Except as and to the extent reflected or reserved against in the
balance sheet mentioned above, the Company did not have and was not subject
to any material liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, as of December 31, 1999 (the "Balance
Sheet Date"), required by Japanese GAAP to be stated therein.
(vii) Since the Balance Sheet Date, there has not been, occurred or
arisen (i) any declaration or payment of dividends by the Company or any
distribution of assets of any kind whatsoever by the Company to its
shareholders with respect to any shares of its capital stock; (ii) any
transaction, sale or transfer of any of its assets, or cancellation of any
debts or claims not in the ordinary course of business; (iii) any material
adverse change in the results of operations, financial condition, assets or
liabilities of the Company; (iv) any increase in, or commitment to
increase, the compensation payable or to become payable to any officer,
director, employee or agent of the Company, or any bonus payment or similar
arrangement made to or with any such officers, directors, employees or
agents, except for bonus payment or similar arrangement made consistent
with the past practice; (v) any incurring of, assumption of, or taking any
property subject to, any liability, except for liabilities incurred or
assumed or property taken subsequent to the Balance Sheet Date in the
ordinary course of business and consistent with past practice; (vi) any
adoption of a plan or agreement or amendment to any plan or agreement
providing any new or additional "fringe benefits" (including, but not
limited to, vacation plans or programs, sick leave plans or programs,
dental or medical plans or programs, and related or similar benefits); or
(vii) any material alteration in the manner of keeping the books, accounts
or record of the Company, or in the accounting practices therein reflected.
(viii) Except in each case as set forth in the Disclosure Schedule,
attached hereto as SCHEDULE 2:
(A) The Company owns and has good and marketable title to, or is
licensed or otherwise possesses legally enforceable rights to use, all
patents, patent applications, disclosures, copyrights (whether
registered or unregistered), and any applications therefor, software
or applications (in both source code and object code), websites,
domain names, technology, trademarks, trade names, service marks,
trade secrets, know-how or mask work right (the "Intellectual
Property") material to the conduct of its business as presently
conducted;
(B) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not
breach, violate or conflict in any material respect with any
instrument or agreement governing any of the Intellectual Property, or
impair the right of the Company to use, sell,
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license or dispose of the Intellectual Property, or to bring any
action for the infringement of the Intellectual Property;
(C) To the actual knowledge of Principal Shareholders, no third
party is infringing any of the Intellectual Property;
(D) The Company has taken reasonable steps necessary or
appropriate (including, without limitation, entering into agreements
concerning nondisclosure and assignment of inventions and copyrights
with all employees of the Company and setting forth in the employment
rules (SHUGYOKISOKU) the prohibition against employees' work for
another employer without the consent of the Company) to safeguard and
maintain the secrecy and confidentiality of, and establish the
Company's proprietary rights in, all of the Intellectual Property;
(E) All embodiments of those trade secrets which are related to
the Company's Business are presently and as of the Closing Date will
be located at the Company's headquarters; and
(F) The Company has in all material respects performed, or is
now performing the obligations of the Company in all material respects
pursuant to each and every license or agreement concerning the
Intellectual Property. All such licenses and agreements are in full
force and effect and are a valid and enforceable obligation against
the other party or parties thereto in accordance with their terms
(subject to the enforcement of remedies).
(ix) Within the times and in the manner prescribed by law, the Company
has filed all applicable tax returns and has paid or caused to be paid all taxes
which have been due pursuant to such tax returns. All tax returns filed by the
Company through the Closing Date, including any amendments to date, have been
prepared in good faith without negligence or willful misrepresentation and are
complete and accurate in all material respects and accurately set forth all
items (to the extent required to be included or reflected in such returns)
relevant to their future tax liabilities, including the tax bases of their
properties and assets.
(x) No examination of the tax returns of the Company is currently in
progress nor, to the knowledge of Principal Shareholders, is any such
examination threatened. To the knowledge of Principal Shareholders, no
governmental entity has proposed (tentatively or definitively), asserted or
assessed, or threatened to propose or assert, any deficiency, assessment or
claim for national, local or foreign taxes against the Company.
(xi) There is no action, suit or proceeding to which the Company is a
party (either as a plaintiff or defendant) pending before any court or
governmental agency, authority or body or arbitrator that would have a Material
Adverse Effect; and to the knowledge of Principal Shareholders, there is no such
action, suit or proceeding threatened against the Company. Neither the Company,
nor, to the knowledge of Principal Shareholders, any officer, director or
employee of any of the foregoing, has been permanently or temporarily enjoined
by any order, judgment or decree of any court
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or any governmental agency, authority or body from engaging in or continuing any
conduct or practice in connection with the Business, assets, or properties of
the Company.
