EXHIBIT 10.02
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "AGREEMENT") is made and
entered into as of July 15, 1999 (the "EXECUTION DATE") by and between
Integrated Systems, Inc., a California corporation (the "COMPANY"), and James E.
Challenger ("SHAREHOLDER").
R E C I T A L S
A. The Company and Software Development Systems, Inc.,
an Illinois corporation ("SDS"), have entered into an Agreement and Plan of
Reorganization dated as of July 15, 1999 (the "PLAN"), pursuant to which SDS
will merge with a subsidiary of the Company in a statutory merger (the
"MERGER"), pursuant to the terms and conditions set forth in the Plan and
applicable law. Capitalized terms that are used in this Agreement and are not
defined herein shall have the same meanings that such terms have in the Plan.
B. Upon the effectiveness of the Merger, the outstanding
Common Stock of SDS will be converted into shares of the Company Common Stock,
in the manner and on the basis set forth in the Plan.
C. Shareholder is a principal shareholder of SDS, owns
Common Stock of SDS and is an officer and key employee of SDS, and upon the
effectiveness of the Merger, will receive shares of the Company Common Stock
having substantial value by virtue of the exchange of Shareholder's SDS shares
in the Merger. Shareholder's talents and abilities are critical to SDS's ability
to successfully carry on its business.
D. One of the material conditions precedent to the
obligation of the Company to consummate the Merger under the Plan is that
Shareholder has executed, entered into and is bound by this Agreement with the
Company. Shareholder is therefore entering into this Agreement as a material
inducement and consideration to the Company to enter into the Plan, to issue the
consideration payable to the SDS shareholders in the Merger, to consummate the
Merger and for the other consideration stated herein.
E. Shareholder is also receiving additional
consideration as set forth in this Agreement.
NOW, THEREFORE, in consideration of the facts stated in the
foregoing recitals and the promises made herein, the Company and Shareholder
hereby agree as follows:
1. EFFECTIVENESS OF OBLIGATIONS. This Agreement shall
become effective if and only if the Merger is consummated on or before July 31,
1999, and shall become effective upon the date that the Merger is consummated
and becomes legally effective (such date being hereinafter referred to as the
"EFFECTIVE TIME").
2. CERTAIN DEFINITIONS.
(a) COVENANT PERIOD. As used herein, the term
"COVENANT PERIOD" means that period of time commencing on the Effective Time and
ending on the LATER of (i) the fourth (4th) anniversary of the Effective Time;
or (ii) the "Termination Date" (as defined herein). The "TERMINATION DATE" means
the first date following the Effective Time that Shareholder is not employed by
the Company, the Surviving Corporation or any Affiliate (as defined herein) of
the Company or the Surviving Corporation.
(b) ENGAGING IN BUSINESS. As used in Section 3
of this Agreement, each of the following activities, without limitation, shall
be deemed to constitute "ENGAGING IN A BUSINESS": to engage in, carry on, work
with, be employed by, consult for, invest in, solicit customers for, have an
interest in, advise, lend money to, guarantee the debts or obligations of,
contribute, sell or license intellectual property to, or permit one's name or
any part thereof to be used in connection with, any enterprise or endeavor,
either individually, in partnership or in conjunction with any person, firm,
association, partnership, limited liability company, corporation or other
business, whether as principal, agent, shareholder, partner, member, director,
officer, employee, consultant, or in any other manner whatsoever. Nothing
contained in this Agreement shall prohibit Shareholder from (i) being employed
by or serving as a consultant to the Company (or any other Affiliate, as defined
below, of the Company), (ii) acquiring or holding at any one time less than one
percent (1%) of the outstanding securities of any publicly traded company, or
(iii) acquiring or holding an interest in a mutual fund, limited partnership,
venture capital fund or similar investment entity of which Shareholder is not an
employee, officer or general partner and has no power to make, participate in or
directly influence the investment decisions of such mutual fund, limited
partnership, venture capital fund or investment entity.
(c) SURVIVING CORPORATION. As used herein, the
term "SURVIVING CORPORATION" means the surviving corporation of the Merger.
3. NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) NON-COMPETITION. Shareholder hereby
covenants and agrees with the Company that, during the Covenant Period,
Shareholder shall not, whether directly or indirectly, engage in any business
that is directly or indirectly competitive with or similar to any of the
businesses conducted by SDS, the Company or any entity in which the Company
holds a majority of the voting power prior to the Effective Time in any county
in the State of California, in the State of Illinois, or in any other state,
territory or possession of the United States or any country in which SDS has
conducted business, or in which the Company or the Surviving Corporation
conducts or has conducted business (including, without limitation, any county,
state, territory, possession or country in which any customer of SDS, the
Surviving Corporation or the Company is located or in which SDS, the Surviving
Corporation or the Company has solicited business).
(b) NON-SOLICITATION OF CUSTOMERS. In addition
to, and not in limitation of, the non-competition covenants of Shareholder in
Section 3(a) above, Shareholder agrees with
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the Company that, during the Covenant Period, Shareholder will not, either for
Shareholder or for any other person or entity, directly or indirectly, solicit
business from, or attempt to sell, license or provide the same or similar
products or services as are now provided by the Company or the Surviving
Corporation or any of their Affiliates (as defined below) to any of its
customers. Shareholder hereby acknowledges that the identities, addresses, and
business needs of the past, current, prospective clients and customers of the
Company, SDS, the Surviving Corporation and their Affiliates are confidential
and proprietary information and trade secrets of the Company and the Surviving
Corporation, respectively, and that this Agreement imposes on Shareholder a duty
not to disclose such information or use such information to the detriment of the
Company or the Surviving Corporation or their Affiliates in violation of this
Agreement. As used in this Agreement, the term "AFFILIATE" will have the meaning
given to such term in Rule 405 of Regulation C promulgated under the Securities
Act of 1933, as amended, and refers both to a present and future Affiliate.
(c) NON-SOLICITATION OF EMPLOYEES. In addition
to, and not in limitation of, the non-competition covenants of Shareholder in
Section 3(a) above, Shareholder agrees with the Company that, during the
Covenant Period, Shareholder will not, either for Shareholder or for any other
person or entity, directly or indirectly, solicit, induce or attempt to induce
any employee of the Company, the Surviving Corporation or any of their
Affiliates to terminate his or her employment with the Company, the Surviving
Corporation or any of their Affiliates.
4. ADDITIONAL CONSIDERATION. As additional consideration
for the covenants herein, so long as Shareholder is in compliance with this
Agreement, Company agrees to pay Shareholder One Million Dollars ($1,000,000) at
the Closing.
5. CONFIDENTIALITY. Shareholder agrees with the Company
not to disclose, communicate, use to the detriment of the Company, SDS, the
Surviving Corporation or any of their respective Affiliates, or for the benefit
of any other person, or misuse in any way, any confidential information or trade
secrets of the Company, SDS, the Surviving Corporation or any of their
respective Affiliates (including but not limited to confidential information and
trade secrets of SDS acquired by the Company in the Merger), including, without
limitation, personnel information, secret processes, software, know-how,
customer or supplier lists, formulae, or other technical data. Shareholder
acknowledges and agrees with the Company that all such confidential information
and trade secrets previously received or to be received by Shareholder from SDS,
the Company, the Surviving Corporation or any of their respective Affiliates was
or will be received by Shareholder in confidence and as a fiduciary. Nothing in
this Section 5 will affect the rights of Shareholder with respect to any
information that (i) is or becomes part of the public domain through no fault of
Shareholder, (ii) is disclosed to third parties by the Company or the Surviving
Corporation or any of their respective Affiliates without restrictions on the
disclosure thereof, or (iii) is required to be disclosed by law. If Shareholder
becomes an employee of the Company, the Surviving Corporation or any other
Affiliate of the Company as a result of the Merger, Shareholder agrees to
execute and deliver any standard invention assignment and confidentiality
agreement normally required for the Company employees.
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6. OPINION OF THE COMPANY. If Shareholder desires to
engage in any activity and is uncertain whether such activity is prohibited by
this Agreement, then Shareholder shall describe the proposed activity in detail
in a written notice to the Company delivered by personal delivery or by first
class certified or registered mail, return receipt requested, addressed to the
Company's President or Chief Executive Officer. The Company shall have thirty
(30) days after receipt of such notice during which to advise Shareholder
whether the Company believes that the proposed activity is prohibited by this
Agreement. If the Company fails to notify Shareholder of its determination
during such thirty (30) day period, or if the Company notifies Shareholder that
it has no objection to all or a portion of the proposed activity, then
Shareholder may engage in all or such portion of such activity, as the case may
be, without any liability to the Company under this Agreement.
