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EXHIBIT 10.7
SERIES D CONVERTIBLE PREFERRED STOCK
AND WARRANT
PURCHASE AGREEMENT
DATED AS OF AUGUST 24, ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ CAPITAL CORPORATION
AS PURCHASER
AND COMPUTER MOTION, INC.
AS SELLER
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PURCHASE AGREEMENT
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THIS AGREEMENT is made as of August 24, 1994, between Chase Manhattan
Capital Corporation, a New York corporation (purchaser") and Computer Motion,
Inc., a California corporation (the "Company"). Except as otherwise indicated,
capitalized terms used herein are defined in paragraph 6A hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Series D Preferred and the Warrant. The
Company shall duly adopt, authorize, execute and file the Certificate of
Determination and authorize the issuance and sale to Purchaser of (i) 1,052,632
shares of its Series D Convertible Preferred Stock, no par value per share (the
"Series D Preferred") having the rights and preferences set forth in Exhibit A
attached hereto, and (ii) a Stock Purchase Warrant in the form of Exhibit B
attached hereto (the "Warrant") to purchase up to 1,052,632 shares of the
Company's Common Stock, no par value per share (the "Common Stock"). The Series
D Preferred is convertible into shares of Common Stock.
1B. Purchase and Sale of the Series D Preferred and the Warrant. At the
Closing, subject to the terms and conditions set forth herein, the Company shall
sell to Purchaser and Purchaser shall purchase from the Company 1,052,632 shares
of Series D Preferred and the Warrant at a price of $4.75 for each share of
Series D Preferred and $100 for the Warrant for an aggregate purchase price of
$5,000,102.
1C. The Closing. The Closing of the purchase and sale of the Series D
Preferred and the Warrant shall take place at the offices of ▇▇▇▇▇▇▇▇ ~ ▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ at 10:00 a.m. on August 24, 1994, or
at such other place or on such other date as may be mutually agreeable to the
Company and Purchaser, but in no event later than August 26, 1994. At the
Closing, the Company shall deliver to Purchaser stock certificates evidencing
the Series D Preferred and the Warrant to be purchased by Purchaser, registered
in Purchaser's or its nominee's name, upon payment of the purchase price thereof
by a cashier's or certified check, or by wire transfer of immediately available
funds to an account designated by the Company in an amount equal to $5,000,002.
Section 2. Conditions of Purchaser's Obligation at the Closing. The
obligation of Purchaser to purchase and pay for the Series D Preferred and the
Warrant being purchased at the Closing is subject to the satisfaction as of the
Closing of the following conditions:
2A. Representations and Warranties: Covenants. The representations and
warranties contained in Section 5 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. Certificate of Determination. The Company shall have duly adopted,
executed, and filed with the Secretary of State of California the Certificate of
Determination and the Company shall not have adopted or filed any other document
designating terms or relative rights or preferences
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of its Preferred Stock. The Certificate of Determination shall be in full force
and effect under the laws of California as of the Closing.
2C. Registration Agreement. The Company and Purchaser shall have
entered into the Registration Agreement and the Registration Agreement shall be
in full force and effect as of the Closing.
2D. Stockholders Agreement. The Company, certain of the Company's
executives and the Purchaser shall have entered into the Stockholders Agreement
and the Stockholders Agreement shall be in full force and effect as of the
Closing.
2E. Non-Competition Agreements. The Company and each of ▇▇. ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ ▇▇▇▇ shall have entered into the applicable Non-Competition
Agreements, and such Non-Competition Agreements shall be in full force and
effect as of the Closing.
2F. Sale of Series D Preferred and Warrant. The Company shall have sold
and delivered to Purchaser the Series D Preferred and the Warrant to be
purchased by Purchaser hereunder at the Closing and the Company shall have
received payment therefor in full.
2G. Compliance With Law. The transactions contemplated hereby shall
comply with all laws and regulations applicable thereto. The Company shall have
made all filings under all applicable federal and state securities laws
necessary to consummate the issuance of the Series D Preferred and the Warrant
pursuant to this Agreement in compliance with such laws.
2H. Due Diligence. Purchaser shall have completed and shall be
satisfied with the results of its legal, accounting, financial and business due
diligence of the Company.
2I. Opinion of the Company's Counsel. Purchaser shall have received
from Stradling, Yocca, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, special counsel for the Company, an
opinion with respect to the matters set forth in Exhibit E attached hereto,
dated the date of the Closing and in form and substance Satisfactory to
Purchaser.
2J. Closing Documents. The Company shall have delivered to Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in Section 1
and paragraphs 2A through 2G, inclusive, have been fully
satisfied;
(ii) certified copies of the resolutions duly adopted
by the Company's Board of Directors authorizing the execution,
delivery and performance of this Agreement, the Registration
Agreement, the Stockholders Agreement and each of the other
agreements contemplated hereby or thereby, the filing of the
Certificate of Determination, the issuance and sale of the
Series D Preferred and the Warrant, the reservation for
issuance upon conversion of the Series D Preferred or exercise
of the Warrant issued at the Closing of an aggregate of
1,052,632 shares of Common Stock, and the consummation of all
other transactions contemplated by this Agreement;
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(iii) certified copies of the Articles of
Incorporation, the Certificate of Determination, and the
bylaws of the Company, and of the partnership agreement or
charter and bylaws of each Subsidiary, each as in effect at
the Closing;
(iv) copies of all third-party and governmental
consents, approvals and filings required in connection with
the consummation of the transactions hereunder (including,
without limitation, all blue sky law filings and waivers of
all preemptive rights and rights of first refusal);
(vi) duly completed and executed SBA Forms 480, 652
and 1031 and a list of (a) the name of each of the Company's
directors as of the Closing, (b) the name and title of each of
the Company's officers as of the Closing, and (c) after giving
effect to the transactions contemplated by this Agreement, the
name of each of the Company's stockholders setting forth the
number and class of shares held; and
(vii) such other documents relating to the
transactions contemplated by this Agreement as Purchaser or
its special counsel may reasonably request.
2K. Expenses. At the Closing, the Company shall have reimbursed
Purchaser for all fees and expenses as provided in paragraph 6B hereof.
2L. Proceedings. All corporate and other proceedings taken or required
to be taken by the Company in connection with the transactions contemplated
hereby to be consummated at or prior to the Closing and all documents incident
thereto shall be satisfactory in form and substance to Purchaser and its special
counsel.
2M. Waiver. Any condition specified in this Section 2 may be waived if
consented to by Purchaser; provided that no such waiver shall be effective
against Purchaser unless it is set forth in a writing executed by Purchaser.
Section 3. Covenants.
3A. Financial Statements and Other Information. The Company shall
deliver to Purchaser (so long as Purchaser holds any Underlying Common Stock)
and to each other holder of at least 200,000 shares of Underlying Common Stock
(as adjusted to account for stock splits, stock dividends, combinations of
shares and other similar transactions occurring after the Closing):
(i) as soon as available but in any event within
seven days after the end of each weekly accounting period for
the 52 weeks after the Closing, unaudited weekly cash reports
of the Company setting forth the number of units sold and the
aggregate sales revenue for each of the Company's products,
setting forth in each case comparisons to the annual budget
and to the preceding weekly period, and all such statements
shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the
absence of footnote disclosures and normal year-end
adjustments;
(ii) as soon as available but in any event within 30
days after the end of each monthly accounting period in each
fiscal year, commencing for September 1994, unaudited
consolidating and consolidated statements of income and cash
flows
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of the Company and its Subsidiaries for such monthly
period and for the period from the beginning of the fiscal
year to the end of such month, and consolidating and
consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting
forth in each case comparisons to the annual budget and to the
corresponding period in the preceding fiscal year, and all
such statements shall be prepared in accordance with generally
accepted accounting principles, consistently applied, subject
to the absence of footnote disclosures and to normal year-end
adjustments;
(iii) within 45 days after the end of each of the
first three quarterly accounting periods in each fiscal year,
unaudited consolidating and consolidated statements of income
and cash flows of the Company and its Subsidiaries for such
fiscal quarter, and unaudited consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the
end of such fiscal quarter, setting forth in each case
comparisons to the same quarter of the preceding fiscal year,
all prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments, and
accompanied by an Officer's Certificate stating that to the
best of such officer's knowledge after diligent inquiry there
is no Event of Noncompliance in existence and that neither the
Company nor any of its Subsidiaries is in default under any of
its other material agreements or, if any Event of
Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take
with respect thereto;
(iv) within 90 days after the end of each fiscal
year, consolidating and consolidated statements of income and
cash flows of the Company and its Subsidiaries for such fiscal
year, and consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal
year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions
of such statements, an opinion of an independent accounting
firm of recognized national standing that is unqualified with
respect to the scope of such firm's examination and the
Company's status as a going concern, (b) a certificate from
such accounting firm, addressed to the Board of Directors,
stating that in the course of its examination nothing came to
its attention that caused it to believe that there was an
Event of Noncompliance in existence or that there was any
other default by the Company or any Subsidiary in the
fulfillment of or compliance with any of the terms, covenants,
provisions or conditions of any other material agreement to
which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance
or other default by the Company or any Subsidiary exists, a
certificate specifying the nature and period of existence
thereof, and (c) a copy of such firm's annual management
letter to the Board of Directors;
(v) promptly upon receipt thereof, any additional
reports, management letters or other detailed information
concerning significant aspects of the Company's operations or
financial affairs prepared by Company's independent
accountants and provided to the Board of Directors (and not
otherwise contained in other materials provided hereunder);
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(vi) at least 30 days but not more than 90 days prior
to the beginning of each fiscal year, commencing for the
fiscal year beginning January 1, 1995, an annual budget
prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and
promptly upon preparation thereof any other significant
budgets prepared by the Company and any revisions of such
annual or other budgets, and within 30 days after any monthly
period in which there is a material adverse deviation from the
annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes
to take with respect thereto;
(vii) promptly (but in any event within ten business
days) after the discovery or receipt of notice of any Event of
Noncompliance, any default under any material agreement to
which it or any of its Subsidiaries is a party, which default
could have a material adverse effect on the Company or any
Subsidiary, or any other material adverse event or
circumstance affecting the Company or any Subsidiary
(including, without limitation, the filing of any material
litigation against the Company or any Subsidiary or the
existence of any dispute with any Person which involves a
substantial likelihood of such litigation being commenced), a
notice specifying the nature and period of existence thereof
and what actions the Company and its Subsidiaries have taken
and propose to take with respect thereto;
(viii) within ten days after transmission thereof,
copies of all financial statements, proxy statements, reports
and any other general written communications which the Company
sends to its stockholders and copies of all registration
statements and all regular, special or periodic reports which
it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange
Commission or with any securities exchange on which any of its
securities are then listed, and copies of all press releases
and other statements made available generally by the Company
to the public concerning material developments in the
Company's businesses;
(ix) within 75 days after the Closing, the Company
will deliver to each SBIC Holder a written summary describing
in reasonable detail the use of such proceeds by the Company
and its Subsidiaries. The Company will give each SBIC Holder
and the SBA access to the Company's records for the purpose of
confirming the use of such proceeds;
(x) promptly after the end of each fiscal year (but
in any event prior to February 28 of each year) the Company
shall deliver to each SBIC Holder a written assessment of the
economic impact of Purchaser's investment in the Company,
specifying the full-time equivalent jobs created or retained
in connection with the investment, the impact of the
investment on the businesses of the Company in terms of
expanded revenue and taxes, and other economic benefits
resulting from the investment, including but not limited to,
technology development or commercialization, minority business
development, urban or rural business development, expansion of
exports and assistance to manufacturing firms; and
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(xi) with reasonable promptness, such other
information and financial data concerning the Company and its
Subsidiaries as any Person entitled to receive information
under this paragraph 3A may reasonably request.
