Exhibit 1
XIOX CORPORATION
STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock Purchase and Investor Rights Agreement
(this "Agreement") is made and entered into as of September
21, 1998, 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 A Preferred Stock, par value $.01
per share, of the Company (the "Series A Preferred Stock"), on
the terms and conditions set forth in this Agreement;
WHEREAS, such Series A 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:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. As of the Closing (as defined
below), the Company's Board of Directors (the "Board") will
have authorized the issuance, pursuant to the terms and
conditions of this Agreement, of 1,907,989 shares of Series A
Preferred Stock, having the rights, preferences, privileges
and restrictions set forth in the Certificate of Designations,
Preferences and Other Rights of Series A Preferred Stock in
the form attached hereto as Exhibit B (the "Certificate of
Designations") and 1,907,989 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock.
(b) Agreement to Purchase and Sell Securities. The
Company hereby agrees to issue to each Investor at each of the
Closings (as defined below), and each Investor hereby agrees
to acquire from the Company at each of the Closings, the
number of shares of Series A Preferred Stock specified for
such Closing 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 A Preferred Stock, multiplied by the Per
Share Purchase Price. As used in this Agreement, the "Per
Share Purchase Price" shall be equal to Five Dollars ($5.00).
Immediately prior to the First Closing each Investor will
deliver the full amount of cash consideration for both
Closings to an escrow agent, who will transfer such funds to
the Company at each of the Closings according to the schedule
set forth in Exhibit A hereto.
(c) 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.
2. CLOSINGS.
(a) The purchase and sale of the Purchased Shares
shall take place in two separate 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.
(b) The purchase and sale of the first tranche
shall occur at the offices of Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx at 2:00 p.m.
Pacific Daylight Time, within three (3) business days after
the conditions set forth in Sections 5 and 6 have been
satisfied, or at such other time and place as the Company and
each Investor mutually agree upon (which time and place are
referred to in this Agreement as the "First Closing").
(c) The purchase and sale of the second tranche
shall occur at the offices of Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx at 2:00 p.m.
Pacific Daylight Time, within three (3) days after the
satisfaction of the conditions of the Second Closing, or at
such other time and place as the Company and each Investor
mutually agree upon (which time and place are referred to in
this Agreement as the "Second Closing"). If the Second
Closing does not occur within sixty (60) days of the First
Closing, then the obligation of each Investor to purchase the
shares of Series A Preferred Stock that such Investor would
otherwise be obligated to purchase at the time of the Second
Closing shall terminate.
3. 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):
(a) 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.
(b) 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 10,000,000 shares of Common
Stock, of which 3,147,231 shares were issued and outstanding
as of the date hereof, and 1,907,989 shares of Series A
Preferred Stock, $.01 par value ("Preferred Stock"), none of
which is issued or outstanding on the date hereof (other than
the Purchase Shares). All such shares of Common Stock have
been duly authorized, and all such issued and outstanding
shares of Common 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 June 30, 1998, the Company has also reserved 684,150
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 June 30, 1998, of the 684,150 shares of Common
Stock reserved for issuance upon exercise of options, 498,200
shares remained subject to outstanding options with a weighted
average exercise price of approximately $4.41 per share, and
185,950 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.
(c) 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.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Series A
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.
(ii) 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.
(e) 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 A 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 A 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 Xxxx-
Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended
(the "HSR Act").
(f) 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.
(g) 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.
(h) 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.
(i) SEC Documents.
(i) 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,
1997 ("Form 10-K"), its Quarterly Reports on Form 10-Q SB for
the fiscal quarters ended March 31 and June 30, 1998 (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, 1997 (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.
(ii) 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, 1997, and its unaudited financial
statements for the six-month period ended June 30, 1998 (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).
(j) 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:
(i) 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;
(ii)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;
(iii)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;
(iv) 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;
(v) 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
(vi) 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.
(k) 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.
(l) Intellectual Property.
(i) 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.
(ii) 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.
(iii)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.
(iv) 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.
(m) Registration Rights. Except with respect to
that certain Investor Rights Agreement, dated June 30, 1997,
between the Company and Flanders Language Valley and 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS
OF EACH INVESTOR.
Each Investor hereby severally, and not jointly,
represents and warrants to the Company, and agrees that:
(a) Organization Good Standing and Qualification.
The Investor is either
(i) 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
(ii) 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.
(b) 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.
(c) 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.
(d) 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.
(e) Litigation. There is no Action pending against
the Investor that seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
(f) 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.
(g) 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.
(h) Accredited Investor Status. The Investor is an
"accredited investor" within the meaning of Regulation D
promulgated under the Securities Act.
(i) 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.
(j) 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.
(k) 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.
5. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS AT
CLOSING.
(a) The obligations of each Investor under
Sections l and 2 of this Agreement are subject to the
fulfillment or waiver, on or before the First Closing, of each
of the following conditions:
(i) 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
First 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 First
Closing.
(ii) 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 First
Closing, and will have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale
described herein.
(iii)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.
(iv) Proceedings and Documents. All corporate
and other proceedings in connection with the transactions
contemplated at the First 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:
(A) 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 First Closing) certified by
the Secretary of the Company as a true and correct copy
thereof as of the First Closing.
(B) 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.
(v) Opinion of Company Counsel. Each Investor
will have received an opinion on behalf of the Company, dated
as of the date of the First Closing, from Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, counsel to the Company, in the form
attached as Exhibit C.
(vi) No Material Adverse Effect. Between the
date hereof and the First Closing, there shall not have
occurred any Material Adverse Effect.
(vii)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.
(viii)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.
(b) The obligations of each Investor under
Sections l and 2 of this Agreement are subject, if the Second
Closing occurs within twenty (20) days of the First Closing,
to the fulfillment or waiver, on or before the Second Closing,
of each of the conditions set forth below:
(i) Representations and Warranties True. Each
of the representations and warranties of the Company contained
in Sections 3(a), 3(c), 3(d), 3(e), 3(f), 3(g)(ii), and 3(h)
hereof 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
Second Closing, except as set forth in the Disclosure Letter
or the SEC Documents filed with the SEC on or before the date
hereof, with the same effect as though such representations
and warranties had been made as of the Second Closing, and at
the Second Closing, each Investor shall receive a certificate
of an authorized officer of the Company certifying to the
foregoing.
(ii) Notice Given. The Company shall have
satisfied all requirements of the Nasdaq Stock Market
Marketplace Rules with respect to the issuance of the
Purchased Shares.
(c) If the Second Closing does not occur within
twenty (20) days of the First Closing, the obligations of each
Investor under Sections l and 2 of this Agreement are subject
to the fulfillment or waiver, on or before the Second Closing,
of each of the following additional conditions:
(i) 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
Second Closing, except as set forth in the Disclosure Letter
or the SEC Documents filed with the SEC on or before the date
hereof, with the same effect as though such representations
and warranties had been made as of the Second Closing, and at
the Second Closing each Investor shall receive a certificate
of an authorized officer of the Company certify to the
foregoing.
(ii) 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 Second
Closing, and will have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale
described herein.
(iii)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.
(iv) Opinion of Company Counsel. Each Investor
will have received an opinion on behalf of the Company, dated
as of the date of the Second Closing, from Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, counsel to the Company, in the form
attached as Exhibit C.
(v) 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.
(vi) 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.
6. 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 First Closing or the Second Closing, as the
case may be, of each of the following conditions:
(a) 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
First Closing with the same effect as though such
representations and warranties had been made as of the First
Closing.
(b) 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 First Closing and will
have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
(c) Payment of Purchase Price. Each Investor will
have delivered to the Company, in the case of the Purchased
Shares to be purchased and sold at the First Closing, and to
the escrow agent, in the case of the Purchased Shares to be
purchased and sold at the Second Closing, the full purchase
price of the Purchased Shares as specified in Section 1(b).
(d) 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.
(e) 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.
(f) 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.
(g) 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.
7. COVENANTS OF THE PARTIES.
(a) Information Rights.
(i) 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.
(ii) 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.
(b) Registration Rights.
(i) 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, (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), and (z) the Common Stock
purchased on or before the date hereof by Flanders Language
Valley. 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.
(ii) 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 A
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).
(iii)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).
(iv) 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 and up to 50,000 shares of Common Stock
held by Xxxxx Xxxxx (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
this Clause (b) shall be extended until each Investor advises
the Company that it no longer has any reasonable basis to
believe it is such an "affiliate."
(v) Obligations of the Company. Whenever
required to effect the registration of any Registrable
Securities under this Agreement the Company shall, as
expeditiously as reasonably possible:
(A) Registration Statement. Prepare and
file with the SEC a registration statement with respect to
such Registrable Securities and use commercially reasonable
efforts to cause such registration statement to become
effective; provided, however, that, except as otherwise
required by in this Section 7(b), the Company shall not be
required to keep any such registration statement effective for
more than ninety (90) days.
(B) Amendments and Supplements. Prepare
and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement.
