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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RED HAT, INC.,
HKS ACQUISITION CO.,
HELL'S KITCHEN SYSTEMS, INC.
AND
THE MAJORITY SHAREHOLDERS OF HELL'S KITCHEN SYSTEMS, INC.
Dated as of January 4, 2000
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS............................................................................................2
Section 1.1 DEFINITIONS.........................................................................2
Section 1.2 GENERAL RULES OF INTERPRETATION....................................................10
ARTICLE II TRANSACTION AND TERMS OF MERGER......................................................................11
Section 2.1 SURVIVING CORPORATION..............................................................11
Section 2.2 EFFECTIVE TIME.....................................................................11
Section 2.3 CLOSING............................................................................12
ARTICLE III STATUS AND CONVERSION OF SECURITIES.................................................................12
Section 3.1 STATUS AND CONVERSION OF SECURITIES................................................12
Section 3.2 DISSENTER'S RIGHTS.................................................................13
Section 3.3 ESCROW.............................................................................13
Section 3.4 EARN-OUT...........................................................................13
Section 3.5 SECURITIES ACT EXEMPTION; RESTRICTED SECURITIES....................................18
Section 3.6 SURRENDER AND ISSUANCE OF CERTIFICATES.............................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS...................................................19
Section 4.1 ORGANIZATION, SUBSISTENCE AND AUTHORITY OF HKS.....................................19
Section 4.2 ARTICLES OF INCORPORATION; BYLAWS; MINUTE BOOKS....................................20
Section 4.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY..........................................20
Section 4.4 TITLE TO SHARES; CAPITALIZATION; ETC...............................................20
Section 4.5 SUBSIDIARIES AND AFFILIATES........................................................21
Section 4.6 CONSENTS; NO CONFLICT..............................................................21
Section 4.7 TAX MATTERS........................................................................22
Section 4.8 EMPLOYEES, LABOR MATTERS, ETC......................................................23
Section 4.9 FINANCIAL STATEMENTS...............................................................23
Section 4.10 CHANGES OF FINANCIAL CONDITION; UNDISCLOSED LIABILITIES............................24
Section 4.11 REAL PROPERTY......................................................................24
Section 4.12 TANGIBLE PERSONAL PROPERTY.........................................................25
Section 4.13 INTENTIONALLY OMITTED..............................................................25
Section 4.14 INTELLECTUAL PROPERTY..............................................................25
Section 4.15 BUSINESS CONTRACTS.................................................................28
Section 4.16 LITIGATION AND CLAIMS..............................................................30
Section 4.17 COMPLIANCE WITH LAWS AND ORDERS....................................................30
Section 4.18 EMPLOYEE BENEFITS..................................................................30
Section 4.19 LICENSES...........................................................................32
Section 4.20 INSURANCE POLICIES.................................................................32
Section 4.21 ENVIRONMENTAL MATTERS..............................................................32
Section 4.22 RELATIONSHIP WITH AFFILIATES.......................................................33
Section 4.23 BROKERS............................................................................33
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Section 4.24 NO GUARANTEES......................................................................33
Section 4.25 ACCOUNTS RECEIVABLE; PAYABLES......................................................33
Section 4.26 BANK ACCOUNTS......................................................................34
Section 4.27 [Intentionally Omitted.]...........................................................34
Section 4.28 CUSTOMERS AND SUPPLIERS............................................................34
Section 4.29 DISCLOSURE.........................................................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGERCO.............................................34
Section 5.1 ORGANIZATION AND AUTHORITY.........................................................34
Section 5.2 DUE AUTHORIZATION, EXECUTION AND DELIVERY..........................................35
Section 5.3 CONSENTS; NO CONFLICT..............................................................35
Section 5.4 [Intentionally omitted]............................................................35
Section 5.5 PARENT STOCK.......................................................................35
Section 5.6 CAPITALIZATION.....................................................................35
Section 5.7 BROKERS............................................................................36
Section 5.8 DISCLOSURE.........................................................................36
Section 5.9 SEC FILINGS........................................................................36
ARTICLE VI ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS AND HKS....................................................36
Section 6.1 OPERATION OF BUSINESS..............................................................36
Section 6.2 ACCESS TO BOOKS AND RECORDS OF BUSINESS............................................37
Section 6.3 EXCLUSIVITY........................................................................38
Section 6.4 NO REGISTRATION / LIMITATION ON TRANSFERS..........................................38
Section 6.5 STOCKHOLDERS'MEETING; PROXY MATERIAL...............................................39
ARTICLE VII ADDITIONAL AGREEMENTS...............................................................................40
Section 7.1 CONFIDENTIALITY....................................................................40
Section 7.2 FURTHER ASSURANCES.................................................................40
Section 7.3 UPDATING SCHEDULES.................................................................40
Section 7.4 [Intentionally Omitted]............................................................40
Section 7.5 EFFORTS TO CLOSE...................................................................41
Section 7.6 CERTAIN TAX MATTERS................................................................41
Section 7.7 EMPLOYEES AND BENEFIT PLANS........................................................42
ARTICLE VIII [INTENTIONALLY OMITTED]............................................................................42
ARTICLE IX CONDITIONS TO OBLIGATIONS OF THE PARENT AND MERGERCO.................................................43
Section 9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................43
Section 9.2 PERFORMANCE OF AGREEMENTS..........................................................43
Section 9.3 [Intentionally omitted.]...........................................................43
Section 9.4 BRING-DOWN CERTIFICATE.............................................................43
Section 9.5 HKS'S DOCUMENTS....................................................................43
Section 9.6 ADVERSE CHANGE.....................................................................44
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Section 9.7 NO ADVERSE PROCEEDINGS.............................................................44
Section 9.8 OTHER ASSURANCES...................................................................44
Section 9.9 CONSENTS AND APPROVALS.............................................................44
Section 9.10 OPINION OF HKS'S COUNSEL...........................................................45
Section 9.11 DELIVERY OF SHARES; DISSENTER'S RIGHTS.............................................45
Section 9.12 RESIGNATION OF OFFICERS AND DIRECTORS..............................................45
Section 9.13 AFFILIATES TRANSACTIONS............................................................45
Section 9.14 DELIVERY OF ESCROW AGREEMENT.......................................................45
Section 9.15 DELIVERY OF INVESTMENT REPRESENTATION LETTERS......................................45
Section 9.16 DELIVERY OF LOCK-UP AGREEMENT......................................................46
Section 9.17 DELIVERY OF REGISTRATION RIGHTS AGREEMENT..........................................46
Section 9.18 DELIVERY OF NON-COMPETITION AGREEMENTS.............................................46
Section 9.19 WARRANTS, OPTIONS AND SHARE RIGHTS.................................................46
Section 9.20 TRANSFER OF EMPLOYEES TO PARENT HEADQUARTERS.......................................46
Section 9.21 APPROVAL...........................................................................46
Section 9.22 TERMINATION OF EMPLOYMENT AGREEMENTS...............................................47
ARTICLE X CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND HKS.................................................47
Section 10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.........................................47
Section 10.2 PERFORMANCE OF AGREEMENTS..........................................................47
Section 10.3 [Intentionally omitted]............................................................47
Section 10.4 BRING-DOWN CERTIFICATE.............................................................47
Section 10.5 THE PARENT'S DOCUMENTS.............................................................47
Section 10.6 OPINION OF THE PARENT'S COUNSEL....................................................48
Section 10.7 NO ADVERSE PROCEEDINGS.............................................................48
Section 10.8 OTHER ASSURANCES...................................................................48
Section 10.9 CONSENTS AND APPROVALS.............................................................49
Section 10.10 DELIVERY OF ESCROW AGREEMENT.......................................................49
Section 10.11 DELIVERY OF REGISTRATION RIGHTS AGREEMENT..........................................49
ARTICLE XI SURVIVAL AND INDEMNIFICATION.........................................................................49
Section 11.1 SURVIVAL...........................................................................49
Section 11.2 INDEMNIFICATION BY THE SHAREHOLDERS................................................49
Section 11.3 INDEMNIFICATION BY THE PARENT......................................................50
Section 11.4 METHOD OF ASSERTING CLAIMS.........................................................50
Section 11.5 CONTINUED LIABILITY FOR INDEMNITY CLAIMS...........................................52
Section 11.6 LIMITATIONS ON INDEMNIFICATION.....................................................52
Section 11.7 EXCLUSIVE REMEDIES.................................................................54
Section 11.8 TIME LIMITS ON CLAIMS..............................................................54
ARTICLE XII TERMINATION.........................................................................................55
Section 12.1 GROUNDS FOR TERMINATION............................................................55
Section 12.2 EFFECT OF TERMINATION..............................................................55
Section 12.3 TERMINATION FOR BREACH.............................................................55
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ARTICLE XIII MISCELLANEOUS......................................................................................56
Section 13.1 NOTICES............................................................................56
Section 13.2 FEES AND EXPENSES..................................................................57
Section 13.3 PUBLIC ANNOUNCEMENTS...............................................................57
Section 13.4 TAX CONSEQUENCES...................................................................58
Section 13.5 ENTIRE AGREEMENT...................................................................58
Section 13.6 WAIVER; REMEDIES...................................................................58
Section 13.7 AMENDMENT..........................................................................58
Section 13.8 BENEFITS AND BINDING EFFECT........................................................58
Section 13.9 CAPTIONS...........................................................................59
Section 13.10 EXHIBITS AND SCHEDULES.............................................................59
Section 13.11 GOVERNING LAW......................................................................59
Section 13.12 ARBITRATION........................................................................59
Section 13.13 COUNTERPARTS.......................................................................60
Section 13.14 SEVERABILITY.......................................................................60
Section 13.15 NO THIRD PARTY BENEFICIARY.........................................................60
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EXHIBITS
Exhibit A -- Articles of Merger
Exhibit B -- Shareholders' Bring-Down Certificate
Exhibit C -- HKS Secretary's Certificate
Exhibit D -- ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP Opinion Letter
Exhibit E -- Escrow Agreement
Exhibit F -- Parent's Bring-Down Certificate
Exhibit G -- Parent Secretary's Certificate
Exhibit H -- ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC Opinion Letter
Exhibit I -- Investor Representation Letter and Related Appendices
Exhibit J -- Registration Rights Agreement
Exhibit K -- Lock-Up Agreement
Exhibit L -- Non-Competition Agreement
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SCHEDULES
Schedule 1.1 -- Existing Indebtedness
Schedule 3.1(b) -- Division of Merger Consideration
Schedule 4.1 -- Qualifications to do Business
Schedule 4.4(a) -- Other Holders and Other Holders' Shares
Schedule 4.4(b) -- Authorized and Issued Capital Stock of HKS
Schedule 4.6 -- HKS's Consents and Approvals
Schedule 4.7 -- Tax Matters
Schedule 4.8 -- Labor Matters
Schedule 4.9 -- Financial Statements
Schedule 4.10(a) -- Adverse Change
Schedule 4.10(b) -- Undisclosed Liabilities
Schedule 4.11(a) -- Owned and Leased Real Property
Schedule 4.11(b) -- Title Exceptions
Schedule 4.11(d) -- Condition of Improvements
Schedule 4.12 -- Tangible Personal Property Liens
Schedule 4.14(a) -- Material Intellectual Property
Schedule 4.14(c) -- Registered Intellectual Property
Schedule 4.14(d) -- Third Party Intellectual Property
Schedule 4.15 -- Business Contracts
Schedule 4.16 -- Litigation
Schedule 4.17 -- Violations of Law
Schedule 4.18(a) -- Benefit Plans
Schedule 4.18(b) -- Benefit Plans Compliance
Schedule 4.18(c) -- Benefit Plan Filings
Schedule 4.19 -- Licenses
Schedule 4.20 -- Insurance Policies
Schedule 4.21(a) -- Environmental Matters Compliance
Schedule 4.21(b) -- Environmental Contaminations
Schedule 4.22 -- Affiliate Transactions
Schedule 4.24 -- Guarantees
Schedule 4.25 -- Accounts Receivable
Schedule 4.26 -- Bank Accounts
Schedule 4.28 -- Customers and Suppliers
Schedule 5.3 -- Parent's Consents and Approvals
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), is made and
entered into as of the 4th day of January, 2000 by and among
HELL'S KITCHEN SYSTEMS, INC., a Pennsylvania corporation ("HKS"),
L. ▇▇▇▇ ▇▇▇▇▇, a resident of Pittsburgh, Pennsylvania, and ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, a resident of Pittsburgh, Pennsylvania, being the holders of a majority
of the capital stock of HKS (L. ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ are sometimes
hereinafter referred to individually as a "SHAREHOLDER" and collectively as the
"SHAREHOLDERS"),
HKS ACQUISITION CO., a Pennsylvania corporation ("MERGERCO"), and
RED HAT, INC., a Delaware corporation which owns all of the issued and
outstanding capital stock of MergerCo. (the "PARENT").
RECITALS:
A. The Shareholders own in the aggregate the following number and
percentage of the issued and outstanding shares of capital stock of HKS
(together with the issued and outstanding shares of capital stock of HKS owned
by the Other Holders as listed on EXHIBIT A, collectively, the "SHARES").
Number of Percentage of Issued and
Name Shares Outstanding Shares
---- ------ ------------------
L. ▇▇▇▇ ▇▇▇▇▇ 442,380 30.69%
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 469,234 32.56%
B. HKS is engaged in the business of developing and marketing payment
processing software for Linux and Unix and in providing support and other
services related to such software, and has a headquarters in Pittsburgh,
Pennsylvania (the "BUSINESS").
C. The Shareholders, HKS, the Parent and the board of directors and
sole Shareholder of MergerCo have approved the merger of MergerCo with and into
HKS (the "MERGER"), upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties contained herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
As used in this Agreement, the following defined terms have the
meanings indicated below:
"ADDITIONAL CONSIDERATION" has the meaning set forth in Section 3.4.
"AFFILIATE" of a Person or entity means a Person or entity that,
directly or indirectly through one or more intermediates, controls, is
controlled by, or is under common control with, the first Person or entity.
"CONTROL" (including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of a Person or entity, whether through
the ownership of voting securities, by contract, as trustee or executor, or
otherwise. For purposes of any Benefit Plan, including any Multiemployer Plan,
Affiliate means any Person, trade or business (whether or not incorporated)
which, together with HKS, is treated as a single employer under Section 414(b),
(c), (m) or (o) of the Code.
"ARBITRATOR" has the meaning set forth in Section 3.4
"ARTICLES OF MERGER" has the meaning set forth in Section 2.3(b).
"ASSETS" means all rights, titles and interests in, to and under all of
the properties, assets, rights, claims and Contracts of every kind, character
and description owned or held by HKS, whether real, personal or mixed, tangible
or intangible (including goodwill), and whether now owned or hereafter acquired,
including, without limitation, all assets reflected on the Interim Balance
Sheet, as the same may exist on the Closing Date.
"BENEFIT PLAN" means any Plan established by HKS, or any predecessor or
Affiliate of HKS, existing at the Closing or prior thereto, to which HKS or any
Affiliate contributes or has contributed on behalf of any present or former
Employee, officer, director, independent contractor or consultant (in each case
rendering services to HKS) or under which any such Person or any beneficiary
thereof is covered, is eligible for coverage or has benefit rights.
"BOARD OF ARBITRATION" has the meaning set forth in Section 13.12.
"BUSINESS" has the meaning set forth in Recital B.
"BUSINESS DAY" means any day which is not a Saturday, Sunday or legal
holiday in Research Triangle Park, North Carolina.
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"BUSINESS RELATIONSHIP" - An Employee Shareholder shall be deemed to
have a Business Relationship with the Parent or HKS so long as such Employee
Shareholder maintains continuous service to such Person as an employee, officer,
director or consultant.
"CCVS" means the HKS product "Credit Card Verification System."
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, and the rules and
regulations promulgated thereunder.
"CERCLIS" means the federal Comprehensive Environmental Response and
Liability Information System, as provided for by 40 C.F.R. Section 300.5.
"CLAIM" means any Liens, restrictions, vesting agreements, proxies,
options, rights of first refusal, contracted rights or other interests.
"CLAIM NOTICE PERIOD" has the meaning set forth in Section 11.4(b).
"CLOSING" has the meaning set forth in Section 2.3(a).
"CLOSING DATE" has the meaning set forth in Section 2.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section 7.1.
"CONTRACT" means any contract, agreement, license agreement, lease,
assignment, purchase agreement, indenture, mortgage, instrument of indebtedness,
security agreement, guaranty, purchase order, sales order, or distribution
agreement.
"CUMULATIVE MERCHANT COUNT TARGET" has the meaning set forth in Section
3.4.
"DISABILITY" - An Employee Shareholder shall be deemed to have a
"Disability" if, for physical or mental reasons, the Employee Shareholder is
unable to render services in accordance with the material terms or requirements
of his or her Business Relationship with HKS or Red Hat for 120 consecutive
days, or 180 days during any twelve (12) month period, as determined in
accordance with this definition. The Disability of the Employee Shareholder
shall be determined by a medical doctor selected by written agreement of Red Hat
or HKS (as the case may be) and the Employee Shareholder upon the request of
either party by notice to the other. If Red Hat or HKS (as the case may be) and
the Employee Shareholder cannot agree on the selection of a medical doctor, each
of them will select a medical doctor and the two medical doctors so selected
will select a third medical doctor who will determine whether the Employee
Shareholder has a Disability. The determination of Disability under this
definition will be binding on both parties. The Employee Shareholder must submit
to a reasonable number of examinations by the medical doctor making the
determination of Disability under this definition, and the Employee
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Shareholder must authorize the disclosure and release to Red Hat or HKS (as the
case may be) of such determination and all supporting medical records. If the
Employee Shareholder is not legally competent, the Employee Shareholder's legal
guardian or duly authorized attorney-in-fact will act in the Employee
Shareholder's stead, under this definition, for the purposes of submitting the
Employee Shareholder to the examinations and providing the authorization of
disclosure as required under this definition.
