STOCK PURCHASE AND LOAN AGREEMENT
DATED AS OF SEPTEMBER 26, 1994
BETWEEN
THINKING TECHNOLOGIES, L.P.
AND
THINKING TOOLS, INC.
STOCK PURCHASE AND LOAN AGREEMENT
THIS STOCK PURCHASE AND LOAN AGREEMENT is made as of the 26th day of
September, 1994, by and between Thinking Tools, Inc., a California corporation,
(the "Company") on the one hand and ▇▇▇▇▇ Capital Management, a Delaware Limited
Partnership, as general partner of Thinking Technologies, L.P., a Delaware
Limited Partnership (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Stock.
(a) The Company shall adopt and file with the
Secretary of State of California on or before the Closing (as defined below)
Amended Articles of Incorporation as attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this
Agreement, Investor agrees to purchase at the Closing and the Company agrees to
sell and issue to Investor at the Closing, 157.142858 shares of the Company's,
pre-split Common Stock, which, after the stock split provided for hereunder,
will represent 550,000 shares, or, 61.11% of the duly authorized, issued and
outstanding post-split stock of the Company (the "Stock"), for the purchase
price of $100,000.00, as well as for Investor's agreement to make the Loan (as
defined below) and to provide for the assumption of the Bridge Loan (as defined
below) hereunder.
(c) At the Closing, the Company shall immediately
authorize, by all required consents, a stock-split which shall effect an
issuance of 3500 shares of Stock for each pre-split share, resulting in
Investor's ownership of 550,000 shares of Stock, or 61.11% of the duly
authorized, issued and outstanding Stock of the Company, and further resulting
in ▇▇. ▇▇▇▇ ▇▇▇▇▇' ownership of 350,000 shares of Stock, or 38.89% of the duly
authorized, issued and outstanding Stock of the Company.
(d) Investor and Company acknowledge that the
issuance of the full amount of shares of Stock, not to exceed 100,000 post-split
shares, under the Company employee stock option plan, as provided for
hereinbelow, will result in a final percentage ownership as follows: Investor
55%; ▇▇. ▇▇▇▇ ▇▇▇▇▇ 35%; employees receiving stock under the option plan 10%;
1.2 Closing. The purchase and sale of the Stock shall take
place at the offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ at 12:00 p.m. on September 28, 1994, or at such other time
and place as the Company and the Investor mutually agree upon orally or in
writing (which time and place are designated as the "Closing"). At the Closing,
the Company shall deliver to the Investor a certificate representing the Stock,
which the Investor is purchasing against delivery to the Company by the Investor
of a check payable to the Company's order or by wire transfer in the aggregate
amount of $1,100,000.00, including the purchase price for the Stock and the Loan
proceeds. The total amount of "new money" provided by Investor in purchase price
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and Loan proceeds is $1,100,000.00. The additional $200,000 of debt provided for
herein is set forth with particularity in subsection 2.3 hereinbelow.
1.3 Documents to be Delivered by the Company. At the Closing, the
Company will deliver to the Investor:
(a) stock certificates for the Stock and the Pledged
Stock (as defined below), free and clear of all liens, claims, charges,
restrictions, except for those legends required under state and federal
securities laws, equities or encumbrances of any kind, duly executed on behalf
of the Company and duly issued in the name of Investor;
(b) a certificate of the Company in the form of
Exhibit B certifying as to the accuracy of the Company's representations and
warranties at and as of the Closing and that the Company has performed and
complied with all of the terms, provisions and conditions to be performed and
complied with by the Company at or before the Closing;
(c) a certificate of the Company in the form of
Exhibit C certifying as to certain corporate matters, together with all of the
attachments referred to therein; and
(d) such other certificates and documents as set
forth herein, or as Investor or its counsel may reasonably request.
1.4 Documents and Funds to Be Delivered by Investor. At the
Closing, Investor will deliver to the Company:
(a) the amount of the Purchase Price by transfer of
immediately available funds to the account listed herein;
(b) a certificate of Investor in the form of Exhibit
D certifying as to the accuracy of Investor's representations and warranties at
and as of the Closing and that Investor has performed and complied with all of
the terms, provisions and conditions to be performed and complied with by
Investor at or before the Closing;
(c) the corporate consents required to effect the
stock split as provided for hereinbelow; and
(d) such other certificates and documents as the
Company or its counsel may reasonably request.
1.5 Form and Substance of Documents. The documents and
instruments referred to in Sections 1.3 and 1.4 shall be in form and substance
satisfactory to counsel for the party to whom they are delivered.
2. Loan.
2.1 Amount of Loan. On or before September 28, 1994, at
Company's request, Investor will lend to Company the sum of $1,200,000.00 (the
"Loan"). The Loan shall be evidenced by a promissory note in the form attached
hereto as Exhibit E (the "Note") executed by the Company, dated as of the date
the Loan
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is made, due and payable on September 27, 1999, and providing for the
semi-annual payment of interest at ten percent (10%) per annum if the Company
realizes $2,000,000.00 in gross income, or alternatively, if the Company does
not realize $2,000,000.00 in gross income, interest shall accrue to the
principal amount at the rate of 10% per annum. No interest is required to be
paid on the Loan, but interest will continue to accrue, for the first 18 months
that the Loan is outstanding. The interest accrued during the initial 18 month
period will be added to the principal of the Loan, unless paid within 30 days
after March 30, 1996.
The Note provides for the payment of principal (1) from
time-to-time over the term of the Note at the discretion of the Board of
Directors of the Company, from profits through operations; (2) upon the closing
of an initial public offering through which the Company realizes proceeds of
over $2,500,000.00; (3) upon the merger or acquisition of the Company with, or
by, any other entity; or (4) upon any other refinancing, including any private
placement sale of any securities of the Company, in the sum of over
$1,000,000.00. In the case of proceeds realized by the Company from the
occurrence of an event under subparagraph 2.1 (4), the amount of the principal
to be paid will be negotiated in good faith among the Investor and the Board of
Directors of the Company. Concurrently therewith, amounts of Pledged Stock
negotiated among the Investor and the Board of Directors shall then be released
to ▇▇. ▇▇▇▇ ▇▇▇▇▇ and the Company, respectively.
The Loan shall be closed by Investor providing new funds in
the amount of $1,000,000.00 to the Company, in addition to the assumption of the
$200,000.00 Bridge Loan, as set forth in subsection 2.3 hereof, under the terms
of this Agreement and of the Note.
2.2 Security Agreement Required. The Loan shall be secured by
a security agreement for the pledge of all of the postsplit stock of the
Company, as provided for hereinbelow, issued and outstanding to ▇▇. ▇▇▇▇ ▇▇▇▇▇,
as provided for hereinbelow, in the total amount of 350,000 shares (the "Pledged
Stock"). The pledge agreement is in the form attached as Exhibit F, executed by
the Company as debtor and ▇▇▇▇ ▇▇▇▇▇ as Additional Pledging Party, to Investor
as secured party, which also grants Investor a security interest in all of the
Company's assets including, but not limited to, all of the intellectual property
formerly held in the name of ▇▇▇▇ ▇▇▇▇▇, which was transferred to the Company by
virtue of the technology transfer agreement attached as Exhibit C to that
certain Bridge Loan Agreement between the Company and Investor, dated July 29,
1994 (the "Bridge Loan"). The pledge agreement also provides that if the Company
meets the budget approved by the Board of Directors, Investor will release 1/4
of the Pledged Stock per year. Finally, the pledge agreement provides that ▇▇▇▇
▇▇▇▇▇ shall execute an irrevocable proxy, in the form attached hereto as Exhibit
G, to ▇▇▇▇▇ Capital Management to vote the Pledged Stock, which proxy shall be
effective until the Company (1) is acquired through a merger or acquisition; or
(2) effects an initial public offering in the aggregate amount of $2,500,000~00,
subsequent to which time the voting rights to the Pledged Stock shall revert to
▇▇▇▇ ▇▇▇▇▇, through operation of the Proxy.
2.3 Bridge Loan Assumed Hereunder. All of the obligations of
the Company, as Borrower, to Investor, as Lender, under the Bridge Loan dated
July 29, 1994, and First Amended Bridge Loan dated September 12, 1994, with the
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exception of the affirmative representations and positive and negative covenants
of the Company which will survive execution of this Agreement, are hereby
extinguished and assumed hereunder pursuant to the Novation Agreement
Substituting Obligations to be signed by the Investor and the Company, in the
form as attached hereto as Exhibit H.
2.4 Loan Closing. The Loan Closing shall take place at the
offices of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ at 12:00 p.m. on September 28, 1994, or at such other time and place
as the Company and the Investors mutually agree upon orally or in writing (which
time and place are designated as the "Loan Closing"). At the Loan Closing, the
Company shall deliver to Investor all documents required to be executed as set
forth hereinabove.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that, except as set forth on a Schedule of
Exceptions furnished to the Investor and to counsel for the Investor
specifically identifying the relevant subparagraph hereof which exceptions shall
be deemed to be representations and warranties as if made hereunder:
3.1 Organization. Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
3.2 Capitalization and Voting Rights. As of the date of the
Closing, and after giving full effect to the stock-split provided for
hereinabove, the authorized capital of the Company will consist of:
(i) 1,000,000 shares of Stock, no par value, of which
900,000 shares will be duly authorized, issued, delivered and outstanding, fully
paid and non-assessable, unless otherwise indicated immediately herein, and of
which 550,000 shares are Stock owned by Investor pursuant to this Agreement and
of which 350,000 shares will be duly authorized, issued, delivered and
outstanding to ▇▇. ▇▇▇▇ ▇▇▇▇▇, fully paid and non-assessable, herein designated
as Pledged Stock, and of which 100,000 shares will be duly authorized and
reserved for conveyance to the Company employee stock option plan, as provided
for in Section 3.26 hereinbelow. The designations, powers, preferences, rights,
qualifications, limitations and/or restrictions of the Stock are as stated in
the Company's Amended Articles of Incorporation in the form as attached hereto
as Exhibit A;
(ii) there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock,
except as set forth in Section 3.26 hereinbelow. The Company is not a party or
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any
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security or by a director of the Company, except as set forth in this agreement.