Each of the financial statements referred to in this paragraph 3A shall
be true and correct in all material respects, and shall fairly and accurately
reflect the financial condition and operating results of the Company and its
Subsidiaries as of the dates and for the periods stated therein, subject in the
case of the unaudited financial statements to changes resulting from normal
year-end adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of subparagraphs
3A(i)-(ix) shall cease to be effective so long as the Company (a) is subject to
the periodic reporting requirements of the Securities Exchange Act and continues
to comply with such requirements and (b) promptly provides to each Person
otherwise entitled to receive information pursuant to this paragraph 3A all
reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act; provided, however, that the Company's obligation to
deliver certain Officer's Certificates pursuant to paragraph 3A(iii) and the
requirements of paragraph 3A(iv)(b) shall continue for so long as any Series D
Preferred remains outstanding or the Warrant remains exercisable.
Except as otherwise required by law or judicial order or decree or by
any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this paragraph 3A
or paragraph 3B or 3C shall use its best efforts to maintain the confidentiality
of all nonpublic information obtained by it hereunder; provided that each such
Person may disclose such information in connection with the sale or transfer of
any Underlying Common Stock if such Person's transferee agrees in writing to be
bound by the provisions hereof, and provided further that any such Person that
is acting as a trustee, investment manager, investment advisor or in any other
similar fiduciary capacity shall be permitted to provide such information to any
plan sponsors, investment committee or investment advisory board associated with
such Person.
3B. Inspection of Property. The Company shall permit any
representatives designated by Purchaser (so long as Purchaser holds any
Underlying Common Stock) and any subsequent holder of at least 200,000 shares of
Underlying Common Stock (as adjusted to account for stock splits, stock
dividends, combinations of shares and other similar transactions occurring after
the Closing), upon reasonable notice and during normal business hours and at
such other times as any such holder may reasonably request, to (i) visit and
inspect any of the properties of the Company and its Subsidiaries, (ii) examine
the corporate and financial records of the Company and its Subsidiaries and make
copies thereof or extracts therefrom and (iii) meet and discuss (at meetings
arranged by the Company) the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries.
3C. Attendance at Board Meetings. Prior to qualified Public Offering,
the Company shall give Purchaser (so long as Purchaser holds any Underlying
Common Stock) and each holder of at least 500,000 shares of Underlying Common
Stock (as adjusted to account for stock splits, stock dividends, combinations of
shares and other similar transactions occurring after the Closing), notice of
each meeting of the Board of Directors, the board of directors of any Subsidiary
and any committee thereof at such time as notice is given to the directors, and
the Company shall permit (or
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cause such Subsidiary to permit) a representative of each such Person to attend
as an observer all meetings of its Board of Directors, such Subsidiary's board
of directors and committees thereof. Each such representative shall be entitled
to receive all written materials and other information (including, without
limitation, copies of meeting minutes) given to directors in connection with
such meetings at the same time such materials and information are given to the
directors. Notwithstanding the foregoing, the Company may exclude such
representative from any such meetings and withhold information from such
representative, to the extent necessary, in the written opinion of the Company's
legal counsel, in order to preserve any attorney-client privileged information
of the Company. If the Company or any of its Subsidiaries proposes to take any
action by written consent in lieu of a meeting of its Board of Directors, or
such Subsidiary's board of directors, or any committee thereof, the Company
shall, or shall cause such Subsidiary to, give written notice thereof to each
such representative prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall, or
shall cause the applicable Subsidiary to, pay the reasonable out-of-pocket
travel expenses of each representative incurred in connection with attending
such board and committee meetings; provided, however, neither the Company nor
its Subsidiaries shall pay the expenses of any representative who is an
Affiliate of the Investor Director if the Investor Director is also in
attendance at such meeting.
3D. Restrictions. So long as any Underlying Common Stock is
outstanding, the Company shall not, without the prior written consent of the
holder or holders of a majority of the Underlying Common Stock:
(i) directly or indirectly declare or pay any
dividends or make any distributions upon any of its Junior
Securities;
(ii) directly or indirectly redeem, purchase or
otherwise acquire, or permit any Subsidiary to redeem,
purchase or otherwise acquire, any of the Company's Junior
Securities (including, without limitation, warrants, options
and other rights to acquire Junior Securities directly or
indirectly) or directly or indirectly redeem, purchase or make
any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans, except for
redemptions or repurchases of Series D Preferred, the Warrant
or Underlying Common Stock permitted under this Agreement and
except for repurchases of up to $600,000 in the aggregate from
the date hereof of Common Stock from former employees of the
Company or its Subsidiaries upon termination of their
employment on terms determined by the Company's Board of
Directors so long as no Event of Noncompliance exists as of or
after giving effect to any such repurchase,
(iii) so long as any Series D Preferred remains
outstanding, authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of (a)
any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other
equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit
participation features), which equity securities would be
senior to or para passu with the Series D Preferred with
respect to the payment of dividends, redemption's or
distributions upon liquidation or otherwise, (b) any capital
stock or other equity securities (or any securities directly
or indirectly convertible into or exchangeable for any capital
stock or other equity securities) which are senior to or pari
passu with the Series D Preferred with respect
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to the payment of dividends, redemptions or distributions upon
liquidation or otherwise, or (c) permit any Subsidiary to
issue any equity securities or any other securities of the
type described in (a) or (b) above, or any rights to acquire
such securities, except to the Company or a wholly-owned
Subsidiary;
(iv) make, or permit any Subsidiary to make, any
loans or advances to, guarantees for the benefit of, or
Investments in, any Person (other than a wholly-owned
Subsidiary), except for (a) reasonable advances to employees
in the ordinary course of business, (b) acquisitions permitted
pursuant to subparagraph (viii) below and (c) Investments
having a stated maturity no greater than six months from the
date the Company makes such Investment in (1) obligations of
the United States government or any agency thereof or
obligations guaranteed by the United States government, (2)
certificates of deposit of commercial banks having combined
capital and surplus of at least $250 million (except for
certificates of deposit of Montecito Bank aggregating up to
$300,000) or (3) commercial paper with a rating of at least
"Prime-1" by ▇▇▇▇▇'▇ Investors Service, Inc.;
(v) merge or consolidate with any Person or, except
as permitted by subparagraph (viii) below, permit any
Subsidiary to merge or consolidate with any Person (other than
a wholly-owned Subsidiary);
(vi) sell, lease or otherwise dispose of, or permit
any Subsidiary to sell, lease or otherwise dispose of, more
than 50` of the consolidated assets of the Company and its
Subsidiaries (computed on the basis of book value, determined
in accordance with generally accepted accounting principles
consistently applied, or fair market value, determined by the
Company's Board of Directors in its reasonable good faith and
judgment) in any transaction or series of related transactions
(other than sales in the ordinary course of business) or sell
or permanently dispose of any of its or any Subsidiary's
Intellectual Property Rights;
(vii) liquidate, dissolve or effect a
recapitalization or reorganization in any form of transaction
(including, without limitation, any reorganization into
partnership form);
(viii) acquire, or permit any Subsidiary to acquire,
any interest in any business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any
joint venture, involving an aggregate consideration (including
the assumption of liabilities whether direct or indirect)
exceeding in the aggregate from the date hereof the sum of (i)
$1,000,000 plus (ii) an amount equal to 50% of the Company's
retained earnings generated after the Closing hereof less the
portion of such retained earnings used pursuant to
subparagraph 3D(xvii) hereof;
(ix) so long as any Series D Preferred remains
outstanding, effect any Reorganization;
(x) enter into, or permit any Subsidiary to enter
into, the ownership, active management or operation of any
business other than the design, manufacture, sale and
distribution of products (including any accessories sold in
connection therewith) which generate, control and/or
display computerized motion, which
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includes but is not limited to robotics, computer graphics,
and automation, and which may include consulting and/or
contract work with government agencies and/or other commercial
institutions in respect of such types of products;
(xi) become subject to, or permit any of its
Subsidiaries to become subject to (including, without
limitation, by way of amendment to or modification of), any
agreement or instrument which by its terms would (under any
circumstances) restrict the Company's right to perform its
obligations under this Agreement, the Registration Agreement,
the Stockholders Agreement, the Certificate of Determination,
the Articles of Incorporation or the Bylaws (including,
without limitation, provisions relating to the conversion or
redemption of the Series D Preferred, the exercise of the
Warrant and the repurchase of Underlying Common Stock pursuant
to this Agreement);
(xii) except as expressly contemplated by this
Agreement, make any amendment to the Articles of
Incorporation, the Certificate of Determination, or the
Bylaws, or file any resolution of the Company's Board of
Directors with the Secretary of State of California,
containing any provision which would adversely affect or
otherwise impair the rights or relative priority of the
holders of the Series D Preferred or the holders of Underlying
Common Stock under this Agreement, the Registration Agreement,
the Stockholders Agreement, the Articles of Incorporation, the
Certificate of Determination or the Bylaws;
(xiii) except as set forth on the Permitted Joint
Venture Schedule attached hereto, establish or acquire (a) any
Subsidiaries other than wholly-owned Subsidiaries or (b) any
Subsidiaries organized outside of the United States and its
territorial possessions;
(xiv) create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to
exist, Indebtedness exceeding in the aggregate $500,000
outstanding at any time on a consolidated basis;
(xv) make any capital expenditures (including,
without limitation, payments with respect to capitalized
leases, as determined in accordance with generally accepted
accounting principles consistently applied) exceeding $750,000
in the aggregate on a consolidated basis during any 12-month
period plus an aggregate of $500,000 to purchase AESOP
demonstration units and $750,000 to develop manufacturing
capacity to produce robotic arms used in the AESOP units;
(xvi) enter into any leases or other rental
agreements (excluding capitalized leases, as determined in
accordance with generally accepted accounting principles
consistently applied) under which the amount of the aggregate
lease payments for all such agreements exceeds the sum of (i)
$800,000 during any 12-month period plus (ii) an amount equal
to 50' of the Company's retained earnings generated during
such a 12-month period less the portion of such retained
earnings used pursuant to subparagraph 3D(viii) hereof;
(xvii) change its fiscal year;
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(xviii) change the authorized size of its Board of
Directors from five members, except that the Company may
increase the size of its Board of Directors to seven members
upon the completion of a Qualified Public Offering;
(xix) amend or modify any stock option plan or
employee stock ownership plan as in existence as of the
Closing, adopt any new stock option plan or employee stock
ownership plan or issue any shares of Common Stock to its or
its Subsidiaries' employees other than pursuant to the
Company's existing stock option and employee stock ownership
plans; provided that the Company may amend any existing plan
or adopt any new plan to issue shares of Common Stock (or
options to acquire such shares) to employees of the Company or
its Subsidiaries on terms approved by the Company's Board of
Directors, and may issue shares of Common Stock pursuant to
paragraph 3Q hereof so long as the aggregate number of all
shares of Common Stock (or options to acquire such shares)
issued pursuant to any existing, modified or new stock option
plan or employee stock ownership plan, and issued pursuant to
paragraph 3Q hereof, does not exceed 1,214,200 in the
aggregate (as adjusted to account for stock splits, stock
dividends, combinations of shares and other similar
transactions occurring after the Closing);
(xx) issue or sell any shares of the capital stock,
or rights to acquire shares of the capital stock, of any
Subsidiary to any Person other than the Company or another
Subsidiary;
(xxi) borrow against, pledge, assign, modify cancel
or surrender any key-man life insurance policies required to
be maintained under subparagraph 3E(ix) hereof;
(xxii) take or omit to take any action which would
result in the representations made in paragraph 5S hereof to
cease to be true and correct at all times following the
Closing; and
(xxiii) use the proceeds from the sale of the Series
D Preferred and the Warrant other than to pay for expenses
incurred in the ordinary course of business in connection with
the design, manufacture, sale or distribution of products and
related accessories which generate, control and/or display
computerized motion, by use of robotics, computer graphics or
computer automation.