(C) Prospectuses. Furnish to the Holders
such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
the Registrable Securities owned by them that are included in
such registration.
(D) Blue Sky. Use commercially
reasonable efforts to register and qualify the securities
covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
(E) Underwriting. In the event of any
underwritten public offering, enter into and perform its
obligations under an underwriting agreement in usual and
customary form (including, without limitation, customary
indemnification of the underwriters by the Company), with the
managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and
perform its obligations under such an agreement; 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.
(F) Notification. Notify each Holder of
Registrable Securities covered by such registration statement
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing.
(G) Opinion and Comfort Letter. Furnish,
at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the
date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) in the event
that such securities are being sold through underwriters, a
"comfort" letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest
of the Holders requesting registration, addressed to the
underwriters and to the Holders requesting registration of
Registrable Securities.
(vi) Furnish Information. It shall be a
condition precedent to the obligations of the Company to take
any action pursuant to Sections 7(b)(ii), (iii) or (iv) that
the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such
securities as shall be required to timely effect the
registration of their Registrable Securities.
(vii)Indemnification. In the event any
Registrable Securities are included in a registration
statement under Sections 7(b)(ii), (iii) or (iv):
(A) By the Company. To the extent
permitted by law, the Company will indemnify and hold harmless
each Holder, the partners, officers, shareholders, employees,
representatives and directors of each Holder, any underwriter
(as determined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended, against any losses, claims, damages,
or Liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(x) any untrue statement or alleged
untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or
supplements thereto;
(y) the omission or alleged omission
to state therein a material fact required to be stated
therein, or necessary to make the statements therein not
misleading, or
(z) any violation or alleged
violation by the Company of the Securities Act, the Exchange
Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange
Act or any federal or state securities law in connection with
the offering covered by such registration statement;
and the Company will reimburse each such Holder,
partner, officer, shareholder, employee, representative,
director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in
connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection
with such registration by such Holder, partner, officer,
shareholder, employee, representative, director, underwriter
or controlling person of such Holder.
(B) By Selling Holders. To the extent
permitted by law, each selling Holder will indemnify and hold
harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of
such other Holder's partners, officers, shareholders,
employees, representatives and directors and any person who
controls such Holder within the meaning of the Securities Act
or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any
such officer or director, controlling person, underwriter or
other such Holder, partner, officer, shareholder, employee,
representative, director or controlling person of such other
Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred
by the Company or any such officer or director, controlling
person, underwriter or other Holder, partner, officer,
shareholder, employee, representative, director or controlling
person of such other Holder in connection with investigating
or defending any such loss, claim, damage, liability or
action: provided, however, that the indemnity agreement
contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of
the Holder, which consent shall not be unreasonably withheld;
and provided further, that the total amounts payable in
indemnity by a Holder under this subsection or otherwise in
respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of
which such Violation arises.
(C) Notice. Promptly after receipt by an
indemnified party under of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made
against any indemnifying party under this section, deliver to
the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the
indemnifying party, to the extent that representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential
conflict of interests between such indemnified party and any
other party represented by such counsel in such proceeding.
The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of liability
except to the extent the indemnifying party is prejudiced as a
result thereof.
(D) Defect Eliminated in Final
Prospectus. The foregoing indemnity agreements of the Company
and Holders are subject to the condition that, insofar as they
relate to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with
the SEC at the time the registration statement in question
becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was timely furnished
to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to
the time such action is required by the Securities Act.
(E) Contribution. In order to provide
for just and equitable contribution to joint liability under
the Securities Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification
pursuant to this section, but it is judicially determined (by
the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such
indemnification may not be enforced in such case
notwithstanding the fact that this section provides for
indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling
Holder or any such controlling person in circumstances for
which indemnification is provided under this section; then,
and in each such case, the Company and such Holder will
contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that
the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to
the public offering price of all securities offered by and
sold under such registration statement, and the Company and
other selling Holders are responsible for the remaining
portion; provided, however, that, in any such case: (A) no
such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable
Securities offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(F) Survival. The obligations of the
Company and Holders under this Section 7(b)(vii) shall survive
until the fifth anniversary of the completion of any offering
of Registrable Securities in a registration statement,
regardless of the expiration of any statutes of limitation or
extensions of such statutes.
(viii) Termination of the Company's
Obligations. The Company shall have no obligations pursuant
to this Section 7(b) with respect to any Registrable
Securities proposed to be sold by a Holder in a registration
pursuant to Section 7(b)(ii), (iii) or (iv) more than four (4)
years after the date of this Agreement, or, if earlier, the
date on which each Holder receives a written opinion of
counsel to the Company, reasonably acceptable to counsel for
the Holder, all such Registrable Securities proposed to be
sold by a Holder may then be sold under Rule 144 in one
transaction without exceeding the volume limitations
thereunder. The Company and Flanders Language Valley hereby
agree that Section 2 of that certain Investor Rights
Agreement, dated June 30, 1997, between the Company and
Flanders Language Valley is hereby terminated and is no longer
in any force or effect.
(ix) No Registration Rights to Third Parties.
Without the prior written consent of the Holders of sixty-six
and two-thirds percent (66 2/3%) of the Series A Preferred
Stock then outstanding, the Company covenants and agrees that
it shall not grant, or cause or permit to be created, for the
benefit of any person or entity any registration rights of any
kind (whether similar to the demand, "piggyback" or Form S-3
registration rights described in this Section 7, or otherwise)
relating to shares of the Company's Common Stock or any other
securities of the Company.
(x) Suspension Provisions. Notwithstanding the
foregoing subsections of this Section 7 (b), the Company shall
not be required to take any action with respect to the
registration or the declaration of effectiveness of the
registration statement following written notice to the Holders
from the Company (a "Suspension Notice") of the existence of
any state of facts or the happening of any event (including
without limitation pending negotiations relating to, or the
consummation of, a transaction, or the occurrence of any event
that the Company believes, in good faith, requires additional
disclosure of material, non-public information by the Company
in the registration statement that the Company believes it has
a bona fide business purpose for preserving confidentiality or
that renders the Company unable to comply with the published
rules and regulations of the SEC promulgated under the
Securities Act or the Securities Exchange Act, as in effect at
any relevant time (the "Rules and Regulations")) that would
result in (1) the registration statement, any amendment or
post-effective amendment thereto, or any document incorporated
therein by reference containing an untrue statement of a
material fact or omitting to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading, or (2) the prospectus issued under the
registration statement, any prospectus supplement, or any
document incorporated therein by reference including an untrue
statement of material fact or omitting to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, provided that the Company (1) shall not issue a
Suspension Notice more than once in any 12 month period, (2)
shall use its best efforts to remedy, as promptly as
practicable, but in any event within 60 days of the date on
which the Suspension Notice was delivered, the circumstances
that gave rise to the Suspension Notice and deliver to the
Holders notification that the Suspension Notice is no longer
in effect and (3) shall not issue a Suspension Notice for any
period during which the Company's executive officers are not
similarly restrained from disposing of shares of the Company's
Common Stock. Upon receipt of a Suspension Notice from the
Company, all time limits applicable to the Holders under this
Section 7(b) shall automatically be extended by an amount of
time equal to the amount of time the Suspension Notice is in
effect, the Holders will forthwith discontinue disposition of
all such shares pursuant to the registration statement until
receipt from the Company of copies of prospectus supplements
or amendments prepared by or on behalf of the Company (which
the Company shall prepare promptly), together with a
notification that the Suspension Notice is no longer in
effect, and if so directed by the Company, the Holders will
deliver to the Company all copies in their possession of the
prospectus covering such shares current at the time of receipt
of any Suspension Notice.
(c) Obligations Regarding Confidential
Information. Confidential Information (as defined below)
shall not be disclosed by any party hereto to any third party
except in accordance with the provisions set forth below. For
purposes of this Agreement, the term "Confidential
Information" refers to the following items: (i) the existence
of this Agreement and the Right of First Refusal and Co-Sale
Agreement, of even date herewith, among Intel Corporation
("Intel" or the "Lead Investor"), Xxxxxxx Xxxxxxx, Xxxxxxxx
Language Valley and Xxxxxx Xxxx (collectively, the
"Transaction Agreements"), and (ii) the terms and provisions
of the Transaction Agreements, provided, however, that
Confidential Information shall not include any information
that was (i) publicly known and generally available in the
public domain prior to its disclosure by the Company, (ii)
becomes publicly known and generally available in the public
domain through no action or inaction on the part of the
Company or (iii) becomes publicly known by consent or action
of the Lead Investor.
(i) Press Releases, Etc. No announcement
regarding the Confidential Information in a press release,
conference, advertisement, announcement, professional or trade
publication, mass marketing materials or otherwise to the
general public may be made without the prior written consent
of the Company and the Lead Investor.