(xii) The conduct of business by the Company on the date hereof does
not violate any laws, statutes, ordinances, rules, regulations, decrees, orders,
permits or other similar items in force on the date hereof, the enforcement of
which would have a Material Adverse Effect, nor has the Company received any
notice of any such violation. The Company holds all permits and licenses that
are required to permit it to conduct its Business as now conducted; all such
permits and licenses are valid and in full force and effect and will remain so
upon consummation of the transactions contemplated by this Agreement; and, to
the knowledge of Principal Shareholders, no suspension, cancellation or
termination of any of such permits or licenses is threatened or imminent.
(xiii) Mr. Ushiyama is duly authorized to act as Shareholder
Representative on behalf of Minority Shareholders in connection with this
Agreement, including without limitation the execution, delivery and performance
of this Agreement on their behalf.
(b) REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller, with respect to
himself or herself, hereby represents and warrants to Buyer as follows:
(i) Seller has good, marketable and indefeasible title to, is the sole
record and beneficial owner of, has full power of disposition over and has full
capacity to sell and transfer to Buyer such number of the Company Shares as set
forth opposite his or her name in Schedule 1, and, at Closing, Buyer will have
good, marketable and indefeasible title to such Company Shares. Such Company
Shares are free and clear of all liens, claims, debts, or other encumbrances;
provided, that a transfer of such Company Shares is subject to the approval of
the Board of Directors as set forth in the Articles of Incorporation of the
Company. To the best knowledge of each Seller, no shareholder of the Company is
entitled to any preemptive or similar rights to subscribe for shares of capital
stock of the Company.
(ii) Seller has full power and capacity to enter into this Agreement and
all other agreements contemplated hereby to which Seller is or will be a party
(collectively the "Seller Related Agreements") and to consummate the
transactions contemplated hereby and thereby (including sale and delivery of the
Company Shares). This Agreement and the Seller Related Agreements constitute (or
upon execution will constitute) legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms and
conditions, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws relating to the enforcement of creditors' rights generally and by general
principles of equity.
(iii) The execution and delivery of this Agreement and the Seller Related
Agreements, the consummation of the transactions contemplated hereby and thereby
and the fulfillment of the terms hereof and thereof will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with, any agreement, indenture or other instrument to which either Seller is a
party or by which Seller is bound,
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any judgment, decree, order or award of any court, governmental body or
arbitrator by which Seller is bound, or any law, rule or regulation
applicable to Seller.
(c) REPRESENTATIONS AND WARRANTIES OF BUYER. Except as set forth in the
Disclosure Schedule attached hereto as SCHEDULE 2, Buyer hereby represents
and warrants to Sellers as follows:
(i) Buyer has been duly organized and is validly existing and in good
standing as a corporation under the laws of the State of Delaware and is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Buyer has
all requisite corporate power and authority to carry on its business as
presently conducted, enter into this Agreement and all other agreements herein
contemplated to be executed in connection herewith by Buyer (collectively, the
"Buyer Related Agreements") and to consummate the transactions contemplated
hereby and thereby. This Agreement and the Buyer Related Agreements have been
duly authorized by all necessary action, corporate or otherwise, and constitute
(or upon execution will constitute) legal, valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their respective terms and
conditions, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws relating to the enforcement of creditors' rights generally and by general
principles of equity.
(ii) The execution and delivery of this Agreement and the Buyer Related
Agreements, the consummation of the transactions contemplated hereby and thereby
and the fulfillment of the terms hereof and thereof will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with, any agreement, indenture or other instrument to which Buyer is a party or
by which it is bound, the charter documents of Buyer, any judgment, decree,
order or award of any court, governmental body or arbitrator by which Buyer is
bound, or any law, rule or regulation applicable to Buyer.
(iii) Immediately prior to the Closing, the authorized share capital of the
Buyer consists, or will consist of 100,000,000 shares of common stock, of which
20,148,724 are issued and outstanding, and 30,000,000 shares of preferred stock,
of which 7,500,000, 4,850,000 and 3,000,000 shares of preferred stock are
designated Series A Preferred, Series B Preferred and Series C Preferred,
respectively, and of which 7,500,000, 4,833,331 and none, respectively, are
issued and outstanding. 5,000,000 additional shares of common stock of Buyer are
reserved for issuance to employees, officers and directors of Buyer pursuant to
such employee stock option plans as may be approved by the Buyer's board of
directors, of which options for 1,808,381 shares are currently outstanding.
