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Exhibit 10.2
PREFERRED STOCK PURCHASE AGREEMENT
CALDERA SYSTEMS, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement') is
made as of the 30TH day of December, 1999, by and between Caldera Systems, Inc.,
a Utah corporation (the "Company"), and each of the persons listed on Schedule A
hereto, each of which is herein referred to as an "Investor".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES B PREFERRED STOCK.
(a) The Company has adopted and filed with the Department of Commerce,
Division of Corporations of the State of Utah Amended Articles of
Incorporation in the form attached hereto as Exhibit A (the "Amended
Articles").
(b) Subject to the terms and conditions of this Agreement, each Investor
agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not
jointly, at the Closing that number of shares of the Company's Series B
Preferred Stock set forth opposite each Investor's name on Schedule A
hereto at a purchase price of $6.00 per share. The Series B Preferred
Stock will have the rights, preferences, privileges and restrictions set
forth in the Amended Articles. The sale of the Series B Preferred Stock
to each Investor shall constitute a separate sale hereunder.
1.2 CLOSING.
(a) The purchase and sale of the Series B Preferred Stock shall take
place at the offices of ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ & ▇▇▇▇▇▇▇▇, at 10:00
a.m. on December 30, 1999, or at such other time and place as the
Company and Investors shall mutually agree, either orally or in writing
(which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each Investor a
certificate representing the shares of Series B Preferred Stock that
such Investor is purchasing against payment of the purchase price
therefor by check, wire transfer or such other form of payment as shall
be mutually agreed upon by such Investor and the Company.
1.3 SUBSEQUENT SALE OF SERIES B PREFERRED STOCK.
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If less than all of the authorized number of shares of Series B
Preferred Stock are sold at the Closing, then, subject to the terms and
conditions of this Agreement, the Company may sell, on or before January
10, 2000, up to the balance of the authorized but unissued Series B
Preferred Stock to such persons as the Board of Directors of the Company
may determine at the same price per share as the Series B Preferred
Stock purchased and sold at the Closing. Any such sale shall be made
upon the same terms and conditions as those contained herein, and such
persons or entities shall become parties to this Agreement and all
Ancillary Agreements, and shall have the rights and obligations of an
Investor hereunder and thereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ITS SUBSIDIARIES.
Each of the Company and its Subsidiaries hereby represents and warrants
to each Investor that as of the date of this Agreement, except as set forth on a
Schedule of Exceptions attached hereto, specifically identifying the relevant
subparagraph(s) hereof, which exceptions shall be deemed to be representations
and warranties as if made hereunder:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION.
The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Utah, has all
requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as now conducted and
as presently proposed to be conducted, to execute and deliver this
Agreement, and any other agreement to which the Company is a party, the
execution and delivery of which is contemplated hereby (the "Ancillary
Agreements"), to issue and sell the Series B Preferred Stock and the
Common Stock issuable upon conversion thereof, and to carry out the
provisions of this Agreement, the Amended Articles and any Ancillary
Agreement. The Company is duly qualified and is authorized to transact
business and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on its business, properties, prospects or financial
condition.
2.2 AUTHORIZATION.
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, and any Ancillary Agreement, the
performance of all obligations of the Company hereunder and thereunder
at the Closing and the authorization, issuance (or reservation for
issuance), sale and delivery of the Series B Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion thereof has been
taken or will be taken prior to the Closing, and this Agreement, and any
Ancillary Agreement, when executed and delivered, will constitute valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms except (i) (as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
sale of the Series B Preferred Stock is not and the subsequent
conversion of the Series B Preferred Stock into Common Stock will not be
subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with.
2.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
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The Series B Preferred Stock that is being purchased by the
Investors hereunder, when issued, sold and delivered in accordance with
the terms of this Agreement for the consideration expressed herein, will
be duly and validly issued, fully paid and non-assessable, and will be
free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series B
Preferred Stock being purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance in accordance with the
terms of the Amended Articles, will be duly and validly issued, fully
paid and non-assessable, and will be free of restrictions on transfer
other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
2.4 GOVERNMENTAL CONSENTS
No consent, approval, qualification, order or authorization of,
or filing with, any local, state or federal governmental authority is
required on the part of the Company or any of its Subsidiaries in
connection with the Company's valid execution, delivery or performance
of this Agreement, the offer, sale or issuance of the Series B Preferred
Stock by the Company or the issuance of Common Stock upon conversion of
the Series B Preferred Stock, except (i) the filing of the Amended
Articles with the Department of Commerce, Division of Corporations,
State of Utah, and (ii) such filings as have been made prior to the
Closing, except any notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities
Act of 1933, as amended (the "Securities Act"), or such post-closing
filings as may be required under applicable state securities laws, which
will be timely filed within the applicable periods therefor.
2.5 CAPITALIZATION AND VOTING RIGHTS.
The authorized capital of the Company consists, or will consist
immediately prior to the Closing, of:
(a) Preferred Stock. 25,000,000 shares of Preferred Stock, no par value,
of which 6,596,146 shares have been designated Series A Preferred Stock,
all of which are issued and outstanding, and 5,000,000 shares have been
designated Series B Preferred Stock, up to all of which may be sold
pursuant to this Agreement. The rights, privileges and preferences of
the Series A and Series B Preferred Stock are as stated in the Amended
Articles.
(b) Common Stock. 75,000,000 shares of common stock, no par value
("Common Stock"), of which 26,744,050 shares are issued and outstanding.
(c) The outstanding shares of Series A Preferred Stock and Common Stock
are owned by the stockholders and in the numbers specified in Exhibit B
hereto.
(d) The outstanding shares of Series A Preferred Stock and Common Stock
have been duly authorized and validly issued, are fully paid and
non-assessable, and were issued in accordance with the registration or
qualification provisions of the Securities Act and any relevant state
securities laws or pursuant to valid exemptions therefrom. The shares of
Series B Preferred Stock issuable pursuant to this Agreement have been
duly authorized and, upon issuance in compliance with the terms of this
Agreement following receipt of the consideration required hereby, will
be validly issued and is fully paid and non-assessable. The Common Stock
issuable upon the conversion of the Series B Preferred Stock purchased
under this Agreement has been duly and
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validly reserved for issuance and, when issued in accordance with the
Amended Articles, will be validly issued, fully paid and non-assessable.