(ii) Permitted Disclosures. Notwithstanding
the foregoing, (i) any party may disclose any of the
Confidential Information to its current or bona fide
prospective investors, employees, investment bankers, lenders,
accountants and attorneys, in each case only where such
persons or entities are under appropriate nondisclosure
obligations; and (ii) the Lead Investor may disclose its
investment in the Company and other Confidential Information
to third parties or to the public at its sole discretion and,
if it does so, the other parties hereto shall have the right
to disclose to third parties any such information disclosed in
a press release or other public announcement by each Investor.
(iii)Legally Compelled Disclosure. Except to
the extent required by law or judicial or administrative order
or except as provided herein, the Company shall not disclose
any Confidential Information without the Lead Investor's prior
written approval; provided, however, that the Company may
disclose any Confidential Information, to the extent required
by law or judicial or administrative order, provided that if
such disclosure is pursuant to judicial or administrative
order, the Company will notify the Lead Investor promptly
before such disclosure and will cooperate with the Lead
Investor to seek confidential treatment with respect to the
disclosure if requested by the Lead Investor; and provided
further that if such disclosure is required pursuant to law or
the rules and regulations of any federal, state or local
governmental authority or any regulatory body, the parties
will cooperate to seek confidential treatment to the maximum
extent, in the reasonable judgment of counsel of the Company,
possible under law. Notwithstanding the foregoing provisions
or any other provision to the contrary, the Company agrees
that, except to the extent required by judicial or
administrative order, which the Company shall resist to the
maximum extent possible under law, the Company will not
disclose the identity of the Lead Investor or describe the
Lead Investor other than as a "corporate investor" in any
public filing, advertisement, news release or professional or
trade publication or in any other manner without the Lead
Investor's prior written consent (which consent generally will
not be granted) and will not file any of the Transaction
Agreements (the "Exhibit Filing") with any governmental
authority or any regulatory body; provided, however, that to
the extent required under the Rules and Regulations, the
Company may (A) file this Agreement as an exhibit to any
filing required to be made by the Company under the Exchange
Act, (B) identify the Lead Investor as "Intel Corporation" and
(C) describe the material terms of the Lead Investor's
investment. The Company agrees that it will provide the Lead
Investor with drafts of any documents, press releases or other
filings (including, without limitation, the filing permitted
by the proviso of the immediately preceding sentence) in which
the Company desires to disclose any Transaction Agreement, the
transactions contemplated thereby or any other Confidential
Information is disclosed at least three (3) business days
prior to the filing or disclosure thereof, and that it will
make any changes to such materials as requested by the Lead
Investor unless advised by counsel that the Rules and
Regulations require otherwise. Unless permitted by the terms
of this Section, the Company will not disclose any
Confidential Information or file any Transaction Agreements if
the Lead Investor has objected to such disclosure or filing.
The Company will not, except as permitted above, file any of
the Transaction Agreements with any governmental authority or
any regulatory body, or disclose the identity of the Lead
Investor or any other Confidential Information in any filing.
(iv) Prior to the execution of this Agreement,
the Company and the Lead Investor will agree on the content of
a joint press release announcing the existence of this
Agreement, which press release will be issued as mutually
agreed by the Company and the Lead Investor.
(v)No party will be required to disclose to any
other party any confidential information of any third party
without having first obtained such third party's prior written
consent.
(vi) Other Information. The provisions of this
Section 7(c) shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement
executed by any of the parties hereto with respect to the
transactions contemplated hereby. Additional disclosures and
exchange of confidential information between the Company and
the Lead Investor (including, without limitation, any
exchanges of information with any the Lead Investor board
observer) shall be governed by the terms of the Corporate Non-
Disclosure Agreement No. 120110, dated July 30, 1998, executed
by the Company and the Lead Investor, and any Confidential
Information Transmittal Records provided in connection
therewith.
(d) Board and Committee Observer.
(i) So long as the Lead Investor, together
with its subsidiaries of which the Lead Investor beneficially
owns, either directly or indirectly, at least fifty percent
(50%) of the voting securities (each a "Majority Owned
Subsidiary" and collectively, the "Majority Owned
Subsidiaries"), hold the equivalent, on an as-converted basis,
of at least five percent (5%) of the then outstanding Common
Stock of the Company, such number to be proportionately
adjusted for stock splits, stock dividends and similar events,
the Company will permit a representative of such Investor,
reasonably acceptable to the Company (a "Representative"), to
attend all meetings of the Board and all committees of the
Board, whether in person, telephonic or other, in a non-
voting, observer capacity and shall provide to the Lead
Investor, concurrently with the members of the Board or such
Board committee, notice of such meeting and a copy of all
materials provided to such members. Subject to the
termination provisions set forth immediately below, the
Company will also permit a Representative of Zero Stage
Capital VI, LLP, a Massachusetts partnership ("ZSC") to attend
all meetings of the Board and all committees of the Board,
whether in person, telephonic or other, in a non-voting,
observer capacity, shall provide to ZSC, concurrently with
the members of the Board or such Board committee, notice of
such meeting and a copy of all materials provided to such
members, and shall reimburse such Representative for his or
her reasonable travel expenses incurred in connection with
attending such Board meetings in person. The rights of ZSC
set forth in the preceding sentence shall begin at the Second
Closing and shall terminate without further action by the
Company upon the earlier to occur of (1) September 17, 2001 or
(2) such time as ZSC is the beneficial owner of the equivalent
of less than 100,000 shares of Series A Preferred Stock of the
Company (whether or not such shares have been converted to
shares of Common Stock), such number to be proportionately
adjusted for stock splits, stock dividends and similar events.
A majority of the disinterested members of the Board shall be
entitled to recuse each Representative from portions of any
Board or Board committee meeting and to redact portions of
Board or Board committee materials delivered to the
Representative where and to the extent that such majority
determines by resolution, in good faith, that: (a) such
refusal is reasonably necessary, in the opinion of counsel to
the Company, to preserve attorney-client privilege with
respect to a material matter; or (b) the presence of the
Representative would materially inhibit deliberations by the
Board or would otherwise be materially injurious to the
Company in such circumstances.
(ii) Exchanges of confidential and proprietary
information between the Company and the Lead Investor's
Representative shall be governed by the terms of the Corporate
Non-Disclosure Agreement No. 120110, dated July 30, 1998,
executed by the Company and the Lead Investor, and any
Confidential Information Transmittal Records provided in
connection therewith. Exchanges of confidential and
proprietary information between the Company and the ZSC's
Representative shall be governed by the terms of the Non-
Disclosure Agreement between such parties of even date hereof.
The Company acknowledges that each Representative may, from
time to time, have information that may be of interest to the
Company ("Information") regarding a wide variety of matters
including, by way of example only, (a) the Lead Investor's
technologies, plans and services, and plans and strategies
relating thereto, (b) current and future investments the Lead
Investor has made, may make, may consider or may become aware
of with respect to other companies and other technologies,
products and services, including, without limitation,
companies, technologies, products and services that may be
competitive with the Company's, and (c) developments with
respect to the technologies, products and services, and plans
and strategies relating thereto, of other companies,
including, without limitation, companies that may be
competitive with the Company. The Company recognizes that a
portion of such Information may be of interest to the Company.
Such Information may or may not be known by the
Representative. The Company, as a material part of the
consideration for this Agreement, agrees that the Lead
Investor and its Representative shall have no duty to disclose
any Information to the Company or permit the Company to
participate in any projects or investments based on any
Information, or to otherwise take advantage of any opportunity
that may be of interest to the Company if it were aware of
such Information, and hereby waives, to the extent permitted
by law, any claim based on the corporate opportunity doctrine
or otherwise that could limit the Lead Investor's ability to
pursue opportunities based on such Information or that would
require the Lead Investor or Representative to disclose any
such Information to the Company or offer any opportunity
relating thereto to the Company.
(e) Rights of Participation.
(i) General. Until the expiration of the
first anniversary of the Closing (such period from the date
hereof through such first anniversary being referred to herein
as the "Initial Rights Period"), each Investor and each other
person or entity to whom rights under this Section 7(e) have
been duly assigned (each of such Investor and each such
assignee, a "Participation Rights Holder") shall have a right
of first refusal to purchase all New Securities (as defined
below) that the Company may from time to time issue during
such period (such New Securities would be allocated among the
Participation Rights Holders who elect to exercise their right
to purchase such New Securities on a pro rata basis according
to the number of Purchased Shares held by each such
Participation Rights Holder (where any shares of Common Stock
held as a result of conversion of Purchased Shares shall be
deemed for these purposes to still be Purchased Shares)).
From the date of expiration of the Initial Rights Period
through the date ten (10) days prior to the consummation by
the Company of a registered public offering of shares of the
Common Stock in which the gross proceeds to the Company exceed
Fifteen Million Dollars ($15,000,000), each Investor and each
other Participation Rights Holder shall have a right of first
refusal to purchase such Participation Rights Holder's Pro
Rata Share (as defined below) of all New Securities that the
Company may from time to time issue after the Closing Date.