Notwithstanding the foregoing, the Company may take any action described in
subparagraphs 3D(v), (vi), (vii) and (ix) without the prior written consent of
the holder or holders of a majority of the Underlying Common Stock, if
immediately after giving effect to such action taken by the Company, on account
of each share of Underlying Common Stock the holder thereof receives
consideration in cash or readily marketable securities in an amount not less
than the greater of (A) 2 times the Liquidation Value of each share as of the
date hereof plus all accrued and unpaid dividends thereon or (B) the Liquidation
Value of each share as of the date hereof plus an amount equal to a 40%
cumulative annual return thereon.
3E. Affirmative Covenants. So long as any Underlying Common Stock is
outstanding, the Company shall, and shall cause each Subsidiary to, unless it
has received the prior written consent of the holder or holders of a majority of
the Underlying Common Stock then in existence:
12
(i) at all times cause to be done all things
necessary to maintain, preserve and renew its corporate
existence and all material licenses, authorizations and
permits necessary to the conduct of its businesses;
(ii) maintain and keep its properties in good repair,
working order and condition, and from time to time make all
necessary or desirable repairs, renewals and replacements, so
that its businesses may be properly and advantageously
conducted at all times;
(iii) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its
properties or upon the income or profits therefrom (in each
case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or
supplies which if unpaid would by law become a lien upon any
of its property or to the extent to which the failure to pay
or discharge such obligations would reasonably be expected to
have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of
the company and its Subsidiaries taken as a whole, unless and
to the extent that the same are being contested in good faith
and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its
books with respect thereto;
(iv) comply with all other material obligations which
it incurs pursuant to any contract or agreement, whether oral
or written, express or implied, as such obligations become
due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally
accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(v) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of
which would reasonably be expected to have a material adverse
effect upon the financial condition, operating results,
assets, operations or business prospects of the Company or any
Subsidiary;
(vi) apply for and continue in force with good and
responsible insurance companies adequate insurance covering
risks of such types and in such amounts as are customary for
companies of similar size engaged in similar lines of
business;
(vii) maintain proper books of record and account
which present fairly in all material respects its financial
condition and results of operations and make provisions on its
financial statements for all such proper reserves as in each
case are required in accordance with generally accepted
accounting principles, consistently applied;
(viii) maintain product liability insurance coverage
of at least $5,000,000; and
(ix) within 30 days following the Closing, the
Company shall obtain and thereafter maintain key-man life
insurance policies on the lives of ▇▇. ▇▇▇▇▇▇ ▇.
13
▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ ▇▇▇▇ in the face amount of $1,000,000
each, which policies shall name the Company as beneficiary.
3F. Compliance with Agreements. The Company shall perform and observe
(i) all of its obligations to each holder of Underlying Common Stock set forth
in this Agreement, the Articles of Incorporation, the Certificate of
Determination, the Company's Bylaws and the Stockholders Agreement, (ii) all of
its obligations to each holder(s) of the Warrant set forth therein and (iii) all
of its obligations to each holder of Registrable Securities set forth in the
Registration Agreement. Notwithstanding the provisions of paragraph 3R, any
obligation contained in each of the agreements referred to in this paragraph 3F
may terminate at such time as is specifically provided for therein.
3G. Current Public Information. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to Rule 144 adopted by the Securities and
Exchange Commission under the Securities Act (as such rule may be amended from
time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission. Upon request, the Company shall deliver to
any holder of Restricted Securities a written statement as to whether it has
complied with such requirements.
3H. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Series D Preferred
and exercise of the Warrant, such number of shares of Common Stock issuable upon
the conversion of all outstanding shares of Series D Preferred or exercise of
the Warrant. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation (excluding
Investment Regulations) or any requirements of any domestic securities exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Company upon issuance).
3I. Intellectual Property Rights. The Company shalluse its best efforts
to, and shall cause each Subsidiary to use its best efforts to, possess and
maintain all material Proprietary Rights necessary to the conduct of their
respective businesses and own all right, title and interest in and to, or have a
valid license for, all material Intellectual Property Rights used by the Company
and each Subsidiary in the conduct of their respective businesses. The Company
and each of its Subsidiaries shall use its best efforts to avoid any action
which to the best of its knowledge would result in the invalidity, abuse, misuse
or unenforceability of such Intellectual Property Rights or which to the best of
its knowledge would infringe upon any rights of other Persons.
3J. Preemptive Rights.
(i) Prior to a Qualified Public Offering, and except
for issuances of Common Stock (or options to acquire Common
Stock) (a) to employees of the Company or any Subsidiary on
terms which have been approved (or are issued
14
pursuant to an employee plan that has been approved) by the
Company's Board of Directors, (b) upon the conversion of the
Series A, B. C or D Preferred or the exercise of the Warrant,
(c) in connection with the acquisition of another company or
business as permitted under subparagraph 3D(viii), (d)
pursuant to a public offering registered under the Securities
Act, and (e) pursuant to options and rights to acquire Common
Stock that are described on the Capitalization Schedule
attached hereto, if the Company authorizes the issuance or
sale of any equity securities or any options or rights (or
securities containing options or rights) to acquire any equity
securities (other than as a dividend on the outstanding Common
Stock payable solely in shares of Common Stock), the Company
shall first offer to sell to Purchaser (so long as Purchaser
owns any Underlying Common Stock and each holder of at least
200,000 shares of Underlying Common Stock (as adjusted to
account for stock splits, stock dividends, combinations of
shares and similar events) a portion of such stock or
securities equal to the quotient determined by dividing (1)
the number of shares of Underlying Common Stock held by such
holder by (2) the sum of (x) the number of shares of
Underlying Common Stock then in existence and (y) the number
of shares of Common Stock then outstanding or issuable upon
the outstanding rights, warrants, options or convertible
securities which are fully exercisable at such time at an
exercise or conversion price which does not exceed the fair
market value of the Common Stock issuable thereupon as
determined in good faith by the Company's Board of Directors,
and which are not shares of Underlying Common Stock. Each such
holder of Underlying Common Stock shall be entitled to
purchase such stock or securities at the most favorable price
and on the most favorable terms that such stock or securities
are to be offered to any other Persons. The purchase price for
all stock and securities offered to the holders of the
Underlying Common Stock shall be payable in cash (or such
other terms as are offered to other Persons).
(ii) In order to exercise its purchase rights
hereunder, a holder of Underlying Common Stock must, within 15
days after receipt of written notice from the Company
describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and
such holder's percentage allotment, deliver a written notice
to the Company describing its election hereunder. If all of
the stock and securities offered to the holders of Underlying
Common Stock is not fully subscribed by such holders, the
remaining stock and securities offered to such holders shall
be reoffered by the Company to the holders purchasing their
full allotment upon the terms set forth in this paragraph,
except that such holders must exercise their purchase rights
within five days after receipt of much reoffer.
(iii) Upon the expiration of the offering periods
described above, the Company shall be entitled to sell such
stock or securities which the holders of Underlying Common
Stock have not elected to purchase or which the Company was
not obligated to offer to such holders during the 60 days
following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to such
holders. Any stock or securities offered or sold by the
Company after such 60-day period must be reoffered to the
holders of Underlying Common Stock described above pursuant to
the terms of this paragraph.
3R. Regulatory Compliance Cooperation.
15
(i) Regulatory Problem. In the event that Purchaser
(or any subsequent holder of Underlying Common Stock)
determines that it has a Regulatory Problem, the Company shall
take all such actions as are reasonably requested by Purchaser
in order to (a) effectuate and facilitate any transfer by
Purchaser of any securities of the Company then held by
Purchaser or its Affiliate to any Person designated by
Purchaser, (b) permit Purchaser (or any Affiliate) to exchange
all or any portion of the Series D Preferred, the Warrant or
Common Stock (collectively, the "Voting Securities" in this
paragraph 3K) then held by such Purchaser (or Affiliate) on a
share-for-share basis for shares of a class of non-voting
preferred stock convertible into non-voting common stock,
non-voting warrants to purchase non-voting common stock, or
non-voting common stock, respectively. Such non-voting
securities of the Company shall be identical in all respects
to such Voting Securities, except that they shall be
non-voting and shall be convertible or exercisable into an
identical number of shares of common stock on such conditions
for conversion or exercise as are requested by such Purchaser
in light of regulatory considerations then prevailing, and (c)
continue and preserve the respective allocation of the voting
interests with respect to the Company provided for in the
Stockholders Agreement and with respect to such Purchaser's or
Affiliate's ownership of the Company's Common Stock. In the
event that such Regulatory Problem ceases to exist, the
holders of non-voting securities may exchange all or any
portion of the non-voting securities for Voting Securities. In
order to effectuate such conversions, the Company and
Purchaser shall take such actions as are reasonable in view of
the nature of the Regulatory Problem, including but not
limited to entering into such additional agreements, adopting
such amendments to the Articles of Incorporation, the
Certificate of Determination and Bylaws and taking such
additional actions in order to effectuate the intent of the
foregoing.
