EXHIBIT 10.10
XXXX, XXXXXX & ASSOCIATES, INC.
SERIES A PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
January 30, 1996
TABLE OF CONTENTS
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Page
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1. Purchase and Sale or Stock............................................. 1
1.1 Sale and Issuance of Series A Preferred Stock..................... 1
1.2 Closing........................................................... 1
2. Representations and Warranties of the Company.......................... 1
2.1 Organization, Good Standing and Qualification..................... 2
2.2 Capitalization and Voting Rights.................................. 2
2.3 Subsidiaries...................................................... 2
2.4 Authorization..................................................... 2
2.5 Valid issuance of Preferred and Common Stock...................... 3
2.6 Governmental Consents............................................. 3
2.7 Offering.......................................................... 3
2.8 Complaints........................................................ 4
2.9 Litigation........................................................ 4
2.10 Proprietary Information and Employee Stock Purchase Agreements... 4
2.11 Patents and Trademarks........................................... 4
2.12 Compliance with Other Instruments................................ 5
2.13 Agreements; Action............................................... 5
2.14 Related Party Transactions....................................... 6
2.15 Permits.......................................................... 6
2.16 Environmental and Safety Laws.................................... 6
2.17 Marketing Rights................................................. 6
2.18 Disclosure....................................................... 6
2.19 Registration Rights.............................................. 7
2.20 Corporate Documents.............................................. 7
2.21 Title to Property and Assets..................................... 7
2.22 Financial Statements............................................. 7
2.23 Changes.......................................................... 7
2.24 Employee Benefit Plans........................................... 8
2.25 Tax Returns, Payments and Elections.............................. 8
2.26 Insurance........................................................ 9
2.27 Minute Books..................................................... 9
2.28 Labor Agreements and Actions..................................... 9
2.30 Real Property Holding Company.................................... 10
3. Representations and Warranties of the Investors........................ 10
3.1 Authorization..................................................... 10
3.2 Purchase Entirely for Own Account................................. 10
3.3 Disclosure of Information......................................... 10
3.4 Investment Experience............................................. 10
3.5 Accredited Investor............................................... 10
3.6 Restricted Securities............................................. 11
3.7 Further Limitations on Disposition................................ 11
3.8 Legends........................................................... 11
4. California Commissioner of Corporations................................ 12
4.1 Corporate Securities Law.......................................... 12
5. Conditions of Investor's Obligations at Closing........................ 12
5.1 Representations and Warranties.................................... 12
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5.2 Performance....................................................... 12
5.3 Compliance Certificate............................................ 12
5.4 Qualifications.................................................... 12
5.5 Proceedings and Documents......................................... 12
5.6 Bylaws............................................................ 12
5.7 Board of Directors................................................ 12
5.8 Opinion of Company Counsel........................................ 13
5.9 Investors' Rights Agreement....................................... 13
5.10 Right of First Refusal and Co-Sale Agreements.................... 13
5.11 Voting Trust Agreement........................................... 13
6. Conditions of the Company's Obligations at Closing..................... 13
6.1 Representations and Warranties.................................... 13
6.2 Payment of Purchase Price......................................... 13
6.3 Qualifications.................................................... 13
7. Miscellaneous.......................................................... 13
7.1 Survival of Warranties............................................ 13
7.2 Successors and Assigns............................................ 13
7.3 Governing Law..................................................... 13
7.4 Counterparts...................................................... 14
7.5 Titles and Subtitles.............................................. 14
7.6 Notices........................................................... 14
7.7 Finder's Fee...................................................... 14
7.8 Expenses.......................................................... 14
7.9 Amendments and Waivers............................................ 14
7.10 Severability..................................................... 15
7.11 Aggregation of Stock............................................. 15
7.12 Entire Agreement................................................. 15
7.13 Indemnification.................................................. 15
SCHEDULE A Schedule of Investors
EXHIBIT A Restated Articles of Incorporation
EXHIBIT B Investors' Rights Agreement
EXHIBIT C List of Stockholders and Optionholders
EXHIBIT D Opinion of Counsel for the Company
EXHIBIT E Right of First Refusal and Co-Sale Agreement
EXHIBIT F Form of Warrants
EXHIBIT G Voting Trust Agreement
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SERIES A PREFERRED STOCK AND
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WARRANT PURCHASE AGREEMENT
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THIS SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT is made
as of the 30th day of January, 1996, by and among Xxxx, Xxxxxx & Associates,
Inc., a California corporation (the "Company"), Xxxxxx Xxxx and Xxxx Xxxxxx (the
"Principal Shareholders") and the investors listed on Schedule A hereto, each of
which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock and Warrants.