The rights described in the preceding two sentences, as
further described in this Clause (e), are referred to as the
"Right of Participation". Notwithstanding the foregoing, a
Participation Rights Holder shall not have the Right of
Participation with respect to any issuance of New Securities
that would result in less than a ten percent (10%) reduction
in such Participation Rights Holder's Pro Rata Share (where
prior issuances of New Securities in which the such
Participation Rights Holder was not entitled to participate
are aggregated with the issuance in question for purposes of
such ten percent (10%) calculation).
(ii) Pro Rata Share. "Pro Rata Share" means,
with respect to each Participation Rights Holder, the ratio of
the following numbers calculated immediately prior to the
issuance of the New Securities giving rise to the Right of
Participation: (A) the Participant Share Number (as defined
below) for such Participation Rights Holder, to (B) the
difference between (1) the sum of (a) the total number of
shares of Common Stock, Series A Preferred Stock and other
voting capital stock of the Company then outstanding, plus
(b) the number of shares of voting capital stock issuable upon
the exercise, conversion or exchange of any other security of
the Company then outstanding and (2) the number of Dilutive
Securities issued since the last Notice Date (as defined below
in Section 7(f)(vii), excluding any Maintenance Securities
issued pursuant to the last Maintenance Notice.
(iii)New Securities. "New Securities" means
any Common Stock, Preferred Stock or other voting capital
stock or security of the Company, whether now authorized or
not, and rights, options or warrants to purchase such Common
Stock or Preferred Stock or other voting capital stock or
security, and securities of any type whatsoever that are, or
may become, convertible into or exchangeable or exercisable
for Common Stock, Preferred Stock or other voting capital
stock or security; provided, however, that the term "New
Securities" shall not include:
(A) any shares of Common Stock (or
options or warrants therefor) issued to employees, officers,
directors or consultants of the Company pursuant to any
finder's fee agreements or stock purchase or stock option
incentive plans approved by the Board;
(B) the Purchased Shares issued under
this Agreement;
(C) shares of Common Stock issued upon
conversion of any Purchased Shares;
(D) any securities issued in connection
with any stock split stock, dividend or other similar event in
which all Participation Rights Holders are entitled to
participate on a pro rata basis;
(E) any securities issued upon the
exercise, conversion or exchange of any outstanding security
if such outstanding security constituted a New Security; or
(F) any securities issued pursuant to the
acquisition of another Person by the Company by consolidation,
merger, purchase of assets, or other reorganization.
(iv) Participant Share Number. "Participant
Share Number", with respect to a Participant Rights Holder,
means the sum of (1) the number of Series A Preferred Stock
held by such Participant, (2) the number of shares of Common
Stock converted from Series A Preferred Stock held by such
Participant, (3) the number of shares of other voting capital
stock or security of the Company held by such Participant, and
(4) the number of shares of Series A Preferred Stock, Common
Stock or other voting capital stock or security issuable upon
the exercise, conversion or exchange of any other security of
the Company held by such Participant.
(v) Procedures. If the Company proposes to
undertake an issuance of New Securities (in a single
transaction or a series of related transactions) in
circumstances that entitled a Participation Rights Holder to
participate therein in accordance this Clause (e), the Company
shall give to each Participation Rights Holder written notice
of its intention to issue New Securities (the "Participation
Notice"), describing the amount and the type of New Securities
and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Participation
Rights Holder shall have fifteen (15) business days from the
date of receipt of any such Participation Notice to agree in
writing to purchase up to the maximum number of such New
Securities that such Participation Rights Holder is entitled
to purchase for the price and upon the terms and conditions
specified in the Participation Notice by giving written notice
to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such maximum). If
any Participation Rights Holder fails to so agree in writing
within such 15 business day period, then such Participation
Rights Holder shall forfeit the right hereunder to participate
in such sale of New Securities; provided, however, that until
the first anniversary of the date hereof, any Participation
Rights Holders that have elected to exercise their Right of
Participation shall be entitled to exercise such right with
respect to any New Securities where such right has been
forfeited by such other Participation Rights Holder(s), and
the Company shall follow repeat the procedures set forth in
this Clause (e)(v) to ascertain whether the electing
Participation Rights Holders desire to purchase such other New
Securities. All sales hereunder that occur before the first
anniversary of the date hereof shall be consummated
concurrently with the closing of the transaction triggering
the Right of Participation.
(vi) Failure to Exercise. Upon the expiration
of such fifteen (15) business day period, the Company shall
have one hundred twenty (120) days thereafter, subject to
extensions for regulatory compliance, to sell the New
Securities described in the Participation Notice (with respect
to which the Participation Rights Holders' rights of first
refusal hereunder were not exercised), or enter into an
agreement to do so within sixty (60) days thereafter (which
agreement must be consummated within one hundred twenty (120)
days after its execution, subject to extensions for regulatory
compliance), at the price (or a higher price) and upon non-
price terms not materially more favorable to the purchasers
thereof than specified in the Participation Notice. If the
Company has not issued and sold such New Securities within
such 120-day period, or entered into an agreement to do so
within sixty (60) days thereafter (and consummated such
agreement within such 120-day period), then the Company shall
not thereafter issue or sell any New Securities without again
first offering such New Securities to the Participation Rights
Holders pursuant to this Section 7(e).
(f) Right of Maintenance.
(i) General. Each Participation Rights Holder
shall, pursuant to the terms and conditions of this Section
7(f), have the right to purchase from the Company Dilutive
Securities (as defined below) ("Maintenance Securities"), as a
result of issuances by the Company of Dilutive Securities that
from time to time are issued after the Closing Date and before
the expiration of the Initial Rights Period, solely in order
to maintain such Participation Rights Holder's Prior
Percentage Interest (as defined below) in the Company (the
"Right of Maintenance"). Each right to purchase Maintenance
Securities pursuant to this Section 7(f) shall be on the same
terms (other than price to the extent provided otherwise
below) as the issuance of the Dilutive Securities that gave
rise to the right to purchase such Maintenance Securities.
(ii) Dilutive Securities. "Dilutive
Securities" means any Common Stock, Preferred Stock or other
voting capital stock or security (including, without
limitation, any Common Stock, voting Preferred Stock or other
voting capital stock or security issued upon the exercise,
conversion or exchange of any other securities) of the
Company, whether now authorized or not; provided, however,
that the term "Dilutive Securities" shall not include:
(A) the Purchased Shares issued under
this Agreement;
(B) shares of Common Stock issued upon
conversion of any Purchased Shares;
(C) any securities issued in connection
with any stock split, stock dividend or similar event in which
all Participation Rights Holders are entitled to participate
on a pro rata basis;
(D) any securities for which the issuance
gave rise to a Right of Participation (regardless of whether
any such right was exercised) or to a Corporate Event;
(E) any securities issuable upon the
exercise, conversion or exchange of any securities described
in (C) or (D) above; or
(F) shares of Common Stock issued as
awards, including pursuant to exercise of options granted, to
employees, officers and directors under any plans approved by
the Board.
(iii)Purchase Price. The per share "Purchase
Price" of the Maintenance Securities shall equal the lower of
(1) the sales price of the Dilutive Securities, (2) the price
agreed to in good faith between by the Board and the
Participation Rights Holder and (3) the average Market Price
(as defined below) of such Maintenance Securities over the ten
(10) trading days immediately preceding the date on which the
Participation Rights Holder elects to purchase such
Maintenance Securities. If the issuance of any Dilutive
Securities occurs upon the exercise, conversion or exchange of
other securities ("Exchangeable Securities"), then the per
share price at which such Dilutive Securities shall be deemed
to have been issued shall be the sum of (x) the per share
amount paid upon such exercise, conversion or exchange, plus
(y) the per share amount previously paid for the Exchangeable
Securities (adjusted for any stock splits, stock dividends or
other similar events). For purposes of this
Section 7(f)(iii), "Market Price" means, as to any Maintenance
Securities on a given day, the average of the closing prices
of such security's sales on the principal domestic securities
exchanges on which such security may at the time be listed,
or, if there have been no sales on any such exchange on such
day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day
such security is not so listed, the average of the
representative bid and asked prices quoted on the Nasdaq
SmallCap Market as of 4:00 P.M., New York time, on such day,
or, if on any day such security is not quoted on the Nasdaq
SmallCap Market, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter
market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization. If at
any time the Maintenance Securities are not listed on any
domestic securities exchange or quoted on the Nasdaq SmallCap
Market or the domestic over-the-counter market ("Unlisted
Securities"), the "Market Price" shall be the fair value
thereof determined jointly by the Company and the Holder.
(iv) Alternative Purchase Price. If a
Participation Rights Holder does not elect to purchase its
Maintenance Amount at the time of issuance of any Dilutive
Securities specified in a Maintenance Note, and in the written
opinion of the Company's independent auditors, made available
to each Participation Rights Holder upon request, the effect
of
determining the Purchase Price after such issuance pursuant to
Clause (iii) above would require the Company to take a charge
against earnings in accordance with GAAP, then for purposes of
this Section 7(f) "Purchase Price" shall mean the Market Price
on the date the Participation Rights Holder elects to purchase
its Maintenance Amount.