(ii) Regulatory Violation. Upon the occurrence of a
Regulatory Violation or in the event Purchaser or any other
SBIC Holder determines in good faith that a Regulatory
Violation has occurred, Purchaser or any other SBIC Holder
shall, in addition to any other remedy to which such SBIC may
be entitled as a holder of Underlying Common Stock (whether
under this Agreement or otherwise), have the right (to the
extent that such SBIC Holder is required by SBIC Regulations
to have such right) to demand immediate redemption of all of
the Underlying Common Stock owned by such SBIC Holder at a
price per share equal to its purchase price hereunder plus all
accrued and unpaid dividends, by delivering written notice to
the Company, and the Company shall pay such repurchase price
within 30 days after the date of the notice requesting
redemption.
3L. Use of Proceeds. The Company shall not use the proceeds of the sale
of the Series D Preferred and the Warrant hereunder except as permitted under
paragraph 3D(xxiv) hereof. The Company shall provide Purchaser and the SBA
access to the Company's and its Subsidiaries' records as necessary to confirm
such use of proceeds.
3M. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose Purchaser's name or identity as an investor in the
Company in any written press release or other public announcement or in any
document or material filed with any governmental entity, without the prior
written consent of Purchaser, unless such disclosure is required by applicable
law or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to
16
making such disclosure the Company shall give written notice to Purchaser
describing in reasonable detail the proposed content of such disclosure and
shall permit Purchaser to review and comment upon the form all substance of such
disclosure.
3N. Allocation of Purchase Price. Purchaser and the Company hereby
acknowledge and agree that (a) the fair market value of the Series D Preferred
purchased hereunder is $5,000,002, and the fair market value of the Warrant
purchased hereunder is $100, and (b) the "issue price" and the "redemption
price" (as such terms are used in Section 305(c) of the Internal Revenue Code of
1986, as amended) of the Series D Preferred are each $5,000,002. Purchaser and
the Company shall file their respective federal, state and local income tax
returns in a manner which is consistent with such fair market valuation, and
shall take no position with any taxing authority which is contrary to such
allocation.
30. Retroactive State Filings. Within 30 days following the Closing
Date, the Company shall make all filings required to be made under any state
blue-sky laws in respect of any issuance of its equity securities or instruments
convertible into or exercisable or exchangeable for any equity securities.
3P. Rescission Offer. Within 45 days following the Closing Date, the
Company shall make a written offer (the "Rescission Offer") to all holders of
Common Stock and Series B Preferred, pursuant to which each holder thereof shall
be entitled to rescind its purchase of all but not less than all shares of such
securities and to receive consideration in an amount equal to the consideration
paid to the Company therefor upon surrender to the Company of the certificate(s)
representing such securities. The Rescission Offer shall remain in effect for
fourteen days after the date upon which the Rescission Offer is made (the
"Rescission Offer Period"). The Rescission Offer shall be accompanied by such
disclosure materials an would be necessary to qualify an offering of securities
under Regulation D of the Securities Act. Such disclosure materials shall be
subject to review and approval by Purchaser. Upon acceptance of the Rescission
Offer by any holder of Common Stock or Series B Preferred, the Company shall
promptly notify Purchaser of the identity of each holder who has accepted the
Rescission Offer, the type and number of Shares to be returned to the Company,
and the consideration to be paid by the Company therefor. Within ten days after
the expiration of the Rescission Offer Period the Company shall provide to
Purchaser a Capitalization Schedule which shall reflect the effect of the
Rescission Offer and all other transactions contemplated under this Agreement.
The Rescission Offer shall comply with all federal securities laws and all state
blue sky laws, including without limitation all disclosure, notice and filing
requirements thereunder.
3Q. Executive Compensation.
(i) So long as any Underlying Common Stock is outstanding, the Company
shall not, without the prior written consent of the holder or holders of a
majority of the shares of Underlying Common Stock:
(a) enter into, or permit any Subsidiary to enter into, any
agreement, transaction, commitment or arrangement with any of its or
any Subsidiary's officers, directors, employees, shareholders or
Affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such
Person or individual owns a beneficial interest, except for: (1)
salaries, bonuses, fringe benefits and other employment-related
compensation to the extent disclosed on the Affiliated Transactions
17
Schedule; (2) salaries, bonuses, fringe benefits and other
employment-related compensation which are not disclosed on the
Affiliated Transactions Schedule (including increases in existing
levels of compensation) but which are approved in good faith by the
Board of Directors as customary and reasonable; and (3) fees to
directors of the Company or any Subsidiary for services actually
rendered to the Company, other than services customarily rendered as a
director, on terms which are no less favorable to the Company than
could be obtained from a third-party service provider; and
(b) pay to all directors and to Messrs. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇ in his capacity as a member of the board of Directors of the
Company, ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇ and any of their respective
Affiliates (whether or not such person is a director at the time such
payment is made) (collectively, the "Company Directors" and each
individually a "Company Director" for this paragraph 3Q), pursuant to
clauses (1) and (2) of subparagraph 3Q(i)(a) an amount which exceeds in
the aggregate during any fiscal year for all Company Directors either
$150,000 in cash or fair market value of fringe benefits or 30,000
shares of Common Stock of the Company (as adjusted to account for stock
splits, stock dividends, combinations of shares and other similar
transactions occurring after the Closing), or any pro-rata combination
thereof (for example the aggregate payment made to all Company
Directors during any fiscal year may consist of $65,000 in cash
resulting from participation in a bonus pool, $10,000 in fair-market
value fringe benefits and 15,000 shares of Common Stock); provided that
no payments permitted hereunder shall be paid in securities of the
Company except for shares of Common Stock which may be issued pursuant
to clauses (1) and (2) of subparagraph 3Q(i)(a), or in any instrument
convertible into or exercisable or exchangeable for securities of the
Company or in the form of stock appreciation rights, phantom stock or
the like unless such form of payment is approved in advance by either
the Investor Director (as such term is defined in the Stockholders
Agreement) or the holder or holders of a majority of the Underlying
Common Stock. Except as provided under subparagraph 3Q(ii), the
aggregate fair-market value of payments permitted hereunder to all
Company Directors in the aggregate during any fiscal year (including
payments made in the form of Common Stock or other securities or
similar rights as provided hereunder) may not exceed $150,000.
(ii) Beginning for the six-month period beginning on July 1, 1995, and
for each successive six-month period thereafter, not less than 30 days prior to
the beginning of each such period, the Company shall submit to the Investor
Director a six-month plan of operations (the "Plan of Operations") setting forth
a projection of the total number of AESOP units to be sold, and the total gross
revenue and operating income to be earned by the Company during the relevant
six-month period, which plan must be acceptable to the Investor Director in its
sole discretion. If after any six-month period, the Company's actual results of
operations exceed each of the projections set forth in the Plan of Operations
for the relevant period, the Company may pay to the Company Directors
compensation for such six-month period pursuant to the terms of subparagraph
3Q(i)(a) without regard to the limitations contained in subparagraph 3Q(i)(b);
except that the 30,000 share limitation on payment in shares of Common Stock
contained therein shall remain in effect.
(iii) This paragraph 3Q does not prohibit the vesting of employee stock
options that are in existence as of the date hereof and are disclosed on the
Capitalization Schedule, and the vesting of such options is not subject to the
limitations contained in subparagraph 3Q(i).
18
3R. Termination of Covenants. The covenants of the Company contained in
this Section 3 (except paragraphs 3F, 3G, 3K and 3N) shall terminate upon the
closing of a Qualified Public Offering of the Company's Common Stock.
Section 4. Transfer of Restricted Securities: Certificate Numbering.
4A. General Provisions. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available, and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 4A(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of such Restricted Securities may be effected without registration of
such Restricted Securities under the Securities Act. In addition, if the holder
of the Restricted Securities to be transferred delivers to the Company an
opinion of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ or such other counsel that no subsequent transfer of
such Restricted Securities by any Person (other than an affiliate of the
Company) shall require registration under the Securities Act, the Company shall
promptly upon much contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
paragraph 6E below.
If the Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions substantially similar to those
contained in this paragraph and paragraph 6E below.
4C. Rule 144A. Upon the request of Purchaser, the Company shall
promptly supply to Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. Legend Removal. If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities (together with the opinion referred to in Section
4B), remove the legend set forth in paragraph 6E from the certificates for such
Restricted Securities.
4E. Certificate Numbering. The certificate number of the Series D
Preferred shall initially be PD-1, and the certificate number of the Warrant
shall initially be W-1. Thereafter, prior to a redemption of the Series D
Preferred at the Company's option pursuant to Section 4I of the Certificate of
Determination, in connection with any transfer of less than all of the shares of
the Series D Preferred represented by any particular certificate, the
certificate representing such shares of Series D Preferred so transferred and
the Warrant shall each be reissued in two or more parts so that at all times,
for each certificate representing shares of Series D Preferred, there will exist
a Warrant designated the same number and representing the right to purchase the
same number of shares of Underlying Common Stock as are obtainable upon
conversion of the Series D Preferred
19
represented by such certificate. Likewise, prior to a redemption of the Series D
Preferred at the Company's option pursuant to Section 4I of the Certificate of
Determination, in connection with a transfer of any portion of the Warrant, the
Warrant and the correspondingly numbered certificate representing Series D
Preferred which is convertible into the corresponding number of shares of
Underlying Common Stock shall each be reissued in two or more parts so that at
all times, for each Warrant representing the right to purchase shares of
Underlying Common Stock, there will exist a certificate representing shares of
Series D Preferred which are convertible into the same number of shares of
Underlying Common Stock. If at any time all or any portion of the shares of
Series D Preferred which are represented by a particular certificate are
redeemed other than in a redemption at the Company's option pursuant to Section
4I of the Certificate of Determination or are converted into Underlying Common
Stock, then the right to purchase that number of shares of Underlying Common
Stock into which such redeemed or converted shares of Series D Preferred were
convertible under the correspondingly numbered Warrant shall cease and be of no
further force or effect, and the Company shall issue a new certificate
representing the number of shares of Series D Preferred remaining after giving
effect to such redemption or conversion and a new Warrant exercisable for the
same number of shares of Underlying Common Stock into which such shares of
Series D Preferred are convertible. Each holder of shares of Series D Preferred
and any portion of the Warrant shall cooperate with the Company in effecting the
reissuances contemplated hereunder, and shall tender their certificates or their
Warrant to the Company for cancellation and reissuance within five business days
after receipt of a written request from the Company therefor, which request
shall state the circumstances which have given rise to such cancellation and
reissuance hereunder and the new number of shares of Series D Preferred to be
represented by each certificate or the new number of shares of Underlying Common
Stock to be obtainable upon exercise of each new Warrant, as the case may be.
Upon redemption of the Series D Preferred by the Company pursuant to Section 4I
of the Certificate of Determination, the numbering of the Warrant shall be
governed by Section 7 of the Warrant without regard to this Section 4E.
