XIOX CORPORATION
STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock Purchase and Investor Rights Agreement (this "Agreement") is
made and entered into as of December 30, 1999, by and between Xiox Corporation,
a Delaware corporation (the "Company"), and each of the persons listed on
Exhibit A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company desires to sell to each Investor, and each Investor
desires to purchase from the Company, shares of Series B Preferred Stock, par
value $.01 per share, of the Company (the "Series B Preferred Stock"), on the
terms and conditions set forth in this Agreement; WHEREAS, such Series B
Preferred Stock will be convertible into shares of the Common Stock, par value
$.01 per share, of the Company (the "Common Stock");
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
VII. AGREEMENT TO PURCHASE AND SELL STOCK.
Section 1. Authorization. As of the first Closing (as defined below), the
Company's Board of Directors (the "Board") will have authorized the issuance and
sale, pursuant to the terms and conditions of this Agreement, of up to 1,020,000
shares of Series B Preferred Stock, in one or more closings, having the rights,
preferences, privileges and restrictions set forth in the Certificate of
Designations, Preferences and Other Rights of Series B Preferred Stock in the
form attached hereto as Exhibit B (the "Certificate of Designations") and up to
1,020,000 shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock.
Section 2. Agreement to Purchase and Sell Securities. Subject to the terms
and conditions hereof, the Company hereby agrees to issue and sell to each
Investor and each Investor hereby agrees to acquire from the Company, the number
of shares of Series B Preferred Stock specified opposite each Investor's name on
Exhibit A hereto (collectively, the "Purchased Shares") at a price per share in
cash equal to the Per Share Purchase Price (as defined below), for an aggregate
cash consideration equal to such number of shares of Series B Preferred Stock,
multiplied by the Per Share Purchase Price. As used in this Agreement, the "Per
Share Purchase Price" shall be equal to twenty dollars ($20.00). Exhibit A shall
be revised with respect to each Closing to reflect the identity of the Investors
and the number of shares purchased by each Investor at each Closing. Each
Investor participating in a Closing under this agreement shall be an "Investor"
within the meaning of this Agreement, and the shares of Series B Preferred Stock
purchased by such Investors shall be "Purchased Shares" within the meaning of
this Agreement.
Section 3. Use of Proceeds. The Company intends to, and will (subject to
modification by Board approval) apply the net proceeds from the sale of the
Purchased Shares for corporate purposes disclosed to the Investors by the
Company prior to the date hereof.
VIII. CLOSING.
Section 1. The purchase and sale of the Purchased Shares shall take place
at one or more closings (each a "Closing"). At each Closing, the Company will
deliver to each Investor certificates representing the Purchased Shares against
delivery to the Company by each Investor of the consideration set forth in
Section 1(b) paid by wire transfer of funds to the Company. Closing documents
may be delivered by facsimile with original signature pages sent by overnight
courier.
Section 2. The Closings shall occur at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California at 2:00 p.m.
Pacific Daylight Time, within three (3) business days after the conditions set
forth in Section 5 have been satisfied, or at such other time and place as the
Company and each Investor mutually agree upon. All Closings shall occur on or
before February 29, 2000.
IX. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Investor that the
statements in this Section 3 are true and correct, except as set forth in the
Disclosure Letter from the Company of even date herewith (the "Disclosure
Letter") or disclosed in the SEC Documents (as defined below):
Section 1. Organization Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all corporate power and authority required to
(a) carry on its business as presently conducted, and (b) enter into this
Agreement and the other agreements, instruments and documents contemplated
hereby, and to consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect. As used
in this Agreement, "Material Adverse Effect" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, prospects,
assets or liabilities of the applicable party and its subsidiaries, taken as a
whole.
Section 2. Capitalization. The capitalization of the Company, without
giving effect to the transactions contemplated by this Agreement, is as follows.