(e) Except for (i) the Series A Preferred Stock and Series B Preferred
Stock and the rights of the holders thereof, (ii) the rights of the
Investors and other parties pursuant to this Agreement and the Ancillary
Agreements, (iii) currently outstanding and non-expired options to
purchase 5,288,882 shares of Common Stock granted to present or former
employees and directors of the Company pursuant to the Company's 1998
Stock Option Plan and 1999 Omnibus Stock Incentive Plan (collectively,
the "Option Plans"), and (iv) rights that have been duly waived with
respect to the transactions contemplated by the Agreements, (A) there
are no subscriptions, preemptive rights, options, convertible
securities, warrants, conversion privileges or other rights (or
agreements for any such rights, contingent or otherwise) outstanding to
purchase or otherwise obtain any of the Company's capital stock, (B) the
Company has no obligation (contingent or otherwise) to issue
subscriptions, preemptive rights, options, convertible securities,
warrants, conversion privileges or other rights or to issue or
distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company, and (C) the Company has no
obligation (contingent or otherwise) to purchase, redeem, or otherwise
acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any distribution in respect thereof. In
addition to the aforementioned options, the Company has reserved an
additional 1,380,731 shares of its Common Stock for purchase upon
exercise of options to be granted in the future under the Option Plans.
No stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity
securities of the Company or rights to purchase equity securities of the
Company provides for acceleration or other changes in the vesting
provisions or other terms of such securities, as the result of any
merger, sale of stock or assets, change in control or other similar
transaction by the Company except at the discretion of the Board of
Directors. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge after due
inquiry, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company. For
purposes of this Agreement, "due inquiry" shall mean inquiry of the
officers and directors of the Company and those management-level
employees of the Company who have responsibility for the area of
inquiry.
2.6 SUBSIDIARIES.
The Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability
company, association or other business entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
2.7 CONTRACTS AND OTHER COMMITMENTS.
Neither the Company nor any of its Subsidiaries has and or is bound by
any contract, agreement, lease, commitment, or proposed transaction,
judgment, order, writ or decree, written or oral, absolute or
contingent, other than (i) contracts for the purchase of supplies and
services that were entered into in the ordinary course of business and
that do not involve more than $50,000 in the aggregate from any
individual vendor or supplier, and do not extend for more than one (1)
year beyond the date hereof, (ii) sales contracts entered into in the
ordinary course of business, and (iii) contracts terminable at will by
the Company on no more than thirty (30) days' notice without cost or
liability to the Company or such Subsidiary and that do not involve any
employment or consulting arrangement and are not material to the conduct
of the Company's or such
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Subsidiary's business. For the purpose of this paragraph, employment and
consulting contracts and license agreements and any other agreements
relating to the Company's or any Subsidiary's acquisition or disposition
of Intellectual Property (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the
ordinary course of business.
2.8 RELATED-PARTY TRANSACTIONS.
No employee, officer, stockholder or director of the Company or
any of its Subsidiaries or member of his or her immediate family is
indebted to the Company, nor is the Company or any Subsidiary indebted
(or committed to make loans or extend or guarantee credit) to any of
them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of the Company
or such Subsidiary, and (iii) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of
Directors of the Company or such Subsidiary). To the best of the
Company's or such Subsidiary's knowledge after due inquiry, none of such
persons has any direct or indirect ownership interest in any firm or
corporation with which the Company or such Subsidiary is affiliated or
with which the Company or such Subsidiary has a business relationship,
or any firm or corporation that competes with the Company or such
Subsidiary, except that employees, stockholders, officers or directors
of the Company or such Subsidiary and members of their immediate
families may own stock in publicly-traded companies that may compete
with the Company or such Subsidiary. To the best of the Company's or
such Subsidiary's knowledge after due inquiry, no officer, director or
stockholder or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company or such
Subsidiary (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company or such
Subsidiary).
2.9 REGISTRATION RIGHTS.
Except as set forth in the Investor Rights Agreement (as defined
below), the Company is presently not under any obligation and has not
granted any rights to register under the Securities Act any of its
presently outstanding securities or any of its securities that may
subsequently be issued.
2.10 PERMITS.
Each of the Company and its Subsidiaries has all franchises,
permits, licenses, and any similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company or any such Subsidiary, and believes
it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as presently planned to be conducted.
Neither the Company nor any Subsidiary is in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
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2.11 COMPLIANCE WITH OTHER INSTRUMENTS.
Neither the Company nor any Subsidiary is in violation or
default in any material respect of any provision of its Amended Articles
or Bylaws or organization documents or in any material respect of any
provision of any mortgage, indenture, agreement, instrument or contract
to which it is a party or by which it is bound or, to the best of its
knowledge after due inquiry, of any federal or state judgment, order,
writ, decree, statute, rule, regulation or restriction applicable to the
Company or such Subsidiary. The execution, delivery and performance by
the Company of this Agreement and any Ancillary Agreement, and the
consummation of the transactions contemplated hereby and thereby, will
not result in any such violation or be in material conflict with or
constitute, with or without the passage of time or giving of notice,
either a material default under any such provision or any event that
results in the creation of any material lien, charge or encumbrance upon
any assets of the Company or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture, or non-renewal of any material
permit, license, authorization, or approval applicable to the Company or
any of its Subsidiaries, their respective business or operations, or any
of their respective assets or properties.
