EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 10, 1995
BY AND AMONG
MILCOM INTERNATIONAL, INC.,
A DELAWARE CORPORATION,
AND
THE STOCKHOLDERS
AND
THE INVESTORS
TABLE OF CONTENTS
Page
ARTICLE 1
PURCHASE AND SALE OF THE SHARES
1.1 The Preferred Stock.......................................................... 1
1.2 Closing...................................................................... 1
1.3 Representations and Warranties by the Investors.............................. 2
(a) Investment.............................................................. 2
(b) Authorization........................................................... 3
(c) Other................................................................... 3
1.4 Designated Representative of the Investors................................... 3
1.5 Use of Proceeds and Consent to Redemption.................................... 3
ARTICLE 2
CONDITIONS PRECEDENT TO INVESTORS' OBLIGATIONS
2.1 Representations and Warranties............................................... 4
2.2 Absence of Litigation........................................................ 4
2.3 Performance of Obligations................................................... 4
2.4 Documentation at Closing..................................................... 4
2.5 Material Adverse Change...................................................... 5
2.6 Due Diligence................................................................ 6
2.7 Consents, Waivers, etc....................................................... 6
2.8 Evidence of Payment.......................................................... 6
ARTICLE 3
CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS
3.1 Representations and Warranties............................................... 6
3.2 Absence of Litigation........................................................ 6
3.3 Performance of Obligations................................................... 6
3.4 Documentation at Closing..................................................... 7
3.5 Payment...................................................................... 7
3.6 Consents, Waivers, etc....................................................... 7
3.7 ▇▇▇▇▇▇▇ Elected to Serve as Chairman of the Board............................ 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company................................ 8
(a) Organization and Standing of the Company and Subsidiaries............... 8
(b) Corporate Action........................................................ 8
i
TABLE OF CONTENTS
(Continued)
Page
(c) Governmental Approvals.................................................. 8
(d) Litigation.............................................................. 8
(e) Compliance with Other Instruments....................................... 8
(f) Stock Ownership......................................................... 9
(g) Registration Rights..................................................... 9
(h) Securities Act of 1933.................................................. 9
(i) No Brokers or Finders................................................... 9
(j) Capitalization; Status of Capital Stock................................. 9
(k) Financial Statements.................................................... 10
(l) Absence of Changes...................................................... 10
(m) Good and Marketable Title............................................... 10
(n) Subsidiaries............................................................ 10
(o) Taxes and Tax Returns................................................... 10
(p) Insurance............................................................... 11
(q) Certain Transactions.................................................... 12
(r) Contracts and Commitments............................................... 12
(s) ERISA................................................................... 13
(t) Intellectual Property................................................... 14
(u) Environmental Matters................................................... 14
(v) Compliance with Laws.................................................... 14
(w) Margin Regulations; Use of Proceeds..................................... 15
(x) Disclosure.............................................................. 15
4.2 Representations and Warranties of the Stockholders........................... 15
(a) Litigation.............................................................. 15
(b) Stock Ownership......................................................... 15
(c) Registration Rights..................................................... 15
(d) No Brokers or Finders................................................... 16
(e) Capitalization; Status of Capital Stock................................. 16
(f) Financial Statements.................................................... 16
(g) Absence of Changes...................................................... 16
(h) Taxes and Tax Returns................................................... 17
(i) Contracts and Commitments............................................... 19
(j) Intellectual Property................................................... 20
(k) Environmental Matters................................................... 20
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 Affirmative Covenants of the Company Other than Reporting Requirements....... 21
(a) Payment of Taxes and Trade Debt......................................... 21
(b) Maintenance of Insurance................................................ 21
(c) Preservation of Corporate Existence..................................... 21
ii
TABLE OF CONTENTS
(Continued)
Page
(d) Compliance with Laws.................................................... 22
(e) Keeping of Records and Books of Account................................. 22
(f) Maintenance of Properties, etc.......................................... 22
(g) Compensation............................................................ 22
(h) New Developments........................................................ 22
(i) Budgets and Board Approval.............................................. 23
(j) Employee Invention and Non-Disclosure Agreement......................... 23
(k) Financings.............................................................. 23
(l) Board of Directors; Indemnification..................................... 23
(m) Recruitment of Chief Executive Officer.................................. 23
5.2 Negative Covenants of the Company............................................ 24
(a) Merger, Sale of Assets, etc............................................. 24
(b) Maintenance of Ownership of Subsidiaries................................ 24
(c) Dealings with Affiliates and Others..................................... 24
(d) Change in Nature of Business............................................ 24
(e) Dividends............................................................... 25
(f) Agreements with Employees for the Purchase of Securities................ 25
(g) Issuances of Securities and Employee Stock Options...................... 25
5.3 Reporting Requirements....................................................... 25
5.4 Confidentiality.............................................................. 27
ARTICLE 6
OBLIGATIONS PENDING THE CLOSING
6.1 Access....................................................................... 27
6.2 Conduct of Company's Business................................................ 28
(a) Operation of Business................................................... 28
(b) Organization............................................................ 28
(c) Vendors................................................................. 28
(d) Insurance............................................................... 28
(e) Lawsuits, Claims........................................................ 28
(f) Certain Changes......................................................... 28
(g) Condition of Assets..................................................... 29
(h) Agreements.............................................................. 29
(i) Taxes................................................................... 29
(j) Dividends, etc.......................................................... 29
(k) Corporate Matters....................................................... 29
(l) Liabilities and Expenses................................................ 29
6.3 Consents..................................................................... 29
6.4 Notice of Breach............................................................. 30
6.5 Transfer of Shares........................................................... 30
iii
TABLE OF CONTENTS
(Continued)
Page
ARTICLE 7
OBLIGATIONS AT THE CLOSING
7.1 Exclusivity/Other Offers..................................................... 30
7.2 Other Deliveries............................................................. 30
ARTICLE 8
RIGHT TO PARTICIPATE IN FINANCINGS
8.1 Right of Participation....................................................... 30
8.2 Notice of Acceptance......................................................... 31
8.3 Conditions to Acceptance By Investor......................................... 31
(a) Permitted Sales of Refused Securities................................... 31
(b) Reduction in Amount of Offered Securities............................... 32
(c) Closing................................................................. 32
8.4 Further Sale................................................................. 32
8.5 Exceptions................................................................... 32
8.6 Assignment of Rights......................................................... 32
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
ARTICLE 10
DEFINITIONS AND ACCOUNTING TERMS
10.1 Certain Defined Terms........................................................ 34
10.2 Accounting Terms............................................................. 36
ARTICLE 11
MISCELLANEOUS
11.1 No Waiver; Cumulative Remedies............................................... 36
11.2 Termination.................................................................. 36
11.3 No Liability................................................................. 37
11.4 No Stockholder Recision...................................................... 37
11.5 Waivers and Consents......................................................... 37
11.6 Addresses for Notices, etc................................................... 37
iv
TABLE OF CONTENTS
(Continued)
Page
11.7 Costs, Expenses and Taxes.................................................. 38
11.8 Binding Effect; Assignment................................................. 39
11.9 Prior Agreements........................................................... 39
11.10 Severability............................................................... 39
11.11 Governing Law.............................................................. 39
11.12 Headings................................................................... 39
11.13 Counterparts............................................................... 39
11.14 Further Assurances......................................................... 39
11.15 Independent Counsel........................................................ 39
11.16 Confidentiality............................................................ 39
11.17 Press Release.............................................................. 39
v
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of October 10, 1995, by and among ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Ki Nam, ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ Doi, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
(collectively the "Stockholders"), MILCOM INTERNATIONAL, INC., a Delaware
corporation (the "Company") and the persons listed on EXHIBIT 1.1A hereto (the
------------
"Investors").
R E C I T A L S
A. The Stockholders own all of the issued and outstanding shares of
capital stock of the Company.
B. The Company desires to sell to the Investors the shares of Series A
Preferred Stock listed opposite each Investors name on EXHIBIT 1.1A hereto (the
------------
"Shares").
C. As a condition to Investors executing this Agreement and the Investors
purchasing the Shares the Stockholders must execute this Agreement with respect
to Section 4.2 and Articles 2, 3, 7 and 9 herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE SHARES
1.1 THE PREFERRED STOCK. The Company has authorized the issuance, sale
and delivery of Three Million Three Hundred Seventy Five Thousand Nine Hundred
(3,375,900) shares of its Series A Convertible Preferred Stock, $.0001 par value
per share (the "Preferred Stock"), at a price of $4.44325958 per share or an
aggregate consideration of $15,000,000, to the Investors in the respective
amounts set forth in EXHIBIT 1.1A. The designation, rights, preferences and
------------
other terms and conditions relating to the Preferred Stock shall be as set forth
in EXHIBIT 1.1B hereto (the "Certificate of Amendment").
------------
1.2 CLOSING. The Company agrees to issue and sell to the Investors the
Preferred Stock, and subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Investors, severally but
not jointly, agree to purchase, the Preferred Stock for the purchase price and
in the amounts set forth opposite their respective names in EXHIBIT 1.1A hereto.
------------
Such purchase and sale shall take place at a closing (the "Closing") to be held
at the offices of Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, on October 10, 1995, at 9:00
a.m., or on such other date and at such time as may be mutually agreed upon by
the parties. At the Closing, the Company will issue and deliver certificates
evidencing the Preferred Stock sold at the Closing, all in the amounts set forth
opposite their respective names in EXHIBIT 1.1A hereto and in such denominations
------------
as each such Investor shall
1
specify, against wire transfers to the account of the Company or the delivery of
checks payable to the order of the Company in immediately available funds in
payment of the full purchase price for the Preferred Stock.
1.3 REPRESENTATIONS AND WARRANTIES BY THE INVESTORS.
(a) INVESTMENT. Each Investor, severally but not jointly, represents
that:
(i) Investor has been advised that the Shares have not been registered
under the Securities Act nor qualified under any state securities laws on the
ground, among others, that no distribution or public offering of the Shares is
to be effected, and that in this connection the Stockholders and the Company are
relying in part on the representations of Investors set forth herein.
(ii) It is Investor's intention to acquire the Shares for its own
account and that the Shares are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof.
(iii) Each Investor is able to bear the economic risk of an investment
in the Shares acquired by it pursuant to this Agreement and can afford to
sustain a total loss on such investment.
(iv) Each Investor is an experienced and sophisticated investor, is
able to fend for itself in the transactions contemplated by this Agreement, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of acquiring the Shares. Each
Investor has had, during the course of this transaction and prior to its
purchase of the Shares, the opportunity to ask questions of, and receive answers
from, the Company and its management concerning the Company and the terms and
conditions of this Agreement. Each Investor hereby acknowledges that it or its
representatives have received all such information as it considers necessary for
evaluating the risks and merits of acquiring the Shares and for verifying the
accuracy of any information furnished to it or to which it had access. Each
Investor represents and warrants that the nature and amount of its investment in
connection with the purchase of the Shares is consistent with its investment
objectives, abilities and resources.
(v) Each Investor understands that there is no public market for the
Shares and that there may never be such a public market, and that even if a
market develops it may never be able to sell or dispose of the Shares and may
thus have to bear the risk of its investment for a substantial period of time,
or forever. Each Investor is aware that none of the Shares may be sold pursuant
to Rule 144 adopted under the Securities Act unless certain conditions have been
met and until Investors has held the Shares for at least two years. Among the
conditions required for use of Rule 144 is the availability of current
information to the public about the Company. Each Investor understands that the
Company has not made such information available and has no present plans to do
so.
(vi) Each Investor is an "accredited investor" for purposes of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act and not counted as a "purchaser" for purposes of Section 25102(f)
of the California Corporate Securities Law of 1968.
2
(vii) Investors acknowledge that the certificates representing the
Shares shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAW; THEY HAVE BEEN ACQUIRED
BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE
STATE SECURITIES LAW.
(b) AUTHORIZATION. Each Investor, severally but not jointly, further
represents that:
(i) It has duly authorized, executed and delivered this Agreement and
any other agreements and instruments executed in connection herewith.
(ii) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of Investor or Investors, as the
case may be, enforceable against it in accordance with their respective terms.
(iii) No consent or approval of any Person is required in connection
with the execution, delivery and performance of this Agreement and such other
agreements and instruments by Investor which has not heretofore been obtained.
(iv) Execution and performance of this Agreement shall not result in a
material default of other agreements or instruments by Investor.
