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EXHIBIT 10.6
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SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
between
NEON SOFTWARE, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of May 9, 1995
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Series A Convertible Preferred Stock Purchase Agreement
Dated May 9, 1995
TABLE OF CONTENTS
PAGE
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ARTICLE I - THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . 2
SECTION 2.1 Operations . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2 Organization, Qualifications and Corporate Power . . . 2
SECTION 2.3 Authorization of Agreements, Etc . . . . . . . . . . . 2
SECTION 2.4 Validity . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Authorized Capital Stock . . . . . . . . . . . . . . . 3
SECTION 2.6 Third Party Approvals . . . . . . . . . . . . . . . . . 4
SECTION 2.7 Proprietary Information of Third Parties . . . . . . . 4
SECTION 2.8 Patents, Trademarks, Etc . . . . . . . . . . . . . . . 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . 5
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS . . . . . . . . . . 6
ARTICLE V - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5.1 Financial Statements, Reports, Etc . . . . . . . . . . 9
SECTION 5.2 Right of Participation . . . . . . . . . . . . . . . 11
SECTION 5.3 Reserve for Conversion Shares . . . . . . . . . . . . 12
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . 12
SECTION 5.5 Properties, Business, Insurance . . . . . . . . . . . 12
SECTION 5.6 Inspection, Consultation and Advice . . . . . . . . . 12
SECTION 5.7 Restrictive Agreements Prohibited . . . . . . . . . . 12
SECTION 5.8 Transactions with Affiliates . . . . . . . . . . . . 13
SECTION 5.9 Expenses of Directors . . . . . . . . . . . . . . . . 13
SECTION 5.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . 13
SECTION 5.11 Board of Directors Meetings . . . . . . . . . . . . . 13
SECTION 5.12 CEO Compensation . . . . . . . . . . . . . . . . . . 13
SECTION 5.14 Performance of Contracts . . . . . . . . . . . . . . 14
SECTION 5.15 Vesting of Reserved Employee Shares . . . . . . . . . 14
SECTION 5.16 Employee Non-disclosure and Developments Agreements . 14
SECTION 5.17 Activities of Subsidiaries . . . . . . . . . . . . . 14
SECTION 5.18 Compliance with Laws . . . . . . . . . . . . . . . . 14
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TABLE OF CONTENTS
(CONTINUED)
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SECTION 5.19 Keeping of Records and Books of Account . . . . . 14
SECTION 5.20 Change in Nature of Business . . . . . . . . . . 15
SECTION 5.21 U.S. Real Property Interest Statement . . . . . . 15
SECTION 5.22 Rule 144A Information . . . . . . . . . . . . . . 15
SECTION 5.24 Termination of Covenants . . . . . . . . . . . . 16
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.1 Expenses . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.2 Survival of Agreements . . . . . . . . . . . . . 16
SECTION 6.3 Brokerage . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.4 Parties in Interest . . . . . . . . . . . . . . . 17
SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6.6 Governing Law . . . . . . . . . . . . . . . . . . 17
SECTION 6.7 Entire Agreement . . . . . . . . . . . . . . . . 17
SECTION 6.8 Counterparts . . . . . . . . . . . . . . . . . . 17
SECTION 6.9 Amendments . . . . . . . . . . . . . . . . . . . 17
SECTION 6.10 Severability . . . . . . . . . . . . . . . . . . 17
SECTION 6.11 Titles and Subtitles . . . . . . . . . . . . . . 18
SECTION 6.12 Certain Defined Terms . . . . . . . . . . . . . . 18
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stock Restriction Agreement
EXHIBIT C Form of Voting Agreement
EXHIBIT D Charter and All Amendments Thereto
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Form of Employee Nondisclosure and Developments Agreement
EXHIBIT G Form of Lazarus side letter
EXHIBIT H Form of ▇▇▇▇ Side Letter
EXHIBIT I Form of Board Observer Nondisclosure/Confidentiality Agreement
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of May
9,1995 between Neon Software, Inc., an Illinois corporation (the "Company"),
and the several purchasers named in the attached Schedule I (individually a
"Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 9,169,028 shares (the "Preferred Shares") of the authorized but
unissued Series A Convertible Preferred Stock, no par value, of the Company
(the "Series A Convertible Preferred Stock'); and
WHEREAS, the Purchasers, severally, wish to purchase the Prefer-red
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares.