2.12 LITIGATION.
There is no action, suit, proceeding or investigation pending
or, to the best of the Company's or any of its Subsidiary's knowledge
after due inquiry, currently threatened against the Company or any of
its Subsidiary's that questions the validity of this Agreement, any
Ancillary Agreement or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate,
in any material adverse change in the assets, business, properties,
prospects, or financial condition of the Company or any of its
Subsidiaries, or in any material change in the current equity ownership
of the Company or any of its Subsidiaries. The foregoing includes,
without limitation, any action, suit, proceeding, or investigation
pending or currently threatened involving the prior employment of any of
the Company's or any of its Subsidiaries' employees, their use in
connection with the Company's or such Subsidiary's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers,
or negotiations by the Company or such Subsidiary with potential backers
of, or investors in, the Company such Subsidiary or its proposed
business. Neither the Company nor any of its Subsidiaries is a party to
or, to the best of its knowledge after due inquiry, named in or subject
to any order, writ, injunction, judgment or decree of any court,
government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries
currently pending or that the Company or any of its Subsidiaries
currently intends to initiate.
2.13 RETURNS AND COMPLAINTS.
Neither the Company nor any of its Subsidiaries has received any
customer complaints concerning alleged defects in its products (or the
design thereof) that, if true, would materially adversely affect the
operations or financial condition of the Company or any of its
Subsidiaries.
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2.14 DISCLOSURE.
The Company has provided each Investor with all the information
reasonably available to it without undue expense that such Investor has
requested for deciding whether to purchase the Series B Preferred Stock
and all information that the Company believes is reasonably necessary to
enable such Investor to make such decision. To the best of the Company's
and each of its Subsidiaries' knowledge after due inquiry, neither this
Agreement nor any other agreements, written statements or certificates
made or delivered in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
2.15 CONFIDENTIAL OFFERING MEMORANDUM.
The Confidential Offering Memorandum issued on November 12, 1999
previously delivered to each Investor (the "Memorandum") was prepared in
good faith by the Company and does not, to the best of the Company's and
each of its Subsidiaries' knowledge after due inquiry, contain any
untrue statement of a material fact nor does it omit to state a material
fact necessary to make the statements therein not misleading, except
that with respect to assumptions, projections and expressions of opinion
or predictions contained in the Memorandum, the Company represents only
that such assumptions, projections, expressions of opinion and
predictions were made in good faith and that the Company believes there
is a reasonable basis therefor.
2.16 OFFERING.
Subject, in part, to the truth and accuracy of each Investor's
representations set forth in this Agreement, the offer, sale and
issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of the
Securities Act, and neither the Company, any of its Subsidiaries, nor
any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
2.17 TITLE TO PROPERTY AND ASSETS; LEASES.
Except (i) as reflected in the Financial Statements (defined in
paragraph 2.18), (ii) for liens for current taxes not yet delinquent,
(iii) for liens imposed by law and incurred in the ordinary course of
business for obligations not past due to carriers, warehousemen,
laborers, materialmen and the like, (iv) for liens in respect of pledges
or deposits under workers' compensation laws or similar legislation or
(v) for minor defects in title, none of which, individually or in the
aggregate, materially interferes with the use of such property, each of
the Company and its Subsidiaries has good and marketable title to its
property and assets free and clear of all mortgages, liens, claims and
encumbrances. With respect to the property and assets it leases, each of
the Company and its Subsidiaries is in compliance with such leases and,
to the best of its knowledge after due inquiry, holds a valid leasehold
interest free of any liens, claims or encumbrances, subject to clauses
(i)-(v) above.
2.18 FINANCIAL STATEMENTS.
The Company has delivered to each Investor its audited financial
statements (balance sheet and profit and loss statement, statement of
stockholders' equity and statement of cash flows,
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including notes thereto) at October 31, 1999 and for the fiscal year
then ended (the "Financial Statements"). Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. The
Financial Statements fairly present the financial condition and
operating results of the Company as of the dates, and for the periods,
indicated therein. Except as set forth in the Financial Statements,
neither the Company nor any of its Subsidiaries has any material
liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to October 31,
1999 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial
Statements, which in both cases, individually or in the aggregate, are
not material to the financial condition or operating results of the
Company or any of its Subsidiaries. Except as disclosed in the Financial
Statements, neither the Company nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company and each of its Subsidiaries maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting
principles.
2.19 CHANGES.
Since October 31, 1999, there has not been any event or condition of any
type that has materially and adversely affected the business, properties
or financial condition of the Company or any of its Subsidiaries.
2.20 INTELLECTUAL PROPERTY. To the best of the Company's and its
Subsidiaries' knowledge after due inquiry, the Company, its Subsidiaries and
their products have not infringed and do not infringe the copyrights of any
third party. To the best of the Company's and its Subsidiaries' knowledge after
due inquiry, neither the Company nor its Subsidiaries has misappropriated or is
misappropriating any trade secrets or proprietary confidential information of
any third party, and the products of the Company and its Subsidiaries do not
include or embody any trade secret or proprietary confidential information
misappropriated by the Company or its Subsidiaries from any third party. To the
best of the Company's and its Subsidiaries' knowledge after due inquiry, each of
the Company and its Subsidiaries and their respective products have not
infringed and do not infringe any patents, trademarks, service marks, or trade
names of any third party. Each item of Intellectual Property owned by or
licensed to the Company and its Subsidiaries immediately prior to the Closing
hereunder will be owned by or licensed to the Company and the Subsidiary on
identical terms and conditions immediately subsequent to the Closing hereunder
(i.e., identical to any applicable terms and conditions immediately prior to the
Closing).
(i) To the best of the Company's and its Subsidiaries' knowledge
after due inquiry, none of the Company or its Subsidiaries or their
directors and officers (and employees with responsibility for
Intellectual Property matters) has ever received any charge, complaint,
claim, demand, or notice alleging any such infringement,
misappropriation, or violation by the Company or its Subsidiaries of
Intellectual Property (including any claim that the Company and its
Subsidiaries must license or refrain from using any Intellectual
Property rights of any third party). To the best of the Company's and
its Subsidiaries' knowledge after due inquiry and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company and its Subsidiaries, no third party has
infringed, misappropriated, or otherwise violated any Intellectual
Property rights of the Company and its Subsidiaries.