(c) OTHER. Investors represent that no Person has or will have, as a
result of the transactions contemplated by this Agreement, any right, interest
or valid claim upon or against the Company, Investors or Stockholders for any
commission, fee or other compensation as a finder or broker because of any act
or omission by the Investors, and the Investors agree to indemnify and hold the
Stockholders harmless against any such commissions, fees or other compensation.
1.4 DESIGNATED REPRESENTATIVE OF THE INVESTORS. Investors will designate,
in writing, a representative who shall be authorized to act on behalf of
Investors with respect to all matters related to this Agreement and the
Stockholders and the Company shall be entitled to rely, without further
investigation, on the actions of the Designated Representative. Initially, the
Designated Representative for the Summit partnerships shall be ▇▇. ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ and the Designated Representative for the Crosspoint partnerships shall be
▇▇▇▇ ▇▇▇▇▇▇▇. The Designated Representative may be changed by a written
instrument executed by all of the Investors and provided to the Company and the
Stockholders pursuant to Section 11.5 hereof.
3
1.5 USE OF PROCEEDS AND CONSENT TO REDEMPTION. The Company may use up to
Twelve Million Five Hundred Thousand Dollars ($12,500,000) of the proceeds from
the sale of the Preferred Stock to repurchase shares of Common Stock owned by
the Stockholders. The Investors hereby consent to the Company's redemption
pursuant to the terms of the Redemption Agreement of 3,375,900 shares of its
Common Stock from the Stockholders as listed on EXHIBIT 1.5 hereto for the
-----------
number of shares and for the aggregate redemption price set forth opposite each
Stockholder's name for an aggregate redemption price of up to Twelve Million
Five Hundred Dollars ($12,500,000). Remaining proceeds from the sale of the
Preferred Stock shall only be used for working capital purposes and to pay the
broker's fee to Nantucket Holding Company and the bonuses payable to employees
of the Company as listed in the Disclosure Letter.
ARTICLE 2
CONDITIONS PRECEDENT TO INVESTORS' OBLIGATIONS
The obligation of Investors to purchase and pay for the Shares at the
Closing is subject to the fulfillment, or the waiver by the Investors, at or
prior to the Closing, of each of the following conditions (provided that any
such waiver, to be effective, must be in writing and signed by the Investors):
2.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company and the Stockholders set forth in Article 4 hereof
shall be true in all material respects on the date of the Closing.
2.2 ABSENCE OF LITIGATION. Absence of litigation, whether brought against
the Company, the Investors or any of the Stockholders, seeking to prevent the
consummation of the transactions contemplated by this Agreement, and no such
litigation shall have been threatened nor shall there be in effect any order
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement nor any proceedings pending with respect thereto.
2.3 PERFORMANCE OF OBLIGATIONS. The Company and the Stockholders shall
have performed and complied, in all material respects, with all covenants,
conditions and obligations required by this Agreement to have been performed by
the Company and the Stockholders at or prior to the Closing.
2.4 DOCUMENTATION AT CLOSING. Investors shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
the Investors and their special counsel, and all of the following events shall
have occurred prior to or simultaneous with the Closing hereunder:
(a) A copy of all charter documents of the Company and Subsidiaries
certified by the Secretary of their respective states of incorporation, a
certified copy of the resolutions of the Board of Directors and, if required,
the stockholders of the Company, evidencing approval of this Agreement, and
other matters contemplated hereby, a certified copy of the bylaws of the Company
and Subsidiaries, and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any, with
respect to this Agreement and the Shares.
4
(b) An opinion of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the
Company and the Stockholders, in the form set forth in EXHIBIT 2.4B.
------------
(c) A certificate of the Secretary or an Assistant Secretary of the
Company stating the names of the officers of the Company authorized to sign this
Agreement, the certificates for the Common Stock and the other documents or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers. The Investors
may conclusively rely on such certificate until they shall receive a further
certificate of the Secretary or Assistant Secretary of the Company cancelling or
amending the prior certificate and submitting the signatures of the officers
named in such further certificate.
(d) A certificate from the Chief Executive Officer of the Company
stating that the representations and warranties of the Company contained in
Article 4 hereof and otherwise made by the Company in writing in connection with
the transactions contemplated hereby are true and correct as of the date of
Closing, as if such representations and warranties were made on the date of
Closing and that all conditions required to be performed by the Company prior to
or at the Closing have been performed, and that no condition or event has
occurred or is continuing or will result from the execution and delivery of this
Agreement, which is a breach of a material term hereof or would constitute a
breach of a material term hereof but for the requirement that notice be given or
time elapse or both.
(e) Stock Certificates representing the Shares shall be delivered by
the Company on or prior to the Closing.
(f) A Stockholders' Agreement, in the form set forth in EXHIBIT 2.4F,
------------
shall have been executed and delivered by each of the parties thereto.
(g) A Repurchase Agreement in the form set forth in EXHIBIT 2.4G,
------------
shall have been executed and delivered by the Company.
(h) A Registration Rights Agreement, in the form set forth in EXHIBIT
-------
2.4H, shall have been executed and delivered by each of the parties thereto.
----
(i) An Indemnity Agreement, in the form set forth in EXHIBIT 2.4I,
------------
shall have been executed and delivered by the Company to each Investor and the
Investor's designee to the Board of Directors.
(j) A Redemption Agreement, in the form set forth in EXHIBIT 2.4J,
------------
shall have been separately executed by each of the Stockholders with the
Company.
2.5 MATERIAL ADVERSE CHANGE. There shall not have been, subsequent to the
balance sheet of the Company dated August 31, 1995, any material adverse change
in the financial condition of the business of the Company, or its assets,
liabilities, business, results of operations, prospects or customer, supplier or
employee relations, other than changes occurring in the normal course of the
business of the Company.
5
2.6 DUE DILIGENCE. Investors and their representatives shall have
completed their business, legal and accounting due diligence investigation and
Investors shall be satisfied, in their sole discretion, with the results
thereof.
2.7 CONSENTS, WAIVERS, ETC. Prior to the Closing, Investors and the
Company shall have obtained all consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the securities to Investors, purchase
the shares of Common Stock from the Stockholders and to carry out the
transactions contemplated hereby and thereby, and all such consents and waivers
shall be in full force and effect. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and
other agreements and instruments executed and delivered by the Company in
connection herewith shall have been made or taken, except for any post-sale
filing that may be required under federal and state securities laws. In
addition to the documents set forth above, the Company shall have provided the
Investors any other information or copies of documents that they may reasonably
request.
2.8 EVIDENCE OF PAYMENT. The Company shall deliver to Investors, evidence
satisfactory to Investors and its counsel that all fees due and owing to
Nantucket Holding Company have been paid or adequately provided for by the
Company and the Company undertakes to hold Investors harmless from any such
fees.
ARTICLE 3
CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS
The obligations of the Company to consummate the issuance and sale of the
Shares to Investors at the Closing and of the Company and the Stockholders to
perform their other obligations under this Agreement shall be subject to the
fulfillment, or the waiver by the Company or the Stockholders, as the case may
be, at or prior to the Closing, of each of the following conditions (provided
that any such waiver, to be effective, must be in writing and signed by the
Company or the Stockholders):
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Investors in this Agreement shall have been true and correct at and
as of the date hereof, and they shall be true and correct at and as of the
Closing with the same force and effect as though made at and as of that time.
3.2 ABSENCE OF LITIGATION. Absence of litigation, whether brought against
the Company, the Investors or any of the Stockholders, seeking to prevent the
consummation of the transactions contemplated by this Agreement, and no such
litigation shall have been threatened nor shall there be in effect any order
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement nor any proceedings pending with respect thereto.
3.3 PERFORMANCE OF OBLIGATIONS. Investors shall have performed and
complied, in all material respects, with all of their covenants, conditions and
obligations required by this Agreement to be performed or complied with by them
at or prior to the Closing.
6
3.4 DOCUMENTATION AT CLOSING. The Company shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
the Company and its counsel, and all of the following events shall have occurred
prior to or simultaneous with the Closing hereunder:
(a) Receipt from Investors of certificates, each dated as of the date
of Closing and signed by a partner of Investors certifying that (i) their
representations and warranties contained herein were true and correct as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on the Closing Date, and (ii) they have performed and
complied in all material respects with all agreements, obligations, covenants
and conditions required to be performed or complied with by them pursuant hereto
on or prior to the Closing Date, except as may be waived in writing by the
Stockholders.
(b) A Stockholders' Agreement, in the form set forth in EXHIBIT 2.4F,
------------
shall have been executed by the parties named therein.
(c) A Repurchase Agreement, in the form set forth in EXHIBIT 2.4G,
------------
shall have been executed by the parties named therein.
(d) A Registration Rights Agreement, in the form set forth in EXHIBIT
-------
2.4H, shall have been executed by the parties named therein.
----
(e) An Indemnity Agreement, in the form set forth in EXHIBIT 2.4I,
------------
shall have been executed and delivered by the Company to each Investor and the
Investor's designee to the Board of Directors.
(f) A Redemption Agreement, in the form set forth in EXHIBIT 2.4J,
------------
shall have been executed by the Stockholders.
3.5 PAYMENT. Concurrently, the Stockholders shall receive payment in
full, from the Company for their shares of Common Stock, in the respective
amounts and in the form set forth in EXHIBIT 1.5 hereto and the Company shall
-----------
have received payment in full from the Investors for the Shares.
3.6 CONSENTS, WAIVERS, ETC. Prior to the Closing, Investors and the
Company shall have obtained all consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the securities of Investors, to
purchase the Shares and to carry out the transactions contemplated hereby and
thereby, and all such consents and waivers shall be in full force and effect.
All corporate and other action and governmental filings necessary to effectuate
the terms of this Agreement and other agreements and instruments executed and
delivered by Investors and the Company in connection herewith shall have been
made or taken, except for any post-sale filing that may be required under
federal and state securities laws. In addition to the documents set forth
above, the Investors shall have provided the Company any other information or
copies of documents that they may reasonably request.
3.7 ▇▇▇▇▇▇▇ ELECTED TO SERVE AS CHAIRMAN OF THE BOARD. At the Closing,
▇▇. ▇▇▇▇▇▇▇ shall be elected to serve as Chairman of the Board of Directors of
the Company pursuant to the terms of the Stockholders' Agreement in the form set
forth in EXHIBIT 2.4F.
------------
7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Investors that:
(a) ORGANIZATION AND STANDING OF THE COMPANY AND SUBSIDIARIES. The
Company and each of its Subsidiaries, if any, is a duly organized and validly
existing corporation in good standing under the laws of the jurisdiction in
which it is organized and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. The Company and
each of its Subsidiaries is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary and where
failure to qualify would have a material adverse effect upon such corporation.
(b) CORPORATE ACTION. The Company has all necessary corporate power
and has taken all corporate action required to make all the provisions of this
Agreement, and any other agreements and instruments executed in connection
herewith, the valid and enforceable obligations of the Company.
(c) GOVERNMENTAL APPROVALS. No authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with the execution or
delivery by the Company of, or for the performance by it of its obligations
under, this Agreement or the Certificate of Amendment except for filings to be
made, if any, to comply with exemptions from registration or qualification under
federal and state securities laws.
(d) LITIGATION. Except as disclosed on the Disclosure Letter, there
is no litigation or governmental proceeding or investigation pending nor, to the
best knowledge of the Company, threatened against the Company or its
Subsidiaries affecting any of their properties or assets, or, to the knowledge
of the Company, against any officer or key employee of the Company or its
Subsidiaries or the Stockholders that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or conditions of the Company, its Subsidiaries or any of their properties or
assets taken as a whole, or that might call into question the validity of this
Agreement, any of the Shares, or any action taken or to be taken pursuant
hereto.
(e) COMPLIANCE WITH OTHER INSTRUMENTS. The Company and its
Subsidiaries are in compliance in all respects with the terms and provisions of
their certificates of incorporation or bylaws and in all material respects with
the terms and provisions of this Agreement and to the best of the Company's
knowledge, (i) except as set forth on the Disclosure Letter, in all material
respects with the terms and provisions of each mortgage, indenture, lease,
agreement and other instrument relating to obligations of the Company and its
Subsidiaries in excess of $25,000, individually or $100,000 in the aggregate,
and, (ii) of all judgments, decrees, governmental orders, statutes, rules or
regulations by which they are bound or to which their properties or assets are
subject. To the best
8
of the Company's and its Subsidiaries' knowledge, there is no term or provision
in any of the foregoing documents and instruments that the Company believes are
likely to materially adversely affects the business, assets or financial
condition of the Company or its Subsidiaries. Neither the execution and
delivery of this Agreement or the Certificate of Amendment, nor the consummation
of any transaction contemplated hereby or thereby, has constituted or resulted
in or will constitute or result in a default or violation of any term or
provision in the certificates of incorporation or bylaws of the Company or its
Subsidiaries and to the best of the Company's and its Subsidiaries' knowledge,
has constituted or resulted in a default or violation of any term or provision
in any documents or instruments.