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1.1 Sale and Issuance of Series A Preferred Stock and Warrants to
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Purchase Common Stock.
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(a) The Company shall adopt and file with the Secretary of State of
California on or before the Closing (as defined below) the Restated Articles of
Incorporation in the form attached hereto as Exhibit A (the "Restated
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Articles").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor at the Closing, that number of
shares of the Company's Series A Preferred Stock set forth opposite each
Investor's name on Schedule A hereto for the purchase price set forth thereon,
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and warrants to purchase shares of the Company's Common Stock in the forms
attached hereto as Exhibit F (individually a "Warrant" and collectively the
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"Warrants"). Each such Warrant shall be exercisable for that number of shares
of the Company's Common Stock set forth opposite each Investor's name on
Schedule A hereto.
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1.2 Closing. The purchase and sale of the Series A Preferred Stock
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and Warrants shall take place at the offices of Xxxxxxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP, 000 Xxxxxx Xxx, Xxxxxx Xxxxx, Xxxx Xxxx,
Xxxxxxxxxx, at 10:00 A.M., on January 30, 1996, or at such other time and place
as the Company and Investors acquiring in the aggregate more than half the
shares of Series A Preferred Stock sold pursuant hereto mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing, the Company shall deliver to each Investor a certificate
representing the Series A Preferred Stock that such Investor is purchasing and
Warrants to purchase the appropriate number of shares of Common Stock, against
payment of the purchase price therefor by check, wire transfer, cancellation of
indebtedness or any combination thereof. In the event that payment by an
Investor is made, in whole or in part, by cancellation of indebtedness, then
such Investor shall surrender to the Company for cancellation at the Closing any
evidence of such indebtedness or shall execute an instrument of cancellation in
form and substance acceptable to the Company.
2. Representations and Warranties of the Company. The Company and
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the Principal Shareholders hereby represent and warrant to each Investor that,
except as set forth on a Schedule of Exceptions (the "Schedule of Exceptions")
furnished to each Investor and special counsel for the Investors, specifically
identifying the relevant subparagraph hereof, which exceptions shall be deemed
to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of
California and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
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Company consists of:
(i) Preferred Stock. One million six hundred thousand
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(1,600,000) shares of Preferred Stock (the "Preferred Stock"), all of which
have been designated Series A Preferred Stock (the "Series A Preferred Stock")
and up to all of which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series A Preferred Stock are as stated in
the Company's Restated Articles.
(ii) Common Stock. Ten million (10,000,000) shares of common
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stock ("Common Stock"), of which 6,282,200 shares are issued and outstanding.
(iii) The outstanding shares of Common Stock are owned by the
shareholders and in the numbers specified in Exhibit C hereto.
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(iv) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued
in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Act") and any relevant state
securities laws or pursuant to valid exemptions therefrom.
(v) Except for (A) the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement, (B) the rights provided in
Section 2.4 of the Investors' Rights Agreement dated January 30, 1996,
attached hereto as Exhibit B, (C) Warrants to purchase up to an aggregate of
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492,215 shares of Common Stock sold pursuant to this Agreement, and (D)
currently outstanding options to purchase 436,744 shares of Common Stock
granted to employees pursuant to the Company's 1995 Stock Option Plan (the
"Option Plan"), there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. In addition
to the aforementioned options, the Company has reserved an additional 188,256
shares of its Common Stock for purchase upon exercise of options to be granted
in the future under the Option Plan. The Company is not a party or subject to
any agreement or understanding, and, to the best knowledge of the Company and
the Principal Shareholders, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
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directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company,
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its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement ( as defined in Section 5.10) and
the Voting Trust Agreement (as defined in Section 5.11), the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series A
Preferred Stock and the Warrants being sold hereunder and the Common Stock
issuable upon conversion of the Series A
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Preferred Stock and upon exercise of the Warrants has been taken or will be
taken prior to the Closing, and this Agreement, the Investors' Rights Agreement,
the Right of First Refusal and Co-Sale Agreement and the Voting Trust Agreement,
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock.