(ii) The Schedule of Exceptions identifies (a) each patent which
has been issued or assigned to the Company or any of its Subsidiaries,
(b) each pending patent application which has
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been filed by or for the Company or any of its Subsidiaries, (c) each
trademark or service ▇▇▇▇ registration issued or assigned to the Company
or any of its Subsidiaries, (d) each pending trademark or service ▇▇▇▇
application which has been filed by or for the Company or any its
Subsidiaries, (e) each copyright registration issued or assigned to the
Company or any of its Subsidiaries, (f) each pending copyright
application which has been filed by or for the Company or any of its
Subsidiaries, and (g) each license which the Company and its
Subsidiaries has granted to any third party with respect to any of the
Company's Intellectual Property excluding licenses to end users of
Company products granted in the ordinary course of business. The Company
has delivered to the Investors correct and complete copies of all such
patents, registrations, applications, and licenses (as amended to date).
The Schedule of Exceptions also identifies each trade name and each
unregistered trademark or service ▇▇▇▇ owned or claimed by any of the
Company and its Subsidiaries in connection with any of their businesses.
With respect to each patent, application, and registration (each an
"item") identified in the Schedule of Exceptions:
(B) the Company and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of any
Security Interest, license, lien or other encumbrance;
(C) to the best of the Company's and its Subsidiaries'
knowledge after due inquiry, the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(D) to the best of the Company's or its Subsidiaries'
knowledge after due inquiry, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is
pending or, to the best of the Company's or its Subsidiaries'
knowledge after due inquiry, the directors and officers (and
employees with responsibility for Intellectual Property matters)
of the Company and its Subsidiaries, is threatened which
challenges the legality, validity, enforceability, use, or
ownership of the item; and
(E) none of the Company and its Subsidiaries has ever
agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect
to the item.
(ii.) The Schedule of Exceptions identifies each item of
Intellectual Property that any third party owns and licenses to any of
the Company and its Subsidiaries, excluding licenses to commercially
available software products (e.g., Windows, Microsoft Office, etc.) used
by any of the Company and its Subsidiaries as an end user. The Company
has delivered to the Investors correct and complete copies of all
agreements applicable to such licenses (as amended to date). The term
"license" is intended to include "sublicense." With respect to each such
license and agreement required to be identified in the Schedule of
Exceptions, to the best of the Company's or its Subsidiaries' knowledge
after due inquiry;
(A) The license and agreement are legal, valid, binding,
enforceable, and in full force and effect;
(B) The license and agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms on the day immediately following the Closing;
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(C) no party to the agreement is in breach or default,
and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the agreement has repudiated any
provision thereof;
(E) the license is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of
the license or agreement.
(iii.) To the best of the Company's and its Subsidiaries'
knowledge after due inquiry and to the knowledge after due inquiry of
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company and its Subsidiaries,
neither the Company nor any of its Subsidiaries will infringe,
misappropriate, or otherwise violate any Intellectual Property rights of
third parties as a result of the continued operation of its businesses
as presently conducted and as presently proposed to be conducted.
Notwithstanding anything herein to the contrary, to the extent any
representation or warranty, in whole or in part, contained in this Agreement may
be deemed to be breached because of infringement of any Intellectual Property,
such representation or warranty shall be read as if it contained the following
qualification: "To the best of the Company's and its Subsidiaries' knowledge
after due inquiry". For purposes of this paragraph, the term "infringement" is
intended to include the infringement, misappropriation and/or violation of
Intellectual Property.
2.21 YEAR 2000 PROBLEM. To the best of the Company's and its
Subsidiaries' knowledge after due inquiry, the Year 2000 Readiness Disclosure as
currently published by the Company on its web site is accurate. A copy of this
Year 2000 Readiness Disclosure is included the Schedule of Exceptions.
2.22 MANUFACTURING AND MARKETING RIGHTS.
Except as set forth on the Schedule of Exceptions, neither the
Company nor any of its Subsidiaries has granted rights to manufacture,
produce, assemble, license, market or sell its products to any other
person and is not bound by any agreement that affects the Company's or
such Subsidiary's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
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2.23 EMPLOYEES; EMPLOYEE COMPENSATION.
To the best of the Company's and its Subsidiary's knowledge
after due inquiry, the relationships between the Company and its
Subsidiaries and their respective employees are good and no labor
dispute or claims are pending or threatened. None of the Company's or
any of its Subsidiary's employees belongs to any union or collective
bargaining unit. To the best of the Company's and its Subsidiaries'
knowledge after due inquiry, the Company and each of its Subsidiaries
has complied in all material respects with all applicable state and
federal laws related to employment. To the best of the Company's and it
Subsidiary's knowledge after due inquiry, no employee of the Company or
any such Subsidiary is or will be in violation of any judgment, decree
or order, or any term of any employment contract, patent disclosure
agreement, or other contract or agreement relating to the relationship
of any such employee with the Company, any of its Subsidiaries, or any
other party because of the nature of the business conducted or presently
proposed to be conducted by the Company or any of its Subsidiaries or to
the use by the employee of his or her best efforts with respect to such
business. Except for agreements entered into pursuant to the Option
Plans and the Company's 401k plan, the Company is not a party to or
bound by any currently effective employment contract, deferred
compensation agreement, incentive plan, profit sharing plan, retirement
agreement or other employee compensation agreement. Neither the Company
nor any of its Subsidiaries is aware that any officer or key employee,
or that any group of key employees, intends to terminate their
employment with the Company or any of its Subsidiaries, nor does the
Company or any of its Subsidiaries have a present intention to terminate
the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each
officer and employee of the Company and each of its Subsidiaries is
terminable at the will of the Company or such Subsidiary, as applicable.
2.24 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
Except as set forth on the Schedule of Exceptions, all of the
current employees and all of the officers of the Company and each of its
Subsidiaries has executed an Employee Inventions and Confidentiality
Agreement in the forms attached hereto on Exhibit C. No current or
former employee or officer has excluded works or inventions made prior
to his or her employment with the Company or any of its Subsidiaries
from his or her assignment of inventions pursuant to such employee's
Employee Inventions and Confidentiality Agreement. Copies of all
contracts with independent contractors engaged to develop or create
computer programs, works of authorship or intellectual property for the
Company or its Subsidiaries are identified on the Schedule of
Exceptions.