3.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association or other business entity.
3.4 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, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Stock has been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
3.5 Valid Issuance of Stock. The Stock which is being
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and, based in part upon
the representations of the Investor set forth in Section 4 of this Agreement,
will be issued in compliance with all applicable federal and state securities
laws.
3.6 Governmental Consents. No consent, approval, order or
authorization on, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for: (i) the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days after
the sale of the Stock hereunder.
3.7 Financial Statements. The Company has delivered to
Investor copies of the balance sheets of the Company as at June 30, 1994, and
related statements of operations and retained earnings and cash flows for the
period to June 30, 1994, together with the report thereon of ▇▇▇▇▇▇ Accountancy,
certified public accountants. All of such financial statements present fairly
and accurately the financial position of the Company as at the date of said
balance sheets and the results of the operations and changes in cash and cash
equivalents of the Company for the period then ended, in conformity with
generally accepted accounting principles. The Company represents that it has
provided to its accountants all information required for the accountants to give
an unqualified opinion with regard to all financial matters stated herein,
although such unqualified opinion is not required under the terms of this
Agreement.
3.8 No Undisclosed Liabilities Etc. Since June 30, 1994
(except (i) for the transactions contemplated by this Agreement and (ii) as set
forth in Schedules 3.8 and 3.10) the Company has not incurred any liability or
obligation (absolute, accrued, contingent or otherwise) of any nature, other
than liabilities and obligations incurred in the ordinary course of business
that singly or in the aggregate are not material.
3.9 Absence of Certain Changes.
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(a) Since June 30, 1994, except for the execution and
delivery of this Agreement, the Company has not:
(i) had any change in its condition (financial or
otherwise), operations (present or prospective), business (present or
prospective), properties, assets or liabilities, other than changes in the
ordinary course of business, none of which has been materially adverse to the
Company;
(ii) suffered any damage, destruction or loss of
physical property (whether or not covered by insurance) materially and adversely
affecting its condition (financial or otherwise), operations (present or
prospective), business (present or prospective), assets or liabilities;
(iii) issued, sold or otherwise disposed of, or
agreed to issue, sell or otherwise dispose of, any capital stock or any other
security of the Company or granted or agreed to grant any option, warrant or
other right to subscribe for or to purchase any capital stock or any other
security of the Company;
(iv) incurred any indebtedness for borrowed money
except for the due and owing obligation to Maxis Corporation which obligation
the Company represents and warrants shall be paid in full through the proceeds
received from Investor through the operation of subparagraphs 3.29 and 10.1 of
this Agreement;
(v) paid in excess of $10,000 in the aggregate as
capital expenditures;
(vi) suffered any substantial loss or waived any
substantial right;
(vii) sold, transferred, leased or otherwise
disposed of, or agreed to sell, transfer, lease or otherwise dispose of, any
assets having a fair market value at the time of sale, transfer, lease or
disposition of $10,000 or more in the aggregate, other than in the ordinary
course of business, or cancelled, or agreed to cancel any debts or claims;
(viii) mortgaged, pledged or subjected to any
charge, lien, claim or encumbrance any of its properties or assets, other than
as security for the Company's debt to Maxis Corporation;
(ix) declared, set aside or paid any dividend or
made any distribution (whether in cash, property or stock) with respect to any
of its capital stock or redeemed, purchased or otherwise acquired any of its
capital stock;
(x) increased the compensation or bonuses or
special compensation of any kind of any of its officers, employees or agents
over the rate being paid to them on March 31, 1994, other than normal merit
and/or cost-of-living increases pursuant to customary arrangements consistently
followed, or entered into any employment or consulting contract with any
officer, employee or agent, or adopted or increased any benefit under any
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insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with any such officer, employee or agent;
(xi) made or permitted any material amendment or
termination of any material contract, agreement or license to which it is a
party, other than in the ordinary course of business;
(xii) had any resignation or termination of
employment of any of its key officers or employees, or knows of any impending or
threatened resignation or resignations or termination or terminations of
employment, that would have a material adverse effect on its condition
(financial or otherwise), operations (present or prospective), business (present
or prospective), properties, assets or liabilities;
(xiii) made any change in its accounting methods
or practices with respect to its condition, operations, business, properties,
assets or liabilities;
(xiv) made any charitable or political
contribution or pledge in excess of $10,000.00 in the aggregate;
(xv) entered into any transaction not in the
ordinary course of business; or
(xvi) agreed or committed to do, or authorized or
approved any action looking to, any of the foregoing.
3.10 Contracts. Except as set forth in Schedule 3.10, the Company
is not a party to any written or oral:
(i) collective bargaining agreement, contract, or
other agreement or understanding with any labor organization (as defined in the
National Labor Relations Act of 1935, as amended (the "NLRA")), a labor union,
or any group of two or more employees;
(ii) employment or consulting contract or other
contract for services involving a payment of more than $25,000 annually;
(iii) lease (except for the lease under which the
Company occupies its premises at One Lower ▇▇▇▇▇▇▇▇, Monterey, California)
whether as lessee or lessor, with respect to any property, real, personal or
intangible, involving a payment of more than $10,000 annually;
(iv) loan agreement or instrument relating to any
debt;
(v) contract of purchase or sale involving more
than $10,000;
(vi) contract with any agent, dealer or
distributor;
(vii) partnership, joint venture, franchise,
license or similar agreement;
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(viii) stand-by letter of credit, guarantee or
performance bond;
(ix) contract or agreement restricting the ability
of any person from freely engaging in any business or competing anywhere in the
world;
(x) contract not made in the ordinary course of
business involving more than $10,000; or
(xi) other contract, except insubstantial
contracts for supplies or services not involving more than $10,000 and which can
be terminated within one year without cost.
Except as set forth in Schedule 3.10, the Company is not a
party to any contract with any governmental authority nor has made or submitted
any bid or contract proposal to any person, including, any governmental
authority which, if accepted or entered into, would result in a contract
required to be disclosed in Schedule 3.10. The Company is not a party to any
contract that materially and adversely affects its condition (financial or
otherwise), operations (present or prospective), business (present or
prospective), properties, assets or liabilities. Each contract or other
agreement listed in Schedule 3.10 is in full force and effect and is valid and
enforceable by the Company in accordance with its terms assuming the due
authorization, execution and delivery thereof by each of the parties thereto.
The Company is not in default in the observance or performance of any term or
obligation to be performed by it under any contract listed in Schedule 3.10. The
Company knows of no other person who is in default in the observance or
performance of any term or obligation to be performed by it under any material
contract with the Company. No bid or contract proposal has been made by the
Company that, if accepted or entered into, might result in a loss to the
Company. The Company has delivered to the Investor true and complete copies of
all contracts listed in Schedule 3.10 as in effect on the date hereof.
3.11 Returns and Complaints. The Company has received no
material customer complaints concerning its products and/or services, nor has it
had any of its products returned by a purchaser thereof.
3.12 Litigation. Except as provided in Schedule 3.12, there is
no action, suit, proceeding or investigation pending or currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of the
Company, financially or otherwise. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
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3.13 Proprietary Information Agreements. Each employee and
officer of the Company has executed a Proprietary Information and Inventions
Agreement in the form as attached hereto as Exhibit I. The Company, after
reasonable investigation, is not aware that any of its employees are in
violation thereof, and the Company will use reasonable, good faith efforts to
prevent any such violation.
3.14 Key-Man Agreement With ▇▇. ▇▇▇▇ ▇▇▇▇▇. ▇▇. ▇▇▇▇ ▇▇▇▇▇ and
the Company have entered into a "Key-Man" Employment, Proprietary Information
and Materials Agreement in the form as attached hereto as Exhibit J. The
"Key-Man" Employment Agreement provides that in the event of death, any physical
or mental disability or termination by the Company, without cause (as defined
therein), which renders Executive unable to fulfill his duties thereunder, the
Company shall, in good faith, liquidate Executive's stock ownership interest in
the Company (as provided in the agreement) and payment therefore shall be made
to Executive, Executive's spouse, his attorney in fact, his personal
representative, his guardian, or any other such person legally authorized to
receive monetary payments due and owing to Executive.
3.15 Patents and Trademarks. To the best of its knowledge, the
Company has sufficient title and ownership of all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the material terms, conditions or
provisions of, or constitute a default under, any material contract, covenant or
instrument under which any of such employees is now obligated. The Company does
not believe it is or will be necessary to utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company.
3.16 Compliance with Laws and Other Instruments. The Company
is not in violation or default of any provisions of its Articles of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
material contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the
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Company which either individually or in the aggregate would have a material
adverse effect on the assets, condition, affairs or prospects of the Company.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or material contract or an event which results in
the creation of any lien, charge or encumbrance upon any assets of the Company.
3.17 Agreements, Action.
(a) Except for agreements explicitly contemplated
hereby, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates or any affiliate
thereof;
(b) There are no agreements, understandings,
instruments, contracts, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound which may involve (i) obligations (contingent
or otherwise) of, or payments to the Company in excess of, $10,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company;
(c) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
3.18 Misstatements or Omissions. Neither this Agreement nor
any 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. There is no fact that affects,
or in the future might reasonably be expected to affect, adversely the condition
(financial or otherwise), operations (present or prospective), business (present
or prospective), properties, assets or liabilities of the Company in any
material respect that is not set forth in this Agreement or in the Schedule of
Exceptions.
3.19 Registration Rights. Except as provided in Section 9 of
this Agreement, the Company has not heretofore granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
3.20 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investor), the Articles of
Incorporation and Bylaws of the Company are in the form previously provided to
counsel for the Investor.
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3.21 Title to Property and Assets. At Closing, the Company
will own its property and assets free and clear of all mortgages, liens, loans
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and which do not materially impair the Company's ownership or
use of such property or assets, and except as set forth in this Agreement. With
respect to the property and assets it leases, the Company is in compliance with
such leases and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances.
3.22 Tax Returns Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith which are
listed in the Schedule of Exceptions, and certain payroll taxes which shall be
paid on or shortly after the Closing Date with funds realized through this
transaction. No Event of Default, as defined hereunder shall be declared for
failure to pay taxes outstanding at the time of the signing of this Agreement,
unless such taxes are still outstanding 30 days after the conveyance to the
Company of the Loan Proceeds. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as amended ("Code"), to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which would have a material effect on the Company,
its financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets.