"DISPUTED MATTERS" has the meaning set forth in Section 3.4.
"EARN-OUT PORTION" has the meaning set forth in Section 3.4.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"EMPLOYEE" means each full-time employee of HKS.
"EMPLOYEE INCENTIVE PORTION" has the meaning set forth in Section 3.4.
"EMPLOYEE SHAREHOLDER" has the meaning set forth in Section 3.4
"EMPLOYEE SHAREHOLDER PORTION" has the meaning set forth in Section 3.4
"ENVIRONMENTAL LAW" means all Laws and Orders concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water,
groundwater, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes including, without limitation, CERCLA, the Resource Conservation and
Recovery Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as
amended, and the Occupational Safety and Health Act, as amended, and similar
state and local laws, rules and regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ESCROW AGREEMENT" has the meaning set forth in Section 9.14.
"EXISTING INDEBTEDNESS" means the Indebtedness of HKS evidenced by the
instruments and agreements set forth in SCHEDULE 1.1.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.9.
"FOR CAUSE" means (a) an Employee Shareholder's breach of any
Non-Competition Agreement entered into as of the Closing Date between such
Employee Shareholder, HKS and Red Hat; (b) an Employee Shareholder's substantial
and continuing failure, after five (5) days
4
written notice thereof, to render services in accordance with the material terms
or requirements or his or her Business Relationship with HKS or Red Hat, or an
Employee Shareholder's gross negligence or willful misconduct in rendering such
services; (c) an Employee Shareholder's appropriation (or undisputed attempted
appropriation) of a material business opportunity of HKS or Red Hat, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of HKS or Red Hat; (d) the misappropriation
(or undisputed attempted misappropriation) of any of HKS's or Red Hat's funds or
material property; (e) the final and non-appealable conviction of, the
indictment for (or its procedural equivalent), or the entering of a guilty plea
or plea of no contest with respect to, a felony, the equivalent thereof, or any
other crime with respect to which imprisonment is a possible punishment and
which, in the reasonable judgment of the board of directors of Red Hat, has a
material adverse effect on the business or reputation of Red Hat or HKS.
"FOR GOOD REASON" means any of the following: (a) the assignment of
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ without his consent to responsibilities or duties of a
materially lesser status or degree of responsibility than his responsibilities
or duties as of the Closing Date, if such action does not serve a reasonable
business purpose of Red Hat; (b) a decrease in ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇'▇ or L. ▇▇▇▇
▇▇▇▇▇'▇ respective salaries below the level set forth opposite ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇'▇ and L. ▇▇▇▇ ▇▇▇▇▇'▇ names set forth on SCHEDULE 1.1, except pursuant
to a change in the compensation structure, policies or practices of Red Hat; or
(c) the requirement by HKS or Red Hat that an Employee Shareholder (other than
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇) be based anywhere other than the metropolitan Research
Triangle Park, North Carolina area within six (6) months following the Closing
Date, and, with respect to ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Pittsburgh, Pennsylvania within
eighteen (18) months following the Closing Date, in any case without such
Employee Shareholder's or ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇'▇ consent, as applicable.
"FORM 10-Q" has the meaning set forth in Section 5.9.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" means any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision.
"HAZARDOUS MATERIALS" means (A) any petroleum or petroleum products,
flammable or explosive materials, radioactive materials, asbestos in any form
that is friable, urea formaldehyde foam insulation and transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls (PCBs); (B) any chemicals or other materials or substances which are
now or hereafter become defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants"
or words of similar import under any Environmental Law; and (C) any other
chemical or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated by any Governmental Authority under any
Environmental Law.
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"HKS" has the meaning set forth in the preamble to this Agreement.
"HKS COMMON STOCK" means the common stock, no par value, of HKS.
"INCOME TAXES" means all Taxes relating to income, profits, gross
receipts, net worth or capital.
"INDEBTEDNESS" shall mean as to any Person: (i) indebtedness of such
person for borrowed money (including principal and accrued interest thereof), as
evidenced by bonds, notes, debentures, or similar instruments, or obligations to
reimburse letters of credit; and (ii) indebtedness of others of the type
described in clause (i) above guaranteed by such Person or secured by Liens on
the property of such Person, whether or not the obligation so secured has been
assumed by such Person.
"INDEMNIFIED PARTY" means any Person claiming indemnification under any
provision of Article XI hereof or such Person's authorized representative.
"INDEMNIFYING PARTY" means any Person against whom a claim for
indemnification is being asserted under any provision of Article XI.
"INDEMNITY NOTICE" has the meaning set forth in Section 11.4(b).
"INDEMNITY RESPONSE PERIOD" has the meaning set forth in
Section 11.4(b).
"INITIAL STOCK AMOUNT" has the meaning set forth in Section 3.1(a).
"INSURANCE POLICIES" means all casualty, liability or other policies of
insurance of HKS.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.14(g).
"INTERIM BALANCE SHEET" has the meaning set forth in Section 4.9(b).
"INTERIM INCOME STATEMENT" has the meaning set forth in Section 4.9(b).
"IRS" means the United States Internal Revenue Service.
"KNOWLEDGE" and "KNOWN" -- An individual will be deemed to have
"Knowledge" of a particular fact or matter, and a particular fact or matter will
be deemed to be "Known" to an individual, if:
(a) such individual is actually aware of such fact or matter;
or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or matter.
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"LAWS" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental Authority.
"LIABILITIES" means all Indebtedness, obligations and other liabilities
of a Person (whether absolute, accrued, contingent or fixed, whether due or to
become due).
"LICENSES" means all licenses, permits, certificates of authority,
variances, authorizations, approvals, registrations, franchises and similar
consents granted or issued by any Governmental Authority.
"LIENS" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale contract, title retention contract or other contract to
give any of the foregoing.
"LINUX" means the computer software comprising the operating system
known as Linux.
"LOCK-UP AGREEMENT" has the meaning set forth in Section 9.16.
"LOSSES" means, for purposes of Article XI hereof, any and all damages,
fines, costs, fees, penalties, deficiencies, losses, amounts paid in settlement
and expenses (including, without limitation, interest, court costs, reasonable
fees of attorneys, accountants and other experts or other expenses of litigation
or other proceedings or of any claim, default or assessment).
"MAXIMUM INDEMNITY AMOUNT" has the meaning set forth in
Section 11.6(c).
"MERCHANT COUNT" means the total cumulative number of merchants, net of
any trial or temporary merchant accounts, who have purchased HKS's CCVS (or any
successor product).
"MERCHANT COUNT CERTIFICATION" has the meaning set forth in
Section 3.4.
"MERGER" has the meaning set forth in Recital C.
"MERGER CONSIDERATION" has the meaning set forth in Section 3.1(b).
"MERGERCO" has the meaning set forth in the preamble to this Agreement.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 4.18(i).
"NON-COMPETITION AGREEMENT" has the meaning set forth in Section 9.18.
"NON-EMPLOYEE SHAREHOLDER PORTION" has the meaning set forth in
Section 3.4
"NOTICE OF DISAGREEMENT" has the meaning set forth in Section 3.4.
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"NPL" means the National Priorities List under CERCLA.
"ORDER" means any writ, judgment, decree, injunction or similar order
of any Governmental Authority (in each such case, whether preliminary or final).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice.
"OTHER HOLDERS" has the meaning set forth in Section 1.2(j).
"PARENT" has the meaning set forth in the preamble to this Agreement.
"PARENT STOCK" means the Parent's common stock, par value $.0001 per
share.
"PBCL" has the meaning set forth in Section 2.1(a).
"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.
"PENSION BENEFIT PLAN" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
"PERMITTED LIEN" means (i) any Lien for ad valorem Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings, (ii) any
statutory Lien arising in the ordinary course of business by operation of Law
with respect to a Liability that is not yet due or delinquent and (iii) any
minor imperfection of title or recorded easements, covenants or other
restrictions which individually or in the aggregate with other such items could
not reasonably be expected to have a material adverse effect on the
marketability of title to the Assets of the Business.
"PERSON" means any natural person, corporation, general partnership,
limited partnership, proprietorship, limited liability company, joint venture,
other business organization, trust, union, association or Governmental
Authority.
"PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock purchase, stock appreciation rights, phantom stock, leave of
absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, accident, disability, workmen's compensation or other insurance,
severance, separation, unemployment or other employee benefit plan, practice,
policy or arrangement of any kind, whether written or oral, including, but not
limited to, any "employee benefit plan" as defined in Section 3(3) of ERISA.
"PPM" has the meaning set forth in Section 6.5.
"PROSPECTUS" has the meaning set forth in Section 5.9.
8
"PROXY STATEMENT" has the meaning set forth in Section 6.5.
"QUALIFIED PLAN" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in
Section 9.17.
"REGISTRATIONS" has the meaning set forth in Section 4.14(c).
"RELEASE" has the meaning set forth in Section 101(22) of CERCLA, 42
U.S.C. Section 9601(22).
"REPRESENTATIVES" has the meaning set forth in Section 6.2.
"RULES OF ARBITRATION" has the meaning set forth in Section 13.12.
"SEC" shall have the meaning set forth in Section 5.9.
"SECURITIES ACT" has the meaning set forth in Section 6.4.
"SHAREHOLDERS" has the meaning set forth in the preamble to this
Agreement.
"SHARES" has the meaning set forth in Recital A.
"SPECIAL MEETING" has the meaning set forth in Section 6.5.
"STOCK ESCROW DEPOSIT" has the meaning set forth in Section 3.3.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1(a).
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"TAX RETURNS" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 11.4(a).
9
"THIRD PARTY CLAIM NOTICE" has the meaning set forth in
Section 11.4(a).
"THIRD PARTY CLAIM NOTICE PERIOD" has the meaning set forth in
Section 11.4(a).
"THIRD PARTY CLAIM RESPONSE PERIOD" has the meaning set forth in
Section 11.4(a).
"THRESHOLD AMOUNT" has the meaning set forth in Section 11.6(b).
"TREASURY REGULATIONS" means the regulations prescribed under the Code.
"UNIX" means the computer software comprising the operating system
known as Unix.
"UPDATE PERIOD" has the meaning set forth in Section 7.3.
"YEAR 2000 COMPLIANT" has the meaning set forth in Section 4.14(f).
"YEAR-END FINANCIAL STATEMENTS" has the meaning set forth in
Section 4.9(a).
SECTION 1.2 GENERAL RULES OF INTERPRETATION.
Except as otherwise expressly provided herein, the following rules of
interpretation shall apply to this Agreement:
(a) the singular includes the plural and the plural includes the
singular;
(b) the word "or" is not exclusive;
(c) a reference to a governmental rule includes any amendment or
modification of such governmental rule and all regulations,
rulings and other governmental rules promulgated under such
governmental rule;
(d) a reference to a Person includes that Person's permitted
successors and assigns;
(e) except as expressly modified, accounting terms have the
meanings assigned to them by GAAP, as consistently applied by
the accounting entity to which they refer;
(f) the words "include," "includes" and "including" are not
limiting;
(g) references to any document or agreement (i) shall include all
exhibits, schedules and other attachments thereto, (ii) shall
include all documents, instruments or agreements issued or
executed in replacement thereof, and (iii) shall mean such
document, instrument or agreement, or replacement or
predecessor thereto, as amended, modified and supplemented
from time to time and in effect at any given time;
10
(h) the words "hereof," "herein" and "hereunder" and words of
similar import refer to the Agreement as a whole and not to
any particular provision, unless otherwise indicated;
(i) references to "days" shall mean calendar days, unless
otherwise indicated; and
(j) the words "pro rata," when used in connection with the
Shareholders and the other holders of the HKS Common Stock
(collectively, the "OTHER HOLDERS") refer to the proportionate
holdings of HKS Common Stock by the Shareholders and the Other
Holders immediately prior to the Effective Time.
ARTICLE II
TRANSACTION AND TERMS OF MERGER
SECTION 2.1 SURVIVING CORPORATION.
(a) At the Effective Time and in accordance with the
provisions of this Agreement and the Pennsylvania Business Corporation
Law (the "PBCL"), MergerCo shall be merged with and into HKS and shall
cease to exist. HKS shall be the surviving corporation in the Merger
(hereinafter sometimes called the "SURVIVING CORPORATION"), shall
continue its corporate existence under the laws of the Commonwealth of
Pennsylvania, and shall succeed to all rights, privileges, powers,
franchises, assets, liabilities and obligations of HKS and MergerCo in
accordance with the provisions of the PBCL.
(b) The Articles of Incorporation of HKS as in effect at the
Effective Time and as amended by the Articles of Merger, shall continue
in effect as the Articles of Incorporation of the Surviving Corporation
until thereafter amended as provided by law. The by-laws of MergerCo,
as in effect at the Effective Time, shall be the by-laws of the
Surviving Corporation, until amended as therein provided.
(c) The officers and directors of MergerCo at the Effective
Time shall be the officers and directors of the Surviving Corporation,
each to hold office in accordance with the terms of the Articles of
Incorporation and by-laws of the Surviving Corporation.
SECTION 2.2 EFFECTIVE TIME.
The Merger shall become effective at the time of the filing of the
Articles of Merger with the Department of State of the Commonwealth of
Pennsylvania (or at such later time as shall be agreed to by HKS and MergerCo
and as shall be set forth in the Articles of Merger) in accordance with the
PBCL, which Articles of Merger shall be so filed at the time of the Closing. The
date and time when the Merger becomes effective are herein referred to as the
"EFFECTIVE TIME."
11
SECTION 2.3 CLOSING.
(a) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to
the provisions of Section 12.1, the closing (the "CLOSING") of the
transactions contemplated by this Agreement shall take place at the
offices of ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. on January 6, 2000 or at
such other place, time and date or by such other means as the parties
may mutually agree. The date and time of such Closing are herein
referred to as the "CLOSING DATE."
(b) At the Closing, HKS and MergerCo shall execute Articles of
Merger substantially in the form of EXHIBIT A hereto (the "ARTICLES OF
MERGER") and cause the Articles of Merger to be delivered for filing
and recordation with the Secretary of Commonwealth of the Commonwealth
of Pennsylvania in accordance with the PBCL.
ARTICLE III
STATUS AND CONVERSION OF SECURITIES
SECTION 3.1 STATUS AND CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof the shares, of the constituent corporations shall be
converted as follows:
(a) Each share of HKS Common Stock, if any, which is being
held by HKS as treasury shares shall be canceled and retired without
any payment therefor.
(b) Each share of HKS Common Stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding
and shall be converted into and exchanged for (i) the right to receive
that number of shares of Parent Stock (rounded up or down to the
nearest whole share) (the "MERGER CONSIDERATION") calculated by
dividing (A) the difference between (x) $21,000,000 and (y) the amount
of Existing Indebtedness outstanding as of the Closing Date and any
obligations of HKS for Income Taxes payable for periods ending
immediately prior to the Closing Date by (B) $43.932815 (which amount
reflects that certain 2-for-1 stock split with a record date of
December 27, 1999 declared by the Parent), subject to the requirement
that a portion of such shares be retained by the Parent as the Stock
Escrow Deposit as provided in Section 3.3, and (ii) the right to
receive the Additional Consideration as set forth in Section 3.4, in
each case divided by the number of shares of HKS Common Stock issued
and outstanding as of the Closing Date, in accordance with SCHEDULE
3.1(b).
(c) Each share of common stock, par value $0.01 per share, of
MergerCo outstanding immediately prior to the Effective Time shall be
converted into one (1) fully paid and nonassessable share of common
stock of the Surviving Corporation.
12
(d) At the Effective Time, all rights in respect of
outstanding shares of HKS Common Stock shall cease to exist, other than
(i) the right to receive the Parent Stock as provided in this Article
III and (ii) the right to receive the Additional Consideration.
SECTION 3.2 DISSENTER'S RIGHTS.
Each of the Shareholders agrees that he will not seek to assert
dissenters' rights to which such Shareholder would be entitled under applicable
provisions of the PBCL.
SECTION 3.3 ESCROW.
At the Closing, the Shareholders and the Other Holders will place in
escrow shares of Parent Stock equal to ten percent (10%) of the Merger
Consideration pursuant to Section 3.1(b) (the "STOCK ESCROW DEPOSIT"), and such
shares shall be held in escrow pursuant to the Escrow Agreement.
SECTION 3.4 EARN-OUT.
The Shareholders and the Other Holders shall be entitled to receive, on
a pro rata basis, additional merger consideration (the "ADDITIONAL
CONSIDERATION") as follows:
(a) MAXIMUM ADDITIONAL CONSIDERATION. The maximum amount of
Additional Consideration (the "MAXIMUM ADDITIONAL CONSIDERATION") shall
be that number of shares of Parent Stock (rounded up or down to the
nearest whole share) calculated by dividing (A) $14,000,000 by (B)
$43.932815.