(v) Consideration Other than Cash. If
Dilutive Securities or Exchangeable Securities were issued for
consideration other than cash, the per share amounts paid for
such Dilutive Securities or Exchangeable Securities shall be
determined jointly in good faith by the Company and the
Participation Rights Holder.
(vi) Appraiser. If the Company and the
Participation Rights Holder are unable to reach agreement
within a reasonable period of time with respect to (1) the
Market Price of Unlisted Securities or (2) the per share
amounts paid for Dilutive Securities or Exchangeable
Securities issued for consideration other than cash, such
Market Price or per share amounts paid, as the case may be,
shall be determined by an appraiser jointly selected by the
Company and the Participation Rights Holder. The
determination of such appraiser shall be final and binding on
the Company and the Participation Rights Holder. The fees and
expenses of such appraiser shall be paid for by the Company.
(vii)Prior Percentage Interest. A
Participation Rights Holder's "Prior Percentage Interest" for
purposes of the Right of Maintenance is the ratio of (A) the
Participant Share Number for such Participation Rights Holder
as of the date of such Maintenance Notice (the "Notice Date"),
to (B) the difference between (1) the sum of (a) the total
number of shares of Common Stock, Series A Preferred Stock and
other voting capital stock and securities of the Company
outstanding on the Notice Date, plus, (b) the number of shares
of voting capital stock or securities issuable upon the
exercise, conversion or exchange of any other security of the
Company outstanding as of such date (assuming, for purposes of
Clauses (a) and (b), the Common Stock or other securities
described in such Maintenance Notice are not issued), and
(2) the total number of Dilutive Securities issued since the
later of the Closing Date and the last Notice Date (but
excluding any Maintenance Securities issued pursuant to the
last Maintenance Notice).
(viii)Maintenance Amount. A Participation
Rights Holder's "Maintenance Amount" with respect to any
Maintenance Notice shall equal such number of Maintenance
Securities as shall (upon purchase thereof in full by the
Participation Rights Holder) enable such Participation Rights
Holder to maintain its Prior Percentage Interest on a fully-
diluted basis. As an example, assume that the Company had
10,000 shares outstanding and the Participation Rights Holder
holds 20% of such shares (or 2,000 shares). The Company first
issues 400 shares to a third party ("Issuance 1"), an amount
insufficient to trigger a Notice of Issuance pursuant to
Section 7(f)(ix). The Company then proposes to issue 4,600
shares to a third party ("Issuance 2"), an amount that
triggers a Maintenance Notice. The Participation Rights
Holder shall have the right to maintain its 20% interest after
considering Issuances 1 and 2 and the new shares issued to the
Participation Rights Holder. In this example, the
Participation Rights Holder shall have the right to purchase
an additional 1,250 shares, thereby resulting in the
Participation Rights Holder holding 20% of the securities
outstanding (3,250 shares out of 16,250 shares).
(ix) Maintenance Notice. Within fifteen (15)
business days after the first anniversary of the Closing Date,
and at least fifteen (15) business days before each issuance
of Dilutive Securities that when cumulated with all prior
issuances of Dilutive Securities since the later of (i) the
Closing Date and (ii) the date of the last Notice Date (which,
as a result of which, the Participation Rights Holder had an
opportunity to purchase Maintenance Securities), would result
in a ten percent (10%) or greater reduction in a Participation
Rights Holders' Prior Percentage Interest, the Company shall
give to each Participation Rights Holder written notice (the
"Maintenance Notice") describing the number of Dilutive
Securities issued since such prior Notice Date and the price
and non-price terms upon which the Company issued such
Dilutive Securities, and the Maintenance Amount that such
Participation Rights Holder is entitled to purchase as a
result of such issuances.
(x) Purchase of Maintenance Securities. If a
Participation Rights Holder exercises its right to purchase
Dilutive Securities, such Participation Rights Holder shall
have thirty (30) days after the issuance of the Dilutive
Securities specified in the applicable Maintenance Notice to
purchase its Maintenance Amount at the Purchase Price (as
determined in accordance with this Section 7(f)) and upon the
other terms and conditions specified in the Maintenance
Notice. The closing of such purchase shall occur within ten
(10) days after such election to purchase. If any
Participation Rights Holder fails to elect to purchase such
Participation Rights Holder's full Maintenance Amount of
Maintenance Securities within such 30-day period, then such
Participation Rights Holder shall forfeit the right hereunder
to purchase that part of its Maintenance Amount that it did
not so elect to purchase.
(xi) Termination. The Company's obligations
under this Section 7(f) shall terminate upon the expiration of
the Initial Rights Period.
(g) Rights in the Event of a Corporate Event.
(i) Corporate Events. A "Corporate Event"
shall mean any of the following, whether accomplished through
one or a series of related transactions: (A) any transaction,
other than an Acquisition Issuance (as defined below), that
results in a greater than twenty percent (20%) change in the
total outstanding number of voting securities (which, for
purposes of this Agreement, shall mean all securities of the
Company that presently are, or would be upon conversion,
exchange or exercise, entitled to vote in the election of
directors) of the Company immediately prior to such issuance
(other than any such change solely as a result of a stock
split, stock dividend or other recapitalization affecting
holders of Common Stock and other classes of voting securities
of the Company on a pro rata basis); (B) an acquisition of the
Company or any of its "Significant Subsidiaries" (as defined
in the SEC's Rule 1-02(w) of Regulation S-X) by consolidation,
merger, share purchase or exchange or other reorganization or
transaction in which the holders of the Company's or such
Significant Subsidiary's outstanding voting securities
immediately prior to such transaction own, immediately after
such transaction, securities representing less than fifty
percent (50%) of the voting power of the Company, any such
Significant Subsidiary or the Person issuing such securities
or surviving such transaction, as the case may be, provided
that this clause (B) shall not apply to the pro rata
distribution by the Company to its shareholders of all the
voting securities of any of its subsidiaries; (C) the
acquisition of all or substantially all the assets of the
Company or any Significant Subsidiary; (D) the grant by the
Company or any of its Significant Subsidiaries of an exclusive
license for any material portion of the Company's or such
Significant Subsidiary's Intellectual Property to a Person
other than the Lead Investor or any of its subsidiaries; and
(E) any transaction or series of related transactions that
results in the failure of the majority of the members of the
Board immediately prior to the closing of such transaction or
series of related transactions failing to constitute a
majority of the Board (or its successor) immediately following
such transaction or series of related transactions.
(ii) Notice of Corporate Events and Ten Percent
(10%) Acquisitions. Until expiration of the Initial Rights
Period, the Company shall provide the Lead Investor with
detailed written notice of terms of any offer (written or
oral) from any Person: (A) for a proposed Corporate Event or
(B) to acquire ten percent (10%) or more of the Company's
outstanding voting securities. Any notice shall be delivered
to the Lead Investor within two (2) business days after the
date the Company first becomes aware of such offer or proposed
Corporate Event or ten percent (10%) acquisition. Without
limiting the generality of the foregoing, such notice shall
set forth the identity(ies) of the Person(s) involved, the
consideration to be paid and all other material terms and
conditions. If such offer is in writing (whether in the form
of a letter of intent, term sheet or otherwise), the Company
shall deliver a copy thereof to the Lead Investor.
(iii)Right of First Refusal. During the
Initial Rights Period, the Company shall, prior to effecting
or entering into any agreement for any Corporate Event,
present to the Lead Investor in writing a summary of the
expected final terms and conditions of the proposed Corporate
Event, including the name of the other party or parties to the
Corporate Event and a copy of the draft agreements that the
Company is prepared to enter into (such information and
agreements, a "Final Notice"). The Lead Investor shall have
fifteen (15) business days after the date of receipt of the
Final Notice to deliver written notice to the Company agreeing
to enter into a written agreement with the Company on
substantially the same terms and conditions specified in the
Final Notice, which agreement shall nevertheless provide for
consummation of the transaction within one-hundred twenty
(120) days after the date of delivery of the Final Notice
(such 120 day period subject to extensions for regulatory
compliance). During such 15 business day period, the Lead
Investor shall be entitled to conduct due diligence with the
reasonable cooperation of the Company. If the Lead Investor
fails to so agree in writing within such 15 business day
period, for a period of one hundred twenty (120) days
thereafter (subject to extension for regulatory compliance,
the Company shall have the right to enter into an agreement
regarding such Corporate Event with the party or parties
specified in the applicable Final Notice.
(iv) Right of Resale. If the Lead Investor
shall fail to exercise its right of first refusal as to a
Corporate Event pursuant to Section 7(g)(iii), such Investor
shall, upon the Company's entering into an agreement to
consummate a Corporate Event, have the right to sell to the
Company any or all Purchased Shares and Conversion Shares.