3.23 Insurance. The Company maintains insurance of the type
and in amounts customarily maintained by similarly situated businesses which it
deems adequate for its business as presently conducted and as proposed to be
conducted, including, without limitation, general liability insurance and
insurance covering all risks customarily insured against by businesses that
are-similarly situated, all of which insurance is in full force and effect.
3.24 Minute Books. The minute books of the Company provided to
the Investor contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
3.25 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company ending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the assets, properties, financial condition,
operating results or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The Company is not aware
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing.
- 12 -
3.26 Management and Employee Stock Option Plan. The Company
has not ever had a management or employee benefit or stock option plan. The
employee stock option plan to be implemented in the future will be issued in the
form of 100,000 shares of Company Stock reserved therefore, as provided
hereinabove. The Company affirmatively represents that it will establish a stock
option plan providing for a total of 10% stock ownership by certain employees
and directors of the Company, funded with 100,000 shares of Stock.
3.27 Bank Accounts; Powers of Attorney. Schedule 3.27 sets
forth (i) the name of each bank in which the Company has an account or safe
deposit box and the names of all persons authorized to draw thereon or to have
access thereto; and (ii) the names of all persons, if any, holding powers of
attorney from the Company and a summary statement of the terms thereof.
3.28 Accounting Practices. The Company makes and keeps
accurate books and records reflecting its assets and maintains internal
accounting controls that provide reasonable assurance that (i) transactions are
executed with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of the Company's financial statements and to
maintain accountability for the assets of the Company; (iii) access to the
assets of the Company is permitted only in accordance with management's
authorization; and (iv) the reported accountability of the assets of the Company
is compared with existing assets at reasonable intervals.
3.29 Debt to Maxis Corporation. The Company shall use the
proceeds received from Investor to immediately pay the full amount of the
Company's indebtedness to Maxis Corporation in the amount of $410,771.01, owed
pursuant to that certain agreement between the Company and Maxis Corporation
dated December 30, 1993, and to immediately obtain a release of all liens held
by Maxis Corporation thereunder, or to assign said liens to Investor.
4. RePresentations and Warranties of the Investor. Investor hereby
represents and warrants that:
4.1 Authorization. This Agreement constitutes Investor's valid
and legally binding obligation, enforceable in accordance with its terms.
4.2 Purchase EntirelY for Own Account; Assignment. This
Agreement is made with the Investor in reliance upon Investor's representation
to the Company, which by Investor's execution of this Agreement Investor hereby
confirms, that the Stock will be acquired for investment for Investor's own
account, without a view to or for sale in connection with any distribution of
the security which would require registration thereof. Investor represents that
it has full power and authority to enter into this Agreement. The Company
acknowledges and agrees that either the debt or equity provided for hereunder,
or any combination of debt and equity, may be assigned by Investor, in its sole
discretion, subject to subsection 4.7, hereinbelow.
4.3 Disclosure of Information. The Investor further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Stock. The
foregoing, however, does not limit or modify the representations and warranties
- 13 -
of the Company in Section 3 of this Agreement or the right of the Investors to
rely thereon.
4.4 Investment Experience. Investor is an investor in
securities of companies in the development stage and can bear the economic risk
of its investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Stock. Investor is an "accredited investor" as that term is defined under
the federal and state securities laws. Investor also represents it has not been
organized for the sole purpose of acquiring the Stock.
4.5 Right of First Refusal. Investor warrants and represents
that in the case that Investor desires to sell any portion of Company Stock
received hereunder, the Company, and then ▇▇. ▇▇▇▇ ▇▇▇▇▇, shall have the right
of first refusal to purchase the Stock on the same terms and conditions offered
to other purchasers. The right of first refusal shall be effective for twenty
(20) days following notice under Section 15.6 hereof.
4.6 Restricted Securities. Investor understands that the
shares of Stock are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances.
4.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Investor further agrees not to
make any disposition of all or any portion of the Stock unless and until the
transferee has agreed in writing to be bound by the terms of this Agreement and:
(a) if reasonably requested by the Company, Investor
shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144, except in
unusual circumstances;
(b) Notwithstanding the provisions of subparagraph
(a) above, and unless otherwise required by law, no such opinion of counsel
shall be necessary for a transfer by Investor which is a partnership to a
partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner
or the transfer by gift, will or intestate succession of any partner to his
spouse or to the siblings, lineal descendants or ancestors of such partner or
his spouse, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he were an original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing
the Stock may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933. They may not be sold, offered for sale, pledged or
- 14 -
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act.
(b) Any legend required by the laws of the State of
California and any applicable Blue Sky laws of various other states and
jurisdictions.
5. California Commissioner of Corporations.
5.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6. Conduct of Business Pending Closing. From the date hereof until the
Closing, except as consented to by Investor in writing:
(i) the Company shall maintain itself at all times as a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction under which it is incorporated;
(ii) the Company shall carry on its business and operations in
a good and diligent manner on an arm's-length basis and substantially in the
manner carried on as of the date hereof and the Company shall not engage in any
activity or transaction or make any commitment to purchase or spend other than
in the ordinary course of its business as heretofore conducted; provided,
however, without the prior written consent of Investor, the Company shall not
make any commitment to purchase or spend involving $10,000 or more;
(iii) the Company shall not declare, authorize or pay any
distribution or dividend to its stockholders and the Company shall not issue,
redeem, purchase or otherwise acquire, or agree to issue, redeem, purchase or
otherwise acquire, any shares of stock of the Company;
(iv) the Company shall not pay or obligate itself to pay any
compensation, commission or bonus to any director, officer, employee or
independent contractor as such, except for the regular compensation and
commissions payable to such director, officer, employee, agent or independent
contractor at the rate in effect on the date of this Agreement or adopt or amend
any plan, program, fund, arrangement or contractual undertaking;
(v) the Company shall continue to carry all of its existing
insurance;
(vi) the Company shall use its best efforts to preserve its
business organization intact, to keep available to Investor the services of its
- 15 -
employees, agents and independent contractors and to preserve for Investor its
relationships with suppliers, licensees, distributors and customers and others
having business relationships with it;
(vii) the Company shall not, nor shall it obligate itself to,
sell or otherwise dispose of or pledge or otherwise encumber, any of its
properties or assets except in the ordinary course of business and the Company
shall maintain its facilities in good operating condition and repair, subject
only to ordinary wear and tear;
(viii) the Company shall not amend its Articles of
Incorporation or By-Laws; provided, however, that the Company may amend its
Articles of Incorporation and By-Laws as provided in this Agreement;
(ix) the Company shall not engage in any activity or
transaction other than in the ordinary course of its business as heretofore
conducted; and
(x) without limiting the foregoing, the Company shall consult
with Investor regarding all significant developments, transactions and proposals
relating to the business or operations or any of the assets or liabilities of
the Company.
7. Conditions Precedent to the Investor's Obligations at Closing. The
obligations of the Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions:
7.1 Representations and Warranties. The representations and
warranties of the Company contained in Section-3 shall be true on and as of the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
7.2 Performance. The Company 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.
7.3 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate certifying that the
conditions specified in Sections 7.1 and 7.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since June
30, 1994, except for the obligations incurred by the Company under the Bridge
Loan and Amended Bridge Loan, which obligations are assumed hereunder.
7.4 Qualifications. Consent or approval of all relevant Blue
Sky authorities shall have been obtained with respect to the offer and sale of
the Stock to the Investor pursuant to this Agreement, or such offer and sale
shall be exempt from such consent or approval.
7.5 Proceedings and Documents. 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 Investor's counsel.
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7.6 Proprietary Information and Key-Man Employment Agreements.
Each employee of the Company shall have entered into a Proprietary Information
and Inventions Agreement in the form attached hereto as Exhibit I. ▇▇. ▇▇▇▇
▇▇▇▇▇ shall have entered into the Employment Agreement in the form attached
hereto as Exhibit J.
7.7 Board of Directors/Employment of Officers. The Company
shall agree that ▇▇. ▇▇▇▇ ▇▇▇▇▇, or his nominee, as Chairman of the Board of
Directors, shall nominate the board of directors, which will include ▇▇. ▇▇▇▇
▇▇▇▇▇, and one other person designated by ▇▇. ▇▇▇▇ ▇▇▇▇▇. ▇▇▇▇ ▇▇▇▇▇, as
President and Chief Executive Officer of the Company shall agree to employ a
Chief Operating Officer and Chief Financial Officer, acceptable to Investor,
within a reasonable time.