(iv) Buyer has previously furnished to Sellers copies of its draft audited
financial statements (balance sheet, statement of operations, statement of cash
flows and statement of stockholders equity) for the fiscal year at and ended
October 31, 1999. Such financial statements were prepared in conformity with
generally accepted accounting principles in the United States ("US GAAP")
applied on a consistent basis; are complete,
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correct and consistent in all material respects with the books and records of
Buyer; and fairly and accurately present the financial position of Buyer as of
the dates thereof and the results of operations and cash flows of Buyer for the
periods shown therein. Except as and to the extent reflected or reserved against
in the balance sheet so furnished to Sellers, Buyer did not have and was not
subject to any material liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, as of October 31, 1999 (the "Buyer Balance
Sheet Date"), required by US GAAP to be stated therein.
(v) Since the Buyer Balance Sheet Date, there has not been (a) any
material adverse change in the financial condition, results of operations,
assets, liabilities, or business of Buyer, (b) any material asset or property of
Buyer made subject to a lien of any kind, (c) any waiver of any material right
of Buyer, or the cancellation of any material debt or claim held by Buyer, (d)
any payment of dividends on, or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any shares of the capital stock
of Buyer, or any agreement or commitment therefore, (e) any mortgage, pledge or
hypothecation of any tangible or intangible asset of Buyer, except in the
ordinary course of business, (f) any sale or assignment of any tangible asset of
Buyer having a book value in excess of $25,000, except in the ordinary course of
business, or of any Buyer Intellectual Property Rights (as hereafter defined) or
other intangible assets, (g) any loan by Buyer to, or any loan to Buyer from,
any officer, director, employee or stockholder of Buyer, or any agreement or
commitment therefore (other than travel and other advances in the ordinary
course of business), (h) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, property or
business of Buyer, (i) any repayment of any loan owed by Buyer (including,
without limitation, any loan owed to any stockholder of Buyer), (j) any single
capital expenditure in excess of $50,000 or any capital expenditures aggregating
more than $250,000, or (k) any material change in the accounting methods or
practices followed by Buyer.
(vi) Buyer is not a party or subject to or bound by any acquisition, merger
or similar agreement that may have a Material Adverse Effect.
(vii) With respect to Buyer Intellectual Property Rights (as defined
below):
(A) Buyer has the right to use, sell, and license the Buyer
Intellectual Property Rights (as defined below) material to the conduct of its
business as presently conducted, including without limitation all rights to
Buyer name "Lineo" and to the trademarks and the product name "Embedix" (the
"Buyer Rights"), free and clear of the rights of all others.
(B) The business of Buyer as presently conducted, the products as
marketed or sold and the provision of services by Buyer do not violate and will
not violate any agreements that Buyer has with any third party or infringe any
patent, trademark, service mark, copyright or trade secret or any other
Intellectual Property Rights of any third party
(C) No claim is pending or threatened against Buyer nor has Buyer
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received any notice or claim from any person asserting that any of Buyer's
present or contemplated activities infringe or may infringe any Buyer
Intellectual Property Rights of such person, and Buyer is not aware of any
infringement by any other person of any of Buyer Rights.
(D) Each current and former employee of Buyer, and each of Buyer's
consultants and independent contractors involved in development of any of Buyer
Rights, has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions and copyrights to Buyer, and none of
such employees, consultants or independent contractors is in violation of any
agreement or in breach of any agreement or arrangement with former or present
employers relating to proprietary information or assignment of inventions. Buyer
has taken all reasonable steps to protect all data, information, ideas,
concepts, know-how and materials that Buyer treats as trade secrets, and all
other confidential information and Buyer Intellectual Property Rights of Buyer,
which are not part of the public domain or knowledge, nor, to the best knowledge
of Buyer, have they been used, divulged or appropriated for the benefit of any
person other than Buyer or otherwise to the detriment of Buyer.
(E) No royalties or other amounts are payable by Buyer to persons by
reason of the ownership or use of the Buyer Intellectual Property Rights of
Buyer.
(F) No third party has claimed or, to the best of Buyer's knowledge,
has reason to claim that any person employed by or affiliated with Buyer has (i)
violated or may be violating any of the terms or conditions of his or her
employment, non-competition, non-disclosure, non-solicitation or inventions
agreement with such third party, (ii) disclosed or may be disclosing or utilized
or may be utilizing any Buyer Intellectual Property Rights, trade secret or
proprietary information or documentation of such third party, or (iii)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees.