For example, if Purchaser owns 1,052,632 shares of Series D
Preferred represented by certificate PD-1 and a Warrant
designated W-1 to purchase up to 1,052,632 shares of
Underlying Common Stock, and Purchaser sells 100,000 shares of
Series D Preferred to "Transferee" but retains the entire
Warrant, the Series D Preferred will be reissued as
certificates PD-2 and PD-3, representing 952,632 and 100,000
shares of Series D Preferred, respectively. The Warrant will
be reissued in two parts, designated W-2 and W-3, representing
the right to purchase 952,632 and 100,000 shares of Underlying
Common Stock, respectively. If, thereafter, Transferee elects
to redeem 75,000 shares of Series D Preferred, his existing
certificate PD-3 and Purchaser's Warrant designated W-3 shall
be cancelled, and Transferee will be issued a new certificate
PD-4 representing his remaining 25,000 shares of Series D
Preferred, and Purchaser will be issued a new Warrant
designated W-4 representing his right to purchase 25,000
shares of Underlying Common Stock.
20
Section 5. Representations and Warranties of the Company. As a material
inducement to Purchaser to enter into this Agreement and purchase the Series D
Preferred and Warrant hereunder, the Company hereby represents and warrants
that:
5A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California and is qualified to do business in every jurisdiction in which its
ownership of property or contact of business requires it to qualify. The Company
possesses all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own and operate its properties, to carry
on its businesses as now conducted and to carry out the transactions
contemplated by this Agreement, and will use its best efforts to obtain all
material licenses, permits and authorizations necessary to own and operate its
properties and carry on its businesses as will be conducted in the future. The
copies of the Company's and each Subsidiaries' charter documents and Bylaws
which have been furnished to Purchaser's special counsel reflect all amendments
made thereto at any time prior to the Closing and will be correct and complete
as of the Closing.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000,000 shares
of preferred stock, of which (1) 815,000 shares shall be designated Series A
Preferred, of which 815,000 shares of such Series A Preferred shall be issued
and outstanding, (2) 5,000,000 shares shall be Series B Preferred of which
1,130,667 shares of such Series B Preferred shall be issued and outstanding, (3)
3,000,000 shares shall be Series C Preferred of which 760,256 shares of such
Series C Preferred shall be issued and outstanding and (4) 1,052,632 shares
shall be Series D Preferred of which 1,052,632 shares of such Series D Preferred
shall be issued and outstanding, (b) 25,000,000 shares of Common Stock, of which
3,290,040 shares shall be issued and outstanding and 3,758,555 shares shall be
reserved for issuance upon conversion of the Preferred Stock and exercise of the
Warrant, and (c) options to acquire 906,750 shares of Common Stock issued
pursuant to the Company's Tandem Stock Option Plan dated March l, 1993 attached
hereto as Exhibit H. As of the Closing, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock or containing any profit participation features,
nor shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans, except for the Preferred Stock and the Warrant and except as set
forth on the Capitalization Schedule attached hereto. The Capitalization
Schedule accurately sets forth the following information with respect to all
outstanding stock, and options and rights to acquire the Company's capital
stock: the holder, the number of shares owned or covered, any applicable
exercise price and any applicable expiration date (or, in lieu of the expiration
date, any applicable grant date and the exercise term). As of the Closing,
neither the Company nor any Subsidiary shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except as set forth on the Capitalization Schedule and except
pursuant to the Certificate of Determination and this Agreement. As of the
Closing, all of the outstanding shares of the Company's capital stock shall be
validly issued, fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of the Series D
Preferred or the Warrant hereunder or the issuance of the Common Stock upon
conversion of the Series D Preferred or the exercise of the
21
Warrant. The Company has not violated any applicable federal or state securities
laws in connection with the offer, sale or issuance of any of its capital stock,
and the offer, sale and issuance of the Series D Preferred and the Warrant
hereunder does not require registration under the Securities Act or any
applicable state securities laws. Neither the authorization or issuance of the
Series D Preferred or the Warrants, nor the issuance of Common Stock upon
conversion of the Series D Preferred or exercise of the Warrant shall result in
any adjustment to the exercise or conversion price of, or the number of shares
that may be purchased under, any other option, warrant, convertible security or
other right to acquire shares of the Company's Common Stock. Except as set forth
on the Capitalization Schedule and except for the Stockholders Agreement, there
are no agreements between the Company's stockholders with respect to the voting
or transfer of the Company's capital stock.
5C. Subsidiaries: Investments. The Subsidiary Schedule attached hereto
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation or organization, as the case may be, and the Persons owning the
outstanding capital stock or partnership interests, as the case may be, of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation (or in the case
of a partnership, the laws of the jurisdiction of its organization) possesses
all requisite corporate or partnership power and authority and all material
licenses, permits and authorizations necessary to own its properties and to
carry on its businesses as now being conducted and, as presently proposed to be
conducted, and is qualified to do business in every jurisdiction in which its
ownership of property or the conduct of business requires it to qualify. Except
as set forth on the Subsidiary Schedule, all of the outstanding shares of
capital stock or outstanding partnership interests of each Subsidiary are
validly issued and, in the case of capital stock, fully paid and nonassessable,
and all such shares or partnership interests are owned as set forth on the
Subsidiary Schedule. Except as set forth on the Subsidiary Schedule, neither the
Company nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person. The copies of each
Subsidiary's charter and Bylaws or partnership agreement delivered to Purchaser
at the Closing will reflect all amendments made thereto at any time prior to the
Closing and will be correct and complete as of the Closing.
5D. Authorization: No Breach. The execution, delivery and performance
of this Agreement, the Registration Agreement, the Stockholders Agreement, the
Non-Competition Agreements, and all other agreements contemplated hereby to
which the Company is a party, and the Certificate of Determination and the
amendment of the Company's Bylaws have been duly authorized by the Company. This
Agreement, the Registration Agreement, the Stockholders Agreement, and all other
agreements contemplated hereby (except the Non-Competition Agreements) each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms (subject to the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors generally and to general principles of equity). Except as
set forth on the Restrictions Schedule attached hereto, the execution and
delivery by the Company of this Agreement, the Registration Agreement, the
Stockholders Agreement, the NonCompetition Agreements and all other agreements
contemplated hereby to which the Company is a party, the offering, male and
issuance of the Series D Preferred and the Warrant hereunder, the issuance of
the Common Stock upon conversion of the Series D Preferred or the exercise of
the Warrant, the Certificate of Determination and the amendment of the Bylaws
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's or any Subsidiary's capital stock or assets
pursuant to,
22
(iv) give any third party the right to modify, terminate or accelerate any
obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any
court or administrative or governmental body pursuant to the Articles of
Incorporation, the Certificate of Determination or the Bylaws or the charter or
bylaws of any Subsidiary, or any law, statute, rule, or regulation, material
agreement or instrument, order, judgment or decree to which the Company or any
Subsidiary or any of their respective properties is subject. Except as set forth
on the Restrictions Schedule, none of the Subsidiaries is subject to any
restrictions upon making loans or advances or paying dividends to, transferring
property to, or repaying any indebtedness owed to, the Company or another
Subsidiary.
5E. Financial Statements. The Financial Statements Schedule attached
hereto contains the following financial statements:
(i) the audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1993 and March
31, 1993, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the periods
then ended, and the unaudited consolidated balance sheet as of
December 31, 1992; and
(ii) the Latest Balance Sheet and the related
statement of income for the six-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete and presents fairly in all material
respects the financial condition and results of operations of the Company and is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets or
operations of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
attached Liabilities Schedule, the Company and its Subsidiaries do not have any
material liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or any Subsidiary, whether due or
to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities reflected on the Latest Balance Sheet, (ii) liabilities
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
liabilities expressly disclosed in the other Schedules to this Agreement.
5G. No Material Adverse Change. Since the date of the Latest Balance
Sheet, there has been no material adverse change and no event which could
reasonably be expected to result in a material adverse change, in the financial
condition, operating results, assets, operations, employee relations, business
prospects or customer or supplier relations of the Company and its Subsidiaries
taken as a whole.
5H. Absence of Certain Developments.
23
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached Developments Schedule, since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
(b) borrowed any amount or incurred or become subject
to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or distribution of
cash or other property to its stockholders with respect to its
capital stock or other equity securities or purchased or
redeemed any shares of its capital stock or other equity
securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other
equity securities);
(e) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current
property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business, or canceled
any debts or claims;
(g) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names,
corporate names, copyrights or copyright registrations, or any
trade secrets or other intangible assets, or, except in the
ordinary course of business, disclosed any proprietary
confidential information to any Person;
(h) suffered any extraordinary losses or waived any
rights of material value, whether or not in the ordinary
course of business or consistent with past practice;
(i) made capital expenditures or commitments therefor
that aggregate in excess of $50,000;
(j) entered into any other transaction other than in
the ordinary course of business or entered into any other
material transactions whether or not in the ordinary course of
business;
(k) made any charitable contributions or pledges in
excess of $1,000 in the aggregate; or
(1) suffered any damage, destruction or casualty loss
exceeding in the aggregate $5,000, whether or not covered by
insurance.
24
(ii) Neither the Company nor any Subsidiary has at any time
made any unlawful payments for political contributions or made any bribes,
kickback payments or other illegal payments.
5I. Assets. Except as set forth on the Assets Schedule attached hereto,
the Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in or contractual right to use, the properties and assets
used by them, located on their premises or shown on the Latest Balance Sheet or
acquired thereafter, free and clear of all Liens, except for properties and
assets which have been disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for Liens disclosed on the Latest
Balance Sheet (including any notes thereto) and Liens for current property taxes
not yet due and payable. Except as described on the Assets Schedule, the
Company's and each Subsidiary's equipment and other tangible assets, and to the
best of the Company's knowledge, buildings, are in good operating condition in
all material respects and are fit for use in the ordinary course of business.
The Company and each Subsidiary owns, or has a valid leasehold interest in, all
assets necessary for the conduct of their respective businesses as presently
conducted and will use its best efforts to acquire good and marketable title to,
or a valid leasehold interest in, or a contractual right to use all assets and
properties necessary to carry on the businesses of the Company as will be
conducted in the future.
5J. Tax Matters. Except as set forth on the Taxes Schedule attached
hereto, the Company and its Subsidiaries have filed all Tax Returns which they
are required to file under applicable laws and regulations; all such Tax Returns
are complete and correct in all material respects and have been prepared in
compliance with all applicable laws and regulations; the Company and its
Subsidiaries have paid all Taxes shown as due and owing on such Tax Returns and
all other material Taxes due and owing by them (whether or not such Taxes are
required to be shown on a Tax Return) except for Taxes which are presently being
contested in good faith by appropriate proceedings (for which appropriate
reserves have been established in the Company's accounting records) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to any Taxes or
agreed to any extension of time with respect to a any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company and its Subsidiaries if their current
tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); since the date of the Latest Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes other than in the ordinary course of business; the Federal income tax
returns of the Company and its Subsidiaries have been audited and closed for all
tax years through 1993; no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company or any Subsidiary; no information related to Tax matters
has been requested by any foreign, federal, state or local taxing authority and
no written notice indicating an intent to open an audit or other review has been
received by the Company from any foreign, federal, state or local taxing
authority; and neither the Company nor any Subsidiary has made an election under
ss. 341(f) of the Internal Revenue Code of 1986, as amended.
