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EXHIBIT 10.5
XXXXX MANAGEMENT SYSTEMS CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
FEBRUARY 27, 1998
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TABLE OF CONTENTS
PAGE
SECTION 1. AGREEMENT TO SELL AND PURCHASE ................................ 2
1.1 Authorization of Shares ....................................... 2
1.2 Sale and Purchase ............................................. 2
SECTION 2. CLOSING, DELIVERY AND PAYMENT ................................. 2
2.1 Closing ....................................................... 2
2.2 Delivery ...................................................... 2
2.3 Contemplated Transfers ........................................ 2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE LANGS ... 3
3.1 Organization, Good Standing and Qualification ................. 3
3.2 Capitalization; Voting Rights ................................. 3
3.3 Authorization; Binding Obligations ............................ 4
3.4 Financial Statements .......................................... 4
3.5 Liabilities ................................................... 4
3.6 Agreements; Action ............................................ 4
3.7 Obligations to Related Parties ................................ 5
3.8 Changes ....................................................... 5
3.9 Title to Properties and Assets; Liens, etc. ................... 6
3.10 Patents and Trademarks ........................................ 7
3.11 Compliance with Other Instruments ............................. 8
3.12 Litigation .................................................... 8
3.13 Tax Returns and Payments ...................................... 9
3.14 Employees ..................................................... 9
3.15 Proprietary Information and Inventions Agreements ............. 9
3.16 Obligations of Management; Stipulated Activities .............. 9
3.17 Registration Rights ........................................... 10
3.18 Compliance with Laws; Permits ................................. 10
3.19 Environmental and Safety Laws ................................. 10
3.20 Offering Valid ................................................ 10
3.21 Full Disclosure ............................................... 10
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TABLE OF CONTENTS
(CONTINUED)
PAGE
3.22 Minute Books .................................................. 11
3.23 Section 83(b) Elections ....................................... 11
3.24 Insurance ..................................................... 11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS ............ 11
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS .............. 11
5.1 Requisite Power and Authority ................................. 12
5.2 Investment Representations .................................... 12
5.3 Transfer Restrictions ......................................... 13
SECTION 6. CONDITIONS TO CLOSING ......................................... 13
6.1 Conditions to Purchasers' Obligations at the Closing .......... 13
6.2 Conditions to Obligations of the Company ...................... 15
SECTION 7. SHAREHOLDER RELEASES; SURVIVAL; INDEMNIFICATION ............... 16
7.1 Shareholder Release ........................................... 16
7.2 Survival; Remedies ............................................ 16
7.3 Indemnification of Purchaser .................................. 16
7.4 Indemnification by Purchasers ................................. 17
7.5 Notice of Claim ............................................... 17
SECTION 8. MISCELLANEOUS ................................................. 17
8.1 Governing Law ................................................. 17
8.2 Successors and Assigns ........................................ 17
8.3 Entire Agreement .............................................. 17
8.4 Severability .................................................. 17
8.5 Amendment and Waiver .......................................... 18
8.6 Delays or Omissions ........................................... 18
8.7 Notices ....................................................... 18
8.8 Expenses ...................................................... 18
8.9 Attorneys' Fees ............................................... 18
8.10 Titles and Subtitles .......................................... 19
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TABLE OF CONTENTS
(CONTINUED)
PAGE
8.11 Counterparts .................................................. 19
8.12 Broker's Fees ................................................. 19
8.13 Exculpation Among Purchasers .................................. 19
8.14 Pronouns ...................................................... 19
8.15 Broker's Fees ................................................. 19
8.16 California Corporate Securities Law ........................... 19
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XXXXX MANAGEMENT SYSTEMS CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of February 27, 1998, by and among XXXXX MANAGEMENT SYSTEMS
CORPORATION, a California corporation (the "Company"), and severally and not
jointly, Xxxxx Xxxxx ("Xxxxx"), Xxxx Xxxxxxx ("Xxxxxxx"), Westminster Health
Care Limited ("Westminster"), and Xxxxxxx Xxxx, Xxxxxx Xxxx, Xxxxxx X.X. Xxxx
(the "Langs"; Davis, Curnutt, Westminster and the Langs are sometimes referred
to collectively as the "Shareholders" and each individually as a "Shareholder"),
and each of those persons and entities, severally and not jointly, whose names
are set forth on the Schedule of Purchasers attached hereto as Exhibit A-1
(which persons and entities are hereinafter collectively referred to as
"Purchasers" and each individually as a "Purchaser").
