▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇:
VERITY, INC.,
A DELAWARE CORPORATION;
64K INCORPORATED,
A CALIFORNIA CORPORATION;
AND
CERTAIN SHAREHOLDERS OF 64K INCORPORATED
DATED AS OF MAY 31, 1997
2.
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TABLE OF CONTENTS
Page
1. SALE AND PURCHASE OF SHARES.................................................... 1
1.1 Sale and Purchase of Shares........................................... 1
1.2 Purchase Price........................................................ 1
1.3 Closing............................................................... 2
1.4 Termination of the Software Development and License
Agreement............................................................. 2
2. REPRESENTATIONS AND WARRANTIES BY COMPANY...................................... 2
2.1 Organization, Powers, Qualification and Authority..................... 2
2.2 Subsidiaries; Interests in Other Companies............................ 3
2.3 Capitalization........................................................ 3
2.4 Financial Statements.................................................. 3
2.5 Schedules of Properties, Contracts and Other Data..................... 3
2.6 Taxes................................................................. 5
2.7 Title to Assets....................................................... 5
2.8 Legal Proceedings, etc................................................ 5
2.9 Brokers and Finders................................................... 5
2.10 Compliance with Laws, etc............................................. 5
2.11 Patents, Trademarks, Licenses, Et Cetera.............................. 6
2.12 Condition of Properties............................................... 7
2.13 Absence of Undisclosed Liabilities.................................... 7
2.14 Absence of Changes.................................................... 7
2.15 Other Negotiations.................................................... 8
2.16 Proprietary Information and Employee Inventions Agreements............ 8
2.17 Restricted Stock Purchase and Option Agreements....................... 8
2.18 Compliance with Immigration Reform and Control Act of 1986
("IRCA").............................................................. 8
2.19 Accuracy of Representations and Warranties............................ 8
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SHAREHOLDERS................................................................... 9
3.1 Ownership of Company Shares........................................... 9
3.2 Full Capacity; Binding Agreement...................................... 9
3.3 Brokers and Finders................................................... 9
3.4 Legal Representation.................................................. 9
3.5 Accuracy of Representations and Warranties............................ 9
3.6 Compliance with Immigration Reform and Control Act of 1986
("IRCA").............................................................. 10
4. REPRESENTATIONS AND WARRANTIES OF VERITY....................................... 10
4.1 Organization, Powers and Authority.................................... 10
4.2 Brokers and Finders................................................... 10
4.3 Accuracy of Representation and Warranties............................. 10
4.4 No Violation of Existing Agreements................................... 10
3.
3
5. COVENANTS BY COMPANY...................................................... 11
5.1 Conduct of Business, etc......................................... 11
5.3 Breach of Representations and Warranties......................... 12
5.4 Access to Information............................................ 12
5.5 Consents......................................................... 13
5.6 News Releases.................................................... 13
5.7 Commercially Reasonable.......................................... 13
6. COVENANTS BY VERITY....................................................... 13
6.1 Breach of Representations and Warranties......................... 13
6.2 Employment of Company Employees.................................. 13
6.3 Option Grants.................................................... 13
6.4 Commercially Reasonable Efforts.................................. 14
7. CONDITIONS TO OBLIGATIONS OF VERITY....................................... 14
7.1 Representations and Warranties................................... 14
7.2 Compliance with Covenants and Conditions......................... 14
7.3 Consents and Approvals........................................... 14
7.4 Shareholders' Execution.......................................... 14
7.5 No Action to Prevent Consummation................................ 14
7.6 Certificate...................................................... 14
7.7 No Transfer of Shares............................................ 15
7.8 Opinion of Counsel............................................... 15
7.9 Employment of Shareholders....................................... 15
7.10 Agreements Not To Compete........................................ 15
7.11 Option Cancellation Agreements................................... 15
7.12 Amendments to Standard Stock Agreements.......................... 15
7.13 Receipt of Share Certificates.................................... 15
8. CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SHAREHOLDERS................. 15
8.1 Representations and Warranties................................... 15
8.2 Compliance with Covenants and Conditions......................... 15
8.3 Consents and Approvals........................................... 15
8.4 No Action to Prevent Consummation................................ 16
8.5 Certificate...................................................... 16
8.6 Shareholders' Execution.......................................... 16
8.7 Payment of Purchase Price........................................ 16
9. SURVIVAL AND INDEMNIFICATION; EMPLOYMENT HOLDBACK......................... 16
9.1 Indemnification by the Shareholders.............................. 16
9.2 Indemnification by Each Shareholder.............................. 16
9.3 Limitations on Indemnification................................... 17
9.4 Exclusivity Of Indemnification Remedies.......................... 18
9.5 Exercise Of Remedies By Indemnified Parties Other Than Verity.... 18
9.6 Survival......................................................... 18
4.
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9.7 Reliance......................................................... 18
9.8 Employment Holdback.............................................. 18
10. TERMINATION............................................................... 20
10.1 Rights Upon Termination.......................................... 20
10.2 Fees And Expenses................................................ 20
11. MISCELLANEOUS............................................................. 21
11.1 Further Assurances............................................... 21
11.2 Notices.......................................................... 21
11.3 Governing Law.................................................... 21
11.4 Expenses......................................................... 21
11.5 Parties-in-Interest.............................................. 21
11.6 Entire Agreement................................................. 22
11.7 Amendment and Waiver............................................. 22
11.8 Attorneys' Fees.................................................. 22
11.9 Severability..................................................... 22
11.10 Schedules........................................................ 22
11.11 Exhibits and Schedules........................................... 22
11.12 Headings......................................................... 23
11.13 Counterparts..................................................... 23
Exhibit A COMPANY SHAREHOLDERS............................................. 1
Exhibit B Form of Escrow Agreement......................................... 2
Exhibit C Liabilities...................................................... 3
Exhibit D Form of Employment Agreement..................................... 4
Exhibit E Form of Non-Competition Agreement................................ 5
Exhibit F Operating Plan................................................... 6
Exhibit G Option Shares.................................................... 7
Exhibit H Form of Option Cancellation Agreement............................ 8
5.
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated May 31, 1997 ("Agreement") is by
and among VERITY, INC., a Delaware corporation ("Verity"), 64K INCORPORATED, a
California corporation ("Company"), and the undersigned holders of Company
common stock (individually, a "Shareholder," and collectively, the
"Shareholders"), and amends and restates in its entirety the Merger Option
Agreement between the parties dated October 8, 1996 (the "Merger Option
Agreement").
RECITALS
WHEREAS, Verity, the Company and the Shareholders wish to amend and
restate the Merger Option Agreement through this Agreement;
WHEREAS, the Shareholders own 2,409,639 shares of the common stock of
the Company (the "Shares"), which constitute all of the outstanding common stock
of the Company;
WHEREAS, the Shareholders wish to sell the Shares to Verity on the
terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises hereinafter set forth, the parties hereto agree that the Merger Option
Agreement is hereby amended and restated in its entirety as follows:
AGREEMENT
1. SALE AND PURCHASE OF SHARES.
1 SALE AND PURCHASE OF SHARES. At the Closing (as defined below), the
Shareholders shall sell, assign, transfer and deliver the Shares to Verity, and
Verity shall purchase the Shares from the Shareholders, on the terms and subject
to the conditions set forth in this Agreement.