5K. Contracts and Commitments.
25
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached Contracts Schedule, neither the Company nor any
Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee
stock purchase or other plan or arrangement providing for
deferred or other compensation to employees or any other
employee benefit plan or material arrangement, or any
collective bargaining agreement or any other contract with any
labor union, or severance agreements, programs, policies or
arrangements;
(b) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time,
consulting or other basis providing annual compensation in
excess of $120,000 or contract relating to loans to officers,
directors or Affiliates;
(c) contract under which the Company or any
Subsidiary has advanced or loaned any other Person amounts in
the aggregate exceeding $10,000 (excluding advances of
work-related expenses to employees of the Company or its
Subsidiaries consistent with the Company's policies);
(d) agreement or indenture relating to borrowed money
or other Indebtedness or the mortgaging, pledging or otherwise
placing a Lien on any material asset or material group of
assets of the Company and its Subsidiaries;
(e) guarantee of any obligation in excess of $10,000
(other than by the Company of a Wholly-Owned Subsidiary's
debts or a guarantee by a Subsidiary of the Company's debts or
another Subsidiary's debts);
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property,
real or personal, owned by any other party, except for any
lease of real or personal property under which the aggregate
annual rental payments do not exceed $10,000;
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or
operate any property, real or personal, owned or controlled by
the Company or any Subsidiary;
(h) contract or group of related contracts with the
same party or group of affiliated parties the performance of
which involves a consideration in excess of $2,500 in any
month or an aggregate of $25,000;
(i) assignment, license, indemnification or agreement
with respect to any Intellectual Property Rights;
(j) warranty agreement with respect to its services
rendered or its products sold or leased (other than standard
warranties granted to customers in accordance with the
Company's or its Subsidiaries' standard service or sale
contracts, the forms of which warranties have been provided to
Purchasers);
26
(k) agreement under which it has granted any Person
any registration rights (including, without limitation, demand
and piggyback registration rights);
(1) material sales distribution agreement or
franchise agreement;
(m) contract, agreement or other arrangement with any
officer, director, employee or Affiliate, or any Affiliate of
any officer, director or employee (other than any contract,
agreement or arrangement which is on arms' length terms and
involves a consideration that does not exceed $10,000
annually);
(n) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world
(or, to the Company's knowledge, prohibiting any key employee
of the Company or its Subsidiaries from performing his or her
duties to the Company or to such Subsidiary); or
(o) any other agreement which is material to its
operations or business prospects or involves a consideration
in excess of $10,000 annually.
(ii) All of the contracts, agreements and instruments set
forth on the Contracts Schedule are to the best of the Company's knowledge
valid, binding and enforceable in accordance with their respective terms
(subject to the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally and
to general principles of equity). The Company and each Subsidiary have performed
all material obligations required to be performed by them under the contracts,
agreements and instruments listed on the Contracts Schedule and are not in
default under or in breach of nor in receipt of any claim of default or breach
under any material contract, agreement or instrument to which the Company or any
Subsidiary is subject; no event has occurred which with the passage of time or
the giving of notice or both would result in a default, breach or event of
noncompliance by or with respect to the Company or any Subsidiary, or to the
Company' knowledge, by or with respect to any other party under any material
contract, agreement or instrument to which the Company or any Subsidiary is
subject; and neither the Company nor any Subsidiary has knowledge of any breach
by the other parties to any material contract, agreement, instrument or
commitment to which it is a party; and neither the Company or any subsidiary is
a party to any materially adverse contract or commitment.
(iii) Purchaser' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
5L. Intellectual Property Rights.
(i) The Intellectual Property Schedule attached hereto
contains a complete and accurate list of all (a) patented or registered
Intellectual Property Rights owned or used by the Company or any Subsidiary, (b)
pending applications for registrations of other Intellectual Property Rights
filed by the Company or any Subsidiary, and (c) unregistered trade names,
corporate names, trademarks, service marks, copyrights, mask works and computer
software owned or used by the Company or any Subsidiary which are material to
the financial condition, operating results, assets or operations of the Company
and its Subsidiaries taken as a whole. The Intellectual Property Schedule also
contains a complete and accurate list of all material licenses and other rights
granted by the
27
Company or any Subsidiary to any third party with respect to any material
Intellectual Property Rights and all material licenses and other rights granted
by any third party to the Company or any Subsidiary with respect to any material
Intellectual Property Rights, in each case identifying the subject Intellectual
Property Rights. The Company or a Subsidiary owns, or has the right to use
pursuant to a valid license, all Intellectual Property Rights necessary for the
operation of the businesses of the Company and its Subsidiaries as presently
conducted, free and clear of all Liens.
(ii) Except as set forth on the Intellectual Property
Schedule, (a) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
Intellectual Property Rights, and, to the best of the Company's knowledge, there
are no valid grounds for the same, (b) neither the Company nor any Subsidiary
has received any notices of, and is not aware of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Intellectual Property Rights (including,
without limitation, any demand or request that the Company or any Subsidiary
license any rights from a third party), and (c) to the best of the Company's
knowledge, the Intellectual Property Rights owned by or licensed to the Company
or any Subsidiary have not been infringed, misappropriated or conflicted by
other Persons. The transactions contemplated by this Agreement have no material
adverse effect on the Company's or any Subsidiary's right, title and interest in
and to the Intellectual Property Rights listed on the Intellectual Property
Schedule.
(iii) The Company and its Subsidiaries have taken all
necessary actions to maintain and protect the Intellectual Property Rights which
they own and use. To the best of the Company's knowledge, the owners of any
Intellectual Property Rights licensed to the Company or any Subsidiary have
taken all necessary actions to maintain and protect the Intellectual Property
Rights which are subject to such licenses. Except as indicated on the
Intellectual Property Rights Schedule, (i) the Company and its Subsidiaries own
all right, title, and interest in and to all of the Intellectual Property Rights
listed on such schedule and all other Intellectual Property Rights material to
the operation of the businesses of the Company and its Subsidiaries as presently
conducted, (ii) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any of such
rights, and to the best of the Company's knowledge, there are no grounds for the
same, (iii) neither the Company nor any Subsidiary has received a notice of
conflict with the asserted rights of others within the last five years, and (iv)
the conduct of the Company's and each Subsidiary's business as presently
conducted has not infringed or misappropriated and does not infringe or
misappropriate any Intellectual Property Rights of other Persons, nor would any
future conduct as presently contemplated infringe upon any Intellectual Property
Rights of the other Persons and, to the best of the Company's knowledge, the
Intellectual Property Rights owned by the Company or any Subsidiary have not
been infringed or misappropriated by other Persons.
5M. Litigation etc. Except as set forth on the Liquidation Schedule
attached hereto, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
material actions, suits, proceedings, orders, investigations or claims
threatened against or affecting the Company or any Subsidiary (or to the best of
the Company's knowledge, pending or threatened against any of the officers or
directors of the Company and its Subsidiaries with respect to their businesses
or proposed business activities) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitation, any actions, suits, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
neither the Company nor any Subsidiary is subject to
28
any arbitration proceedings under collective bargaining agreements or otherwise
or, to the best of the Company's knowledge, any governmental investigations or
inquiries (including, without limitation, inquiries as to the qualification to
hold or receive any license or permit); and, to the best of the Company's
knowledge, there is no valid basis for any of the foregoing. Neither the Company
nor any Subsidiary is subject to any judgment, order or decree of any court or
other governmental agency; and neither the Company nor any Subsidiary has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
5N. Brokerage. Except as set forth on the Brokerage Schedule attached
hereto, there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
50. Governmental Consent. etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached Consents Schedule and except as
expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The Insurance Schedule attached hereto contains a
description of each material insurance policy currently maintained by the
Company and its Subsidiaries with respect to its products, properties, assets
and businesses, and officers and directors, and each such policy is in full
force and effect as of the Closing. Neither the Company nor any Subsidiary is in
default with respect to its obligations under any material insurance policy
maintained by it. The insurance coverage of the Company and its Subsidiaries is
customary for corporations of similar size engaged in similar lines of business.
5Q. Employees. The Company is not aware that any individual executive
or key employee or group of employees of the Company or any Subsidiary has any
plans to terminate employment with the Company or any Subsidiary. The Company
and each Subsidiary have complied in all material respects with all laws
relating to the employment of labor including, without limitation, provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes, and the Company is not aware
that it or any Subsidiary has any material labor relations problems (including,
without limitation, any union organization activities, threatened or actual
strikes or work stoppages or material grievances). Neither the Company, its
Subsidiaries nor, to the best of the Company's knowledge after due inquiry, any
of their employees is subject to any non-compete, nondisclosure,
confidentiality, employment, consulting or similar agreements relating to,
affecting or in conflict with the present or proposed business activities of the
Company and its Subsidiaries, except for agreements between the Company and its
present and former employees.
5R. ERISA. Except as set forth on the Benefit Plans Schedule attached
hereto:
29
(i) Multiemployer Plans. The Company does not have any obligation
to contribute to (or any other liability, including current or potential
withdrawal liability, with respect to) any "multiemployer plan" (as defined in
Section 3(37) of ERISA).
(ii) Retiree Welfare Plans. The Company does not maintain or have
any obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical, health,
life insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(iv) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined contribution plan" (as defined in Section
3(34) of ERISA), whether or not terminated.
(v) Other Plans. The Company does not maintain, contribute to or
have any liability under (or with respect to) any material plan or arrangement
providing benefits to current or former employees, including any material bonus
plan, plan for deferred compensation, employee health or other material welfare
benefit plan or other arrangement, whether or not terminated.
5S. Compliance with Laws. Except as net forth on the Compliance
Schedule attached hereto, neither the Company nor any Subsidiary has violated
any law or any governmental regulation or requirement which violation has had or
would reasonably be expected to have a material adverse effect upon the
financial condition, operating results, assets or operations of the Company and
its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice of any such violation. Except as set forth on the Compliance
Schedule, neither the Company nor any Subsidiary is subject to, or has reason to
believe it may become subject to, any material liability (contingent or
otherwise) or material corrective or remedial obligation arising under any
Environmental Laws. Without limiting the generality of the foregoing, (i) the
Company and each Subsidiary have obtained all material permits, licenses and
authorizations required under, and have complied in all material respects with,
all Environmental Laws, (ii) no notice has been received by the Company or any
Subsidiary regarding any material violation of, or any claim, liability or
material corrective or remedial obligation under, any Environmental Laws, and
(iii) no facts or circumstances exist with respect to the past or present
operations or facilities of the Company or any Subsidiary which would give rise
to a material liability or material corrective or remedial obligation under any
Environmental Laws.