The authorized stock of the Company consists of 50,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock, of which 1,907,989 shares have
been designated Series A Preferred Stock, and 1,020,000 shares will have been
designated Series B Preferred Stock prior to the first Closing. As of November
30, 1999, there were issued and outstanding 3,403,564 shares of Common Stock,
1,727,989 shares of Series A Preferred Stock, and no shares of Series B
Preferred Stock. All such shares of Common Stock and Preferred Stock have been
duly authorized, and all such issued and outstanding shares of Common Stock and
Preferred Stock have been validly issued, are fully paid and nonassessable and
are free and clear of all liens, claims and encumbrances, other than any liens,
claims or encumbrances created by or imposed upon the holders thereof. As of
November 30, 1999, the Company has also reserved 900,000 shares of Common Stock
for issuance upon exercise of options granted to officers, directors, employees
or independent contractors or affiliates of the Company under the Company's
Restated 1984 Stock Option Plan and the Company's 1994 Stock Plan. As of
November 30, 1999, of the 900,000 shares of Common Stock reserved for issuance
upon exercise of options, 848,677 shares remained subject to outstanding options
with a weighted average exercise price of approximately $11.21 per share, and
37,464 shares were reserved for future grant. All shares of Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no other equity
securities, options, warrants, calls, rights, commitments or agreements of any
character to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend or enter into any such equity
security, option, warrant, call, right, commitment or agreement. The Company
does not have any subsidiaries, nor does the Company own any capital stock,
assets comprising the business of, obligations of, or any other interest
(including, without limitation, any equity or partnership interest) in, or any
outstanding loan or advance to or from, any person or entity.
Section 3. Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under this Agreement, and the authorization, issuance, reservation
for issuance and delivery of all of the Purchased Shares being sold under this
Agreement, has been taken, and this Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except (a) as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies and (b) as rights
to indemnity or contribution may be limited under federal or state securities
laws or by principles of public policy thereunder.
Section 4. Valid Issuance of Stock.
4.1 Valid Issuance. The shares of Series B Preferred Stock to be
issued pursuant to this Agreement, and the shares of Common Stock issuable upon
conversion thereof, will be, upon payment therefor by each Investor in
accordance with this Agreement, or conversion in accordance with the Certificate
of Designations, duly authorized, validly issued, fully paid and non-assessable.
4.2 Compliance with Securities Laws. Assuming the correctness of the
representations made by each Investor in Section 4 hereof, the Purchased Shares
will be issued to each Investor in compliance with applicable exemptions from
(i) the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Securities Act") and (ii) the registration and
qualification requirements of all applicable securities laws of the states of
the United States.
Section 5. Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for: (i) compliance with the HSR
Requirements (as defined below) that may be required for the voluntary
conversion of the Series B Preferred Stock; (ii) the filing of a Form 8-K with
the Securities and Exchange Commission ("SEC") following the Closing; (iii) the
filing of such qualifications or filings under the Securities Act and the
regulations thereunder and all applicable state securities laws as may be
required in connection with the transactions contemplated by this Agreement;
(iv) the listing of the Common Stock issuable upon conversion of the Series B
Preferred Stock on the Nasdaq SmallCap Market and (v) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law. As used herein, the term "HSR
Requirements" means compliance with the filing and other requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act").
Section 6. Non-Contravention. The execution, delivery and performance of
this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby, do not and will not (i) contravene or conflict
with the Certificate of Incorporation or Bylaws of the Company; (ii) constitute
a violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Company; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Company is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Company under, any contract to which the Company is a party
or any permit, license or similar right relating to the Company or by which the
Company may be bound or affected in such a manner as, together with all other
such matters, would have Material Adverse Effect.
Section 7. Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the Company's
knowledge, threatened: (i) against the Company, its activities, properties or
assets, or any officer, director or employee of the Company in connection with
such officer's, director's or employee's relationship with, or actions taken on
behalf of, the Company, that is reasonably likely to have a Material Adverse
Effect, or (ii) that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. No Action by the Company is currently
pending nor does the Company intend to initiate any Action that is reasonably
likely to have a Material Adverse Effect.
Section 8. Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, both as amended. The Company has complied and is in compliance with all
applicable statutes, laws, rules, regulations and orders of the United States of
America and all states thereof, foreign countries and other governmental bodies
and agencies having jurisdiction over the Company's business or properties,
except for any violations that would not, either individually or in the
aggregate, have a Material Adverse Effect.
Section 9. SEC Documents.
9.1 Reports. The Company has furnished to each Investor prior to the
date hereof copies of its Annual Report on Form 10-K SB for the fiscal year
ended December 31, 1998 ("Form 10-K"), its Quarterly Reports on Form 10-Q SB for
the fiscal quarters ended March 31, June 30, and September 30, 1999 (the "Form
10-Q's"), and all other registration statements, reports and proxy statements
filed by the Company with the SEC on or after December 31, 1998 (the Form 10-K,
the Form 10-Q's and such registration statements, reports and proxy statements
are collectively referred to herein as the "SEC Documents"). Each of the SEC
Documents, as of the respective date thereof (or if amended or superseded by a
filing prior to the closing date of this Agreement, then on the date of such
filing), did not, and each of the registration statements, reports and proxy
statements filed by the Company with the SEC after the date hereof and prior to
the Closing will not, as of the date thereof (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company is not a
party to any material contract, agreement or other arrangement that was required
to have been filed as an Exhibit to the SEC Documents that was not so filed.