The Company agrees to issue and sell to each Purchaser, and each Purchaser
hereby agrees to purchase from the Company, the number of Preferred Shares set
forth opposite the name of such Purchaser under the heading "Number of
Preferred Shares to be Purchased" on Schedule I, at the aggregate purchase
price set forth opposite the name of such Purchaser under the heading
"Aggregate Purchase Price for Preferred Shares" on Schedule I.
SECTION 1.2 Closing. The closing shall take place at the offices
of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇, at 11:00 a.m., Chicago time, on May 9,1995, or at such other
location, date and time as may be agreed upon between the Purchasers and the
Company (such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and deliver
to each Purchaser a stock certificate or certificates in definitive form,
registered in the name of such Purchaser, representing the Preferred Shares
being purchased by it at the Closing. As payment in full for the Preferred
Shares being purchased by it under this Agreement, and against delivery of the
stock certificate or certificates therefor as aforesaid, on the Closing Date
each Purchaser shall transfer to the account of the Company by wire transfer
the amount set forth opposite the name of such Purchaser under the heading
"Aggregate Purchase Price for Preferred Shares" on Schedule I.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II:
SECTION 2.1 Operations. As of the date hereof there is no action,
suit, claim, proceeding or investigation pending or threatened against or
affecting the Company and the Company is not subject to any order, writ,
injunction or decree entered in any lawsuit or proceeding. Schedule II contains
a complete list of the Company's material agreements, obligations and
liabilities. The Company does not have an Employee Benefit Plan as defined in
the Employee Retirement Income Security Act of 1974, as amended.
SECTION 2.2 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Illinois
and is duly licensed or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such licensing or qualification, except where failure to so qualify
would not have a material adverse effect on the business, affairs or prospects
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement, the
Registration Rights Agreement with the Purchasers in the form attached as
Exhibit A (the "Registration Rights Agreement"), the Stock Restriction
Agreement with the Purchasers and the other parties thereto named in paragraph
(h) of Article V of this Agreement, in the form attached as Exhibit B (the
"Stock Restriction Agreement") and the Voting Agreement with the Purchasers in
the form attached as Exhibit C (the "Voting Agreement"), to issue, sell and
deliver the Preferred Shares and to issue and deliver the shares of Common
Stock, no par value, of the Company ("Common Stock') issuable upon conversion
of the Preferred Shares (the "Conversion Shares").
(b) The Company has no subsidiaries. The Company does not
(i) own of record or beneficially, directly or indirectly, (A) any shares of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.3 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
and the Voting Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and
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delivery of the Preferred Shares and the issuance and delivery of the
Conversion Shares have been duly authorized by all requisite corporate action
and win not violate any provision of law, any order of any court or other
agency of government, the Articles of Incorporation of the Company, as amended
(the "Charter") or the Bylaws of the Company, as amended, or any provision of
any indenture, agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries. To the best of
the Company's knowledge, no provision of the Stock Restriction Agreement
violates, conflicts with, results in a breach of or constitutes (with due
notice or lapse of time or both) a default by any other party under any other
indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable shares of Series A Convertible Preferred Stock with no
personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by
or through the Company except as set forth in the Registration Rights
Agreement. The Conversion Shares have been duly reserved for issuance upon
conversion of the Preferred Shares and, when so issued, will be duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Registration Rights
Agreement. Neither the issuance, sale or delivery of the Preferred Shares nor
the issuance or delivery of the Conversion Shares is subject to any preemptive
right of stockholders of the Company or to any right of first refusal or other
right in favor of any person.
SECTION 2.4 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Registration Rights Agreement, the Stock Restriction Agreement and the Voting
Agreement, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms (subject in each case, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
SECTION 2.5 Authorized Capital Stock. The authorized capital
stock of the Company consists of (i) 9,169,028 shares of Preferred Stock, no
par value (the "Preferred Stock"), of which 9,169,028 shares have been
designated Series A Convertible Preferred Stock, and (ii) 20,000,000 shares of
Common Stock. Immediately prior to the Closing, 10,600,000 shares of Common
Stock will be validly issued and outstanding, fully paid and nonassessable with
no personal liability attaching to the ownership thereof and no shares of
Preferred Stock shall have been issued. The stockholders of record and holders
of subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company,
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and the number of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule III, (i) no
person owns of record or is known to the Company to own beneficially any share
of Common Stock, (ii) no subscription, warrant, option, convertible security,
or other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in the attached Schedule III, the
Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof. Except for
the Stock Restriction Agreement and the Voting Agreement, to the best of the
Company's knowledge there are no voting trusts or agreements, stockholders
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company or any
of its subsidiaries (whether or not the Company or any of its subsidiaries is a
party thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
SECTION 2.6 Third Party Approvals. No registration or filing
with, or consent or approval of or other action by any third party, is or will
be necessary for the valid execution, delivery and performance by the Company
of this Agreement, the Registration Rights Agreement, the Stock Restriction
Agreement and the Voting Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws
(all of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with
respect to the Registration Rights Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to state securities
laws.