7.8 Opinion of Company Counsel. Investor shall have received
from ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C., counsel for the Company, an
opinion, dated as of the Closing, in form and substance satisfactory to counsel
to the Investor, which opinion may be reasonably based on information provided
by the Company, and after due diligence review thereof, substantially to the
effect that:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
and the Company has the requisite corporate power and authority to own its
properties and to conduct its business;
(b) The Company has the requisite corporate power and
authority to execute, deliver and perform this Agreement. The Agreement has been
duly and validly authorized by the Company, duly executed and delivered by an
authorized officer of the Company and constitutes a legal, valid and binding
obligation of the Company. Subject to bankruptcy and other laws of general
application affecting the rights and remedies of creditors, the Agreement is
enforceable according to its terms, except insofar as the enforceability of the
indemnification provisions of this of the Agreement may be limited by applicable
laws and except that no opinion need be given as to the availability of
equitable remedies;
(c) The capitalization of the Company as of the
Closing is as follows:
(i) Stock. 1,000,000 shares of post-split Stock, no
par value. 550,000 shares of Stock have been purchased by the Investor pursuant
to this Agreement. Such 550,000 shares of Stock have been duly authorized and
are validly outstanding, and have been approved by all requisite Company and
stockholder action. 350,000 shares of Stock have been issued to ▇▇. ▇▇▇▇ ▇▇▇▇▇
and are duly authorized and are validly outstanding, and have been approved by
all requisite Company and stockholder action. 100,000 shares of Stock are hereby
designated as reserved for conveyance to an employee stock option plan to be
established in the future, and such action has been approved by all requisite
Company and stockholder action. The respective designations, powers,
preferences, rights, qualifications, limitations or restrictions of the Stock
are as stated in the Company's Amended Articles of Incorporation attached as
Exhibit A;
- 17 -
(ii) other than as provided in the Amended Articles
of Incorporation, there are no preemptive rights or, to the best of counsel's
knowledge, options, warrants, conversion privileges or other rights (or
agreements for any such rights) outstanding to purchase or otherwise obtain any
of the Company's securities;
(d) The certificates representing shares of the Stock
and the Pledged Stock are in due and proper form and have been duly and validly
executed by the officers of the Company named thereon;
(e) The execution, delivery, performance and
compliance with the terms of this Agreement do not violate any provision of any
applicable state or, to the best of such counsel's knowledge, local law, rule or
regulation or any provision of the Company's Amended Articles of Incorporation
or Bylaws and, which violation may individually or in the aggregate have a
material adverse effect on the assets, condition, affairs or prospects of the
Company, and to the best of such counsel's knowledge, do not conflict with or
constitute a default under the provision of any judgment, writ, decree, order or
agreement to which the Company is a party or by which it is bound;
(f) All consents, approvals, orders or authorizations
of, and all qualifications, registrations, designations, declarations or filings
with, any federal or state governmental authority on the part of the Company
required in connection with the consummation of the transactions contemplated by
this Agreement have been obtained, and are effective, as of the Closing, except
the filing required by Section 25102(f) of the California Corporate Securities
Law of 1968, as amended, and such counsel is not aware of any proceedings, or
threat thereof, which question the validity thereof;
(g) Based in part upon the representations of the
Investor, the offer and sale of the Stock pursuant to the terms of this
Agreement are exempt from: (i) the registration requirements of Section 5 of the
Securities Act of 1933, as amended, by virtue of Section 4(2) and Regulation D
thereof; and (ii) the qualification requirements of the California Corporate
Securities Law of 1968, as amended, by virtue of Section 25102(f) thereof;
(h) Except as set forth in the Schedule of
Exceptions, such counsel is not aware that there is any action, proceeding or
investigation pending, against the Company or any of its officers, directors or
employees, or that any of the foregoing has received any threat thereof, which
questions the validity of the Agreement, the Proprietary Information and
Inventions Agreements or the right of the Company or its officers, directors and
employees to enter into such agreements or which might result, either
individually or in the aggregate, in any material adverse change on the assets,
condition, affairs or prospects of the Company, nor is such counsel aware of any
litigation pending, against the Company or any of its officers, directors or
employees, by reason of the proposed activities of the Company, the past
employment relationships of its officers, directors or employees, or
negotiations by the Company or any of its officers or directors with possible
investors in the Company or its business;
(i) The Proprietary Information and Inventions
Agreements have each been duly authorized, executed and delivered by the Company
and, with
- 18 -
respect to the Key-Man and Proprietary Information and Inventions Agreements for
▇▇. ▇▇▇▇▇, such Key-Man Agreement has been duly executed and delivered;
(j) Neither the Company's Articles of Incorporation,
nor the Amended Articles of Incorporation, nor Bylaws of the Company are in
violation of any provision of the California Corporations Code; (k) Upon payment
for and delivery of the Stock with all necessary endorsements in accordance with
the terms of this Agreement, and assuming Investor the Stock in good faith
without notice of any adverse claim, Investor will be the owner of the shares,
free and clear of any adverse claim; (l) Except as set forth in the Schedule of
Exceptions, such counsel knows of no litigation, proceeding or investigation
pending, threatened or proposed in any manner involving the Company or any of
the assets of the Company, or which questions the validity of this Agreement or
any action taken by the Company under this Agreement; (m) As to such other
matters (including the form of all documents and the validity of all
proceedings) incident to the matters herein contemplated as Investor and its
counsel may reasonably request. 7.9 No Right of First Refusal/Co-Sale Agreement.
Other than as set forth herein, there are no other agreements providing for a
right of first refusal or cosale as to a sale of shares of the Company. 7.10
Small Business Administration Issues. Issues related to the regulations of the
Small Business Administration, if any, shall be resolved to the reasonable
satisfaction of Investor. 7.11 Key-Man Life Insurance: Directors and Officers
Coverage. The Company shall use reasonable efforts to procure a life insurance
policy in the amount of $5,000,000 on the life of ▇▇. ▇▇▇▇ ▇▇▇▇▇, with proceeds
payable to the Company, or in such lesser amounts as may be approved by the
company writing the policy, with the approval of Investor. The Company shall use
reasonable efforts to obtain directors' liability insurance in the amount of
$1,000,000.00. 7.12 Investigation. All matters relating to Investor's
investigation of the Company shall have been completed, and the results of such
investigation shall be satisfactory to Investor and its counsel in all respects.
7.13 Adverse Chance. There shall have occurred no adverse change in the
business, prospects, financial status or affairs of the Company, which in the
sole judgment of the Investor, renders it inadvisable to perform under this
Agreement. 7.14 Amendment of By-Laws. The By-Laws of the Company shall be
amended such that Investor has the right to call meetings of the shareholders of
the Company, or meetings of the Board of Directors of the Company, at Investor's
discretion. As long as the Loan provided for herein-is outstanding, this power
shall not be abrogated. Further, as long as Investor owns greater than 20% of
the shares of the Company, this power shall not be abrogated. The By-Laws shall
be further amended to provide for the increase to 5 of the number of members of
the Board of Directors. 7.15 Investor's Dragging Right. The Company and ▇▇. ▇▇▇▇
▇▇▇▇▇, as President, agree that if, at any time, ▇▇. ▇▇▇▇ ▇▇▇▇▇ has an offer to
sell any of his stock, Investor hereby acquires a dragging right which requires
that shares of Investor Stock will be sold in proportion to those offered to any
prospective purchaser equally to those sold by ▇▇. ▇▇▇▇ ▇▇▇▇▇, and on the same
terms and conditions.
- 19 -
8. Conditions of the Company's Obligations at Closing. The obligations of the
Company to the Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by that Investor: 8.1
Representations and Warranties. The representations and warranties of the
Investor contained in Section 4 shall be true on and as of the date 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. 8.2 Payment of Purchase Price.
The Investor shall have delivered the purchase price specified in Section 1.2.
8.3 Qualification. Consent or approval of all relevant Blue Sky authorities
shall have been obtained with respect to the offer and sale to the Investor of
the Stock, or such offer and sale shall be exempt from such consent or approval.
9. Registration Rights. The Company covenants and agrees as follows:
9.1 Definitions. For purposes of this Section 9:
(a) The term "register," "registered" and "registration refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Act, and the declaration or ordering of effectiveness of
such registration statement or document;
(b) The term "Registrable Securities" means (1) the 350,000 shares of Stock held
as of this date by ▇▇▇▇ ▇▇▇▇▇, which individual shall, as a condition to
receiving these registration rights, agree to be bound by the terms hereof, (the
"Founder"); provided, however, that all such shares of Stock shall not be deemed
Registrable Securities, and the aforementioned individual shall not be deemed
a Holder, as defined below, for the purposes of Sections 9.2, 9.6, 9.12 and 9.14
hereof; (2) the Stock issuable or issued to Investor upon consummation of this
Agreement; and (3) any Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the securities identified in (1) or (2) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 9 are not assigned; provided, that such
Stock issued or issuable with respect to the securities identified in (1) above
shall not be deemed Registrable Securities and the holders of such Stock shall
not be deemed Holders, as defined below, for purposes of Sections 9.2, 9.6, 9.12
and 9.14 hereof;
(c) The number of shares of "Registrable Securities then outstanding" shall be
determined by the number of shares of Stock outstanding which are, and the
number of shares of Stock issuable pursuant to then exercisable or convertible
securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to acquire
Registrable Securities or any assignee thereof in accordance with Section 9.13
hereof; and
(e) The term "Form S-3" means such form under the Act as is in effect on the
date hereof or any registration form under the Act subsequently adopted by the
Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
9.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i) September
1, 1995, or (ii) thirty (30) days after the Company notifies the Holders that it
will file a first registration statement for a public offering of securities
- 20 -
of the Company (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a SEC Rule 145 transaction), a written request from
the holders of at least fifty percent (50%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty percent (20%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$2,500,000.00), pursuant to a firm commitment underwriting with an underwriter
of nationally recognized standing, then the Company shall, within ten (10) days
of the receipt thereof, give written notice of such request to all Holders and
shall, subject to the limitations of subsection 9.2(b), effect as soon as
practicable, and in any event shall use its best efforts to file within one
hundred twenty (120) days in the case of an initial public offering and in all
other cases within sixty (60) days of the receipt of such request, a
registration statement under the Act covering all Registrable Securities which
the holders request to be registered within twenty (20) days of the mailing of
such notice by the Company in accordance with paragraph 15.6; (b) The
underwriter will be selected by a majority in interest of the Holders initiating
the registration request hereunder (the "Initiating Holders") and shall be
reasonably acceptable to the Company. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in subsection 9.4(e))
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other provision
of this Section 9.2, if the underwriter advises the Initiating holders that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all holders thereof, including the
Initiating holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting; (c) The Company is obligated to effect only
three (3) such registrations pursuant to this Section 9.2; (d) Notwithstanding
the foregoing, if the Company shall furnish to Holders requesting a registration
statement pursuant to this Section 9.2, a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than one hundred
twenty (120) days in the case of an initial public offering and in all other
cases within sixty (60) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
- 21 -
9.3 Company Registration. If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than (i) a registration relating solely to the
sale of securities to participants in a Company stock plan; (ii) a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities; or (iii) a registration in which the only Stock being
registered is Stock issuable upon conversion of convertible debt securities
which are also being registered) the Company shall, at such time, promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 15.6, the Company shall, subject to the
provisions of Section 9.8, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
9.4 Obligations of the Company. Whenever required under this Section 9 to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible: (a) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best ▇▇▇▇▇▇▇.▇▇ cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days; (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement; (c) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them; (d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions; (e) In the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement; (f)
Notify each Holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing. 9.5 Furnish
Information.