(b) EMPLOYEE SHAREHOLDERS. Each Shareholder and each Other
Holder who remains employed by HKS or Red Hat on a full-time basis
following the Closing (each an "EMPLOYEE SHAREHOLDER") may earn up to
one hundred percent (100%) of his or her pro rata portion of the
Maximum Additional Consideration (the portion of the Maximum Additional
Consideration which may be collectively obtained by Employee
Shareholders is hereinafter referred to as the "EMPLOYEE SHAREHOLDER
PORTION") as follows:
(i) Such Employee Shareholder may earn up to
seventy-five percent (75%) of his pro rata share of the
Employee Shareholder Portion (the "EMPLOYMENT INCENTIVE
PORTION") by continuing in the full-time employment of HKS or
Red Hat for three (3) full years following the Closing Date.
The Employment Incentive Portion shall be payable in
accordance with paragraph (e)(i) below. Any Employee
Shareholder whose employment is terminated by HKS or Red Hat
(as the case may be) prior to or on the third anniversary of
the Closing Date other than For Cause, or any Employee
Shareholder who terminates his employment For Good Reason
prior to or on the third anniversary of the Closing Date,
shall be entitled to receive his full pro rata share of the
Employment Incentive Portion promptly upon such termination.
Any Employee Shareholder
13
whose employment is terminated as a result of death or
Disability shall be entitled (or, in the case of death, his
personal representative shall be entitled) to receive
twenty-five percent (25%) of his pro rata share of the
Employment Incentive Portion, in installments corresponding
(but only with respect to such twenty-five percent (25%)) to
the installment payment provisions of paragraph (e)(i) below;
and
(ii) Such Employee Shareholder may earn up to
twenty-five percent (25%) of his pro rata share of the
Employee Shareholder Portion (the "EARN-OUT PORTION") if HKS
achieves a cumulative Merchant Count of 500,000 merchants no
later than December 31, 2002 (the "CUMULATIVE MERCHANT COUNT
TARGET"). The Earn-Out Portion shall be payable in accordance
with paragraph (e)(ii) below.
(c) OTHER HOLDERS NOT EMPLOYEE SHAREHOLDERS. Each Other Holder
who is not an Employee Shareholder may earn up to one hundred percent
(100%) of his or her pro rata portion of the Maximum Additional
Consideration (the portion of the Maximum Additional Consideration
which may be collectively obtained by Other Holders who are not
Employee Shareholders is hereinafter referred to as the "NON-EMPLOYEE
SHAREHOLDER PORTION") if HKS achieves a cumulative Merchant Count of
500,000 merchants no later than December 31, 2002. The Non-Employee
Shareholder Portion shall be payable in accordance with paragraph (f)
below.
(d) DETERMINATION DATES FOR MERCHANT COUNT. Within ninety (90)
days after December 31 of each of the years 2000, 2001 and 2002, the
Parent shall deliver to each of the Shareholders a certificate,
together with calculations and reasonable supporting documentation with
respect thereto (a "MERCHANT COUNT CERTIFICATION"), setting forth the
Parent's calculation of HKS's Merchant Count for (i) the one (1) year
period then ended as of December 31, 2000, (ii) the one (1) year period
then ended as of December 31, 2001, and (iii) the one (1) year period
then ended as of December 31, 2002.
Each such Merchant Count shall become final and
binding on the parties unless the Shareholders give written notice of a
disagreement (a "NOTICE OF DISAGREEMENT") to the Parent within fifteen
(15) days after their receipt of a Merchant Count Certification. If a
Notice of Disagreement is given by the Shareholders, then the Merchant
Count determination shall become final and binding upon the parties on
the earlier of (1) the date the parties hereto resolve in writing any
differences they may have with respect to any matter specified in such
Notice of Disagreement and (2) the date any Disputed Matters (as
hereinafter defined) are finally resolved in writing by the Arbitrator
(as hereinafter defined). Any such Notice of Disagreement shall state
in reasonable detail the nature of any disagreement so asserted and the
amount in dispute. During a period of ten (10) Business Days following
the receipt by the Parent of a Notice of Disagreement, the Parent and
the Shareholders shall attempt to resolve in writing any differences
that they may have with respect to any matter specified in the Notice
of Disagreement. If at the end of such ten (10) Business-Day period,
the Parent and the Shareholders have failed to reach written agreement
with respect to all such matters, then all such matters as
14
specified in any Notice of Disagreement as to which such written
agreement has not been reached (the "DISPUTED MATTERS") shall be
submitted to and reviewed by an arbitrator ("ARBITRATOR"), which shall
be an independent accounting firm which is a member of the Private
Companies Section of the Division of Firms of the American Institute of
Certified Public Accountants having an office in the metropolitan
Research Triangle Park, North Carolina area, and having no other
relationship with any party hereto during the past five (5) years. The
identity of the Arbitrator shall be determined mutually by the Parent
and the Shareholders, and if the Parent and the Shareholders cannot
agree as to the selection of the Arbitrator, then each of them shall
select one nominee and the parties shall choose the Arbitrator by lot.
The Arbitrator shall consider only the Disputed Matters and shall be
instructed to act promptly to resolve all Disputed Matters and its
decision shall be final and binding upon the Parent and the
Shareholders. The fees and expenses of the Arbitrator with respect to
all Disputed Matters shall be allocated between the Parent and the
Shareholders in the same proportion that the aggregate amount of all
Disputed Matters is resolved by the Arbitrator in favor of or against
the Parent and the Shareholders
(e) PAYMENT OF ADDITIONAL CONSIDERATION / EMPLOYEE
SHAREHOLDERS.
(i) EMPLOYMENT INCENTIVE PORTION. Subject to
paragraph (b)(i) above:
(A) Within fifteen (15) days following the
first anniversary of the Closing Date the Parent
shall issue to the Employee Shareholders, on a pro
rata basis, the first twenty-two and one-half percent
(22.5%) of the Employment Incentive Portion.
(B) On each successive April 1, July 1,
October 1 and January 1 (or if such date is not a
Business Day, then on the next succeeding Business
Day) over the two (2) year period between the first
and third anniversaries of the Closing Date, the
Parent shall issue to the Employee Shareholders, on a
pro rata basis, the remaining fifty-two and one-half
percent (52.5%) of the Employment Incentive Portion
in eight (8) equal installments.
(ii) EARN-OUT PORTION. No later than fifteen (15)
days after the final determination of HKS's Merchant Count for
each of the one (1) year periods ended as of December 31,
2000, December 31, 2001, and December 31, 2002, the Parent
shall issue to the Employee Shareholders, on a pro rata basis,
a percentage of the Earn-Out Portion equivalent to the
percentage of the Cumulative Merchant Count Target achieved by
HKS for each of such one (1) year periods (up to a maximum of
the number of shares represented by the Earn-Out Portion). For
example:
15
HYPOTHETICAL
EXAMPLE 1. If the Merchant Count is
100,000 as of December 31,
2000, the Employee
Shareholders (considered
collectively) would be
entitled to receive twenty
percent (20%) of the Earn-Out
Portion. If the Merchant
Count is 300,000 as of
December 31, 2001, the
Employee Shareholders
(considered collectively)
would be entitled to receive
an additional forty percent
(40%) of the Earn-Out
Portion. If the Merchant
Count is 500,000 as of
December 31, 2002, the
Employee Shareholders
(considered collectively)
would be entitled to receive
the remaining forty percent
(40%) of the Earn-Out
Portion.
HYPOTHETICAL
EXAMPLE 2. If the Merchant Count is
400,000 as of December 31,
2000, the Employee
Shareholders (considered
collectively) would be
entitled to receive eighty
percent (80%) of the Earn-Out
Portion. If the Merchant
Count is 500,000 as of
December 31, 2001, the
Employee Shareholders
(considered collectively)
would be entitled to receive
the remaining twenty percent
(20%) of the Earn-Out
Portion. No part of the
Earn-Out Portion would be
payable for any periods after
December 31, 2001.
HYPOTHETICAL
EXAMPLE 3. If the Merchant Count is
500,000 as of December 31,
2000, the Employee
Shareholders (considered
collectively) would be
entitled to receive one
hundred percent (100%) of the
Earn-Out Portion. No
Additional Consideration
would be payable for any
periods after December 31,
2000.
HYPOTHETICAL
EXAMPLE 4. If the Merchant Count is
100,000 as of December 31,
2000, the Employee
Shareholders (considered
collectively) would be
entitled to receive twenty
percent (20%) of the Earn-Out
Portion. If the Merchant
Count is 200,000 as of
December 31, 2001, the
Employee Shareholders
(considered collectively)
16
would be entitled to receive
an additional twenty percent
(20%) of the Earn-Out
Portion. If the Merchant
Count is 300,000 as of
December 31, 2002, the
Employee Shareholders
(considered collectively)
would be entitled to receive
an additional twenty percent
(20%) of the Earn-Out
Portion. The Employee
Shareholders would not be
entitled to receive any other
Additional Consideration.
(f) PAYMENT OF ADDITIONAL CONSIDERATION / OTHER HOLDERS NOT
EMPLOYEE SHAREHOLDERS. No later than fifteen (15) days after the final
determination of HKS's Merchant Count for each of the one (1) year
periods ended as of December 31, 2000, December 31, 2001, and December
31, 2002, the Parent shall issue to the Other Holders who are not
Employee Shareholders, on a pro rata basis, an amount of Additional
Consideration equivalent to the percentage of the Cumulative Merchant
Count Target achieved by HKS for each of such one (1) year periods (up
to a maximum of the number of shares represented by the Non-Employee
Shareholder Portion). For example:
HYPOTHETICAL
EXAMPLE 1. If the Merchant Count is 100,000 as
of December 31, 2000, the Other
Holders who are not Employee
Shareholders (considered collectively)
would be entitled to receive twenty
percent (20%) of the Non-Employee
Shareholder Portion. If the Merchant
Count is 300,000 as of December 31,
2001, the Other Holders who are not
Employee Shareholders (considered
collectively) would be entitled to
receive an additional forty percent
(40%) of the Non-Employee Shareholder
Portion. If the Merchant Count is
500,000 of December 31, 2002, the
Other Holders who are not Employee
Shareholders (considered collectively)
would be entitled to receive the
remaining forty percent (40%) of the
Non-Employee Shareholder Portion.
HYPOTHETICAL
EXAMPLE 2. If the Merchant Count is 400,000 as
of December 31, 2000, the Other
Holders who are not Employee
Shareholders (considered collectively)
would be entitled to receive eighty
percent (80%) of the Non-Employee
Shareholder Portion. If the Merchant
Count is 500,000 as of December 31,
2001, the Other Holders who are not
Employee Shareholders (considered
collectively) would be entitled to
receive the remaining twenty percent
(20%) of the Non-Employee Shareholder
Portion. No Additional Consideration
would be payable any periods after
December 31, 2001.
HYPOTHETICAL
EXAMPLE 3. If the Merchant Count is 500,000 as
of December 31, 2000, the Other
Holders who are not Employee
Shareholders (considered collectively)
would be entitled to receive one
17
hundred percent (100%) of the
Non-Employee Shareholder Portion. No
Additional Consideration would be
payable for any periods after December
31, 2000.
HYPOTHETICAL
EXAMPLE 4. If the Merchant Count is 100,000 as of
December 31, 2000, the Other Holders
who are not Employee Shareholders
(considered collectively) would be
entitled to receive twenty percent
(20%) of the Non-Employee Shareholder
Portion. If the Merchant Count is
200,000 as of December 31, 2001, the
Other Holders who are not Employee
Shareholders (considered collectively)
would be entitled to receive an
additional twenty percent (20%) of the
Non-Employee Shareholder Portion. If
the Merchant Count is 300,000 as of
December 31, 2002, the Other Holders
who are not Employee Shareholders
(considered collectively) would be
entitled to receive an additional
twenty percent (20%) of the
Non-Employee Shareholder Portion. The
Other Holders who are not Employee
Shareholders would not be entitled to
receive any other Additional
Consideration.
(g) FORM OF PAYMENTS. All payments of Additional Consideration
shall be made by the Parent with Parent Stock. In no event shall the
Additional Consideration payable hereunder exceed the Maximum
Additional Consideration. If, on or before the date any Additional
Consideration becomes payable hereunder, the outstanding shares of
Parent Stock shall be changed into a different number of shares by
reason of any reclassification, recapitalization, split-up, combination
or exchange of shares, or any dividend payable in stock or other
securities is declared thereon with a record date within such period,
or any similar event shall occur, the Additional Consideration will be
adjusted accordingly to provide to the Shareholders and the Other
Holders the same economic effect as contemplated by this Agreement
prior to such reclassification, recapitalization, split-up,
combination, exchange or dividend or similar event.
SECTION 3.5 SECURITIES ACT EXEMPTION; RESTRICTED SECURITIES.
The shares of Parent Stock to be issued in the Merger shall not be
registered under the Securities Act in reliance upon the exemptions set forth in
Section 4(2) thereof and Regulation D promulgated under the Securities Act.
Accordingly, such shares shall be "restricted securities" as such term is
defined in Rule 144(a)(2) promulgated under the Securities Act. Certificates
representing shares of Parent Stock to be issued in the Merger shall bear the
legend set forth in Section 6.4 of this Agreement.
18
SECTION 3.6 SURRENDER AND ISSUANCE OF CERTIFICATES.
(a) MERGER CONSIDERATION NOT SUBJECT TO STOCK ESCROW DEPOSIT.
As soon as reasonably practicable following the Effective Time and the
surrender by the Shareholders and the Other Holders of the certificates
representing their Shares, the Parent will cause its registrar and
transfer agent to mail to each Shareholder and each Other Holder a
certificate for the number of shares of Parent Stock representing the
Merger Consideration into which such Shareholder's or Other Holder's
Shares were converted at the Effective Time in accordance with Section
3.1(b), less the number of shares of Parent Stock to be retained by the
Parent as the Stock Escrow Deposit pursuant to Section 3.3. Until the
certificates for the shares of Parent Stock representing the Merger
Consideration into which each Shareholder's and each Other Holder's
Shares were converted at the Effective Time are issued, the
certificates formerly representing the Shares shall be deemed to
represent the number of shares of Parent Stock representing the Merger
Consideration into which each Shareholder's or each Other Holder's
Shares were converted at the Effective Time.
(b) MERGER CONSIDERATION TO BE RETAINED AS STOCK ESCROW
DEPOSIT. As soon as reasonably practicable following the Effective Time
and the surrender by the Shareholders and the Other Holders of the
certificates representing their Shares, the Parent will cause its
registrar and transfer agent to issue and deliver to the Parent a
certificate registered in the name of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as
shareholder representative for the Shareholders and the Other Holders,
for the number of shares of Parent Stock to be retained by the Parent
representing the Merger Consideration as the Stock Escrow Deposit
pursuant to Section 3.3.
(c) ADDITIONAL CONSIDERATION. As soon as reasonably
practicable following the date or dates on which any Additional
Consideration becomes payable hereunder, the Parent will cause its
registrar and transfer agent to mail to each Shareholder and each Other
Holder entitled thereto a certificate for the number of shares of
Parent Stock representing the amount of Additional Consideration.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
The Shareholders hereby jointly and severally represent and warrant to
the Parent and MergerCo:
SECTION 4.1 ORGANIZATION, SUBSISTENCE AND AUTHORITY OF HKS.
HKS is duly organized, validly existing and presently subsisting under
the laws of the Commonwealth of Pennsylvania. HKS is duly qualified to do
business as a foreign corporation in the jurisdictions set forth opposite its
name in SCHEDULE 4.1, which are all the jurisdictions
19
where the character of the properties it owns, leases or operates, or the
conduct of its business, requires such qualification, other than in any
jurisdiction where the failure to so qualify could not reasonably be expected to
have a material adverse effect on HKS. HKS has full corporate power and
authority to own the properties and assets owned by it, to lease the properties
and assets held by it under lease, to carry on the operation of its business as
it is now being conducted, and to operate its business as heretofore operated.
SECTION 4.2 ARTICLES OF INCORPORATION; BYLAWS; MINUTE BOOKS.
True and complete copies of the articles of incorporation and by-laws
of HKS, as amended to and including the date hereof, have been delivered to the
Parent and MergerCo. HKS is not in material violation of any provision of its
articles of incorporation or by-laws. The minute books, stock books and stock
transfer records of HKS, true and complete copies of which have been made
available to the Parent and MergerCo, contain true and complete minutes and
records of all issuances and transfers of capital stock of HKS and of all
meetings, consents, proceedings and other actions of the shareholders, board of
directors and committees of the board of directors of HKS from the date of
incorporation of HKS to and including the date hereof.
SECTION 4.3 DUE AUTHORIZATION, EXECUTION AND DELIVERY.
Each Shareholder has full capacity to execute and deliver this
Agreement, to perform his obligations hereunder and to consummate the
transactions contemplated hereby. Each Shareholder has duly executed and
delivered this Agreement, and this Agreement constitutes, and all other
agreements and other documents to be executed and delivered hereunder, when so
executed and delivered, will constitute, the legal, valid and binding
obligations of each Shareholder, enforceable against each such Shareholder in
accordance with its terms, except that such enforcement (a) may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights
generally, and (b) is subject to the availability of equitable remedies, as
determined in the discretion of the court before which such a proceeding may be
brought. HKS has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. A duly authorized officer of HKS has duly
executed and delivered this Agreement, and this Agreement constitutes, and all
other agreements and other documents to be executed and delivered hereunder,
when so executed and delivered, will constitute, the legal, valid and binding
obligations of HKS, enforceable against HKS in accordance with its terms, except
that such enforcement (a) may be limited by bankruptcy, insolvency, moratorium
or similar laws affecting creditors' rights generally, and (b) is subject to the
availability of equitable remedies, as determined in the discretion of the court
before which such a proceeding may be brought.