SECTION 2.7 Proprietary Information of Third Parties. To the best
of the Company's knowledge, no third party has claimed or has reason to claim
that any person employed by or affiliated with the Company has (a) violated or
may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b)
disclosed or may be disclosing or utilized or may be utilizing any trade secret
or proprietary information or documentation of such third party or (c)
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. No third party has
requested information from the Company which suggests that such a claim might
be contemplated. To the best of the Company's knowledge, no person employed by
or affiliated with the Company has employed or proposes to employ any trade
secret or any information or documentation proprietary
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to any former employer, and to the best of the Company's knowledge, no person
employed by or affiliated with the Company has violated any confidential
relationship which such person may have had with any third party, in connection
with the development, manufacture or sale of any product or proposed product or
the development or sale of any service or proposed service of the Company, and
the Company has no reason to believe there will be any such employment or
violation. To the best of the Company's knowledge, none of the execution or
delivery of this Agreement, or the carrying on of the business of the Company
as officers, employees or agents by any officer, director or key employee of
the Company, or the conduct or proposed conduct of the business of the Company,
will conflict with or result in a breach of the terms, conditions or provisions
of or constitute a default under any contract, covenant or instrument under
which any such person is obligated.
SECTION 2.8 Patents, Trademarks, Etc. Set forth in Schedule II is
a list and brief description of all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service ▇▇▇▇ applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or registered in the
name of the Company, or of which the Company is a licensor or licensee or in
which the Company has any right, and in each case a brief description of the
nature of such right. The Company owns or possesses adequate licenses or other
rights to use an patents, patent applications, trademarks, trademark
applications, service marks, service ▇▇▇▇ applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets, customer lists
and know how (collectively, "Intellectual Property") necessary or desirable to
the conduct of its business as conducted and as proposed to be conducted, and
no claim is pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with
the asserted rights of any other person under any Intellectual Property, and to
our knowledge there is no basis for any such claim (whether or not pending or
threatened). To our knowledge, no claim is pending or threatened to the effect
that any such Intellectual Property owned or licensed by the Company, or which
the Company otherwise has the right to use, is invalid or unenforceable by the
Company, and there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the specific
purpose of acquiring the Preferred Shares;
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(b) it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage
of development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management;
(d) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by reason
of their issuance in a transaction exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act, (ii) the Preferred Shares and, upon
conversion thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares and the Conversion
Shares will bear a legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule
144A promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including
(i) obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
(g) it is an "institutional investor" within the meaning
of Section 4C of the Illinois Securities Law of 1953, as amended.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Shares being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall
have received from ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., counsel for the Company, an opinion
dated the Closing Date, in form and scope reasonably satisfactory to the
Purchasers and their counsel.
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(b) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article II shall be
true, complete and correct on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date, and the President of the Company shall have certified to such effect to
the Purchasers in writing, provided, that if this agreement is executed on the
Closing Date, execution of this Agreement by such persons shall suffice.
(c) Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date, and the President of the
Company shall have certified to the Purchasers in writing to such effect and to
the further effect that all of the conditions set forth in this Article IV have
been satisfied, provided, that if this agreement is executed on the Closing
Date, execution of this Agreement by such persons shall suffice.
(d) All Proceedings to be Satisfactory. All corporate and
other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Purchasers and their counsel, and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their
counsel shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent
date by the Secretary of State of the State of Illinois, and(B) a certificate
of said Secretary dated as of a recent date as to the due incorporation and
good standing of the Company, the payment of an franchise taxes by the Company
and listing all documents of the Company on file with said Secretary.