(f) STOCK OWNERSHIP. To the best of the Company's knowledge, the
Stockholders are, and at the Closing will be, the sole owners of record, and to
the Company's knowledge beneficially, of the shares of the Company's common
stock reflected in the Disclosure Letter, free and clear of all claims, liens,
encumbrances, security interests, pledges, options, charges, restrictions and
defects in title of any nature whatsoever, other than restrictions imposed by
federal and applicable state securities laws which do not constitute an
impediment to the transfer described in this Agreement. The Shares shall
constitute 100% of the issued and outstanding shares of capital stock of the
Company not otherwise owned beneficially and of record as of the Closing by
Investors.
(g) REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement attached hereto as EXHIBIT 2.4H, no Person has demand or other
------------
rights to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in an offering of shares under any such registration statement.
(h) SECURITIES ACT OF 1933. The Company has complied with all
applicable federal and state securities laws in connection with the issuance and
sale of the Shares. Neither the Company nor anyone acting on its behalf has
offered or will offer to sell the Shares, or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Shares under the registration provisions of the Securities Act of
1933, as amended (the "Securities Act").
(i) NO BROKERS OR FINDERS. Except for the fees owed to Nantucket
Holding Company which shall be fully satisfied by the Company, the Company has
not taken any action nor failed to take any action and knows of no such act or
omission by any Person, which would give rise to any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker as a result of the transactions contemplated by this
Agreement.
(j) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately preceding
the Closing and the transaction described in Section 1.1, the Company will have
a total authorized capitalization consisting of 20,000,000 shares of Common
Stock, $.0001 par value, of which 9,300,000 shares are issued and outstanding
(the "Common Stock"), and 3,375,900 shares of Preferred Stock, none of which are
outstanding. A complete list of the shares of Common Stock currently issued and
outstanding and the names in which such shares are registered is set forth in
the Disclosure Letter. Except as set forth herein, or in the Disclosure Letter,
there are no options, warrants or rights to purchase shares of capital stock or
other securities authorized, issued or outstanding, nor is the Company obligated
in any other manner to issue shares of its capital stock or other securities.
The Common Stock constitutes 100% of the issued and outstanding shares of
capital stock of the Company as of the date hereof.
9
(k) FINANCIAL STATEMENTS. The Financial Statements of the Company for
the year ended December 31, 1993 as reviewed by Singer, Lewak, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, for the year ended December 31, 1994, as audited by Deloitte &
Touche, LLP and the unaudited statement for the eight months ended August 31,
1995 (collectively, the "Financial Statements"), copies of which Financial
Statements, along with any officers reports, have heretofore been delivered to
Investors or their special counsel and are attached to the Disclosure Letter,
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, subject to year-end
adjustments which would not be materially adverse with respect to the Financial
Statements at and for the period ending August 31, 1995, and fairly present the
financial position and results of operations of the Company and Subsidiaries for
the periods covered.
(l) ABSENCE OF CHANGES. Except as set forth on the Disclosure Letter,
since August 31, 1995 there has not been any material and adverse change in the
business, properties, prospects, or financial condition of the Company; provided
that any statement set forth in the Disclosure Letter which describes any event
or condition of any type which excepts the representations and warranties of the
Company provided in this Agreement shall clearly refer to the section number of
such affected representations and warranties.
(m) GOOD AND MARKETABLE TITLE. Except for the Liens (as defined in
Section 4.2(g) (x)), the Company and Subsidiaries have good and marketable title
to, or a valid leasehold interest in, their tangible properties and assets in
each case free and clear of all liens, claims, security interests, charges and
encumbrances and have the right to use all the assets they presently use in the
operation of their businesses. The properties and assets of the Company and
Subsidiaries are in all material respects in condition and repair adequate to
continue to conduct the business as currently conducted.
(n) SUBSIDIARIES. Except for the corporations listed on the
Disclosure Letter hereto, the Company does not control, directly or indirectly,
any other corporation, association, partnership or other business entity or own
any shares of capital stock or other securities of any other Person.
(o) TAXES AND TAX RETURNS.
(i) Except as set forth on the Disclosure Letter: (i) the Company has
duly filed all Tax Returns (as hereinafter defined) which are required by law to
be filed by it; (ii) the Company has duly paid all Taxes (as hereafter defined)
due or claimed to be due from it (whether or not shown on any Tax Return), and
there are no assessments or claims for payment of Taxes now pending or, to the
best knowledge of the Company, threatened, nor is there any audit of the records
of the Company being made or, to the best of the Company's knowledge threatened
by any taxing authority; (iii) there are no facts or circumstances known to the
Company which could reasonably be expected to constitute a basis for assessments
or claims for the payment of additional Taxes with respect to such Tax Returns;
(iv) each Tax Return of the Company previously filed, or to be filed in the
future relating to any period up to the date of Closing, is or will be (as the
case may be) correct and complete in all respects; and (v) the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. The amounts set up as provisions for Taxes, if any, on the December 31,
1994 and August 31, 1995 balance sheets of the Company included in the Financial
Statements are sufficient for the payment of all unpaid Taxes of the Company
accrued for or applicable to the periods ended on such date and all years and
periods prior thereto and for
10
which the Company, at those dates, may have been liable. The Company has
properly withheld and paid, or accrued for payment, when due, to appropriate
state and/or federal authorities, all sales and use taxes, if any, and all
amounts required to be withheld from payments made to its employees, independent
contractors, creditors, stockholders, or other third parties and has also paid
all employment taxes as required under applicable laws.
(ii) The Company has not waived any statute of limitation in respect
of any taxes or assessments by any federal, state, county, local, foreign or
other taxing jurisdiction or agreed to any extension of time with respect to an
assessment or deficiency in any tax. The Company has not filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code")
concerning collapsible corporations.
(iii) The Company has not made any payments, and is not obligated to
make any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company is not a party to any tax allocation or tax sharing
agreement.
(iv) The Company (i) is not and never has been required to file a
consolidated or combined state or federal income Tax Return with any other
person or entity and (ii) is not liable for the Taxes of any person under Treas.
Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract or otherwise.
(v) For purposes of this Agreement, the term "Tax" or "Taxes" means
any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise profits, withholding, social security, 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.
(vi) For purposes of this Agreement, the term "Tax Return" 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.
(vii) The Company hereby makes no representations or warranties
regarding the tax effects of the transactions contemplated hereby on Investors,
the Company or the Stockholders. Each party has relied on its own advisors with
respect to such tax effects.
(p) INSURANCE. Included in the Disclosure Letter is a complete list
of all insurance policies currently maintained by the Company and Subsidiaries
and in effect, and, with respect to each of such policies, a general description
of the risks covered and claims insured; copies of all of such policies have
been furnished or made available to Investors. The Company deems its insurance
to be adequate for a business of the type of business of the Company.
11
(q) CERTAIN TRANSACTIONS. Except as set forth in the Disclosure
Letter, the Company is not indebted, either directly or indirectly, to any of
the officers, directors, or stockholders of the Company, or, to their respective
spouses or children, in any amount whatsoever, other than for payment of salary
for services rendered and reasonable expenses, and none of said officers,
directors, stockholders or any members of their immediate families, are indebted
to the Company. None of the Stockholders, nor, to the knowledge of the Company,
any other Person, have any direct or indirect ownership interest in (other than
ownership interests of one percent (1%) or less in companies whose securities
are publicly traded), or any contractual relationship with, any firm,
corporation or other Person with which the Company is affiliated or with which
the Company has a business relationship, or any firm, corporation or other
Person which competes with the Company. None of the Stockholders, nor, to the
best knowledge of the Company, any other officer, director or, stockholder, or
any member of their immediate families, are, directly or indirectly, a party to
or otherwise an interested party with respect to any material contract with the
Company.
(r) CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement, or as set
forth in the Disclosure Letter, as of the Closing neither the Company nor
Subsidiaries will be a party to, or bound by, any currently effective written
or oral:
(A) pension, profit sharing, stock option, employee stock purchase or
other plan providing for deferred, incentive or other compensation to employees
or any other employee benefit plan, or any contract with any labor union;
(B) contract for the employment of any officer, individual employee,
or other person or entity on a full-time, part-time, consulting or other basis
which, in any way, restricts or limits its right to terminate such contract at
will (but such schedule need not disclose the existence of any law, public
policy, or any oral discussions, or oral statements of policy which might,
under current law, be interpreted as imposing upon the Company any covenant of
good faith and fair dealing, or otherwise generally restrict the Company's
ability to terminate its employees other than on an "at-will" basis or within
sixty (60) days following delivery of a notice of termination);
(C) agreement or indenture relating to the borrowing of money or to
the mortgaging, pledging, transfer of a security interest, or otherwise placing
a lien on any material asset or material group of assets of the Company;
(D) guarantee of any obligation;
(E) lease or agreement under which it is the lessee of or holds or
operates any property, real or personal, owned by any other party; but there may
be excluded from such Schedule leases or agreements under which the aggregate
annual rental payments of the Company do not, in the aggregate, exceed $50,000;
(F) agreement or group of related agreements with the same party or
any group of parties who are affiliated, which requires an aggregate payment by
or to the Company in an amount in excess of (x) with respect to purchase or
sales orders in the ordinary course of business, $50,000, and (y) with respect
to any other contracts, $25,000;
12
(G) warranty agreement of the Company with respect to services
provided or products sold, licensed or leased by the Company as seller, licensor
or lessor;
(H) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world; or
(I) any other agreement which in the best judgment of the Company is
material to its business.
(ii) The Company and Subsidiaries have performed in all material
respects all obligations required to be performed by them and are not in default
under, or in material breach of, or after due inquiry, in receipt of any claim
of default under or breach of, any material agreement, all of which are
described in the Disclosure Letter, to which any of them are a party or to which
their assets are subject; the Company has no present expectation or intention of
not fully performing all such obligations; the Company does not have any
knowledge of any material breach or anticipatory breach by the other parties to
any material contract or commitment which is required to be disclosed in the
Disclosure Letter; and to the best of the Company's knowledge none of the
Company or its Subsidiaries is a party to any contract or contracts which,
either individually or in the aggregate, are reasonably likely to result in a
material loss to the Company. To the best knowledge of the Company and the
Stockholders, there are no warranty claims or other uninsured claims under
completed contracts which might involve a material monetary liability which is
not reserved against in the Financial Statements.
(iii) None of the Stockholders nor, to the best knowledge of the
Company, any other officer of the Company or Subsidiaries, is a party to any
oral or written contract which prohibits, or materially restricts or limits his
performance of his duties or the fulfillment of his obligations as an employee
and an officer of the Company or Subsidiary.
(iv) A true and correct copy of each of the written contracts and a
description of the oral contracts which are referred to in the Disclosure
Letter, referred to above, together with all amendments, waivers or other
changes thereto, have been supplied to the Investors' special counsel, Messrs.
Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇.
(s) ERISA. Except as set forth in the Disclosure Letter, Company does
not have any (i) labor agreement to which it is a party, or by which it is
bound, including "employee pension benefit plans" as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"); (ii) employment, profit sharing, deferred compensation, bonus,
pension, retainer, consulting, retirement, welfare or incentive plan or contract
to which it is a party, or by which it is bound; (iii) written or other formal
personnel policies; or (iv) plan or agreement under which "fringe benefits"
(including, but not limited to, vacation plans or programs, sick leave plans or
programs, and related benefits) are afforded to its employees over and above
those usual and customary in the Company's industry. True and correct copies of
all such agreements have been delivered to Investors. The Internal Revenue
Service has issued a favorable determination letter with respect to each ERISA
Plan which has not been revoked or modified, and neither ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ nor
Company has any reason to believe that anything has occurred or any change or
amendment has been made which would adversely effect the qualification of the
ERISA Plan under Section 401 of the Internal Revenue Code of 1986 (the "Code")
or any of the trusts maintained pursuant thereto under Section 501 of the Code.