Without limiting the generality of the foregoing, except as set forth on the
Compliance Schedule:
(i) The Company has not received notice of, and is not subject
to, any adverse inspection, finding of deficiency, finding of non-compliance,
compelled or voluntary recall, investigation, penalty, fine, sanction,
assessment, request for corrective or remedial action, audit, or other
compliance or enforcement action, relating to its products or to the facilities
in which its products are manufactured or handled, by the FDA or by any other
federal, state, local or foreign
30
authority having or asserting responsibility for the regulation of medical
device products ("other authorities");
(ii) The Company has obtained all necessary approvals,
registrations and authorizations from, has made all necessary and appropriate
applications and other submissions to, and have prepared and maintained all
records, studies and other documentation needed to satisfy and demonstrate
compliance with the requirements of, the FDA and other authorities for its
current and past business activities relating to products, including, but not
limited to, any necessary Pre-Market Notifications (510(k)s"), PreMarket
Approvals (PMAs"), investigation device exemptions ("IDEs"), line extension
letters relating individual products to existing 510 (k)s, requirements for
custom medical devices, studies of safety and efficacy, design and engineering
specifications and modifications, device history records, certificates of export
and Medical Device Reports ("MDRs");
(iii) The Company has not made any false statement in, or material
omission from, the applications, approvals, reports, and other submissions to
the FDA and other authorities or in or from any other records and documentation
prepared or maintained to comply with the requirements of the FDA or other
authorities relating to its products, including, but not limited to, any 510
(k)s, PMAs, IDEs, line extension letters, documentation of safety and efficacy,
studies or documentation of equivalency, documentation of eligibility for
treatment as a pre-1976 device, documentation of eligibility for treatment as a
custom medical device, certificates of export, and MDRs;
(iv) To the knowledge of the Company, no third party, contractor,
investigator or researcher retained by the Company or otherwise acting on behalf
of the Company has made any material false statement in, or material omission
from, any report, study or other documentation prepared in conjunction with the
applications, approvals, reports or records submitted to or prepared for the FDA
or other authorities relating to the Company's products, nor has any such third
party, contractor, investigator or researcher failed to comply with any testing
requirements or study protocols in connection with work performed on behalf of
the Company or work otherwise relied upon by the Company in its submissions and
documentation for the FDA and other authorities;
(v) Neither the Company nor, to the knowledge of the Company, any
third party or agent for the Company have made or offered any payment, gratuity,
or other thing of value that is prohibited by any law or regulation to personnel
of the FDA or other authorities in connection with the approval or regulatory
status of the Company's products or the facilities in which the Company's
products are manufactured or handled;
(vi) At all times relevant to the current regulatory status of the
Company's products, the Company is in compliance with all applicable regulations
and requirements of the FDA and other authorities relating to the Company's
products, including, but not limited to, any applicable Good Manufacturing
Practices," requirements for product approval, requirements for demonstrating
and maintaining the safety and efficacy of the Company's products, export
requirements, certificates of export, requirements for investigating customer
complaints and inquiries, labeling requirements and protocols, shipping
requirements, record keeping and reporting requirements, monitoring
requirements, packaging or repackaging requirements, laboratory controls,
sterility requirements, inventory controls, and storage and warehousing
procedures, except to the extent that any non-compliance (i) will not adversely
affect the Company's business, financial condition, customer and supplier
relationships or business prospects, (ii) will not result in any interruption or
cessation of any of the Company's business activities, and (iii) is not
material;
31
(vii) The Company has not received any notification, written or
verbal, which remains unresolved as of the date of this Agreement, from the FDA,
FDA personnel or other authorities indicating that any of its products are
unsafe or ineffective for its intended use.
5T. Small Business Matters. The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations, ss.121.401),
is a "small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title 13, Code
of Federal Regulations, ss.121.802. The information regarding the Company and
its affiliates set forth in the Small Business Administration Form 480, Form 652
and Form 1031 delivered at the Closing is accurate and complete. Neither the
Company nor any Subsidiary presently engages in, and neither the Company nor any
Subsidiary has any present intention of engaging in, any activities, or using
directly or indirectly, the proceeds from the sale of the Series D Preferred and
the Warrant hereunder for any purpose, for which an SBIC is prohibited from
providing funds by the Small Business Investment Act of 1958 and the regulations
thereunder (including 13 CFR ss.107.901).
5U. Affiliated Transactions. Except as set forth on the Affiliated
Transactions Schedule attached hereto, no officer, director, shareholder,
partner or Affiliate of the Company or any Subsidiary or any individual related
by blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any significant beneficial interest, is a party
to any material agreement, contract, commitment or transaction with the Company
or any Subsidiary or has any material interest in any material property used by
the Company or any Subsidiary. The Affiliated Transactions Schedule sets forth
the current salaries, bonuses and fringe benefits (based on fiscal 1993 levels
or anticipated fiscal 1994 levels if higher) of each of the foregoing persons
who is an employee of the Company.
5V. Customers and Suppliers.
(i) The attached Customer Schedule lists all customers of the
Company (on a consolidated basis) for the 12-month period ended the date of the
Latest Balance Sheet and sets forth opposite the name of each such customer, the
number of AESOP units purchased, the dates of such purchases and the total males
price of each such sale. The Customer Schedule also lists the source of any
other revenue earned or received by the Company during the 12-month period ended
the date of the Latest Balance Sheet.
(ii) Since the date of the Latest Balance Sheet, no material
supplier of the Company or any subsidiary has indicated that it shall stop, or
materially decrease the rate of, supplying materials, products or services to
the Company or any Subsidiary, and no customer listed on the Customer Schedule
has indicated that it shall stop, or materially decrease the rate of, buying
materials, products or services from the Company or any Subsidiary.
5W. Real Property Holding Status. Since its date of incorporation the
Company has not been, and as of the date of the Closing shall not be, a "United
States real property holding corporation", as defined in Section 897(c)(2) of
the IRC, and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder. The Company has no current plans or intentions which would cause the
Company to become a United States real property holding company," and the
Company has filed with the IRS all statements, if any, with its United States
income tax returns which are required under Section 1.897-2(h) of the Treasury
Regulations.
32
5X. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, or other attachments hereto, contain any untrue statement of a
material fact or omit a material fact necessary to make each statement contained
herein or therein not misleading; provided that with respect to the financial
projections furnished to Purchaser by the Company, the Company represents and
warrants only that such projections were based upon assumptions reasonably
believed by the Company to be reasonable and fair as of the date such
projections were prepared in the context of the Company' B history and then
current and reasonably foreseeable business conditions. There is no fact
specific to the Company's business which the Company has not disclosed to
Purchaser in writing and of which any of its officers, directors or executive
employees is aware, and which has had or would reasonably be anticipated to have
a material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
5Y. Closing Date. The representations and warranties of the Company
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto, or in any certificate
or other writing delivered by, or on behalf of, the Company to Purchaser at the
Cloning shall be true and correct in all material respects on the date of the
Closing as though then made, except as affected by the transactions expressly
contemplated by this Agreement.
Section 6. Miscellaneous.
6A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"AESOP" means the Company's Automated Endoscopic System for Optimal
Positioning as described in the Business Plan.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Agreement" means this Purchase Agreement dated August 24, 1994
between the Company and Purchaser.
"Articles of Incorporation" means the Articles of Incorporation of
the Company.
"Assets" means the properties and assets used by the Company or any
Subsidiary, located on their premises or shown on the Latest Balance Sheet or
acquired thereafter.
"Board of Directors" means the Board of Directors of the Company.
"Business Plan" means the Company's Business Plan previously
delivered by the Company to Purchaser and attached as Exhibit G hereto.
"Bylaws" means the bylaws of the Company.
33
"Certificate of Determination" means the Certificate of
Determination establishing the terms and relative rights and preferences of the
Series D Preferred filed by the Company with the Secretary of State of
California in the form set forth as Exhibit to this Agreement.
"Closing" means the closing of the purchase and sale of Series D
Preferred and the Warrant under this Agreement.
"Company" means Computer Motion, Inc., a California corporation;
provided, however, that for purposes of paragraph 5R of this Agreement, the term
Company includes all organizations under common control with the Company
pursuant to Section 414(b) or (c) of the IRC.
"Common Stock" means the Company's Common Stock, no par value per
share.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Environmental Laws" means any federal, state, local or foreign
law, rule or regulation (including the common law) relating to or regulating
health, safety, pollution or the protection of the environment.
"Event of Noncompliance" has the meaning set forth in the
Certificate of Determination.
"FDA" means the United States Food and Drug Administration, or any
successor agency thereto.
"Indebtedness" means all indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendable at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, (iv) computer software, data, data bases
and documentation, (v) trade secrets and other material confidential information
(including, without limitation, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information), (vi) other intellectual property rights and
(vii) copies and tangible embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including any partnership,
limited liability company or joint venture interests or otherwise) of any other
Person and (ii) any capital contribution by such Person to any other Person.
34
"Investment Regulations" means, as applicable, Title III of the
Small Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder, Regulation Y (Title 12, Code of Federal Regulations,
Part 225) under Section 5(b) of the Bank Holding Company Act of 1956, as
amended, or other similar laws or regulations governing a regulated Person's
investment authority.
"Investor Director" has the meaning set forth in the Stockholders
Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Junior Securities" means (i) any of the Company's equity
securities other than the Series D Preferred and (ii) any option, right or
warrant to acquire any of the securities described in clause (i) above.
"Latest Balance Sheet" means the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of June 30, 1994.
"Lien" means any material mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company, any
Subsidiary or any Affiliate, any filing or agreement to file a financing
statement as debtor under the Uniform Commercial Code or any similar statute
other than to reflect ownership by a third party of property leased to the
Company or any Subsidiaries under a lease which is not in the nature of a
conditional sale or title retention agreement, or any subordination arrangement
in favor of another Person (other than any subordination arising in the ordinary
course of business).
"Liquidation Value" has the meaning set forth in the Certificate of
Determination.
"Non-Competition Agreements" means the Non-Competition Agreements
between the Company and each of ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ ▇▇▇▇ dated
the date hereof in the form set forth in Exhibit F to this Agreement.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer on behalf of the Company, stating that
(i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify, on behalf of
the Company, the accuracy of the information set forth in such certificate and
(ii) to the best of such officer's knowledge, such certificate does not misstate
any material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Stock" means the Series A Preferred, the Series B
Preferred, the Series C Preferred and the Series D Preferred.
35
"Qualified Public Offering" means any offering by the Corporation
of its equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force in which (i) the
aggregate price paid by the public for the shares (whether sold by the Company
or by other selling shareholders) shall be at least $15,000,000 and (ii) the
price per share paid by the public for such shares shall be at least 150% of the
Conversion Price in effect immediately prior to the closing of the sale of such
shares pursuant to such Qualified Public Offering; provided that a Qualified
Public Offering shall not include an offering made in connection with a business
acquisition or combination or an employee benefit plan.
"Registrable Securities" has the meaning set forth in the
Registration Agreement.
"Registration Agreement" means the Registration Agreement between
the Company and Purchaser dated the date hereof in the form set forth in Exhibit
C to this Agreement.