SECTION 4.4 TITLE TO SHARES; CAPITALIZATION; ETC.
(a) TITLE. Each Shareholder owns, beneficially and of record,
all of the Shares set forth opposite such Shareholder's name in Recital
A, free and clear of any Liens. Each of the Other Holders owns,
beneficially and of record, all of the Shares set forth opposite such
Other Holder's name on SCHEDULE 4.4(a). All of the Shares set forth
20
opposite such Other Holder's name on SCHEDULE 4.4(a) are, to the
Knowledge of the Shareholders, free and clear of any Liens.
(b) AUTHORIZED AND ISSUED CAPITAL STOCK OF HKS. The authorized
capital stock of HKS is as set forth on SCHEDULE 4.4(b). The Shares
have been duly authorized and validly issued, are fully paid and
nonassessable and are the only issued and outstanding shares of capital
stock of HKS.
(c) NO EQUITY RIGHTS. There are no preemptive or similar
rights on the part of any holders of any class of securities of HKS.
There are no subscriptions, options, warrants, conversion or other
rights, agreements, commitments, arrangements or understandings of any
kind obligating HKS, any Shareholder or, to the Knowledge of the
Shareholders, any other Person or entity, contingently or otherwise, to
issue or sell, or cause to be issued or sold, any shares of capital
stock of HKS, or any securities convertible into or exchangeable for
any such shares, and no authorization therefor has been given. There
are no outstanding contractual or other rights or obligations to or of
HKS, any Shareholder or, to the Knowledge of the Shareholders, any
other Person or entity to repurchase, redeem or otherwise acquire any
outstanding shares or other equity interests of HKS.
SECTION 4.5 SUBSIDIARIES AND AFFILIATES.
HKS does not own, directly or indirectly, any shares of capital stock
or other equity interest (or any other interest convertible into an equity
interest) in any corporation, partnership, joint venture, association or other
entity, and has no commitment to contribute to the capital of, make loans to, or
share in the profits or losses of, any other entity. HKS has no Affiliates other
than the Shareholders.
SECTION 4.6 CONSENTS; NO CONFLICT.
Except as set forth in SCHEDULE 4.6, (a) neither HKS nor any of the
Shareholders is required to obtain the consent, authorization or approval of any
Person, or License from any Governmental Authority, as a condition to the
consummation of this Agreement by the Shareholders, and (b) the execution and
delivery of this Agreement by the Shareholders and the consummation of the
transactions contemplated hereby will not conflict with, result in the
termination of, contravene or constitute a default under, or be an event which
with the giving of notice or passage of time or both will become a default
under, or give to others any rights of termination or cancellation of, or
accelerate the performance required by or maturity of, or result in the creation
of any Lien or loss of any material rights with respect to HKS pursuant to any
of the terms, conditions or provisions of or under, any applicable Laws, the
articles of incorporation or by-laws of HKS, or under any material Contract,
binding upon HKS or any of the Shareholders or, to the Knowledge of the
Shareholders, the Other Holders, or to which the property of HKS or, to the
Knowledge of the Shareholders (except with respect to the shares of the HKS
Common Stock held by the Shareholders), any share of the HKS Common Stock is
subject under any License.
21
SECTION 4.7 TAX MATTERS.
(a) TAX RETURNS. Except as set forth on SCHEDULE 4.7, (i) HKS
has duly and timely filed (including under any valid extensions of
time) all Tax Returns that it was required to file prior to the date
hereof, (ii) all such Tax Returns were correct and complete in all
material respects, and (iii) HKS is not currently the beneficiary of
any extension of time within which to file any Tax Return.
(b) COMPLIANCE. Except as set forth on SCHEDULE 4.7, (i) all
Taxes that are or may become payable by HKS or chargeable as a Lien
upon the Assets (whether or not shown on any Tax Return) as of the date
hereof have been duly and timely paid, and (ii) HKS has complied in all
respects with applicable Laws relating to the reporting, payment and
withholding of Taxes in connection with amounts paid to its Employees,
creditors, independent contractors or other third parties and has,
within the time and in the manner prescribed by law, withheld from such
amounts and timely paid over to the proper Governmental Authorities all
such amounts required to be so withheld and paid over under applicable
Laws.
(c) CLAIMS. Except as set forth on SCHEDULE 4.7, (i) no
written claim (other than a claim that has been finally settled) has
ever been made by a Governmental Authority in a jurisdiction where HKS
does not file Tax Returns or pay or collect Taxes in respect of a
particular type of Tax imposed by that jurisdiction that HKS is or may
be subject to an obligation to file Tax Returns or pay or collect Taxes
in respect of such Tax in that jurisdiction and (ii) there has been no
material claim or issue (other than a claim or issue that has been
finally settled) concerning any liability for Taxes of HKS either (A)
asserted, raised or, to the Knowledge of the Shareholders, threatened
by any Governmental Authority in writing or (B) Known to the
Shareholders.
(d) WAIVERS. Except as set forth on SCHEDULE 4.7, HKS has not
(i) waived any statute of limitations, (ii) agreed to any extension of
the period for assessment or collection or (iii) executed or filed any
power of attorney in each case with respect to any Taxes, which waiver,
agreement or power of attorney is currently in force.
(e) AUDITS. SCHEDULE 4.7 sets forth (i) all Income Tax Returns
filed by HKS that have ever been audited and (ii) any pending or
proposed audit, proceeding, assessment, reassessment or request for
information by any Governmental Authority relating to any HKS Tax
Return or any Tax owed or which may be owed to HKS.
(f) ELECTIONS. SCHEDULE 4.7 lists all elections for Income
Taxes made by HKS that are currently in force or to which HKS is bound.
(g) CONSENTS. HKS has not filed a consent under Section 341(f)
of the Code concerning collapsible corporations and there are no
outstanding adjustments for Income Tax purposes applicable to HKS
required as a result of changes in methods of accounting
22
effected on or before the date hereof.
(h) TAX SHARING AGREEMENTS. HKS is not a party to or bound by,
and has no obligation under, any Tax allocation, sharing, indemnity or
similar agreement or arrangement, and HKS (i) is not or has not been a
member of any group of companies filing a consolidated, combined or
unitary Income Tax Return or (ii) has no liability for the Taxes of any
Person under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law); as a transferee,
successor, indemnitor or guarantor; by contract or otherwise.
(i) SUFFICIENT PROVISION FOR TAXES. The provisions made for
Taxes on the Interim Balance Sheet are sufficient in all material
respects for the payment of all unpaid Taxes for all periods ended on
or prior to the date of the Interim Balance Sheet.
SECTION 4.8 EMPLOYEES, LABOR MATTERS, ETC.
Except as set forth on SCHEDULE 4.8, HKS is not a party to or bound by
any collective bargaining or other labor agreement, and there are no labor
unions or other organizations representing any Employees employed by HKS. During
the past five (5) years, there has not occurred or been threatened any strike,
slowdown, picketing, union organizing activities, work stoppage, concerted
refusal to work overtime or other similar labor activity with respect to any
Employees of HKS. Except as set forth on SCHEDULE 4.8, there are no labor
disputes currently subject to any grievance procedure, arbitration or litigation
and there is no representation petition pending or threatened with respect to
any Employee of HKS. SCHEDULE 4.8 sets forth the name, position and current
annual compensation of all current Employees of HKS with current annual
compensation in excess of $15,000, together with the date and amount of the last
compensation increase for each such Person. Except as set forth on SCHEDULE 4.8,
all Employees of HKS are employees at will. No Employee has given notice of
intent to terminate employment if the transactions contemplated by this
Agreement are completed. HKS has complied in all material respects with all Laws
pertaining to the employment or termination of employment of its employees,
including, without limitation, all Laws relating to labor relations, equal
employment opportunities, fair employment practices, immigration, prohibited
discrimination or distinction and other similar employment activities.
SECTION 4.9 FINANCIAL STATEMENTS.
SCHEDULE 4.9 contains true and complete copies of the following
financial statements (collectively, the "FINANCIAL STATEMENTS"):
(a) Internally prepared unaudited income statements and
balance sheets of HKS as of December 31, 1994, December 31, 1995,
December 31, 1996, December 31, 1997 and December 31, 1998 and for each
of the five (5) years then ended (the "YEAR-END FINANCIAL STATEMENTS");
and
23
(b) Internally prepared unaudited balance sheet of HKS as of
September 30, 1999 (the "INTERIM BALANCE SHEET") and the related
unaudited income statement, balance sheet comparison, profit and loss
statement and contingent liability statement for the period from
January 1, 1999 to September 30, 1999 (the "INTERIM INCOME STATEMENT").
Except as set forth in the notes thereto or as disclosed in SCHEDULE
4.9 hereof, all such Financial Statements (i) were prepared from the regular
accounting books and records of HKS and (ii) fairly present in all material
respects the financial condition and results of operations of HKS as of the
respective dates thereof and for the respective periods covered thereby.
SECTION 4.10 CHANGES OF FINANCIAL CONDITION; UNDISCLOSED LIABILITIES.
(a) Except for the execution and delivery of this Agreement
and as disclosed on SCHEDULE 4.10(a) hereof, since the date of the
Interim Balance Sheet, there has not been any adverse change, or any
event or development which, individually or together with other such
events or developments, has resulted in or could reasonably be expected
to result in a material adverse change in the business, financial
condition or, to the Knowledge of the Shareholders, prospects, of HKS
other than those occurring as a result of general economic or financial
conditions not unique to HKS. Except as set forth in SCHEDULE 4.10(a),
since the date of the Interim Balance Sheet, to the Knowledge of the
Shareholders, HKS has not taken any action or failed to take any action
which would have violated any of the covenants set forth in Sections
6.1(a) and (d) hereof if such covenants had been given on such date.
Except as otherwise disclosed in this Agreement, including the
Schedules hereto, HKS has been operated in the Ordinary Course of
Business since the date of the Interim Balance Sheet.
(b) Except as set forth in SCHEDULE 4.10(b), to the Knowledge
of the Shareholders, HKS has no Liability arising out of transactions
entered into prior to the Closing, or any action or inaction prior to
Closing, or any other state of facts existing prior to Closing other
than: (i) Liabilities set forth on the Interim Balance Sheet; (ii)
Liabilities which have arisen in the Ordinary Course of Business since
the date of the Interim Balance Sheet; (iii) Liabilities arising in the
Ordinary Course of Business of the type not required to be disclosed on
a balance sheet prepared in accordance with GAAP; or (iv) Liabilities
which, individually or in the aggregate, do not have a material adverse
effect on the Business or financial condition of HKS.
SECTION 4.11 REAL PROPERTY.
(a) OWNED AND LEASED REAL PROPERTY. SCHEDULE 4.11(a) contains
a true and correct list of each parcel of real property leased by HKS
(as lessor or lessee) under any real property lease. HKS does not own
any real property.
(b) LEASED REAL PROPERTY. HKS has a valid leasehold estate in
the real properties leased by it, subject to the real property lease
relating thereto, for the full term
24
thereof. Each such real property lease is a legal, valid and binding
agreement of HKS, enforceable against HKS in accordance with its terms,
and except as set forth in SCHEDULE 4.11(c), there is no default (or,
to the Knowledge of the Shareholders, any event which, after notice or
lapse of time or both, would constitute a default) thereunder.
(c) DOCUMENTS. HKS has delivered to the Parent and MergerCo
prior to the execution of this Agreement true and complete copies of
all real property leases (including any amendments and renewal letters
relating thereto) with respect to the real property leased by HKS.
(d) CONDITION OF IMPROVEMENTS. Except as disclosed in SCHEDULE
4.11(d), the improvements located on the real property leased by HKS
are in all respects in good condition and in good repair, ordinary wear
and tear excepted, and, to the Knowledge of the Shareholders, there are
no condemnation proceedings pending or threatened against any of such
real property or improvements. HKS's use of, and, to the Knowledge of
the Shareholders, all improvements located on, all real property
identified in SCHEDULE 4.11(a) comply with all applicable material
zoning and similar requirements. To the Knowledge of the Shareholders,
no improvements on such real property encroach any boundary or
easement, violate any setback requirement or are located on a 100-year
flood plain.
SECTION 4.12 TANGIBLE PERSONAL PROPERTY.
HKS is in possession of and has good title to, or has valid leasehold
interests in or valid rights under contract to use, all the tangible personal
property used in and material to the conduct of the business of HKS. Except as
disclosed in SCHEDULE 4.12, all such tangible personal property is free and
clear of all Liens, other than Permitted Liens, and is in good condition,
ordinary wear and tear excepted.
SECTION 4.13 INTENTIONALLY OMITTED.
SECTION 4.14 INTELLECTUAL PROPERTY.
(a) INTELLECTUAL PROPERTY RIGHTS. Except as set forth on SCHEDULE
4.14(a), HKS owns or has the legal right to use all Intellectual Property which
is material to and necessary for the operation of the business of such company,
including that necessary to sell or license HKS's present products, as presently
conducted and as presently planned to be conducted by such company with respect
to such products. Each item of Intellectual Property owned or used by HKS
immediately prior to the Effective Time will be owned or available for use by
such company on identical terms and conditions immediately subsequent to the
Closing.
(b) INFRINGEMENT. HKS has not interfered with, infringed upon, or
misappropriated any Intellectual Property rights of any other Person, and has
never received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that HKS must license or refrain from using
25
any Intellectual Property rights of any other Person). To the Knowledge of the
Shareholders, no third Person has interfered with, infringed upon,
misappropriated, or otherwise violated any Intellectual Property rights of HKS.
(c) REGISTERED INTELLECTUAL PROPERTY. SCHEDULE 4.14(c) identifies (i)
each patent, copyright registration, trademark, service ▇▇▇▇, or trade dress
registration, mask work registration, and industrial design registration
(collectively, "REGISTRATIONS"), which Registrations have been issued to HKS
with respect to any of its Intellectual Property; (ii) each application for
registration of Intellectual Property which HKS has made with respect to any of
its Intellectual Property; (iii) each license, agreement, or other permission
which HKS has granted to any third Person with respect to any of its
Intellectual Property; (iv) any claims that a third Person may have interfered
with, infringed upon, misappropriated, or otherwise violated any Intellectual
Property rights of HKS and (v) all computer software included in a named
component of a commercially released product of HKS. HKS has delivered to the
Parent and MergerCo correct and complete copies of all such Registrations,
pending patent applications or applications for registration for any of its
Intellectual Property, licenses, agreements, and permissions (as amended to
date) and has made available to the Parent and MergerCo correct and complete
copies of all other written documentation evidencing ownership of each such
item. With respect to each item of Intellectual Property required to be
identified by HKS on SCHEDULE 4.14(c):
(A) HKS possesses all right, title, and interest in and to the
item, free and clear of any Lien, license, or other restriction, other
than restrictions contained in any licenses obtained by HKS with
respect to such Intellectual Property (as further described in SCHEDULE
4.14(d)), and prior licenses granted by HKS in connection with the
licensing or distribution of products or Intellectual Property of HKS
in the ordinary course of business;
(B) the item is not subject to any Order; and
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
the Shareholders, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item.
(d) INTELLECTUAL PROPERTY FROM OTHERS. SCHEDULE 4.14(d) identifies each
item of Intellectual Property that any third Person owns and that HKS uses
pursuant to license, sublicense, agreement or similar Contract or permission.
With respect to licenses, sublicenses, agreements, or similar Contracts and
permissions and with an unexpired term of more than twelve (12) months or
involving aggregate payments in excess of $5,000, HKS has delivered to the
Parent and MergerCo correct and complete copies of all such licenses,
sublicenses, agreements, or similar Contracts and permissions (in each case, as
amended to date). With respect to each item of Intellectual Property required to
be identified in SCHEDULE 4.14(d):
(i) the license, sublicense, agreement, or similar Contract or
permission covering the item is legal, valid, binding, enforceable, and
in full force and effect, except that such enforcement: (A) may be
limited by bankruptcy, insolvency, moratorium or
26
similar laws affecting creditors' rights generally, and (B) is subject
to the availability of equitable remedies, as determined in the
discretion of the court before which an equitable proceeding may be
brought;
(ii) no party to the license, sublicense, agreement, or
similar Contract or permission is in breach or default thereunder, and
no event has occurred which, with notice or lapse of time or both,
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iii) no party to the license, sublicense, agreement, or
similar Contract or permission has repudiated any provision thereof;
(iv) with respect to each sublicense, the representations and
warranties set forth in subsections (i) and (iii) of this Section
4.14(d) above are true and correct with respect to the underlying
license; and
(v) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, is threatened which
challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property.
(e) CONTINUED OPERATIONS. To the Knowledge of the Shareholders, neither
HKS nor the Intellectual Property owned by HKS, nor any of the products
manufactured or released by HKS, nor any third party Intellectual Property used
by HKS, interferes with, infringes upon, misappropriates, or otherwise violates
any Intellectual Property rights existing today of third Persons.