Such sale shall be made on the following terms and conditions:
(A) The price per share at which such
shares are to be sold to the Company shall be equal to the
greater of: (1) the Per Share Purchase Price and (2) either
the highest price per share of capital stock (or equivalent)
paid in connection with the Corporate Event or, if the
transaction involves the sale of a Significant Subsidiary or
assets or the licensing of Intellectual Property, the Lead
Investor's pro rata share of the consideration received,
directly or indirectly, by the Company in such transaction
based on its then fully-diluted ownership of the Company's
capital stock.
(B) Immediately prior to the consummation
of the Corporate Event, the Lead Investor shall deliver to the
Company the certificate or certificates representing shares to
be sold, each certificate to be properly endorsed for
transfer.
(C) The Company shall, assuming its
receipt of the certificate or certificates for the shares to
be sold by the Lead Investor, pay the aggregate purchase price
therefor in cash immediately upon consummation of the
Corporate Event.
(v) Right of Notification and Negotiation.
For the one year period following the end of the Initial
Rights Period, the Company shall, prior to the Board's
approving or disapproving a Corporate Event or the Company's
or any of its subsidiaries' entering into a definitive
agreement with respect to a Corporate Event, notify the Lead
Investor of all material terms and conditions of such
Corporate Event and then attempt to negotiate in good faith
with such Investor for a period of not less than fifteen (15)
business days for the Lead Investor to acquire the Company (or
Significant Subsidiary, assets or license, as the case may be)
or enter into another Corporate Event with the Company.
During such fifteen (15) business day period, the Lead
Investor shall be entitled to conduct due diligence with the
reasonable cooperation of the Company. During such fifteen
(15) business day period, any alternative proposal made by the
Lead Investor shall be submitted by the Company to the Board
and the Board shall, in good faith, either approve or
disapprove by resolution such Investor's alternative proposal.
To the extent that the Company and the Lead Investor do not
enter into an agreement with respect to such an acquisition or
other Corporate Event during such fifteen (15) business day
period, the Board shall be free to approve or disapprove such
Corporate Event, and the Company shall be free to enter into a
definitive agreement with respect to a Corporate Event with a
third party and subsequently consummate such Corporate Event;
provided, however, that such definitive agreement is entered
into within one hundred twenty (120) days (subject to
extensions for regulatory compliance) following termination of
such fifteen (15) business day period; provided further, that
if during such fifteen (15) business day period, the Lead
Investor shall have made a written offer for the acquisition
of the Company, the Corporate Event with such a third party
shall be for at least at the price offered by such Investor
and on other terms no less favorable to shareholders of the
Company than the terms of the offer proposed by such Investor
with respect to shareholders other than such Investor.
(vi) Right to Consent. During the Initial
Rights Period, without the prior written consent of Holders of
Sixty-Six and Two-Thirds Percent (66 2/3%) of the outstanding
shares of Series A Preferred Stock, the Company shall not (and
shall not permit any of its subsidiaries to) enter into or
agree to or consummate one or more acquisitions by it of
securities or any business or assets of another Person where
the aggregate consideration paid in connection with all such
acquisitions is voting securities of the Company (or any other
securities exercisable or exchangeable for or convertible into
such voting securities) (an "Acquisition Issuance")
constituting in the aggregate more than twenty percent (20%)
of the Company's voting securities outstanding immediately
after the consummation of the first such acquisition.
(h) Intellectual Property. For so long as the an
Investor holds the equivalent on an as-converted base of at
least five percent (5%) of the then outstanding Common Stock
of the Company, the Company covenants that it will, where the
Company in the exercise of reasonable judgment deems it
appropriate, use reasonable business efforts to seek copyright
and patent registration, and other appropriate intellectual
property protection, for Intellectual Property of the Company.
(i) Covenant not to Xxx. Company agrees that it
shall not assert in any way a patent against Intel, its
subsidiaries or affiliates, or their customers, direct or
indirect, agents or contractors, for the manufacture, use,
import, offer for sale, or sale of any of Intel's
microprocessors or chipsets. It is understood and agreed that
the foregoing covenant does not apply to the assertion of a
patent for any infringement arising out of any software or
software programming run on any of Intel's microprocessors or
chipsets by a user of any of Intel's microprocessors or
chipsets.
(j) Key Person Life Insurance. Within thirty (30)
days of the date hereof, the Company will undertake
commercially reasonable efforts to obtain term life insurance
at reasonable rates on the life of Xxxxxxx Xxxxxxx in the
amount of at least $1,000,000, as to which the Company will be
the sole beneficiary.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. Each of the Investors,
its Affiliates and Associates, and each officer, director,
shareholder, employer, representative and agent of any of the
foregoing (collectively, the "Investor Indemnitees") shall be
indemnified and held harmless to the extent set forth in this
Section 8 by the Company with respect to any and all Damages
(as defined below) incurred by any Investor Indemnitee as a
proximate result of any inaccuracy or misrepresentation in, or
breach of, any representation, warranty, covenant or agreement
made by the Company in this Agreement (including any exhibits
and schedules hereto). Indemnification or other claims with
respect to the other Transaction Agreements will be covered by
the provisions of those agreements and not by this section,
and indemnification for claims arising from the registration
of Purchased Shares under Federal and state securities laws
are covered by Section 7(b) and not this Section 8.
(ii) Investor Indemnity. The Company, its
respective Affiliates and Associates, and each officer,
director, shareholder, employer, representative and agent of
any of the foregoing (collectively, the "Company Indemnitees")
shall each be indemnified and held harmless to the extent set
forth in this Section 8, by the Investor, in respect of any
and all Damages incurred by any Company Indemnitee as a
proximate result of any inaccuracy or misrepresentation in, or
breach of, any representation. warranty, covenant or agreement
made by the Investor in this Agreement. Indemnification or
other claims with respect to the other Transaction Agreements
will be covered by the provisions of those agreements and not
by this Section 8, and indemnification for claims arising from
the registration of Purchased Shares under Federal and state
securities laws are covered by Section 7(b) and not this
Section 8.
(iii)Equitable Relief. Nothing set forth in
this Section 8 shall be deemed to prohibit or limit any
Investor Indemnitee's or Company Indemnitee's right at any
time before, on or after the Closing, to seek injunctive or
other equitable relief for the failure of any Indemnifying
Party to perform or comply with any covenant or agreement
contained herein.
(b) Survival. All representations and warranties
of the Investor and the Company contained herein and all
claims of any Investor Indemnitee or Company Indemnitee in
respect of any inaccuracy or misrepresentation in or breach
hereof, shall survive the Closing until the third anniversary
of the date of this Agreement, regardless of whether the
applicable statute of limitations, including extensions
thereof, may expire. All covenants and agreements of the
Investor and the Company contained in this Agreement shall
survive the Closing in perpetuity (except to the extent any
such covenant or agreement shall expire by its terms). All
claims of any Investor Indemnitee or Company Indemnitee in
respect of any breach of such covenants or agreements shall
survive the Closing until the expiration of two years
following the non-breaching party's obtaining actual knowledge
of such breach.
(c) Claims for Indemnification. If any Investor
Indemnitee or Company Indemnitee (an "Indemnitee") shall
believe that such Indemnitee is entitled to indemnification
pursuant to this Section 8 in respect of any Damages, such
Indemnitee shall give the appropriate Indemnifying Party
(which for purposes hereof, in the case of an Investor
Indemnitee, means the Company, and in the case of a Company
Indemnitee, means the Investor) prompt written notice thereof.
Any such notice shall set forth in reasonable detail and to
the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give
notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity
hereunder except to the extent that such failure adversely
affects the right of the Indemnifying Party to assert any
reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party
shall have only the twenty (20) business day period referred
to in the next sentence to dispute or deny such claim. The
Indemnifying Party shall have twenty (20) business days
following its receipt of such notice either (a) to acquiesce
in such claim by giving such Indemnitee written notice of such
acquiescence or (b) to object to the claim by giving such
Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty
(20) business day period, such Indemnitee shall be entitled to
be indemnified for all Damages reasonably and proximately
incurred by such Indemnitee in respect of such claim. If the
Indemnifying Party objects to such claim in a timely manner,
the senior management of the Company and such Indemnitee shall
meet to attempt to resolve such dispute. If the dispute
cannot be resolved by the senior management, either party may
make a written demand for formal dispute resolution and
specify therein the scope of the dispute. Within thirty (30)
days after such written notification, the parties agree to
meet for one (1) day with an impartial mediator and consider
dispute resolution alternatives other than litigation. If an
alternative method of dispute resolution is not agreed upon
within thirty days after the one day mediation, either party
may begin litigation proceedings. Nothing in this section
shall be deemed to require arbitration.