9.2 Financial Statements. The Company has provided each Investor with
copies of its audited financial statements (the "Audited Financial Statements")
for the fiscal year ended December 31, 1998, and its unaudited financial
statements for the nine-month period ended September 30, 1999 (the "Balance
Sheet Date"). Since the Balance Sheet Date, the Company has duly filed with the
SEC all registration statements, reports and proxy statements required to be
filed by it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act. The audited and unaudited consolidated financial
statements of the Company included in the SEC Documents filed prior to the date
hereof fairly present, in conformity with generally accepted accounting
principles ("GAAP") (except, in the case of the Form 10-Q's, as may otherwise be
permitted by Form 10-Q) applied on a consistent basis (except as otherwise may
be stated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject to normal year-end audit adjustments in the case of unaudited
interim financial statements).
Section 10. Absence of Certain Changes Since Balance Sheet Date. Since the
Balance Sheet Date, the business and operations of the Company have been
conducted in the ordinary course consistent with past practice, and there has
not been:
10.1 any declaration, setting aside or payment of any dividend or
other distribution of the assets of the Company with respect to any shares of
capital stock of the Company or any repurchase, redemption or other acquisition
by the Company or any subsidiary of the Company of any outstanding shares of the
Company's capital stock;
10.2 any damage, destruction or loss, whether or not covered by
insurance, except for such occurrences, individually and collectively, that have
not resulted, and are not expected to result, in a Material Adverse Effect;
10.3 any waiver by the Company of a valuable right or of a material
debt owed to it, except for such waivers, individually and collectively, that
have not resulted and are not expected to result, in a Material Adverse Effect;
10.4 any material change or amendment to, or any waiver of any
material right under a material contract or arrangement by which the Company or
any of its assets or properties is bound or subject, except for changes,
amendments or waivers, individually and collectively, that are expressly
provided for or disclosed in this Agreement or that have not resulted, and are
not expected to result, in a Material Adverse Effect;
10.5 any change by the Company in its accounting principles, methods
or practices or in the manner it keeps its accounting books and records, except
any such change required by a change in GAAP; or
10.6 any other event or condition of any character, except for such
events and conditions that have not resulted, and are not expected to result,
either individually or collectively, in a Material Adverse Effect.
Section 11. Invention Assignment and Confidentiality Agreement. Each
employee and consultant or independent contractor of the Company whose duties
include the development of products or Intellectual Property (as defined below),
and each former employee and consultant or independent contractor whose duties
included the development of products or Intellectual Property, has entered into
and executed an invention assignment and confidentiality agreement in customary
form or an employment or consulting agreement containing substantially similar
terms.
Section 12. Intellectual Property.
12.1 Ownership or Right to Use. To the best of the Company's
knowledge, the Company has sole title to and owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents or patent applications,
software, know-how, registered or unregistered trademarks and service marks and
any applications therefor, registered or unregistered copyrights, trade names,
and any applications therefor, trade secrets or other confidential or
proprietary information ("Intellectual Property") necessary to enable the
Company to carry on its business as currently conducted, except where any
deficiency, or group of deficiencies, would not have a Material Adverse Effect.
12.2 Licenses; Other Agreements. The Company is not currently the
licensee of any material portion of the Intellectual Property of the Company.
There are not outstanding any licenses or agreements of any kind relating to any
Intellectual Property owned by the Company, except for agreements with customers
of the Company entered into in the ordinary course of the Company's business and
other licenses and agreements that, collectively, are not material. The Company
is not obligated to pay any royalties or other payments to third parties with
respect to the marketing, sale, distribution, manufacture, license or use of any
Intellectual Property, except as the Company may be so obligated in the ordinary
course of its business, as disclosed in the Company's SEC Documents (as defined
below) or where the aggregate amount of such payments could not reasonably be
expected to be material.
12.3 No Infringement. To the best of the Company's knowledge, the
Company has not violated or infringed and is not currently violating or
infringing, and the Company has not received any communications alleging that
the Company (or any of its employees or consultants) has violated or infringed,
any Intellectual Property of any other person or entity, to the extent that any
such violation or infringement, either individually or together with all other
such violations and infringements, would have a Material Adverse Effect.