(f) YEAR 2000 COMPLIANCE. The Intellectual Property owned by HKS is,
and any products manufactured and commercially released by HKS which are, as of
the date hereof, covered by any express or implied warranty enforceable against
HKS are, fully Year 2000 Compliant and will not cease to be fully Year 2000
Compliant at any time prior to, during or after the calendar year 2000, assuming
that time/date data are accurately presented to such products. For the purposes
of this Agreement, "YEAR 2000 COMPLIANT" means that neither the performance nor
the functionality of any applicable product is or will be affected by dates
prior to, during or after the calendar year 2000 A.D. and in particular (but
without limitation):
(i) such product accurately receives, provides and processes,
and will accurately receive, provide and process, date/time data
(including calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including calendar
years 1999 AND 2000;
(ii) such product will not malfunction, cease to function,
provide invalid or incorrect results or cause any interruption in the
operation of the business of HKS as a result of any date/time data;
27
(iii) date-based functionality of such product behaves and
will continue to behave consistently for dates prior to, during and
after the year 2000;
(iv) in all interfaces and data storage of such product, the
century in any date is and will be specified either explicitly or by
unambiguous algorithms or inferencing rules; and
(v) the year 2000 is and will be recognized as a leap year of
such product.
(g) For purposes of this Agreement, "INTELLECTUAL PROPERTY" means (i)
inventions (whether patentable or unpatentable and whether or not reduced to
practice), improvements thereto, and patents, patent applications, and patent
disclosures, together with reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (ii) marks, trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with translations, adaptations, derivations, and combinations thereof and
applications, registrations, and renewals in connection therewith, (iii)
copyrightable works, copyrights, and applications, registrations and renewals in
connection therewith, (iv) mask works and applications, registrations and
renewals in connection therewith, (v) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulae, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, engineering notebooks,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (vi) all types of computer software programs,
including operating systems, application programs, software tools, firmware and
software imbedded in equipment, including both object code and source code
versions thereof and all written or electronic materials that explain the
structure or use of software or that were used in the development of software,
including logic diagrams, flow charts, procedural diagrams, error reports,
manuals and training materials, (vii) industrial designs and applications
therefor, and (viii) rights under and remedies against infringement of any of
the foregoing, and rights to protection of interests in any of the foregoing
under the laws of any jurisdiction.
SECTION 4.15 BUSINESS CONTRACTS.
(a) DESCRIPTION OF BUSINESS CONTRACTS. SCHEDULE 4.15 contains
a true and complete list of each of the following Contracts (true and
complete copies of which, together with all amendments and supplements
thereto, have been delivered to the Parent and MergerCo prior to the
execution of this Agreement) to which HKS is a party:
(i) all Contracts (excluding Benefit Plans)
providing for a commitment of employment or consultation
services for a specified or unspecified term to, or otherwise
relating to employment or the termination of employment or the
severance of, any Employee;
(ii) all Contracts with any Person containing
any provision or covenant prohibiting or limiting the ability
of HKS to engage in any business activity or compete with any
Person in connection with the Business, or
28
prohibiting or limiting the ability of any Person to compete
with HKS in connection with the Business;
(iii) all partnership, joint venture or
shareholders' Contracts with any Person;
(iv) all Contracts with distributors, dealers,
manufacturer's representatives, sales agencies or franchises
with whom HKS deals in connection with the Business which in
any case involve the payment or potential payment, pursuant to
the terms of any such Contract, by or to either HKS of more
than $5,000 annually;
(v) all Contracts providing for indemnification
or contribution by HKS of any other Person where the
indemnification or contribution obligation is reasonably
expected to potentially exceed $5,000;
(vi) all Contracts under which the consequences
of default or termination could reasonably be expected to have
a material adverse effect on the condition (financial or
otherwise), business or prospects of HKS;
(vii) all Contracts between HKS, on the one hand,
and either Shareholder or any family member of either
Shareholder or any Affiliate of the foregoing, on the other
hand;
(viii) all Contracts pertaining to matters that
are not within the Ordinary Course of Business of HKS;
(ix) all Contracts relating to the future
disposition or acquisition of any Assets other than
dispositions or acquisitions of raw materials or inventory in
the Ordinary Course of Business;
(x) all other Contracts (other than Benefit
Plans, the real property leases referred to in Section 4.11(d)
and insurance policies listed in SCHEDULE 4.20) to which HKS
is a party that (A) involve the payment or potential payment,
pursuant to the terms of any such Contract, by or to HKS of
more than $5,000 annually and (B) cannot be terminated within
sixty (60) days after giving notice of termination without
resulting in any cost or penalty to HKS.
(b) STATUS OF BUSINESS CONTRACTS. Each Contract required to be
disclosed in SCHEDULE 4.15 is in full force and effect and constitutes
a legal, valid and binding agreement of HKS, enforceable against HKS in
accordance with its terms, and except as disclosed in SCHEDULE 4.15,
neither HKS nor, to the Knowledge of the Shareholders, any other party
to such Contract is in violation or breach of or default under any such
Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Contract).
29
SECTION 4.16 LITIGATION AND CLAIMS.
SCHEDULE 4.16 discloses each instance in which HKS (or, to the
Knowledge of the Shareholders, its directors, officers or Employees, in such
capacities) is a party to or, to the Knowledge of the Shareholders, is
threatened to be made a party to, any charge, complaint, action, suit,
arbitration, proceeding, hearing, or investigation which, individually or in the
aggregate could reasonably be expected to have a material adverse effect on HKS.
HKS is not subject to any Order which could reasonably be expected to have a
material adverse effect on HKS.
SECTION 4.17 COMPLIANCE WITH LAWS AND ORDERS.
Except as disclosed in SCHEDULE 4.17, HKS is not in any material
respect in violation of or in default under any Law or Order Known by the
Shareholders to be applicable to it, its Business or its Assets, and, to the
Knowledge of the Shareholders, no facts or circumstances exist that, with or
without the passage of time or the giving of notice or both, might reasonably
serve as the basis for any claim that HKS is not in compliance with any such
Laws or Orders. HKS has not received any communication from a Governmental
Authority alleging that it is not in compliance with any Law or Order relating
to the operation of the Business. HKS has filed in a timely manner all reports,
documents and other materials required to be filed (and the information
contained therein was correct and complete in all material respects) under
applicable Laws with respect to the Business, the failure of which to be filed
would have a material adverse effect on the Business.
SECTION 4.18 EMPLOYEE BENEFITS.
(a) DESCRIPTION OF BENEFIT PLANS. SCHEDULE 4.18(a) contains a
true and complete list of the Benefit Plans and identifies each Benefit
Plan that is a Qualified Plan.
(b) COMPLIANCE. Except as disclosed on SCHEDULE 4.18(b), each
Benefit Plan (and each related trust or insurance contract) complies in
form and in operation in all material respects with its respective
governing documents and the applicable requirements of ERISA and the
Code.
(c) FILINGS. Except as disclosed on SCHEDULE 4.18(c), all
required reports and descriptions (including, without limitation, Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed in a timely manner with
respect to each Benefit Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code Section 4980B(f) have been met in all
material respects with respect to each group health plan.
(d) CONTRIBUTIONS. All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each Pension Benefit Plan in a timely manner
(including any extensions) and all contributions for any
30
period ending on or before the Closing Date which are not yet due have
been paid to each Pension Benefit Plan or accrued in the Financial
Statements in accordance with GAAP. All premiums or other payments for
all periods ending on or before the date hereof have been paid in a
timely manner with respect to each Welfare Benefit Plan (as defined in
ERISA Section 3(1)).
(e) DETERMINATION LETTERS. Each Pension Benefit Plan which is
required to comply with Code Section 401(a) satisfies the material
requirements of Code Section 401(a) and has received, a favorable
determination letter from the IRS regarding such status and has not,
since receipt of the most recent favorable determination letter, been
amended or operated in a way which would adversely affect such
qualified status.
(f) ASSET VALUATION. As of the valuation date contained in the
most recent actuarial report, the market value of assets under each
Pension Benefit Plan (other than any Multiemployer Plan) which is
subject to Title IV of ERISA equals or exceeds the present value of
accrued benefits thereunder through the date thereof (determined on a
plan termination basis), and since such valuation date, nothing has
come to the attention of the Shareholders indicating that the market
value of such assets does not equal or exceed such present value. No
Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a reportable
event (as defined in ERISA Section 4043) as to which a 30-day notice
would be required to be filed with the PBGC. No proceeding by the PBGC
to terminate any Pension Benefit Plan (other than any Multiemployer
Plan) has been instituted or, to the Knowledge of the Shareholders,
threatened.
(g) NO PROHIBITED TRANSACTIONS. There has been no Prohibited
Transaction (as defined in ERISA Section 406 and Code Section 4975) or
any reportable event (as defined in ERISA Section 4043) for which a
30-day notice is required with respect to any Benefit Plan which is
subject to Title IV of ERISA. No fiduciary within the direct control of
HKS, nor to the Knowledge of the Shareholders, any fiduciary that is
outside the direct control of HKS, with respect to any Benefit Plan has
any material Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any Benefit Plan. No charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand with
respect to the administration or the investment of the assets of any
Benefit Plan (other than routine claims for benefits) is pending
against HKS and, to the Knowledge of the Shareholders, there is no
basis for any such charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand.
(h) DOCUMENTATION. HKS has made available to the Parent and
MergerCo true and complete copies of (i) the plan documents and summary
plan descriptions for each Benefit Plan to which it is a party, (ii)
the most recent determination letters received from the Internal
Revenue Service for each Qualified Plan, (iii) the most recent Forms
5500 Annual Report for each Benefit Plan, and (iv) all related trust
agreements, insurance contracts, and other funding agreements with
respect to each Benefit Plan.
31
(i) MISCELLANEOUS. Neither HKS nor any Affiliate has ever
contributed to, nor ever has been required to contribute to, any
multiemployer plan (as defined in Section 3(37) or 4001(a)(3) of ERISA)
(a "MULTIEMPLOYER PLAN") nor has any Liability (including withdrawal
Liability) under any Multiemployer Plan. Neither HKS nor any Affiliate
has incurred, nor does either have any reason to expect that it will
incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any Pension Benefit Plan that HKS or
any Affiliate maintains or has ever maintained or to which any of them
contributes, has ever contributed, or has ever been required to
contribute. Except as disclosed in SCHEDULE 4.18, no Benefit Plan (i)
provides medical benefits, life insurance or similar benefits to
retirees or their families or (ii) is self-funded. There is no lien
upon any property of HKS or any Affiliate outstanding pursuant to
Section 412(n) of the Code in favor of any Benefit Plan. No assets of
HKS or any Affiliate have been provided as security for any Benefit
Plan pursuant to Section 401(a)(29) of the Code.
SECTION 4.19 LICENSES.
SCHEDULE 4.19 contains a true and complete list of all Licenses of HKS
(and all pending applications for any such Licenses). Prior to the execution of
this Agreement, HKS has delivered to the Parent and MergerCo true and complete
copies of all such Licenses. Each such License is valid, binding and in full
force and effect. HKS is not, nor has it received any notice that it is, in
default (or, with the giving of notice or lapse of time or both, would be in
default) under any such License.
SECTION 4.20 INSURANCE POLICIES.
SCHEDULE 4.20 contains a true and complete list of all Insurance
Policies maintained by HKS. Each such Insurance Policy is in full force and
effect and all premiums due thereunder or self-insurance funding amounts
required thereby, as the case may be, have been paid or accrued in the Financial
Statements. HKS has not received any notice of cancellation or termination with
respect to any such Insurance Policy, and HKS is not in default thereunder in
any material respect. No insurer has denied liability or is defending with
reservation of rights regarding to any presently existing claim.
SECTION 4.21 ENVIRONMENTAL MATTERS.
(a) COMPLIANCE. Except as disclosed on SCHEDULE 4.21(a), HKS
has obtained, and complied in all material respects with all the terms
and conditions of, all Licenses required by any Environmental Law in
connection with its Business. Each such License obtained by HKS is in
full force and effect. HKS has at all times complied in all material
respects and is in compliance in all material respects with all
Environmental Laws.
(b) CONTAMINATION. Except as disclosed in SCHEDULE 4.21(b),
HKS has not, and to the Knowledge of the Shareholders, no other Person
has, caused or allowed any
32
Release of any hazardous or toxic substance, waste, pollutant or
contaminant, petroleum product or any substance regulated under any
Environmental Law, and to the Knowledge of the Shareholders, no such
substance, waste, pollutant, contaminant or petroleum product is
present on, in, under or about any real property leased or otherwise
used by HKS (except for such quantities as are used in the Ordinary
Course of Business and stored in appropriate containers in compliance
in all material respects with all Environmental Laws).
(c) NO NOTICE. No written notice or any other communication
from Governmental Authority of any alleged violation of any
Environmental Law has been communicated to HKS, except for notices or
communications that have been complied with in all material respects.
(d) PENALTIES. During the past three (3) years HKS has not
paid any civil or criminal fines, penalties, judgments or other amounts
relating to alleged failure to comply with Environmental Laws.
SECTION 4.22 RELATIONSHIP WITH AFFILIATES.
Except as set forth in SCHEDULE 4.22, no Shareholder or family member
of any shareholder or any Affiliate of the foregoing of HKS provides or supplies
assets, services or facilities which are individually or in the aggregate
material to HKS, and HKS provides or supplies any assets, services or facilities
to any such person which are individually or in the aggregate material to HKS.
Except as disclosed on SCHEDULE 4.22, each of the transactions listed in
SCHEDULE 4.22 is engaged in on an arm's-length basis.
SECTION 4.23 BROKERS.
No broker or other representative has acted on behalf of the
Shareholders or HKS in connection with the transaction contemplated hereby in
such manner as to give rise to any valid claim by any Person against the Parent,
MergerCo or HKS for a finder's fee, brokerage commission or similar payment.
SECTION 4.24 NO GUARANTEES.
Except as disclosed on SCHEDULE 4.24, none of the Liabilities of HKS is
guaranteed by or subject to a similar contingent obligation of any other Person,
nor has HKS guaranteed or become subject to a similar contingent obligation in
respect of the Liabilities of any customer, supplier or other Person.
SECTION 4.25 ACCOUNTS RECEIVABLE; PAYABLES.
Except as set forth in SCHEDULE 4.25, the accounts receivable of HKS
outstanding on the Closing Date (a) arose from BONA FIDE sales transactions in
the Ordinary Course of Business and are payable on ordinary trade terms and (b)
are collectible in the Ordinary Course of Business in
33
the aggregate recorded amounts thereof, less the allowance for bad debt shown in
the Interim Balance Sheet. SCHEDULE 4.25 accurately lists and ages HKS's
Accounts Receivable and Accounts Payable as of November 30, 1999. None of HKS's
accounts payable currently outstanding bears any interest.
SECTION 4.26 BANK ACCOUNTS.
SCHEDULE 4.26 sets forth a complete and correct list containing the
names of each bank in which either HKS has an account or safe deposit or lock
box, the account or box number, as the case may be, and the name of every Person
authorized to draw thereon or having access thereto.
SECTION 4.27 [INTENTIONALLY OMITTED.]
SECTION 4.28 CUSTOMERS AND SUPPLIERS.
Except as set forth on SCHEDULE 4.28, none of HKS's customers or
suppliers has notified HKS of its intention to cease or alter its business with
HKS before or after the Closing Date.
SECTION 4.29 DISCLOSURE.
The representations and warranties of the Shareholders contained in
this Agreement, and in any schedule, certificate, or agreement furnished by the
Shareholders to the Parent and MergerCo pursuant to this Agreement do not
contain any untrue statement of a fact or omit to state a fact necessary in
order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND MERGERCO
The Parent and MergerCo hereby jointly and severally represent and
warrant to the Shareholders:
SECTION 5.1 ORGANIZATION AND AUTHORITY.
The Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. MergerCo is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Each of the Parent and MergerCo has full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated herein.
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SECTION 5.2 DUE AUTHORIZATION, EXECUTION AND DELIVERY.
The execution of this Agreement by the Parent and MergerCo and the
performance by the Parent and MergerCo of the transactions contemplated herein
have been duly authorized by all necessary corporate action of the Parent and
MergerCo, and this Agreement has been duly executed and delivered by a duly
authorized officer of each of the Parent and MergerCo and constitutes a valid
and binding agreement of each of the Parent and MergerCo, enforceable against
each of the Parent and MergerCo in accordance with its terms, except that such
enforcement (a) may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting contract or creditors' rights generally, and (b) is subject to
the availability of equitable remedies, as determined in the discretion of the
court before which a proceeding seeking such enforcement may be brought.
SECTION 5.3 CONSENTS; NO CONFLICT.
Except as set forth on SCHEDULE 5.3, neither the Parent nor MergerCo is
required to obtain the consent, authorization or approval of any Person or any
License from any Governmental Authority as a condition to the consummation of
this Agreement by the Parent or MergerCo, and the execution and delivery of this
Agreement by the Parent or MergerCo, and the consummation by each of them of the
transactions contemplated hereby will not conflict with, result in the
termination of, result in a breach of, or constitute a default under the terms
of any Contract to which the Parent or MergerCo is a party or to which its
property is subject which would adversely affect the Parent or MergerCo's
ability to perform its obligations hereunder.
SECTION 5.4 [INTENTIONALLY OMITTED].
SECTION 5.5 PARENT STOCK.
The shares of Parent Stock to be received by the Shareholders hereunder
shall be validly issued, fully paid and non-assessable.
SECTION 5.6 CAPITALIZATION.