RECITALS
WHEREAS, the Company and the Shareholders have entered into an Exchange
Agreement dated as of the date hereof (the "Exchange Agreement") pursuant to
which (i) Xxxxx and Xxxxxxx have exchanged 21,300 shares and 20,000 shares,
respectively, of Series A Preferred Stock of the Company held by each of them
for an equal number of shares of Series D Preferred Stock of the Company
("Series D Preferred"), (ii) Westminster has exchanged 115,446 shares of Series
B Preferred Stock of the Company and 450,481 shares of Series C Preferred Stock
of the Company held by it for an aggregate of 1,125,000 shares of Series D
Preferred, and (iii) the Langs exchanged an aggregate of 178,332.5 shares of
Common Stock of the Company held by them for an aggregate of 17,833 shares of
Series D Preferred (the shares of Series D Preferred issued to each of the
Shareholders pursuant to the Exchange Agreement are referred to collectively as
the "Exchange Series D Shares");
WHEREAS, it is a condition to the willingness of Westminster to approve
the amendment to the Company's Articles of Incorporation contemplated by this
Agreement and the sale and delivery of the Exchange Series D Shares held by it
hereunder that the Company issue and deliver to Westminster warrants to purchase
250,000 shares of Common Stock of the Company (the "Westminster Warrant");
WHEREAS, the Purchasers desire to purchase from the Shareholders all of
the Exchange Series D Shares held by each of them on the terms and conditions
set forth herein;
WHEREAS, each of the Shareholders desires to sell the Exchange Series D
Shares held by it to the Purchasers on the terms and conditions set forth
herein;
WHEREAS, the Purchasers desire to purchase directly from the Company an
aggregate of 5,615,867 shares of Series D Preferred (the "Shares") on the terms
and conditions set forth herein; and;
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
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SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), (a) (i) the Exchange Series D Shares shall have
been issued to each of the Shareholders pursuant to the Exchange Agreement and
(ii) each Shareholder, to the extent necessary, shall have authorized the sale
to the Purchasers of the Exchange Series D Shares held by it, and (b) the
Company shall have authorized (i) the sale and issuance to Purchasers of the
Shares and (ii) the issuance of such shares of Common Stock to be issued upon
conversion of the Shares (the "Conversion Shares"). The Shares, the Exchange
Series D Shares and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Articles of
Incorporation of the Company, as amended, in the form attached hereto as Exhibit
B (the "Restated Articles").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) (a) the Company hereby agrees to issue
and sell to each Purchaser, severally and not jointly, and each Purchaser agrees
to purchase from the Company, severally and not jointly, the number of Shares
set forth opposite such Purchaser's name on Exhibit A, and (b) each Shareholder
hereby agrees to sell to each Purchaser, severally and not jointly, and each
Purchaser agrees to Purchase from each Shareholder, severally and not jointly,
the number of Exchange Series D Shares set forth opposite such Purchaser's name
on Exhibit A, in each case at a purchase price of one dollar and twenty cents
($1.20) per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares
and the Exchange Series D Shares under this Agreement (the "Closing") shall take
place at 5:00 p.m. on the date hereof, at the offices of Xxxxxx Godward LLP,
0000 Xxxx Xxxx Xxxx, Xxxxxxxx 0, Xxxxx 000, Xxxxx Xxxx, Xxxxxxxxxx 00000, or at
such other time or place as the Company and Purchasers may mutually agree (such
date is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, (a) the Company will deliver to the Purchasers certificates representing
the number of Shares to be purchased from the Company at the Closing by each
Purchaser, and (b) each Shareholder will deliver to the Purchasers certificates
representing the number of Exchange Series D Shares to be purchased from it at
the Closing by each Purchaser, against payment of the purchase price therefor by
check or wire transfer made payable to the order of the Company or a
Shareholder, as applicable, cancellation of indebtedness or any combination of
the foregoing.
2.3 CONTEMPLATED TRANSFERS. Notwithstanding anything herein or in
the Investor Rights Agreement (as defined below) to the contrary, Bedrock
Capital Side-By-Side, L.P. ("Bedrock Side Fund") shall be entitled, at any time
or times within one hundred eighty (180) days immediately following the Closing,
to transfer to no more than three (3) of its affiliates all, or any lesser
number as it deems appropriate, of the Shares and/or Exchange Series D Shares
purchased by it hereunder. From and after any such transfer, such transferee
shall be deemed a "Purchaser" for all purposes of this Agreement and an
"Investor" for all purposes of the Investor Rights Agreement and the Voting
Agreement (as each term is defined in Section 3.1 below).
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE LANGS.
Except as set forth on a Schedule of Exceptions delivered by the
Company and the Langs to the Purchasers at the Closing, the Company and the
Langs each hereby represent and warrant to each Purchaser as of the date of this
Agreement as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement in the form attached
hereto as Exhibit C (the "Investor Rights Agreement") and the Voting Agreement
in the form attached hereto as Exhibit D (the "Voting Agreement"; the Investor
Rights Agreement and the Voting Agreement, collectively, the "Related
Agreements" and the Agreement and the Related Agreements together, the
"Agreements"), to issue and sell the Shares and the Conversion Shares and to
carry out the provisions of the Agreements and the Restated Articles and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.