7. SEVERABILITY. The scope and effect of the covenants
of Shareholder in this Agreement shall be as broad in time (but not, as regards
the covenants contained in Section 3 of this Agreement, beyond the applicable
time periods set forth therein), geography and in all other respects as is
permitted by applicable law. Should a court or other body of competent
jurisdiction determine that any term or provision of this Agreement is excessive
in scope or duration or is unenforceable, then such term or provision shall not
be voided or made unenforceable, but rather shall be modified so as to be
enforceable, in accordance with the purposes stated in the preceding sentence
and with applicable law, and all other terms and provisions of this Agreement
shall remain valid and fully enforceable.
8. REMEDIES. Shareholder acknowledges and agrees with
the Company that damages would not adequately compensate the Company if
Shareholder were to breach any of covenants of Shareholder contained in this
Agreement. Consequently, Shareholder agrees that in the event of any such
breach, the Company shall be entitled, in addition to any other remedies, to
enforce this Agreement by means of an injunction or other equitable relief.
9. SURVIVING CORPORATION IS THIRD PARTY BENEFICIARY.
Shareholder and the Company acknowledge and agree that the Surviving Corporation
is an intended third party beneficiary of this Agreement insofar as the
Surviving Corporation may seek to enforce Shareholder's obligations under this
Agreement against Shareholder; PROVIDED, HOWEVER, that the Surviving Corporation
may act to enforce this Agreement only with the Company's prior written consent.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of the successors and assigns of the Company, including any
successor to or assignee of all or substantially all of the business and assets
of the Company or any other parts of the business or assets of the Company or
the Surviving Corporation. This Agreement and the rights and obligations of
Shareholder hereunder shall not be assignable, delegable or transferable by
Shareholder in any respect.
11. COSTS OF ENFORCEMENT. If any party to this Agreement
seeks to enforce its rights under this Agreement by legal proceedings or
otherwise, the non-prevailing party shall pay
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all costs and expenses incurred by the prevailing party, including, without
limitation, all reasonable attorneys' and experts' fees.
12. ENTIRE AGREEMENT. This Agreement contains all of the
terms and conditions agreed upon by the parties relating to the subject matter
of this Agreement and, effective upon the Effective Time of the Merger, shall
supersede any and all prior and contemporaneous agreements (including any
non-competition agreements between Shareholder and SDS), negotiations,
correspondence, understandings and communications of the parties, whether oral
or written, respecting that subject matter (EXCEPT for any invention assignment
and/or confidentiality agreement that Shareholder may execute pursuant to
Section 5 hereof and the employment agreement by Shareholder with the Company
dated as of the date hereof).
13. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of California,
excluding that body of law pertaining to conflicts of laws.
14. NOTICES. All notices and other communications
required or permitted under this Agreement will be in writing and hand
delivered, sent by facsimile, sent by certified first class mail, postage
pre-paid, or sent by nationally recognized express courier service. Such notices
and other communications will be effective upon receipt if hand delivered or
sent by facsimile, five (5) days after mailing if sent by mail, and one (1) day
after dispatch if sent by facsimile (with electronic acknowledgment of
successful transmission) or express courier, to the following addresses, or such
other addresses as any party may notify the other parties in accordance with
this Section:
If to the Company: With a copy to:
Integrated Systems, Inc. Fenwick & West LLP
201 Moffett Park Drive Two Palo Alto Square, Suite 800
Sunnyvale, California 94089 Palo Alto, California 94306
Attention: President Attention: Fred M. Greguras
Facsimile: (408) 542-1959 Facsimile: (650) 494-1417
If to Shareholder:
777 Prospect Avenue
Winnetka, Illinois 60093
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
15. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which will be deemed an original but all of which, taken
together, constitute one and the same agreement.
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IN WITNESS WHEREOF, Shareholder and the Company have executed
this Agreement as of the date set forth in the first paragraph of this
Agreement.
INTEGRATED SYSTEMS, INC. SHAREHOLDER
By: /s/ CHARLES M. BOESENBERG /s/ JAMES E. CHALLENGER
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Title: PRESIDENT & CEO
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