As used herein, the term "Buyer Intellectual Property Rights" shall mean
the intellectual property rights, including, without limitation, all patents,
patent applications, patent rights, trademarks, trademark applications, trade
names, service marks, service mark applications, copyrights, copyright
applications, computer programs and other computer software, inventions,
designs, samples, specifications, schematics, know-how, trade secrets,
proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records.
(viii) There is no litigation or governmental proceeding or investigation
pending or threatened against Buyer or affecting any of its properties or assets
or against any officer, director or key employee of Buyer in his or her capacity
as an officer, director or employee of Buyer, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into question the validity or hinder the enforceability of this
Agreement or any other agreements or transactions contemplated
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hereby; nor has there occurred any event nor does there exist any condition on
the basis of which any such litigation, proceeding or investigation might be
properly instituted or commenced.
(ix) Buyer has filed all federal, state, local and foreign income, excise
and franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and other tax returns required to be filed by it where the
failure to file such returns would have a Material Adverse Effect, and has paid
all taxes owing by it, except taxes which have not yet accrued or otherwise
become due, for which adequate provision has been made in the pertinent
financial statements referred to above or which will not have a Material Adverse
Effect. All taxes and other assessments and levies which Buyer is required to
withhold or collect have been withheld and collected and have been paid over to
the proper governmental authorities except where the failure to withhold or
collect and pay over would not have a Material Adverse Effect. With regard to
the federal income tax returns of Buyer, Buyer has never received notice of any
audit or of any proposed deficiencies from the Internal Revenue Service. There
are in effect no waivers of applicable statutes of limitations with respect to
any taxing owed by Buyer for any year. Neither the Internal Revenue Service nor
any other taxing authority is now asserting or, to the knowledge of Buyer,
threatening to assert against Buyer any deficiency or claim for additional taxes
or interest thereon or penalties in connection therewith.
(x) There are no permits, approvals or consents of any governmental bodies
or agencies which are necessary or appropriate to be obtained by Buyer in order
for the consummation of the transactions contemplated by this Agreement to be in
compliance with applicable laws, other than a securities notice filed with the
Minister of Finance of Japan pursuant to the ministerial ordinances issued under
the Securities and Exchange Law of Japan, and such other permits, approvals and
consents already obtained.
3. CONDITIONS TO CLOSING.
(a) CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATIONS TO CLOSE. The obligations
of the parties to effect the Closing shall be subject to the following
conditions unless waived in writing by Buyer and Sellers:
(i) No law or order shall have been enacted, entered, issued, promulgated
or enforced by any governmental entity, nor shall any legal action have been
instituted and remain pending or, to the knowledge of Principal Shareholders and
Buyer, have been threatened and remain so at what would otherwise be the Closing
Date, which prohibits or restricts or would (if successful) prohibit or restrict
the transactions contemplated by this Agreement or which would not permit the
Company's Business as presently conducted to continue unimpaired following the
Closing Date. No governmental entity shall have notified any party to this
Agreement that consummation of the transactions contemplated by this Agreement
would constitute a violation of any laws of any jurisdiction and/or that it
intends to commence proceedings to restrain or prohibit such transactions or
force divestiture or rescission, unless such governmental entity shall have
withdrawn such notice and abandoned any such proceedings prior to the time which
otherwise would have been the Closing Date; and
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(ii) To the extent required by applicable law, all governmental permits and
approvals required to be obtained from any governmental entity or agency shall
have been received or obtained on or prior to the Closing Date.
(b) CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE. The obligations of
Buyer to effect the Closing shall be subject to the following conditions
except to the extent waived in writing by Buyer:
(i) The respective representations and warranties of Principal
Shareholders and each Seller herein contained shall be true and correct in all
material respects as of the Closing Date with the same effect as though made as
of such date; Principal Shareholders and Sellers shall have in all material
respects performed all obligations and complied with all covenants and
conditions required under this Agreement to be performed or complied with by
them on or prior to the Closing Date; and Principal Shareholders and Sellers
shall have executed and delivered to Buyer certificates, dated as of the Closing
Date, to that effect in form and substance satisfactory to Buyer;
(ii) The Board of Directors of the Company shall have approved the transfer
by Sellers of the Company Shares to Buyer, and Buyer shall have been furnished
with satisfactory evidence of all other consents, approvals or notifications of
other persons whose consent, approval or notification is required in order to
permit the transactions contemplated hereunder; and
(iii) Buyer shall have received an opinion from counsel to the Company in
form and substance mutually agreeable to Buyer and the Company.