The Company owns no equity securities of any other corporation, limited
partnership or similar entity. The Company is not a participant in any joint
venture, partnership or similar arrangement.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of
the Company, immediately prior to the Closing, consists of Fifteen Million
(15,000,000) shares of Common Stock, no par value share, (a) 1,025,674.76 shares
of which are issued and outstanding, (b) 1,047,848 shares of which are reserved
for future issuance to key employees pursuant to the Company's 1984 Stock Option
Plan, as amended, and the 1995 Stock Option Plan (collectively, the "Stock
Option Plans"), and (c) Eight Million (8,000,000) shares of Preferred Stock, no
par value, (i) 41,300 of which are designated Series A Preferred Stock, none of
which are issued and outstanding, (ii) 115,446 of which are designated as Series
B Preferred Stock, none of which are issued and outstanding, (iii) 450,481 of
which are designated as Series C Preferred Stock, none of which are issued and
outstanding, and (iv) 6,800,000 of which are designated Series D Preferred
Stock, 1,184,133 of which are issued and outstanding. All issued and outstanding
shares of the Company's Common Stock and Preferred Stock (A) have been duly
authorized and validly issued to the persons listed an Exhibit D hereto, (B) are
fully paid and nonassessable, and (C) were issued in compliance with all
applicable state, federal and foreign laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the Shares
and the Exchange Series D Shares are as stated in the Restated Articles. Each
series of Preferred Stock is convertible into Common Stock on a one-for-one
basis. The Conversion Shares have been duly and validly reserved for issuance.
Other than as set forth on Exhibit E, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or shareholder agreements, or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. When issued
in compliance with the provisions of this Agreement and the Restated Articles,
the Shares and the Conversion Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares, the Exchange Series D Shares and the Conversion Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.
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3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization of the Exchange Agreement, the Agreement and each Related
Agreement, the performance of all obligations of the Company hereunder and
thereunder at the Closing and the authorization, sale, issuance and delivery of
the Shares pursuant hereto and the Conversion Shares pursuant to the Restated
Articles has been taken or will be taken prior to the Closing. The Exchange
Agreement is a valid and binding obligation of the Company, and each Agreement,
when executed and delivered, will be a valid and binding obligation of the
Company enforceable in accordance with its terms, except in each case (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
(b) general principles of equity that restrict the availability of equitable
remedies; and (c) to the extent that the enforceability of the indemnification
provisions in Sections 2.9 and 2.15 of the Investor Rights Agreement may be
limited by applicable laws. The sale of the Shares and the subsequent conversion
of the Shares and Exchange Series D Shares into Conversion Shares are not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. Attached hereto as Exhibit F are copies
of the Company's (a) audited balance sheets as of December 31, 1996 and
September 30, 1997 and audited statement of income and cash flows for the nine
months ending September 30, 1997, and (b) its unaudited balance sheet as at
December 31, 1997 (the "Statement Date") (collectively, the "Financial
Statements"). The Financial Statements, together with the notes thereto, are
complete and correct in all material respects, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except as disclosed therein, and present
fairly the financial condition and position of the Company as of September 30,
1997 and the Statement Date; provided, however, that the unaudited financial
statements are subject to normal recurring year-end audit adjustments (which are
not expected to be material), and do not contain all footnotes required under
generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities and, to
the best knowledge of the Company and the Langs, there are no material
contingent liabilities not disclosed in the Financial Statements, except current
liabilities incurred in the ordinary course of business subsequent to the
Statement Date which have not been, either in any individual case or in the
aggregate, materially adverse to the Company. The Company has not assumed, by
contract, agreement, operation or law or otherwise, any material obligations of
Landacorp UK Ltd.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby
and described on the Schedule of Exceptions, and agreements between the Company
and its employees with respect to the sale of the Company's Common Stock, there
are no agreements, understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or, to the knowledge of the Company or the Langs, by
which the Company is bound which may involve (i) obligations (contingent or
otherwise) of, or payments to, the Company in excess of $15,000 (other than
obligations of, or payments to, the Company arising from purchase or sale
agreements entered into in the ordinary course of business), or (ii) the license
of any patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf" or
other standard products), or (iii)
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provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(c) The Company has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in the
ordinary course of business or as disclosed in the Financial Statements)
individually in excess of $15,000 or, in the case of indebtedness and/or
liabilities individually less than $15,000, or in excess of $25,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of subsections (b) and (c) above,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(e) The Company has not engaged, in the past three (3)
months, in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or a transaction or series of related transactions involving the
disposition of more than fifty percent (50%) of the voting power of the Company,
or (iii) regarding any other form of acquisition, liquidation, dissolution or
winding up of the Company.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to any officer, director, shareholder, or employee of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). No officer, director or shareholder of the
Company, nor any member of any of their immediate families, is indebted to the
Company or has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or shareholders of the Company may
own stock in publicly traded companies which may compete with the Company. No
officer, director or shareholder, nor any member of any of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company (other than such contracts as relate to any such person's ownership
of capital stock or other securities of the Company). Except as may be disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.8 CHANGES. Since the Statement Date, there has not been, to the
knowledge of the Company or the Langs;
(a) Any change in the assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of
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business, none of which individually or in the aggregate has had or is expected
to have a material adverse effect on such assets, liabilities, financial
condition or operations of the Company;
(b) Any resignation or termination of any key officer of
the Company; and the Company, to the best knowledge of the Company and the
Langs, does not know of the impending resignation or termination of employment
of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether of not
covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to
any shareholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement
or agreement with any employee, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed
or guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(1) Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company, including compensation agreements with the Company's
employees;
(m) Any threatened discontinuance, or proposed material
amendment to the terms of, any agreement of the Company, with (i) any creditor
of the Company, to which the Company's annual obligations exceed $20,000, or
(ii) any customer of the Company under which payments to the Company on an
annual basis exceed $20,000; or
(n) Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, including the properties
and assets reflected in the most recent balance sheet
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included in the Financial Statements, and good title to its leasehold estates,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or
charge, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS.