"Regulatory Problem" means any set of facts or circumstances
wherein it has been asserted by the U.S. Small Business Administration, the
Board of Governors of the Federal Reserve System or any similar regulatory
agency exercising authority over Purchaser by reason of Purchaser's status (or
Purchaser reasonably believes that there is a substantial risk of such
assertion) that Purchaser and its Affiliates are not entitled to hold, or
exercise any significant right with respect to, the Series D Preferred, the
Warrant or any Underlying Common Stock.
"Requlatory Violation" means, with respect to any SBIC Holder
providing Financing hereunder, (a) a diversion of the proceeds of such Financing
from the intended use of such proceeds reported on SBA Form 1031 to be delivered
to such SBIC Holder at the Closing, if such diversion is effected without
obtaining such SBIC's Holder's prior written consent (which may be withheld in
sole discretion), or (b) the ineligibility for small business investment company
financing (within the meaning of 13 CFR ss.107.706 (b) and 107.901) of the
Portfolio Concern of which the Company is a part if such ineligibility is the
result of a change in such concern's business activity during the one year after
the date of such SBIC Holder's initial Financing hereunder. As used in this
definition, the terms "Financing" and "Portfolio Concern" have the meanings
which 13 CFR ss.107.3 gives to such terms.
"Reorganization" means any merger or consolidation of the Company
with any Person where both (a) either (i) the Company is not the surviving
corporation, (ii) the terms of the Series D Preferred are altered in any
respect, or (iii) the Series D Preferred is exchanged for cash, securities or
other property, and (b) such merger or consolidation does not constitute a
Fundamental Change.
"Restricted Securities" means (i) the Series D Preferred issued
hereunder, (ii) the Warrant issued hereunder, (iii) the Common Stock issued upon
conversion of Series D Preferred or upon exercise of the Warrant and (iv) any
securities issued directly or indirectly with respect to the securities referred
to in clauses (i), (ii) or (iii) above by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144(k) (or any similar provision then in force) under
the Securities Act, or (c) been otherwise
36
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 6E have been delivered by the Company in accordance with
paragraph 4B. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 6E.
"SBA" means the United States Small Business Administration, which
includes any governmental body or agency succeeding to the functions thereof.
"SBIC" means a small business investment company licensed under the
Small Business Investment Act of 1958, as amended.
"SBIC Holder" means any SBIC that holds any security issued
pursuant hereto.
"SEC" means the United States Securities and Exchange Commission
which includes any governmental body or agency succeeding to the functions
thereof.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Series A Preferred" means the Company's Series A Preferred Stock,
no par value per share.
"Series B Preferred" means the Company's Series B Preferred Stock,
no par value per share.
"Series C Preferred" means the Company's Series C Preferred Stock,
no par value per share.
"Series D Preferred" means the Company's Series D 8% Redeemable
Convertible Series D Preferred, no par value per share, having the rights and
preferences set forth in the Certificate of Determination.
"Stockholders Agreement" means the stockholders agreement among the
Company, Purchaser and certain of the Company's executives, dated as of the date
hereof, in the form set forth in Exhibit D to this Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
limited liability company, association or other business entity, a majority of
the partnership or other similar ownership interest thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof,
person or Persons shall be deemed to have a majority
37
ownership interest in a partnership, limited liability company, association or
other business entity if such Person or Persons shall be allocated a majority of
partnership, limited liability company, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such partnership, limited liability company, association or other business
entity.
"Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or addon
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Series D Preferred or upon exercise of the
Warrant, and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person that holds Series D Preferred or the Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon conversion of such Series
D Preferred or exercise of such portion of the Warrant, provided that the Common
Stock issuable upon exercise of the Warrant shall be deemed to constitute
Underlying Common Stock for the purpose of any calculations under this Agreement
only at such time as the Warrant has become exercisable. As to any particular
shares of Underlying Common Stock, such shares shall cease to be Underlying
Common Stock when they have been (a) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (b) distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 under the Securities Act (or any similar provision then in
force).
"Warrant" means the warrant in the form of Exhibit B to this
Agreement and any warrant or warrants issued in exchange, substitution or
replacement thereof.
6B. Expenses. The Company shall pay, and hold Purchaser and all other
holders of Underlying Common Stock harmless against liability for the payment
of, (i) up to $35,000 for Purchaser's reasonable out-of-pocket expenses,
including without limitation, fees and expenses of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ as special
counsel of Purchaser arising in connection with the preparation, negotiation and
execution of this Agreement and the other agreements or instruments contemplated
hereby and thereby, and the consummation of the transactions contemplated by
this Agreement, (ii) the reasonable fees and expenses incurred by each such
Person with respect to any amendments or waivers (whether or not the same become
effective) under or in respect of this Agreement, the agreements contemplated
hereby, the Certificate of Determination and the Articles of Incorporation
(including, without limitation, in connection with any proposed merger, sale or
recapitalization of the Company), (iii) stamp and other issuance, transfer or
similar taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of Series
D Preferred or any shares of Common Stock issuable upon conversion of Series D
Preferred or exercise of the Warrant, (iv) the reasonable fees and expenses
incurred by each such Person in any filing with any governmental agency with
respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such
38
Person (but only to the extent that such fees and expenses are imposed on such
Person due to the nature of the Company's business or otherwise arise due to or
result from an act or series of actions taken by or on behalf of the Company,
and specifically excluding any fees and expenses incurred in connection with
satisfying such Person's reporting obligations under the Securities Exchange
Act).
6C. Aggregation of Affiliated Holders. All holdings of Underlying
Common Stock by Persons who are Affiliates of each other shall be aggregated for
purposes of meeting any threshold tests under this Agreement and the
Registration Agreement.
6D. Remedies. Each holder of Underlying Common Stock shall have all
rights and remedies set forth in this Agreement, the agreements and instruments
contemplated hereby, the Articles of Incorporation, the Certificate of
Determination, and the Bylaws, and all rights and remedies which such holders
have been granted at any time under any other agreement or instrument and all of
the rights which such holders have under any law. Any Person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
6E. Purchaser's Investment Representations. Purchaser hereby represents
that it is acquiring the Restricted Securities purchased hereunder or acquired
pursuant hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws, that it is an "accredited
investor" in accordance with Regulation D of the Securities Act, that it has had
an opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Series D Preferred and the Warrant hereunder
and has had access to such other information concerning the Company as it has
requested; provided that no action taken (or failed to be taken) in connection
with this Agreement, including any investigation by or on behalf of Purchaser
(or any failure to undertake such investigation), shall be deemed to constitute
a waiver of compliance by the Company with any representation, warranty,
covenant or agreement contained herein; provided further, that nothing contained
herein shall prevent any Purchaser or subsequent holders of Restricted
Securities from transferring such securities in compliance with the provisions
of Section 4 hereof. Each certificate or instrument representing Restricted
Securities shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were
originally issued on August 24, 1994, and have not been
registered under the Securities Act of 1933, as amended, and
may not be transferred or sold except pursuant to an effective
registration under the Securities Act of 1933, as amended, and
applicable state securities laws or an available exemption
from such registration. The transfer of the securities
represented by this certificate is subject to the conditions
and restrictions specified in the Purchase Agreement, dated as
of August 24, 1994 between the issuer (the "Company") and
certain investors, and the Company reserves the right to
refuse the transfer of such securities until such conditions
have been fulfilled with respect to such transfer. A copy of
such
39
conditions shall be furnished by the Company to the
holder hereof upon written request and without charge."
6F. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the Underlying Common Stock. No course of dealing
between the Company and the holder of any Underlying Common Stock or any delay
in exercising any rights under this Agreement, the Registration Agreement, the
Stockholders Agreement, the Non-Competition Agreements, any other agreement
contemplated hereby, the Certificate of Determination, the Articles of
Incorporation or the Bylaws shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Series D Preferred or other
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding.
6G. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby regardless of any
investigation made by, or on behalf of Purchaser.
6H. Successors and Assigns. Except as otherwise expressly provided
herein, all 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. In addition, and whether or not any express assignment has been made,
except as otherwise expressly stated in this Agreement, the provisions of this
Agreement which are for Purchaser's benefit as a purchaser or holder of Series D
Preferred, the Warrant or other Underlying Common Stock are also for the benefit
of, and enforceable by, any subsequent holder of such Series D Preferred, the
Warrant (or any portion thereof) or such Underlying Common Stock.
6I. Enforceability of Non-Competition Agreements. The Company hereby
acknowledges and affirms that the entry of Messrs. ▇▇▇▇▇▇ and Wang into the
Non-Competition Agreements, and the valid, binding and enforceable nature
thereof, constitute a material inducement to the Purchaser's entry into this
Agreement and other agreements contemplated hereby, and the Purchaser's
consummation of the transactions contemplated hereby and thereby. Accordingly,
in the event that either Non-Competition Agreement or any portion thereof is
determined to be invalid, unenforceable or void for any reason (including,
without limitation, as a result of the scope or duration thereof, any law, order
or decree or any public policy), or in the event that the Company fails to
vigorously and successfully enforce all of its rights and remedies thereunder,
then the Company shall indemnify and hold harmless all holders of Underlying
Common Stock from and against any loss, liability, fees, costs and expenses
(including without limitation, reasonable attorneys' fees, costs and expenses)
arising as a result of such invalidity, unenforceability, voiding or
non-enforcement, including without limitation, such losses, liabilities, fees,
costs and expenses as may be incurred as a result of a diminution in value of
the Underlying Common Stock as a result thereof or of any activities engaged in
by Messrs. ▇▇▇▇▇▇ or ▇▇▇▇ which are prohibited thereunder, and/or as a result of
such holders' attempted enforcement (whether or not successful) of the
Non-Competition Agreements as a third-party beneficiary thereof. Such
indemnification shall cease and be of no further force and effect upon the
earlier to occur of (i) such time as the Series D Preferred has been redeemed
pursuant to Section 9B(ii) of the Certificate of Determination and the
Liquidation Value thereof and all
40
dividends accrued thereon have been fully paid as contemplated therein,
and (ii) the completion of a Qualified Public Offering.
6J. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6K. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
6L. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
6M. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any other jurisdiction other than the State of California. Any
dispute relating hereto shall be heard in the state or federal courts of Santa
▇▇▇▇▇▇▇ County, California, and the parties agree to jurisdiction and venue
therein.
6N. Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
60. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, when telecopied (with hard copy to follow) one business day after it
is sent to the recipient by reputable overnight courier service (charges
prepaid) or 3 business days after it is mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to Purchaser and to the Company
at the address or telecopy number indicated below:
To the Company:
---------------
Computer Motion, Inc.
▇▇▇-▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
To Purchaser:
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Chase Manhattan Capital Corporation
One Chase ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Vice President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopy number or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement on the date first written above.
COMPUTER MOTION, INC.
By:
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Its:
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CHASE MANHATTAN CAPITAL
CORPORATION
By:
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Its:
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