(c) CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS TO CLOSE. The obligations of
Sellers to effect the Closing shall be subject to the following conditions,
except to the extent waived in writing by Sellers:
(i) The representations and warranties of Buyer herein contained shall be
true and correct in all material respects as of the Closing Date with the same
effect as though made as of such date; Buyer shall have in all material respects
performed all obligations and complied with all covenants and conditions
required under this Agreement to be performed or complied with by it at or prior
to the Closing Date; and Buyer shall have delivered to Sellers a certificate in
form and substance satisfactory to Sellers, dated the Closing Date and signed by
its duly authorized officer, to such effect;
(ii) Sellers shall have been furnished with satisfactory evidence of all
consents, approvals or notifications of other persons whose consent, approval or
notification is required in order to permit the transactions contemplated
hereunder;
(iii) Buyer shall have executed employment agreements with Mr. Ushiyama,
Mr. Takeuchi and Mr. Koichi Narasaki on such terms and conditions mutually
agreeable to the parties thereto and shall have granted, effective on the
Closing Date, stock options to those Sellers who shall become employees of Buyer
upon the Closing.
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(iv) Buyer shall have executed an indemnity agreement for the benefits of
Principal Shareholders, Satoru Miura, Masatoshi Suzuki and Yoshito Iguchi
(collectively "Financial Support Providers"), in which Buyer agrees to: (i) use
or caused to be used commercially reasonable best efforts to arrange for the
release of Financial Support Providers from the guarantee they have made on
behalf of the Company ("Guarantees"); (ii) pay or cause to be paid when due any
and all the Company's borrowings in respect of which Guarantees have been
provided with respect to which such release has not been effected; (iii) pay or
cause to be paid when due any and all loans made to the Company by Financial
Support Providers ("Loans"); and (iv) indemnity and hold Financial Support
Providers harmless from and against all liability, damage, deficiency, loss,
cost or expense, including attorneys' fees and costs of investigation
("Losses"), incurred by Financial Support Providers in connection with any
execution of Guarantees by the creditors thereof and/or any breach by the
Company of Loans.
4. Termination.
(a) TERMINATION. Anything contained herein to the contrary notwithstanding,
this Agreement may not be terminated or canceled prior to the Closing Date,
except:
(i) By written consent of Buyer and Sellers; or
(ii) Upon the failure to satisfy one or more conditions to Close set forth
herein; or
(iii) By either party by written notice to the other if the Closing has not
occurred by April 30, 2000.
(b) EFFECT OF TERMINATION. If this Agreement is terminated pursuant to Section
4(a) above, all rights and obligations of the parties hereunder shall
terminate without any liability of any party to the other (except for any
liability of the party then in breach).
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY PRINCIPAL SHAREHOLDERS. Principal Shareholders shall
jointly and severally indemnify and hold harmless Buyer from and against
all Losses, incurred by Buyer in good faith and which arise from or are
attributable to any breach of any representation or warranty made by
Principal Shareholders in Section 2(a) above even though any such
representation or warranty may have been made by Principal Shareholders in
good faith and to the best of their knowledge (unless such representation
or warranty is expressly limited in this Agreement to the knowledge of
Principal Shareholders).
(b) INDEMNIFICATION BY SELLER. Each Seller (including Principal Shareholders)
shall indemnify and hold harmless Buyer from and against all Losses which
Buyer shall incur in good faith and which arise from or are attributable to
any breach of any representation or warranty made by such Seller in Section
2(b) above even though any such representation or warranty may have been
made by such Seller in
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good faith and to the best of his or her knowledge (unless such
representation or warranty is expressly limited in this Agreement to the
knowledge of such Seller), provided, however, that the indemnity obligation
of each Seller (other than Principal Shareholders) hereunder shall be
limited to the consideration he or she has received pursuant to this
Agreement.
(c) INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold harmless Sellers
(including Principal Shareholders) from and against all Losses which
Sellers shall incur in good faith and which arise from or are attributable
to any breach of any representation or warranty made by Buyer in Section
2(c) above even though any such representation or warranty may have been
made by Buyer in good faith and to the best of its knowledge (unless such
representation or warranty is expressly limited in this Agreement to the
knowledge of Buyer).
(d) INDEMNIFICATION PROCEDURES. If any party claiming the right to be
indemnified hereunder (the "Indemnitee") is threatened with any claim, or
any claim is presented to or made by the Indemnitee, or any action is
commenced against the Indemnitee, which may give rise to a right of
indemnification hereunder, the Indemnitee shall, with reasonable
promptness, give to the party or parties claiming to be liable hereunder
(the "Indemnitor") a written notice of the claim and request the Indemnitor
to defend the Indemnitee, and, without prejudice to the Indemnitee's right
of indemnification hereunder, shall, prior to taking any action with
respect to the subject claim, make itself available to meet with the
Indemnitor and in good faith attempt to resolve and settle the claim
without further recourse to the Indemnitee's rights and remedies under this
Section 5. The Indemnitor may elect, within thirty (30) days after receipt
of such notice, or no later than five (5) days before the return date
required by any citation, claim or other statute, whichever occurs earlier,
to contest or defend against such claim at the expense of the Indemnitor
(with counsel selected by the Indemnitor and reasonably acceptable to the
Indemnitee), and shall give a written notice to the Indemnitee of the
commencement of such defense with reasonable promptness after the giving of
the written notice of the claim by the Indemnitee. The Indemnitee, its
subsidiaries, successors and assigns shall be entitled to participate with
the Indemnitor in such event, but shall not be entitled in any way to
release, waive, settle, modify or pay such claim without the consent of the
Indemnitor if the Indemnitor has assumed such defense. In the event the
Indemnitor has assumed said defense and has employed counsel with respect
thereto, the Indemnitee shall also be entitled to employ separate counsel
at the Indemnitee's expense. In the event that the Indemnitor does not
elect to contest or defend the claim as provided above, the Indemnitee, its
subsidiaries, successors or assigns shall have the exclusive right (but not
the obligation) to prosecute, defend, compromise, settle or pay the claim
in its sole discretion and pursue its rights under this Agreement,
including the remedies set forth in Section 7 hereof.
(e) INDEMNITEE'S COOPERATION. In the event that a claim or benefit, other than
an insurance claim against an insurer of the Indemnitee under a policy
obtained on or after the Closing Date, is created in connection with the
occurrence of any Losses
12
which have not been collected by the Indemnitee at the time payment with
respect to such Losses is made by the Indemnitor, the Indemnitee shall
assign such benefit or claim to the Indemnitor as a condition to the
payment by the Indemnitor and shall cooperate with the Indemnitor in its
efforts to collect any such benefit or claim. If such claim or benefit is
not assignable under applicable laws, the Indemnitee shall cooperate in
good faith with the Indemnitor's efforts to collect such claim or benefit.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in or made pursuant to this
Agreement shall survive the Closing and expire on the first anniversary of the
Closing except that if a claim or notice is given under Section 5 with respect
to any representation or warranty prior to the applicable expiration date, such
representation or warranty shall continue until such claim is finally resolved.
No claim or action for breach of any representation or warranty shall be
asserted or maintained by any party hereto after the expiration of such
representation or warranty pursuant to the preceding sentence except for claims
made in writing prior to such expiration or actions (whether instituted before
or after such expiration) based on any claim made in writing prior to such
expiration.
7. NONCOMPETITION COVENANT.
(a) NONCOMPETITION. Principal Shareholders and Mr. Koichi Narasaki
acknowledge and agree that, after the Closing, Buyer shall be
beneficially entitled, jointly with the Company, to the goodwill and
going concern value of the Business of the Company and that such
goodwill and going concern value shall be protected and preserved to
the maximum extent permitted by law. Principal Shareholders and Mr.
Koichi Narasaki also acknowledge that their management contributions
to the Company have been uniquely valuable and involve proprietary
information that would be competitively unfair to make available to
any competitor of the Company, and after the Closing, Buyer. For these
and other reasons and as an inducement to Buyer to enter into this
Agreement, each Principal Shareholder and Mr. Koichi Narasaki agrees
that for a period of two (2) years from the Closing Date, he will not,
directly or indirectly, for his own benefit or as agent for another,
carry on or participate in the ownership, management or control of, or
be employed by, or consult for or otherwise render services to, or
allow his name or reputation to be used in or by any other present or
future business enterprise that engages in the Business competitive
with the Company in the geographic areas that the Company currently
conducts its Business.
(b) RESTRICTIONS ON SOLICITING EMPLOYEES. In addition, to protect the
Company and, after the Closing, Buyer against any efforts by Principal
Shareholders and Mr. Koichi Narasaki to cause employees of the Company
to terminate their employment with the Company, each Principal
Shareholder and Mr. Koichi Narasaki agrees that, until the later of
(i) the expiry of a period of two (2) years following the Closing Date
and (ii) the expiry of a period of six (6) months following the date
that his service to or employment with the Company terminates
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(for whatever reason), he shall not directly or indirectly (i) induce
any such employee to leave the Company or any of its affiliates or to
accept any other employment or position with any other business
enterprise engaging in the Business or (ii) assist such enterprise in
hiring any such employee.
(c) EXCEPTIONS. Nothing contained in this Section 7 shall limit the right
of a Principal Shareholder and Mr. Koichi Narasaki as an investor to
hold and make investments in securities of any corporation or limited
partnership that is registered on a national securities exchange or
admitted to trading privileges thereon or traded in a generally
recognized over-the-counter market, provided that Principal
Shareholder's and Mr. Koichi Narasaki's equity interest therein does
not exceed 5% of the outstanding shares or interests in such
corporation or partnership. For avoidance of doubt, nothing contained
in this Section 7 is intended to prohibit or restrict the activities
of a Principal Shareholder and Mr. Koichi Narasaki in performing his
duties as a director, officer or employee of the Company, Buyer or any
of their affiliates. Further, for avoidance of doubt, it is agreed
among the parties hereto that no Sellers (other than Principal
Shareholders and Mr. Koichi Narasaki) shall be subject to the
restrictions set forth in this Section 7.
(d) SPECIAL REMEDIES AND ENFORCEMENT. Each Principal Shareholder and Mr.
Koichi Narasaki recognizes and agrees that a breach by a Principal
Shareholder or Mr. Koichi Narasaki of any of the covenants set forth
in this Section 7 could cause irreparable harm to the Company and,
after the Closing, Buyer, that the Company's and Buyer's remedies at
law in the event of such breach would be inadequate, and that,
accordingly, in the event of such breach a restraining order or
injunction or both may be issued against a breaching Principal
Shareholder and Mr. Koichi Narasaki, in addition to any other rights
and remedies which are available to the Company or Buyer. If this
Section 7 is more restrictive than permitted by the laws of the
jurisdiction in which the Company or Buyer seeks enforcement hereof,
this Section 7 shall be limited to the extent permitted by such laws.
8. COVENANTS.
(a) GENERAL. The parties hereto agree to execute, acknowledge and deliver,
at or after the Closing Date, such other and further instruments and
documents as may be reasonably necessary to implement, consummate and
effectuate the terms of this Agreement. Sellers agree that at any time
and from time to time, at the Company's expense, Sellers shall execute
such documents and take any and all necessary actions as reasonably
requested by Buyer or the Company to promptly transfer to the Company
any assets held in the names of Sellers, which are related to or used
in connection with the Business of the Company.
(b) CONFIDENTIALITY. After the Closing, no Seller (including Principal
Shareholders) shall, at any time, make use of, divulge or otherwise
disclose, directly or indirectly, any trade secret or other
proprietary data (including, but not limited to, any customer list,
record or financial information) of or concerning the Business,
14
except in furtherance of his or her duties and responsibilities as a
director, officer or employee of the Company (or Buyer)
(c) CONTINUED EMPLOYMENT. Buyer hereby confirms its agreement and
acknowledgement to continue the employment of all directors, officers
and employees of the Company with the Company after the Closing on
terms consistent with those of other employees of Buyer of comparable
status.
9. ASSIGNMENT. Except with respect to an assignment by Buyer to a
successor of all of the Company Shares, no party hereto may assign this
Agreement or any Buyer Related Agreement or Seller Related Agreement, nor any of
its rights or obligations hereunder may be assignable or transferable, in any
manner to a third party, without the prior written consent of (in case of an
assignment by a Seller) Buyer or (in case of an assignment by Buyer) Sellers.
Subject to the foregoing, this Agreement, the Buyer Related Agreements and
Seller Related Agreements shall be binding upon, inure to the benefit of, and be
enforceable by the heirs, administrators, executors and proper assigns of
Sellers and of Buyer to which they are or will be parties.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of Delaware to the rights
and duties of the parties.
11. EXPENSES. Sellers and Buyer shall each pay and bear its or his own
costs and expenses incident to the negotiation, preparation and performance of
this Agreement and the transaction contemplated hereby, including but not
limited to the fees, expenses and disbursements of their respective accountants
and legal counsel; provided, that Buyer shall bear the costs and expenses of the
audit of the Company, to the extent that Buyer determines such audit is
necessary or desirable and expenses to be borne or paid by Sellers shall be
charged to the Company.
12. PUBLICITY. No party shall issue any press release, publicity statement
or other public notice relating to this Agreement or the transactions
contemplated by this Agreement, without obtaining the prior written consent of
the other party or unless a particular action is required by applicable law;
provided, that the parties acknowledge that Buyer and its affiliates may issue a
press release at or following the Closing to announce the acquisition of the
Company and that the Company may send a notice of the acquisition to its
customers, supplies and such other business contacts of the Company in a manner
customary in Japan.
13. ENTIRE AGREEMENT. This Agreement, together with the Exhibits and
Schedules attached hereto, contains the entire agreement of the parties hereto
(including the Minority Shareholders represented by the Shareholder
Representative), and supersedes any prior written or oral agreements between
them concerning the subject matter contained herein. There are no
representations, agreements, arrangements or understanding, oral or written,
between and among the parties hereto, relating to the subject matter contained
in this Agreement, which are not fully expressed herein.
15
14. COUNTERPARTS.
This Agreement and any amendments hereto may be executed in any number of
counterparts, and each such counterpart shall for all purposes be deemed to be
an original.
15. TAX MATTERS.
Sellers and Buyer acknowledge and agree that each is responsible for
obtaining his, her or its own tax advice with respect to the transactions
contemplated hereby and the tax impact thereof on his, her or its own tax
obligations.
16. AGREEMENT TO ARBITRATE.
(a) The parties agree that any dispute, controversy or claim concerning or
relating to this Agreement (a "Dispute"), shall be resolved pursuant
to this Section 16.
(b) The parties shall use all reasonable efforts to resolve the Dispute
through direct discussions. Within 20 days of written notice that
there is a Dispute, the parties shall meet in King County, Washington
or confer by telephone in an effort to reach an amicable settlement
and to explore alternative means to resolve the dispute expeditiously
(E.G., mediation).
(c) If the Dispute has not been resolved as a result of the procedure in
paragraph (b) hereof or otherwise within sixty (60) days of the
initial written notice that there is a Dispute (or such additional
time to which the parties may agree), the matter shall be resolved by
final and binding arbitration in King County, Washington under the
then current Rules promulgated by the CPR Institute for Dispute
Resolution. The arbitration shall be governed by the United States
Arbitration Act, 9 USCss.1-16. There shall be three arbitrators, each
of whom shall be neutral, independent and impartial. Any arbitrator
may be of any nationality. The award shall be final, binding and
conclusive upon the parties. Judgment on an arbitral award may be
entered by any court of competent jurisdiction, or application may be
made to such a court for judicial acceptance of the award and any
appropriate order including enforcement.
(d) The dispute resolution proceedings contemplated by this provision
shall be as confidential and private as permitted by law. To that end,
the parties shall not disclose the existence, content or results of
any proceedings conducted in accordance with this provision, and
materials prepared or submitted in connection with such proceedings
shall not be admissible in any other proceeding, provided, however,
that this confidentiality provision shall not prevent a petition to
vacate or enforce an arbitral award, and shall not bar disclosures
required by law. The parties agree that any decision or award
resulting from proceedings in accordance with this dispute resolution
provision shall have no preclusive effect in any other matter
involving third parties.
16
(e) The arbitral award shall be rendered in writing and shall state the
reasons for the award.
The arbitral tribunal shall not be empowered to award any form of punitive
damages or any other remedy not measured by the prevailing party's actual
damages, nor to act as amiable compositeur and shall not make an award solely
out of fairness and equity. The arbitration award may award reasonable
attorneys' fees to the prevailing party.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or their duly authorized representatives as of the date first above written.
LINEO, INC., AS BUYER
By:
--------------------------------------
Name:
Title:
YOSHINOBU USHIYAMA,
AS PRINCIPAL SHAREHOLDER AND SELLER
------------------------------------------
TATSUYA TAKEUCHI,
AS PRINCIPAL SHAREHOLDER AND SELLER
------------------------------------------
YOSHINOBU USHIYAMA,
AS SHAREHOLDER REPRESENTATIVE ON BEHALF OF
MINORITY SHAREHOLDERS
18
INDEX OF SCHEDULES AND EXHIBIT
SCHEDULE
1. List of Shareholders
2. Disclosure Schedule
19
SCHEDULE 1
LIST OF SHAREHOLDERS
20