(a) The Company owns or possesses sufficient legal rights
to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted, without any
infringement of the rights of others.
(b) There is no outstanding, nor has the Company ever
entered into, any option, license or agreement of any kind relating to any
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information or other proprietary rights or processes that grant any form of an
exclusive right or license to any third party.
(c) No trade secret, confidential, proprietary or other
non-public information relating to, contained in, or used by or in connection
with, the computer software program commonly referred to as, and marketed by the
Company under the name of, Maxsys II ("Maxsys II") is contained in or may be
derived from Prizm (as hereinafter defined).
(d) No part of the Source Code (as hereinafter defined)
of Prizm has been released or made available to any third party except the
following hospitals located in the United Kingdom: St. Xxxxxx' and Guys
Hospital, Hastings Hospital, Brighton Hospital, Worthings and Southlands
Hospital and Bromley Hospital (collectively, the "Hospitals"). For purposes of
this Agreement, "Source Code" shall mean any computer software program which is
not in machine readable format, and is not suitable for machine execution
without the intervening steps of interpretation or compilation, but including
any accompanying documentation, manuals or supporting materials. For purposes of
this Agreement, "Prizm" shall mean the computer software program commonly
referred to as Prizm and developed by the Company pursuant to the Development
Agreement of August 11, 1989 between the South East Thames Regional Health
Authority and Xxxxx Management Systems Corporation.
(e) The Company has granted to the Hospitals a
non-exclusive, non-transferable license (without the right to grant sublicenses)
to use the Source Code of Prizm solely for maintenance of Prizm and for no other
reason (the "License"). The License provides that the Source Code of Prizm must
be treated as the confidential information of the Company, may not be disclosed
to third parties, and may not be used in a manner inconsistent with the License.
To the best knowledge of the Company and the Langs, the Hospitals are not now,
and have not at any time been, in breach of the License.
(f) Neither the Company nor the Langs have received any
communication alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity.
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(g) The Company has taken all reasonable measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
the Company's patents, trademarks, service marks, trade names, copyrights, trade
secrets, information and other proprietary rights and processes and otherwise to
maintain and protect the value thereof and has obtained from all current and
former employees and from all current and former consultants and independent
contractors signed agreements appropriately assigning to the Company, and
restricting the use and disclosure of, such patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes.
(h) No employee of the Company is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with his or her duty to the Company
or that would conflict with the Company's business as proposed to be conducted.
(i) Neither the execution nor delivery of this Agreement,
nor the carrying on of the Company's business by the employees of the Company,
not the conduct of the Company's business as proposed, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any Company
employee is now obligated.
(j) It will not be necessary to utilize any inventions,
trade secrets or proprietary information of any of the Company's employees made
prior to their employment by the Company, except for inventions, trade secrets
or proprietary information that have been assigned to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Articles or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to the knowledge of the Company or the Langs, any
statute, rule or regulation applicable to the Company which would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company. The execution, delivery, and performance
of and compliance with this Agreement and each Related Agreement, and the
issuance and sale of the Shares pursuant hereto and of the Conversion Shares
pursuant to the Restated Articles, will not, with or without the passage of time
or giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term, or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or
investigation pending, or to the knowledge of the Company or the Langs currently
threatened, against the Company that questions the validity of this Agreement,
or any related Agreement or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, nor are the Company or the Langs aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company or the Langs) involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is neither a party nor subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or
8.
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government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (foreign, federal, state and local) required to be filed by it. All
taxes shown to be due and payable on such returns, any assessments imposed, and
to the knowledge of the Company and the Langs, all other taxes due and payable
by the Company on or before the Closing have been paid or will be paid prior to
the time they become delinquent. Neither the Company nor the Langs have been
advised (a) that any of the Company's returns, foreign, federal, state or other,
have been or are being audited as of the date hereof, or (b) of any deficiency
in assessment or proposed judgment to the Company's foreign, federal, state or
other taxes. Neither the Company nor the Langs has knowledge of any liability
for any tax to be imposed upon the Company's properties or assets as of the date
of this Agreement for which the Company has not adequately provided.