12.4 Employees and Consultants. To the best of the Company's
knowledge, no employee of or consultant to the Company is in default under any
term of any employment contract, agreement or arrangement relating to
Intellectual Property of the Company or any non-competition arrangement, other
contract or any restrictive covenant relating to the Intellectual Property of
the Company, where such default, together with all other such defaults, would
have a Material Adverse Effect. The Intellectual Property of the Company (other
than any Intellectual Property duly acquired or licensed from third parties) was
developed entirely by the employees of or consultants to the Company during the
time they were employed or retained by the Company, and to the best knowledge of
the Company, at no time during conception or reduction to practice of such
Intellectual Property of the Company were any such employees or consultants
operating under any grant from a government entity or agency or subject to any
employment agreement or invention assignment or non-disclosure agreement or any
other obligation with a third party that would materially and adversely affect
the Company's rights in the Intellectual Property of the Company. Such
Intellectual Property of the Company does not, to the best knowledge of the
Company, include any invention or other intellectual property of such employees
or consultants made prior to the time such employees or consultants were
employed or retained by the Company nor any intellectual property of any
previous employer of such employees or consultants nor the intellectual property
of any other person or entity.
Section 13. Registration Rights. Except as provided in this Agreement,
effective upon the Closing, the Company is not currently subject to any grant or
agreement to grant to any person or entity any rights (including piggyback
registration rights) to have any securities of the Company registered with the
SEC or registered or qualified with any other governmental authority.
Section 14. Title to Property and Assets. The properties and assets of the
Company are owned by the Company free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests that arise in the ordinary course of
business and do not in any material respect affect the properties and assets of
the Company. With respect to the property and assets it leases, the Company is
in compliance with such leases in all material respects.
Section 15. Tax Matters. The Company has filed all material tax returns
required to be filed, which returns are true and correct in all material
respects, and the Company is not in default in the payment of such taxes,
including penalties and interest, assessments, fees and other charges, other
than those being contested in good faith and for which adequate reserves have
been provided or those currently payable without interest that were payable
pursuant to said returns or any assessments with respect thereto.
Section 16. Full Disclosure. The information contained in this Agreement,
the Disclosure Letter and the SEC Documents with respect to the business,
operations, assets, results of operations and financial condition of the
Company, and the transactions contemplated by this Agreement , are true and
complete in all material respects and do not omit to state any material fact or
facts necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 17. Finder's Fee. The Company neither is nor will be obligated for
any finder's or broker's fee or commission in connection with this transaction.
Section 18. Year 2000 Compliance. All of the Company's products (including
products currently under development) are Year 2000 Compliant. For purposes of
this Agreement, "Year 2000 Compliant" means, to the extent products are designed
to (i) record, store, process and calculate and present calendar dates falling
on and after January 1, 2000, and (ii) calculate any information dependent on or
relating to such dates, they will do so in the same manner and with the same
functionality, data integrity, and performance as those products record, store,
process and calculate and present calendar dates falling on and before December
31, 1999, and calculate any information dependent on or related to such dates.
None of the Company's material products will lose any functionality with respect
to the introduction of records containing dates falling on or after January 1,
2000. All of the Company's internal computer systems, including without
limitation, its accounting systems, are Year 2000 Compliant.
Section 19. Small Business Concern. The Company is a "small business
concern" within the meaning of the federal Small Business Investment Act of
1958, as amended, and the regulations thereunder, and Part 121 of the United
States Code of Federal Regulations. The information set forth on SBA Forms 480,
652D and 1031 furnished by the Company to the Investors that are Small Business
Investment Companies (each, an "SBIC") is complete and correct in all material
respects. Furthermore, as long as any SBIC is an investor in the Company, the
Company will provide the SBIC any information that is reasonably requested by
the Small Business Administration ("SBA"). The Company will provide SBA
examiners access to its books and records for SBA audit purposes in accordance
with ordinary SBA procedures.
Section 20. Real Property Holding Corporation. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
X. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF EACH INVESTOR.
Each Investor hereby severally, and not jointly, represents and warrants to the
Company, and agrees that:
Section 1. Organization Good Standing and Qualification. The Investor is
either
1.1 a corporation duly organized, validly existing and in good
standing under the laws of the state or nation indicated on Exhibit A and has
all corporate power and authority required to (A) carry on its business as
presently conducted, and (B) enter into this Agreement and the other agreements,
instruments and documents contemplated hereby, and to consummate the
transactions contemplated hereby and thereby, or
1.2 a partnership duly organized, validly existing and in good
standing under the laws of the state indicated on Exhibit A and has all power
and authority required to (A) carry on its business as presently conducted, and
(B) enter into this Agreement and the other agreements, instruments and
documents contemplated hereby, and to consummate the transactions contemplated
hereby and thereby. The Investor is qualified to do business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
Section 2. Authorization. This Agreement has been duly authorized by all
necessary corporate or partnership action, as applicable, on the part of the
Investor. This Agreement constitutes the Investor's legal, valid and binding
obligation, enforceable in accordance with its terms, except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies. Each Investor has, as applicable, full corporate or
partnership power and authority to enter into this Agreement.