2.25 TAX RETURNS, PAYMENTS, AND ELECTIONS.
The Company and each of its Subsidiaries has timely filed all
tax returns and reports (federal, state and local) as required by law.
These returns and reports are true and correct in all material respects.
The Company and each of its Subsidiaries has paid all taxes and other
assessments due, except those contested by it in good faith. Neither the
Company nor any of its Subsidiaries has elected pursuant to the Internal
Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 1362(a) or
Section 341(f) of the Code, nor has it made any other elections pursuant
to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material
effect on the business, properties, prospects or financial condition of
the Company or any
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of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
ever had any tax deficiency proposed or assessed against it and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's or
any Subsidiary's income tax returns (federal or otherwise) and none of
its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. The Company and each of its
Subsidiaries has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period. The Company and
each of its Subsidiaries has withheld or collected from each payment
made to each of its employees, the amount of all taxes, including, but
not limited to, federal income taxes, Federal Insurance Contribution Act
taxes and Federal Unemployment Tax Act taxes required to be withheld or
collected therefrom, and has paid the same to the proper tax receiving
officers or authorized depositaries.
2.26 INSURANCE.
The Schedule of Exceptions contains a description of each
insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses, and each such policy
is in full force and effect as of the Closing. Neither the Company nor
any Subsidiary is in default with respect to its obligations under any
insurance policy maintained by it, and neither the Company nor any
Subsidiary has been denied insurance coverage. Except as set forth on
the Schedule of Exceptions, the Company and its Subsidiaries do not have
any self-insurance or co-insurance programs, and the reserves set forth
on the Latest Balance Sheet are adequate to cover all anticipated
liabilities with respect to any such self-insurance or co-insurance
programs.
2.27 ENVIRONMENTAL AND SAFETY LAWS.
Neither the Company nor any of its Subsidiaries is in violation
of any applicable statute, law or regulation relating to the environment
or occupational health and safety, and no material expenditures are or
will be required in order to comply with any such existing statute, law
or regulation.
2.28 MINUTE BOOKS.
A true, correct and complete copy of the minute book of the
Company and each of its Subsidiaries have been delivered to the
Investors. Such copy contains minutes of all meetings of directors and
stockholders and all actions by written consent without a meeting by the
directors and stockholders since the date of incorporation or
organization and accurately reflects all actions by the directors (and
any committee of directors) and stockholders with respect to all
transactions referred to in such minutes in all material respects.
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2.29 SMALL BUSINESS MATTERS.
The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, Section 121.103), is a
"small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, Section 121.103. The information
regarding the Company and its affiliates set forth in the Small Business
Administration ("SBA") Form 480, Form 652 and Part A of Form 1031
delivered at the Closing is accurate and complete. Copies of such forms
shall have been completed and executed by the Company and delivered at
the Closing, together with a written statement of the Company regarding
its planned use of the proceeds from the sale of the Series B Preferred
Stock. The Company does not presently engage in, and it shall not
hereafter engage in, any activities, nor shall the Company use directly
or indirectly the proceeds from the sale of the Series B Preferred Stock
hereunder for any purpose, for which a Small Business Investment Company
is prohibited from providing funds by the Small Business Investment Act
of 1958 and the regulations thereunder (including Title 13, Code of
Federal Regulations, Section 107.720).
2.30 QUALIFIED SMALL BUSINESS.
The Company represents and warrants to the Purchasers that, the
Company should qualify as a "qualified small business" within the
meaning of Section 1202(d) of the Code as of the date hereof, and the
Series B Preferred Stock sold hereunder is being acquired at its
original issue in exchange for cash. The Company further represents and
warrants that, as of the date hereof, it meets the "active business
requirement" of Section 1202(e) of the Code, and it has made no
"significant redemptions" within the meaning of Section 1202(c)(3)(B) of
the Code.
3. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.
Each Investor, severally, and not jointly, hereby represents and
warrants to the Company that:
3.1 AUTHORIZATION.
Such Investor has full power and authority to enter into this
Agreement, and that this Agreement, when executed and delivered, will
constitute a valid and legally binding obligation of such Investor,
enforceable in accordance with their respective terms except (i) (as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other
equitable remedies.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.
This Agreement is made with each Investor in reliance upon such
Investor's representation to the Company, which by such Investor's
execution of this Agreement such Investor hereby confirms, that the
Series B Preferred Stock to be purchased by such Investor and the Common
Stock issuable upon conversion thereof (collectively, "Securities") will
be acquired for investment for such Investor's own account, not as
nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of
selling, granting any participation in or otherwise distributing the
same. By executing this Agreement, each Investor further represents that
such Investor does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of the
Securities.
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3.3 RELIANCE UPON INVESTORS' REPRESENTATIONS.
Each Investor understands that the Series B Preferred Stock is
not, and any Common Stock acquired on conversion thereof at the time of
issuance may not be, registered under the Securities Act on the ground
that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities
Act pursuant to Section 4(2) thereof, and that the Company's reliance on
such exemption is predicated on the Investors' representations set forth
herein. Each Investor realizes that the basis for the exemption may not
be present if, notwithstanding such representations, the Investor has in
mind merely acquiring shares of the Series B Preferred Stock for a fixed
or determinable period in the future, or for a market rise, or for sale
if the market does not rise. No Investor has any such intention.
3.4 RECEIPT OF INFORMATION.
Each Investor believes such Investor has received all the
information such Investor considers necessary or appropriate for
deciding whether to purchase the Series B Preferred Stock. Each Investor
further represents that such Investor has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series B Preferred Stock and the
business, properties, prospects and financial condition of the Company
and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information
furnished to such Investor or to which such Investor had access. The
foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement or the right of
the Investors to rely thereon.