3.14 EMPLOYEES. The Company has no collective bargaining agreement
with any of its employees. There is no labor union organizing activity pending
or, to the knowledge of the Company or the Langs, threatened with respect to the
Company. No employee has any agreement or contract, written or verbal, regarding
his employment. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the knowledge of the Company and the Langs,
no employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract, proprietary
information agreement or any other agreement relating to the right of any such
individual to be employed by, or to contract with, the Company because of the
nature of the business to be conducted by the Company, and to the knowledge of
the Company and the Langs, the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. Neither the
Company nor the Langs has received any notice alleging that any such violation
has occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. Neither the Company nor the Langs is aware that
any officer or key employee, or that any group of key employees, intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
current employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form of Exhibit G
attached hereto, and each former employee, officer and consultant of the Company
has executed a "proprietary information and inventions agreement" in a form
satisfactory to the Purchasers. No current employee, officer or consultant of
the Company has excluded works or inventions made prior to his or her
employment with the Company from his or her assignment of inventions pursuant to
such employee, officer or consultant's Proprietary Information and Inventions
Agreement.
3.16 OBLIGATIONS OF MANAGEMENT; STIPULATED ACTIVITIES. Each
officer of the Company is currently devoting one hundred percent (100%) of his
or her business time to the conduct of the business of the Company. Neither the
Company nor the Langs is aware that any officer or key employee of the Company
plans to work less than full time at the Company in the future. Exhibit H hereto
sets forth a complete and accurate list of all "Stipulated Activities" of each
senior officer of the Company (each a "Principal"). The term "Stipulated
Activity" shall mean any of the following as to each Principal: (a) being
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the beneficial owner of (i) more than 5% of the outstanding equity securities of
any entity other than the Company or (ii) securities (including debt securities
and guarantees of indebtedness, but excluding securities traded on a national
securities exchange or in the over-the-counter market and securities issued by
money market or similar funds) of any entity other than the Company with an
original cost, fair market value and/or obligation on the part of such
Principal, contingent or otherwise (even if the obligation is evidenced by
non-recourse debt or guaranty), in excess of $100,000; or (b) being an employee,
officer, director or general partners of, or consultant to, any person or entity
other than that Company. For purposes of determining Stipulated Activities, any
actions taken by the spouse, children or entities controlled by each Principal
will be imputed to be activities conducted by such Principal.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the
Investor Rights Agreement, the Company is presently not under any obligation,
and has not granted any rights, to register (as defined in Section 1.1 of the
Investor Rights Agreement) any of the Company's presently outstanding securities
or any of its securities that may hereinafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To the knowledge of the Company
and the Langs, the Company is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties, which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental order, permission, consent, approval
or authorization is required to be obtained and no registration or declaration
is required to be filed in connection with the execution and delivery of this
Agreement and the issuance of the Shares or the Conversion Shares, except such
as has been duly and validly obtained or filed, or with respect to any filing
that must be made after the Closing, as will be filed in a timely manner. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of the Company and the Company and the Langs
believe the Company can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To the knowledge of the Company
and the Langs, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
their knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 5.2 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
3.21 FULL DISCLOSURE. This Agreement, the Exhibits hereto, the
Investor Rights Agreement and all other documents delivered by the Company to
Purchasers or their attorneys or agents in connection herewith of therewith or
with the transactions contemplated hereby or thereby, do not contain any untrue
10.
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statement of a material fact nor, to the knowledge of the Company or the Langs,
omit to state a material fact, necessary in order to make the statements
contained herein or therein not misleading. To the knowledge of the Company and
the Langs, there are no facts which (individually or in the aggregate)
materially adversely affect the business, assets, liabilities, financial
condition, prospects or operations of the Company that have not been set forth
in the Agreement, the Exhibits hereto, any Related Agreement or in other
documents delivered to Purchasers or their attorneys or agents in connection
herewith.
3.22 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of its incorporation.
3.23 SECTION 83(b) ELECTIONS. To the knowledge of the Company and
the Langs, all elections and notices permitted by Section 83(b) of the Code and
any analogous provisions of applicable state tax laws have been timely filed by
all employees who have purchased shares of the Company's common stock under
agreements that provide for the vesting of such shares.
3.24 INSURANCE. The Company has fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
4.1 AUTHORIZATION. This Agreement constitutes the valid and
binding obligation of each Shareholder, enforceable in accordance with its
terms.
4.2 TITLE TO SERIES D EXCHANGE SHARES. Each Shareholder represents
that it has good, valid and absolute title to, and beneficial ownership of the
Exchange Series D Shares being sold by it hereunder, and neither such shares nor
the rights of such Shareholder to such shares have been assigned, transferred,
hypothecated, pledged or otherwise disposed of, in whole or in part. The
Exchange Series D Shares, when sold and delivered by each Shareholder to the
Purchasers as contemplated by this Agreement, will transfer to the Purchasers
good, valid and absolute title to, and beneficial ownership of, the Exchange
Series D Shares, free and clear of all liens and encumbrances. The Exchange
Series D Shares being sold and delivered by each Shareholder to the Purchasers
pursuant to this Agreement constitute all of the equity securities of the
Company held by each such Shareholder (including, without limitation, options,
warrants, and other securities convertible or exercisable into equity securities
of the Company).