Section 3. Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Investor is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of such qualifications or
filings under the Securities Act or the Exchange Act and the regulations
thereunder and all applicable state securities laws as may be required in
connection with the transactions contemplated by this Agreement. All such
qualifications and filings will, in the case of qualifications, be effective on
the Closing and will, in the case of filings, be made within the time prescribed
by law.
Section 4. Non-Contravention. The execution, delivery and performance of
this Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not and will not (i) contravene or conflict
with the Certificate of Incorporation, Bylaws, or the Partnership Agreement or
comparable governing document, as applicable, of the Investor; (ii) constitute a
violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Investor; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Investor is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Investor under, any contract to which the Investor is a
party or any permit, license or similar right relating to the Investor or by
which the Investor may be bound or affected in such a manner as, together with
all other such matters, would have a Material Adverse Effect.
Section 5. Litigation. There is no Action pending against the Investor that
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.
Section 6. Purchase for Own Account. The Purchased Shares to be purchased
by the Investor are being acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the Securities Act, and the Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same. The Investor also represents that it has not been formed
for the specific purpose of acquiring its Purchased Shares.
Section 7. Investment Experience. The Investor understands that its
purchase of the Purchased Shares to be purchased by the Investor involves
substantial risk. The Investor has experience as an investor in securities of
companies and acknowledges that it is able to fend for itself, can bear the
economic risk of its investment in the Purchased Shares and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of this investment in the Purchased Shares and protecting
its own interests in connection with this investment.
Section 8. Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
Section 9. Restricted Securities. The Investor understands that the
Purchased Shares are characterized as "restricted securities" under the
Securities Act, inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. The
Investor is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Section 10. Legends. The Investor agrees that the certificates for the
Purchased Shares shall bear the following legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 or with any state securities commission, and may not
be transferred or disposed of by the holder in the absence of a registration
statement which is effective under the Securities Act of 1933 and applicable
state laws and rules, or, unless, immediately prior to the time set for
transfer, such transfer may be effected without violation of the Securities Act
of 1933 and other applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop transfer
orders with its transfer agents with respect to such certificates. The
appropriate portion of the legend and the stop transfer orders will be removed
promptly upon delivery to the Company of such satisfactory evidence as
reasonably may be required by the Company that such legend or stop orders are
not required to ensure compliance with the Securities Act.
Section 11. Finder's Fee. The Investor neither is nor will be obligated for
any finder's or broker's fee or commission in connection with this transaction.
XI. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS AT CLOSING.
Section 1. The obligations of each Investor under Sections l and 2 of this
Agreement are subject to the fulfillment or waiver, on or before the respective
Closing, of each of the following conditions:
1.1 Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 will be true and correct in
all material respects on and as of the date hereof and on and as of the date of
the Closing, except as set forth in the Disclosure Letter or the SEC Documents,
with the same effect as though such representations and warranties had been made
as of the Closing.
1.2 Performance. The Company will have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, and
will have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
1.3 Securities Exemptions. The offer and sale of the Purchased Shares
to each Investor pursuant to this Agreement will be exempt from the registration
requirements of the Securities Act and the registration and/or qualification
requirements of all applicable state securities laws.
1.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto will be reasonably satisfactory in form and substance to each
Investor, and each Investor will have received all such counterpart originals
and certified or other copies of such documents as it may reasonably request.
Such documents shall include but not be limited to the following:
1.5 Certified Charter Documents. A copy of (1) the Certificate of
Incorporation certified as of a recent date by the Secretary of State of
Delaware as a complete and correct copy thereof, (2) the Certificate of
Designations certified as of a recent date by the Secretary of State of Delaware
and (3) the Bylaws of the Company (as amended through the date of the Closing)
certified by the Secretary of the Company as a true and correct copy thereof as
of the Closing.
1.6 Board Resolutions. A copy, certified by the Secretary of the
Company, of the resolutions of the Board of Directors of the Company providing
for the approval of this Agreement and the issuance of the Purchased Shares and
the other matters contemplated hereby.