3.5 INVESTMENT EXPERIENCE.
Each Investor represents that such Investor is experienced in
evaluating and investing in private placement transactions of securities
of companies in a similar stage of development and acknowledges that
such Investor is able to fend for himself, herself or itself, can bear
the economic risk of such Investor's investment, and has such knowledge
and experience in financial and business matters that such Investor is
capable of evaluating the merits and risks of the investment in the
Series B Preferred Stock. If other than an individual, Investor also
represents such Investor either (a) has not been organized for the
purpose of acquiring the Series B Preferred Stock or (b) has equity
owners that are all Accredited Investors. The foregoing, however, does
not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.6 ACCREDITED INVESTOR.
(a) The term "Accredited Investor" as used herein refers to:
(i) A person or entity who is a director or executive
officer of the Company;
(ii) Any bank as defined in Section 3(a)(2) of the
Securities Act, or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities
Act whether acting in its individual or fiduciary capacity; any
broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined
in Section 2(13) of the Securities Act; any investment company
registered under
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the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a
state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess
of $5,000,000; any employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974,
if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
(iii) Any private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(iv) Any organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in
excess of $5,000,000;
(v) Any natural person whose individual net worth, or joint
net worth with that person's spouse, at the time of the purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the same
income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that
he or she is capable of evaluating the merits and risks of the
prospective investment; or
(viii) Any entity in which all of the equity owners are
accredited investors.
As used in this Paragraph 3.6(a), the term "net worth" means the
excess of total assets over total liabilities. For the purpose of
determining a person's net worth, the principal residence owned by an
individual should be valued at fair market value, including the cost of
improvements, net of current encumbrances. As used in this Paragraph
3.6(a), "income" means actual economic income, which may differ from
adjusted gross income for income tax purposes. Accordingly, each
Investor should consider whether such Investor should add any or all of
the following items to such Investor's adjusted gross income for income
tax purposes in order to reflect more accurately such Investor's actual
economic income: any amounts attributable to tax-exempt income received,
losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to an ▇▇▇ or ▇▇▇▇▇
retirement plan and alimony payments.
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(a) Each Investor as to such Investor, severally and not
jointly, further represents to the Company that except as
otherwise disclosed to the Company, in writing, prior to
such Investor's execution hereof, such Investor is either:
(i) an Accredited Investor; or
(ii) not an Accredited Investor and neither such Investor
nor any beneficiary of any trust or any investment client for
whose account such Investor is purchasing is a citizen or
resident of the United States or any state, territory or
possession thereof, including, but not limited to, any estate of
any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity
controlled or owned by any of the foregoing (a "U.S. Person").
3.7 RESTRICTED SECURITIES.
Each Investor understands that the Series B Preferred Stock (and
any Common Stock issued on conversion thereof) may not be sold,
transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities (or the Common
Stock issued on conversion thereof) or an available exemption from
registration under the Securities Act, the Series B Preferred Stock (and
any Common Stock issued on conversion thereof) must be held
indefinitely. In particular, each Investor is aware that the Series B
Preferred Stock (and any Common Stock issued on conversion thereof) may
not be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of that Rule are met. Among the conditions
for use of Rule 144 may be the availability of current information to
the public about the Company. Such information is not now available and
the Company has no present plans to make such information available.
3.8 LEGENDS.
To the extent applicable, each certificate or other document
evidencing any of the Series B Preferred Stock or any Common Stock
issued upon conversion thereof shall be endorsed with the legends
substantially in the form set forth below:
(a) The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any legend imposed or required by the Company's Bylaws
or applicable state securities laws.
4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING.
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4.1 The obligations of each Investor under subparagraph 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against any
Investor who does not consent in writing thereto:
4.2 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and its
Subsidiaries contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
4.3 PERFORMANCE.
The Company and its Subsidiaries shall have performed and
complied with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it
on or before the Closing.
4.4 COMPLIANCE CERTIFICATE.
The President of the Company shall deliver to each Investor at
the Closing a certificate certifying that the conditions specified in
paragraphs 4.1 through 4.6, inclusive, have been fulfilled.
4.5 QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale
of the Series B Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
4.6 PROCEEDINGS AND DOCUMENTS; CERTIFICATE OF DESIGNATIONS.
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the
Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as
it may reasonably request. The Company shall have delivered to the
Investors evidence of filing of the Amended Articles with the Department
of Commerce, Division of Corporations of the State of Utah.
4.7 OPINION OF COMPANY COUNSEL.
Each Investor shall have received from ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ &
▇▇▇▇▇▇▇▇, counsel for the Company, an opinion, dated the date of the
Closing, in form and substance satisfactory to special counsel to the
Investors, as to the matters set forth in Exhibit D hereto.
4.8 INVESTOR RIGHTS AGREEMENT.
The Company and the Investors and the other parties thereto
shall have entered into an amended and restated investor rights
agreement in form and substance as set forth in Exhibit E
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hereto (the "Investor Rights Agreement"), and the Investor Rights
Agreement shall be in full force and effect as of the Closing.
4.9 VOTING AGREEMENT.
The Company and the Investors and the other parties thereto
shall have entered into a voting agreement in form and substance as set
forth in Exhibit F hereto (the "Voting Agreement"), and the Voting
Agreement shall be in full force and effect as of the Closing.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each Investor contained in
Section 3 shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of
the date of the Closing.
5.2 QUALIFICATIONS.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. POST-CLOSING COVENANTS OF THE COMPANY.
6.1 SMALL BUSINESS CONCERN DOCUMENTS.
The Company shall execute and deliver to each Investor who
requests them the following documents:
(a) Within 75 days after the Closing and at the end of each month
thereafter until all of the proceeds from the financing hereunder have
been used by the Company, the Company shall deliver to Investor which is
an SBIC ("SBIC Holder") a written statement certified by the Company's
president or chief financial officer describing in reasonable detail the
use of the proceeds of the financing hereunder by the Company. In
addition to any other rights granted hereunder, the Company shall grant
the SBIC Holder and the SBA access to the Company's records for the
purpose of verifying the use of such proceeds.
(b) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to the
SBIC Holder a written assessment of the economic impact of the SBIC
Holder's investment in the Company, specifying the full-time equivalent
jobs created or retained in connection with the investment, the impact
of the investment on the businesses of the Company in terms of expanded
revenue and taxes and other economic benefits resulting from
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the investment (including, but not limited to, technology development or
commercialization, minority business development, urban or rural
business development and expansion of exports).