4.3 SHAREHOLDER INVESTMENT DECISION. Each Shareholder has entered
into this Agreement based on his, her or its own investigation and analysis and
that of advisors retained by such Shareholder. Each Shareholder understands that
the Company's plans for the future, if successful, may result in an increase in
the value of the Exchange Series D Shares being sold by it hereunder, and that
the future value of the Exchange Series D Shares could exceed the amounts
payable to each Shareholder hereunder. Neither any Purchaser nor any Releasee
(as defined below) has made any representation to the Shareholder about the
advisability of the decision to sell his, her or its Exchange Series D Shares.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company and the
Shareholders as follows (such representations and warranties do not lessen or
obviate the representations and warranties of the Company and the Shareholders
set forth in this Agreement):
11.
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5.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and each Related Agreement and to carry out their
provisions. All action on Purchaser's part required for the lawful execution and
delivery of this Agreement and each Related Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreement will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification provisions of
Sections 2.9 and 2.15 of the Investor Rights Agreement may be limited by
applicable laws.
5.2 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares, the Exchange Series D Shares nor the Conversion Shares have
been registered under the Securities Act. Purchaser also understands that the
Shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the economic
risk of this investment indefinitely unless the Shares and the Exchange Series
D Shares (or the Conversion Shares) are registered pursuant to the Securities
Act, or an exemption from registration is available. Purchaser understands that
the Company has no present intention of registering the Shares, the Exchange
Series D Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares, the Exchange Series D Shares or the Conversion Shares
under the circumstances, in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares, the Exchange Series D Shares and the Conversion Shares for
Purchaser's own account for investment only, and not with a view towards their
distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor Rights Agreement. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is
an accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and
12.
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receive answers from, the Company and its management regarding the terms and
conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares and the Exchange Series D Shares, and, if issued, the Conversion Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
has been advised or is aware of the provisions of Rule 144 promulgated under
the Securities Act as in effect from time to time, which permits limited resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring following
the required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A-1; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on Exhibit A-1.
5.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and the Exchange Series D Shares, if issued, the Conversion
Shares are subject to restrictions on transfer as set forth in the Investor
Rights Agreement.
SECTION 6. CONDITIONS TO CLOSING.
6.1 CONDITION TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Shares and the Exchange Series D Shares
at the Closing are subject to the satisfaction or waiver, at or prior to the
Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company and the
Langs in Section 3 hereof, and the representations and warranties made by each
Shareholder in Section 4 hereof, shall be true and correct in all material
respects as of the Closing Date with the same force and effect as if they had
been made as of the Closing Date, and the Company and each of the Shareholders
shall have performed all obligations and conditions herein required to be
performed or observed by each of them on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the Exchange Series D Shares and the proposed
issuance of the Conversion Shares shall be legally permitted by all laws and
regulations to which Purchasers, the Company and the Shareholders are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits, and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the Closing).
(d) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of the State of California.
13.
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(e) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the
Company as Purchasers shall reasonably request.
(f) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares and the Exchange Series D Shares
shall have been duly authorized and reserved for issuance upon such conversion.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President of
the Company, dated the date of the Closing, to the effect that the conditions
specified in subsections (a), (c), (d) and (f) of this Section 6.1 have been
satisfied.
(h) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit C shall have
been executed and delivered by the parties thereto.
(i) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit D shall have been executed and delivered by
the Company, each Purchaser and holders of no less than sixty percent (60%) of
all Common Stock outstanding as of the Closing.
(j) BOARD OF DIRECTORS. Upon the Closing, the authorized
size of the Board of Directors of the Company shall be five (5) members and the
Board shall consist of Xxxxx Xxxxxxxxxx, Xxxxxx Xxx, Xxx Xxxxxxxxxx, Xxxxx
Xxxx and Xxxx Xxxxxxxxx.
(k) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company and opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit I.
(l) EXCHANGES. The Exchange Agreement shall have been
entered into by the Company and the Shareholders and all transactions
contemplated thereby shall have been consummated.
(m) LOAN REPAYMENT. The Company and each of the Langs
shall have entered into an agreement in form and substance satisfactory to
the Purchasers pursuant to which, in exchange for payment by the Company of
$1,692,600.00 (the "Loan Redemption Agreement") and issuance to the Langs of
warrants to purchase 100,000 shares of the Company's Common Stock in
substantially the form attached hereto as Exhibit J (the "Warrant"), all
obligations of the Company under all demand and other debt instruments dated
prior to February 27, 1998 shall be satisfied, and the Company and the Langs
shall be prepared to effect such transactions simultaneous with the
transactions contemplated hereby.
(n) WESTMINSTER WARRANT. The Company shall have delivered
to Westminster the Westminster Warrant in substantially the form attached
hereto as Exhibit J.
(o) CAPITALIZATION CERTIFICATE. The Company shall have
delivered to the Purchasers a Capitalization Certificate, executed by the
President and the Chief Operating Officer of the Company, dated the date of
Closing, certifying as to the number, form and ownership of all outstanding
equity securities of the Company (including, without limitation, options,
warrants and other securities convertible or exercisable into equity
securities).