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and certifying: (A)
that attached thereto is a true and complete copy of the Bylaws of the Company
as in effect on the date of such certification; (B) that attached thereto is a
true and complete copy of all resolutions adopted by the Board of Directors or
the stockholders of the Company authorizing the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Voting Agreement, the issuance, sale and delivery
of the Preferred Shares and the reservation, issuance and delivery of the
Conversion Shares, and that all such resolutions are in full force and effect
and are all the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Voting Agreement; (C) that the Charter has not
been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i)(B) above; and (D) to the
incumbency and specimen signature of each officer of the Company executing this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
or the Voting Agreement, the stock certificates representing the Preferred
Shares and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the
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Company as to the incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs of the Company as
the Purchasers or their counsel reasonably may request.
(f) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
(g) Stock Restriction Agreement. The Stock Restriction
Agreement shall have been executed and delivered by the Company and ▇▇▇▇▇▇ ▇.
▇▇▇▇.
(h) Non-Competition Agreements. Each of the following
persons shall have entered into a Non- Competition Agreement with the Company
in the form attached as Exhibit E (collectively, the "Non-Competition
Agreements"), and copies thereof shall have been delivered to counsel for the
Purchasers: ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
(i) Charter. The Charter shall read in its entirety as
set forth in Exhibit D. The Charter shall provide the number of shares of
authorized Common Stock of the Company may be increased or decreased (but not
below the number then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, voting together as a single class.
(j) Bylaws. The Company's By-laws shall have been
amended, if necessary, to provide that (i) unless otherwise required by the
laws of the State of Illinois, (A) any director or (B) any holder or holders of
at least 25% of the outstanding shares of Series A Convertible Preferred Stock,
shall have the right to call a meeting of the Board of Directors or
stockholders, (ii) the number of directors fixed in accordance therewith shall
in no event conflict with any of the terms or provisions of the Series A
Convertible Preferred Stock as set forth in the Charter, (iii) the Company
shall have a Compensation Committee comprised of two (2) members which shall
have as its functions the approval of employee compensation over $120,000 per
year and the overall approval of employee option grants under the Management
Stock Option Plan as submitted by the Chief Executive Officer, (iv) all
meetings of stockholders shall be held at the principal office of the
corporation unless a different place (within or without Colorado, but within
the United States) is fixed by the Directors or the President and stated in the
notice of the meeting, (v) a written notice of the place, date and hour of all
meetings of stockholders stating the purpose of the meeting shall be given at
least seven (7) days before the meeting or such longer period as is required by
law to each stockholder entitled to vote thereat, (vi) regular meetings of the
Directors may be held without can or notice at such places and at such time as
the Directors may from time to time determine, provided that any Director who
is absent when such determination is made shall be given a notice of the
determination and (vii) that all directors of the Company shall be indemnified
against, and
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absolved of, liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
(k) Employee Agreements. Copies of the Employee
Nondisclosure and Developments Agreements in the form attached hereto as
Exhibit F executed by all employees shall have been delivered to counsel for
the Purchasers.
(l) Election of Directors. The number of directors
constituting the entire Board of Directors shall have been fixed at five (5)
and the following persons shall have been elected as the directors and shall
each hold such position as of the Closing Date: ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and one additional individual as the directors elected solely by
the holders of the Common Stock and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as the director elected
solely by the holders of the Series A Convertible Preferred Stock. ▇▇▇▇▇
▇▇▇▇▇▇▇ shall, prior to attending any future board meetings of the Company,
execute a side letter agreement substantially in the form attached hereto as
Exhibit G.
(m) Voting Agreement. ▇▇▇▇▇▇ ▇. ▇▇▇▇ shall have executed
and delivered a Voting Agreement substantially in the form attached hereto as
Exhibit C.
(n) Preemptive Rights. All stockholders of the Company
having any preemptive, first refusal or other rights with respect to the
issuance of the Preferred Shares or the Conversion Shares shall have
irrevocably waived the same in writing.
(o) Fees of Purchasers' Counsel. The Company shall have
paid in accordance with Section 6.1 the fees and disbursements of Purchasers'
counsel invoiced at the Closing.
(p) ▇▇▇▇ Side Letter. ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. shall have
executed and delivered to AVF II a side letter substantially in the form of
Exhibit H.