The authorized capital stock of the Parent consists of 225,000,000
shares of common stock, $0.0001 par value, and 5,000,000 shares of preferred
stock, $0.0001 par value. As of the date hereof, there were 68,794,404 shares of
Parent Stock issued, of which no shares were held in treasury and the remainder
were outstanding. Also as of the date hereof, 750,000 shares of Parent Stock
were subject to issuance pursuant to employee stock purchase plans, 12,328,088
shares of Parent Stock were subject to issuance upon exercise of options, and
2,407,450 shares of Parent Stock were subject to issuance upon exercise of
warrants. All of the issued and outstanding shares of Parent Stock are duly and
validly issued and outstanding and fully paid and non-assessable. None of the
outstanding shares of Parent Stock has been, and none of the shares of Parent
Stock to be issued in exchange for the Shares upon consummation of the Merger
will be, issued in violation of any preemptive rights of the current or past
shareholders of the Parent.
35
SECTION 5.7 BROKERS.
No broker or other representative has acted on behalf of the Parent or
MergerCo in connection with the transaction contemplated hereby in such manner
as to give rise to any valid claim by any Person against the Shareholders or HKS
for a finder's fee, brokerage commission or similar payment.
SECTION 5.8 DISCLOSURE.
The representations and warranties of the Parent and MergerCo contained
in this Agreement, and in any schedule, certificate or agreement furnished by
the Parent and MergerCo to the Shareholders pursuant to this Agreement, do not
contain any untrue statement of a fact or omit to state a fact necessary in
order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
SECTION 5.9 SEC FILINGS.
The Parent's Prospectus, dated August 11, 1999 (the "PROSPECTUS"), and
Quarterly Report on Form 10-Q for the quarter ended August 31, 1999 (the "FORM
10-Q"), (i) at the time filed, complied in all material respects with the
applicable requirements of applicable federal securities laws and regulations
promulgated by the U.S. Securities and Exchange Commission (the "SEC") and (ii)
did not, at the time they were filed, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since the date of the most recent
financial statements included in the Prospectus or the Form 10-Q, except as
disclosed in the Parent's most recent earnings report for the quarter ended
November 30, 1999, there has not been any material adverse change in the
business or financial condition of the Parent.
ARTICLE VI
ADDITIONAL AGREEMENTS OF THE SHAREHOLDERS AND HKS
SECTION 6.1 OPERATION OF BUSINESS.
From the date hereof until the Closing Date except to the extent the
Parent otherwise agrees in writing:
(a) HKS shall, and the Shareholders shall cause HKS to,
operate in the Ordinary Course of Business (including paying accounts
payable, accrued Liabilities, maintaining inventories, making normal
capital expenditures and collecting receivables all in accordance with
the past practices) and use reasonable commercial efforts to preserve
the present business organization and present relationships with
Persons having business dealings with HKS.
36
(b) HKS shall not, and the Shareholders shall cause HKS not
to, take any action or fail to take any action that would cause any of
the representations and warranties made by the Shareholders in this
Agreement not to remain true and correct as if made at and as of the
Closing Date.
(c) HKS shall, and the Shareholders shall cause HKS to, give
prompt written notice to the Parent of any material adverse development
affecting HKS or the financial condition, operations, cash flows,
assets, Liabilities of results of operations of HKS, or that any
representation or warranty of the Shareholders is no longer true and
the Shareholders shall give prompt written notice to the Parent of any
development affecting the ability of the Shareholders to consummate the
transactions contemplated by this Agreement.
(d) Except with the prior written consent of the Parent, HKS
shall, and the Shareholders shall cause HKS to, from the date hereof
until the Closing: (i) maintain the Assets in good operating condition
and repair, ordinary wear and tear excepted, and continue normal
maintenance thereof, (ii) not make any Contract for capital
expenditures in excess of $5,000, (iii) not declare or pay any
dividends on any capital stock of any HKS, (iv) not purchase or
otherwise acquire, transfer, sell or issue any shares or capital stock
of HKS or grant any options or other rights to purchase the same, (v)
not change its articles of incorporation or bylaws, (vi) not sell,
mortgage, alienate or dispose of any items of property except inventory
and obsolete Assets in the Ordinary Course of Business, (vii) not lend
or agree to lend any funds other than for travel advances to Employees
in the Ordinary Course of Business, (viii) not increase salaries or
wages, (ix) not declare bonuses, increase benefits or institute any new
benefit plan or program, (x) comply in all material respects with all
laws applicable to HKS, (xi) not amend or in any way modify in any
material respect any Contract, (xii) not enter into any transaction,
Contract or commitment in the Ordinary Course of Business which
obligates it to pay a sum greater than $5,000 in any one instance or
$10,000 in the aggregate to any one person, or obligates it for a
period ending after the Closing, (xiii) not introduce any change with
respect to the operation of its businesses, including method,
principle, or practice of accounting, or (xiv) not enter into any
transaction or other relationship with any Shareholder or any family
member of any Shareholder or any Affiliate of the foregoing.
SECTION 6.2 ACCESS TO BOOKS AND RECORDS OF BUSINESS.
From the date hereof until the Closing Date or any earlier termination
of this Agreement, HKS shall, and the Shareholders shall cause HKS to, (a) give
the Parent and MergerCo and their respective officers, employees, counsel,
financial advisers, consultants and other representatives (collectively, the
"REPRESENTATIVES") full access upon reasonable notice and during normal business
hours to the appropriate officers and Employees of HKS, to HKS's accountants, to
HKS's premises, books, contracts, records and documents, (b) upon request of
Parent of MergerCo, furnish the Parent and MergerCo with copies of all such
books, contracts, records and documents, and (c) furnish the Parent and MergerCo
with all such additional financial, operating
37
and other information and data concerning HKS as the Parent and MergerCo may
reasonably request in order to review the legal, financial, environmental and
business condition and affairs of HKS and its Assets and so long as such access
does not unreasonably interfere with the operation of the Business.
SECTION 6.3 EXCLUSIVITY.
Until the earlier of the Closing Date, the termination of this
Agreement or January 31, 2000, neither HKS nor the Shareholders shall (and the
Shareholders shall cause HKS not to and cause any agent or representative or any
other Person acting on behalf of HKS not to):
(a) solicit, initiate or encourage the submission of any
proposal or offer from any Person relating to any (i) liquidation,
dissolution or recapitalization or, (ii) merger, consolidation with or
into, (iii) acquisition or purchase of substantially all of the assets
of or any equity interest in or (iv) similar transaction or business
accommodation involving, HKS; or
(b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any other
Person to do or seek any of the foregoing.
The Shareholders agree that they will (and will cause HKS to)
discontinue immediately any negotiations or discussions with respect to any of
the foregoing. The Shareholders agree that they will (and will cause HKS to)
give the Parent immediate notice of any unsolicited proposal or offer they (or
HKS) receive from any Person prior to the Closing.
SECTION 6.4 NO REGISTRATION / LIMITATION ON TRANSFERS.
Each Shareholder acknowledges that the issuance of the Parent Stock in
the Merger will not be registered under the Securities Act (except pursuant to
the Registration Rights Agreement) in reliance upon the exemption(s) from
registration provided thereby, including Section 4(2) and regulations
promulgated thereunder. Each Shareholder also acknowledges that the issuance of
the Parent Stock issued in the Merger will not be registered under the
securities laws of any state. Consequently, each Shareholder understands that
the shares of Parent Stock issued in the Merger cannot be resold unless they are
registered under the Securities Act and applicable state securities laws, or
unless an exemption from such registration requirements is available. Each
Shareholder has been advised and acknowledges that although Parent may hereafter
register offers and sales of its securities under the Securities Act, Parent is
under no obligation to take any action necessary in order to register any Parent
Stock issued in the Merger (except pursuant to the Registration Rights
Agreement) or make available any exemption for transfer of such Parent Stock
without registration. Each Shareholder understands that there will be placed on
the certificates representing the Parent Stock issued in the Merger as Merger
Consideration or Additional Consideration a legend stating in substance the
following and each Shareholder understands that Parent will refuse to permit the
transfer of the Parent Stock out of such Shareholder's name in the absence of
compliance with the terms of such legend:
38
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT
AND THE RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. RED HAT, INC. (THE "CORPORATION")
WILL NOT TRANSFER THE SECURITIES REPRESENTED BY THIS CERTIFICATE EXCEPT
UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE CORPORATION, WHICH MAY
INCLUDE AN OPINION OF COUNSEL, THAT THE REGISTRATION PROVISIONS OF SUCH
ACT HAVE BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS NOT REQUIRED
AND THAT SUCH TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES
LAWS.
SECTION 6.5 STOCKHOLDERS' MEETING; PROXY MATERIAL.
(a) HKS shall, in accordance with applicable Law and its
articles of incorporation and bylaws, duly call, give notice of,
convene and hold a special meeting of the Shareholders and the Other
Holders (the "SPECIAL MEETING") as promptly as practicable, but in no
event later than January 5, 2000, for the purpose of considering and
taking action upon this Agreement and the Merger. HKS shall give notice
to Red Hat of the action taken by the Shareholders and the Other
Holders in the Special Meeting as promptly as practicable after such
meeting.
(b) Prior to holding the Special Meeting, HKS shall prepare a
proxy statement relating to the adoption of this Agreement and the
approval of the Merger by the Shareholders and the Other Holders (the
"PROXY STATEMENT"). Similarly, Red Hat shall prepare a private
placement memorandum in which information for the Proxy Statement will
be included, relating to the shares of Parent Stock issuable in
connection with the Merger (such private placement memorandum, as it
may be amended or supplemented, is herein referred to as the "PPM").
HKS and Red Hat shall cooperate with each other in connection with the
preparation of the Proxy Statement and the PPM, which may, together
with any exhibits and attachments thereto, be combined into one
document. HKS will cause the Proxy Statement and the PPM to be mailed
or otherwise delivered to the Shareholders and the Other Holders as
promptly as practicable after the Proxy Statement and PPM are prepared.
All mailings to the Shareholders and the Other Holders in connection
with the transactions contemplated by this Agreement, including the
Proxy Statement and the notice of the Special Meeting, shall be subject
to the prior review of Red Hat.
39
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 CONFIDENTIALITY.
The Parent, HKS and the Shareholders will maintain in confidence, and
will cause the directors, officers, employees, agents, and advisors of the
Parent and HKS to maintain in confidence, any written information stamped
"confidential" when originally furnished by another party in connection with
this Agreement or the transaction hereby contemplated, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transaction hereby contemplated, or (c) the furnishing or
use of such information is required by or necessary or appropriate in connection
with legal proceedings.
If the transaction contemplated by this Agreement is not consummated,
each party will return or destroy as much of such written information as the
other party may reasonably request. Whether or not the Closing takes place, the
Shareholders waive, and will upon the Parent's request cause HKS to waive, any
cause of action, right, or claim arising out of the access of the Parent or its
representatives to any trade secrets or other confidential information of HKS
except for the intentional competitive misuse by the Parent of such trade
secrets or confidential information.
SECTION 7.2 FURTHER ASSURANCES.
Each party agrees (a) to cooperate fully with the other parties hereto
and their respective authorized Representatives, (b) to execute and deliver or
cause to be executed and delivered at all reasonable times and places such
additional instruments and documents as the other party or parties may
reasonably request for the purpose of carrying out this Agreement, and (c) to do
such other acts and things as any other party may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents referred
to in this Agreement.
SECTION 7.3 UPDATING SCHEDULES.
The Shareholders may update the Schedules to this Agreement after the
date hereof and prior to Closing (the "UPDATE PERIOD") to reflect factors,
circumstances or events first arising or (in the case of representations given
to the Shareholders) becoming Known to the Shareholders during the Update Period
by providing the Parent with written notice setting forth the proposed update
and specifying the Schedule or Schedules to be updated thereby.
SECTION 7.4 [INTENTIONALLY OMITTED]
40
SECTION 7.5 EFFORTS TO CLOSE.
HKS, the Shareholders and the Parent shall each use best efforts to (a)
take or cause to be taken all actions, and do or cause to be done all things,
which are necessary, proper or advisable to cause any other part of the
conditions set forth in Articles IX and X to be fully satisfied, but not waived,
and (b) consummate and make effective as promptly as practicable the
transactions contemplated by this agreement.
SECTION 7.6 CERTAIN TAX MATTERS.
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The
Shareholders shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns for HKS for all periods ending on or prior to
the Closing Date which are required to be filed after the Closing Date.
Such returns shall be prepared in compliance with applicable law and
consistent with HKS's past practice for preparing such returns. No
later than ten (10) days before the due date (as it may be properly
extended) for the filing of such returns, the Shareholders shall permit
the Parent to review and comment on each such Tax Return described in
the preceding sentence (along with appropriate supporting work papers
and other documents). In the event that the Parent does not approve
such returns, the Shareholders may nonetheless file such returns, but
such filings shall be without prejudice to the Parent's right to seek
indemnification for a breach of this Section 7.6(a) pursuant to the
provisions of Article XI hereof. To the extent permitted by applicable
Law, the Shareholders shall include any income, gain, loss, deduction
or other Tax items for such periods on their Income Tax Returns in any
manner consistent with the Schedule K-1's prepared or caused to be
prepared by the Shareholders for HKS for such periods.
(b) COOPERATION ON TAX MATTERS.
(i) The Parent, HKS and the Shareholders shall
cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes of HKS attributable to any
and all periods ending on or prior to the Closing Date. Such
cooperation shall include the retention and (upon the other
parties' request) the provision of records and information
which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. HKS agrees to
retain all books and records with respect to Tax matters
pertinent to HKS relating to any taxable period beginning
before the Closing Date until the expiration of the applicable
statute of limitations (and, to the extent notified by the
Shareholders, any extensions thereof) of the respective
taxable periods, and to abide by all record retention
agreements entered into with any taxing authority.
41
(ii) The Parent and the Shareholders further agree,
upon request, to use their best efforts (at the sole cost of
the requesting party) to obtain any certificate or other
document from any Governmental Authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(c) REORGANIZATION TREATMENT. Each party undertakes and agrees
to use commercially reasonable efforts to cause the Merger to qualify
for treatment as a "reorganization" within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E) of the Code for federal income
tax purposes.
SECTION 7.7 EMPLOYEES AND BENEFIT PLANS.
(a) HKS REQUIREMENTS. On or before the Closing Date, HKS shall
take all action necessary or otherwise appropriate to terminate each
Benefit Plan effective immediately prior to the Closing Date,
including, but not limited to, (i) the timely adoption of valid
resolutions of the board of directors of HKS resolving to terminate
each such plan; (ii) providing timely notice of the termination of each
such plan to the plan's trustee, administrator and plan participants
affected by such termination; (iii) fully vesting all accrued benefits
of the affected plan participants in each such plan, (iv) amending each
such plan, to the extent necessary, to provide for an allocation of any
employer contributions for the period through the Closing Date to plan
participants who otherwise would have been entitled to an allocation of
such contributions at the end of the current plan year; (v) making the
employer contributions described in (iv); and (vi) taking all actions
necessary to assist the Parent with the timely preparation and filing
with the Internal Revenue Service after the Closing Date of an
application for a determination letter with respect to the qualified
status upon termination of any such plan that is intended to be
qualified under Section 401(a) of the Code.
(b) PARENT REQUIREMENTS. The Parent shall provide or cause to
be provided to each Employee who is employed by the Parent or remains
employed by the Surviving Corporation following the Closing Date such
benefits and perquisites as the Parent customarily makes available to
employees in a comparable position of responsibility, and in connection
therewith shall recognize and credit each Employee with his years of
service with HKS prior to the Closing Date for purposes of determining
eligibility under the employee benefit plans, programs, policies or
arrangements covering such Employees established, continued or
otherwise sponsored by the Parent or its Affiliates after the Closing
Date.
ARTICLE VIII
[INTENTIONALLY OMITTED]
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE PARENT AND MERGERCO
The obligations of the Parent and MergerCo to consummate the
transactions provided for herein on the Closing Date are subject to the
fulfillment on or before the Closing Date of each of the following conditions,
except to the extent that the Parent may, in its absolute discretion, waive one
or more thereof in writing in whole or in part:
SECTION 9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Shareholders contained herein
(as updated pursuant to Section 7.3) shall be true in all respects on and as of
the Closing Date with the same force and effect as if made on and as of such
date, and the facts, circumstances or events disclosed in any update provided
under Section 7.3 shall not indicate a material adverse change in HKS.
SECTION 9.2 PERFORMANCE OF AGREEMENTS.
The Shareholders and HKS shall have performed in all respects all
obligations and agreements, and complied in all respects with all covenants,
contained in this Agreement, to be performed and complied with by the
Shareholders at or prior to the Closing Date.
SECTION 9.3 [INTENTIONALLY OMITTED.]
SECTION 9.4 BRING-DOWN CERTIFICATE.
The Shareholders shall have furnished the Parent with a certificate in
the form of EXHIBIT B hereof executed by each of them, dated the Closing Date,
to the effect that the Shareholders have fulfilled the conditions specified in
Sections 9.1 and 9.2 hereof.
SECTION 9.5 HKS'S DOCUMENTS.
The Shareholders shall have delivered to the Parent the following
documents which, except for any such documents the form of which is attached as
an exhibit hereto, shall be reasonably satisfactory in form and content to the
Parent and its counsel:
(a) SUBSISTENCE CERTIFICATES. A subsistence certificate with
respect to HKS issued as of the date within ten (10) days prior to the
Closing Date by the appropriate official of the Department of State of
the Commonwealth of Pennsylvania and a good standing certificate with
respect to HKS issued within ten (10) days prior to the Closing Date by
the secretary of state or comparable official of each other state in
which HKS is qualified to do business.
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(b) ARTICLES OF INCORPORATION AND BYLAWS. The articles of
incorporation and bylaws of HKS, together with a certificate of a duly
authorized officer of HKS in the form of EXHIBIT C dated the Closing
Date, certifying as to the accuracy and completeness of such corporate
documents.