All contributions required by law to
13
have been made under each ERISA Plan prior to the Closing Date shall have been
made. No event of the type set forth in Section 4403(b) of ERISA has occurred
and is continuing with respect to each ERISA Plan other than as may result from
the transactions contemplated hereby. There are no material claims,
investigations or lawsuits which had been asserted or instituted against the
assets of any of the trusts under each ERISA Plan and no reasonable basis for
any such claim or lawsuit exists. Each ERISA Plan has been maintained, operated
and administered in all material respects, in accordance with its terms and all
provisions of ERISA (including rules and regulations thereunder) and other
applicable laws.
(t) INTELLECTUAL PROPERTY. Except as set forth in the Disclosure
Letter, the Company and Subsidiaries have sufficient title to and ownership of,
or have sufficient licenses to, or to the best of the Company's knowledge can
obtain on terms which will not result in any material adverse effect on their
businesses, all necessary licenses, trademarks, service marks, tradenames,
copyrights, trade secrets, inventions, processes, designs, franchises, computer
software and other proprietary rights and to the best knowledge of the Company
all necessary patents necessary for their businesses as now conducted, or
proposed to be conducted, without any conflict with or infringement of the
rights of others; provided, however, the Company and the subsidiaries have
undertaken, or caused to be undertaken, only the searches as set forth on the
Disclosure Letter for third party intellectual property rights which might
affect their business as now conducted or proposed to be conducted. The
Disclosure Letter sets forth all inventions which are the subject of issued
patent letters or an application therefor, which are owned and used or held for
use by the Company or any of its Subsidiaries and which are material to the
business of the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries have taken measures they deem reasonable to maintain the
confidentiality of the processes and formulae, research and development results
and other know-how of the Company or any of its Subsidiaries, the value of which
to the Company or such Subsidiary is contingent upon maintenance of the
confidentiality thereof. The Company has received no communication or notice
form any third party claimants that it or its Subsidiaries have violated, or, by
conducting their businesses as proposed, would violate, any of the patents,
licenses, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware of any third party which is infringing or violating any of the patents,
licenses, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights of the Company or its Subsidiaries. Neither the
Company nor any of its Subsidiaries has granted any license or option or entered
into any agreement of any kind with respect to the use of their proprietary
information, other than licenses to and uses of their products made in the
ordinary course of their business.
(u) ENVIRONMENTAL MATTERS. The Company and its Subsidiaries have not,
contrary to applicable statutes and regulations, stored or disposed of, on,
under or about their premises hazardous materials. As used in this Agreement,
the term "hazardous materials" shall mean substances defined as "hazardous
substances" or "hazardous materials" or "toxic substances" in the Comprehensive
Environmental Response and Compensation Liability Act of 1980, as amended, 42
U.S.C., Section 9601, et seq.; The Hazardous Materials Transportation Act, 49
U.S.C., Section 1801, et seq.; The Resource Conservation Recovery Act, 42
U.S.C., Section 6901, et seq.; and those substances defined as hazardous wastes
or hazardous substances in any applicable California statutes or codes and any
regulations or publication promulgated pursuant to any of said laws or
regulations.
14
(v) COMPLIANCE WITH LAWS. Except as disclosed in the Disclosure
Letter, the Company and its Subsidiaries have complied in all material respects
with all applicable United States' federal, state, municipal and other political
subdivision or governmental agency statutes, ordinances and regulations, and to
the best of their knowledge, the Company and its Subsidiaries have complied in
all material respects with all applicable foreign statutes, ordinances and
regulations and with all United States' federal statutes, ordinances and
regulations as they apply to doing business in other countries.
(w) MARGIN REGULATIONS; USE OF PROCEEDS. The Company neither owns nor
intends to acquire any "margin stock" as defined in Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207).
(x) DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement or in any written certificate required by this
Agreement to be furnished to the Investors or their counsel pursuant to this
Agreement contains or will contain any untrue statement of material fact or
taken together with all information furnished to Investors or their
representatives, omits or will omit to state a material fact necessary to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading, it being understood that Investors have not
received or been provided with a "prospectus" (as defined in the Securities Act)
covering the Company.
4.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder,
severally but not jointly with the Company or any other Stockholder, represents
and warrants to the Investors that:
(a) LITIGATION. Except as listed in the Disclosure Letter, to the
best knowledge of such Stockholder there is no litigation or governmental
proceeding or investigation pending or threatened against the Company or its
Subsidiaries affecting any of their properties or assets, or against any officer
or Key Employee of the Company or its Subsidiaries or the Stockholders that
might result, either in any case or in the aggregate, in any material adverse
change in the business, operations, affairs or conditions of the Company, its
Subsidiaries or any of their properties or assets taken as a whole, or that
might call into question the validity of this Agreement, any of the Shares, or
any action taken or to be taken pursuant hereto. Stockholder has not been
served nor has knowledge of another being served with a summons or other service
of process in which the Company or such Stockholder has been named in an action
which could have a material adverse effect upon the Company or its business.
(b) STOCK OWNERSHIP. Such Stockholder is, and at the Closing will be,
the sole owner, beneficially and of record, of the shares of the Company's
common stock reflected for such Stockholder in the Disclosure Letter, free and
clear of all claims, liens, encumbrances, security interests, pledges, options,
charges, restrictions and defects in title of any nature whatsoever, other than
restrictions imposed by federal and applicable state securities laws which do
not constitute an impediment to the transfer described in this Agreement. Such
Stockholder has not, and as of the Closing shall not have, granted or sold, and
such Stockholder is not, and at the time of Closing will not be, a party to any
agreement, commitment or understanding, written or oral, providing for the grant
or sale of, options or other rights to purchase or restricting the transfer of,
and such Stockholder is not, and at the Closing will not be, obligated to sell
or otherwise transfer, any of the shares of the Company's common stock to any
person or entity except to the Company.
15
(c) REGISTRATION RIGHTS. Except as set forth in EXHIBIT 2.4H hereto,
------------
to Stockholders best knowledge no Person has demand or other rights to cause the
Company to file any registration statement under the Securities Act relating to
any securities of the Company or any right to participate in an offering of
shares under any such registration statement.
(d) NO BROKERS OR FINDERS. Except for Nantucket Holding Company,
whose fee shall be paid by the Company, such Stockholder has not taken any
action nor failed to take any action and knows of no such act or omission by the
Company, which would give rise to any right, interest or valid claim against or
upon the Company for any commission, fee or other compensation as a finder or
broker as a result of the transactions contemplated by this Agreement.
(e) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately preceding
the Closing and the transaction described in Section 1.1, the Company will have
a total authorized capitalization consisting of 20,000,000 shares of Common
Stock, $.0001 par value, of which 9,300,000 shares are issued and outstanding,
and 3,375,900 shares of Preferred Stock, none of which are outstanding. A
complete list of the shares of Common Stock currently issued and outstanding and
the names in which such shares are registered is set forth in the Disclosure
Letter. Except as set forth herein, or in the Disclosure Letter, there are no
options, warrants or rights to purchase shares of capital stock or other
securities authorized, issued or outstanding, nor is the Company obligated in
any other manner to issue shares of its capital stock or other securities. The
Common Stock constitutes 100% of the issued and outstanding shares of capital
stock of the Company.
(f) FINANCIAL STATEMENTS. The Financial Statements fairly present
the financial position and results of operations of the Company and Subsidiaries
for the periods covered, have been prepared on a basis consistent throughout the
periods except as set forth on the Disclosure Letter and to such Stockholder's
knowledge were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, subject to
year-end adjustments which would not be materially adverse with respect to the
Financial Statements at and for the period ending August 31, 1995.
(g) ABSENCE OF CHANGES. Except as set forth in the Disclosure Letter
to the best of the Stockholder's knowledge, since August 31, 1995:
(i) The Company and Subsidiaries have not entered into any material
transaction which was not in the ordinary course of their businesses.
(ii) There has been no materially adverse change in the condition
(financial or otherwise), business, properties, assets, or liabilities of the
Company and Subsidiaries other than changes in the ordinary course of their
businesses, none of which, individually or in the aggregate, has been materially
adverse.
(iii) There has been no damage to, destruction of, or loss of,
physical property of the Company and Subsidiaries (whether or not covered by
insurance) materially adversely affecting the business or operations of the
Company or Subsidiaries.
(iv) Except as contemplated herein, the Company and Subsidiaries have
not declared or paid any dividend or made any distribution on their capital
stock; redeemed, purchased or otherwise acquired any of their capital stock.
16
(v) The Company and Subsidiaries have not received notice that there
has been a loss of, or material order cancellation by, any major customer of the
Company and Subsidiaries.
(vi) There has been no resignation or termination of employment of any
key officer or key employee of the Company or Subsidiaries and the Company does
not know of the impending resignation or termination of employment of any such
officer or employee.
(vii) There has been no organized labor dispute involving the Company
or Subsidiaries or any of their employees and none is pending or threatened.
(viii) There has been no material adverse change, except in the
ordinary course of their businesses, in the contingent obligations of the
Company or Subsidiaries, by way of guaranty, endorsement, indemnity, warranty,
or otherwise.
(ix) There have been no loans or guarantees made by the Company or
Subsidiaries to or for the benefit of their employees, officers or directors, or
any members of their immediate families, other than travel advances and other
advances made in the ordinary course of their businesses.
(x) The Company or Subsidiaries have not mortgaged, pledged,
transferred a security interest in, or subjected to lien any of their properties
or assets, except (a) liens for current taxes not yet delinquent, (b) liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, (c)
liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, (d) minor defects in title which, individually or in the
aggregate, do not materially interfere with the use of such property, (e) liens
outstanding and in the aggregate less than $10,000, or (f) liens disclosed in
the Financial Statements or the notes thereto (collectively, the "Liens").
(xi) Other than in the ordinary course of business, the Company or
Subsidiaries have not sold, assigned or transferred any patents, trademarks,
copyrights, trade secrets or other valuable intangible assets, disclosed any
material proprietary confidential information to any Person other than the
Investors, their representatives or certain providers of professional services
in the ordinary course of business on a need-to-know basis.
(xii) There has been no other event or condition of any character
specifically relating to the Company or Subsidiaries which specifically pertains
to and materially adversely affects its business, properties or condition,
financial or otherwise.
(h) TAXES AND TAX RETURNS.
(i) Except as set forth in the Disclosure Letter: (i) the Company has
duly filed all Tax Returns (as hereinafter defined) which are required by law to
be filed by it; (ii) the Company has duly paid all Taxes (as hereafter defined)
due or claimed to be due from it (whether or not shown on any Tax Return), and
there are no assessments or claims for payment of Taxes now pending or, to the
best knowledge of the Stockholders, threatened, nor is there any audit of the
records of the Company being made or threatened by any taxing authority; (iii)
there are no facts or circumstances which could reasonably be expected to
constitute a basis for assessments or claims
17
for the payment of additional Taxes with respect to such Tax Returns; (iv) each
Tax Return of the Company previously filed is correct and complete in all
respects; and (v) the Company is not currently the beneficiary of any extension
of time within which to file any Tax Return. The amounts set up as provisions
for Taxes, if any, on the December 31, 1994 and April 30, 1995 balance sheets of
the Company included in the Financial Statements are sufficient for the payment
of all unpaid Taxes of the Company accrued for or applicable to the periods
ended on such date and all years and periods prior thereto and for which the
Company, at those dates, may have been liable. The Company has properly
withheld and paid, or accrued for payment, when due, to appropriate state and/or
federal authorities, all sales and use taxes, if any, and all amounts required
to be withheld from payments made to its employees, independent contractors,
creditors, stockholders, or other third parties and has also paid all employment
taxes as required under applicable laws.
(ii) The Company has not waived any statute of limitation in respect
of any taxes or assessments by any federal, state, county, local, foreign or
other taxing jurisdiction or agreed to any extension of time with respect to an
assessment or deficiency in any tax. The Company has not filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code")
concerning collapsible corporations.
(iii) The Company has not made any payments, and is not obligated to
make any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company is not a party to any tax allocation or tax sharing
agreement.
(iv) The Company (i) is not and never has been required to file a
consolidated or combined state or federal income Tax Return with any other
person or entity and (ii) is not liable for the Taxes of any person under Treas.
Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract or otherwise.
(v) For purposes of this Agreement, the term "Tax" or "Taxes" means
any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise profits, withholding, social security, 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.
(vi) For purposes of this Agreement, the term "Tax Return" 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.
(vii) Such Stockholder hereby makes no representations or warranties
regarding the tax effects of the transactions contemplated hereby on Investors,
the Company or Investors. Each party has relied on its own advisors with respect
to such tax effects.