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(a) It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Section 9 with respect to the Registrable Securities
of any selling Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities; (b) The Company shall
have no obligation with respect to any registration requested pursuant to
Section 9.2 or Section 9.12 if, due to the operation of subsection 9.5(a), the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in subsection 9.2(a) or subsection 9.12(b) (2), whichever is
applicable. 9.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 9.2, including
(without limitation) all registration, filing and qualification fees, printer's
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. 9.7 Expenses of Company Registration. The Company shall
bear and pay all expenses incurred in connection with any registration, filing
or qualification of Registrable Securities with respect to the registrations
pursuant to Section 9.3 for each Holder (which right may be assigned as provided
in Section 9.13 hereof) including, without limitation, all registration, filing
and qualification fees, printer's and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by the holders of a majority of the Registrable Securities to be
included in such registration, but excluding underwriting discounts and
commissions relating to Registrable Securities. 9.8 Underwriting Requirements.
In connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under Section 9.3 to
include any of the Holders' securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders; provided, however, for purposes of
such pro rata apportionment the Founder shall be deemed to own only 50% of the
Registrable Securities that he would be otherwise entitled to include in such
registration); provided that the underwriters furnish to the selling Holders a
statement certifying that, in the
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judgment of the underwriters, the inclusion of such securities would have a
material adverse effect on the offering, but in no event shall (i) the amount of
securities of the selling Holders included in the offering be reduced by
operation of this Section 9.8 below thirty percent (30%) of the total amount of
securities included in such offering, unless such offering is the initial public
offering of the Company's securities in which case the selling stockholders may
be excluded if the underwriters make the determination described above and no
other stockholder's securities are included or (ii) notwithstanding (i) above,
any shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 9.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and stockholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such selling stockholder," as defined in this sentence.
9.9 Delay of Registration. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 9. 9.10 Indemnification and Contribution. In the
event any Registrable Securities are included in a registration statement under
this Section 9: (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities laws or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities laws, and the Company will pay to each
such Holder, underwriter or controlling person, as and when incurred, any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 9.10(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it (a) arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished
- 24 -
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person or (b) arises out of any untrue statement or
alleged untrue statement or omission or alleged omission contained in any
preliminary prospectus which is corrected in the final prospectus; (b) To the
extent permitted by law, each selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as and when incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 9.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 9.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; and provided further, that, in
no event shall any indemnity under this subsection 9.10(b) exceed the gross
proceeds from the offering received by such Holder; (c) Promptly after receipt
by an indemnified party under this Section 9.10 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 9.10, deliver to the indemnifying party a written notice of the
commencement thereof and the ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇▇▇ shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.10; (d) If the
indemnification provided for in this Section 9.10 is unavailable to an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
- 25 -
relative benefits received by the Holders and the underwriters from the offering
of the Registrable Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as if appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Holders and of the underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Holders and the underwriters
shall be deemed to be in the same respective proportions as the net proceeds
from the offering (before deducting expenses) received by each of the Company,
and the Holders and the total underwriting discounts and commissions received by
the underwriters, bear to the aggregate public offering price of the Shares. The
relative fault of the Holders and the underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders agree that it would
not be just and equitable if contribution pursuant to this Section 9.10 were
determined by pro rata allocation (even if the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section ll(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation; (e) The
obligations of the Company and Holders under this Section 9.10 shall survive the
completion of any offering of Registrable Securities in a registration statement
under this Section 9, and otherwise. 9.11 Reports Under Securities Exchange Act
of 1934. With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to: (a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public; (b) take such action,
including the voluntary registration of its common stock under Section 12 of the
1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale
of their Registrable Securities, such action to be taken as soon as practicable
after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective; (c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and (d)
furnish to any Holder, so long as the Holder owns any Registrable Securities,
forthwith upon request (i) a written statement by the Company that
- 26 -
it has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form. 9.12 Form S-3
Registration. In case the Company shall receive from the Holder or Holders of at
least twenty percent (20%) of the then outstanding Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will: (a)
promptly give written notice of the proposed registration, and any related
qualification or compliance, to all other Holders; and (b) as soon as
practicable, effect such registration and all such qualifications and
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified on such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 9.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $400,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 9.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve (12) month period; (4) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one
registration on Form S-3 for the Holders pursuant to this Section 9.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance; (c) Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to
Section 9.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
- 27 -
Company shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration. Registrations effected pursuant to this Section 9.12
shall not be counted as demands for registration or registrations effected
pursuant to Sections 9.2 or 9.3, respectively. 9.13 Assignment of Registration
Rights. The rights to cause the Company to Register Registrable Securities
pursuant to this Section 9 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee as long as such transferee
or assignee acquires at least 100,000 shares of Registrable Securities, or less,
if all of such transferor's then Registrable Securities then outstanding,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act and provided, further,
that such transferee will only be entitled to make one (1) request for
registration hereunder. The share limitation shall not apply, however, to
transfers by a Holder to stockholders or partners of such Holder or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his spouse or lineal descendants or
ancestors, if all such transferees or assignees agree in writing to appoint a
single representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Section 9. 9.14 Limitations on
Subsequent Registration Rights. From and after the date of this Agreement, the
Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 9.2 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 9.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 9.2.
9.15 "Market Stand-Off" Agreement. Investor hereby agrees that, during the
period of duration specified by the Company and an underwriter of Stock or other
securities of the Company, but in no event more than one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Act, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Stock included in such registration; provided, that:
(a) such agreement shall be applicable only to the first such registration
statement of the Company which covers Common Stock (or other securities) to be
sold on its behalf to the public in an underwritten offering; and
- 28 -
(b) all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements. In order to enforce the foregoing covenant, the Company may
impose stop transfer instructions with respect to the Registrable Securities of
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. 9.16 Amendment of
Registration Rights. Any provision of this Section 9 may be amended and the
observance thereof 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 at least eighty percent (80%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities and the
Company. 9.17 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 9 after five (5) years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial underwritten
offering of its securities to the general public. 10. Covenants of the Company.
10.1 Positive Loan Covenants. The Company covenants and agrees that as long as
the Loan is due and outstanding to Investor, and until the full and final
payment of all indebtedness incurred by the Company under this Agreement and all
agreements related hereto, has been made, it will, unless Investor waives
compliance in writing: (a) Use the proceeds of the Loan to immediately pay the
full amount of the Company's indebtedness to Maxis Corporation in the amount of
$410,771.01 owed by the Company to Maxis pursuant to that certain agreement
between the Company and Maxis Corporation dated December 30, 1993 set forth in
full in Schedule 3.08, and to immediately obtain a release of all liens
presently held by Maxis Corporation; (b) Repay principal of, and interest on,
the Loan according to the terms of this Agreement and the terms of the Note;
(c) Promptly give written notice to Investor of: (i) all litigation affecting
the Company when the amount claimed is $10,000 or more; (ii) any substantial
dispute which may exist between the Company and any governmental regulatory body
or law enforcement authority; (iii) any labor controversy resulting in or
threatening to result in a strike against the Company; (iv) any proposal by any
public authority to acquire the Company's assets or business or to engage in
activities competitive with the Company; (v) any Event of Default or any event
which, on a lapse of time or notice or both, would become an Event of Default;
and (vi) any other matter that has resulted or might result in a material
adverse change in the Company's financial condition or operations; (d) Perform
such acts as may be necessary or advisable to perfect any lien or security
interest provided for in this Agreement or otherwise to carry out the intent of
this Agreement; (e) Maintain and preserve its corporate existence and all
rights, privileges and franchises now enjoyed, conduct its businesses in an
orderly, efficient and customary manner, keep all of its properties in good
working order and condition, and from time to time make all needed repairs to,
and renewals or
- 29 -
replacements of, its properties so that the efficiency of those properties shall
be fully maintained and preserved; (f) Pay all obligations, including tax
claims, at maturity, unless the obligation to make such payment or payments is
in good faith being disputed or is being contested by appropriate proceedings
with due diligence; (g) Maintain and keep in force in adequate amounts fire
(including use and occupancy), public liability, property damage and workers'
compensation insurance, which must be satisfactory to Investor as to amount,
nature and carrier, and deliver to Investor a schedule certified to be correct
by a responsible officer of the Company setting forth all insurance in force as
of the date of the schedule; (h) Maintain adequate books, accounts and records
and prepare all financial statements required under this Agreement in accordance
with generally accepted accounting principles and practices consistently
applied, and in compliance with the regulations of any governmental regulatory
body having jurisdiction over them; and permit employees or agents of Investor
at any reasonable time to inspect the Company's properties, and to examine or
audit the Company's books, accounts and records and make copies and memoranda of
them; (i) Agree that regardless of Company Stock ownership of the clients of
Investor, or the sale of Company Stock to those not clients of Investor, that
▇▇. ▇▇▇▇ ▇▇▇▇▇, or his nominee, as Chairman of the Board of Directors, shall
nominate the board of directors, which shall include ▇▇. ▇▇▇▇ ▇▇▇▇▇, and one
person designated by ▇▇. ▇▇▇▇ ▇▇▇▇▇; (j) Agree that ▇▇. ▇▇▇▇ ▇▇▇▇▇ shall remain
Chairman of the Board of Directors. 10.2 Negative Loan Covenants. The Company
covenants and agrees that as long as the Loan provided for by this Agreement and
all agreements related hereto shall remain due and outstanding, and until full
and final payment of all indebtedness incurred by the Company payable to
Investor under this Agreement has been made, it will not, without the prior
written consent of Investor: (a) Declare or pay any dividends on any of its
shares; (b) Purchase, redeem or otherwise acquire for value, any of the