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The Series A Preferred Stock that is being purchased by the Investors
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Investors' Rights Agreement, the Right of First Refusal and Co-Sale-Agreement,
the Voting Trust Agreement and under applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Series A Preferred Stock
and upon the exercise of the Warrants purchased under this Agreement has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Articles, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement, the Voting Trust Agreement and
under applicable state and federal securities laws.
The Warrants that are being purchased hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Right of First Refusal and Co-Sale-Agreement, the Voting Trust Agreement and
under applicable state and federal securities laws.
2.6 Governmental Consents. To the best knowledge of the Principal
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Shareholders, 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 the filing pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the rules thereunder, which
filing will be effected within 15 days of the sale of the Series A Preferred
Stock and the Warrants hereunder.
2.7 Offering. Subject in part to the truth and accuracy of each
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Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series A Preferred Stock and the Warrants as
contemplated by this Agreement are exempt from the registration requirements of
the Act, and neither the Company nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
2.8 Complaints. The Company has received no customer complaints
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concerning its services that taken together, in the reasonable opinion of the
Principal Shareholders, would constitute a material adverse effect on the
Company's business or prospects.
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2.9 Litigation. There is no action, suit, proceeding or
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investigation pending or, to the best knowledge of the Company and the Principal
Shareholders, currently threatened against the Company that questions the
validity of this Agreement, the Investors' Rights Agreement, the Right of First
Refusal and Co-Sale Agreement or the Voting Trust Agreement, or the right of the
Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse changes 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 is the Company or the Principal
Shareholders aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any basis therefor known to the Company or the
Principal Shareholders) 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 not a party or, to the best knowledge of the Principal Shareholders,
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
2.10 Proprietary Information and Inventions Agreements. Each
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employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in the form provided to special counsel to
the Investors.
2.11 Patents and Trademarks. To the best knowledge of the Principal
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Shareholders, the Company has sufficient title and ownership of all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
Neither the Company nor the Principal Shareholders has received any
communications 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. Neither the Company nor the Principal Shareholders
is aware that any of the Company's employees 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 materially interfere with the use of his or her best efforts
to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the Investors' Rights Agreement, the Right of First
Refusal and Co-Sale Agreement or the Voting Trust Agreement, nor the carrying on
of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will, to the best of the Company's or the
Principal Shareholders' knowledge, 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 of such employees is now obligated.
2.12 Compliance with Other Instruments.
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(a) The Company is not in violation or default of any provision
of its Restated Articles or Bylaws, or of any material instrument, judgment,
order, writ, decree or contract to
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which it is a party or by which it is bound, or, to the best of its knowledge,
of any provision of any material federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of this
Agreement, the Investors' Rights Agreement, the Right of First Refusal and Co-
Sale Agreement and the Voting Trust Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or non-renewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
(b) To the best knowledge of the Principal Shareholders, the
Company has avoided every condition, and has not performed any act, the
occurrence of which would result in the Company's loss of any material right
granted under any material license, distribution or other agreement.
2.13 Agreements; Action.
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(a) Except for agreements to be entered into by the parties
contemplated hereby, the Investors' Rights Agreement, the Right of First Refusal
and Co-Sale Agreement and the Voting Trust Agreement, there are no agreements or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or by which it is bound that may involve (i) obligations (contingent or
otherwise) of, or payments to the Company in excess of $50,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, or (iii) provisions restricting or affecting the development
or performance of the Company's services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(c) The Company has not, since December 31, 1995, (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) other than in the ordinary course of
business incurred any indebtedness for money borrowed or any other liabilities,
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $75,000 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.