(d) Defense of Claims. In connection with any
claim that may give rise to indemnity under this Section 8
resulting from or arising out of any claim or Proceeding
against an Indemnitee by a person or entity that is not a
party hereto, the Indemnifying Party may (unless such
Indemnitee elects not to seek indemnity hereunder for such
claim) but shall not be obligated to, upon written notice to
the relevant Indemnitee, assume the defense of any such claim
or Proceeding if the Indemnifying Party with respect to such
claim or Proceeding acknowledges to the Indemnitee the
Indemnitee's right to indemnity pursuant hereto to the extent
provided herein (as such claim may have been modified through
written agreement of the parties) and provides assurances,
reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such
claim to the extent provided herein if such claim or
Proceeding is decided adversely; provided, however, that
nothing set forth herein shall be deemed to require the
Indemnifying Party to waive any crossclaims or counterclaims
the Indemnifying Party may have against the Indemnified Party
for damages. The Indemnified Party shall be entitled to
retain separate counsel, reasonably acceptable to the
Indemnifying Party, if the Indemnified Party shall determine,
upon the written advice of counsel, that an actual or
potential conflict of interest exists between the Indemnifying
Party and the Indemnified Party in connection with such
Proceeding. The Indemnifying Party shall be obligated to pay
the reasonable fees and expenses of such separate counsel to
the extent the Indemnified Party is entitled to
indemnification by the Indemnifying Party with respect to such
claim or Proceeding under this Section 8(d). If the
Indemnifying Party assumes the defense of any such claim or
Proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps
necessary in the defense or settlement thereof and shall at
all times diligently and promptly pursue the resolution
thereof. If the Indemnifying Party shall have assumed the
defense of any claim or Proceeding in accordance with
this Section 8(d), the Indemnifying Party shall be authorized
to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, with the prior
written consent of such Indemnitee, not to be unreasonably
withheld; provided, however, that the Indemnifying Party shall
pay or cause to be paid all amounts arising out of such
settlement or judgment concurrently with the effectiveness
thereof; provided further, that the Indemnifying party shall
not be authorized to encumber any of the assets of any
Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and provided
further, that a condition to any such settlement shall be a
complete release of such Indemnitee and its Affiliates,
directors, officers, employees and agents with respect to such
claim, including any reasonably foreseeable collateral
consequences thereof. Such Indemnitee shall be entitled to
participate in (but not control) the defense of any such
action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates,
directors, officers, employees and agents to, cooperate fully
with the Indemnifying Party in the defense of any claim or
Proceeding being defended by the Indemnifying Party pursuant
to this Section 8(d). If the Indemnifying Party does not
assume the defense of any claim or Proceeding resulting
therefrom in accordance with the terms of this Section 8(d),
such Indemnitee may defend against such claim or Proceeding in
such manner as it may deem appropriate, including settling
such claim or Proceeding after giving notice of the same to
the Indemnifying Party, on such terms as such Indemnitee may
deem appropriate. If any Indemnifying Party seeks to question
the manner in which such Indemnitee defended such claim or
Proceeding or the amount of or nature of any such settlement,
such Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not
defend such claim or Proceeding in a reasonably prudent
manner.
(e) Certain Definitions. As used in this Section 8,
(a) "Affiliate" means, with respect to any person or entity,
any person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with
such other person or entity; (b) "Associate" means, when used
to indicate a relationship with any person or entity, (1) any
other person or entity of which such first person or entity is
an officer, director or partner or is, directly or indirectly.
the beneficial owner of ten percent (10%) or more of any class
of equity securities, membership interests or other comparable
ownership interests issued by such other person or entity,
(2) any trust or other estate in which such first person or
entity has a ten percent (10%) or more beneficial interest or
as to which such first person or entity serves as trustee or
in a similar fiduciary capacity, and (3) any relative or
spouse of such first person or entity who has the same home as
such first person or entity or who is a director or officer of
such first person or entity; (c) "Damages" means all demands,
claims, actions or causes of action, assessments, losses,
damages, costs, expenses, liabilities, judgments, awards,
fines, response costs, sanctions, taxes, penalties, charges
and amounts paid in settlement, including (1) interest on cash
disbursements in respect of any of the foregoing at the prime
rate of Bank of America NT&SA, as in effect from time to time,
compounded quarterly, from the date each such cash
disbursement is made until the date the party incurring such
cash disbursement shall have been indemnified in respect
thereof, and (2) reasonable out-of-pocket costs, fees and
expenses (including reasonable costs, fees and expenses of
attorneys, accountants and other agents of, or other parties
retained by, such party), and (d) "Proceeding" means any
action, suit, hearing, arbitration, audit, proceeding (public
or private) or investigation that is brought or initiated by
or against any federal, state, local or foreign governmental
authority or any other person or entity.
9. ASSIGNMENT. The rights of each Investor under
Section 7(a), (b) and (e) are transferable to any person who
acquires the equivalent, on an as-converted basis, of at least
five percent (5%) of the outstanding shares of the Common
Stock (subject to appropriate adjustment for all stock splits,
dividends, combinations, recapitalizations and the like where
all holders of the Common Stock participate on a pro rata
basis); provided, however, that no party may be assigned any
of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment
stating the name and address of the assignee and identifying
the securities of the Company as to which the rights in
question are being assigned; and provided further that any
such assignee shall receive such assigned rights subject to
all the terms and conditions of this Agreement, including
without limitation the provisions of Section 7(c). The rights
of the Lead Investor under Section 7(d) may not be assigned.
The rights of each Investor under Section 7(f) and the rights
of the Lead Investor under Section 7(g) may be assigned (in
the case of 7(g), only in whole, and not in part) only to a
Majority Owned Subsidiary; provided, however that no such
assignment of such rights under Sections 7(f) and (g) shall be
effective until the Company is given written notice by the
assigning Investor stating the name and address of the
assignee; and provided further that any such assignee shall
receive such assigned rights subject to all the terms and
conditions of this Agreement. Notwithstanding anything in the
foregoing to the contrary, this Agreement may not be assigned
by any Investor in whole or in part to any Competitor of the
Company. For purposes of this Section 9, a "Competitor" of
the Company shall mean any company, one of whose principal
lines of business is the development and/or marketing of any
product similar to the Company's Town Square product line or
any subset thereof, and/or call accounting, traffic
engineering, facilities and alarm management, PBX security,
voicemail/auto attendant or answer detection software and
hardware systems that operate on personal computers, local
area networks and stand-alone proprietary hardware and that
are used primarily in the commercial and hospitality markets.
10. MISCELLANEOUS.
(a) Successors and Assigns. The terms and
conditions of this Agreement will inure to the benefit of and
be binding upon the respective successors and assigns of the
parties.
(b) Governing Law. This Agreement will be governed
by and construed under the internal laws of the State of
Delaware, without reference to principles of conflict of laws
or choice of laws.
(c) Counterparts. This Agreement may be executed
in two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and
the same instrument.
(d) Headings. The headings and captions used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement. All
references in this Agreement to sections, paragraphs, exhibits
and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules
attached hereto, all of which exhibits and schedules are
incorporated herein by this reference.
(e) Notices. Any notice required or permitted
under this Agreement shall be given in writing, shall be
effective when received, and shall in any event be deemed
received and effectively given upon personal delivery to the
party to be notified or three (3) business days after deposit
with the United States Post Office, by registered or certified
mail, postage prepaid, or one (1) business day after deposit
with a nationally recognized courier service such as FedEx for
next business day delivery under circumstances in which such
service guarantees next business day delivery, or one (1)
business day after facsimile with copy delivered by registered
or certified mail, in any case, postage prepaid and addressed
to the party to be notified at the address indicated for such
party on the signature page hereof or at such other address as
each Investor or the Company may designate by giving at least
ten (10) days advance written notice pursuant to this
Section 9(e).
(f) No Finder's Fees. Each Investor will indemnify
and hold harmless the Company from any liability for any
commission or compensation in the nature of a finders' or
broker's fee for which such Investor or any of its officers,
partners, employees or consultants, or representatives is
responsible. The Company will indemnify and hold harmless
each Investor from any liability for any commission or
compensation in the nature of a finder's or broker's fee for
which the Company or any of its officers, employees or
consultants or representatives is responsible.
(g) Amendments and Waivers. This Agreement may be
amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written
consent of the Company and the holders of Purchased Shares
representing at least two-thirds of the total aggregate number
of Purchased Shares then outstanding (excluding any of such
shares that have been sold in a transaction in which rights
under Section 7(b) are not assigned in accordance with this
Agreement or sold to the public pursuant to SEC Rule 144 or
otherwise). Any amendment or waiver effected in accordance
with this Section 9(g) will be binding upon each Investor, the
Company and their respective successors and assigns.
Notwithstanding the foregoing, the provisions of Clauses (b),
(c), (d), (e), (f) and (g), Section 7 and Section 8 may not be
amended without the written consent of the Company and each
Investor, which may be withheld in either of their sole and
absolute discretions.