Company's shares, or create any sinking fund in relation to any of the Company's
shares; (c) Liquidate or dissolve the Company, or enter into any consolidation,
merger, pool, joint venture, syndicate or other combination, or sell, lease or
dispose of the Company's business or assets as a whole or such part as in the
opinion of Investor constitutes a substantial portion of the Company's business
or assets; (d) Except as provided in this Agreement, create or incur any
indebtedness for borrowed money, or become liable as a surety, guarantor,
accommodation endorser or otherwise, for or on the obligation of any other
person, firm or corporation; provided, however, that this section shall not
prohibit: (i) the acquisition of goods, supplies or merchandise related to the
Company's business on normal credit; (ii) the execution of bonds, undertakings
or contracts in the usual course of the Company's business; or (iii) the
endorsement of negotiable instruments received in the usual course of the
Company's business; (e) Create, assume or suffer to exist any mortgage,
encumbrance or other lien (including a lien of attachment, judgment or
execution), or security interest (including the interest of a conditional seller
of goods), securing a charge or obligation, on or of any of their property, real
or personal, whether now owned or hereafter acquired, except: (i) any lien or
charge for current tax, assessment or other governmental charge, which is not
delinquent or remains payable without any penalty, or the validity of which is
contested in good faith
- 30 -
by appropriate proceedings on stay of execution of the enforcement of the lien
or charge; (ii) deposits or pledges to secure (a) statutory obligations, (b)
surety or appeal bonds, (c) bonds for release of attachment r stay of execution
or injunction, or (d) performance of bids, tenders, contracts (other than for
the payment of borrowed money) or leases, or for purposes of like general nature
in the ordinary course of the Company's business; (iii) Purchase-money security
interests in Company personal property acquired for a purchase price of less
than $10,000.00 after the date of this Agreement when the obligation secured
does not exceed 90 percent of the cost of the property purchased and the
security interest does not extend beyond the property purchased; (f) Dispose of
any of its substantial assets not in the ordinary course of business, or any
assets for a purchase price of greater than $3,000.00; (g) Expend or incur
obligations not set forth in the Company's yearly budget plan, or expend or
incur obligations in excess of $30,000.00 for the acquisition of fixed or
capital assets not set forth in the Company's yearly budget plan, purchases
subject to ratification by the board of directors, or the leasing of fixed or
capital assets, except if such acquisition is in replacement of capital assets
presently held or acquired after the date of this Agreement, only the net
expenditure or obligation over the case or credit received for the assets so
replaced shall be taken into account under this section; (h) Except as provided
for herein, allow any of the Loan proceeds to be used to pay for any personal or
incidental expenses of the Company's officers, directors or control persons; (i)
As further explained in Schedule 10.2 (i), enter into any joint ventures or
partnerships that are not in the ordinary course of business or that involve
vertical markets, horizontal markets or geographical licenses, or purchase, or
contract to purchase any property that involves a material capital investment,
or enter into any contracts producing a net income loss, without prior approval
of the Board of Directors; (j) Create a subsidiary outside of the territorial
jurisdiction of the United States without approval of the Board of Directors of
the Company; (k) Repurchase any shares of Stock of the Company; (l) Engage in
any transaction with an officer, director, employee or shareholder; (m) Make
investments in, loans or advances to, or guarantees of the obligations of, any
persons or corporations, other than to shareholders or employees, except for
investments with a maturity period not in excess of one year in: (i) prime
commercial paper; (ii) qualified certificates of deposits; or (iii) obligations
of the United States or its agencies, or obligations guaranteed by the United
States; (n) Enter into any employment agreements for officer or nonofficer
employees, provided, however, that ▇▇. ▇▇▇▇ ▇▇▇▇▇ is authorized to hold the sole
discretion to hire in his best business judgment, so long as the agreement is an
"at-will" agreement, terminable by the Company at any time, contains no
guarantee of payment past the date of termination and is limited to payment of
salary, regular Company benefits and stock options; (o) Create any new class of
shares; (p) Subdivide or reclassify the Stock or the Pledged Stock into a
greater number of shares of such class or combine or reclassify the then
outstanding shares of Stock into a smaller number of shares of such Stock; (g)
Sell or authorize for sale any Stock not issued and outstanding as provided in
this agreement, except for Stock under the Company employee stock option plan;
- 31 -
(r) Amend its Articles of Incorporation or By-Laws, except as provided for
herein. 10.3 Delivery of Financial Statements. The Company shall deliver to
Investor: (a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles in a manner consistent with prior periods, and audited and certified
by independent public accountants of nationally recognized standing selected by
the Company; (b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter; (c) within thirty (30) days
of the end of each month, an unaudited income statement and schedule as to the
sources and application of funds and balance sheet for and as of the end of such
month, in reasonable detail; (d) as soon as practicable, but in any event thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and (e)
such other information relating to the financial condition, business, prospects
or corporate affairs of the Company as the Investor or any assignee of the
Investor may from time to time request, provided, however, that the Company
shall not be obligated under this subsection (e) or any other provision of
subsection 10.3 to provide information to an assignee of Investor which it deems
in good faith to be a trade secret or similar confidential information. 10.4
Inspection. The Company shall permit Investor, at Investor's expense and during
regular working hours, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this subsection 10.4 to provide access to an assignee of Investor to
any information which it reasonably considers to be a trade secret or similar
confidential information. 10.5 Termination of Information and Inspection
Covenants. The covenants set forth in Sections 10.3 and 10.4 shall terminate as
to Investor and be of no further force or effect only when the Loan is paid in
full and when Investor ceases to hold at least a 5% stock ownership interest in
the Company. 10.6 Initial Public Offering. The initial public offering of the
Company's Common Stock shall be pursuant to a firm commitment underwriting with
an underwriter of nationally recognized standing, pursuant to a registration
statement on Form S-1 or Form SB-2 or any successor forms thereto under the
Securities Act of 1933, as amended, which results in aggregate gross proceeds of
at least $2,500,000.00 at a per share public offering price of not less than
$10.00 (adjusted to reflect subsequent stock dividends, stock splits and
recapitalization). 10.7 Surviving Negative Covenants. So long as 20% of Company
Stock is owned by Investor, regardless of the state of the Loan provided for
hereunder, the Company shall not, without the prior written consent of the
Investor:
- 32 -
(a) As further explained in Schedule 10.2 (i), enter into any joint ventures or
partnerships that are not in the ordinary course of business or that involve
vertical markets, horizontal markets or geographical licenses, or purchase, or
contract to purchase, any property that involves a material capital investment,
or enter into any contracts producing a net loss, without prior approval of the
Board of Directors; (b) Create a subsidiary outside of the territorial
jurisdiction of the United States without the approval of the Board of
Directors; (c) Repurchase any shares of Common Stock of the Company; (d) Engage
in any transaction with an officer, director, employee or shareholder; (e) Make
investments in, loans or advances to, or guarantees of the obligations of, any
persons or corporations, other than to shareholders or employees, except for
investments with a maturity period not in excess of one year in: (i) prime
commercial paper; (ii) qualified certificates of deposits; or (iii) obligations
of the United States or its agencies, or obligations guaranteed by the United
States, (f) Enter into any employment agreements for officer or nonofficer
employees, provided, however, that ▇▇. ▇▇▇▇ ▇▇▇▇▇ is authorized to hold the sole
discretion to hire in his best business judgment, so long as the agreement is an
"at-will" agreement, terminable by the Company at any time, contains no
guarantee of payment past the date of termination and is limited to payment of
salary, regular Company benefits and stock options; (g) Cause the dissolution of
the Company; (h) Create any new class of shares; (i) Subdivide or reclassify the
Stock into a greater number of shares of such class or combine or reclassify the
then outstanding shares of Stock into a smaller number of shares of such Stock;
(j) Sell or authorize for sale any Stock not issued and outstanding as provided
in this agreement, except for Stock under the Company employee stock option
plan; (k) Amend its Articles of Incorporation or By-Laws, except as provided for
herein. The covenants contained in this Section 10.7 shall terminate upon
payment of the Loan, in full, and when Investor ceases to hold at least 20% of
the Company's stock. 11. Events of Default. Regardless of the terms of the Note
or the Pledge Agreement issued under this Agreement, the occurrence of any of
the events set out below ("Events of Default") shall, at the option of Investor,
make all interest and principal remaining on the Loan immediately due and
payable, without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of any kind,
except as specified in this Agreement: (a) The Company shall fail to pay the
interest or the principal in accordance with the terms of this Agreement or of
the Note;
(b) Any representation or warranty by the Company in this Agreement or in any
agreement, instrument or certificate executed under this Agreement or in
connection with any transaction contemplated by this Agreement shall prove to
have been false or misleading in any material respect when made. "Material"
shall have the same meaning as under California law in that material is defined
as "that which would be likely to affect the conduct of a reasonable person with
reference to the transaction";
- 33 -
(c) Investor shall fail to have a legal, valid, and binding first lien on, or a
valid and enforceable prior perfected security interest in, any property covered
by any security agreement required under this Agreement, unless otherwise set
forth therein; (d) An involuntary lien or liens in the aggregate sum of $10,000
or more, of any kind, shall attach to the assets or property of the Company,
except for taxes due but not in default, or for taxes that are being contested;
provided, however, that no lien shall be considered for the purpose of this
section if: (i) such lien is removed without expenditure of funds by the Company
other than the costs of appropriate proceedings; or (ii) the Company, in the
opinion of its counsel, has the right to and is diligently proceeding to have
such lien removed without expenditure of funds by the Company other than the
costs of appropriate proceedings, and such opinion of counsel is furnished to
Investor within 30 days after written request for it; (e) A judgment or
judgments shall be entered against the Company in the aggregate amount of
$50,000.00 or more on a claim or claims not covered by insurance; provided,
however, that no judgment shall be considered for the purpose of this section
if: (i) such judgment is vacated without expenditure of funds by the Company
other than the cost of appropriate proceedings; or (ii) the Company, in the
opinion of its counsel, has the right to and is diligently proceeding to have
such judgment vacated without expenditure of funds by the Company other than the
costs of appropriate proceedings, and such opinion of counsel is furnished to
Investor within 30 days after written request for it; (f) The Company shall
admit in writing inability to pay its debts generally as they come due, shall
become insolvent as the term is defined in the federal Bankruptcy Act, or shall
commit any act of bankruptcy; (g) The Company shall file any petition or action
for relief under any bankruptcy, arrangement, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of or relating to
debtors, or shall, with respect to any involuntary petition or action for relief
under such law or laws, file an answer consenting to the relief requested in
such petition; (h) An involuntary petition shall be filed under any bankruptcy
statute against The Company, or a receiver, trustee, or similar officer of the
court shall be appointed to take possession of all or any substantial part of
The Company's properties, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 30 days from the date of the filing
or appointment; (i) Any default shall occur under any other agreement pertaining
to the borrowing of money or the advance of credit to which the Company may be a
party as the Company, if that default gives to the holder of the obligation
concerned the right to accelerate the indebtedness; (j) Any guaranty or security
agreement required by this Agreement shall be breached or become unenforceable
or ineffective; (k) ▇▇▇▇ ▇▇▇▇▇ ceases to be employed by the Company as Chief
Executive Officer, for any reason under the control of ▇▇. ▇▇▇▇ ▇▇▇▇▇; (l)
Investor ceases to control the Board of Directors of the Company; (m) The
Company shall breach or default under any term, condition, provision,
representation or warranty in this Agreement not specifically referred to herein
in that breach or default shall continue for 30 days after its occurrence, or,
if Investor has received notice of the breach or default within that 30 day
period, after notice of the breach or default to The Company or ▇▇▇▇▇ from
Investor, whichever is later. 12. Remedies.