18
(i) CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement, or as set
forth in the Disclosure Letter, and to the best of such Stockholder's knowledge,
as of the Closing the Company, or Subsidiaries will not be a party to, or bound
by, any currently effective written or oral:
(A) pension, profit sharing, stock option, employee stock purchase or
other plan providing for deferred, incentive or other compensation to
employees or any other employee benefit plan, or any contract with any
labor union;
(B) contract for the employment of any officer, individual employee,
or other person or entity on a full-time, part-time, consulting or other
basis which, in any way, restricts or limits its right to terminate such
contract at will (but such schedule need not disclose the existence of any
law, public policy, or any oral discussions, or oral statements of policy
which might, under current law, be interpreted as imposing upon the Company
any covenant of good faith and fair dealing, or otherwise generally
restrict the Company's ability to terminate its employees other than on an
"at-will" basis or within sixty (60) days following delivery of a notice of
termination);
(C) agreement or indenture relating to the borrowing of money or to
the mortgaging, pledging, transfer of a security interest, or otherwise
placing a lien on any material asset or material group of assets of the
Company;
(D) guarantee of any obligation;
(E) lease or agreement under which it is the lessee of or holds or
operates any property, real or personal, owned by any other party; but
there may be excluded from such Schedule leases or agreements under which
the aggregate annual rental payments of the Company do not, in the
aggregate, exceed $50,000;
(F) agreement or group of related agreements with the same party or
any group of parties who are affiliated, which requires an aggregate
payment by or to the Company in an amount in excess of (x) with respect to
purchase or sales orders in the ordinary course of business, $100,000 and
(y) with respect to any other contracts, $25,000;
(G) warranty agreement of the Company with respect to services
provided or products sold, licensed or leased by the Company as seller,
licensor or lessor;
(H) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world; or
(I) any other agreement which is material to the Company's business.
(ii) Such Stockholder is not a party to any oral or written contract
which prohibits, or materially restricts or limits his performance of his or her
duties or the fulfillment of his or her obligations as an employee, director or
an officer of the Company or Subsidiary.
19
(iii) Except as specifically anticipated by this Agreement and except
for their indemnity agreements as directors of the Company which shall survive
the Closing or as set forth in the Disclosure Letter, such Stockholders, his or
her family members or any Affiliate of such Stockholder is not a party to any
oral or written contract with the Company or a Subsidiary thereof.
(j) INTELLECTUAL PROPERTY. Except as set forth on the Disclosure
Letter hereto, to the best knowledge of Stockholder the Company and Subsidiaries
have sufficient title to and ownership of, or have sufficient licenses to, or
can obtain on terms which will not result in any material adverse effect on
their businesses, all necessary patents, licenses, trademarks, service marks,
tradenames, copyrights, trade secrets, inventions, processes, designs,
franchises, computer software and other proprietary rights necessary for their
businesses as now conducted, or proposed to be conducted, without any conflict
with or infringement of the rights of others; provided, however, the Company and
the subsidiaries have undertaken, or caused to be undertaken, only the searches
as set forth on the Disclosure Letter for third party intellectual property
rights which might affect their business as now conducted or proposed to be
conducted. The Disclosure Letter sets forth all inventions which are the
subject of issued patent letters or an application therefor, which are owned and
used or held for use by the Company or any of its Subsidiaries and which are
material to the business of the Company and its Subsidiaries taken as a whole.
The Company and its Subsidiaries have taken measures they deem reasonable to
maintain the confidentiality of the processes and formulae, research and
development results and other know-how of the Company or any of its
Subsidiaries, the value of which to the Company or such Subsidiary is contingent
upon maintenance of the confidentiality thereof. Neither Stockholder, nor to
the best knowledge of Stockholder has the Company received any communication or
notice from any third party claimants that the Company or its Subsidiaries have
violated, or, by conducting their businesses as proposed, would violate, any of
the patents, licenses, trademarks, service marks, tradenames, copyrights, trade
secrets or other proprietary rights of any other person or entity. Neither the
Company nor any of its Subsidiaries has granted any license or option or entered
into any agreement of any kind with respect to the use of their proprietary
information, other than licenses to and uses of their products made in the
ordinary course of their business.
(k) ENVIRONMENTAL MATTERS. To the best of such Stockholder's
knowledge, the Company and its Subsidiaries have not, contrary to applicable
statutes and regulations, stored or disposed of, on, under or about their
premises hazardous materials. As used in this Agreement, the term "hazardous
materials" shall mean substances defined as "hazardous substances" or "hazardous
materials" or "toxic substances" in the Comprehensive Environmental Response and
Compensation Liability Act of 1980, as amended, 42 U.S.C., Section 9601, et
seq.; The Hazardous Materials Transportation Act, 49 U.S.C., Section 1801, et
seq.; The Resource Conservation Recovery Act, 42 U.S.C., Section 6901, et seq.;
and those substances defined as hazardous wastes or hazardous substances in any
applicable California statutes or codes and any regulations or publication
promulgated pursuant to any of said laws or regulations.
Except as set forth above in Section 4.2, each Stockholder makes no
representations or warranties to any party in connection with this Agreement or
the transactions contemplated herein. Unless otherwise provided by the
Stockholders in a writing delivered to the Investors, the representations and
warranties of the Stockholders set forth in Section 4.2 shall be automatically
qualified or modified, to the extent and in the same manner, as any
corresponding representation or warranty of the Company set forth in Section 4.1
is qualified or modified prior to the Closing, as a consequence of limitations
thereto referenced in the closing certificate described
20
in Section 2.4(d)(i) the Disclosure Letter or otherwise. Best knowledge for
purposes of this Section 4.2 is intended to indicate that no information that
would give the Stockholder current actual knowledge of the inaccuracy of such
statement has come to such Stockholder's attention. Information in the
possession of other employees, directors or officers of the Company shall only
be deemed received by a Stockholder if actually received by same and knowledge
of such information shall not simply be inferred from the fact that a
Stockholder is an officer, director, or stockholder of the Company.
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, after the Closing and for so long as shares
of Series A Preferred Stock remain outstanding, but no longer than such date as
a Qualified Public Offering shall have closed, the Company will perform and
observe the following covenants and provisions and will cause each Subsidiary to
perform and observe such of the following covenants and provisions as are
applicable to such Subsidiary, and will not, without approval of holders of
66.6% of the Series A Preferred Stock, amend or revise any terms of this Section
5.1:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and cause
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims, which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto as shall be determined by its Board
of Directors. Pay and cause each Subsidiary to pay, when due, or in conformity
with customary trade terms, all lease obligations, all trade debt, and all other
Indebtedness incident to the operations of the Company or its Subsidiaries,
except such as are being contested in good faith and by appropriate proceedings
if the Company or subsidiary concerned shall have set aside on its books
adequate reserves with respect thereto as shall be determined by its Board of
Directors.
(b) MAINTENANCE OF INSURANCE. Maintain, and cause each Subsidiary to
maintain, with responsible and reputable insurance companies or associations,
insurance in such amounts and covering such risks as is usually carried by
companies of similar size engaged in similar businesses and owning similar
properties in the same general areas in which the Company or such Subsidiary
operates, but in any event in amounts sufficient to allow the Company or
Subsidiary to replace any of their properties that might be damaged or destroyed
without additional expenditures by the Company or its Subsidiary except for
reasonable deductibles. Within sixty (60) days of the date of this Agreement,
the Company shall use all commercially reasonable efforts to obtain and
thereafter maintain term life insurance payable to the Company in the amount of
$1,000,000 each on the life of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Ki Nam and, within sixty (60)
days of appointment, the newly appointed Chief Executive Officer.
21
(c) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties. Preserve and maintain, and cause each Subsidiary to preserve
and maintain, all material licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions, intellectual property rights or
copyrights owned or possessed by it and necessary to the conduct of its
business.
(d) COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders of any United States' federal or State governmental authority,
noncompliance with which could materially adversely affect its business or
condition, financial or otherwise, except non-compliance being contested in good
faith through appropriate proceedings so long as the Company shall have set up
sufficient reserves, if any, required under generally accepted accounting
principles with respect to such items. Use its best efforts to comply, and
cause each Subsidiary to comply, in all material respects with all applicable
foreign laws, rules, regulations and orders of any foreign governmental
authority, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise, except non-compliance being
contested in good faith through appropriate proceedings so long as the Company
shall have set up sufficient reserves, if any, required under generally accepted
accounting principles with respect to such items.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
such Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection within its business shall be made.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
each Subsidiary to maintain and preserve, all of its properties necessary or
useful in the proper conduct of its business, in repair, working order and
condition adequate for the conduct of the business of the Company as currently
conducted, ordinary wear and tear excepted.
(g) COMPENSATION. Prepare and submit to, and obtain the approval of,
the Compensation Committee of the Board of Directors (which shall consist of not
more than three members of the Board of Directors and of which one director
designated by Investors will be a member, one member of management will be a
member and the third member will be a director not employed by the Company and
not directly related to Investors) a compensation policy for its officers, which
shall contain guidelines for reasonable levels of salary and other employment
benefits, and which shall be periodically updated, and comply with such
compensation policy in making all compensation offers to new officers and
compensation changes to existing officers, of which all cash compensation and
equity compensation offers or changes shall be subject to the approval of the
Board of Directors.
(h) NEW DEVELOPMENTS. Cause all material technological or other
proprietary developments, inventions, discoveries or improvements by the
Company's or any Subsidiary's employees to be fully documented in accordance
with the prevailing appropriate industrial
22
professional standards, cause all Key Employees and consultants of the Company
and each Subsidiary to execute appropriate patent assignment agreements to the
Company and, where possible and appropriate, in the judgment of the Board of
Directors, to file and prosecute United States and foreign patent applications
relating to and protecting such developments on behalf of the Company or such
Subsidiary.
(i) BUDGETS AND BOARD APPROVAL. Prior to the commencement of each
fiscal year, prepare and submit to, and obtain the approval of a majority of the
Board of Directors of a budget and operating plan for the upcoming fiscal year,
including projections or forecasts of capital and operating expenses, cash flow,
and profits and losses, all itemized in reasonable detail and obtain the
approval of such budget and plan not more than sixty (60) days following the end
of the prior fiscal year.
(j) EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT. Use its best
efforts to cause each officer, Key Employee, consultant and other personnel,
including employees, agents and contractors who have contributed to or
participated in the conception and development of the intellectual property on
behalf of the Company and all employees now or hereafter employed by the Company
or any Subsidiary promptly to execute an agreement substantially in the form of
EXHIBIT 5.1J hereto or in a form approved by the Board of Directors.
------------
(k) FINANCINGS. Promptly, fully and in detail, inform the Board of
Directors in advance of any commitments or contracts relating to financing of
any nature in which the Company pledges corporate assets, other than under
purchase money security interests secured only by the assets purchased with such
financing in the ordinary course of business.
(l) BOARD OF DIRECTORS; INDEMNIFICATION. The Board of Directors shall
consist of up to seven (7) directors. Summit Ventures IV, L.P. shall have the
right to appoint one designee to be elected to the Board, Crosspoint Venture
Partners 1993 shall have the right to appoint one designee to the Board and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have the right to designate three designees to be elected
to the Board, each designee being subject to the then existing Board of
Directors approval all pursuant to the Stockholders' Agreement attached hereto
as EXHIBIT 2.4F. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall be elected to the Board of Directors as
------------
Chairman of the Board. At such time as a Chief Executive Officer is appointed,
such officer shall be elected to the Board of Directors. The certificate of
incorporation or bylaws of the Company shall at all times provide for the
indemnification of the Board of Directors to the full extent provided by the law
of the jurisdiction in which the Company is organized and the Company shall
enter into an Indemnity Agreement with each Investor and the Investors' designee
in the form set forth in EXHIBIT 2.4J. The Company shall use all commercially
------------
reasonable efforts to obtain and maintain directors and officers liability
insurance with coverage and premium levels consistent with policies carried by
companies of similar size. The Company shall pay for reasonable travel and
living expenses of the members of the Board of Directors who are not employees
of the Company in attending meetings of the Board of Directors and committees
thereof and in conducting other business on behalf of the Company.
(m) RECRUITMENT OF CHIEF EXECUTIVE OFFICER. The Company shall use its
best efforts to recruit a Chief Executive Officer as soon as possible. The
Company shall establish an Executive Search Committee in connection with its
search and the Executive Search Committee shall be chaired by ▇▇. ▇▇▇▇▇▇▇ and
the Investors' designee shall be on such committee. The candidate for Chief
Executive Officer chosen by the Executive Search Committee shall be acceptable
to the
23
Investors, ▇▇. ▇▇▇▇▇▇▇ and Mr. Nam prior to final appointment as the Chief
Executive Officer; provided, however, if the Company has not hired such Chief
Executive Officer by September 30, 1996, then the Designated Representative will
have the sole discretion to hire such officer.