(c) DIRECTORS AND SHAREHOLDERS RESOLUTIONS. Resolutions, as
required by the PBCL, of the board of directors of HKS authorizing HKS
to execute, deliver and perform this Agreement duly certified by the
Secretary or an Assistant Secretary of HKS.
(d) INCUMBENCY CERTIFICATE. An incumbency certificate of the
President or any duly authorized Vice President of HKS who will be
executing this Agreement, or any other document, instrument or
certificate to be delivered pursuant to the terms hereof or thereof
(including the name, title and signature of each such officer) in the
form of EXHIBIT C.
(e) OTHER CERTIFICATES AND AGREEMENTS. Such other
certificates, documents and agreements related to this Agreement as may
be reasonably required by the Parent.
SECTION 9.6 ADVERSE CHANGE.
There shall have been no material adverse change in the business,
operations, properties or financial condition of HKS whether or not arising in
the Ordinary Course of Business, except for changes relating to general economic
events or trends.
SECTION 9.7 NO ADVERSE PROCEEDINGS.
No action, suit or proceeding before any Governmental Authority or
other Person shall have been commenced, no investigation by any Governmental
Authority shall have been commenced, and no action, suit or proceeding by any
Governmental Authority or other Person shall have been threatened, against any
of the parties to this Agreement relating to the transactions contemplated
hereby which could reasonably be expected to have a material adverse effect on
the Business or financial condition of HKS.
SECTION 9.8 OTHER ASSURANCES.
The Shareholders shall have delivered to the Parent such other and
further certificates, assurances and documents as the Parent may reasonably
request in order to evidence the accuracy of the representations and warranties
of the Shareholders, the performance of covenants and agreements to be performed
by the Shareholders pursuant hereto at or prior to the Closing, and the
fulfillment of the conditions to the obligations of the Parent.
SECTION 9.9 CONSENTS AND APPROVALS.
All consents, waivers, authorizations and approvals of any Governmental
Authority, domestic or foreign, and of any other Person required in connection
with the execution, delivery
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and performance of this Agreement, shall have been obtained and shall be in full
force and effect on the Closing Date.
SECTION 9.10 OPINION OF HKS'S COUNSEL.
The Shareholders and HKS shall provide to the Parent an opinion, dated
the Closing Date, from ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, counsel to the Shareholders
and HKS, in substantially the form and substance of the form of opinion set
forth in EXHIBIT D, and otherwise reasonably satisfactory to counsel for the
Parent.
SECTION 9.11 DELIVERY OF SHARES; DISSENTER'S RIGHTS.
At the Closing the Shareholders and the Other Holders shall have
surrendered to the Parent for cancellation at the Effective Time all of the
certificates representing the Shares, except those Shares for which any Other
Holder shall have exercised any rights of dissent and appraisal provided by
applicable Law. Not more than eight percent (8%) of the outstanding shares of
any class of HKS's capital stock shall have exercised any rights of dissent and
appraisal afforded to such shares by applicable Law.
SECTION 9.12 RESIGNATION OF OFFICERS AND DIRECTORS.
All officers and directors of HKS whose resignations shall have been
requested by the Parent not less than three (3) Business Days prior to the
Closing Date shall have submitted their resignations or been removed from office
effective as of the Closing Date.
SECTION 9.13 AFFILIATES TRANSACTIONS.
Upon the Parent's request, HKS will terminate or otherwise resolve, in
a manner reasonably satisfactory to the Parent, all agreements and relationships
between HKS, on the one hand, and any Shareholder or any family member of any
Shareholder or any Affiliate of the foregoing, on the other hand.
SECTION 9.14 DELIVERY OF ESCROW AGREEMENT.
The Shareholders shall have entered into the Escrow Agreement, dated
the Closing Date, in substantially the form and substance of EXHIBIT E (the
"ESCROW AGREEMENT").
SECTION 9.15 DELIVERY OF INVESTMENT REPRESENTATION LETTERS.
At the Closing, each Shareholder and each Other Holder shall deliver to
the Parent an Investor Representation Letter in substantially the form and
substance of EXHIBIT I, and, if applicable, supporting documentation in
substantially the form and substance of the appendices to EXHIBIT I.
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SECTION 9.16 DELIVERY OF LOCK-UP AGREEMENT.
Each of the Shareholders and each of the Other Holders shall have
entered into a Lock-Up Agreement, dated the Closing Date, in substantially the
form and substance of EXHIBIT K (each a "LOCK-UP AGREEMENT" and collectively,
the "LOCK-UP AGREEMENTS").
SECTION 9.17 DELIVERY OF REGISTRATION RIGHTS AGREEMENT.
The Shareholders and the Other Holders shall have entered into the
Registration Rights Agreement, dated the Closing Date, in substantially the form
and substance of EXHIBIT J (the "REGISTRATION RIGHTS AGREEMENT").
SECTION 9.18 DELIVERY OF NON-COMPETITION AGREEMENTS.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, L. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
each shall have entered into a Non-Competition Agreement, dated the Closing
Date, in substantially the form and substance of EXHIBIT L (each a
"NON-COMPETITION AGREEMENT" and collectively, the "NON-COMPETITION AGREEMENTS").
SECTION 9.19 WARRANTS, OPTIONS AND SHARE RIGHTS.
All outstanding vested warrants, options and share rights (including
accelerated vesting rights) granted by HKS shall have been exercised, terminated
or waived. All outstanding nonvested stock options, warrants or share rights
granted by HKS shall have been terminated or waived.
SECTION 9.20 TRANSFER OF EMPLOYEES TO PARENT HEADQUARTERS.
The Parent shall have received letters of agreement from each of L.
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, each of whom were full-time
employees of HKS prior to the Closing, evidencing such individuals' agreement to
relocate the place of their employment to the headquarters of the Parent in
Research Triangle Park, North Carolina.
SECTION 9.21 APPROVAL.
This Agreement and the Merger contemplated hereby shall have been
approved and adopted by the requisite vote of the Shareholders and the Other
Holders required under the PBCL and HKS's articles of incorporation and, in any
event, by at least a majority of the outstanding shares of capital stock of HKS,
and the Parent shall have received a certificate signed by the chief executive
officer of HKS to that effect.
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SECTION 9.22 TERMINATION OF EMPLOYMENT AGREEMENTS.
Those certain Employment Agreements dated as of August 5, 1999 by and
between HKS and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and L. ▇▇▇▇ ▇▇▇▇▇, respectively, shall have
been terminated without HKS incurring any additional obligations to either of
them.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND HKS
The obligations of the Shareholders and HKS to consummate the
transactions provided for herein on the Closing Date are subject to the
fulfillment on or before the Closing Date of each of the following conditions,
except to the extent that the Shareholders or HKS may, in their absolute
discretion, waive one or more thereof in writing in whole or in part:
SECTION 10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Parent and MergerCo contained
herein shall be true in all respects on and as of the Closing Date with the same
force and effect as if made on and as of such date.
SECTION 10.2 PERFORMANCE OF AGREEMENTS.
The Parent and MergerCo shall have performed in all respects all
obligations and agreements, and complied in all respects with all covenants,
contained in this Agreement, to be performed and complied with by the Parent and
MergerCo at or prior to the Closing Date.
SECTION 10.3 [INTENTIONALLY OMITTED].
SECTION 10.4 BRING-DOWN CERTIFICATE.
The Parent shall have furnished the Shareholders with a certificate in
the form of EXHIBIT G executed on its behalf by its duly authorized executive
officer, dated the Closing Date, to the effect that the Parent has fulfilled the
conditions specified Sections 10.1 and 10.2 hereof.
SECTION 10.5 THE PARENT'S DOCUMENTS.
The Parent shall have delivered to the Shareholders the following
documents which, except for any such documents the form of which is attached as
an exhibit hereto, shall be reasonably satisfactory in form and content to the
Shareholders and their counsel:
(a) GOOD STANDING CERTIFICATES. A good standing certificate
with respect to the Parent and MergerCo issued within thirty (30) days
preceding the date of Closing by the appropriate official of the state
of incorporation of each of the Parent and MergerCo.
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(b) CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate
or articles of incorporation and bylaws or other governing instruments
of the Parent and MergerCo, together with a certificate of a duly
authorized officer of the Parent and MergerCo in the form of EXHIBIT G
dated the Closing Date, certifying as to the accuracy and completeness
of such corporate documents.
(c) CORPORATE RESOLUTIONS. Copies of resolutions of the Board
of Directors each of the Parent and MergerCo, duly certified by the
Secretary or an Assistant Secretary of the Parent and MergerCo, as the
case may be, in the form of the certificate attached as EXHIBIT G,
authorizing the execution, delivery and performance of this Agreement,
and all other documents, instruments, and certificates contemplated
hereby or thereby to which the Parent and MergerCo, as the case may be,
is a party and authorizing the consummation of transactions
contemplated hereby.
(d) INCUMBENCY CERTIFICATES. An incumbency certificate of the
President or any duly authorized Vice President of the Parent and
MergerCo who will be executing this Agreement, or any other document,
instrument or certificate to be delivered pursuant to the terms hereof
or thereof (including the name, title and signature of each such
officer) in the form of EXHIBIT G.
SECTION 10.6 OPINION OF THE PARENT'S COUNSEL.
The Parent shall provide to HKS and the Shareholders an opinion, dated
the Closing Date, of ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC, counsel to the Parent and
MergerCo, in substantially the form and substance of the form of opinion set
forth in EXHIBIT H, and otherwise reasonably satisfactory to counsel for HKS and
the Shareholders.
SECTION 10.7 NO ADVERSE PROCEEDINGS.
No action, suit or proceeding before any Governmental Authority or
other Person shall have been commenced, no investigation by any Governmental
Authority shall have been commenced, and no action, suit or proceeding by any
Governmental Authority or other Person shall have been threatened, against any
of the parties to this Agreement, or HKS relating to the transactions
contemplated hereby.
SECTION 10.8 OTHER ASSURANCES.
The Parent and MergerCo shall have delivered to the Shareholders such
other and further certificates, assurances and documents as the Shareholders may
reasonably request in order to evidence the accuracy of the representations and
warranties of the Parent and MergerCo, the performance of covenants and
agreements to be performed by the Parent and MergerCo pursuant hereto at or
prior to the Closing, and the fulfillment of the conditions to the obligations
of the Shareholders.
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SECTION 10.9 CONSENTS AND APPROVALS.
All consents, waivers, authorizations and approvals of any Governmental
Authority, domestic or foreign, and of any other Person required in connection
with the execution, delivery and performance of this Agreement, shall have been
obtained and shall be in full force and effect on the Closing Date.
SECTION 10.10 DELIVERY OF ESCROW AGREEMENT.
The Parent shall have entered into the Escrow Agreement.
SECTION 10.11 DELIVERY OF REGISTRATION RIGHTS AGREEMENT.
The Parent shall have entered into the Registration Rights Agreement.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
SECTION 11.1 SURVIVAL.
The parties hereto agree that their respective representations and
warranties, covenants and agreements contained in this Agreement shall survive
the Closing for the applicable periods set forth in Section 11.8 hereof.
SECTION 11.2 INDEMNIFICATION BY THE SHAREHOLDERS.
Subject to the other provisions of this Article XI, the Shareholders
shall indemnify and hold harmless the Parent and the Surviving Corporation from
and against any and all Losses suffered or incurred by the Parent and the
Surviving Corporation after the Closing as a result of or arising out of:
(a) the falsity or incorrectness of or breach of any
representation or warranty of the Shareholders in this Agreement or in
any schedule, certificate or agreement furnished to the Parent and
MergerCo by the Shareholders pursuant to this Agreement (determined
without regard for (i) any qualifications relating to materiality or
material adverse effect in such representations, warranties, schedules,
certificates or agreements, or (ii) with respect to the representations
and warranties contained in Section 4.4, any qualifications relating to
Knowledge) at the time such representation or warranty was made; or
(b) the failure by the Shareholders to perform any covenant or
agreement of the Shareholders under this Agreement or under any
schedule, certificate or agreement furnished to the Parent or MergerCo
by the Shareholders pursuant to this Agreement.
49
SECTION 11.3 INDEMNIFICATION BY THE PARENT.
Subject to the other provisions of this Article XI, the Parent shall
indemnify and hold harmless the Shareholders and the Other Holders from and
against any and all Losses suffered or incurred by the Shareholders and the
Other Holders after the Closing as a result of or arising out of:
(a) the falsity or incorrectness of or breach of any
representation or warranty of the Parent or MergerCo in this Agreement
or in any schedule, certificate or agreement furnished by the Parent or
MergerCo pursuant to this Agreement; or
(b) the failure by the Parent or MergerCo to perform any
covenant or agreement of the Parent or MergerCo under this Agreement or
under any schedule, certificate or agreement furnished by the Parent or
MergerCo pursuant to this Agreement.
SECTION 11.4 METHOD OF ASSERTING CLAIMS.
All claims for indemnification by any Indemnified Party under this
Article XI shall be asserted and resolved as follows:
(a) THIRD PARTY CLAIMS. If any claim or demand in respect of
which an Indemnified Party might seek indemnity under this Article XI
is asserted against such Indemnified Party by a Person other than a
Shareholder or Other Holder or the Parent (a "THIRD PARTY CLAIM"), the
Indemnified Party shall give written notice (the "THIRD PARTY CLAIM
NOTICE") and the details thereof including copies of all relevant
pleadings, documents and information to the Indemnifying Party within a
period of thirty (30) days following the assertion of the Third Party
Claim against the Indemnified Party (the "THIRD PARTY CLAIM NOTICE
PERIOD"). If the Indemnified Party fails to provide the Third Party
Claim Notice within the Third Party Claim Notice Period, the
Indemnifying Party will not be obligated to indemnify the Indemnified
Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such
failure of the Indemnified Party. The Indemnifying Party will notify
the Indemnified Party within a period of thirty (30) days after receipt
of the Third Party Claim Notice by the Indemnifying Party (the "THIRD
PARTY CLAIM RESPONSE PERIOD"):
(i) whether the Indemnifying Party disputes its
liability to the Indemnified Party under this Article XI with
respect to such Third Party Claim; and
(ii) whether the Indemnifying Party desires, at
its sole cost and expense, to defend the Indemnified Party
against such Third Party Claim.
If the Indemnifying Party notifies the Indemnified Party
within the Third Party Claim Response Period that the Indemnifying
Party does not dispute its indemnity
50
obligations and desires to defend the Indemnified Party against the
Third Party Claim, then the Indemnifying Party at its sole cost and
expense shall defend, with counsel reasonably satisfactory to the
Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be diligently prosecuted to a final
conclusion or will be settled at the discretion of the Indemnifying
Party (with the consent of the Indemnified Party, which consent shall
not be unreasonably withheld). The Indemnified Party will cooperate in
such defense at the sole cost and expense of the Indemnifying Party.
The Indemnified Party may, at the Indemnifying Party's cost and
expense, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the last sentence of the preceding paragraph,
file any pleadings or take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate to protect its
interests. The Indemnified Party, at its expense, may participate in,
but not control, any defense or settlement of any Third Party Claim
conducted by the Indemnifying Party pursuant to this Section 11.4(a).
If the Indemnifying Party fails to notify the Indemnified
Party within the Third Party Claim Response Period that the
Indemnifying Party does not dispute its indemnity obligations and
desires to defend the Third Party Claim or if the Indemnifying Party
gives such notice but fails to prosecute diligently or settle the Third
Party Claim, then the Indemnified Party shall defend, at the sole cost
and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent shall not be unreasonably
withheld). The Indemnifying Party will, at its sole cost and expense,
cooperate in such defense. Notwithstanding the foregoing provisions of
this paragraph, if the Indemnifying Party is determined not to be
liable for such Third Party Claim pursuant to the last paragraph of
this Section 11.4(a) and Section 13.12, the Indemnifying Party will not
be required to bear the costs and expenses of the Indemnified Party's
defense or the Indemnifying Party's participation therein pursuant to
this paragraph, and the Indemnified Party will reimburse the
Indemnifying Party in full for all reasonable costs and expenses
incurred by the Indemnifying Party in connection with such defense.
If the Indemnifying Party notifies the Indemnified Party that
it does not dispute its liability to the Indemnified Party with respect
to the Third Party Claim under this Article XI or is determined under
Section 13.12 to be liable to indemnify the Indemnified Party, the
actual Losses as finally determined will be conclusively deemed a
liability of the Indemnifying Party under this Article XI, and the
Indemnifying Party shall pay the amount of such Losses to the
Indemnified Party on demand. If the Indemnifying Party notifies the
Indemnified Party within the Third Party Claim Response Period that the
Indemnifying Party disputes its liability to the Indemnified Party with
respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute,
and if not resolved through negotiations within a period of thirty (30)
days from the date of such Notice, such dispute shall be resolved by
arbitration in accordance with Section 13.12 hereof.