- 34 -
The occurrence of an Event of Default, in addition to any remedies provided for
under the Security Agreement and by operation of law, at the Investor's option,
makes the Loan immediately due and payable. Additionally, if the Company has not
already done so, the Company shall upon default immediately issue the Pledged
Stock in the name of Investor, under which the Company hereby irrevocably
warrants and promises that Investor shall thereafter own at least 90% of the
issued and outstanding stock of the Company. The Company agrees that Investor
has no adequate remedy at law in case of default by the Company as to the
issuance of the Pledged Stock, and the Company hereby irrevocably agrees that a
court of competent jurisdiction may issue an affirmative injunction ordering the
Company to execute stock certificates in the name of Investor. The Company
hereby expressly and irrevocably waives any legal protection the Company may
have reserved by failing to deliver any of the Pledged Stock to Investor prior
to any event of default.
13. Termination.
13.1 Termination by Investor. This Agreement may be terminated by Investor
without liability to the Company by notice to the Company (i) at any time prior
to the Closing if default shall be made by the Company in the observance or in
the due and timely performance of any of the terms hereof to be performed by the
Company that cannot be cured at, or prior to, the Closing, or (ii) at the
Closing if any of the conditions precedent to the performance of Investor's
obligations at the Closing shall not have been fulfilled. 13.2 Termination by
the Company. The Company may, without liability to Investor, terminate this
Agreement by notice to Investor (i) at any time prior to the Closing if default
shall by made by Investor in the observance or in the due and timely performance
of any of the terms hereof to be performed by the Investor that cannot be cured
at, or prior to, the Closing, or (ii) at the Closing if any of the conditions
precedent to the performance of Company's obligations at the Closing shall not
have been fulfilled. 13.3 Effect of Termination. If this Agreement is
terminated, this Agreement (except for Sections 14.2, 14.3 and 15.8) shall no
longer be of any force or effect and there shall be no liability on the part of
any party or its respective directors, officers or stockholders except, in the
case of termination because of a material default or material breach resulting
from the willful fault of another party, the aggrieved party or parties may
recover from the defaulting party the amount of expenses incurred by such
aggrieved party or parties in connection with this Agreement and the
transactions contemplated hereby which the aggrieved party or parties would
otherwise have to bear pursuant to Section 15.8 of this Agreement. If this
Agreement shall be terminated, each party will (i) redeliver all documents, work
papers and other materials of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, to the party furnishing the same; (ii) destroy all documents, work
papers and other materials developed by its accountants, agents and employees in
connection with the transactions contemplated hereby which embody proprietary
information or trade secrets furnished by any party hereto or deliver such
documents, work papers and other materials to the party furnishing the same or
excise such information or secrets therefrom and all information received by any
party hereto with respect to the business of any other party (other than
information which is a matter of public knowledge or which has heretofore been
or is hereafter published in any publication for public distribution or filed as
- 35 -
public information with any governmental authority) shall not at any time be
used for personal advantage or disclosed by such party to any third person to
the detriment of the party furnishing such information; (iii) the Company will
immediately deliver a stock certificate in the amount of 100,000 shares
representing 10% of the total issued and outstanding stock of the Company, as
set forth in the Bridge Loan Agreement; and (iv) all provisions of the Bridge
Loan Agreement shall become in full force and effect as of the date of the
termination. 14. Survival of Representations and Warranties; Indemnification.
14.1 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, any Schedule and any certificate
delivered at the Closing of the Company or Investor shall be deemed to have been
relied upon notwithstanding any investigation heretofore or hereafter made or
omitted by any party hereto and shall survive the Closing. 14.2 Company's
Indemnification Obligations. Subject to the terms and conditions of this Section
14, the Company agrees to indemnify and hold Investor harmless against and in
respect of: (a) any and all losses, liabilities, damages or expenses (including
legal fees and expenses) relating to or arising out of any misrepresentation or
breach of warranty of the Company contained in this Agreement or in any Schedule
or in any statement or certificate delivered by the Company; provided that any
claim for indemnification by Investor under this paragraph (a) may be made no
later than a date two years from and after the Closing Date, excepting only that
any claim for misrepresentation or breach of warranty relating to the tax
liability of the Company may be made no later than a date ninety days from and
after the expiration of the period of the applicable tax statute of limitation
(including any extension thereof); (b) any and all losses, liabilities, damages
or expenses (including legal fees and expenses) relating to or arising out of
any breach of any covenant of the Company contained in this Agreement; and any
and all actions, suits, demands, assessments or judgments with respect to any
claim arising out of or relating to the subject matter of the indemnification.
14.3 Investor's Indemnification Obligations. Subject to the terms and conditions
of this Section 14, Investor agrees to indemnify and hold the Company harmless
against any and all losses, costs and expenses (including legal and other
expenses), except as expressly limited by the terms of Section 14.4, resulting
from or relating to: (a) any misrepresentation or breach of warranty of Investor
contained in this Agreement or in any Schedule of Investor or in any statement
or certificate delivered by Investor at the Closing; provided that any claim for
indemnification by the Company under this paragraph (a) may be made no later
than a date two years from and after the Closing Date; and (b) any breach of any
covenant of Investor contained in this Agreement; and any and all actions,
suits, demands, assessments or judgments with respect to any claim arising out
of or relating to the subject matter of the indemnification. 14.4 Limitation on
Indemnification Obligations. The Company and Investor, respectively, have no
obligation to provide indemnification pursuant to Sections 14.2 and 14.3 except
to the extent that the aggregate amount of indemnification to which the Company
or Investor respectively, but for this Section 14.4, shall have become entitled
hereunder shall exceed $100,000. 14.5 Procedure for Indemnification Claims. The
respective indemnification obligations of the Company and Investor pursuant to
Sections 14.2 and 14.3 shall be conditioned upon compliance by the Company and
Investor with the following
- 36 -
procedures for indemnification claims based upon or arising out of any claim,
action or proceeding by any person not a party to this Agreement: (a) If at any
time a claim shall be made or threatened, or an action or proceeding shall be
commenced or threatened, against a party hereto (the "Aggrieved Party") which
could result in liability of the other party (the "Indemnifying Party") under
its indemnification obligations hereunder, the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding. Such
notice shall state the basis for the claim, action or proceeding and the amount
thereof (to the extent such amount is determinable at the time when such notice
is given) and shall permit the Indemnifying Party to assume the defense of any
such claim, action or proceeding (including any action or proceeding resulting
from any such claim). Failure by the Indemnifying Party to notify the Aggrieved
Party of its election to defend any such claim, action or proceeding within a
reasonable time, but in no event more than 15 days after notice thereof "hall
have been given to the Indemnifying Party, shall be deemed a waiver by the
Indemnifying Party of its right to defend such claim, action or proceeding;
provided, however, that the Indemnifying Party shall not be deemed to have
waived its right to contest and defend against any claim of the Aggrieved Party
for indemnification hereunder based upon or arising out of such claim, action or
proceeding; (b) If the Indemnifying Party assumes the defense of any such claim,
action or proceeding, the obligation of the Indemnifying Party as to such claim,
action or proceeding shall be limited to taking all steps necessary in the
defense or settlement thereof and, provided the Indemnifying party is held to be
liable for indemnification hereunder, to holding the Aggrieved Party harmless
from and against any and all losses, damages and liabilities caused by or
arising out of any settlement approved by the Indemnifying Party or any judgment
or award rendered in connection with such claim, action or proceeding. The
Aggrieved Party may participate, at its expense, in the defense of such claim,
action or proceeding provided that the Indemnifying Party shall direct and
control the defense of such claim, action or proceeding. The Aggrieved Party
agrees to cooperate and make available to the Indemnified Party all books and
records and such officers, employees and agents as are reasonably necessary and
useful in connection with the defense. The Indemnifying Party shall not, in the
defense of such claim, action or proceeding, consent to the entry of any
judgment or award, or enter into any settlement, except in either event with the
prior consent of the Aggrieved Party, which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Aggrieved Party
of a release from all liability in respect of such claim, action or proceeding;
(c) If the Indemnifying Party does not assume the defense of any such claim,
action or proceeding, the Aggrieved Party may defend against such claim, action
or proceeding in such manner as it may deem appropriate. The Indemnifying Party
agrees to cooperate and make available to the Aggrieved Party all books and
records and such officers, employees and agents as are reasonably necessary and
useful in connection with the defense. If the Indemnifying Party, within ten
days after notice shall have been given to it by the Aggrieved Party of the
latter's intention to effect a settlement of any such claim, action or
proceeding, which notice shall describe with particularity the terms of any such
proposed settlement, shall not deposit with an escrowee mutually satisfactory to
the Aggrieved Party and the Indemnifying Party a sum equivalent to the total
amount demanded in such claim, action or proceeding or deliver to the Aggrieved
Party a surety bond or an irrevocable letter of credit for such sum in form and
substance reasonably satisfactory to the Aggrieved party, then the Aggrieved
- 37 -
Party may settle such claim, action or proceeding on the terms detailed in its
notice to the Indemnifying Party, and the Indemnifying Party shall be deemed to
have agreed to the terms of such settlement and shall not thereafter in any
proceeding by the Aggrieved Party for indemnification question the propriety of
such settlement. If the Indemnifying Party makes an escrow deposit or delivers a
surety bond or letter of credit as aforesaid and thereafter the Aggrieved Party
settles such claim, action or proceeding, then in any proceeding by the
Aggrieved Party for indemnification in the event the Indemnifying Party is held
liable for indemnification hereunder, the Aggrieved Party shall have the burden
of proving the amount of such liability of the Indemnifying Party, and the
amount of the payments made in settlement of any claim, action or proceeding
shall not be determinative as between the Aggrieved Party and the Indemnifying
Party of the amount of such indemnification liability, except that the amount of
the settlement payments shall constitute the maximum amount of the
indemnification liability of the Indemnifying Party. Such escrow deposit, surety
bond or letter of credit shall by their respective terms be payable to the
Aggrieved Party in an amount determined in accordance with the last sentence of
this paragraph (c) and in the event the Indemnifying Party is held liable for
indemnification hereunder. If the Indemnifying Party neither makes an escrow
deposit nor delivers a surety bond or letter of credit as aforesaid, 80 that no
settlement of such claim, action or proceeding is effected, in any proceeding by
the Aggrieved Party for indemnification in the event the Indemnifying Party is
held liable for indemnification hereunder, such liability shall be for the
amount of any judgment or award rendered with respect to such claim or in such
action or~proceeding and of all expenses, legal and otherwise, incurred by the
Aggrieved Party in the defense against such claim, action or proceeding; (d) In
the event an Aggrieved Party or Indemnifying Party shall cooperate in the
defense or make available books, records, officers, employees or agents, as
required by the terms of paragraphs (b) and (c), respectively, of this Section
14.5 the party to which such cooperation is provided shall pay the out-of-pocket
costs and expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party~s
time or the salaries or costs of fringe benefits or other similar expenses paid
by the party providing such cooperation to its officers and employees in
connection therewith. 14.6 Sole and Exclusive Remedy. The indemnification
obligations of the Company and the Investor under this section 14 shall
constitute the sole and exclusive remedies of the Company and Investor,
respectively, for the recovery of money damages with respect to the matters
described in subsections 14.2 and 14.3, respectively. The terms of this
subsection 14.6 shall not be construed as limiting in any way whatsoever any
remedy other than for the recovery of money damages to which the Company or the
Investor may be entitled. 15. Miscellaneous. 15.1 Survival of Warranties. The
warranties, representations and covenants of the Company and Investors contained
in or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the Investor
or the Company. 15.2 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 transferees of
- 38 -
any securities sold hereunder or any 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.