(p) TAX PAYMENTS. The Company shall have provided evidence
satisfactory to each of the Purchasers of the amounts of all tax obligations
(foreign, federal, state and local) of the Company,
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together with evidence satisfactory to the Purchasers that all such tax
obligations shall be satisfied immediately following the Closing.
(q) BYLAWS. The Company shall have adopted Amended and
Restated Bylaws in the form attached hereto as Exhibit L.
(r) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each
employee, and each consultant of the Company requested by the Purchasers to do
so, shall have entered into a Proprietary Information and Inventions Agreement.
(s) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares and the obligations of each Shareholder
to sell the Exchange Series D Shares held by it, at the Closing is subject to
the satisfaction or waiver, on or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by the Purchasers acquiring Shares in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing, with the same force and effect as if they had been made on and
as of such date.
(b) PERFORMANCE OF OBLIGATIONS. The Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by the Purchasers on or before the Closing.
(c) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights
Agreement substantially in the form attached hereto as Exhibit C shall have
been executed and delivered by the Purchasers.
(e) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit D shall have been executed and delivered by
the Company, each Purchaser and holders of no less than sixty percent (60%) of
all Common Stock outstanding as of the Closing.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Investor
Rights Agreement (except for such as may be properly obtained subsequent to the
Closing).
15.
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SECTION 7. SHAREHOLDER RELEASES; SURVIVAL; INDEMNIFICATION.
7.1 SHAREHOLDER RELEASE.
(a) Each Shareholder hereby discharges and releases each
Purchaser and each of its officers, directors, employees, agents, attorneys,
parents, subsidiaries and affiliates, and their respective partners, former
partners, members and former members (collectively, the "Releasees") from all
rights, claims, obligations, debts liabilities and relationships of whatever
kind or nature, known or unknown, past, present, or future, whether contractual
or fiduciary, arising out of such Shareholders' investment in, and ownership
and sale to the Purchasers of the Exchange Series D Shares sold by it hereunder.
(b) Each Shareholder has considered the possibility that
he, she or it may not now fully know the nature or value of the claims which
are released pursuant to subsection (a) above. Nevertheless, each Shareholder
intends to assume the risk of releasing such unknown claims. TO THAT END, EACH
SHAREHOLDER EXPRESSLY WAIVES ITS RIGHTS UNDER SECTION 1542 OF THE CALIFORNIA
CIVIL CODE, WHICH PROVIDES:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
7.2 SURVIVAL; REMEDIES.
(a) The parties hereto agree that the representations,
warranties, obligations and covenants contained in this Agreement shall survive
the Closing Date for a period of five (5) years thereafter; provided, however,
that in the event a claim for indemnification is made or a notice of claim is
given prior to the expiration date, the indemnification obligation shall
continue until the applicable claim has been finally resolved.
(b) In addition to any other remedy to which any Purchaser
shall be entitled, whether at law or in equity, and notwithstanding any
applicable statute of limitations, each Purchaser shall have the right to
rescind the purchase of Series D Shares and/or Exchange Series D Shares from
the Company and/or any Shareholder, at a price per share of $1.20, in the event
of any material breach by the Company and/or such Shareholder of any
representation and warranty made by it hereunder.
7.3 INDEMNIFICATION OF PURCHASER. Subject to the provisions of
this Section 7, the Shareholders and the Company hereby agree that each
Purchaser shall be held harmless from, protected against and reimbursed for any
and all Loss (as defined below), resulting from the inaccuracy or breach of any
representation, warranty, obligation or covenant made or given by it in or
pursuant to this Agreement; provided, however, that for purposes of this
Section 7.3, the final sentence of Section 3.10(e) shall be interpreted without
regard to the initial clause thereof. Each Shareholder and the Company shall be
obligated to satisfy such party's pro rata portion of the indemnification
obligation to the Purchasers determined by dividing the indemnification
obligation by the total number of Exchange Series D Shares and Series D Shares
and multiplying the result by the number of Exchange Series D Shares and Series
D Shares owned by it. Except as set forth in the immediately succeeding
sentence, in no event shall a Shareholder be obligated hereunder for an amount
exceeding the amount paid to it hereunder for its Exchange Series D Shares. The
aggregate amount the Langs shall be obligated to pay hereunder shall not
16.
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exceed $1,750,000, representing the aggregate amount paid to it in
consideration of the Exchange Series D Shares sold by it hereunder and under
the Loan Redemption Agreement. As used in this Agreement, the term "Loss" means
any cost, damage, disbursement, expense, liability, loss, deficiency,
diminution in value, penalty, fine, assessment or settlement of any kind or
nature, whether foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, legal, accounting or other
professional fees or expenses incurred in the investigation, collection,
prosecution or defense of claims, inquiries, hearings or other legal or
administrative proceedings and amounts paid in settlement, that may be imposed
on or otherwise incurred or suffered by any Purchaser. The parties agree that,
notwithstanding anything herein contrary, with respect to any claim or
indemnification for any Loss brought by any Purchaser against any Shareholder,
such Shareholder shall have no right of contribution against the Company.
7.4 INDEMNIFICATION BY PURCHASERS. Each Purchaser shall indemnify
and hold harmless the Company and its Shareholders from and against any Loss
resulting from the inaccuracy or breach of any representation, warranty,
obligation or covenant made or given by it in or pursuant to this Agreement.
7.5 NOTICE OF CLAIM. An indemnified party shall give an
indemnifying party prompt written notice of any threatened, potential or actual
claim or the commencement of any action by a third party in respect of which
indemnification may be sought hereunder. For purposes hereof, any notice to be
given by a Purchaser hereunder shall be given to each of the Shareholders and
the Company. The indemnifying party shall have the right to participate in or
control any such action at its own expense and the indemnified party shall have
the right (but not the duty) to participate in the defense thereof, which shall
be at the indemnifying party's expense, unless it is finally determined that
the indemnified party was not entitled to indemnification. Whether or not an
indemnifying party chooses to control the defense of any indemnified party's
action, each party hereto and their respective successors and assigns will
cooperate in the defense and shall take all actions in connection with such
defense as may be reasonably requested.
SECTION 8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
8.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Investor Rights Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
8.4 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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8.5 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the Shares
and Exchange Series D Shares (treated as if converted and including any
Conversion Shares into which the Shares and/or Exchange Series D Shares have
been converted that have not been sold to the public) and each Shareholder
adversely affected by any such proposed amendment.
(b) The obligations of the Company, each Shareholder and
the rights of the holders of the Shares, the Exchange Series D Shares and the
Conversion Shares under the Agreement may be waived only with the written
consent of the holders of at least a majority of the Shares and/or Exchange
Series D Shares (treated as if converted and including any Conversion Shares
into which the Shares have been converted that have not been sold to the public)
and each Shareholder adversely affected by any such proposed amendment.
8.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Investor
Rights Agreement or the Restated Articles, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Investor
Rights Agreement or under the Restated Articles or any waiver on such party's
part of any provisions or conditions of the Agreement, the Investor Rights
Agreement, or the Restated Articles must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, the Related Agreements, the Restated Articles, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
8.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof, to Purchaser
at the address set forth on Exhibit A-1 attached hereto and to the Shareholder
at the address set forth on Exhibit A-2 attached hereto or at such other address
as the Company, a Purchaser or a Shareholder may designate by ten (10) days
advance written notice to the other parties hereto.
8.8 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of the Agreement. The Company shall, at the Closing, reimburse the reasonable
fees and expenses of the Purchasers, including the fees and expenses of Xxxxxx
Godward LLP, special counsel for the Purchasers incurred in connection with the
negotiation, execution, delivery and performance of this Agreement; provided,
however, that the Company's obligations hereunder shall not exceed $50,000
without the Company's prior written consent.
8.9 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all
18.
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fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
8.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.12 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.12 being untrue.
8.13 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser, nor any respective
controlling person, officer, director, partner, agent, or employee of any
Purchaser, shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares, the Series D
Exchange Shares and Conversion Shares.
8.14 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
8.15 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.15 being untrue.
8.16 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
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IN WITNESS WHEREOF, the parties hereto have executed the SERIES D PREFERRED
STOCK PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
XXXXX MANAGEMENT SYSTEMS CORPORATION BEDROCK CAPITAL PARTNERS I, L.P.
By: /s/ [ILLEGIBLE] By:
-------------------------------- -------------------------------
Title: [ILLEGIBLE] Title:
----------------------------- ----------------------------
SHAREHOLDERS: BEDROCK CAPITAL SIDE-BY-SIDE, L.P.
By:
-------------------------------
-----------------------------------
XXXXX XXXXX Title:
----------------------------
-----------------------------------
XXXX XXXXXXX GREYLOCK IX LIMITED PARTNERSHIP
By: GREYLOCK IX GP LIMITED PARTNERSHIP
ITS GENERAL PARTNER
WESTMINSTER HEALTH CARE LIMITED By:
-------------------------------
By:
-------------------------------- SEQUOIA CAPITAL VII,
Its: A CALIFORNIA LIMITED PARTNERSHIP
------------------------------- BY: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
/s/ XXXXXXX X. XXXX COMPANY,
----------------------------------- ITS GENERAL PARTNER
XXXXXXX X. XXXX
By:
-------------------------------
Managing Member
-----------------------------------
XXXXXX X. XXXX
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A MANAGEMENT, LLC A
CALIFORNIA LIMITED LIABILITY
----------------------------------- COMPANY,
XXXXXXX X. and XXXXXX X. XXXX ITS GENERAL PARTNER
By:
-------------------------------
Managing Member
-----------------------------------
XXXXXX X.X. XXXX
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
25
SQP 1997
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
SEQUOIA 1997 LLC
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC A California
Limited Liability Company,
Its General Partner
By:
---------------------------------------
Managing Member
------------------------------------------
XXXX XXXXXXXXX
------------------------------------------
XXXX XXXXXX
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