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that for
so long as any Series A Convertible Preferred Stock is outstanding:
SECTION 5.1 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser:
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(a) within fifteen (15) days after the end of each fiscal
year, but in no case later than one hundred twenty (120) days after the end of
each fiscal year of the Company, a consolidated balance sheet of the Company
and its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company,
(b) within fifteen (15) days after the end of each month,
but in no case later than ninety (90) days after the end of each month in each
fiscal year (other than the last month in each fiscal year) a consolidated
balance sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles and
certified by the Chief Financial Officer of the Company, such consolidated
balance sheet to be as of the end of such month and such consolidated
statements of income, stockholders' equity and cash flows to be for such month
and for the period from the beginning of the fiscal year to the end of such
month, in each case with comparative statements for the prior fiscal year,
provided that the Company's obligations under this Section 5.1(b) shall
terminate upon the completion of a firm commitment underwritten public offering
of the Company's securities;
(c) at the time of delivery of each annual financial
statement pursuant to Section 5.1(a), a certificate executed by the Chief
Executive Officer of the Company stating that such officer has caused this
Agreement and the Series A Convertible Preferred Stock to be reviewed and has
no knowledge of any default by the Company in the performance or observance of
any of the provisions of this Agreement or the Series A Convertible Preferred
Stock or, if such officer has such knowledge, specifying such default and the
nature thereof,
(d) at the time of delivery of each monthly statement
pursuant to Section 5.1(b), a management narrative report explaining all
significant variances from forecasts and all significant current developments
in staffing, marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of
each fiscal year, consolidated capital and operating expense budgets, cash flow
projections and income and loss projections for the Company and its
subsidiaries in respect of such fiscal year, all itemized in reasonable detail
and prepared on a monthly basis, and, promptly after preparation, any revisions
to any of the foregoing;
(f) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company or any of its
subsidiaries;
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(g) promptly after the commencement thereof, notice of an
actions, suits, claims, proceedings, investigations and inquiries of the type
described in Section 2.7 that could materially adversely affect the Company or
any of its subsidiaries;
(h) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the Company
sends or makes available to its stockholders or directors or files with the
Commission; and
(i) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Purchaser reasonably may
request.
(j) notwithstanding the foregoing, AVF II may request
certain financial statements in less time in order to prepare partnership
quarterly reports or annual audits. The Company will make a good faith effort
to comply with these requests.
SECTION 5.2 Right of Participation. The Company shall, prior to
any proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to each Purchaser by written notice
the right, for a period of thirty (30) days, to purchase for cash at an amount
equal to the price or other consideration for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice (treating each Purchaser, for the purpose of such computation,
as the holder of the number of shares of Common Stock which would be issuable
to such Purchaser upon conversion, exercise and exchange of all securities
(including but not limited to the Preferred Shares) held by such Purchaser on
the date such offer is made, that are convertible, exercisable or exchangeable
into or for (whether directly or indirectly) shares of Common Stock and
assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the participation
rights of the Purchasers pursuant to this Section 5.2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule III as being outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment public offering,
(F) pursuant to the exercise of options to purchase Common Stock granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company, or to suppliers or other parties as payment for
goods or services adjusted to reflect stock splits, stock dividends,
combinations of shares and the like with respect to the Common Stock) less the
number of shares (as so adjusted) issued pursuant to subscriptions, warrants,
options, convertible securities, or other rights outstanding on the date of
this
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Agreement and listed in Schedule III pursuant to clause (C) above (the shares
exempted by this clause (F) being hereinafter referred to as the "Reserved
Employee Shares"), and (G) upon the exercise of any right which was not itself
in violation of the terms of this Section 5.2. The Company's written notice to
the Purchasers shall describe the securities proposed to be issued by the
Company and specify the number, price and payment terms. Each Purchaser may
accept the Company's offer as to the full number of securities offered to it or
any lesser number, by written notice thereof given by it to the Company prior
to the expiration of the aforesaid thirty (30) day period, in which event the
Company shall promptly sell and such Purchaser shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Purchaser.
The Company shall be free at any time prior to ninety (90) days after the date
of its notice of offer to the Purchasers, to offer and sell to any third party
or parties the remainder of such securities proposed to be issued by the
Company (including but not limited to the securities not agreed by the
Purchasers to be purchased by them), at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying
with this Section 5.2.
SECTION 5.3 Reserve for Conversion Shares. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be sufficient to effect
the conversion of the Preferred Shares from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of the Preferred Shares or otherwise to comply with
the terms of this Agreement, the Company will forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Common Stock upon conversion of the Preferred Shares.