(h) Severability. If any provision of this
Agreement is held to be unenforceable under applicable law,
such provision will be excluded from this Agreement and the
balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in
accordance with its terms.
(i) Entire Agreement. This Agreement, together
with the other Transaction Agreement and all exhibits and
schedules hereto and thereto constitutes the entire agreement
and understanding of the parties with respect to the subject
matter hereof and supersedes any and all prior negotiations,
correspondence, agreements. understandings duties or
obligations between the parties with respect to the subject
matter hereof.
(j) Further Assurances. From and after the date of
this Agreement upon the request of the Company or each
Investor, the Company and each Investor will execute and
deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this
Agreement.
(k) Meaning of Include and Including. Whenever in
this Agreement the word "include" or "including" is used. it
shall be deemed to mean "include, without limitation" or
"including. without limitation." as the case may be. and the
language following "include" or "including" shall not be
deemed to set forth an exhaustive list.
(l) Fees, Costs and Expenses. All fees, costs and
expenses (including attorney's' fees and expenses) incurred by
either part hereto in connection with the preparation,
negotiation and execution of this Agreement and the other
Transaction Agreements and the consummation of the
transactions contemplated hereby and thereby (including the
costs associated with any filings with, or compliance with any
of the requirements of, any governmental authorities), shall
be the sole and exclusive responsibility of such party.
(m) Competition. Nothing set forth herein shall be
deemed to preclude, limit or restrict the Company's or each
Investor's ability to compete with the other.
(n) Cooperation in HSR Act Filings.
(i) In the event of a conversion of the
Purchased Shares (or any other action by an Investor with
respect to any Securities of the Company held by such
Investor) that would require a filing by the Investor under
the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 0000 (xxx
"XXX Xxx"), the Investor and its respective affiliates
(including any "ultimate parent entity", as defined in the HSR
Act), and the Company and its respective affiliates (including
any "ultimate parent entity", as defined in the HSR Act),
shall promptly prepare and make their respective filings and
thereafter shall make all required or requested submissions
under the HSR Act or any analogous applicable law, if
required. In taking such actions or making any such filings,
the parties hereto shall furnish information required in
connection therewith and seek timely to obtain any applicable
actions, consents, approvals or waivers of governmental
authorities; provided, however, that the parties hereto shall
cooperate with each other in connection with the making of all
such filings to the extent permitted by applicable law.
Without limiting the generality of the foregoing, to the
extent permitted by applicable law and so long as the
following will not involve the disclosure of confidential or
proprietary information of one party hereto to another, each
party shall cooperate with the other by (a) providing copies
of all documents to be filed to the non-filing party and its
advisors prior to filing and, if requested, accepting
reasonable additions, deletions or changes suggested in
connection therewith and (b) providing to each other party
copies of all correspondence from and to any governmental
authority in connection with any such filing.
(ii) Notwithstanding the foregoing, neither any
Investor nor any of its affiliates shall be under any
obligation to comply with any request or requirement imposed
by the Federal Trade Commission (the "FTC"), the Department of
Justice (the "DofJ") or any other governmental authority in
connection with the compliance with the requirements of the
HSR Act, or any other applicable law, if the Investor, in the
exercise of its reasonable discretion, deems such request or
requirement unduly burdensome. Without limiting the
generality of the foregoing, no Investor shall be obligated to
comply with any request by, or any requirement of, the FTC,
the DofJ or any other governmental authority: (i) to disclose
information such Investor deems it in its best interests to
keep confidential; (ii) to dispose of any assets or
operations; or (iii) to comply with any proposed restriction
on the manner in which it conducts its operations. In the
event such Investor shall receive a second request in respect
of its HSR Filing determined by it to be unduly burdensome and
it shall prove unable to negotiate a means satisfactory to the
Investor for complying with such burdensome second request, or
the Federal Trade Commission or Department of Justice shall
impose any condition on the Investor or its affiliates in
respect thereof deemed unacceptable by the Investor, the
Company and the Investor shall cooperate in good faith to
negotiate an alternative transaction that provides such
Investor with the economic benefits it would receive if it
converted the Purchased Shares (or took any such other action
referenced in the first parenthetical in the first sentence of
Clause (i)).
[The remainder of this page is intentionally
blank.]
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
XIOX CORPORATION INTEL CORPORATION
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
000 Xxxxxxx Xxxxxxxxx, 0000 Xxxxxxx Xxxxxxx Xxxx.
Xxxxx 000 Xxxxx Xxxxx, Xxxxxxxxxx 00000
Xxxxxxxxxx, XX 00000 Telephone No.: (000) 000-0000
Telephone No: (000) 000-0000 Facsimile No.: (000) 000-0000
Facsimile No: (000) 000-0000
with a copy to:
with a copy to:
Intel Corporation
Xxxxxx Xxxxxxx Xxxxxxxx & Attention: General Counsel
Xxxxxx 0000 Xxxxxxx Xxxxxxx Xxxx.
Attention: Xxxxx X. Xxxxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000
Jr.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000 with a copy to:
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000 Xxxxxx, Xxxx & Xxxxxxxx LLP
Attention: Xxxxxxx X. Xxxx
Xxx Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
FLANDERS LANGUAGE VALLEY C.V.A. ZERO STAGE CAPITAL VI LIMITED
PARTNERSHIP
By: Flanders Language Valley By: Zero Stage Capital
Management N.V., Its General Associates VI, LLC
Manager
By: By:
Name: Xxxxxx Xxxxxxxxx Name:
Its General Manager
Title:
Date Signed:
Date Signed:
Address:
Address:
Xxxxxxxxxxxxxxxxx 0
0000 Xxxxx, Xxxxxxx 000 Xxxx Xxxxxx, 00xx Xxxxx
Telephone No: Xxxxxxx Xxxxxx
000-00-00-00-00-00 Xxxxxxxxx, XX 00000
Facsimile No: Telephone No.: (000) 000-0000
000-00-0-000-0000 Facsimile No.: (000) 000-0000
with a copy to: with a copy to:
Xxxxxxx, Xxxxxxx & Harrison, Brobeck, Phleger & Xxxxxxxx,
LLP LLP
Attention: Xxxx X. Xxxxx Attention: Xxxx X. Xxxxx
000 Xxxx X Xxxxxx, Xxxxx 0000 000 Xxxx X Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000 Xxx Xxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000 Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000 Facsimile No.: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
XXXXXX AND MCBAINE LAGUNITAS PARTNERS
INTERNATIONAL
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
00 Xxxxxx Xxxxx, Xxxxxxxxx 00 Xxxxxx Xxxxx, Xxxxxxxxx
Xxx Xxxxxxxxx, XX 00000 Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone No: (000) 000-0000 Telephone No.: (000) 000-0000
Facsimile No: (000) 000-0000 Facsimile No.: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
COMPASS TECHNOLOGY PARTNERS COMPASS CHICAGO PARTNERS
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
0000 Xx Xxxxxx Xxxx, Xxxxx 000 0000 Xx Xxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000 Xxxxx Xxxx, XX 00000
Telephone No: (000) 000-0000 Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000 Facsimile No: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
THE XXXXXX FAMILY TRUST XXX AND XXXX XXXXXX UNIT TRUST
UTD 9/21/81 UTD 9/28/89
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
00000 Xxxxxxx Xxx 00000 Xxxxxxx Xxx
Xxx Xxxxx, XX 00000 Xxx Xxxxx, XX 00000
Telephone No: (000) 000-0000 Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000 Facsimile No: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
XXXXXX AND XXXXXXXX XXXXXX CHINA FIRST STEEL ROPES
DECLARATION AND AGREEMENT OF MANUFACTURING CO., LTD.
TRUST DATED 2/15/91
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
00000 Xxxxxxx Xxxxx 000-0 Xxx Xxxxx Xxxx Xxxx
XxxxXxxxxx, XX 00000 Taipei 103, Taiwan ROC
Telephone No: Telephone No.: 000-0-0000-0000
(000) 000-0000 or 9417 Facsimile No.: 886-2-2550-1194
**** Stock Purchase and Investor Rights Agreement ****
XX XXXX CO., LTD HO HONG INVESTMENT CO., LTD.
By: By:
Name: Name:
Title: Title:
Date Signed: Date Signed:
Address: Address:
000-0 Xxx Xxxxx Xxxx Xxxx 00xx Xxxxx
Xxxxxx 000, Xxxxxx, ROC Xx. 00 Xxxxxxx Xxxx Xxxx
Telephone No: 000-0-000-0000 Section 3
Facsimile No: 886-2-553-1694 Taipei, Taiwan ROC
Telephone No.: 000-0-0000-0000
Facsimile No.: 886-2-2506-8930
**** Stock Purchase and Investor Rights Agreement ****
BAY AREA MICROCAP FUND
By:
Name:
Title:
Date Signed:
Address:
0000 Xxx Xxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Telephone No: (000) 000-0000
Facsimile No: (000) 000-0000
**** Stock Purchase and Investor Rights Agreement ****