1.7 Opinion of Company Counsel. Each Investor will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Wilson Sonsini Goodrich & Rosati, counsel to the Company, in the form attached
as Exhibit C.
1.8 No Material Adverse Effect. Between the date hereof and the
Closing, there shall not have occurred any Material Adverse Effect.
1.9 Nasdaq Requirements. The Company shall have satisfied all
requirements of the Nasdaq Stock Market Marketplace Rules with respect to the
issuance of the Purchased Shares.
1.10 Other Actions. The Company shall have executed such certificates,
agreements, instruments and other documents, and taken such other actions as
shall be customary or reasonably requested by each Investor in connection with
the transactions contemplated hereby.
XII. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to each Investor under this Agreement are subject
to the fulfillment or waiver, on or before the Closing, of each of the following
conditions:
Section 1. Representations and Warranties True. The representations and
warranties of each Investor contained in Section 4 will be true and correct in
all material respects on and as of the date hereof and on and as of the date of
the Closing.
Section 2. Performance. Each Investor will have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
will have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
Section 3. Payment of Purchase Price. Each Investor will have delivered to
the Company at the Closing the full purchase price of the Purchased Shares as
specified in Section 1(b).
Section 4. Securities Exemptions. The offer and sale of the Purchased
Shares to each Investor pursuant to this Agreement will be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
Section 5. Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto will be reasonably satisfactory in form and substance
to the Company and to the Company's legal counsel, and the Company will have
received all such counterpart originals and certified or other copies of such
documents as it may reasonably request.
Section 6. Nasdaq Requirements. If required by the Nasdaq Stock Market
Marketplace Rules, the Company shall have obtained the approval of its
shareholders to the issuance of the Purchased Shares.
Section 7. Other Actions. Each Investor shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
XIII. COVENANTS OF THE PARTIES.
Section 1. Information Rights.
1.1 Financial Information. The Company covenants and agrees that,
commencing on the Closing and continuing for so long as each Investor holds any
Purchased Shares, the Company shall:
(a) Annual Reports. Furnish to each Investor promptly following
the filing of such report with the SEC a copy of the Company's Annual Report on
Form 10-K SB for each fiscal year, which shall include a consolidated balance
sheet as of the end of such fiscal year, a consolidated statement of income and
a consolidated statement of cash flows of the Company and its subsidiaries for
such year, setting forth in each case in comparative form the figures from the
Company's previous fiscal year, all prepared in accordance with generally
accepted accounting principles and practices and audited by nationally
recognized independent certified public accountants. In the event the Company
shall no longer be required to file Annual Reports on Form 10-K SB, the Company
shall, within ninety (90) days following the end of each respective fiscal year,
deliver to each Investor a copy of such balance sheets, statements of income and
statements of cash flows, or such form that replaces Form 10-K SB.
(b) Quarterly Reports. Furnish to each Investor promptly
following the filing of such report with the SEC, a copy of each of the
Company's Quarterly Reports on Form 10-Q SB, which shall include a consolidated
balance sheet as of the end of the respective fiscal quarter, consolidated
statements of income and consolidated statements of cash flows of the Company
and its subsidiaries for the respective fiscal quarter and for the year to-date,
setting forth in each case in comparative form the figures from the comparable
periods in the Company's immediately preceding fiscal year, all prepared in
accordance with generally accepted accounting principles and practices (except,
in the case of any Form 10-Q SB, as may otherwise be permitted by Form 10-Q SB),
but all of which may be unaudited. In the event the Company shall no longer be
required to file Quarterly Reports on Form 10-Q SB, the Company shall, within
forty-five (45) days following the end of each of the first three (3) fiscal
quarters of each fiscal year, deliver to each Investor a copy of such balance
sheets, statements of income and statements of cash flows.
1.2 SEC Filings. The Company shall deliver to each Investor copies of
each other document filed with the SEC on a non-confidential basis promptly
following the filing of such document with the SEC.
Section 2. Registration Rights.
2.1 Definitions. For purposes of this Section 7(b):
(a) Registration. The terms "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act of 1933, as
amended, (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
means: (x) the Purchased Shares and any shares of Common Stock of the Company
issued or issuable upon conversion of the Purchased Shares, and (y) any shares
of Common Stock of the Company or other securities of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
that is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, any of the securities described in the
immediately preceding Clause (x). Notwithstanding the foregoing, "Registrable
Securities" shall exclude any Registrable Securities sold by a person in a
transaction in which rights under this Section 7(b) are not assigned in
accordance with this Agreement or any Registrable Securities sold in a public
offering, whether sold pursuant to Rule 144 promulgated under the Securities
Act, or in a registered offering, or otherwise.
(c) Registrable Securities Then Outstanding. The number of shares
of "Registrable Securities then outstanding" shall mean the number of shares of
Purchased Shares, shares of Common Stock and other securities that are
Registrable Securities and are then issued and outstanding.
(d) Holder. For purposes of this Section 7, the term "Holder"
means any person owning of record Registrable Securities that have not been sold
to the public or pursuant to Rule 144 promulgated under the Securities Act or
any permitted assignee of record of such Registrable Securities to whom rights
under this Section 7(b) have been duly assigned in accordance with this
Agreement.
(e) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC that permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
2.2 Demand Registration.
(a) Request by Holders. If (i) the Company shall at any time
after the one hundred and twentieth (120th) day after the Closing receive a
written request from the Holders of at least fifty percent (50%) of the Series B
Preferred issued as of the Closing, that the Company file a registration
statement under the Securities Act (including, without limitation, a "shelf"
registration statement, if requested by such Holders, during any period of time
that Rule 144 is not available as an exemption for the sale in a single 90-day
period of all of the Registrable Securities that any such Holder desires to
sell, in which case the Company would maintain the effectiveness of such "shelf"
registration statement until the earlier of the first anniversary of the
effectiveness thereof or the date on which all such Registrable Securities could
be sold under Rule 144 in a single 90-day period) covering the registration of
Registrable Securities, and (ii) the expected gross proceeds of the sale of
Registrable Securities under such registration statement would equal or exceed
$2,000,000, then the Company shall, within ten (10) business days of the receipt
of such written request, give written notice of such request ("Request Notice")
to all Holders, and use commercially reasonable efforts to effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities that Holders request to be registered and included in such
registration by written notice given such Holders to the Company within twenty
(20) days after receipt of the Request Notice, subject only to the limitations
of this Section 7(b); provided that the Company shall not be obligated to effect
any such registration if the Company has, within the six (6) month period
preceding the date of such request, already effected a registration under the
Securities Act pursuant to Section 7(b)(iii), other than a registration from
which the Registrable Securities of Holders have been excluded with respect to
all or any portion of the Registrable Securities the Holders requested be
included in such registration. If requested by such Holders upon the advice of
the underwriter, the Company shall register such Registrable Securities on Form
S-1 or any successor registration form.
(b) Underwriting. If the Holders initiating the registration
request under this Section 7(b)(ii) ("Initiating Holders") intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request, and the
Company shall include such information in the written notice referred to in
Section 7(b)(ii)(A). In such event, the right of any Holder to include his or
her Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the initiating Holders and such Holder determined
based on the number of Registrable Securities held by such Holders being
registered). All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting by the
Holders of a majority of the Registrable Securities being registered and
reasonably acceptable to the Company (including a market stand-off agreement of
up to 180 days if required by such underwriters). Notwithstanding any other
provision of this Section 7(b)(ii), if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company and any selling security holder other than the Holders
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company shall be
obligated to effect only one (1) such registration pursuant to this Section
7(b)(ii).
(d) Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 7(b)(ii) a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board, it
would be materially detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection with any
registration pursuant to this Section 7(b)(ii), including without limitation all
federal and "blue sky" registration, filing and qualification fees, printer's
and accounting fees, and fees and disbursements of counsel for the Company (but
excluding underwriters' discounts and commissions relating to shares sold by the
Holders), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 7(b)(ii) shall bear such Holder's
proportionate share (based on the total number of shares sold in such
registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering by the Holders. Notwithstanding the foregoing, the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to this Section 7(b)(ii) if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered, unless the Holders of such majority
agree that such registration constitutes the use by the Holders of one (1)
demand registration pursuant to this Section 7(b)(ii) (in which case such
registration shall also constitute the use by all Holders of Registrable
Securities of one (l) such demand registration); provided further, however, that
if at the time of such withdrawal, the Holders have learned of a Material
Adverse Effect not known to the Holders at the time of their request for such
registration and have withdrawn their request for registration after learning of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and such registration shall not constitute the use of a demand
registration pursuant to this Section 7(b)(ii).
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any employee benefit
plan or any merger or other corporate reorganization) and will afford each such
Holder an opportunity to include in such registration statement all or any part
of the Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under which the
Company gives notice under this Section 7(b)(iii) is for an underwritten
offering, then the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder's Registrable Securities
to be included in such a registration pursuant shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required by such
underwriters); provided, however, that it shall not be considered customary to
require any of the Holders to provide representations and warranties regarding
the Company or indemnification of the underwriters for material misstatements or
omissions in the registration statement or prospectus for such offering.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares from the registration and the underwriting;
provided; however, that the securities to be included in the registration and
the underwriting shall be allocated, (1) first to the Company (provided,
however, that a minimum of twenty percent (20%) of the number of Registrable
Securities that each holder of ten percent (10%) or more of the then outstanding
Common Stock (where any Registrable Securities that are not shares of Common
Stock but are exercisable or exchangeable for, or convertible into, shares of
Common Stock, shall be deemed to have been so exercised, exchanged or converted
for such purpose) must also in any event be included), (2) second, to the extent
the managing underwriter determines additional securities can be included after
compliance with Clause (1), to each of the Holders and other holders of
registration rights on a parity with the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities and other securities entitled to
registration then held by each such Holder or other holder, and (3) third, to
the extent the managing underwriter determines additional securities can be
included after compliance with Clauses (1) and (2), any shares or other
securities held by any person who is an employee, officer or director of the
Company (or any subsidiary of the Company) or any other person. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder that is a partnership, the
Holder and the partners and retired partners of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons, and for any Holder that is a
corporation, the Holder and all corporations that are affiliates of such Holder,
shall be deemed to be a single "Holder," and any pro rata reduction with respect
to such "Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 7(b)(iii) (excluding underwriters' and
brokers' discounts and commissions relating to shares sold by the Holders),
including, without limitation all federal and "blue sky" registration, filing
and qualification fees, printers' and accounting fees, and fees and
disbursements of counsel for the Company, shall be borne by the Company.
(c) Not Demand Registration. Registration pursuant to this
Section 7(b)(iii) shall not be deemed to be a demand registration as described
in Section 7(b)(ii) above. Except as otherwise provided herein, there shall be
no limit on the number of times the Holders may request registration of
Registrable Securities under this Section 7(b)(iii).
2.4 Form S-3 Registration. The Company shall use all reasonable
commercial efforts, on or prior to the one hundred and twentieth (120th) day
after the date of Closing, cause to be filed and become effective with the SEC a
Registration Statement on Form S-3 relating to all of the Registrable Securities
(in the event such registration statement is not effective at the expiration of
such 120-day period, the Company shall continue to use all reasonable commercial
efforts to cause it to become effective until it becomes effective); provided;
however, that in the event Form S-3 is not available to the Company, the Company
shall file such other form as may be available if Holders who hold Registrable
Securities with a market value of at least One Million Dollars ($1,000,000)
deliver a written request to the Company that the Company do so, where such
market value is determined as of the date of such written request. The Company
shall use its best efforts to cause any such Registration Statement to become
effective as promptly as possible after such filing and shall also use its best
efforts to obtain any related qualifications, registrations or other compliances
that may be necessary under any applicable "blue sky" laws. In connection with
such registration, the Company will:
(a) Notice. Promptly give written notice to the Holders of the
proposed registration and any related qualification or compliance; and
(b) Registration. Prior to the one hundred and twentieth (120th)
day after the day of Closing, effect such registration and all such
qualifications and compliances and as would permit or facilitate the sale and
distribution of all or such portion of such Holders or Holders' Registrable
Securities; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section
7(b)(iv) in any particular jurisdiction in which the Company would be required
to qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance.
(c) Expenses. The Company shall pay all expenses incurred in
connection with each registration requested pursuant to this Section 7(b)(iv),
excluding underwriters' or brokers' discounts and commissions relating to shares
sold by the Holders, including without limitation federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 7(b)(iv), a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board, it
would be materially detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period, and
the period of time that the Company is obligated to maintain the effectiveness
of any registration statement under Clause (F) below shall be extended for the
length of any such period of deferral.
(e) Not Demand Registration. Form S-3 registrations shall not be
deemed to be demand registrations as described in Section 7(b)(ii) above.
(f) Maintenance. The Company shall use all commercially
reasonable efforts to maintain the effectiveness of any Form S-3 registration
statement filed under this Section 7(b)(iv) until the earlier of: (a) the date
on which all of the Registrable Securities have been sold; and (b) the second
anniversary of the Closing; provided, however, that unless all of the
Registrable Securities held by each Investor as of such second anniversary could
then be sold in a single transaction in accordance with Rule 144 under the
Securities Act without exceeding the volume limitations thereof, if the Company
receives written notice from each Investor that each Investor may be deemed to
be an "affiliate" of the Company for purposes of the Securities Act, the date in
t