15.3 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
15.4 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.
15.5 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.
15.6 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with the
United States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
below, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties:
If to the Company:
▇▇. ▇▇▇▇ ▇▇▇▇▇
Thinking Tools, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇-▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
With Copies to:
▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Investor:
▇▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ Capital Management
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
With Copies to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
15.7 Finder's Fee. Each party acknowledges that ▇▇. ▇▇▇ ▇▇▇▇▇▇ will be entitled
to a finder's fee of $50,000.00, payable in equal monthly installments over one
year by the Company. The Company also acknowledges that it will negotiate with
▇▇. ▇▇▇▇▇▇ a consulting agreement which provides for on demand consulting
services, when and if needed by the Company.
- 39 -
15.8 Expenses. Irrespective of whether the Closing is effected, the Company
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. The Company shall pay at
the Closing Date the fees and expenses of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, counsel for
Investors, irrespective of whether the Closing is effected. The Company shall
also pay Investor's deal expenses up until Closing, including travel and
incidental expenses, and all expenses incurred by Investor relative to
membership on Company's Board of Directors including, but not limited to,
professional fees incurred in reviewing documents and exercising Investor's role
as a director of the Company. 15.9 Delay and Waivers. No delay or omission to
exercise any right, power or remedy accruing to Investor on any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of Investor, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence in such breach or default, or waiver of or
acquiescence in any similar breach or default occurring later; nor shall any
waiver of any single breach or default be considered a waiver of any other prior
or subsequent breach or default. The Company hereby expressly and irrevocably
waives any legal protection the Company may have reserved by failing to deliver
any of its stock to Investor prior to any event of default. Any waiver, permit,
consent or approval of any kind by Investor of any breach or default under this
Agreement, or any waiver by Investor of any provision or condition of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in that writing. All remedies, either under this
Agreement or by law or otherwise afforded to Investor, shall be cumulative and
not alternative. 15.10 Attorney's Fees. In the event of any legal action or suit
in relation to this Agreement or any note or other instrument or agreement
required under this Agreement, in addition to all other sums which the party not
prevailing in the action may be called on to pay, the prevailing party will be
entitled to an award for its attorney's fees and all other costs and expenses,
as costs of suit. 15.11 Remedies. Except as otherwise provided in this
Agreement, the rights and remedies provided herein are cumulative and the use of
any one right or remedy by either party shall not preclude or waive its right to
use any other or all other remedies. The rights and remedies specified in this
Agreement are in addition to any of the rights the parties may have by law,
statute, ordinance or otherwise, subject to any provision for exclusive remedies
in this Agreement.
15.12 Additional Documents. The parties agree to execute any and all other
documents which may be required to carry out the purposes of this Agreement.
15.13 Entire Agreement. The entire Agreement between the parties is set forth
herein and any amendment or modification shall be in writing and shall be
executed by duly authorized representatives in the same manner as this
Agreement. The provisions of this Agreement are severable, and if any one or
more such provisions are determined to be illegal or otherwise unenforceable, in
whole or in part, under the laws of any jurisdiction, the remaining provisions
or portions hereof shall, nevertheless, be binding on and enforceable by and
between the parties hereto. 15.14 Separate Provisions. If any provisions in this
Agreement or the application thereof to any person or circumstances shall be
invalid or unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be
affected
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thereby, and the intent of this Agreement shall be enforced to the greatest
extent permitted by law.
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THIS STOCK PURCHASE AND LOAN AGREEMENT is hereby executed by Investor and the
Company as of the date first set forth hereinabove.
INVESTOR/THINKING TECHNOLOGIES, L.P.
Dated: September _ , 1994
/s/ ▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇ ▇▇▇▇▇ for ▇▇▇▇▇ Capital
Management, General Partner of
Thinking Technologies, L.P.
THE COMPANY/THINKING TOOLS, INC.
Dated: September 27, 1994
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇. ▇▇▇▇ ▇▇▇▇▇ for Thinking Tools,
Inc., as its President
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SCHEDULES
Schedule 3.8. Attached hereto as Exhibit 1 is a true and correct copy of all
agreements between the Company and Maxis Corporation. Payment of the full amount
of the Maxis debt, as provided for hereunder, will result in the full
satisfaction of the Company's obligations to Maxis Corporation, and will result
in satisfaction of all liens held by Maxis Corporation. In addition to
satisfying its obligations under the Maxis contract, the Company shall make a
one-time payment to Maxis in the amount of $20,000.00 so that the Company's
obligations to produce the "MacPort" project under the agreement with the ▇▇▇▇▇▇
Foundation shall be satisfied. Schedule 3.10. See schedule 3.8 for Maxis
Contract. Attached hereto as Exhibit 2 are true and correct copies of all
agreements between the Company and the ▇▇▇▇▇▇ Foundation. Attached hereto
collectively as Exhibit 3 are true and correct copies of all employment
contracts to which the Company is a party. Attached hereto as Exhibit 4 is a
true and correct copy of the agreement between the Company and the United States
of America. Attached, collectively, as Exhibit 5, are true and correct copies of
pending agreements known as the "Homeview" and "Steelcase" agreements. Schedule
3.15. Maxis Contract (Schedule 3.8), which will be satisfied from the proceeds
of this Agreement. Schedule 3.17. The Company shall make a one time payment of
$10,000.00 to the former shareholders of Delta Logic, Inc. and that payment
shall satisfy all obligations of the Company with regard to payment for
exclusive ownership of the intellectual property assets pledged as security to
Investor under this, and related, agreements. Schedule 3.21. Maxis Agreement
(Schedule 3.8) provides for a lien on assets which will be released upon
performance under this agreement and full payment of the Maxis debt. Schedule
3.17 (b). See Schedule 3.8 and 3.10 for Maxis and ▇▇▇▇▇▇ contracts. Schedule
3.27. The Company's bank accounts are as follows: First National Bank of Central
California ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (408) 373-4900
Account No. 01-135300
Schedule 10. Investor recognizes that the Company has indicated a need for
expansion of its business premises. The Company will expand into space pursuant
to its lease which will add an additional 3000 square feet to the premises
leased by the Company. The Company will have to provide a one time payment for
build out of the additional premises and will incur a larger liability under its
lease. Such expenditures are subject to ratification by the board of directors
of the Company. Schedule 10.2 (i). The limitations concerning the Company's
ability to enter into joint ventures and partnerships is further explained as
follows: (a) In the case of Company customers who provide payment for projects
during the development thereof in that the project is financed, substantially,
by the customer payments, and who request exclusive use of the property produced
by the Company consisting solely of the product for which the Company has
contracted, and not any of its component intellectual properties, such projects
will be considered "in the ordinary course of business" and do not require prior
approval;
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(b) In the case of a project where a customer requests broader exclusivity than
that solely related to use of the product for which the Company has contracted,
such projects will be considered "not in the ordinary course of business" and
will require prior approval; and (c) In the case where a project is financed by
Thinking Tools, Inc., without any provision for ongoing payment by the customer,
such projects will be considered "not in the ordinary course of business" and
will require prior approval.
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Exhibits
[A] Amended Articles of Incorporation
[B] Certificate of Representations and Warranties
[C] Certificate of Secretary of Thinking Tools, Inc.
[D] Certificate of ▇▇▇▇▇ Capital Management
[E] Promissory Note
[F] Pledge Agreement
[G] Proxy
[H] Novation Agreement Substituting Obligations
[I] Proprietary Information and Inventions Agreement
[J] "Key-Man" Employment Agreement
Schedules
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