6.2 REGULATORY COMPLIANCE COOPERATION.
(a) In the event that the SBIC Holder determines that it has a
Regulatory Problem (as defined below), the Company shall take all such
actions as are reasonably requested by the SBIC Holder in order to (a)
effectuate and facilitate any transfer by the SBIC Holder of any
securities of the Company then held by the SBIC Holder, (b) permit the
SBIC Holder (or any Affiliate of the SBIC Holder) to exchange all or any
portion of the Series B Preferred Stock then held by the SBIC Holder on
a share-for-share basis for shares of a class of non-voting common stock
of the Company, which non-voting common stock shall be identical in all
respects to such Series B Preferred Stock, except that such common stock
shall be non-voting and shall be convertible into Common Stock on such
terms as are requested by the SBIC Holder in light of regulatory
considerations then prevailing, (c) continue and preserve the respective
allocation of the voting interests with respect to the Company provided
for in the Amended Articles with respect to the SBIC Holder's ownership
of the Company's Series B Preferred Stock and underlying Common Stock,
and (d) amend this Agreement, the Amended Articles and other related
agreements to effectuate and reflect the foregoing. Such actions may
include, but shall not necessarily be limited to:
(i) entering into such additional agreements as are
requested by the SBIC Holder to permit any person(s) and/or
entities designated by the SBIC Holder to exercise any voting
power which is relinquished by the SBIC Holder upon any exchange
of Common Stock for non-voting stock of the Company; and
(ii) entering into such additional agreements, adopting such
amendments to the Amended Articles and Bylaws of the Company and
taking such additional actions as are reasonably requested by
the SBIC Holder in order to effectuate the intent of the
foregoing.
(a) For purposes of this Agreement, a "Regulatory Problem" means any
set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or the SBIC Holder believes that there
is a substantial risk of such assertion) that the SBIC Holder and its
Affiliates are not entitled to hold, or exercise any significant right
with respect to, the Series B Preferred Stock or the Common Stock.
6.3 FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to Investor:
(a) as soon as available, but in any event within 45 days after the
end of each quarterly accounting period in each fiscal year, unaudited
statements of income and cash flows of the Company for such quarterly
period and for the period from the beginning of the fiscal year to the
end of such quarter, and unaudited balance sheets of the Company as of
the end of such quarterly period, setting forth in each case comparisons
to the Company's annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal
year-end adjustments for recurring accruals, and shall be certified by
the Company's chief financial officer;
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(b) within 90 days after the end of each fiscal year, audited
statements of income and cash flows of the Company for such fiscal year,
and audited balance sheets of the Company as of the end of such fiscal
year, setting forth in each case comparisons to the Company's annual
budget and to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by, with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications
(except for qualifications regarding specified contingent liabilities)
of an independent accounting firm of recognized national standing;
(c) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(d) at least 5 days but not more than 90 days prior to the beginning
of each fiscal year, an annual business plan prepared on a monthly basis
for the Company for such fiscal year (displaying anticipated statements
of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant business plans prepared by the
Company and any revisions of such annual or other business plans;
(e) prompt notification of any matter or matters which would
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the financial condition, operating results,
business, assets, operations, employee relations or customer or supplier
relations of the Company (a "Material Adverse Effect");
(f) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the company sends to its shareholders and
copies of all registration statements and all regular, special or
periodic reports which it files, or any of its officers or directors
file with respect to the Company, with the SEC or with any securities
exchange on which any of its securities are then listed, and copies of
all press releases and other statements made available generally by the
Company to the public concerning material developments in the Company's
business; and
(g) with reasonable promptness, such other information and financial
data concerning the Company as any person entitled to receive
information under this Section 6.8 may reasonably request.
Each of the financial statements referred to in subparagraphs
(a) and (b) shall be true and correct in all material respects as of the
dates and for the periods stated therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals (none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating
results, business, assets, operations, business prospects, employee
relations or customer or supplier relations of the Company).
6.4 INSPECTION OF PROPERTY.
The Company shall permit each Investor, upon reasonable notice
and during normal business hours and at such other times as any such holder may
reasonably request, to (i) visit and inspect any of the properties of the
Company, (ii) examine the corporate and financial records of the Company
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and make copies thereof or extracts therefrom, and (iii) discuss the affairs,
finances and accounts of any such corporations with the directors, officers and
key employees of the Company. Notwithstanding anything to the contrary contained
herein, the terms and provisions of this paragraph Section 6.5 shall terminate
automatically and be of no further force and effect upon the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement filed under the Securities Act covering the offer and sale of Common
Stock for the account of the Company at a price per share equal to or greater
than $8.00 and in which the aggregate public offering price (before deduction of
underwriters' discounts and qualifications) equals or exceeds $25,000,000 (a
"Qualified Public Offering").
6.5 ATTENDANCE AT BOARD MEETINGS.
The Company shall deliver to each Investor which, together with
its affiliates and or permitted transferees, holds at least 500,000 shares of
the Series B Preferred Stock (a "Representative Holder") written notice of each
meeting of its board of directors and each committee thereof at least three
business days prior to the date of each such meeting, and the Company shall
permit a representative of each such Representative Holder to attend as an
observer all meetings of its board of directors and all committees thereof;
provided that in the case of telephonic meetings conducted in accordance with
the bylaws and the Company and applicable law, each such Representative Holder
need receive only actual notice thereof at least 48 hours prior to any such
meeting, and each such Representative Holder's representative shall be given the
opportunity to listen to such telephonic meetings. Each representative shall be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings substantially at the same time such materials and information
are given to the directors; provided, however, that the Company reserves the
right to exclude such representative from access to any material or portion
thereof if the Company believes upon advice of counsel that such exclusion is
reasonably necessary to preserve the Company's attorney-client privilege. If the
Company proposes to take any action by written consent in lieu of a meeting of
its board of directors or of any committee thereof, the Company shall give
written notice thereof to each such Representative Holder promptly after the
effective date of such consent describing in reasonable detail the nature and
substance of such action. The Company shall pay the reasonable out-of-pocket
expenses of each representative incurred in connection with attending any such
board and committee meetings which are held outside of the State of Utah.