2.14 Related-Party Transactions. No shareholder, employee, officer,
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or director of the Company or member of his or her immediate family is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of them. To the best of the Company's and
the Principal Shareholders' knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which the Company
5
is affiliated or with which the Company has a business relationship, or any firm
or corporation that competes with the Company, except that employees, officers,
or directors of the Company and members of their immediate families may own
stock in publicly traded companies that may compete with the Company. No member
of the immediate family of any officer or director of the Company is directly or
indirectly interested in any material contract with the Company.
2.15 Permits. To the best knowledge of the Principal Shareholders,
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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
Principal Shareholders believe the Company can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. To the best knowledge of the Principal Shareholders, the Company is
not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.16 Environmental and Safety Laws. To the best knowledge of the
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Company and the Principal Shareholders, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best knowledge of the Company and the
Principal Shareholders, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
2.17 Marketing Rights. The Company has not granted rights to license,
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market, sell or perform its services to any other person and is not bound by any
agreement that affects the Company's right to license, market, sell and perform
its services.
2.18 Disclosure. The Company has fully provided each Investor with
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all the information that such Investor has requested for deciding whether to
purchase the Series A Preferred Stock and the Warrants and all information that
the Company believes is reasonably necessary to enable such Investor to make
such decision. Neither this Agreement, the Investors' Rights Agreement, the
Right of First Refusal and Co-Sale Agreement or the Voting Trust Agreement, nor
any other statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or, to the best
knowledge of the Principal Shareholders and the Company, omits to state a
material fact necessary to make the statements herein or therein not misleading
taking all such information as a whole.
2.19 Registration Rights. Except as provided in the Investors' Rights
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Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.20 Corporate Documents. Except for amendments necessary to satisfy
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representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and Bylaws
of the Company are in the form previously provided to special counsel for the
Investors.
2.21 Title to Property and Assets. The Company owns its property and
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assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
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2.22 Financial Statements. The Company has delivered to each Investor
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its reviewed financial statements (balance sheet and profit and loss statement)
as at and for the twelve-month period ended June 30, 1995 and unaudited
financial statements (balance sheet and profit and loss statement) as at and for
the six-month period ended December 31, 1995 (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that unaudited Financial Statements may
not contain all footnotes required by generally accepted accounting principles.
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end adjustments. Except as set forth in the Financial
Statements, to the best knowledge of the Principal Shareholders, the Company has
no material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1995 and
(ii) obligations not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles. The financial statements as of
December 31, 1995, although not audited to date, are auditable by a major
accounting firm at reasonable expense.
2.23 Changes. Since December 31, 1995, there has not been:
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(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or agreement
with any employee;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key officer of
the Company; and the Company, to the best of the Company's and the Principal
Shareholders'
7
knowledge, does not know of the impending resignation or termination of
employment of any such offer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
(l) any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(m) to the best of the Company's and the Principal Shareholders'
knowledge, any other event of any character that reasonably might materially and
adversely affect the assets, properties, financial condition, operating results
or business of the Company (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any of the things
described in this Section 2.24.
2.24 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
2.25 Tax Returns, Payments and Elections. The Company has filed all
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tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith that are listed in
the Schedule of Exceptions. The provision for taxes of the Company as shown in
the Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation. The
Company has not elected pursuant to the Code to be treated as a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation or amortization) that would
have a material adverse effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. The Company has never had any material tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial
Statements, the Company has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
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2.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has in full force and effect
term life insurance, payable to the Company, on the lives of Xxxxxx Xxxx, and
Xxxx Xxxxxx in the amount of $2,000,000 each. The Company has in full force and
effect products liability and errors and omissions insurance in amounts
customary for companies similarly situated.
2.27 Minute Books. The minute books of the Company provided to the
------------
Investors contain a complete summary of all meetings of directors and
shareholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. The employment of each officer and employee
of the Company is terminable at the will of the Company. To the best of its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity and other laws related to
employment.
2.29 Real Property Holding Company. The Company is not a real
-----------------------------
property holding company within the meaning of Section 897 of the Code.