SECTION 5.4 Corporate Existence. The Company shall maintain and,
except as otherwise permitted by Section 5.17 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.5 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of ▇▇▇▇▇▇ ▇. ▇▇▇▇ (so long as he remains an employee of
the Company), in the amount of $500,000. The Company shall not cause or permit
any assignment or change in beneficiary and shall not borrow against any such
policy. If requested by
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Purchasers holding at least a majority of the outstanding Preferred Shares, the
Company will add one designee of such Purchasers as a notice party for each
such policy and shall request that the issuer of each policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any change is made
in the beneficiary thereof.
SECTION 5.6 Inspection, Consultation and Advice. The Company
shall permit and cause each of its subsidiaries to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and its subsidiaries, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and its subsidiaries with their officers,
employees and public accountants (and the Company hereby authorizes said
accountants to discuss with such Purchaser and such designees such affairs,
finances and accounts), and consult with and advise the management of the
Company and its subsidiaries as to their affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 5.7 Restrictive Agreements Prohibited. Neither the
Company nor any of its subsidiaries shall become a party to any agreement which
by its terms restricts the Company's performance of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement or the Charter.
SECTION 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.9 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected as a director solely or in part by the holders of
Series A Convertible Preferred Stock, for all of his reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of the
Company or any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds
from the sale of the Preferred Shares solely for working capital, sales and
marketing development, software applications technology and administration of
the business as outlined in the Company's business plan.
SECTION 5.11 Board of Directors Meetings. The Company shall use
its best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
permit AVF II to have one representative reasonably acceptable
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to the Company attend each meeting of the Board of Directors of the Company and
each meeting of any Committee thereof and to participate in all discussions
during each such meeting. The Company shall send to AVF II and such designee
the notice of the time and place of such meeting in the same manner and at the
same time as it shall send such notice to its directors or committee members,
as the case may be. The Company shall also provide to AVF II and such designee
copies of all notices, reports, minutes and consents at the time and in the
manner as they are provided to the Board of Directors or committee, except for
information reasonably designated as proprietary information by the Board of
Directors. The initial AVF II designee (whom the Company agrees is reasonably
acceptable) shall be ▇▇▇▇▇ ▇▇▇▇▇▇▇▇. As a condition to such designee's
attendance at Board meetings, such designee will execute a
Non-disclosure/Confidentiality Agreement with the Company, such agreement to be
substantially in the form of Exhibit I.
SECTION 5.12 CEO Compensation. The Chief Executive Officer's
annual compensation will initially be $140,000 with a bonus amount of $40,000
based on performance of the business compared to plan objectives.
SECTION 5.13 Bylaws. The Company shall at all times cause its
Bylaws to contain the provisions set forth in paragraph IV(j) of this
Agreement. The Company shall at all times maintain provisions in its Bylaws
and/or Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
SECTION 5.14 Performance of Contracts. The Company shall not
amend, modify, terminate, waive or otherwise alter, in whole or in part, any of
the Employee Nondisclosure and Developments Agreements or the Non-Competition
Agreements without the written consent of the member of the Company's Board of
Directors elected solely by the holders of Series A Convertible Preferred
Stock.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company
shall not grant to any of its employees options to purchase Reserved Employee
Shares which will become exercisable at a rate in excess of 33 1/3% per annum
from the date of such grant without the unanimous written consent of those
members of the Company's Board of Directors elected solely by the holders of
Series A Convertible Preferred Stock; provided, however, that options granted
under the Company's Management Stock Option Plan will vest one-sixth in year
one, two-sixths in year two and three-sixths in year three.
SECTION 5.16 Employee Non-disclosure and Developments Agreements.
The Company shall use its best efforts to obtain, and shall cause its
subsidiaries to use their best efforts to obtain, an Employee Nondisclosure and
Developments Agreement in substantially the form of Exhibit E from all future
officers, key employees and other employees who will have access to
confidential information of the Company or any of its subsidiaries, upon their
employment by the Company or any of its subsidiaries.
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SECTION 5.17 Activities of Subsidiaries. The Company shall not
permit any subsidiary to consolidate or merge into or with or sell or transfer
an or substantially all its assets, except that any subsidiary may (i)
consolidate or merge into or with or sell or transfer assets to any other
subsidiary, or (ii) merge into or sell or transfer assets to the Company. The
Company shall not sell or otherwise transfer any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit any
subsidiary to issue, sell or otherwise transfer any shares of its capital stock
or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set
aside any sums for the purchase of, or pay any dividend or make any
distribution on, any shares of its stock, except for dividends or other
distributions payable to the Company or another subsidiary.