2 PURCHASE PRICE.
(A) The aggregate purchase price payable by Verity for the
Shares (the "Purchase Price") shall be $3,500,000. The Purchase Price shall be
paid by Verity as set forth in Sections 1.2(b) and 1.2(c), against delivery by
each Shareholder of his Shares duly authorized for transfer by stock power or
otherwise.
(B) An aggregate of $1,750,000 (representing 50% of the
Purchase Price) shall be paid at the Closing to the Shareholders in the amounts
set forth opposite such Shareholders' names on EXHIBIT A hereto.
1.
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(C) An aggregate of $1,750,000 (representing 50% of the
Purchase Price) shall be deposited at the Closing into an account (the "Escrow
Account") to be established pursuant to the terms of the Escrow Agreement in the
form attached hereto as EXHIBIT B (the "Escrow Agreement").
3 CLOSING. The closing of the sale of the Shares to Verity (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇ Godward, LLP, Five Palo
Alto Square, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ at 2:00 p.m. (California
time) on May 31, 1997 (or at such other place or time as the parties hereto may
jointly designate).
4 TERMINATION OF THE SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT.
Effective as of the Closing, the Software Development and License Agreement
dated October 8, 1996 by and between Verity and the Company is hereby
terminated.
2. REPRESENTATIONS AND WARRANTIES BY COMPANY. The Company and ▇▇▇▇ ▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇ (the "Principal Shareholders") represent and warrant to Verity at
and as of the date of the Merger Option Agreement (except as set forth in the
disclosure schedule delivered on the date of the Merger Option Agreement and
referred to therein as Schedule 3.0 (the "Original Disclosure Schedule")) and at
and as of the dates of both this Agreement and the Closing (except as set forth
in the Original Disclosure Schedule, as updated by the disclosure schedule to be
delivered prior to the Closing and attached to this Agreement as Schedule 2.0
(the "Closing Disclosure Schedule")) as follows in this Section 2. The
representations and warranties of the Principal Shareholders are made (i) with
respect to Section 2.3, joint and several and (ii) with respect to Sections 2.1,
2.2 and 2.4 through 2.19, to their respective knowledge after reasonable
inquiry, several and not joint.
1 ORGANIZATION, POWERS, QUALIFICATION AND AUTHORITY. Company is a
corporation duly organized and validly existing under the laws of the State of
California and has all requisite corporate power and authority to own its
properties and assets and carry on its business as now conducted. Company is
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to qualify would have an adverse effect
on its business and financial condition. The Board of Directors of Company and
Shareholders have duly authorized the execution and delivery of this Agreement
by Company, and have duly authorized the transactions contemplated by this
Agreement. Company has the power and authority to execute and deliver this
Agreement and the Agreement is valid, binding and enforceable against Company in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditor's rights and by rules of law
governing specific performance, injunctive relief or other equitable remedies.
2 SUBSIDIARIES; INTERESTS IN OTHER COMPANIES. Company does not own,
directly or indirectly, voting stock or interest in any corporation,
partnership, joint venture, business trust or other business entity. Company has
not merged with, assumed any liabilities of or acquired or succeeded to a
substantial portion of the business of any other entity, or entered into any
agreements providing for any similar transaction. Company has never conducted
any business under or otherwise used, for any purpose or in any jurisdiction,
any fictitious name, assumed name, trade name or other name.
2.
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3 CAPITALIZATION. The authorized capital of Company consists of
10,000,000 shares of common stock, of which 2,409,639 common shares are issued
and outstanding (all as described on the attached EXHIBIT A ("Company
Shareholders")) and 5,000,000 shares of preferred stock, of which 590,000 shares
are designated Series A Preferred Stock, 344,828 of which are issued and
outstanding. All such issued and outstanding shares of capital stock are duly
and validly authorized and issued, are fully paid and nonassessable and are free
from preemptive rights and have been issued in compliance with all applicable
securities laws of the United States and all states. Except as set forth in
EXHIBIT A ("Company Shareholders"), there are no outstanding shares of capital
stock or any options, warrants, conversion privileges or other rights
outstanding to acquire any shares of the capital stock or other securities of
Company.
4 FINANCIAL STATEMENTS. Company has furnished Verity its balance sheet
(reflecting all assets and liabilities of Company) as of April 30, 1997 and
reasonable accounts of its expenditures and receipts for the period from
inception through the last month prior to the Closing Date ("Company
Financials"). All such balance sheets and accounts are in accordance with the
books and records of Company and fairly and accurately present the financial
position, results of operations and changes in financial position of Company as
of the date and for the period indicated.
5 SCHEDULES OF PROPERTIES, CONTRACTS AND OTHER DATA. Attached to and
made a part of this Agreement are the following described schedules of
properties, contracts and other data of or pertaining to Company ("Schedules"):
.1 Schedule 2.5.1 describes all real estate or fixed assets
owned by Company, in each case free and clear of all mortgages, liens, or other
encumbrances except as otherwise stated in the Schedule.
.2 Schedule 2.5.2 describes all leases or agreements under
which Company is lessee of, or holds or operates any interest in or right to use
real or personal property owned by any third party.
.3 Schedule 2.5.3 describes all licenses, permits and other
instruments under which Company has licensed, acquired or has granted a right to
use or distribute any software, tradename or trademark, patent, copyright, trade
secret, mask work, technology, know-how, intellectual property, or other
intangible property of Company or any third party, other than off-the-shelf
software licensed by Company as an end-user.
.4 Schedule 2.5.4 describes all collective bargaining
agreements to which Company is a party and all other agreements and contracts
pertaining to terms and conditions of employment by Company, either written or
oral, including but not limited to employment agreements, employment letter
offers, consulting agreements, stock option plans, pension or profit sharing
plans, bonus plans, and group health, life and disability insurance plans, to
which Company is a party or under which the employees of Company have rights by
virtue of being employees of Company. Except as set forth in Schedule 2.5.4,
Company has no contract, commitment or employment agreement with any current or
former officer, director, employee or consultant that would now or hereafter
give rise to any claims versus Company.
3.
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.5 Schedule 2.5.5 describes specifically all patents and
patents pending, registered trademarks, trademark applications, trademark
registrations, trade names, service marks, and registered copyrights owned by,
registered in the name of, or otherwise the property of Company.
.6 Schedule 2.5.6 describes all existing instruments,
agreements or arrangements pursuant to which Company has borrowed any money,
incurred any other indebtedness, established a line of credit or guaranteed the
indebtedness or obligation of another person, corporation or other entity.
.7 Schedule 2.5.7 describes all policies of life, casualty,
liability or other forms of insurance owned by Company, each policy being in
full force and effect with premiums paid as noted on the Schedule.
.8 Schedule 2.5.8 describes all other material contracts,
agreements, commitments and instruments not described on the foregoing
Schedules, either written or oral, to which Company is a party.