Notwithstanding anything to the contrary contained herein, the terms and
provisions of this paragraph Section 6.5 shall terminate automatically and be of
no further force and effect upon the consummation of a Qualified Public
Offering.
6.6 CURRENT PUBLIC INFORMATION.
At all times after the Company has filed a registration statement
with the Securities and Exchange Commission pursuant to the requirements of
either the Securities Act or the Securities Exchange Act, the Company shall file
all reports required to be filed by it under the Securities Act and the
Securities Exchange Act and the rules and regulations adopted by the Securities
and Exchange Commission thereunder and shall take such further action with
respect to the provision of information as any holder or holders of Securities
may reasonably request, all to the extent required to enable such holders to
sell Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission, or (ii) a registration statement on Form S-2 or S-3 or any
similar registration form hereafter adopted by the Securities and Exchange
Commission. Upon request, the Company shall deliver to any holder of Securities
a written statement as to whether it has complied with such requirements.
22
6.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.
The Company and each of its Subsidiaries shall their use their
collective best efforts to cause all of the current employees and all of
the officers of the Company and each of its Subsidiaries to execute an
Employee Inventions and Confidentiality Agreement in the forms attached
hereto on Exhibit C within thirty (30) days after the Closing.
7 MISCELLANEOUS.
7.1 ENTIRE AGREEMENT.
This Agreement and the documents referred to herein constitute
the entire agreement among the parties and no party shall be liable or
bound to any other party in any manner by any warranties,
representations or covenants, except as specifically set forth herein or
therein.
7.2 SURVIVAL OF WARRANTIES.
The warranties, representations and covenants of the Company and
the Investors contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing.
7.3 SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties (including permitted
transferees of any shares of Series B Preferred Stock sold hereunder or
any Common Stock issued upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.4 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws
of the State of Utah as applied to agreements among Utah residents
entered into and to be performed entirely within Utah.
7.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.6 TITLES AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement.
23
7.7 NOTICES.
Unless otherwise provided, all notices and other communications
required or permitted under this Agreement shall be in writing and shall
be mailed by United States first-class mail, postage prepaid, sent by
facsimile or delivered personally by hand or by a nationally recognized
courier addressed to the party to be notified at the address or
facsimile number indicated for such person on Schedule A hereto, or at
such other address or facsimile number as such party may designate by
ten (10) days' advance written notice to the other parties hereto. All
such notices and other written communications shall be effective on the
date of mailing, confirmed facsimile transfer or delivery.
7.8 FINDER'S FEES.
Each party represents that it neither is nor will be obligated
for any finder's fee or commission in connection with this transaction.
Each Investor, severally and not jointly, agrees to indemnify
and to hold harmless the Company from any liability for any commission
or compensation in the nature of a finder's fee (and the cost and
expenses of defending against such liability or asserted liability) for
which such Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.9 EXPENSES.
(a) At the Closing, the Company shall reimburse the Investors for their
reasonable out-of-pocket fees and expenses incurred in connection with the
investigation, negotiation and documentation of the transactions contemplated
hereby (including, without limitation, attorneys' and accountants' fees) not to
exceed in the aggregate $150,000.00.
(b) The Company shall pay its own out-of-pocket expenses and all stamp
and other taxes which may be payable in respect of the execution and delivery of
this Agreement, the Ancillary Agreements, or the issuance, delivery or
acquisition of the Series B Preferred Stock.
(c) The Company further agrees to reimburse the Investors on demand for
the Investors' reasonable out-of-pocket fees and expenses incurred in connection
with any amendment to or waiver of any provision of this Agreement necessitated
by the breach of any provision of this Agreement by the Company or enforcement
of this Agreement by the Investors (subject to the terms and provisions of
Section 7.10 below).
7.10 ATTORNEYS' FEES.
If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, any Ancillary Agreement or the
Amended Articles, the prevailing party shall be entitled to be
reimbursed by the non-prevailing party for reasonable attorneys' fees,
costs and disbursements, in addition to any other relief to which such
party may be entitled.
24
7.11 AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of more than 50%
of the Common Stock not previously sold to the public that is issued or
issuable upon conversion of the Series B Preferred Stock. Any amendment
or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the
Company.
7.12 SEVERABILITY.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
* * * * *
25
IN WITNESS WHEREOF, the parties have executed this Series B Preferred Stock
Purchase Agreement as of the date first above written.
CALDERA SYSTEMS, INC., A UTAH CORPORATION
By: /s/ RANSOM H. LOVE
-------------------------------------
Name: Ransom H. Love
Title: President
CHICAGO VENTURE PARTNERS, L.P.
By: Chicago Venture Management, L.L.C.
Its: General Partner
By: CVM, Inc.
Its: Manager
By:
-------------------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: President
CHICAGO VENTURE PARTNERS B, L.L.C.
By: Burlington Investments, Inc.
Its: Manager
By:
-------------------------------------
Name: ▇▇▇▇ ▇▇▇▇
Title: President
▇▇▇▇ MANAGED-CAPITAL, L.P.
By: EMC Partners, L.P.
Its: General Partner
By:
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: General Partner
26
ENSIGN PEAK ADVISORS, INC.
By:
-------------------------------
Name: F. ▇▇▇▇▇ ▇▇▇▇▇
Title: Senior Vice President
THE SANTA ▇▇▇▇ OPERATION, INC.
By:
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Acting CFO and
Corporate Controller
SUN MICROSYSTEMS, INC.
By:
-------------------------------
Name:
Title:
NOVELL, INC.
By:
-------------------------------
Name:
Title:
CITRIX SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
27
ARISTA CAPITAL PARTNERS, L.P.
By: Arista Capital Management, L.L.C.
Its: General Partner
By:
-------------------------------------
Name:
Title:
BAYVIEW
By:
-------------------------------------
Name:
Title:
FIC
By:
-------------------------------------
Name:
Title:
