Exhibit 2.3
-----------
STOCK PURCHASE AGREEMENT
BY AND AMONG
BOTTOMLINE TECHNOLOGIES (de), INC.,
FLASHPOINT, INC.
AND
ERIC LEVINE
August 28, 2000
ARTICLE I
PURCHASE AND SALE OF THE SHARES................................................. 1
1.1. Purchase of the Shares from the Company Stockholder.............. 1
1.2. Further Assurances............................................... 1
1.3. The Closing...................................................... 2
1.4. Actions at the Closing........................................... 2
1.5. Consideration.................................................... 4
1.6. Escrow........................................................... 4
1.7. Options.......................................................... 5
1.8. No Further Rights................................................ 5
1.9. Tax-Free Reorganization.......................................... 5
1.10. S-3 Registration Statement....................................... 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY STOCKHOLDER....... 6
2.1. Organization, Qualification and Corporate Power.................. 7
2.2. Capitalization................................................... 7
2.3. Authorization of Transaction..................................... 8
2.4. Noncontravention................................................. 8
2.5. Subsidiaries..................................................... 9
2.6. Financial Statements............................................. 9
2.7. Absence of Certain Changes....................................... 9
2.8. Undisclosed Liabilities.......................................... 10
2.9. Tax Matters...................................................... 10
2.10. Assets........................................................... 11
2.11. Owned Real Property.............................................. 11
2.12. Real Property Leases............................................. 11
2.13. Intellectual Property............................................ 12
2.14. Contracts........................................................ 13
2.15. Accounts Receivable.............................................. 15
2.16. Powers of Attorney............................................... 15
2.17. Insurance........................................................ 15
2.18. Litigation....................................................... 15
2.19. Warranties....................................................... 16
2.20. Employees........................................................ 16
2.21. Employee Benefits................................................ 16
2.22. Legal Compliance................................................. 19
2.23. Customers and Suppliers.......................................... 19
2.24. Certain Business Relationships With Affiliates................... 19
2.25. Brokers' Fees.................................................... 19
2.26. Books and Records................................................ 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER...................... 20
3.1. Organization, Qualification and Corporate Power...... 20
3.2. Authorization of Transaction......................... 20
3.3. Noncontravention..................................... 20
3.4. Brokers' Fees........................................ 21
3.5. Reports and Financial Statements..................... 21
3.6. Buyer Common Stock................................... 21
ARTICLE IV
INDEMNIFICATION.................................................. 21
4.1. Indemnification by the Company Stockholder........... 21
4.2. Indemnification by the Buyer......................... 22
4.3. Indemnification Claims............................... 23
4.4. Survival of Representations and Warranties........... 25
4.5. Limitations.......................................... 26
ARTICLE V
ESCROW PROPERTY.................................................. 27
5.1. Business Continuity Escrow Property.................. 27
5.2. Non-Competition Escrow Shares........................ 28
5.3. Indemnification Escrow Shares........................ 29
ARTICLE VI
DEFINITIONS...................................................... 29
ARTICLE VII
MISCELLANEOUS.................................................... 30
7.1. Press Releases and Announcements..................... 30
7.2. No Third Party Beneficiaries......................... 31
7.3. Entire Agreement..................................... 31
7.4. Succession and Assignment............................ 31
7.5. Counterparts and Facsimile Signature................. 31
7.6. Headings............................................. 31
7.7. Notices.............................................. 31
7.8. Governing Law........................................ 32
7.9. Amendments and Waivers............................... 32
7.10. Severability......................................... 32
7.11. Submission to Jurisdiction........................... 33
7.12. Construction......................................... 33
7.13. Expenses............................................. 33
7.14. Post-Closing Cooperation............................. 33
EXHIBITS
Exhibit A-1 - Company Stockholder Escrow Agreement
Exhibit A-2 Key Employee Escrow Agreement
Exhibit B - Employment Agreement
Exhibit C - Non-competition and Non-Solicitation Agreement
Exhibit D - Standard Employee Agreement
Exhibit E - Form of Mintz Levin Opinion
Exhibit F - Form of Hale and Dorr Opinion
Exhibit G - Form of Buyer Option Agreement
Exhibit H - Company Stockholder Investment Representation Letter
Exhibit I - Form of Termination of Stock Restriction Agreement
Exhibit J - Form of Amendment to Incentive Stock Option Agreement
SCHEDULES
Schedule I - Key Employees
Schedule II - Employees
STOCK PURCHASE AGREEMENT
Agreement entered into as of August ___, 2000 by and among Bottomline
Technologies (de), Inc., a Delaware corporation (the "Buyer"), Flashpoint, Inc.,
a Massachusetts corporation (the "Company"), and Eric Levine (the "Company
Stockholder"). The Buyer, the Company and the Company Stockholder are referred
to collectively herein as the "Parties."
Preliminary Statements
----------------------
The Company Stockholder owns 78,000 shares (collectively, the "Shares") of
the common stock, $.01 par value per share (the "Common Stock"), of the Company
which Shares in the aggregate represent all of the issued and outstanding shares
of capital stock of the Company.
The Buyer desires to purchase, and the Company Stockholder desires to sell,
the Shares for the consideration set forth below, subject to the terms and
conditions of this Agreement.
The Buyer shall merge the Company with and into the Buyer as soon as
practicable after the Closing (as defined below), but in no event later than
four months after the Closing Date.
The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.1. Purchase of the Shares from the Company Stockholder. Subject to and
---------------------------------------------------
upon the terms and conditions of this Agreement, at the closing of the
transactions contemplated by this Agreement (the "Closing"), the Company
Stockholder shall sell, transfer, convey, assign and deliver to the Buyer, and
the Buyer shall purchase, acquire and accept from the Company Stockholder, the
Shares. At the Closing, the Company Stockholder shall deliver to the Buyer the
certificate evidencing the Shares owned by the Company Stockholder duly endorsed
in blank or with stock powers duly executed by the Company Stockholder.
1.2. Further Assurances. At any time and from time to time after the
------------------
Closing, at the Buyer's request and without further consideration, the Company
Stockholder shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment
and confirmation, and take all such other action as the Buyer may reasonably
request, more effectively to transfer, convey and assign to the Buyer, and to
confirm the Buyer's title to, all of the Shares owned by the Company
Stockholder, to put the Buyer in actual possession and operating control of the
assets, properties and business of the Company, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement.
1.3. The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP,
60 State Street, Boston, Massachusetts 02109 commencing at 10:00 a.m. local time
on the date of the execution and delivery of this Agreement (the "Closing
Date").
1.4. Actions at the Closing. At or prior to the Closing:
----------------------
(a) the Company Stockholder shall deliver to the Buyer the
certificate representing the Shares held by the Company Stockholder;
(b) the Company Stockholder, the Buyer and State Street Bank and
Trust Company (the "Escrow Agent") shall have entered into the Escrow Agreement
in the form of Exhibit A-1 attached hereto;
-----------
(c) the Buyer, the Escrow Agent and the key employees of the Company
listed on Schedule I attached hereto (the "Key Employees") shall have entered
----------
into the Escrow Agreement in the form of Exhibit A-2 attached hereto;
-----------
(d) the Company Stockholder and the Buyer shall have entered into the
Employment Agreement in the form of Exhibit B attached hereto;
---------
(e) each Key Employee shall have entered into a Non-Competition and
Non-Solicitation Agreement in the form of Exhibit C attached hereto;
----------
(f) each of the employees of the Company listed on Schedule II hereto
-----------
(the "Employees") shall have entered into the Standard Employee Agreement of the
Buyer in the form of Exhibit D attached hereto;
---------
(g) the Buyer shall have received an opinion from Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo P.C., counsel to the Company Stockholder and the
Company, substantially in the form of Exhibit E attached hereto;
---------
(h) the Company Stockholder shall have received an opinion from Hale
and Dorr LLP, counsel to the Buyer, substantially in the form of Exhibit F
---------
attached hereto;
(i) the Buyer shall have granted to the Company Stockholder an option
to purchase an aggregate of 25,000 shares of common stock of the Buyer, $.001
par value per share ("Buyer Common Stock") at the closing price of the Buyer
Common Stock on the Closing Date as reported by The Nasdaq National Market in
the form of Exhibit G attached hereto (the "Levine Option");
---------
-2-
(j) the Company Stockholder shall have delivered an Investment
Representation Letter in the form of Exhibit H attached hereto to the Buyer;
---------
(k) the Buyer shall have delivered a certificate of the Secretary of
the State of Delaware as to the legal existence and good standing of the Buyer
in Delaware;
(l) the Company shall have delivered a certificate of the Secretary
of State of the Commonwealth of Massachusetts as to the legal existence and good
standing of the Company in Massachusetts;
(m) the Company shall deliver the resignations of all members of the
Company's Board of Directors;
(n) the Company shall terminate its 401(k) plan;
(o) the Buyer shall pay the purchase price as set forth below in
Section 1.5;
(p) the Company Stockholder shall have delivered to the Buyer all
consents, approvals and waivers of lenders, lessors and other third parties
whose consent, approval or waiver is required under their respective agreement
or understanding with the Company or the Company Stockholder, as the case may
be, in connection with the sale of the Shares hereunder or the merger of the
Company into the Buyer contemplated herein;
(q) the Company shall have delivered to the Buyer terminations of all
Stock Restriction Agreements in the form of Exhibit I from each party thereto
---------
and waivers of certain rights under certain Incentive Stock Option Agreements in
the form of Exhibit J from each party thereto;
---------
(r) the Company Stockholder shall be released from all bank
guarantees;
(s) such other documents, instruments or certificates as the Buyer or
the Company Stockholder may reasonably request.
-3-
1.5. Consideration.
-------------
(a) The aggregate purchase price for all Shares purchased hereunder
shall be $9,000,000 (the "Acquisition Consideration").
(b) The aggregate consideration for the Key Employees having entered
into Non-Competition and Non-Solicitation agreements in the form of Exhibit C
---------
attached hereto shall be $2,000,000 of Buyer Common Stock (the "Non-Competition
Consideration").
(c) At the Closing, the Buyer shall deliver:
to the Company Stockholder (i) $4,200,000, which shall be paid by
wire transfer in immediately available funds, and (ii) shares of
Buyer Common Stock representing $1,900,000 of the Acquisition
Consideration, and
to the Escrow Agent (i) $900,000 of the Acquisition Consideration
in shares of Buyer Common Stock (the "Acquisition Escrow
Shares"), (ii) $2,000,000 of the Acquisition Consideration, of
which $300,000 shall be in cash delivered by wire transfer and
$1,700,000 shall be in shares of Buyer Common Stock (together,
the "Business Continuity Escrow Property"), and (iii) the
$2,000,000 of Non-Competition Consideration in shares of Buyer
Common Stock (the "Non-Competition Escrow Shares," together with
the Acquisition Escrow Shares and the Business Continuity Escrow
Property, the "Escrow Property").
(d) For purposes of this Agreement, the value of each share of Buyer
Common Stock issued as Acquisition Consideration or Non-
Competition Consideration shall equal $26.8375, such amount is
the average of the last reported sales prices of the Buyer Common
Stock on the Nasdaq National Market during the ten (10)
consecutive trading days ending on and including August 15, 2000
(the "Acquisition Share Value").
1.6. Escrow. On the Closing Date, the Buyer shall deliver to the Escrow
------
Agent $300,000 by wire transfer and certificates (issued in the name of the
Escrow Agent or its nominee) representing the balance of the Escrow Property for
the purpose of securing (i) the indemnification obligations of the Company
Stockholder set forth in this Agreement, (ii) the successful continuation of the
business of the Company as evidenced by the employment by the Buyer of the
Company Stockholder and at least five of the Key Employees listed on Schedule I
----------
hereto and as set forth in this Agreement and (iii) the non-competition
obligations of the Key Employees as set forth in this Agreement and their
respective Non-Competition and Non-Solicitation Agreements. The Escrow Property
shall be held by the Escrow Agent pursuant to an escrow agreement dated as of
August ___, 2000, by and among the Escrow Agent, the Buyer and the Company
Stockholder (the "Company Stockholder Escrow Agreement") and an escrow agreement
-4-
dated as of August ___, 2000, by and among the Escrow Agent, the Buyer and the
Key Employees (the "Key Employee Escrow Agreement," together with the Company
Stockholder Escrow Agreement, the "Escrow Agreements"). The Escrow Property
shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreements.
1.7. Options.
-------
(a) At the Closing, each outstanding option under the 1990 and 1997
Stock Option Plans of the Company set forth on Section 2.2 of the Disclosure
Schedule attached hereto (each, a "Company Stock Option"), whether vested or
unvested, shall be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under the Company Stock Option immediately
prior to the Closing, other than as set forth in this Section 1.7, shares of
Buyer Common Stock (each, an "Assumed Option").
(b) Each Assumed Option shall be exercisable for a number of shares
of Buyer Common Stock that is equal to the number of shares of common stock of
the Company which could have been purchased under the terms of the Company Stock
Option (regardless of whether or not such option is vested) multiplied by the
quotient of $115.38 divided by the Acquisition Share Value. The exercise price
for each Assumed Option shall be determined by multiplying the exercise price of
the Company Stock Option by the quotient of the Acquisition Share Value divided
by $115.38.
(c) The Buyer shall use commercially reasonable efforts to register
the assumed Company Stock Options on a Form S-8 Registration Statement within 90
days following the Closing Date.
1.8. No Further Rights. From and after the effective time of the Closing,
-----------------
no Shares shall be deemed to be outstanding and held by any person other than
the Buyer.
1.9. Tax-Free Reorganization. It is intended by the parties hereto that
-----------------------
the merger shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations. Under the plan of reorganization set forth
herein, the Buyer will merge the Company into the Buyer or a wholly-owned
subsidiary of the Buyer in a merger under applicable corporate laws of the
Company and the other corporate party to the merger, the parties intending this
transaction to qualify as a tax-free reorganization under Section 368(a)(1)(A)
of the Code. Such merger shall occur on or before December 31, 2000.
1.10. S-3 Registration Statement. In the event that the Buyer shall
---------------------------
register shares of Buyer Common Stock on a Form S-3 Registration Statement at
any time after the Closing and prior to the first anniversary thereof, the Buyer
shall use commercially reasonable efforts to include 11,178 shares (the "S-3
Shares") of Buyer Common Stock, which constitute a portion of the Acquisition
Consideration paid to the Company
-5-
Stockholder pursuant to Section 1.5; provided that, if the Buyer reasonably
determines that marketing factors or contractual requirements with other parties
require a limitation of the number of shares of Buyer Common Stock to be
included in such registration, then such S-3 Shares may be excluded; and,
provided further, that, if the Buyer is engaged in any business activity that,
in the good faith determination of the Chief Financial Officer of the Buyer,
would be adversely affected by including the S-3 Shares in such registration,
then the Buyer may at its option elect that the S-3 Shares not be included in
that registration.
1.11. Indemnification Shares. In accordance with the provisions of Section
----------------------
4.5 (c) hereof, the Buyer and the Company Stockholder have agreed that to the
extent that the Buyer has a Claim for Buyer's Damages, in each case as defined
in Article IV hereof, that Buyer shall seek to satisfy such claim, first against
the Acquisition Escrow Shares and, second by requiring the Company Stockholder
to satisfy such Claim by delivering to the Buyer Indemnification Shares, as
defined in Section 4.5 (c). In that connection, the Buyer shall be prohibited
from transferring 59,618 Shares of Buyer Common Stock (the "Reserved Shares")
received as Acquisition Consideration until the later of (1) with respect to all
of the Reserved Shares, one year after the Closing and (2) with respect to
Claimed Shares, as defined below, until a final resolution of such Claim has
been effected. "Claimed Shares" shall mean all or a portion of the Reserved
Shares with respect to which a Claim has been made by the Buyer prior to the
first anniversary of the Closing. A portion of the Acquisition Consideration to
be delivered to the Company Stockholder at the Closing shall consist of a stock
certificate representing the Reserved Shares (the "Reserved Shares
Certificate"). The Reserved Shares Certificate shall bear the following legend:
"The shares represented by this certificate are subject to certain
restrictions and limitations on transfer set forth in a stock purchase
agreement between the corporation and the holder hereof, a copy of which
agreement may be inspected by the holder of this certificate at the
principal offices of the corporation, or furnished by the corporation to
the holder of this certificate upon written request without charge."
Upon the request of the Company Stockholder at any time after the first
anniversary of the Closing, the Buyer shall direct its transfer agent to remove
the foregoing legend with respect to all of the Reserved Shares other than
Claimed Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY STOCKHOLDER
The Company and the Company Stockholder, jointly and severally, represent
and warrant to the Buyer that the statements contained in this Article II are
true and correct,
-6-
except as set forth in the disclosure schedule provided by the Company and the
Company Stockholder to the Buyer on the date hereof (the "Disclosure Schedule").
The Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II, and the
disclosures in any paragraph of the Disclosure Schedule shall qualify only the
corresponding paragraph in this Article II provided there may be cross
references made between the disclosure in any other paragraph.
2.1. Organization, Qualification and Corporate Power. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the Commonwealth of Massachusetts. The Company is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing, individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect (as defined below). The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
furnished to the Buyer complete and accurate copies of its Articles of
Organization and By-laws. The Company is not in default under or in violation of
any provision of its Articles of Organization or By-laws. For purposes of this
Agreement, "Company Material Adverse Effect" means a material adverse effect on
the assets, business, condition (financial or otherwise), results of operations
or future prospects of the Company, taken as a whole.
2.2. Capitalization. The authorized capital stock of the Company consists
--------------
of 300,000 shares of Common Stock (the "Company Shares"), of which 78,000 shares
of Common Stock are issued and outstanding and 22,000 shares of common stock are
held in the treasury of the Company. All of the outstanding Company Shares are
owned by the Company Stockholder and are held free and clear of all mortgages,
pledges, liens, security interests, restrictions, conditional sales agreements,
charges, encumbrances and claims of every kind. Section 2.2 of the Disclosure
Schedule sets forth a complete and accurate list of all optionholders of the
Company, indicting the number of options exercisable for common stock of the
Company held by each such option holder and the vesting schedule of such
options. Other than the 78,000 Company Shares owned by the Company Stockholder
and the options listed in Section 2.2 of the Disclosure Schedule, there are no
outstanding or authorized shares of capital stock or warrants, rights,
agreements or commitments to which the Company is a party or which are binding
upon the Company providing for the issuance or redemption of any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock
or similar rights with respect to the Company. Other than as set forth in
Section 2.2 of the Disclosure Schedule, there are no agreements to which the
Company or the Company Stockholder is a party or by which either are bound with
respect to the voting (including without limitation voting trusts or proxies),
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or "drag-along"
rights) of any Shares and, with respect to any other securities of the Company,
to the best knowledge of
-7-
the Company and the Company Stockholder, there is no such agreement. To the
knowledge of the Company Stockholder, there are no agreements among other
parties, to which the Company or the Company Stockholder is not a party and by
which either is not bound, with respect to the voting (including without
limitation voting trusts or proxies) or sale or transfer (including without
limitation agreements relating to rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of the Company. All of the issued and
outstanding Shares were issued in compliance with applicable federal and state
securities laws.
2.3. Authorization of Transaction. The Company has all requisite corporate
----------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. This Agreement, including the exhibits hereto, to
which the Company or the Company Stockholder is a party, has been duly and
validly executed and delivered by the Company and the Company Stockholder, as
the case may be, and constitutes valid and binding obligations enforceable
against the Company and the Company Stockholder in accordance with their
respective terms subject to laws of general application from time to time in
effect affecting creditors' rights and the exercise of judicial discretion in
accordance with general equitable principles. The Company Stockholder has the
full right, power and authority to enter into this Agreement and to transfer,
convey and sell to the Buyer at the Closing the Shares to be sold hereunder and,
upon consummation of the purchase contemplated hereby, the Buyer will acquire
from the Company Stockholder good and marketable title to the Shares, free and
clear of all covenants, conditions, restrictions, voting trust arrangements,
liens, charges, encumbrances, options and adverse claims or rights whatsoever.
2.4. Noncontravention. Neither the execution and delivery by the Company
----------------
or the Company Stockholder of this Agreement or the execution and delivery by
the Company Stockholder of the Company Stockholder Escrow Agreement, nor the
consummation by the Company or the Company Stockholder of any of the
transactions contemplated hereby or thereby, as the case may be, will (a)
conflict with or violate any provision of the Articles of Organization or By-
laws of the Company, (b) require on the part of the Company or the Company
Stockholder any filing with, or any permit, authorization, consent or approval
of, any court, arbitration tribunal, administrative agency or commission or
other governmental or regulatory authority or agency (a "Governmental Entity"),
other than filings contemplated by the merger of the Company into the Buyer
subsequent to the Closing, (c) except as set forth in Section 2.4 of the
Disclosure Schedule, conflict with, result in a breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party the right to terminate,
modify or cancel, or require any notice, consent or waiver under, any contract
or instrument to which the Company or the Company Stockholder is a party or by
which the Company or the Company Stockholder is bound or to which any of their
respective assets is subject, (d) result in the imposition of any encumbrance,
charge, lien or security interest (collectively, "Security Interest") upon any
assets of the Company or the Company Stockholder, except with respect to the
-8-
assets of the Company where, individually or in the aggregate, such Security
Interest would not have a Company Material Adverse Effect or (e) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or the Company Stockholder, or any of their respective properties or
assets.
2.5. Subsidiaries. There is no corporation, partnership, joint venture or
------------
other entity in which the Company has, directly or indirectly, an equity
interest representing 50% or more of the capital stock thereof or other equity
interests therein.
2.6. Financial Statements.
--------------------
(a) The Company Stockholder has provided to the Buyer the unaudited
consolidated balance sheet and statements of income, and retained earnings and
cash flows as of and for each of the last three fiscal years and unaudited
consolidated balance sheet and statement of income as of and for the six months
ended as of June 30, 2000 (the "Most Recent Balance Sheet Date"). Such financial
statements (collectively, the "Financial Statements") have been prepared on a
consistent basis throughout the periods covered thereby, fairly present the
financial condition, results of operations and cash flows of the Company as of
the respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company.
(b) The Company Stockholder and the Company have such records as are
necessary to permit the Company, or its successor, to prepare audited financial
statements for the past three fiscal years of the Company.
2.7. Absence of Certain Changes. To the knowledge of the Company and the
--------------------------
Company Stockholder, there has occurred no event or development since the Most
Recent Balance Sheet Date which has had, or could reasonably be expected to have
in the future, a Company Material Adverse Effect. Since the Most Recent Balance
Sheet Date, the Company has not: (i) other than a capital contribution of
22,000 shares of Company Common Stock by the Company Stockholder and as set
forth in Section 2.7(iii) of the Disclosure Schedule, acquired, sold, leased,
licensed or disposed of any assets or property, other than purchases and sales
of assets in the Ordinary Course of Business (as defined below); (ii) mortgaged
or pledged any of its property or assets or subjected any such property or
assets to any Security Interest; (iii) except for discharges and satisfaction of
bank debt and related guarantees and security interests set forth in Section
2.7(i) of the Disclosure Schedule, discharged or satisfied any Security Interest
or paid any obligation or liability other than in the Ordinary Course of
Business; (iv) changed in any material respect its accounting methods,
principles or practices; (v) made or committed to make any capital expenditure
in excess of $10,000 per item or $25,000 in the aggregate; (vi) except for
options granted as of August 15, 2000 which are listed in Section 2.2 of the
Disclosure Schedule (the "New Options"), issued or sold any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities, or, except for the amendment and termination of
certain agreements listed in Section 2.7 (vi) of the Disclosure Schedule,
amended any of the terms of any existing options or warrants; (vii) declared,
set aside or paid any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital
-9-
stock; (viii) created, incurred or assumed any indebtedness, assumed,
guaranteed, endorsed or otherwise become liable or responsible for the
obligations of any other person or entity, or made any loans, advances or
capital contributions to, or investments in any other person or entity; or (ix),
except for payments and contributions set forth in Section 2.2 (ix) of the
Disclosure Schedule, increased in any manner the compensation or fringe benefits
of, or materially modified the employment terms of any agreements with, any of
its directors, officers or employees, or paid any bonus or other benefit to any
of its directors, officers or employees.
2.8. Undisclosed Liabilities. The Company has no liability (whether
-----------------------
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (a) liabilities shown on the Most Recent Balance Sheet,
(b) liabilities which have arisen since the Most Recent Balance Sheet Date in
the Ordinary Course of Business (as defined below) and (c) contractual and other
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet. For the purpose of this Agreement,
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent in all material respects with past custom and practice
(including with respect to frequency and amount).
2.9. Tax Matters.
-----------
(a) The Company has filed on a timely basis all reports, returns,
declarations, statements or other information required to be supplied to all
taxing authorities in connection with all taxes ("Tax Returns") that it was
required to file, and all such Tax Returns were complete and accurate in all
material respects. The Company has never been a member of a group of
corporations with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Company has paid on a timely basis all
taxes that were due and payable. The unpaid taxes of the Company for tax periods
through the Most Recent Balance Sheet Date do not exceed the accruals and
reserves for taxes (excluding accruals and reserves for deferred taxes
established to reflect timing differences between book and tax income) set forth
on the Most Recent Balance Sheet. The Company does not have any actual or
potential liability for any tax obligation of any taxpayer other than the
Company. All taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
(b) The Company has delivered to the Buyer complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since January 1, 1997.
None of the federal income Tax Returns of the Company have been audited by the
Internal Revenue Service. No examination or audit of any Tax Return of the
Company by any Governmental Entity is currently in progress or, to the knowledge
of the Company, threatened or contemplated. The Company has not been informed by
any jurisdiction that the jurisdiction believes that the Company was required to
file any Tax Return that was not filed. The Company has not waived any statute
of limitations with respect to taxes or agreed to an extension of time with
respect to a Tax assessment or deficiency.
-10-
(c) The Company (i) is not a "consenting corporation" within the
meaning of Section 341(f) of the Internal Code of 1986, as amended (the "Code")
and none of the assets of the Company are subject to an election under Section
341(f) of the Code; (ii) has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; and (iii)
has not made any payments, is not obligated to make any payments and is not a
party to any agreement that could obligate it to make any payments that may be
treated as an "excess parachute payment" under Section 280G of the Code.
(d) Except as set forth on Section 2.9 of the Disclosure Schedule,
neither the Company nor the Company Stockholder has ever filed an election
pursuant to Section 1362 of the Code, that the Company be taxed as an S
Corporation or consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
2.10. Assets. The Company owns or leases all tangible assets necessary for
------
the conduct of its businesses as presently conducted. Each such tangible asset
is free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used. Except as
disclosed in Section 2.10 of the Disclosure Schedule, no asset of the Company
(tangible or intangible) is subject to any Security Interest.
2.11. Owned Real Property. The Company owns no real property.
-------------------
2.12. Real Property Leases. Section 2.12 of the Disclosure Schedule lists
--------------------
all real property leased or subleased to or by the Company and lists the term of
such lease, any extension and expansion options, and the rent payable
thereunder. The Company has delivered to the Buyer complete and accurate copies
of the leases and subleases (as amended to date) listed in Section 2.12 of the
Disclosure Schedule. With respect to each lease and sublease listed in Section
2.12 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect subject to laws of general application from time to
time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect subject to laws of general application
from time to time in effect affecting creditors' rights and the exercise of
judicial discretion in accordance with general equitable principles immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing;
(c) neither the Company nor, to the knowledge of the Company or the
Company Stockholder, any other party, is in breach or violation of, or default
under, any such lease or sublease, and no event has occurred, is pending or, to
the knowledge of the Company or the Company Stockholder, is threatened, which,
after the giving of notice,
-11-
with lapse of time, or otherwise, would constitute a breach or default by the
Company or, to the knowledge of the Company or the Company Stockholder any other
party under such lease or sublease;
(d) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold; and
(e) neither the Company nor the Company Stockholder is aware of
any Security Interest, easement, covenant or other restriction applicable to the
real property subject to such lease, except for recorded easements, covenants
and other restrictions which do not materially impair the current uses or the
occupancy by the Company of the property subject thereto.
2.13. Intellectual Property.
---------------------
(a) The Company owns or has the right to use all Intellectual
Property (as defined below) necessary (i) for the conduct of its businesses as
presently conducted and (ii) to operate those Company internal systems that are
material to the business or operations of the Company, including, without
limitation, computer hardware systems, software applications and embedded
systems (the "Internal Systems"; the Intellectual Property owned by or licensed
to the Company and incorporated in, underlying or used in the business or the
Internal Systems is referred to herein as the "Company Intellectual Property").
Each item of Company Intellectual Property will be owned or available for use by
the Surviving Corporation immediately following the Closing on substantially
identical terms and conditions as it was immediately prior to the Closing. The
Company has taken all reasonable measures to protect the proprietary nature of
each item of Company Intellectual Property. To the knowledge of the Company and
the Company Stockholder, (a) no other person or entity has any rights to any of
the Company Intellectual Property owned by the Company (except pursuant to
agreements or licenses specified in Section 2.13(c) of the Disclosure Schedule),
and (b) no other person or entity is infringing, violating or misappropriating
any of the Company Intellectual Property. For purposes of this Agreement,
"Intellectual Property" means all (i) patents and patent applications, (ii)
copyrights and registrations thereof, (iii) mask works and registrations and
applications for registration thereof, (iv) computer software, data and
documentation, (v) trade secrets and confidential business information, whether
patentable or unpatentable and whether or not reduced to practice, know-how,
manufacturing and production processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (vi) trademarks, service marks, trade names,
domain names and applications and registrations therefor and (vii) other
proprietary rights relating to any of the foregoing. Section 2.13(a) of the
Disclosure Schedule lists each patent, patent application, copyright
registration or application therefor, mask work registration or application
therefor, and trademark, service mark and domain name registration or
application therefor of the Company.
-12-
(b) None of the Company Intellectual Property owned or developed
by the Company, or to the knowledge of the Company or the Company Stockholder,
third party Intellectual Property licensed by or used by the Company, or the
marketing, distribution, provision or use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. None of the Internal Systems, or the use thereof, infringes or
violates, or constitutes a misappropriation of, any Intellectual Property rights
of any person or entity. Section 2.13(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received or known by the
Company alleging any such infringement, violation or misappropriation. The
Company has provided to the Buyer complete and accurate copies of all written
documentation in the possession of the Company relating to any such complaint,
claim, notice or threat. The Company has provided to the Buyer complete and
accurate copies of all written documentation relating to claims or disputes
known to the Company concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each
license or other agreement to which the Company is a party as of the date of
this Agreement pursuant to which the Company has licensed, distributed or
otherwise granted any rights to any third party with respect to any Company
Intellectual Property.
(d) Section 2.13(d) of the Disclosure Schedule identifies each
item of Company Intellectual Property that is owned by a party other than the
Company, and the license or agreement pursuant to which the Company uses it
(excluding off-the-shelf software programs licensed by the Company pursuant to
"shrink wrap" licenses).
(e) The Company has not disclosed the source code for any of the
software owned by the Company (the "Software") or other confidential information
constituting, embodied in or pertaining to the Software to any person or entity
and the Company has taken reasonable measures to prevent disclosure of such
source code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Intellectual Property have been created by
employees of the Company within the scope of their employment by the Company. No
portion of such copyrightable materials is owned by any third party other than
the Company's customers.
(g) To the knowledge of the Company and the Company Stockholder,
the Intellectual Property and the Internal Systems are free from significant
defects or programming errors and conform in all material respects to the
written documentation and specifications therefor.
2.14. Contracts.
---------
(a) Section 2.14 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company or the Company Stockholder is
a party as of the date of this Agreement:
-13-
(i) any agreement (or group of related agreements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $10,000 per annum or having a remaining term longer
than three months;
(ii) any agreement (or group of related agreements) for
the purchase or sale of products or for the furnishing or receipt of
services (A) which calls for performance over a period of more than one
year, (B) which involves more than the sum of $10,000, or (C) in which the
Company has granted manufacturing rights, "most favored nation" pricing
provisions or marketing or distribution rights relating to any products or
territory or has agreed to purchase a minimum quantity of goods or services
or has agreed to purchase goods or services exclusively from a certain
party;
(iii) any agreement establishing a partnership or joint
venture;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $10,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality;
(vi) any agreement concerning noncompetition;
(vii) any employment or consulting agreement;
(viii) any agreement involving any officer, director or
stockholder of the Company or any affiliate (an "Affiliate"), as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof;
(ix) any agreement under which the consequences of a
default or termination would reasonably be expected to have a Company Material
Adverse Effect;
(x) any agreement which contains any provisions
requiring the Company to indemnify any other party thereto (excluding
indemnities contained in agreements for the purchase, sale or license of
products entered into in the Ordinary Course of Business);
(xi) any agreement which requires the consent, approval
or waiver of any lender, lessor or other third party in connection with the sale
of the Shares hereunder or the merger of Company with and into the Buyer
contemplated herein; and
(xii) any other agreement (or group of related
agreements) either involving more than $25,000 or not entered into in the
Ordinary Course of Business.
(b) The Company has delivered to the Buyer a complete and
accurate copy of each agreement listed in Section 2.13 or Section 2.14 of the
Disclosure Schedule.
-14-
With respect to each agreement so listed and except as set forth in the
Disclosure Schedule: (i) the agreement is legal, valid, binding and enforceable
and in full force and effect; (ii) the agreement will continue to be legal,
valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing subject to laws of general application from
time to time in effect affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles; and (iii) neither
the Company nor, to the knowledge of the Company, any other party, is in breach
or violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute a
breach or default by the Company or, to the knowledge of the Company, any other
party under such contract.
2.15. Accounts Receivable. Except as set forth in Section 2.15 of the
-------------------
Disclosure Schedule, to the knowledge of the Company Stockholder, all accounts
receivable of the Company reflected on the Most Recent Balance Sheet are valid
receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts on the Most Recent Balance
Sheet. All accounts receivable reflected in the financial or accounting records
of the Company that have arisen since the Most Recent Balance Sheet Date are
valid receivables subject to no setoffs or counterclaims and, to the knowledge
of the Company and the Company Stockholder, are collectible and current (within
90 days after the date on which it first became due and payable).
2.16. Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or the Company Stockholder.
2.17. Insurance. Section 2.17 of the Disclosure Schedule lists each
---------
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party. There is no material claim pending under any such policy as
to which coverage has been questioned, denied or disputed by the underwriter of
such policy. All premiums due and payable under all such policies have been
paid, the Company is not liable for retroactive premiums or similar payments,
and the Company is otherwise in compliance in all material respects with the
terms of such policies. Neither the Company nor the Company Stockholder has
knowledge of any threatened termination of, or material premium increase with
respect to, any such policy. To the knowledge of the Company, after due inquiry,
each such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing.
2.18. Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation before any Governmental Entity or before any
arbitrator (a "Legal Proceeding") which is pending or has been threatened
against the Company or the Company Stockholder either in a written or oral
communication to or with the Company or the Company Stockholder.
-15-
2.19. Warranties. No product or service manufactured, sold, leased,
----------
licensed or delivered by the Company is subject to any guaranty, warranty, right
of return, right of credit or other indemnity other than (i) the applicable
standard terms and conditions of sale or lease of the Company, which are set
forth in Section 2.19 of the Disclosure Schedule, (ii) manufacturers' warranties
for which the Company does not have any liability and (iii) warranties,
guaranties, rights of return, rights of credit or other indemnities that may
exist by operation of law. Section 2.19 of the Disclosure Schedule sets forth
the approximate aggregate expenses incurred by the Company in fulfilling its
obligations under its guaranty, warranty, right of return and indemnity
provisions during each of the past two fiscal years and the interim period
covered by the Financial Statements; and the Company does not know of any reason
why such expenses should significantly increase as a percentage of sales in the
future.
2.20. Employees.
---------
(a) Section 2.20 of the Disclosure Schedule contains a list of
all employees of the Company, along with the position and the annual rate of
compensation of each such person. To the knowledge of the Company and the
Company Stockholder, no Key Employee or group of employees has any plans to
terminate employment with the Company.
(b) The Company is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strikes, grievances, claims of
unfair labor practices or other collective bargaining disputes. Neither the
Company nor the Company Stockholder has knowledge of any organizational effort
made or threatened, by or on behalf of any labor union with respect to employees
of the Company.
2.21. Employee Benefits.
-----------------
(a) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of ERISA), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or postretirement compensation.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at
any applicable time was, a member of (1) a controlled group of corporations (as
defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined
-16-
under Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes or included the Company or a Subsidiary.
(b) Section 2.21(b) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Company, any Subsidiary or any ERISA Affiliate. Complete
and accurate copies of (i) all Employee Benefit Plans which have been reduced to
writing, (ii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iii) all annual reports filed on IRS Form 5500, 5500C or
5500R and (for all funded plans) all plan financial statements for the last five
plan years for each Employee Benefit Plan, have been delivered to Engage. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company, each Subsidiary, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Employee Benefit Plan required to have been submitted to
the Internal Revenue Service or to the United States Department of Labor have
been duly submitted. Other than as disclosed in Section 2.21(k) of the
Disclosure Schedule, the Company does not maintain any unwritten Employee
Benefit Plan which would result in an annual cost of more than $10,000.
(c) There are no Legal Proceedings (except claims for benefits
payable in the normal operation of the Employee Benefit Plans and proceedings
with respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have either received determination
letters from the Internal Revenue Service to the effect that such Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code, determination letters have been submitted within the time period
prescribed by the Internal Revenue Service or determination letters have not
been submitted for those Employee Benefit Plans as to which the Internal Revenue
Service remedial amendment period has not expired. No such determination letter
has been revoked and revocation has not been threatened, and no such Employee
Benefit Plan has been amended or operated since the date of its most recent
determination letter or application therefor in any respect, and no act or
omission has occurred, that would adversely affect its qualification or
materially increase its cost. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Merger
Closing Date.
-17-
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate
has ever maintained an Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any material contractual indemnification
or contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without material liability to the
Company as a result thereof and no Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Company from amending or
terminating any such Employee Benefit Plan.
(k) Section 2.21(k) of the Disclosure Schedule lists each: (i)
agreement with any shareholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including, without limitation, any stock
-18-
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan or Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
2.22. Legal Compliance. The Company, and the conduct and operation of
----------------
its business, is in compliance with each applicable law (including rules and
regulations thereunder) of any federal, state, local or foreign government, or
any Governmental Entity, except for any violations or defaults that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect.
2.23. Customers and Suppliers. Section 2.23 of the Disclosure Schedule
-----------------------
sets forth a list of (a) each customer that accounted for more than 5% of the
revenues of the Company during the last full fiscal year or the interim period
through the Most Recent Balance Sheet Date and the amount of revenues accounted
for by such customer during each such period and (b) each supplier that is the
sole supplier of any significant product to the Company. Except as set forth in
Section 2.23 of the Disclosure Schedule, to the knowledge of the Company and the
Company Stockholder, no such customer or supplier has indicated since July 1,
2000 in writing that it is requesting a change to or modification of the terms
of its contract with the Company. To the best knowledge of the Company, no
unfilled customer order or commitment obligating the Company to process,
manufacture or deliver products or perform services will result in a loss to the
Company upon completion of performance. To the knowledge of the Company
Stockholder, no purchase order or commitment of the Company is in excess of
normal requirements, nor are prices provided therein in excess of current market
prices for the products or services to be provided thereunder.
2.24. Certain Business Relationships With Affiliates. Except as set
----------------------------------------------
forth on the Disclosure Schedule, no affiliate of the Company (a) owns any
property or right, tangible or intangible, which is used in the business of the
Company, (b) has any claim or cause of action against the Company, or (c) owes
any money to, or is owed any money by, the Company. Section 2.24 of the
Disclosure Schedule describes any transactions, financial or familial
relationships or other similar arrangements between the Company and any
Affiliate thereof.
2.25. Brokers' Fees. The Company has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.26. Books and Records. The minute books and other similar records of
-----------------
the Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholder, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities,
-19-
business, financial condition and results of operations of the Company and have
been maintained in accordance with good business and bookkeeping practices.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
3.1. Organization, Qualification and Corporate Power. The Buyer is a
-----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. The Buyer is duly qualified to conduct
business and is in corporate good standing under the laws of each jurisdiction
in which the nature of its businesses or the ownership or leasing of its
properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Buyer Material Adverse Effect (as
defined below). The Buyer has all requisite corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. The Buyer is not in default under or in violation of any
provision of its Certificate of Incorporation or By-laws, each as amended or
restated to date. The Buyer has furnished or made available to the Company
complete and accurate copies of its Certificate of Incorporation and By-laws.
For purposes of this Agreement, "Buyer Material Adverse Effect" means a material
adverse effect on the assets, business, condition (financial or otherwise),
results of operations or future prospects of the Buyer and its subsidiaries,
taken as a whole.
3.2. Authorization of Transaction. The Buyer has all requisite power
----------------------------
and authority to execute and deliver this Agreement and to perform its
respective obligations hereunder and thereunder. The execution and delivery by
the Buyer of this Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a valid and binding obligation of the Buyer, enforceable against it
in accordance with its terms.
3.3. Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Securities Act and any applicable state securities laws, and
the Exchange Act, neither the execution and delivery by the Buyer of this
Agreement or the Escrow Agreement, nor the consummation by the Buyer of the
transactions contemplated hereby or thereby, will (a) conflict with or violate
any provision of the charter or By-laws of the Buyer, (b) require on the part of
the Buyer any filing with, or permit, authorization, consent or approval of, any
Governmental Entity, (c) conflict with, result in a material breach of,
constitute (with or without due notice or lapse of time or both) a material
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Buyer or the subsidiary
is a party or by which either is bound or to which any of their assets are
subject, or (d) violate any order, writ,
-20-
injunction, decree, statute, rule or regulation applicable to the Buyer or any
of its properties or assets.
3.4. Brokers' Fees. The Buyer has no liability or obligation to pay
-------------
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.5. Reports and Financial Statements. The Buyer has previously made
--------------------------------
available to the Company and the Company Stockholder complete and accurate
copies, as amended or supplemented, of its (a) Annual Report on Form 10-K for
the fiscal year ended June 30, 1999, as filed with the Securities and Exchange
Commission (the "SEC"), and (b) all other reports filed by the Buyer under
Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the
SEC since February 12, 1999 (such reports are collectively referred to herein as
the "Buyer SEC Reports"). The audited financial statements and unaudited interim
financial statements of the Buyer included in the Buyer SEC Reports, as of their
respective dates, (a) complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, (b) were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the notes
thereto, and in the case or quarterly financial statements, as permitted by Form
10-Q under the Exchange Act), (c) fairly represented the consolidated financial
condition, results of operations and cash flows of the Buyer as of the
respective dates and for the periods referred to therein and (d) are consistent
with the books and records of the Buyer.
3.6. Buyer Common Stock. The shares of Buyer Common Stock to be
------------------
issued pursuant to this Agreement and issuable upon exercise of the Assumed
Options and the Levine Option, when issued in accordance with the agreements
governing the Assumed Options and the Levine Option, will, assuming the accuracy
of the representations by the Company Stockholder contained in Article III
hereof and Exhibit H, be validly issued, fully paid and non-assessable.
---------
ARTICLE IV
INDEMNIFICATION
4.1. Indemnification by the Company Stockholder. The Company
------------------------------------------
Stockholder (also referred to herein as the "Indemnifying Stockholder") shall
indemnify the Buyer in respect of, and hold it harmless against, any and all
debts, obligations and other liabilities (whether absolute, accrued, contingent,
fixed or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) ("Damages") incurred or suffered by the Buyer or any Affiliate
thereof resulting from, relating to or constituting:
-21-
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company or the Company Stockholder
contained in this Agreement;
(b) any failure of the Company Stockholder to have good, valid
and marketable title to the issued and outstanding Company Shares issued in the
name of the Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder as a stockholder, including any option, preemptive
rights or rights to notice or to vote; (iii) any rights under the Articles of
Organization or By-laws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company.
4.2. Indemnification by the Buyer. The Buyer shall indemnify the
----------------------------
Indemnifying Stockholder in respect of, and hold him harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholder resulting from,
relating to or constituting any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of the Buyer contained in this Agreement or
any exhibit to which the Buyer and the Company Stockholder are parties.
-22-
4.3. Indemnification Claims.
----------------------
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article IV (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article IV may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, and shall
describe in reasonable detail (to the extent known by the Indemnified Party) the
facts constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay on the part of the Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying Party
of any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if (A) it acknowledges in writing to the Indemnified Party that any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Party in connection with such suit or proceeding constitute Damages for which
the Indemnified Party shall be indemnified pursuant to this Article IV and (B)
the ad damnum is less than or equal to the amount of Damages for which the
Indemnifying Party is liable under this Article IV and (ii) the Indemnifying
Party may not assume control of the defense of a suit or proceeding involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. If the Indemnifying Party does not so assume control of such
defense, the Indemnified Party shall control such defense. The party not
controlling such defense (the "Non-controlling Party") may participate therein
at its own expense; provided that if the Indemnifying Party assumes control of
such defense and the Indemnified Party reasonably concludes that the
Indemnifying Party and the Indemnified Party have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Indemnified Party shall be
considered "Damages" for purposes of this Agreement. The party controlling such
defense (the "Controlling Party") shall keep the Non-controlling Party advised
of the status of such suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the Non-controlling Party with
respect thereto. The Non-controlling Party shall furnish the Controlling Party
with such information as it may have with respect to such suit or proceeding
(including copies of any summons, complaint or other pleading which may have
been served on such party and any written claim, demand, invoice, billing or
other document evidencing or asserting the same) and shall otherwise cooperate
with and assist the Controlling Party in the defense of such suit or proceeding.
The Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed. The Indemnified Party shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnifying Party, which shall not be unreasonably
withheld or delayed.
-23-
(b) In order to seek indemnification under this Article IV, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article IV for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party shall deliver a copy of the Claim Notice to
the Escrow Agent. Any Claim Notice issued by or on behalf of the Buyer must be
issued on or before 365 days following the Closing Date.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the "Response")
in which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer), (ii) agree that the
Indemnified Party is entitled to receive part, but not all, of the Claimed
Amount (the "Agreed Amount") (in which case the Response shall be accompanied by
a payment by the Indemnifying Party to the Indemnified Party of the Agreed
Amount, by check or by wire transfer), or (iii) dispute that the Indemnified
Party is entitled to receive any of the Claimed Amount. If the Indemnifying
Party in the Response disputes its liability for all or part of the Claimed
Amount, the Indemnifying Party and the Indemnified Party shall follow the
procedures set forth in Section 4.3(d) for the resolution of such dispute (a
"Dispute").
(d) During the 60-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 60-day period, the Indemnifying Party and the Indemnified Party
shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR Procedure"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 4.3(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party
-24-
or the ADR Service shall be treated as confidential and, where appropriate, as
privileged work product. Such statements, offers, opinions and disclosures shall
not be discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and expenses of any ADR Service used by
the Indemnifying Party and the Indemnified Party shall be shared equally by the
Indemnifying Party and the Indemnified Party.
(e) Notwithstanding the other provisions of this Section 4.3, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article IV, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation without prior notice to the Indemnifying Party, then (i) such
Indemnified Party shall be entitled to satisfy such obligation, without prior
notice to or consent from the Indemnifying Party, (ii) such Indemnified Party
may subsequently make a claim for indemnification in accordance with the
provisions of this Article IV, and (iii) such Indemnified Party shall be
reimbursed, in accordance with the provisions of this Article IV, for any such
Damages for which it is entitled to indemnification pursuant to this Article IV
(subject to the right of the Indemnifying Party to dispute the Indemnified
Party's entitlement to indemnification, or the amount for which it is entitled
to indemnification, under the terms of this Article IV).
4.4. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained in this Agreement, shall survive the Closing and any
investigation at any time made by or on behalf of an Indemnified Party and,
other than the representations and warranties set forth in Sections 2.2, 2.5,
2.9 and 2.21, shall expire on the date one year following the Closing Date. The
representations and warranties set forth in Sections 2.9 and 2.21 shall survive
until 30 days following expiration of all statutes of limitation applicable to
the matters referred to therein. The representations and warranties set forth in
Sections 2.2 and 2.5 shall survive indefinitely. If an Indemnified Party
delivers to an Indemnifying Party, before expiration of a representation or
warranty, either a Claim Notice based upon a breach of such representation or
warranty stating the nature of the breach of the representation or warranty in
reasonable detail, or a notice that, as a result a legal proceeding instituted
by or written claim made by a third party, the Indemnified Party reasonably
expects to incur Damages as a result of a breach of such representation or
warranty (an "Expected Claim Notice"), then such representation or warranty
shall survive until, but only for purposes of, the resolution of the matter
covered by such notice. If the legal proceeding or written claim with respect
to which an Expected Claim Notice has been given is definitively withdrawn or
resolved in favor of the Indemnified Party, the Indemnified Party shall promptly
so notify the Indemnifying Party. Notwithstanding to the contrary contained
herein, all representations and warranties contained in this Agreement which are
based on fraud (as determined by final judgment by a Governmental Authority
having valid jurisdiction) by the Company Stockholder or the Buyer shall survive
until finally resolved and satisfied in full.
-25-
4.5. Limitations.
-----------
(a) The parties hereto agree that materiality qualifications
contained in the representations and warranties in this Agreement ("Qualified
Representations") shall only be considered for purposes of determining whether
any such representation or warranty has been breached and in the event that a
Qualified Representation has been breached, the fact that such representation or
warranty was so qualified will not affect the calculation of an Indemnified
Party's Damages.
(b) Except with respect to claims based on fraud, after the Closing,
the rights of the Indemnified Parties under this Article IV shall be the
exclusive remedy of the Indemnified Parties with respect to claims resulting
from or relating to any misrepresentation, breach of warranty or failure to
perform any covenant or agreement contained in this Agreement.
(c) Notwithstanding anything to the contrary in this Agreement, but
subject to the other limitations on liability and procedures contained in this
Article IV, the Buyer shall have no right to indemnity from the Company
Stockholder under this Article IV unless and until the amount of Buyer's Damages
exceed in the aggregate the sum of $125,000, in which event the Company
Stockholder shall be liable for all such Buyer Damages, including the first
$125,000 of such damages; provided, further, that, except with respect to any
Buyer's Damages as a result of a breach of Section 2.2, the Company Stockholder
shall be liable for a maximum of $4,500,000 of Buyer's Damages; and, provided
further, that the Company Stockholder shall satisfy Buyer's Damages for any
Claim made within one year of the Closing Date, first, by forfeiture of the
Acquisition Escrow Shares, second by delivering shares of Buyer Common Stock
(the "Indemnification Shares") and third by delivery of cash or such other
consideration that the Buyer and the Company Stockholder may mutually agree
upon. The number of shares of Buyer Common Stock which shall constitute
Indemnification Shares shall equal 59,618 and for the purposes of this Article
IV, the parties agree that notwithstanding the fair market value of such shares,
such shares shall be deemed to have a value of $26.8375 per share.
(d) All indemnification by the Company Stockholder hereunder (to the
extent not satisfied in the manner specified in the preceding sentence) shall be
effected by payment of cash or delivery of a cashier's or certified check in the
amount of the indemnification liability.
(e) The Company Stockholder shall not have any right of contribution
against the Company with respect to any breach by the Company of any of its
representations, warranties, covenants or agreements.
(f) The parties agree that any indemnification payments made
pursuant to this Agreement shall be treated for tax purposes as an adjustment to
the Aggregate Consideration, unless otherwise required by applicable law.
-26-
(g) Each Indemnified Party shall be obligated in connection with any
claim for indemnification under this Article IV to use all reasonable efforts to
mitigate Damages upon and after becoming aware of any event which could
reasonably be expected to give rise to such Damages; provided that the amount of
any Damages for which indemnification is provided under this Article IV shall be
computed net of any insurance proceeds actually received by the Buyer in
connection with such Damages.
(h) Notwithstanding anything to the contrary contained herein,
neither the Company Stockholder nor any Affiliate of Company Stockholder or the
Buyer shall be liable for any consequential, punitive or special damages
pursuant to this Agreement or any of the agreements contemplated hereby, except
with respect to intentional, willful or bad faith breaches hereof.
ARTICLE V
ESCROW PROPERTY
5.1. Business Continuity Escrow Property.
-----------------------------------
(a) The Business Continuity Escrow Property delivered to the Escrow
Agent pursuant to Section 1.7 of this Agreement is intended to secure the
successful continuation of the business of the Company for a period of two years
commencing on the Closing Date.
(b) The Company Stockholder shall be entitled to receive on (x) the
first anniversary of the Closing, 50% of the Business Continuity Escrow
Property, which shall include the entire cash portion of such escrow property
and (y), on the second anniversary of the Closing, the remainder of the Business
Continuity Escrow Property; provided, in each such case, that subject to
paragraph 5.1(c), the Company Stockholder and at least five of the Key Employees
listed on Schedule I hereto have served as employees of the Buyer through each
----------
such anniversary.
(c) If the Company Stockholder's employment with the Buyer is
terminated by the Buyer without Cause (as defined below), by the Company
Stockholder for Good Reason (as defined below) or by reason of death or
disability (as defined below), the Business Continuity Escrow Property then held
in escrow and not subject to a claim shall be released to the Company
Stockholder or his estate, as the case may be; provided that the Company
Stockholder is not in material breach of the Employment Agreement attached
hereto as Exhibit B or the Standard Employee Agreement attached hereto as
---------
Exhibit C to which the Company Stockholder is party; provided that in each such
- ---------
case any notice and cure period shall apply.
(d) For purposes of this Section 5, "Cause" shall mean (a) a good
faith finding by the Buyer that (i) the Company Stockholder has failed to
perform his assigned duties for the Buyer which failure has continued for a
period of two weeks following notice of such claim by an officer of the Buyer or
(ii) the Company Stockholder has engaged in dishonesty, gross negligence or
misconduct, or (b) the conviction of the
-27-
Company Stockholder of, or the entry of a pleading of guilty or nolo contendere
by the Company Stockholder to, any felony other than motor vehicle offenses or
other offenses which do not have a material impact on the Company Stockholder's
ability to perform his duties as an employee of the Buyer. For purposes of this
Section 5, "Good Reason" shall mean (a) a reduction in the Company Stockholder's
base compensation, (b) the imposition of a requirement by the Buyer, any person
in control of the Buyer or any successor to the Buyer, that the location at
which the Company Stockholder performs his principal duties for the Buyer or any
successor to the Buyer be changed to a new location outside a radius of 75 miles
from the then current location or (c) a reduction in the responsibilities of the
Company Stockholder while employed by the Buyer, any person in control of the
Buyer or any successor to the Buyer, such that the responsibilities of the
Company Stockholder are inconsistent with the nature of the responsibilities of
other employees of similar stature and compensation (i.e., vice president level)
of the Buyer, any person in control of the Buyer or any successor to the Buyer.
For purposes of this Section 5, "Disability" shall mean the inability of the
Company Stockholder, due to a physical or mental disability, for a period of 90
days, whether or not consecutive, during any 360-day period to perform the
services contemplated under this Agreement, with or without reasonable
accommodation as that term is defined under state or federal law. A
determination of disability shall be made by a physician satisfactory to both
the Company Stockholder and the Buyer, provided that if the Company Stockholder
and the Buyer do not agree on a physician, the Company Stockholder and the Buyer
shall each select a physician and these two together shall select a third
physician, whose determination as to disability shall be binding on all parties.
5.2. Non-Competition Escrow Shares.
-----------------------------
(a) The Non-Competition Escrow Shares escrowed with the Escrow Agent
pursuant to Section 1.7 of this Agreement shall secure the covenants set forth
in the form of Non-Competition and Non-Solicitation Agreement by each Key
Employee attached hereto as Exhibit C against engaging in any business
---------
competitive with the Buyer or the Company following the Closing Date. Each Key
Employee shall be entitled to receive one half of the aggregate number of Non-
Competition Escrow Shares set forth opposite his or her names on Schedule I
----------
attached hereto which have been placed in escrow with the Escrow Agent on each
of the first and second anniversary of the Closing Date; provided, that the Key
Employee is not in breach of the Non-Competition and Non-Solicitation Agreement
attached hereto as Exhibit C or the Standard Employee Agreement attached hereto
---------
as Exhibit D to which each such Key Employee is party.
---------
(b) On or about each of the first and second anniversary of the
Closing, the Buyer shall use its best efforts to register with the SEC for
resale to the public by the respective Key Employees on Form S-3 (each a "Buyer
Registration Statement") under the Securities Act the aggregate number of Non-
Competition Escrow Shares which are then released from escrow to the Key
Employees; provided that the Buyer may, by written notice to the Key Employees,
(i) delay the filing or effectiveness of a Buyer Registration Statement or (ii)
suspend a Buyer Registration Statement after effectiveness and require that the
Key Employees immediately cease sales of shares pursuant to a Buyer Registration
Statement, in each case, in the event that (A) the Buyer is in
-28-
registration under a registration statement (other than a registration statement
on Form S-8 or its successor form) with the SEC for a public offering of its
securities or (B) the Buyer is engaged in any activity or transaction or
preparations or negotiations for any activity or transaction that the Buyer
desires to keep confidential for business reasons, if the Buyer determines in
good faith that the public disclosure requirements imposed on the Buyer under
the Securities Act in connection with a Buyer Registration Statement would
require disclosure of such activity, transaction, preparations or negotiations.
5.3. Indemnification Escrow Shares. The Acquisition Escrow Shares
-----------------------------
delivered to the Escrow Agent pursuant to Section 1.6 of this Agreement shall
secure the indemnification obligations of the Company Stockholder as set forth
in this Agreement.
ARTICLE VI
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Acquisition Consideration 1.5(a)
Acquisition Share Value 1.5(d)
ADR Procedure 4.3(d)
ADR Service 4.3(d)
Affiliate 2.14(a)(viii)
Agreed Amount 4.3(c)
Buyer Introduction
Buyer Material Adverse Effect 3.1
Buyer Registration Statement 5.2
Buyer SEC Reports 3.5
Cause 5.1(d)
Claim Notice 4.3(b)
Claimed Amount 4.3(b)
Closing 1.1
Closing Date 1.3
Code 2.9(c)
Company Introduction
Company Intellectual Property 2.13(a)
Company Material Adverse Effect 2.1
Company Shares 2.2
Company Stockholder Introduction
Controlling Party 4.3(a)
Damages 4.1
Disability 5.1(d)
Disclosure Schedule Article II
-29-
Dispute 4.3(c)
ERISA 2.21
Escrow Agent 1.4(b)
Escrow Agreement 1.6
Escrow Shares 1.6(c)
Expected Claim Notice 4.4
Exchange Act 2.14(a)(vii)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Indemnified Party 4.3(a)
Indemnifying Party 4.3(a)
Indemnifying Stockholder 4.1
Intellectual Property 2.13(a)
Internal Systems 2.13(a)
Legal Proceeding 2.18
Most Recent Balance Sheet Date 2.6
Non-controlling Party 4.3(a)
Non-Competition Escrow Shares 1.5(c)
Ordinary Course of Business 2.8
Parties Introduction
Response 4.3(c)
Business Continuity Escrow Shares 5.1
Security Interest 2.4
Shares Introduction
Software 2.13(e)
Tax Returns 2.9(a)
ARTICLE VII
MISCELLANEOUS
7.1. Press Releases and Announcements. No Party shall issue any press
--------------------------------
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however,
-------- -------
that any Party may make any public disclosure it believes in good faith is
required by applicable law, regulation or stock market rule (in which case the
disclosing Party shall use reasonable efforts to advise the other Parties and
provide them with a copy of the proposed disclosure prior to making the
disclosure).
-30-
7.2. No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
-------- -------
Article I concerning issuance of the Buyer Shares and Article IV concerning
indemnification are intended for the benefit of the individuals specified
therein and their heirs, successors and assigns.
7.3. Entire Agreement. This Agreement (including the documents referred
----------------
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
7.4. Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective heirs,
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Buyer may assign its rights,
interests and obligations hereunder to an Affiliate of the Buyer.
7.5. Counterparts and Facsimile Signature. This Agreement may be
------------------------------------
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
7.6. Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.7. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
----------------- -------
Flashpoint, Inc. Mintz, Levin, Cohn, Ferris,
One Thompson Square Glovsky and Popeo P.C.
Charlestown, MA 02129 One Financial Center
Attn: Mr. Eric Levine Boston, MA 02111
Fax: (617) 542-2241
Attn: Neil H. Aronson, Esq.
If to the Company Stockholder: Copy to:
----------------------------- -------
Mr. Eric Levine Mintz, Levin, Cohn, Ferris,
151 Sandra Lane Glovsky and Popeo P.C.
North Andover, MA 01845 One Financial Center
-31-
Boston, MA 02111
Fax: (617) 542-2241
Attn: Neil H. Aronson, Esq.
If to the Buyer: Copy to:
--------------- -------
Bottomline Technologies (de), Inc. Hale and Dorr LLP
155 Fleet Street 60 State Street
Portsmouth, NH 03801-4050 Boston, MA 02109
Fax: (603) 436-0300 Fax: (617) 526-5000
Attn: Mr. Robert A. Eberle Attn: John A. Burgess, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
7.8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the Commonwealth of Massachusetts without
giving effect to any choice or conflict of law provision or rule (whether of the
Commonwealth of Massachusetts or any other jurisdiction) that would cause the
application of laws of any jurisdictions other than those of the Commonwealth of
Massachusetts.
7.9. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver of any right or remedy hereunder shall be valid unless
the same shall be in writing and signed by the Party giving such waiver. No
waiver by any Party with respect to any default, misrepresentation or breach of
warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
7.10. Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and
-32-
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified.
7.11. Submission to Jurisdiction. Each of the Parties (a) submits to the
--------------------------
jurisdiction of any state or federal court sitting in Boston, Massachusetts in
any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 6.7. Nothing in this Section 6.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
7.12. Construction.
------------
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
7.13. Expenses. Except as set forth in Article IV, the Buyer for itself,
--------
and the Company Stockholder for itself and for the Company, shall bear their
respective costs and expenses (including, without limitation, legal and
accounting fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that the Buyer shall pay
the fees of the Escrow Agent (excluding any fees and costs incurred as a result
of litigation thereof).
7.14. Post-Closing Cooperation. Each party hereto, at the request of
------------------------
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may reasonably be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
7.15. Flashpoint 401(k) Plan Termination. The Trustees of the Flashpoint
----------------------------------
401(k) Plan (the "Flashpoint Plan") will assume all responsibilities and duties
attendant to the termination of the Flashpoint Plan. Notwithstanding the
foregoing, the Buyer will assume all costs associated with reasonable efforts to
terminate the Flashpoint Plan including, but not limited to: (i) preparation of
any and all amendments necessary to maintain the qualified status of the
Flashpoint Plan under the Code upon termination and to comply with the
requirements of ERISA, (ii) preparing and distributing notices in connection
with the Flashpoint Plan's termination to Flashpoint Plan participants or
-33-
government agencies or authorities required by the Code or ERISA, (iii) filing
an Application for Determination upon Termination with the Internal Revenue
Service ("IRS") and taking reasonable steps directed towards obtaining a
favorable determination letter from the IRS on the Flashpoint Plan's
termination, and (iv) distributing the assets of the Flashpoint Plan in full
subsequent to obtaining a favorable determination letter from the IRS on the
Flashpoint Plan.
7.16 Participation and Vesting in the Buyer's 401(k) Plan. Buyer shall
----------------------------------------------------
take any and all actions necessary to permit former participants in the
Flashpoint Plan who become employed by Buyer pursuant to the transaction
contemplated by this Agreement to commence participation in the Buyer's 401(k)
Plan, effective September 1, 2000, provided such participants return properly
completed enrollment forms to Buyer's designee prior to September 1, 2000. In
addition, Buyer shall take any all actions necessary to provide full service
credit to the Company Shareholder and former employees of the Company
immediately upon participation in the Buyer's 401(k) Plan for the purposes of
eligibility and vesting under the Buyer's 401(k) Plan for the service the
employees of the Company and the Company Shareholder performed for the Company.
Buyer shall also take any and all actions necessary to permit former
participants in the Flashpoint 401(k) Plan and the Company Shareholder to roll-
over their account balances in and loans under the Flashpoint Plan to the
Buyer's 401(k) Plan.
-34-
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
Bottomline Technologies (de), Inc.
By: /s/ Robert A. Eberle
---------------------------------
Robert A. Eberle
Executive Vice President and
Chief Financial Officer
Flashpoint, Inc.
By: /s/ Eric Levine
---------------------------------
Eric Levine
President
Company Stockholder
By: /s/ Eric Levine
---------------------------------
Eric Levine
-35-