SECTION 5.18 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
SECTION 5.19 Keeping of Records and Books of Account. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.20 Change in Nature of Business. The Company shall
remain in the business of software development and consulting.
SECTION 5.21 U.S. Real Property Interest Statement. The Company
shall provide prompt written notice to each Purchaser following any
"determination date" (as defined in Treasury Regulation Section 1.897-2(c)(i))
on which the Company becomes a United States real property holding corporation.
In addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-(h)(2) or any
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.22 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.22 Rule 144A Information. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b)
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under the Exchange Act, provide in writing, upon the written request of any
Purchaser or a prospective buyer of Preferred Shares or Conversion Shares from
any Purchaser, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.24 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of
any Preferred Shares or Conversion Shares.
SECTION 5.23 Compensation Committee. The Company shall, by
amending its Bylaws or otherwise, establish and maintain a Compensation
Committee of the Board of Directors, which shall consist of two (2) directors,
one of whom shall be the director elected solely by the holders of the Series A
Convertible Preferred Stock. The Compensation Committee shall have as its
functions the approval of employee compensation over $120,000 per year and
overall approval of employee option grants under the Management Stock Option
Plan as submitted by the Chief Executive Officer. Effective upon purchase of
the Preferred Shares, the members of the Compensation Committee shall
be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇. No compensation or other remuneration at an
annual rate in excess of $120,000 shall be paid to, and no capital stock of the
Company shall be issued or granted to, any director, officer or employee of, or
any consultant or adviser to, the Company or any of its subsidiaries, without
the approval of the Compensation Committee. No employee stock option plan,
employee stock purchase plan, employee restricted stock plan or other employee
stock plan shall be established without the approval of the Compensation
Committee.
SECTION 5.24 Termination of Covenants. The covenants set forth in
Sections 5.21 and 5.22 shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser no longer holds any shares of
capital stock of the Company. All of the other covenants set forth in this
Article V shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser owns less than 500,000 Preferred Shares
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Series A Convertible Preferred
Stock). Each Purchaser acknowledges that the covenants terminate with respect
to such Purchaser as set forth in the preceding sentence in the event that such
Purchaser's holdings of Preferred Shares are reduced via conversion of such
holdings into Common Stock, whether voluntarily or involuntarily.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that assuming a
successful completion of such transactions, the Company shall pay the fees and
disbursements, not to exceed $20,000, of the Purchasers' special counsel,
▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, in connection with such transactions and any
subsequent amendment, waiver, consent or enforcement thereof.
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Stock Restriction Agreement or any certificate or instrument
delivered to the Purchasers pursuant to or in connection with this Agreement,
the Registration Rights Agreement or the Stock Restriction Agreement, shall
survive the execution and delivery of this Agreement, the Registration Rights
Agreement and the Stock Restriction Agreement, the issuance, sale and delivery
of the Preferred Shares, and the issuance and delivery of the Conversion
Shares, and all statements contained in any certificate or other instrument
delivered by the Company hereunder or thereunder or in connection herewith or
therewith shall be deemed to constitute representations and warranties made by
the Company.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4 Parties in Interest. All representations, covenants
and agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: President, with a copy to ▇▇▇▇ ▇.
▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇; and
(b) if to any Purchaser, at the address of such Purchaser
set forth in Schedule L with a copy to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq., ▇▇▇▇▇, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, Exchange Place, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
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SECTION 6.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
SECTION 6.7 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 6.8 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.
SECTION 6.9 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent
of the Company and the holders of at least two-thirds of the outstanding shares
of Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be effected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used
in this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "person" shall mean an individual, corporation,
trust, partnership, joint venture, unincorporated organization, government
agency or any agency or political subdivision thereof, or other entity.
(b) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by
the Company, or by one or more of its subsidiaries, or by the Company and one
or more of its subsidiaries.
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IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Managing Director
As a Purchaser and as President of the
Company pursuant to Paragraphs IV(b)
and IV(c)
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
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IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Managing Director
As a Purchaser and as President of the
Company pursuant to Paragraphs IV(b)
and IV(c)
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
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24
SCHEDULE I
PURCHASERS
Number of
Preferred Aggregate Purchase
Name and Address Shares to be Price for
of Purchaser Purchased Preferred Shares
-------------------------------- ---------------------------- ------------------------
ARCH Venture Fund II, L.P. 2,292,257 $500,000 in cash
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇. 6,876,771 $500,000 in cash; cancellation of
c/o Neon Software, Inc. $1,000,000 of indebtedness and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇, #▇▇▇ 4,584,514 shares of Common Stock
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
9,169,028
25
SCHEDULE II
DISCLOSURE SCHEDULE
I. LITIGATION
A. The Company is currently in a dispute with MSI concerning an
invoice in the amount of approximately $35,000 owed.