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(b) OTHER CLAIMS. In the event any Indemnified Party should
have a claim under this Article XI against any Indemnifying Party that
does not involve a Third Party Claim, the Indemnified Party shall
promptly give written notice (the "INDEMNITY NOTICE") and the details
thereof, including copies of all relevant information and documents to
the Indemnifying Party within a period of thirty (30) days following
the discovery of the claim by the Indemnified Party (the "CLAIM NOTICE
PERIOD"). If the Indemnified Party fails to give the Indemnity Notice
within the Claim Notice Period, the Indemnifying Party will not be
obligated to indemnify the Indemnified Party with respect to such claim
to the extent that the Indemnifying Party demonstrates that it has been
prejudiced thereby. The Indemnifying Party will notify the Indemnified
Party within a period of thirty (30) days after the receipt of the
Indemnify Notice by the Indemnifying Party (the "INDEMNITY RESPONSE
PERIOD") whether the Indemnifying Party disputes its liability to the
Indemnified Party under this Article XI with respect to such claim. If
the Indemnifying Party notifies the Indemnified Party that it does not
dispute the claim described in such Indemnity Notice or fails to notify
the Indemnified Party within the Indemnity Response Period whether the
Indemnifying Party disputes the claim described in such Indemnity
Notice, the actual Losses as finally determined will be conclusively
deemed to be a liability of the Indemnifying Party under this Article
XI and the Indemnifying Party shall pay the amount of such Losses to
the Indemnified Party on demand. If the Indemnifying Party notifies the
Indemnified Party within the Indemnity Response Period that the
Indemnifying Party disputes its liability with respect to such claim,
the Indemnifying Party and the Indemnified Party will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within a period of thirty (30) days from the date
of such notice, such dispute shall be resolved by arbitration in
accordance with Section 13.12 hereof.
SECTION 11.5 CONTINUED LIABILITY FOR INDEMNITY CLAIMS.
The liability of any Indemnifying Party hereunder with respect to
claims hereunder shall continue for so long as any claims for indemnification
may be made hereunder pursuant to Section 11.8 hereof and, with respect to any
such indemnification claims duly and timely made, thereafter until the
Indemnifying Party's liability therefor is finally determined and satisfied.
SECTION 11.6 LIMITATIONS ON INDEMNIFICATION.
(a) CERTAIN TYPES OF DAMAGES. Neither the Shareholders nor the Parent
shall be required to provide indemnification hereunder for Losses which are
indirect or consequential other than those sought to be recovered against an
Indemnified Party in a Third Party Claim.
(b) THRESHOLD AMOUNT FOR THIRD PARTY CLAIMS. No amount of indemnity
shall be payable in the case of a claim by an Indemnified Party under Section
11.2(a) unless, until and only to the extent that the Indemnified Party has
suffered or incurred Losses aggregating in excess of Two Hundred Thousand
Dollars ($200,000) (the "THRESHOLD AMOUNT") as a result of or arising out of the
matters described in Section 11.2(a), at which point the Indemnifying Party will
52
be obligated to indemnify the Indemnified Party from and against all such Losses
relating back to the first dollar; PROVIDED, HOWEVER, the foregoing limitation
shall not apply to (i) any breach of the representations and warranties
contained in Sections 4.3, 4.4, 4.7, 4.10(b) (whether any Liabilities as to
which such representations and warranties are made were known or unknown when
made), 4.14(b), 4.23 or any other matters for which the Employee Shareholders
are obligated to indemnify the Parent and HKS pursuant to any other writing
executed and delivered in connection with this Agreement, or (ii) any
representations or warranties which were knowingly false or knowingly and
materially inaccurate when made.
(c) LIMITATION ON RECOVERY FROM THE SHAREHOLDERS. The Parent and the
Shareholders agree that the maximum aggregate amount of Losses for which the
Shareholders shall be liable to pay to the Parent or HKS in the case of a claim
by the Parent or HKS under Section 11.2(a) shall be the sum of Ten Million
Dollars ($10,000,000) (the "MAXIMUM INDEMNITY AMOUNT"), which includes any
amounts paid from the Stock Escrow Deposit; PROVIDED, HOWEVER, that the Maximum
Indemnity Amount shall not apply and there shall be no limit in the case of a
claim by the Parent or HKS under Section 11.2(a) relating to Sections 4.3, 4.4
(except as hereinafter provided), or any representations or warranties which
were knowingly false or knowingly and materially inaccurate when made; AND
PROVIDED FURTHER, that with respect to any claim by the Parent or HKS under
Section 11.2(a) arising from the falsity or incorrectness of or breach of the
representation and warranty contained in the third sentence of Section 4.4(a),
the Parent and HKS shall recover any and all amounts relating to such claim from
the Stock Escrow Deposit and the Shareholders shall have no liability for any
such amounts except pursuant to the Escrow Agreement).
(d) ESCROW. In the event that the Parent or the Surviving Corporation
is entitled to receive any amount from the Shareholders under this Agreement,
including any indemnification payment under this Agreement, the Parent or the
Surviving Corporation shall first recover all or any portion of such amount from
the Stock Escrow Deposit in accordance with the terms of the Escrow Agreement.
In the event that the Shareholders become obligated to indemnify the Parent or
the Surviving Corporation pursuant to this Article XI, the Stock Escrow Deposit
may be used for the timely payment of any cost of defense incurred in connection
with any such claim. For purposes of determining the number of shares of Parent
Stock held in the Stock Escrow Deposit that are equivalent to the dollar value
of payments to which the Parent or the Surviving Corporation is entitled under
this Article XI, the Parent Shares will be valued at the average closing price
per share of Parent Stock on the Nasdaq National Market measured over the ten
(10) trading-day period ending on the day immediately prior to earlier of the
date on which (i) the Parent or the Surviving Corporation receives notice that
there is no dispute that the Parent or the Surviving Corporation is entitled to
an indemnification payment under this Agreement, or (ii) it is finally
determined by arbitration conducted in accordance with Section 13.12 that the
Parent is entitled to indemnification hereunder.
(e) INSURANCE OR THIRD PARTY INDEMNIFICATION. Notwithstanding anything
to the contrary herein, an Indemnifying Party shall not be liable for Losses
arising out of or in connection with any matter described in this Article XI if
and to the extent such Losses (a) are covered by a policy of insurance or
benefits from a right to indemnification from a Person not
53
party to this Agreement and payment is made under such policy to the Indemnified
Party by the insurer or under such right to indemnification by such Person, as
applicable, or (b) result in an actual realized Tax benefit to the Indemnified
Party; PROVIDED that to the extent that any Tax benefit is realized in a Tax
year other than the year in which the indemnity is paid, the Indemnified Party
shall make a payment to the Indemnifying Party in the amount of such realized
Tax benefit in the year in which it is realized. For purposes of this Section,
an actual realized Tax benefit is an actual reduction in taxes payable or a
refund of Taxes previously paid.
SECTION 11.7 EXCLUSIVE REMEDIES.
The sole and exclusive remedies for any party hereto with respect to
any claim relating to this Agreement or the transactions contemplated hereby and
the facts and circumstances relating and pertaining hereto shall be governed by
this Agreement (whether any such claim shall be made in contract, breach of
warranty, tort or otherwise); PROVIDED, HOWEVER, that the foregoing shall not
limit the availability of injunctive and other equitable relief.
SECTION 11.8 TIME LIMITS ON CLAIMS.
Notwithstanding anything in this Agreement to the contrary, a claim by
any Indemnified Party under this Article XI may be made only:
(a) if with respect to the violation of a representation or
warranty, within eighteen (18) months following the Closing Date, with
the exception of (i) Sections 4.7 and 4.18, with respect to which such
representations and warranties shall survive and claims thereon may be
made until the expiration of the applicable statute of limitations; and
(ii) Section 4.3 and 4.4, with respect to which such representations
and warranties shall survive without any limitations as to time; and
(b) if with respect to the violation of a covenant or
agreement, within eighteen (18) months following the last day upon
which such covenant or agreement is required to be performed, with the
exception of (i) the covenants and agreements contained in Sections
7.1, 7.2, 7.6, 7.7 and 13.12, with respect to which such covenants and
agreements shall survive and claims thereon may be made until the
expiration of the applicable statute of limitations; and (ii) the
indemnification covenants and agreements contained in Article XI and
any other written covenant, agreement or understanding between the
parties concerning indemnification, with respect to which such
covenants, agreements and understandings shall survive for the longest
applicable survival period for any representation, warranty, covenant
or agreement hereunder or thereunder.
Notwithstanding anything in this Agreement to the contrary, any claim
not made within the foregoing relevant time period shall expire and be forever
barred thereafter.
54
ARTICLE XII
TERMINATION
SECTION 12.1 GROUNDS FOR TERMINATION.
This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned at any time prior to the Closing Date:
(a) by mutual consent of the Parent and the Shareholders; or
(b) by the Parent or the Shareholders if the Closing shall not
have occurred on or before January 31, 2000; PROVIDED, HOWEVER, the
right to terminate this Agreement under this Section 12.1(b) shall not
be available to any party whose failure to fulfill any obligation under
this Agreement shall have been the primary cause of or resulted
primarily in, the failure of the Closing to occur on or before such
date; or
(c) by the Parent or the Shareholders if any court of
competent jurisdiction shall have issued an order, decree, or a ruling
or taken any other action enjoining or otherwise prohibiting the
transactions contemplated by this Agreement; or
(d) By the Shareholders, if the Parent or MergerCo is in
default or breach in any respect under this Agreement and such default
or breach is not cured within five (5) days after written notice is
given by the Shareholders to the defaulting party.
(e) By the Parent if the Shareholders are in default in any
respect under this Agreement and such default or breach is not cured
within five (5) days after written notification is given by the Parent
to the defaulting party.
SECTION 12.2 EFFECT OF TERMINATION.
If this Agreement is terminated pursuant to Section 12.1, such
termination shall be without liability of any party, or any shareholder,
director, officer, employee, agent, consultant or representative of such party,
to any other parties to this Agreement; PROVIDED that if such termination shall
result from the breach by a party of the representations, warranties or
covenants of such party contained in this Agreement, such party shall be liable
for any and all Losses sustained or incurred by the other parties to this
Agreement.
SECTION 12.3 TERMINATION FOR BREACH.
Nothing in this Article XII shall affect the rights which any party
hereto might otherwise have to terminate this Agreement as a result of a breach
thereof by any other party hereto.
55
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NOTICES.
All notices, requests and other communications hereunder shall be in
writing and will be deemed to have been duly given and received for purposes of
this Agreement (a) when personally delivered, (b) when sent by telefax to a
party at the number listed below for such party, (c) two (2) Business Days after
the day on which the same has been delivered prepaid to a national courier
service or (d) three (3) Business Days after the deposit in the United States
mail, registered or certified, return receipt requested, postage prepaid, in
each case addressed to the party to whom such notice is to be given at the
following address for such party:
If to the Parent or MergerCo
(before the Closing): Red Hat, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Post Office Box 13588
Research ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Counsel
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC
One Hannover Square, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
If to the Parent, MergerCo
or HKS (after the Closing): Red Hat, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Post Office Box 13588
Research ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Counsel
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, PLLC
One Hannover Square, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
56
If to HKS (before the Closing): ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
With copies to: ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
If to the Shareholders: L. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With copies to: ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telefax No.: ▇▇▇-▇▇▇-▇▇▇▇
Any party from time to time may change its address, telefax number or other
information for the purpose of notices to that party by giving notice specifying
such change to the other parties hereto.
SECTION 13.2 FEES AND EXPENSES.
The Parent shall pay the expenses of the Shareholders, the Other
Holders and HKS in connection with the negotiation and preparation of this
Agreement, all documents and instruments contemplated hereby, and the
consummation of the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective counsel, accountants,
investment bankers and consultants, up to a maximum amount of $50,000.00; the
Shareholders and Other Holders shall pay all such expenses to the extent they
exceed $50,000.00. The Parent shall pay its own expenses (and those of MergerCo)
in connection with the negotiation and preparation of this Agreement, all
documents and instruments contemplated hereby and the consummation of the
transactions contemplated hereby, including, without limitation, the fees and
expenses of its counsel, accountants, investment bankers, and consultants.
SECTION 13.3 PUBLIC ANNOUNCEMENTS.
57
Any public announcement or similar publicity with respect to this
Agreement or the transaction contemplated hereby will be issued, if at all, at
such time and in such manner as the Parent determines.
Unless consented to by the Parent in advance or required by Law, prior
to the Closing the Shareholders shall, and shall cause HKS to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any Person. HKS and the Parent will consult with each other
concerning the means by which HKS's employees, customers, and suppliers and
others having dealings with HKS will be informed of the transaction contemplated
hereby, and will have the right to be present for any such communication.
SECTION 13.4 TAX CONSEQUENCES.
Notwithstanding any other provision of this Agreement, the Shareholders
acknowledge that they shall be responsible for obtaining such assurances from
their advisors regarding the tax consequences to them of the transactions
contemplated hereby as they deem appropriate and shall assume the risk of any
adverse tax consequences to them relating to the transactions contemplated
hereby.
SECTION 13.5 ENTIRE AGREEMENT.
This Agreement, and any other agreement, document or instrument
executed and delivered in connection with this Agreement which makes specific
reference to this Agreement, supersede all prior discussions and agreements
between the parties with respect to the subject matter hereof and contain the
sole and entire agreement between the parties hereto with respect to the subject
matter hereof.
SECTION 13.6 WAIVER; REMEDIES.
Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written instrument duly executed by or on behalf
of the party waiving such term or condition. No waiver by any party of any term
or condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or
by Law or otherwise afforded, will be cumulative and not alternative.
SECTION 13.7 AMENDMENT.
This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto.
SECTION 13.8 BENEFITS AND BINDING EFFECT.
Neither this Agreement nor any right, interest or obligation hereunder
may be assigned by
58
any party hereto without the prior written consent of the other parties hereto
and any attempt to do so will be void; provided that the Parent may assign and
delegate its rights, interests and obligations hereunder (other than its
obligations to issue Parent Stock and enter into this Agreement) to any direct
or indirect subsidiary of the Parent upon written notice to all of the parties
hereto at or before the Closing Date, in which event the Parent will guarantee
the performance of all obligations of the Parent hereunder by such subsidiary.
Subject to the preceding sentence, this Agreement is binding upon, inures to the
benefit of and is enforceable by the parties hereto and their respective
successors and assigns. No Shareholder or Other Shareholder may assign his, her
or its right to receive Additional Consideration to any other person or entity.
SECTION 13.9 CAPTIONS.
The captions used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
SECTION 13.10 EXHIBITS AND SCHEDULES.
All exhibits and schedules referred to in this Agreement, all
attachments to exhibits or schedules, and any other attachment to this Agreement
are hereby incorporated by reference into this Agreement and hereby are made a
part of this Agreement as if set out in full.
SECTION 13.11 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the Laws of the State of North Carolina applicable to a contract executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
SECTION 13.12 ARBITRATION.
Any dispute required to be submitted to arbitration pursuant to this
Agreement shall be finally and conclusively determined in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "RULES
OF ARBITRATION") then in effect by the decision of three (3) arbitrators (the
"BOARD OF ARBITRATION") selected in accordance with the Rules of Arbitration.
The Board of Arbitration shall meet in the metropolitan Research Triangle Park,
North Carolina, area and shall render a decision in writing (concurred in by a
majority of the members of the Board of Arbitration) with respect to the dispute
submitted to it. The decision of the Board of Arbitration shall be rendered as
soon as practical following commencement of proceedings with respect thereto.
The Board of Arbitration shall cause its written decision to be delivered to the
Parent, the Surviving Corporation and the Shareholders. Any decision made by the
Board of Arbitration shall be final, binding and conclusive on the Parent, the
Surviving Corporation and the Shareholders and entitled to be enforced to the
fullest extent permitted by law and entered in any court of competent
jurisdiction.
59
The Shareholders, the Surviving Corporation and the Parent hereby
consent to the jurisdiction of the foregoing Board of Arbitration and to the
jurisdiction of any local, state or federal court located in the State of North
Carolina for the purpose of enforcing the decision or award of the Board of
Arbitration or otherwise. The Shareholders, the Surviving Corporation and the
Parent agree that all service of process may be made on any such party by
personal delivery or by registered or certified mail addressed to the
appropriate party at the address for such party set forth in Section 13.1
hereof. The Shareholders hereby irrevocably appoint L. ▇▇▇▇ ▇▇▇▇▇ as their
lawful agent in the State of North Carolina to receive and forward on their
behalf service of all necessary processes in any action, suit or proceeding
arising under this Agreement, the Escrow Agreement, and the Registration Rights
Agreement that may be brought against either of the Shareholders or any of the
Other Holders in any court (including federal courts) in the State of North
Carolina. Such service of process or notice received thereof by the agent will
have the same force and effect as if served upon the Shareholders or the Other
Holders (or any of them).
All fees, costs and expenses of the Parent, the Surviving Corporation
and the Shareholders in relation to the arbitration, including, but not limited
to, attorneys' fees shall be paid by such parties as determined by the Board of
Arbitration. Each and every arbitration proceeding commenced pursuant to this
Section 13.12 shall be consolidated with any arbitration proceeding
simultaneously or previously commenced under this Section 13.12.
SECTION 13.13 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument. Signature pages exchanged by telecopier shall be fully
binding.
SECTION 13.14 SEVERABILITY.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction, shall as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 13.15 NO THIRD PARTY BENEFICIARY.
This Agreement shall not confer any rights or remedies upon any Person
or entity other than the parties hereto and their respective successors and
permitted assigns.
[SIGNATURES ON THE FOLLOWING PAGE]
60
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
THE SHAREHOLDERS:
/s/ L. ▇▇▇▇ ▇▇▇▇▇ (SEAL)
---------------------------
L. ▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (SEAL)
---------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
HELL'S KITCHEN SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
Title: President
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
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THE PARENT:
RED HAT, INC.
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Financial Officer
MERGERCO:
HKS ACQUISITION CO.
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: Secretary
62