.9 Schedule 2.5.9 describes all banks or brokerage accounts in
which Company has an account or a safe deposit box, the respective account
numbers of such accounts, and the names of all persons authorized to draw on
such accounts or who have access to such accounts.
.10 Schedule 2.5.10 describes all litigation or proceedings
pending or, to the Company's knowledge, threatened to which Company is (or could
become) a party.
.11 Schedule 2.5.11 describes all consents and approvals,
including approvals of government agencies, required for the execution and
delivery of this Agreement by Company and the consummation of the transactions
contemplated by this Agreement.
Company has delivered to Verity true and complete copies of all documents
described in the above Schedules. Except to the extent described in the
Schedules, Company has performed all of the obligations required to be performed
by it to date and is not in default under any of the agreements, contracts,
instruments or documents described in the Schedules, nor, to the Company's
knowledge, is any other party to such agreements, contracts, instruments or
documents in default thereunder in any respect.
6 TAXES. Company has filed all federal, state, local and other tax
returns and reports, if any, required to be filed by it and such returns are
true and correct in all respects. Company has paid all taxes, if any, shown to
be due and payable on said returns and reports and has withheld with respect to
employees all federal and state income taxes, FICA, FUTA and other taxes and
charges required to be withheld.
7 TITLE TO ASSETS. Company has good, valid and marketable title to all
of its assets as described in the balance sheet contained in the Company
Financials and the schedules described in Section 2.5 ("Schedules of Properties,
Contracts and Other Data"), free and clear of all mortgage,
4.
9
pledges, liens, security interests, conditional sale agreements, charges,
encumbrances, claims and restrictions of every kind and nature except as
otherwise set forth in Schedules 2.5.1, 2.5.2, 2.5.3, 2.5.4, 2.5.5, 2.5.6, 2.5.8
and 2.5.9. No independent contractor has any right, title or interest in any
Company asset or technology. Except as set forth on Schedule 2.5.3, Company has
not licensed, assigned, transferred or revealed to anyone the source code of all
or any portions of its proprietary software, and Company has not licensed,
assigned or transferred to anyone the object code of all or any portion of its
proprietary software. Except for demonstration versions of its technology
displayed to a limited number of third parties prior to the date of this
Agreement, the proprietary software set forth on Schedule 2.5.5 and all
associated algorithms and know-how have been kept in confidence by Company, and
Company's Shareholders and Company have taken customary and appropriate steps to
protect such material as trade secrets in accordance with the Uniform Trade
Secrets Act.
8 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule 2.5.10, (i)
there is no legal, administrative, arbitration or other proceeding or
governmental investigation pending or, to the Company's knowledge, threatened to
which Company is (or would become) a party, (ii) nor does Company know of facts
which would give rise to a claim which, if asserted, would have an adverse
affect on its business, (iii) nor is Company subject to any outstanding
judgment, order or decree of any court or administrative agency.
9 BROKERS AND FINDERS. Neither Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
10 COMPLIANCE WITH LAWS, ETC. Company has complied with the provisions
of its Articles of Incorporation, as amended or restated, and Bylaws, as amended
or restated, and has complied with all statutes, laws, ordinances, regulations
and other requirements applicable to Company. The execution and delivery of this
Agreement and the consummation of the transactions contemplated will not (a)
conflict with, or result in any breach or violation by Company of, or constitute
a default by Company under, its Articles of Incorporation, as amended or
restated, or Bylaws, or, any statute, law, ordinance, regulation or other
requirement applicable to Company or (b) except as stated in this Agreement or
the Schedules hereto, result in any breach or violation of, termination of or
default under any agreement or instrument to which Company is a party or by
which it is bound.
.1 RECORDS. Company has delivered to or made available for
inspection by Verity accurate and complete copies of any actions taken by
written consent or otherwise without a meeting of the shareholders of Company,
the board of directors of Company and all committees of the board of directors
of Company relating to the consummation of this transaction. There have been no
duly held meetings or other proceedings of the shareholders of Company, the
board of directors of Company or any committee of the board of directors of
Company relating to the consummation of this transaction, that are not fully
reflected in such minutes or other records. The books of account, minute books
and other records of Company are accurate, up-to-date and complete, and have
been maintained in accordance with sound and prudent business practices. All of
the records of Company are in the actual possession and direct control of
Company.
5.
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11 PATENTS, TRADEMARKS, LICENSES, ET CETERA. Company owns or holds
valid, unrestricted, enforceable rights for the use of all patents, trademarks,
trademark registrations, trade names, service marks, copyrights, mask works,
trade secrets, know-how, technology and other intellectual property described on
Schedules 2.5.3 and 2.5.5 or used in the conduct of its business, and none of
the foregoing technology conflicts with nor infringes upon any patents,
trademarks, trade names, trade secrets, mask works, copyrights, licenses to use
the same or other rights or property of others. To the Company's knowledge, no
person or business entity is infringing or making any unlawful use of, and no
asset owned or used by any other person or business entity infringes or
conflicts with, any asset owned or used by Company. Company is not restricted by
any agreement, oral or written, from transferring or licensing any of its assets
including but not limited to intellectual property, conducting its existing
business or any related or contemplated business, rendering services or
competing with any person or entity anywhere in the world. Company has obtained
all governmental permits, licenses, consents, approvals, and waivers necessary
for the lawful conduct of its business as now conducted. There are no rights or
restrictions in any agreements, licenses, franchises or other instruments to
which Company is a party or by which it is bound which would prevent Company
from consummating this transaction, from carrying on its current business or any
business that Company currently proposed to conduct or prevent Verity from using
the assets in any manner it sees fit. In addition, except as set forth on
Schedule 2.5.3, Company is not required to pay any royalty, license fee or other
similar type of compensation in connection with the use of the Company assets,
the conduct of its business as it now stands, or has in the past been conducted.
Company has, and Verity will acquire at the Closing, the right to use the name
"64K" and variations thereof. Neither the consummation of the transactions
contemplated by this Agreement or any document executed pursuant thereto, nor
the conduct of Company's business as currently conducted or as proposed to be
conducted shall breach any nondisclosure agreement, inventions agreement or any
other agreement between Company or any Shareholder and any third party.
12 CONDITION OF PROPERTIES. All of the properties of Company are in
good operating condition and repair, subject only to ordinary wear and tear
which is not such as to render the properties less than substantially fit for
the purposes for which they are being used.
13 ABSENCE OF UNDISCLOSED LIABILITIES. Company has no liabilities of
any nature, fixed or contingent, which are not reflected in the Company
Financials other than those liabilities disclosed on the Schedules as listed at
EXHIBIT C ("Liabilities").
14 ABSENCE OF CHANGES. Except as disclosed on Schedule 2.14, since
the date of the most recent Company Financials delivered to Verity:
.1 Company has not entered into any employment contracts or
paid any bonuses or special remuneration to any officers, directors or employees
nor is Company delinquent regarding any payments due to an employee for services
rendered or reimbursements required.
.2 Company has conducted its business in compliance with all
laws and regulations applicable to Company.
6.
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.3 Company has not encumbered or permitted to be encumbered
any of its properties or assets.
.4 Company has not declared or paid any dividends or made any
other distributions with respect to its capital stock.
.5 Company has not purchased, redeemed, retired or otherwise
acquired its own capital stock.
.6 Company has not licensed, assigned, transferred or conveyed
to any third party any property or right necessary to the conduct of its current
business or its business as proposed, including any manufacturing rights or
rights to access the computer source code related to any of its products or
technology.
.7 Company has not entered into any other transactions which
would result in the transfer or license by Company of assets or rights.
.8 Company has not suffered any damage, destruction or loss
to its assets or business, whether or not covered by insurance.
.9 Company has not forgiven any debt or otherwise released or
waived any right or claim relating to the Company assets;
.10 Company has not agreed, committed or offered (in writing
or otherwise) to take any of the actions referred to in Sections 2.14.1 - 2.14.9
above.
15 OTHER NEGOTIATIONS. Except for the transaction contemplated by this
Agreement and outstanding offers to prospective employees which have been
disclosed to Verity, there is no existing commitment to sell all or a part of
the assets or stock of Company, there is no outstanding offer to sell all or a
part of the assets or stock of Company, and there are no pending negotiations
for the sale of all or a part of the assets or stock of Company.
16 PROPRIETARY INFORMATION AND EMPLOYEE INVENTIONS AGREEMENTS. Except
as disclosed in Schedule 2.16, all of Company's employees, both current and
past, and all current and past consultants who have had access to, worked with,
prepared, modified or developed any portion of the intellectual property
described on Schedule 2.5.5 have executed a proprietary information and
inventions agreement substantially in the form of such agreement attached as
part of Schedule 2.5.4. A list of all such persons is contained in Schedule2.16.
17 RESTRICTED STOCK PURCHASE AND OPTION AGREEMENTS. Except as disclosed
in Schedule 2.17, all of the Shareholders of Company have duly executed stock
purchase agreements which provide for a right of Company to repurchase the
shares of Company common stock issued thereunder, pursuant to the terms of the
Company's standard founder or employee stock purchase agreement, a copy of which
has been delivered to Verity (the "Standard Stock Agreement"). Copies of all
such agreements have been delivered to Verity's counsel, and are in full force
and effect without
7.
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modification from the Standard Stock Agreement except pursuant to Section 7.12.
Any person who becomes a Shareholder during the term of this Agreement will only
do so pursuant to the Standard Stock Agreement.
18 COMPLIANCE WITH IMMIGRATION REFORM AND CONTROL ACT OF 1986 ("IRCA").
Company has not engaged in any activity nor is it aware of any practice with
respect to its employees that is in violation of IRCA including but not limited
to, the anti-discrimination provisions, the verification of employment
eligibility procedures and the document fraud provisions. Company warrants that
it has complied with the applicable provisions of IRCA with respect to its
employees.
19 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company contained in this Agreement, including the attached
Schedules of Company, contain no untrue statement of a fact and do not omit or
misstate a fact necessary in order to make the statements contained therein not
misleading.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS. Each
Shareholder severally represents, warrants and covenants to Verity and Company
as of the date of this Agreement, the date of the Merger Option Agreement and as
of the Closing with respect to such Shareholder as follows:
1 OWNERSHIP OF COMPANY SHARES. Such Shareholder is the owner of the
number of Shares listed opposite such Shareholder's name on EXHIBIT A ("Company
Shareholders"). Such Shareholder has, and Verity will acquire at the Closing,
good and valid title to such Shares free and clear of any Encumbrances (other
than any Encumbrances which are imposed pursuant to agreements with Verity or
the Company (copies of which have been delivered to Verity), which Encumbrances
shall have been waived or terminated as to the Company as of the Closing).
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security and any restriction on the transfer of any security).
These Shares constitute such Shareholder's entire interest in the capital stock
of the Company, and Shareholder has no other options, warrants, conversion
privileges or other rights to acquire any shares of the capital stock or other
securities of the Company. In addition, such Shareholder has no claims against
the Company of any nature, including claims for compensation, profit sharing or
other benefits, other than salary benefits including accrued vacations, and
reimbursement for normal business expenses for the most recent pay period.
2 FULL CAPACITY; BINDING AGREEMENT. Shareholder is of sound mind and
full capacity to enter into this Agreement, and this Agreement is valid, binding
and enforceable against Shareholder in accordance with its terms, except as
limited by applicable bankruptcy, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and by rules of law governing specific performance, injunctive relief or other
equitable remedies.
8.
13
3 BROKERS AND FINDERS. Shareholder has not employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated by this Agreement.
4 LEGAL REPRESENTATION. Shareholder has either consulted with
Shareholder's own legal counsel and other advisors and representatives regarding
the transactions contemplated by this Agreement or, having had the opportunity
to consult with such persons regarding such transactions, has chosen not to do
so.
5 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Shareholder contained in this Agreement contain no untrue
statement of a fact and do not omit or misstate a fact necessary in order to
make the statements contained therein not misleading. The Shareholder is not
aware that any representations or warranties of the Company are inaccurate in
any material respect.
6 COMPLIANCE WITH IMMIGRATION REFORM AND CONTROL ACT OF 1986 ("IRCA").
Following the Closing, Verity's employment of Shareholder will not be in
violation of IRCA, and Shareholder can present valid documents to Verity
necessary for verification of employment eligibility under IRCA.
4. REPRESENTATIONS AND WARRANTIES OF VERITY. Verity represents and warrants to
Company and the Shareholders at and as of the date of this Agreement, the date
of the Merger Option Agreement and as of the Closing as follows:
1 ORGANIZATION, POWERS AND AUTHORITY. Verity is a corporation duly
organized and validly existing under the laws of the State of Delaware and has
all requisite corporate power and authority to execute and deliver this
Agreement. The Board of Directors of Verity has authorized the execution and
delivery of this Agreement by Verity, and has authorized the transactions
contemplated by the Agreement. The Agreement is valid, binding and enforceable
against Verity in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditor's rights and by
rules of law governing specific performance, injunctive relief or other
equitable remedies.
2 BROKERS AND FINDERS. Verity has not employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
3 ACCURACY OF REPRESENTATION AND WARRANTIES. Verity has delivered to
the Company true, accurate and complete copies of Verity's most recent reports
on Forms 10-K, 10-Q and any report on Form 8-K filed since the most recent 10-Q
(collectively, the "SEC Documents"). As of their respective filing dates, taken
together, the SEC Documents contained no untrue statement of a material fact and
did not omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading except to the extent corrected by a subsequently filed
SEC Document. The representations and warranties of Verity contained in this
Agreement, contain no untrue statement of a material fact and do not omit or
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misstate a material fact necessary in order to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
4 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or result in a material breach or violation of, any
provision of Verity's Certificate of Incorporation or its Bylaws, as currently
in effect, any instrument or contract to which Verity is a party.
5. COVENANTS BY THE COMPANY AND THE SHAREHOLDERS. From and after the date of the
Merger Option Agreement to and including the Closing Date, Company and, with
respect to Sections 5.1.6, 5.1.7, 5.2 and 5.6, each Shareholder covenants and
agrees with Verity as follows:
1 CONDUCT OF BUSINESS, ETC. Company will carry on its business in a
reasonable and prudent manner, will notify Verity of the occurrence of any event
having a material adverse impact upon its business prospects or financial
condition and without the prior written consent of Verity will not do any of the
following:
.1 Incur any liabilities or make capital expenditures that are
inconsistent with the operating plan and budget of the Company as approved by
Verity and attached hereto as EXHIBIT F ("Operating Plan").
.2 Take any action or permit any action to be taken other than
in the ordinary course of business which is inconsistent with the Development
Agreement, and with protecting its rights and properties.
.3 Hire any new employees, enter into any employment
contracts, pay any bonuses or special remuneration to any officers, directors or
employees, or increase the salaries or wage rates or other remuneration of any
officers or employees.
.4 Conduct the business of Company other than in compliance
with all applicable laws and regulations in all respects.
.5 Declare or pay any dividends, make any other distributions
with respect to its capital stock, or split or otherwise reclassify its capital
stock.
.6 Purchase, redeem, retire or otherwise acquire any of the
Company's capital stock, except pursuant to the Company's exercise of its right
to repurchase shares from employees, directors or consultants of the Company
pursuant to agreements under which such stock was sold.
.7 Issue, sell, encumber or give any option or right to
purchase any of the Company's capital stock or other securities.
.8 Sell, license, assign, transfer, encumber or convey to any
third party any property or right described on the Schedules, including but not
by way of limitation, any rights with respect to software, or any other
technology or intellectual property rights therein.
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.9 Engage in any business activity other than the development
of the Beta Product (as defined in the Development Agreement) and related
technology pursuant to the Development Agreement.
.10 Amend, encumber, impair or rescind any of Company's rights
under any Company stock purchase agreement or Company option agreement.
2 EXCLUSIVITY; ACQUISITION PROPOSALS. Company shall not and its
officers, directors, agents, representatives and affiliates shall not, directly
or indirectly, take any of the following actions with any party other than
Verity and its designees: (a) solicit, encourage, initiate or participate in any
negotiations, inquiries or discussions with respect to any offer or proposal to
license its technology, acquire all or substantially all of its business and
properties or capital stock of Company whether by merger, purchase of assets,
tender offer or otherwise; (b) disclose any information not customarily
disclosed to any person concerning its business and properties or afford to any
person or entity access to its properties, books or records, except in the
ordinary course of business; (c) enter into or execute any agreement or plan of
reorganization, merger agreement, or other agreement calling for the sale of all
or substantially all of its business and properties; (d) except as otherwise
permitted by the foregoing, assist or cooperate with any person (other than
employees with respect to equity incentive arrangements) to make any proposal to
purchase all or any part of the business or assets or capital stock of Company.
In the event Company shall receive any offer or proposal, directly or
indirectly, of the type referred to in clause (a) above, or any request for
disclosure or access pursuant to clause (b) above, it shall immediately, and
prior to taking any action in response thereto, inform Verity as to all material
facts concerning any such offer, proposal or request and will thereafter
cooperate with Verity by continuing to furnish to Verity any additional
information it may at any time request.
3 BREACH OF REPRESENTATIONS AND WARRANTIES. Company and/or the
Shareholder will not take any action which would cause or constitute a breach of
any of the representations and warranties set forth in Sections 2
("Representations and Warranties by Company and the Company Shareholders") or 3
("Representations, Warranties and Covenants of the Shareholders") or which would
cause any of such representations and warranties to be inaccurate. In the event
of, and promptly after becoming aware of, the occurrence of or the pending or
threatened occurrence of any event which would cause or constitute such a breach
or inaccuracy, Company and each Shareholder will give detailed notice thereof to
Verity and will use its best efforts to prevent or promptly to remedy such
breach or inaccuracy.
4 ACCESS TO INFORMATION. Verity and its representatives will be
permitted reasonable access during business hours to the premises in which
Company conducts its business and to all books, records and personnel of
Company. Company will furnish to Verity such financial data, operating data and
other information as Verity shall reasonably request. Specifically, but without
limitation, Company will provide to Verity or its representatives for review its
stock book, minute books and copies of all retirement plans, employment
agreements, personnel records, leases, licenses, contracts with suppliers,
contracts with customers and other contracts or documents to which it is a
party. Verity is aware of and has investigated Company's business, management
and financial condition, has had the opportunity to inspect Company's
facilities, and has had access to such other information about Company as Verity
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has deemed necessary or desirable to reach an informed and knowledgeable
decision to complete the transactions contemplated by this Agreement.
5 CONSENTS. Company will promptly apply for or otherwise seek, and use
its best efforts to obtain, the written consents and approvals described on
Schedule 2.5.11.
6 NEWS RELEASES. Company will not issue a news release or other
announcement concerning the transactions contemplated by this Agreement except
jointly with and through Verity.
7 COMMERCIALLY REASONABLE. Company and each Shareholder will use its
commercially reasonable efforts to effectuate the transactions hereby
contemplated and to fulfill the conditions of its obligations under this
Agreement described in Section 8 ("Conditions to Obligations of Verity").
6. COVENANTS BY VERITY. From and after the date of the Merger Option Agreement
to and including the Closing Date, Verity covenants and agrees with Company as
follows:
1 BREACH OF REPRESENTATIONS AND WARRANTIES. Verity will not take any
action which would cause or constitute a breach of any of the representations
and warranties set forth in Section 4 ("Representations and Warranties of
Verity") or which would cause any of such representations and warranties to be
inaccurate. Verity will, in the event of, and promptly after becoming aware of
the occurrence of or the pending or threatened occurrence of any event which
would cause or constitute such a breach or inaccuracy, give detailed notice to
Company and will use its best efforts to prevent or promptly to remedy such
breach or inaccuracy.
2 EMPLOYMENT OF COMPANY EMPLOYEES. Verity shall offer to retain the
services of the employees listed on Schedule 6.2, and such additional employees
of the Company whose hiring is approved by Verity, commencing on the Closing
Date at the monthly salary listed opposite their respective names pursuant to
the terms of the Employment Agreement attached hereto as EXHIBIT D ("Employment
Agreement").
3 OPTION GRANTS. Verity's Board of Directors, or a committee thereof,
shall grant options to purchase Verity common stock pursuant to a Verity stock
option plan (the "Option Shares") to each of the Shareholders. The Option Shares
granted shall total 90,000, with the specific number of Option Shares allocated
to each Shareholder determined as set forth on EXHIBIT G ("Option Shares"). The
grant of such Option Shares shall be made at the Closing. The Option Shares
granted pursuant to this Section 6.3 shall have an exercise price per share
equal to the closing price of Verity's common stock (as reported in The Wall
Street Journal) on the last trading date prior to the date of the grant. In
addition, such Option Shares shall be subject to a three (3) year vesting period
(the "Vesting Period") commencing on the Closing Date with no Option Shares
vesting until seven (7) months following the Closing Date, at which time 7/36 of
the Option Shares will vest. After seven (7) months from the Closing Date, the
remaining Option Shares shall vest ratably over the remaining twenty-nine (29)
months of the Vesting Period, so long as such Shareholder continues in the
employment of Verity or the Company. Notwithstanding the foregoing, in no event
shall such Option Shares vest unless and until the Employee becomes or remains a
full-time employee of Verity or the Company as of the Closing Date.
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4 COMMERCIALLY REASONABLE EFFORTS. Verity will use its commercially
reasonable efforts to effectuate the transactions hereby contemplated, to
fulfill the conditions of Verity's obligations under this Agreement described in
Section 8 ("Conditions to Obligations of Company and the Shareholders") and to
cooperate with Company to obtain consents as required by Section 5.5
("Consents").
7. CONDITIONS TO OBLIGATIONS OF VERITY. The obligations of Verity to close the
transactions contemplated by this Agreement are subject to the fulfillment prior
to or at the Closing Date of each of the following conditions:
1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Company contained in Section 2 ("Representations and Warranties by Company") and
of the Shareholders in Section 3 ("Representations, Warranties and Covenants of
the Shareholders") at and as of the date of this Agreement shall also be true at
and as of the Closing Date in all respects as though such representations and
warranties were made at and as of the Closing Date.
2 COMPLIANCE WITH COVENANTS AND CONDITIONS. Company shall have
performed and complied with all agreements, covenants and conditions required by
this Agreement to be performed or complied with by Company prior to or at the
Closing Date.
3 CONSENTS AND APPROVALS. All consents and approvals described on
Schedule 2.5.11 shall have been obtained.
4 SHAREHOLDERS' EXECUTION. This Agreement shall have been executed by
all of the holders of the outstanding stock and options of Company.
5 NO ACTION TO PREVENT CONSUMMATION. No action or proceeding shall have
been instituted or threatened before any court or governmental agency on or
prior to the Closing Date to restrain or prohibit, or to obtain damages in
respect of, this Agreement or the consummation of the transactions contemplated
herein.
6 CERTIFICATE. Verity shall have received the certificate of the
President and Secretary of Company in form satisfactory to Verity and dated the
Closing Date, certifying to the fulfillment of the conditions described in
Sections 7.1 ("Representations and Warranties"), 7.2 ("Compliance with Covenants
and Conditions"), 7.3 ("Consents and Approvals") and 7.4 ("Shareholders'
Execution") and such other evidence with respect to the fulfillment of any
conditions of this Agreement as Verity may reasonably request upon reasonable
prior notice.
7 NO TRANSFER OF SHARES. None of the Shareholders shall have sold,
assigned, pledged or otherwise transferred or conveyed any shares of Company
common stock or any rights to acquire Company common stock other than to the
Company.
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8 OPINION OF COUNSEL. Verity shall have received from ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ &
Freidenrich, counsel to Company ("Company Counsel"), an opinion dated the
Closing Date, in form and substance reasonably satisfactory to Verity and its
counsel.
9 EMPLOYMENT OF SHAREHOLDERS. Each Shareholder shall have accepted the
offer of employment or continued employment from Verity at the annual salary
listed opposite his name on Schedule 6.2 and shall have executed his Employment
Agreement attached hereto as EXHIBIT D.
10 AGREEMENTS NOT TO COMPETE. Each Shareholder shall have executed a
Non-Competition Agreement with Verity in the form attached hereto as EXHIBIT E
("Non-Competition Agreements").
11 OPTION CANCELLATION AGREEMENTS. Each of the Shareholders shall have
entered into an Option Cancellation Agreement in the form attached hereto as
EXHIBIT H.
12 AMENDMENTS TO STANDARD STOCK AGREEMENTS. Each Shareholder shall
have entered into an amendment to his respective Standard Stock Agreement in
form and substance satisfactory to Verity in its sole discretion.
13 RECEIPT OF SHARE CERTIFICATES. Each Shareholder shall have
delivered the original stock certificates representing his Shares duly
authorized for transfer by stock power or otherwise as necessary to deliver good
and valid title to such Shares to Verity free and clear of any Encumbrances.
8. CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SHAREHOLDERS. The obligations
of Company and the Shareholders to close the transactions contemplated by this
Agreement are subject to the fulfillment prior to or at the Closing Date of each
of the following conditions:
1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Verity contained in Section 4 ("Representations and Warranties of Verity") at
and as of the date of this Agreement shall also be true at and as of the Closing
Date in all material respects as though such representations and warranties were
made at and as of the Closing Date.
2 COMPLIANCE WITH COVENANTS AND CONDITIONS. Verity shall have performed
and complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing
Date.
3 CONSENTS AND APPROVALS. All consents and approvals described on
Schedule 2.5.11 shall have been obtained.
4 NO ACTION TO PREVENT CONSUMMATION. No action or proceeding shall have
been instituted or threatened before any court or governmental agency on or
prior to the Closing Date to restrain or prohibit, or to obtain damages in
respect of, this Agreement or the consummation of the transactions contemplated
herein.
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5 CERTIFICATE. Company shall have received the certificate of the
President or a Vice President and the Secretary of Verity in form satisfactory
to Company and dated the Closing Date, certifying to the fulfillment of the
conditions described in Sections 8.1 ("Representations and Warranties") and 8.2
("Compliance with Covenants and Conditions").
6 SHAREHOLDERS' EXECUTION. This Agreement shall have been executed by
all Shareholders.
7 PAYMENT OF PURCHASE PRICE. Verity shall have delivered the Purchase
Price to the Shareholders and the Escrow Agent pursuant to Section 1.2.
9. SURVIVAL AND INDEMNIFICATION; EMPLOYMENT HOLDBACK.
1 INDEMNIFICATION BY THE SHAREHOLDERS. In the event the Closing occurs,
then, subject to the limitations of Section 9.3 ("Limitations on
Indemnification"), each of Company and the Shareholders jointly and severally
shall indemnify and hold harmless Verity, its affiliates, officers, directors,
shareholders, successors and assigns (the "Indemnified Parties") from and
against and shall reimburse the Indemnified Parties with respect to any and all
loss, damage, liability, cost and expense, including reasonable attorneys' fees
(collectively, "Loss"), incurred by the Indemnified Parties by reason of or to
the extent arising out of or in connection with the breach of any covenant or
the inaccuracy of any representation or warranty of Company contained in
Section 2 ("Representations and Warranties by Company") and Section 5
("Covenants by the Company and the Shareholders") of this Agreement. "Loss" as
described in this Section 9 shall include, without limitation, any amounts for
which an Indemnified Party may be liable to a third party or any diminution in
the value of property of Verity or the Company.
.1 ESCROW ACCOUNT. All indemnification of Verity and other
Indemnified Parties by the Shareholders shall first be satisfied out of the
funds held by the Escrow Agent in the Escrow Account in accordance with the
terms of the Escrow Agreement.
2 INDEMNIFICATION BY EACH SHAREHOLDER. In the event the Closing occurs,
then, subject to the limitations provided in Section 9.3 ("Limitations on
Indemnification"), each Shareholder shall, severally and not jointly, indemnify
and hold harmless Verity and the other Indemnified Parties from and against and
shall reimburse the Indemnified Party with respect to any and all Losses
incurred by the Indemnified Party by reason of or arising out of or in
connection with the Shareholder's breach of any covenant or the inaccuracy of
any representation or warranty of that Shareholder contained in Section 3
("Representations, Warranties and Covenants of the Shareholders") or Section 5
("Covenants of the Company and the Shareholders") of this Agreement.
15.
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3 LIMITATIONS ON INDEMNIFICATION.
.1 Notwithstanding the foregoing provisions of Sections 9.1
("Indemnification by the Shareholders") and 9.2 ("Indemnification by Each
Shareholder"), the Shareholders shall not be liable for such Losses until such
time as the total liability under Sections 9.1 and 9.2 in the aggregate reaches
$20,000 (but then the Shareholders shall be liable for the entire $20,000 plus
any such liability in excess of $20,000).
.2 Notwithstanding the foregoing provisions of Section 9.1 and
9.2, the liability of the Shareholders under this Agreement shall be limited as
follows:
(I) Except to the extent a claim is based on breach
of the representations and warranties in Sections 2.7 ("Title to Assets") and
2.11 ("Patents, Trademarks, Licenses, Etc."), Verity's and the other Indemnified
Parties' sole recourse with respect to a breach by the Company of its
representations, warranties or covenants made in this Agreement shall be limited
to the cash and securities held in the Escrow Account, and there shall be no
indemnification obligation with respect to any such claim unless notice thereof
is given to the Shareholders or the Shareholders' Agent (as defined in the
Escrow Agreement) within one year following the Closing Date.
(II) To the extent a claim is based on breach of
the representations or warranties in Section 2.7 ("Title to Assets") or Section
2.11 ("Patents, Trademarks, Licenses, Etc.") (with any such claim to the extent
based on Section 2.7 or Section 2.11 referred to hereunder as an "IP Claim"):
(1) To the extent such IP Claim concerns
alleged infringement of the patent rights of a third party (with such portion of
any such IP Claim referred to hereunder as a "Patent Claim"), then, unless one
or more Shareholders knew or should have known of the potential infringement of
such patent as of the Closing Date (without any implied obligation to conduct a
patent search),
(A) Verity and the other Indemnified
Parties shall be entitled to indemnification for Losses relating to such Patent
Claim as follows: for the full amount of the Loss relating to such Patent Claim,
but with recourse initially only to the cash and securities held in the Escrow
Account and, after such escrow amounts are exhausted, to the Shareholders for
the balance of any additional Loss relating to such claim, subject to Section
9.3.2(iii) below, and
(B) there shall be no indemnification
obligation with respect to any such Patent Claim unless notice thereof is given
to the Shareholders or the Shareholders' Agent within one year following the
Closing Date.
(2) For all other such IP Claims (including
Patent Claims where one or more Shareholders knew or should have known of the
potential infringement of the third party patent as of the Closing Date (without
any implied obligation to conduct a patent search)), the aggregate liability of
the Shareholders for indemnification hereunder shall be limited as set forth in
Section 9.3.2(iii), but there shall be no indemnification obligation with
respect to any such IP Claims
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unless notice thereof is given to the Shareholders or the Shareholders' Agent
within two years following the Closing Date.
(III) In no case shall the aggregate liability of
any Shareholder for indemnification under this Agreement exceed the proceeds
payable to such Shareholder pursuant to this Agreement (including, with respect
to each Shareholder, the amount paid to such Shareholder at Closing pursuant to
Section 1.2(b) and such Shareholder's portion of the Escrow Deposit paid into
the Escrow Account at Closing pursuant to Section 1.2(c)); provided, however,
that with respect to any Patent Claims described in Section 9.3.2(ii)(1), the
aggregate liability of any Shareholder shall not exceed 75% of the proceeds
payable to such Shareholder pursuant to this Agreement.
4 EXCLUSIVITY OF INDEMNIFICATION REMEDIES. In the absence of fraud, if
the Closing occurs, indemnification pursuant to the provisions of this Section 9
shall be the sole and exclusive remedy of the Indemnified Parties for any breach
of any representation, warranty, covenant or agreement contained in this
Agreement.
5 EXERCISE OF REMEDIES BY INDEMNIFIED PARTIES OTHER THAN VERITY. No
Indemnified Party (other than Verity) shall be permitted to assert any
indemnification claim or exercise any other remedy under this Agreement unless
Verity (or any successor thereto or assign thereof) shall have consented to the
assertion of such indemnification claim or the exercise of such other remedy.
6 SURVIVAL.
.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Verity, Company and the Shareholders in this Agreement shall
survive the Closing.
.2 COVENANTS. Covenants set forth in this Agreement that by
their terms continue after the Closing shall survive the Closing.
7 RELIANCE. No disclosure by any party to this Agreement nor any
investigation made by or in behalf of any party with respect to another party
shall be deemed to affect the party's reliance on the respective representations
and warranties contained in this Agreement and shall not effect a waiver of that
party's rights to indemnity as herein provided or the breach of any said
representations and warranties.
8 EMPLOYMENT HOLDBACK.
.1 In addition to the right of Verity and the other
Indemnified Parties to satisfy any claims for indemnification arising under
Sections 9.1 and 9.2 above out of funds held by the Escrow Agent in the Escrow
Account, a portion of such funds (the "Holdback Amounts"), which are set forth
with respect to each Shareholder on EXHIBIT A, shall be retained in the Escrow
Account following the Closing Date and shall be released from the Escrow Account
to Verity as follows and in accordance with the terms of the Escrow Agreement:
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(I) any or all of the Holdback Amounts are subject
to release from the Escrow Account to Verity or the other Indemnified Parties,
as the case may be, in accordance with the terms of the Escrow Agreement to
satisfy a claim for indemnification made pursuant to Section 9.1 or 9.2 above;
(II) each Shareholder's Holdback Amount shall be
released from the Escrow Account and returned to Verity if, during the period
commencing with the Closing Date and ending at the end of eighteen (18) months
thereafter (the "Holdback Period"), such Shareholder (a) voluntarily terminates
employment with Verity or (b) has been terminated as an employee of Verity or
the Company "for cause" (each such event shall be referred to as a
"Termination"). The termination of the employment of a Shareholder by Verity or
the Company and his concurrent employment by any successor, parent or subsidiary
corporation or affiliate shall not be considered an event constituting a
termination of employment for the purposes of this Agreement;
(IV) upon the expiration of the Holdback Period,
each Shareholder's Holdback Amount shall remain subject to release to Verity or
to such Shareholder, as the case may be, in accordance with the terms of the
Escrow Agreement.
.2 For purposes of this Agreement:
(I) a termination "for cause" shall mean a
termination for any of the following reasons: (a) theft, dishonesty or
falsification of any employment or company records; (b) malicious or reckless
disclosure of the employer's confidential or proprietary information; (c) gross
or willful misconduct by the Shareholder; or (d) the failure or refusal of
Shareholder to work diligently to perform in accordance with management's
reasonable requests, provided such failure or refusal continues after the
receipt of reasonable notice in writing of such failure or refusal and an
opportunity to correct the problem.
(II) resignation by the Shareholder from employment
by Verity within thirty (30) days after a reduction in Shareholder's base salary
below that in effect immediately prior to the Closing Date that occurs without
the consent of or request by the Shareholder shall be deemed to be a termination
other than "for cause."
10. TERMINATION.
1 RIGHTS UPON TERMINATION. If there is a termination under this Section
10, all rights of the parties under this Agreement shall cease and terminate,
except for such rights as any party otherwise may have for breach of contract,
and each party shall return to the other any documents, information, financial
statements and the like provided to the other in the course of negotiating this
transaction.
2 FEES AND EXPENSES.
.1 VERITY FEES AND EXPENSES. Subject to the provisions of
Section 9 ("Survival and Indemnification") (including the indemnification and
other obligations of Company thereunder), Verity shall bear and pay all fees,
costs and expenses (including all legal fees and expenses payable to
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▇▇▇▇▇▇ Godward LLP) that have been incurred or that are in the future incurred
by or on behalf of Verity in connection with:
(I) the negotiation, preparation and review of any
letter of intent or similar document relating to this Agreement;
(II) the investigation and review conducted by
Verity and its representatives with respect to the business of Company;
(III) the negotiation, preparation and review of
this Agreement, all other transactional agreements and all bills of sale,
assignments, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with this Agreement; and
(IV) the consummation and performance of this
Agreement and the other agreements required to be executed hereunder.
.2 COMPANY FEES AND EXPENSES. Company shall bear and pay all
fees, costs and expenses (including all legal fees and expenses payable to
Company Counsel) that have been incurred or that are in the future incurred by,
on behalf of, or for the benefit of Company in connection with:
(I) the negotiation, preparation and review of any
letter of intent or similar document relating to this Agreement;
(II) the furnishing of information to Verity and
its representatives in connection with any investigation and review conducted by
Verity and its representatives regarding the business of Company;
(III) the negotiation and review of this Agreement,
all other transactional agreements and all bills of sale, assignments,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with this Agreement;
(IV) the preparation and submission of any filing
or notice required to be made or given in connection with this Agreement, and
the obtaining of any consent required to be obtained in connection with this
Agreement;
(V) the consummation and performance of this
Agreement and the other agreements required to be executed hereunder; and
(VI) the negotiation and preparation of the
Series A Purchase Agreement and related documents.
11. MISCELLANEOUS.
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1 FURTHER ASSURANCES. Each party will, upon request of the other,
execute and deliver all instruments and documents of further assurance or
otherwise, and perform all acts and things, which may be required to carry out
its obligations hereunder and to consummate and complete the transaction
contemplated by this Agreement.
2 NOTICES. Any notice or communication permitted or required hereunder
shall be in writing and shall be delivered in person or by courier, sent by
electronic facsimile (fax), or mailed by certified or registered mail, postage
prepaid, return receipt requested, and addressed as set forth after the
signatures to this Agreement or to such other address as shall be given in
accordance with this Section 11.2 ("Notices"). If notice is given in person, by
courier or by fax, it shall be effective upon receipt; and if notice is given by
mail, it shall be effective three (3) business days after deposit in mail.
3 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California as such laws are applied to
agreements entered into and to be performed entirely within California between
California residents.
4 EXPENSES. If the Closing does not occur, each party shall pay its
respective expenses in connection with this transaction. Nothing in this Section
is intended to affect any rights to indemnity under Section 9 ("Survival and
Indemnification").
5 PARTIES-IN-INTEREST. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, their respective heirs, administrators,
executors, successors and assigns; provided, however, that this Agreement may
not be assigned by any of the parties hereto.
6 ENTIRE AGREEMENT. This Agreement constitutes and contains the entire
agreement of the parties and supersedes any and all prior negotiations,
correspondence, understandings and agreements between the parties respecting its
subject matter.
7 AMENDMENT AND WAIVER. Except as otherwise provided, this Agreement
may be amended only upon the written consent of all the parties. Notwithstanding
the foregoing, this Agreement may be amended with only the written consent of
the Company and Verity to include additional Company shareholders as parties
hereto. Any of the terms and conditions of this Agreement, and any inaccuracies
in any of the representations or warranties contained herein, may be waived at
any time and from time to time, in writing, by such parties as are entitled to
the benefit of such terms, conditions, warranties or representations. Such
waiver shall not constitute or be deemed a waiver of any other terms, conditions
or inaccuracies.
8 ATTORNEYS' FEES. If suit or action is filed by any party to enforce
this Agreement or otherwise with respect to the subject matter of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees incurred in preparation for and prosecution of such suit or
action as fixed by the trial court, and if any appeal is taken from the decision
of the trial court, reasonable attorneys' fees as fixed by the appellate court.
9 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall be invalid, illegal, or unenforceable in any
respect for any reason, the validity, legality
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and enforceability of any such provision in every other respect and of the
remaining provisions of this Agreement shall not be in any way impaired.
10 SCHEDULES. The Schedules referred to in this Agreement shall be the
Schedules described as such, initialed by the parties and attached to this
Agreement upon the execution and delivery.
11 EXHIBITS AND SCHEDULES. The following Exhibits and Schedules which
are attached hereto are hereby incorporated into this Agreement by this
reference:
EXHIBITS DESCRIPTION
A Company Shareholders
B Escrow Agreement
C Liabilities
D Employment Agreement
E Non-Competition Agreement
F Operating Plan
G Option Shares
COMPANY'S
SCHEDULES DESCRIPTION
2.0 Exceptions to Representations and Warranties
2.5.1 Real and Personal Property Interests
2.5.2 Leases and Agreements
2.5.3 Licenses, Permits and Other Instruments
2.5.4 Collective Bargaining Agreements and Other Agreements and
Contracts
2.5.5 Copyrights, Patents, Trademarks, etc.
2.5.6 Instruments, Agreements and Arrangements Evidencing Borrowing
2.5.7 Insurance Policies
2.5.8 Contracts
2.5.9 Banks and Accounts
2.5.10 Litigation and Proceedings
2.5.11 Consents and Approvals
2.13 Compliance
2.14 Absence of Changes
2.16 Exceptions to Proprietary Information Representation
2.17 Restricted Stock Purchase and Option Agreements
5.6 Insurance
6.2 Employment of Company Employees
12 HEADINGS. The headings of the sections and subsections contained in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
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13 COUNTERPARTS. This Agreement may be executed in several counterparts
and all of such counterparts shall constitute one and the same instrument with
the same force and effect as if all the parties had executed the same document.
The parties have executed this Agreement as of the date first written above or
as otherwise indicated.
VERITY, INC. 64K INCORPORATED
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Authorized Signature Authorized Signature
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Printed Name Printed Name
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Title Title
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Date Date
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SHAREHOLDERS:
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Date Date
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Printed Name Printed Name
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Date Date
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Date
23.