B. There is a possibility that a claim may be made against the
Company by MasterChart, Incorporated, in connection with a
license permitting the Company to use certain computer
software in the development of its products and providing for
the issuance to MasterChart of Neon Common Stock, which
issuance Neon has not made and does not intend to make.
II. INTELLECTUAL PROPERTY
A. The Company has no registered patents, trademarks or
copyrights.
B. In 1993, the Company applied to the U.S. Patent and Trademark
Office for registration of the service ▇▇▇▇ "NEON Systems,
Inc." The registration was refused in October, 1993, and the
application was subsequently abandoned.
III. STOCK OPTIONS
A. The Company maintains a Management Stock Option Plan, the
terms of which have been previously provided to the purchasers
and which will be amended to conform with the terms of this
Agreement. The Plan provides the Company with a right of first
refusal and repurchase rights with respect to certain
transfers of stock by recipients of the Management Stock
Options as well. As of the date of this Agreement, the Company
has granted options to purchase 97,200 shares of Common Stock
pursuant to this Plan.
B. The Company has granted options to purchase a total 10,000
shares of common stock to certain consultants and suppliers.
IV. FINANCING
A. ▇▇▇▇▇▇ ▇. ▇▇▇▇ currently holds a note from the Company in the
amount of $1,000,000. Mr. Adam has loaned an additional
$307,000 to the Company. Pursuant to this Agreement, the
$1,000,000 note will be canceled as partial consideration for
his receipt of 6,876,771 shares of Series A Convertible
Preferred Stock. A new note
26
will be issued evidencing the indebtedness of the Company to
Mr. Adam for the remaining $307,000 on the same terms and
conditions as the canceled note.
B. The Company maintains a $I 00,000 line of credit with Guaranty
Bank.
V. LIST OF MATERIAL AGREEMENTS
A. Master Software License and Distribution Agreements Strategic
Marketing Information, Inc., dated April 14, 1994 ▇▇▇▇ and
▇▇▇▇▇▇ Just, dated December 1, 1994
B. United Western Medical Center, Software Development Agreement
dated April 6, 1994
C. Multimedia Systems Integration, Inc., Licensed Software and
Software Maintenance Agreement
D. CONNECT: The Knowledge Network Corp., Master Agreement dated
December 14, 1994
E. Software License Agreements
▇▇▇▇▇▇▇ Health System, dated March 3, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, dated
March 28, 1995 (Proposed)
Provenant Health Partners, dated February 10, 1995
United Western Medical Centers, dated February 10,
1995
Bertelsmann Music Group, dated March 9, 1995
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., Consulting Agreement, Middleware
Agreement, Development Agreement, and Technical Agreement
dated March 29, 1995 (Proposed)
G. Northwest Texas Hospital, PRISM License Agreement and
Statement of Work dated March 30, 1995
H. CyData, Inc., Marketing Agreement dated February 23, 1995
Dr. ▇▇▇▇▇▇ ▇.▇. ▇▇▇▇, M.D., Processing Agreement with CyData,
Inc. dated February 23, 1995
I. Dr. ▇▇▇▇▇▇ ▇.▇. ▇▇▇▇, M.D., Lease Agreement dated December 15,
1994
J. Lutheran Medical Center, Engagement Letter dated December 23,
1994.
-2-
27
SCHEDULE III
SECURITY HOLDERS
Name Shares
---- ---------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇ 10,000,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 600,000
Employee Options
----------------
Name No. of Options Granted
---- ----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ 3,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 1,200
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ 12,000
▇▇▇▇ ▇. ▇▇▇▇▇▇ 5,400
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 3,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 3,600
▇▇▇ ▇▇▇▇▇▇▇ 30,000
▇▇▇▇▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇ 3,600
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 9,000
▇▇▇▇ Just Haenke 7,800
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 3,000
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 9,000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 3,000
▇▇▇▇ Shy Whalden 3,600
Non-Employee Options
--------------------
Name No. of Options Granted
---- ----------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 10,000