5.2 NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, after
the Closing and for so long as shares of Preferred Stock remain outstanding but
no longer than such date as a Qualified Public Offering has closed it will not
without the consent of the Designated Representative take the actions contained
in the following covenants and provisions, and will cause each Subsidiary to not
without the consent of the Designated Representative take actions contained in
the following covenants and provisions as are applicable to such Subsidiary, and
will not, without the approval of holders of 66.6% of the Series A Preferred
Stock, amend or revise any terms of this Section 5.2:
(a) MERGER, SALE OF ASSETS, ETC. Merge or consolidate with, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions), a material portion
of its assets (whether now owned or hereinafter acquired) to any Person, or
permit any Subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business and except that (1)
any Wholly-Owned Subsidiary may merge into or consolidate with or transfer
assets to any other Wholly-Owned Subsidiary, (2) any Wholly-Owned Subsidiary may
merge into or transfer assets to the Company, and (3) the Company may merge any
Person into it or otherwise acquire such Person so long as the Company is the
surviving entity, the holders of voting stock of the Company immediately prior
to such merger are the holders of more than 50% of the Company immediately
following such merger, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition. The foregoing shall not
prohibit the Company or any Subsidiary from pledging or granting a security
interest in a material portion of its assets, provided that such transaction has
been approved by the Board of Directors of the Company.
(b) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Create any Subsidiary
that is not a Wholly-Owned Subsidiary, sell or otherwise dispose of any shares
of capital stock of any Subsidiary, except to the Company or another Subsidiary,
or permit any Subsidiary to issue, sell or otherwise dispose of any shares of
its capital stock or the capital stock of any Subsidiary except to the Company
or another Subsidiary; provided, however, that nothing herein contained shall
prevent any merger, consolidation or transfer of assets permitted by subsection
5.2(a).
(c) DEALINGS WITH AFFILIATES AND OTHERS. Except that the Company may
renew its lease of the real property including the Company's principal executive
offices at a then fair market rental and other market terms and conditions,
enter into any transaction, including, without limitation, any loans or
extensions of credit or royalty agreements, with any officer or director of the
Company or any officer or director of any Subsidiary or holder of any class of
capital stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlled by
one or more of such officers, directors or stockholders or members of their
immediate families (other than any such transactions in the ordinary course of
business which are in an amount not in excess of $10,000, loans for purchases of
Company securities by employees, officers, directors or consultants and housing
loans to officers and directors, so long as approved by a majority of the
disinterested members of the Board of Directors).
24
(d) CHANGE IN NATURE OF BUSINESS. Make, or permit any Subsidiary to
make, any material change in the nature of its business as carried on at the
date hereof or as contemplated in written materials delivered to Investors prior
to the date hereof.
(e) DIVIDENDS. (i) Prior to a Qualified Public Offering, or (ii)
while the Preferred Stock is outstanding, declare or pay any dividends on any
class of the Company's or any Subsidiary's capital stock now or hereafter
outstanding (other than dividends on the Preferred Stock, dividends payable in
Common Stock or dividends payable by any Subsidiary either to the Company or to
another Subsidiary that is the parent of the paying Subsidiary), or purchase,
redeem (other than pursuant to the Redemption Agreement or the Escrow Agreement)
or otherwise acquire or retire any of the Company's or any Subsidiary's capital
stock of any class now or hereafter outstanding or otherwise return capital or
make distributions of assets to stockholders as such, other than (a) the
repurchase of capital stock of the Company or any Subsidiary pursuant to a
Stockholders' Agreement by and among Investors and certain other stockholders of
Investors, (b) repurchases of capital stock under other stock agreements
referred to in the Disclosure Letter and (c) repurchases of capital stock under
other agreements providing for the repurchase of Company stock from employees,
officers, directors or consultants on termination of their relationship with the
Company.
(f) AGREEMENTS WITH EMPLOYEES FOR THE PURCHASE OF SECURITIES. Without
approval of a majority of the disinterested members of the Board of Directors,
accelerate or terminate the vesting schedules under which restrictions on
transfer of capital stock of the Company lapse over a period of time with
respect to capital stock held by employees, officers or directors of the
Company, increase the number of shares currently available for exercise under
the Company's stock option plan or otherwise, or issue, sell or exchange, agree
to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange to officers, employees and/or consultants shares of Common Stock, or
options exercisable therefor, or options exercisable therefor, including options
outstanding on the date of this Agreement, (such number to be equitably adjusted
in the event of any stock split, combination, reclassification or other similar
event occurring on or after the date of this Agreement) except as issued at fair
market value, or granted with an exercise price equal to fair market value, at
the time of issuance or grant, to officers, employees or consultants of the
Company and any Subsidiary.
(g) ISSUANCES OF SECURITIES AND EMPLOYEE STOCK OPTIONS. Issue, sell
or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange, (i) any equity security of the Company senior to or
on a parity with the Preferred Stock, (ii) any debt security of the Company that
by its terms is convertible into or exchangeable for any equity security of the
Company, or (iii) any option, warrant or other right to subscribe for, purchase
or otherwise acquire any equity security senior to or on a parity with the
Preferred Stock or any such debt security, except for (x) Common Stock issued as
a stock dividend to holders of Common Stock or upon any subdivision or
combination of shares of Common Stock, or (y) shares of Common Stock (or options
to purchase such stock) issued pursuant to stock plans or arrangements approved
by the Investors Designated Representatives.
5.3 REPORTING REQUIREMENTS. The Company will furnish the following to
each holder of the Preferred Stock and each holder who owns of record or
beneficially or has the right to acquire from the Company any Common Stock
pursuant to conversion of the Preferred Stock:
25
(a) as soon as available and in any event within thirty (30) days
after the end of each fiscal month of the Company, Consolidated balance sheets
of the Company and its Subsidiaries as of the end of such month and Consolidated
statements of income and of statements of cash flow of the Company and its
Subsidiaries for the period ending with such month, setting forth in each case
in comparative form the corresponding figures for the corresponding period of
the prior fiscal year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief executive officer or chief financial
officer of the Company as having been prepared in accordance with generally
accepted accounting principles consistently applied except for a lack of
customary year end disclosures and year end adjustments;
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year and consolidated statements of income and retained earnings and
of statements of cash flow of the Company and its Subsidiaries for such fiscal
year, setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, all duly certified by a "Big Six" independent
public accounting firm selected by the Company's Board of Directors;
(c) at the time of delivery of each monthly and annual statement, a
certificate, executed by the chief executive officer or chief financial officer
of the Company in the case of monthly statements, and the Company's independent
public accountants in the case of annual statements, stating that such officer
or accountants, as the case may be, has caused Sections 5.1(a) (insofar as it
relates to payment of federal and state income taxes), 5.2(b), 5.2(c), 5.2(f)
and 5.2(g) to be reviewed and has no knowledge of any default by the Company or
any Subsidiary in the performance or observance of any of the provisions of this
Agreement or, if such officer or accountant has such knowledge, specifying such
default and the nature thereof;
(d) promptly upon the request of any holder of at least 337,500 shares
of the Preferred Stock; any written report submitted to the Company by
independent public accountants in connection with an annual or interim audit of
the books of the Company and its Subsidiaries made by such accountants;
(e) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, materially
affecting the Company and the Subsidiaries when considered as a whole;
(f) at least thirty (30) days prior to the commencement of each fiscal
year of the Company, a copy of the initial operating plan and budget provided
for in Section 5.1(i);
(g) to any holder of at least 337,500 shares of Preferred Stock; upon
request,copies of all materials provided to the committees of the Board of
Directors, and to any such holder or Person who is not a member of the Board of
Directors copies of all materials provided to the Board of Directors;
(h) promptly after sending, making available, or filing the same, all
reports and financial statements that the Company or any Subsidiary sends or
makes available to the stockholders
26
of the Company or for documents publicly filed with the Securities and Exchange
Commission under the Exchange Act; and
(i) to any holder of at least 337,500 shares of the Preferred Stock;
upon request, copies of all materials provided to the committees of the Board of
Directors, and to any such holder or Person who is not a member of the Board of
Directors copies of all materials provided to the Board of Directors; all other
information respecting the business, properties or the condition or operations,
financial or otherwise, of the Company or any of its Subsidiaries that any
Investor may from time to time reasonably request.
Any person receiving the information distributed pursuant to
subsections (g) and (i) above agrees to hold such information in confidence to
the same extent that would be required of a member of the Company's Board of
Directors.
5.4 CONFIDENTIALITY. Any confidential information obtained by any holder
of the Subordinated Notes or the Preferred Stock pursuant to this Agreement
shall be treated as confidential and shall not be used other than as otherwise
contemplated hereby or disclosed to a third party without the consent of the
Board of Directors, except that such information shall not be deemed
confidential for the purpose of enforcement of this Agreement or valuation of
the Preferred Stock or Common Stock and except that any such holder may
otherwise disclose such information to its partners if such partners agree to be
bound by the restrictions contained in this Section 5.4. At the request of the
Board of Directors, any Person receiving any information pursuant to this
Agreement shall execute reasonable confidentiality agreements consistent with
this Section 5.4.
ARTICLE 6
OBLIGATIONS PENDING THE CLOSING
Between the date hereof and the Closing, unless this Agreement is
terminated sooner, pursuant to Section 11.2 hereof:
6.1 ACCESS. The Company shall give to Investors and their counsel,
accountants and other authorized representatives from and after the date of
execution of this Agreement, on prior request therefor from Investors or such
representatives, such access to the premises, employees, agents and consultants
of the Company, and such copies of the Company's financial statements, books and
records, and contracts and leases and other documentation, so as to enable
Investors to inspect and evaluate all aspects of the business and operations,
assets, operating results, financial condition, future prospects,
capitalization, ownership, and legal and regulatory affairs of the Company and
to verify the accuracy of the information heretofore furnished to Investors and
the representations and warranties made in this Agreement, by the Company and
the Stockholders with respect to the foregoing matters. The Stockholders agree
that they will take no action to prevent or delay the Company from furnishing
all information reasonably requested by Investors. Each Investor agrees to
conduct its review in a manner designed to minimize any disruption of the
Company's operations. All information and records obtained by Investors
pursuant to this Agreement shall be maintained as confidential prior to the
Closing and shall not be used other than in evaluating the transactions
contemplated herein or disclosed to any third party prior to the Closing
without the prior written consent of the Company, except (i) in response to
legal process, (ii) to the extent
27
required to comply with applicable law, or (iii) to the extent disclosed to any
bank, finance company or other lender or investor in connection with the
financing of the transactions contemplated by this Agreement. Investors shall
not be obligated to maintain as confidential any information obtained from the
Company which is publicly available, readily available from public sources,
known to it at the time the information was disclosed, or which was rightly
obtained from a third party.
6.2 CONDUCT OF COMPANY'S BUSINESS. Unless the Designated Representative
gives his prior written consent for actions to be taken to the contrary, from
the date of this Agreement and until the Closing or termination of this
Agreement, whichever first occurs, the Company shall, and the Stockholders shall
take no action to prevent or delay the Company from being able to:
(a) OPERATION OF BUSINESS. Operate and conduct the Company's business
and operations diligently and only in the ordinary course of business consistent
with past practices. The Company shall not (i) incur any new indebtedness or
increase the amount due and owing to any lender for borrowed money, or (ii)
increase the compensation or benefits of any employee, independent contractor or
agent or adopt or amend any commission plan or arrangement or any employee
benefit plan or arrangement of any type which results or may result in an
increase in costs or liabilities thereunder of more than $5,000 per month, in
the aggregate, above those existing on the date hereof, or otherwise lend or
advance any sum or extend credit to any employee, director or stockholder or any
of their respective affiliates;
(b) ORGANIZATION. Preserve intact the Company's organization and use
its reasonable best efforts to retain all employees of and consultants to the
Company, commensurate with the requirements of the Company's business;
(c) VENDORS. Use its reasonable best efforts to retain the services
of all vendors, suppliers, agents and consultants used in the Company's
business, commensurate with the requirements of the Company's business;
(d) INSURANCE. Maintain insurance, including liability and errors and
omissions insurance, consistent with past practices and, unless comparable
insurance is substituted therefor or is not generally available to businesses of
the type conducted by the Company, not take any action to terminate or modify,
nor permit the lapse or termination of, the present insurance policies and
coverages of the Company as set forth in the Disclosure Letter;
(e) LAWSUITS, CLAIMS. Promptly notify Investors of, and if requested
by Investors, diligently defend against, all lawsuits, claims, proceedings or
investigations that are, or which any officers of the Company or any of the
Stockholders, as a result of events or circumstances actually known to them, has
reason to believe may be, threatened, brought, asserted or commenced against the
Company or any of its officers or directors, involving or affecting in any way
the Company's business or operations, or any of its assets, or the Shares or the
transactions contemplated hereby; and not settle any action or proceeding which
would materially and adversely affect the Company, its business, financial
condition or operating results and, not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than $25,000
individually or $50,000 in the aggregate which the Company may have against any
other persons, including, without limitation, claims or rights to reimbursement
or payment for services rendered by the Company;
28
(f) CERTAIN CHANGES. Not sell or otherwise dispose, or enter into any
agreement for the sale, of any of its assets or properties, except for sales of
inventory and obsolete equipment in the ordinary course of business and
consistent with past practices, and not permit or allow, or enter into any
agreements providing for or permitting, any of its assets or properties to be
subjected to any mortgage, security interest, pledge, option, lien, charge or
encumbrance other than liens or security interests in existence on the date
hereof and statutory liens to secure taxes that are not yet due and payable, all
of which are listed on the Disclosure Letter;
(g) CONDITION OF ASSETS. Maintain in good working order and
condition, ordinary wear and tear excepted, and in compliance in all material
respects with all applicable laws and regulations, all vehicles, machinery,
equipment, computers, furniture, fixtures, tools, and other tangible assets,
wherever located, that are used, leased or owned by the Company;
(h) AGREEMENTS. Observe and perform all terms, conditions, covenants
and obligations contained in all existing agreements between the Company and
third parties the violation of which would have, individually or in the
aggregate, a material adverse effect on the Company or its business, financial
condition, operating results or future prospects; and, except as required by any
existing agreements, not enter into any new agreements or transactions, or incur
any expenditures, liabilities or obligations, involving more than $25,000
individually or $50,000 in the aggregate, or renew, extend, amend or modify any
existing agreement involving any commitments, obligations, liabilities or
requiring any expenditures that would exceed $25,000 individually or $50,000 in
the aggregate; not take any action which would cause a breach or violation of or
default under any material agreement, lease, contract, or other written
instrument, commitment or arrangement, or under any permit, license, franchise,
judgement, writ or order, applicable to or affecting the Company or its
business, and promptly notify the Investors in writing of the occurrence of any
such breach or default; and not enter into any transaction with any stockholder,
director or officer or any person or entity related to or affiliated with any
such person;
(i) TAXES. Pay, when due, and prior to the imposition or assessment
of any interest, penalties or liens by reason of the non-payment of, all Taxes
(as defined in Section 4.1(o)(v) hereof) assessed against the Company, any of
its assets or its operations;
(j) DIVIDENDS, ETC. Except as contemplated by this Agreement not:
(i) declare or pay any dividends or make any distributions with respect to or
redeem any shares of the Company's capital stock; (ii) accelerate the payment of
or prepay any indebtedness or other obligations of the Company; (iii) approve or
effect any reclassification or recapitalization of the Company or its authorized
or outstanding shares; (iv) merge or consolidate the Company with or sell any of
its assets to a third party other than sales of assets in the ordinary course of
business and consistent with past practices; (v) approve or commence any
proceedings for the liquidation of the Company; or (vi) enter into any agreement
to do any of the foregoing;
(k) CORPORATE MATTERS. Except as expressly provided herein, not: (i)
amend in any manner the Certificate of Incorporation or Bylaws of the Company;
(ii) alter the composition or membership of the Company's Board of Directors;
(iii) except shares purchased upon exercise of outstanding options, authorize or
issue any shares of capital stock of any class or series; (iv) create or issue
any warrants, obligations, subscriptions, options, convertible securities or
other commitments under which any additional shares of the capital stock of any
class or other equity
29
securities of the Company may be directly or indirectly authorized, issued or
transferred; or (v) agree to do any of the above; and
(l) LIABILITIES AND EXPENSES. Not create or incur (whether as
principal, surety or otherwise) any actual or contingent liabilities or expenses
other than liabilities and expenses incurred in the ordinary course of business
consistent with past practices.
6.3 CONSENTS. Each party to this Agreement shall use its reasonable best
efforts to obtain or cause to be obtained at the earliest practicable date, and
prior to the Closing, all consents, approvals and licenses, if any, which such
party requires to permit it to consummate the transactions contemplated hereby
without violating any material agreement, contract, instrument or applicable law
or regulation, license or permit, to which it is a party or to which it or its
assets are subject. The parties hereto shall cooperate with each other in their
efforts to obtain all such consents, approvals and licenses.
6.4 NOTICE OF BREACH. Each party to this Agreement will immediately give
notice to the other parties of the occurrence of any event, or the failure of
any event to occur, that results in a breach by it of any representation or
warranty or a failure by it to comply with or fulfill any covenant, condition or
agreement contained herein.
6.5 TRANSFER OF SHARES. The Stockholders shall have the right to transfer
some or all of the Shares to a corporation, partnership, limited liability
company, foundation, trust or other entity or arrangement controlled by them or
any of them, provided the transferee accepts all of the transferring
Stockholder's obligations hereunder (and obtains the benefit of all
Stockholders' limitations of liability set forth hereunder) and the transferring
Stockholder remains liable for performance of his, her or its obligations
hereunder.
ARTICLE 7
OBLIGATIONS AT THE CLOSING
7.1 EXCLUSIVITY/OTHER OFFERS. Unless and until this Agreement has been
terminated in accordance with Section 11.2 below, neither the Investors, the
Company nor the Stockholders, nor any of their respective representatives,
agents, officers, directors, stockholders, partners or employees, will solicit
or accept offers from, provide information or assistance to, or negotiate or
enter into any agreement or understanding (written or oral) with, any other
person or entity regarding (i) the sale, merger, initial public offering or
reorganization of the Company; (ii) the sale or other disposition of, or the
granting of any security interest, lien or encumbrance on, any of the Shares; or
(iii) any other transaction which would cause or result in any change, other
than of an immaterial nature, in or adversely affect the business or the
Preferred Stock or otherwise interfere with the consummation of the transactions
contemplated herein.
7.2 OTHER DELIVERIES. At the Closing, the parties hereto shall also
execute and deliver all agreements and instruments referred to in Articles 2, 3
and otherwise provided herein.
30
ARTICLE 8
RIGHT TO PARTICIPATE IN FINANCINGS
8.1 RIGHT OF PARTICIPATION. Until the Company has completed a Qualified
Public Offering, the Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, for
cash or cash equivalents (i) any shares of Common Stock, (ii) any other equity
security of the Company, including, without limitation, shares of Preferred
Stock, (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity security of the Company, or (iv) any Debt
Securities, unless in each such case the Company shall have first received an
unconditional bona fide offer from a third party to purchase such securities
(the "Offered Securities") and shall have offered to sell the Offered Securities
to the Investors as follows: the Company shall offer to sell to the Investors,
as a group, that number of the Offered Securities so that the Investors shall
retain their then existing equity percentage of the Company on a fully diluted
basis. For purposes of making this calculation, the Preferred Stock, and all
other outstanding convertible instruments, and options and warrants to purchase
common stock shall be deemed to be converted or exercised, issued and
outstanding shares of Common Stock of the Company.
The Company shall offer to sell to each Investor (a) that portion of
the Offered Securities as the aggregate number of shares of Common Stock
equivalents, including the Preferred Stock, then held by or issuable to such
Investor bears to the total number of outstanding shares of Common Stock of the
Company, plus all shares of Common Stock issuable upon exercise of warrants or
options or upon conversion of convertible securities of the Company (the "Basic
Amount"); and (b) any additional portion of the Offered Securities as such
Investors shall indicate it will purchase, but not to exceed the aggregate of
all the Basic Amounts should the other Investors subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), at a price and on the other
terms specified by the Company in writing delivered to such Investor (the
"Offer"), and the Offer by its terms shall remain open and irrevocable for a
period of ten (10) days.
8.2 NOTICE OF ACCEPTANCE. Notice of each Investor's intention to accept,
in whole or in part, an Offer made pursuant to Section 8.1 shall be evidenced by
a writing signed by such Investor and delivered to the Company prior to the end
of the ten (10) day period of the Offer, setting forth the portion of the
Investor's Basic Amount that such Investor elects to purchase and, if such
Investor shall elect to purchase all of its Basic Amount, the Undersubscription
Amount that such Investor shall elect to purchase, if any (the "Notice of
Acceptance"). If the securities subscribed for by all Investors in the aggregate
are less than the total of all of the Basic Amounts, then each Investor who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amount subscribed for, the
Undersubscription Amount it has subscribed for; PROVIDED HOWEVER, that should
the Undersubscription Amounts subscribed for exceed the difference between the
Basic Amounts and the aggregate amount of the securities subscribed for (the
"Available Undersubscription Amount"), each Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Investors bears to the total Undersubscription Amounts subscribed
for by all Investors, subject to rounding by the Board of Directors to the
extent it reasonably deems necessary.
31
8.3 CONDITIONS TO ACCEPTANCE BY INVESTOR.
(a) PERMITTED SALES OF REFUSED SECURITIES. The Company shall have
sixty (60) days from the expiration of the period set forth in Section 8.1 to
sell all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Investors (the "Refused Securities") to the
Person or Persons specified in the Offer, but only upon terms and conditions,
including, without limitation, unit price and interest rates, which are not more
favorable, in unit price and interest rates, in the aggregate, to such other
Person or Persons or less favorable to the Company than those set forth in the
Offer.
(b) REDUCTION IN AMOUNT OF OFFERED SECURITIES. In the event the
Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 8.3(a) above),
then each Investor may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
respective Notice of Acceptance to an amount that shall be not less than the
amount of the Offered Securities that the Investor elected to purchase pursuant
to Section 8.2 multiplied by a fraction, (i) the numerator of which shall be the
amount of Offered Securities the Company actually proposes to sell, and (ii) the
denominator of which shall be the amount of all originally Offered Securities.
In the event that any Investor so elects to reduce the number or amount of
Offered Securities specified in its respective Notice of Acceptance, the Company
may not sell or otherwise dispose of more than the reduced amount of the Offered
Securities until such securities have again been offered to the Investors in
accordance with Section 8.1.
(c) CLOSING. Upon the closing of the sale of securities by the
Company on the terms set forth in the Offer, to such other Person or Persons of
all or less than all the Offered Securities not being purchased by the
Investors, the Investors shall purchase from the Company, and the Company shall
sell to the Investors, the number of Offered Securities specified in the Notices
of Acceptance, as reduced pursuant to Section 8.3(b) if the Investors have so
elected, upon the terms and conditions specified in the Offer.
8.4 FURTHER SALE. In each case, any Offered Securities not purchased by
the Investors or other Persons in accordance with Section 8.3, such Offered
Securities may not be sold or otherwise disposed of until they are again offered
to the Investors under the procedures specified in Section 8.1, 8.2 and 8.3.
8.5 EXCEPTIONS. The rights of the Investors under this Article 8 shall not
apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock
or upon any subdivision or combination of shares of Common Stock,
(b) issuance of shares of Common Stock, or options exercisable
therefor, including options outstanding on the date of this Agreement (such
number to be equitably adjusted in the event of any stock split, combination,
reclassification or other similar event occurring on or after the date of this
Agreement) issuable to officers, directors or employees of the Company and any
Subsidiary pursuant to any stock option agreement or plan or stock purchase
agreement or plan approved by a vote of not less than a majority of the
disinterested members of the Board of Directors of the Company,
32
(c) issuance of any shares of Common Stock in connection with an
acquisition or merger by the Company, or
(d) shares sold in a Qualified Public Offering.
8.6 ASSIGNMENT OF RIGHTS. An Investor may assign its rights hereunder in
connection with any transfer of the Preferred Stock. In addition, in the event
that the Company shall offer to sell any Offered Securities to the Investors
pursuant to the provisions of this Article 8, any Investor may assign its rights
to any Person, and such Person shall thereupon have all rights and obligations
of an Investor under this Article 8 with respect to such Offered Securities.
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in this Agreement or any other
instrument or document delivered in connection herewith or therewith, shall
survive for a period commencing on the date of Closing and continuously for the
shorter of one year or the closing of a Qualified Public Offering with the
exception of (i) the representations and warranties made by the Investors in
Section 1.3, which shall survive indefinitely; (ii) the representations and
warranties made by the Company in Section 4.1(f) which shall survive
indefinitely; (iii) the representations and warranties made by the Company in
Section 4.1(o) and by the Stockholders in Section 4.2(h) shall survive four
years from the Closing Date; and (iv) the representations and warranties made by
the Stockholders in Section 4.2(b), which shall survive indefinitely.
Notwithstanding anything to the contrary in this Article 9 or elsewhere in
this Agreement, the Investors acknowledge and agree as follows:
(a) In any claim for breach of any representation or warranty which
may be brought against both the Company and the Stockholders, the Investors
shall proceed first against the Company, and only upon the exhaustion of actions
against the Company shall be Investors bring such claim against the
Stockholders;
(b) No Stockholder shall be liable for the breach of any
representation or warranty given to the Investors by any other Stockholder in
Section 4.2(b) hereof;
(c) The Stockholders shall be severally but not jointly liable for a
breach of any other of the representations and warranties of Section 4.2 other
than Section 4.2(b), provided, however, that each Stockholder shall only be
liable for the breach of such representation or warranty to the extent of his or
her pro rata share of the proven damages for such breach, such proration based
upon such Stockholder's ownership of the outstanding capital stock of the
Company immediately prior to the consummation of the transactions contemplated
hereby; and
(d) None of the Company or any Stockholder shall be liable for the
breach of any representation or warranty given pursuant to this Agreement unless
and until the aggregate amount of all Investor's losses arising out of such
breach exceed $50,000, whereupon such losses (excluding the first $50,000) may
be recovered; provided that, in any event, the maximum liability of (i) the
33
Company for all such losses shall not exceed $15,000,000, and (ii) any
Stockholder for all such losses shall not exceed the after tax proceeds to such
Stockholder pursuant to the Redemption Agreement (less any recoveries from the
Company).
ARTICLE 10
DEFINITIONS AND ACCOUNTING TERMS
10.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" (and, with a correlative meaning, "Affiliated") shall
----------
mean, with respect to any Person, any other Person that directly, or through one
or more intermediaries, controls or is controlled by or is under common control
with such first Person, and, if such a Person is an individual, any member of
the immediate family of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), and "immediate family" shall mean parents, spouse and
children.
"Agreement" means this Stock Purchase Agreement as from time to time
amended and in effect between the parties.
"Any Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for the
account of the Company.
"Board of Directors" shall mean the then present members of the Board
of Directors of the Company.
"Certificate of Amendment" shall refer to the certificate to be filed
with the Delaware Secretary of State which shall effect the amendment of the
Certificate of Incorporation thereby creating the Preferred Stock, a form of
which is attached hereto as EXHIBIT 1.1B.
------------
"Company" means and shall include Milcom International, Inc., a
Delaware corporation, and its successors and assigns.
"Common Stock" includes (a) the Company's Common Stock, $.0001 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of directors of the Company (even though the right so to vote has
34
been suspended by the happening of such a contingency), and (c) any other
securities into which or for which any of the securities described in (a) or (b)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Consolidated" when used with reference to any term defined herein
shall mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Debt Securities" means and includes (i) any debt security of the
Company that by its terms is convertible into or exchangeable for any equity
security of the Company that is a combination of debt and equity, or (ii) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any such debt security of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal Agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities,
excluding any liabilities in respect of deferred federal or state income taxes,
but in any event including, without limitation, liabilities secured by any
mortgage on property owned or acquired subject to such mortgage, whether or not
the liability secured thereby shall have been assumed, and also including,
without limitation, (i) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be so reflected in said balance sheet, except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business and (ii) the present value of any lease payments
due under leases required to be capitalized in accordance with applicable
Statements of Financial Accounting Standards, determined by discounting all such
payments at the interest rate determined in accordance with applicable
Statements of Financial Accounting Standards.
"Investors" means and shall include the persons listed on EXHIBIT 1.1A
------------
hereto.
"Key Employee" means and includes the Chairman of the Board of
Directors, the President, any Vice-President, Chief Technical Officer and the
Chief Financial Officer of the Company or any Subsidiary, or any person who is
not an officer of the Company or any Subsidiary and is in charge of one or more
of the following functions: sales, marketing, production, or engineering and
technical development or any other position or employee so designated by the
Board of Directors of the Company or any employee with access to the
confidential information of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock for the
account of the Company from which the aggregate net proceeds
35
to the Company exceed $15,000,000 and in which the price per share is at least
$8.886519 per share (such amount to be equitably adjusted whenever there shall
occur a stock split, combination, reclassification or other similar event
affecting the Common Stock).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Securities Act) thereunder, all as the same shall be in effect at the time.
"Series A Preferred Stock" or "Preferred Stock" means the Series A
Preferred Stock of the Company as it exists following the filing of the
Certificate of Amendment.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more of
the outstanding voting stock of which shall at the time be owned by the Company
or by one or more Subsidiaries, or any other entity or enterprise, 50% or more
of the equity of which shall at the time be owned by the Company or by one or
more Subsidiaries.
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" means any
corporation, 100% of the outstanding voting stock of which shall at the time be
owned by the Company or by one or more Wholly-Owned Subsidiaries, or any other
entity or enterprise, 100% of the equity of which shall at the time be owned by
the Company or by one or more Wholly-Owned Subsidiaries.
10.2 ACCOUNTING TERMS.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles, and all
other financial data submitted pursuant to this Agreement shall be prepared and
calculated in accordance with such principles.
ARTICLE 11
MISCELLANEOUS
11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of any
Investor, or any other holder of the Preferred Stock in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
11.2 TERMINATION. This Agreement may be terminated prior to the Closing (i)
by the mutual consent of the parties hereto; (ii) by the Stockholders if there
has been a material misrepresentation or material breach on the part of
Investors in the representations and warranties of Investors set forth herein,
which, if curable, has not been cured within 10 business days after notice
thereof by Stockholders; (iii) by Investors if there has been a material
misrepresentation or material breach on the part of the Company or the
Stockholders in the representations, warranties and covenants of Stockholders or
the Company set forth herein, which, if curable, has not been cured within 10
business days after notice thereof by Investors; (iv) by the Company and
36
Stockholders upon delivery to Investors of a written notice if any event occurs
which renders impossible of satisfaction one or more of the conditions to the
Stockholders' and the Company's obligations contained in Article 3 hereof and
noncompliance is not waived by the Stockholders and the Company; (v) by
Investors upon delivery to the Stockholders and the Company of a written notice
if any event occurs which renders impossible of satisfaction one or more of the
conditions to Investors' obligations contained in Article 2 hereof and
noncompliance is not waived by Investors; and (vi) by anyone, if the Closing
does not occur by October 10, 1995 for any reason. Upon termination of this
Agreement, no party shall have any further obligations or liability hereunder.
Sections 11.2, 11.3, 11.7, 11.15, and 11.16 alone shall survive the termination
of this Agreement.
11.3 NO LIABILITY.
(a) No Stockholder shall have any obligation or liability with respect
to any of the covenants, obligations, representations or warranties of the
Company contained in this Agreement; and
(b) The Company shall have no obligation or liability with respect to
any of the covenants, obligations, representations or warranties of the
Stockholders contained in this Agreement
11.4 NO STOCKHOLDER RECISION. The Stockholders specifically waive any
rights to rescind any transaction contemplated by this Agreement.
11.5 WAIVERS AND CONSENTS. Any provision in this Agreement to the contrary
notwithstanding, changes in or additions to this Agreement may be made, and
compliance with any covenant or provision herein or therein set forth may be
omitted or waived, if the Company shall obtain consent thereto in writing from a
majority in interest of the Stockholders and from the Designated Representative.
Any waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
11.6 ADDRESSES FOR NOTICES, ETC. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing and
delivered personally or sent by telecopier, Federal Express or registered or
certified mail, postage prepaid, addressed as follows:
If to the Stockholders, to:
c/o ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the Investors, to: the name and address set forth on EXHIBIT 1.1A hereto.
------------
with a copy to: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
37
If to the Company, to: Milcom International, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
11.7 COSTS, EXPENSES AND TAXES. The Company shall pay on demand all costs
and expenses of Investors in connection with the investigation, preparation,
execution and delivery of this Agreement, the Preferred Stock and other
instruments and documents to be delivered hereunder and the transactions
contemplated hereby and thereby, including the fees and out-of-pocket expenses
of Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel for Investors which amount shall
not exceed $50,000. After the Closing and for so long as the Preferred Stock
remains outstanding,the Company shall pay the reasonable fees and out-of-pocket
expenses of legal counsel, independent public accountants and other outside
experts reasonably retained by Investors in connection with the amendment or
enforcement of this Agreement and other instruments and documents to be
delivered hereunder or thereunder; provided, however, that if the transactions
contemplated by this Agreement are not completed for any reason, then the
Company shall not be responsible to pay any costs and expenses of Investors in
connection with the investigation, preparation, execution and delivery of this
Agreement and other instruments and documents to be delivered hereunder and the
transactions contemplated hereby and thereby and the Investors and Investors
shall not be responsible to pay any costs and expenses of the Company or the
Stockholders in connection with the investigation, preparation, execution and
delivery of this Agreement, the Securities and other instruments and documents
to be delivered hereunder and the transactions delivered hereby and thereby. In
addition, if the Closing occurs, the Company shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Preferred Stock and other instruments and
documents to be delivered hereunder or thereunder and agrees to save Investors
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and filing fees.
11.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Stockholders and Investors and their
respective successors and assigns, except that no party shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the other parties.
11.9 PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
38
11.10 SEVERABILITY. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
11.11 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
11.12 HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
11.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.14 FURTHER ASSURANCES. From and after the date of this Agreement, upon
the request of the Investors, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Securities.
11.15 INDEPENDENT COUNSEL. The Company has been represented by Paul,
Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ in the negotiation and execution of this Agreement
and has relied on such counsel with respect to any matter relating hereto. The
Stockholders have been invited to have their own counsel review and negotiate
this Agreement and each Stockholder has obtained his or her own counsel or has
elected not to obtain counsel.
11.16 CONFIDENTIALITY. Until the date of Closing, any information
relating to the terms of this Agreement and the transactions contemplated hereby
shall be treated as confidential and shall not be disclosed, by any of the
parties hereto, to a third party without the consent of the Board of Directors
of the Company and the mutual consent of the Investors.
11.17 PRESS RELEASE. No party hereto shall release a press release
relating to this Agreement or any of the transactions or documents contemplated
hereby without first submitting a copy of such press release to the other
parties hereto and obtaining the prior approval of such other parties to any
such press release, which approval shall not be unreasonably withheld.
39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MILCOM INTERNATIONAL, INC., a Delaware
corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
STOCKHOLDERS
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ Ki Nam
-----------------------------------------
Ki Nam
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. Doi
-----------------------------------------
▇▇▇▇ ▇. Doi
/s/ ▇▇▇▇▇▇ ▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
40
INVESTORS
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., its General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. IV, its General Partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------------
General Partner
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its General Partner
By: Stamps, ▇▇▇▇▇▇▇ & Co. III, its General Partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
----------------------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------------
CROSSPOINT VENTURE PARTNERS
ENTREPRENEURS 1993
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------------
41
EXHIBIT 1.1A
LIST OF INVESTORS
Number of Amount of
Shares of Purchase Price
of Series A for Series A
Investor Name Preferred Stock Preferred Stock
-------------------------------- --------------- ---------------
Summit Ventures IV, L.P. 1,384,570 $ 6,152,003.85
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Summit Ventures III, L.P. 1,384,570 6,152,003.85
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Summit Investors II, L.P. 100,375 445,992.30
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Crosspoint Venture Partners 1993 491,071 2,181,955.92
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Crosspoint Venture Partners 15,314 68,044.08
Entrepreneurs 1993 --------- --------------
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 3,375,900 $15,000,000.00
EXHIBIT 1.5
Number of Number of Total
Stockholders Shares Held Shares Sold Purchase Price
--------------------------------- ----------- ----------- --------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 5,766,000 2,093,058 $7,750,000
Ki Nam
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 1,767,000 641,421 2,375,000
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 139,500 50,639 187,500
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 139,500 50,639 187,500
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 790,500 286,951 1,062,500
▇▇▇▇ ▇. Doi
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 279,000 101,277 375,000
▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 232,500 84,397 312,500
▇▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ 186,000 67,518 250,000