3. Representations and Warranties of the Investors. Each Investor
-----------------------------------------------
hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement, the Investors' Rights Agreement and the Right of
First Refusal and Co-Sale Agreement, and each such Agreement constitutes its
valid and legally binding obligation, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series A Preferred Stock and the Warrants to be received by
such Investor and the Common Stock issuable upon conversion or exercise thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of
9
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, such Investor further represents that such Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series A Preferred Stock and the Warrants. Such
Investor further represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series A Preferred Stock and the Warrants and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series A
Preferred Stock and the Warrants. If other than an individual, Investor also
represents it has not been organized for the purpose of acquiring the Series A
Preferred Stock and the Warrants.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3, the Investors' Rights Agreement and the Right of First Refusal
and Co-Sale Agreement, provided and to the extent this Section and such
agreements are then applicable, and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Act. After the Company
has filed a registration statement under the Act, it is agreed that the Company
10
will not require opinions of counsel for transactions made pursuant to Rule 144
except in unusual circumstances and except as required by the Company's transfer
agent.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor that is a partnership to a partner of such partnership
or a retired partner of such partnership who retires after the date hereof, or
to the estate of any such partner or retired partner or the transfer by gift,
will or intestate succession of any partner to his or her spouse or to the
siblings, lineal descendants or ancestors of such partner or his or her spouse,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code.
4. California Commissioner of Corporations.
---------------------------------------
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT 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 FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE.
THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investor's Obligations at Closing. The obligations
-----------------------------------------------
of each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
11
5.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that, to her knowledge, there shall have been no material adverse change in the
business, affairs, prospects, operations, properties, assets or condition of the
Company since the date of the Financial Statements.
5.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.5 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
5.6 Bylaws. The Bylaws of the Company shall provide that the Board
------
of Directors of the Company shall consist of three (3) persons.
5.7 Board of Directors. The initial Board composition at the Closing
------------------
shall be Xxxxxx Xxxx, Xxxx Xxxxxx and Xxxx Xxxxxxxx.
5.8 Opinion of Company Counsel. Each Investor shall have received
--------------------------
from Xxxxxxx Tufts Cole & Black, LLP, counsel for the Company, an opinion, dated
as of the Closing, in the form attached hereto as Exhibit D.
---------
5.9 Investors' Rights Agreement. The Company, the Principal
---------------------------
Shareholders and each Investor shall have entered into the Investors' Rights
Agreement in the form attached as Exhibit B.
---------
5.10 Right of First Refusal and Co-Sale Agreements. The Company,
---------------------------------------------
Xxxxxx Xxxx, Xxxx Xxxxxx and each of the Investors shall have entered into the
Right of First Refusal and Co-Sale Agreement in the form attached as Exhibit E.
---------
5.11 Voting Trust Agreement. The Company, Xxxxxx Xxxx and Xxxx
----------------------
Xxxxxx shall have entered into the Voting Trust Agreement in the form attached
as Exhibit G.
---------
6. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.2.
6.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in
12
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
7.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
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 such party may designate by ten (10) days' advance written notice to the
other parties.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. Irrespective
of whether the Closing is effected, the Company shall reimburse the reasonable
fees of special counsel for the Investors, not to exceed
13
$25,000, and shall, upon receipt of a xxxx therefor, reimburse the reasonable
out of pocket expenses of such counsel. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, the Right of First Refusal and Co-Sale Agreement, the Voting
Trust Agreement or the Restated Articles, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
7.9 Amendments and Waivers. Any term of 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
a majority of the Common Stock issued or issuable upon conversion of the Series
A Preferred Stock and the exercise of the Warrants. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.11 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
7.12 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.13 Indemnification. The Principal Shareholders agree to indemnify
---------------
the Investors and hold them harmless from, against and in respect of any and all
claims, demands, losses, costs, expenses of any nature (including attorney's
fees), damages, remedies or penalties ("Damages") suffered or incurred by the
Company and the Investors, which arise out of or result from oral or written
agreements made prior to the Closing to compensate or employ or compensate by
any form of consideration (other than salaries, bonuses, stock options granted
or paid in the ordinary course of business and other than the bonus payable to
Xxxxx Xxxxxx as further described in the Schedule of Exceptions hereto) during
the course of employment any individual, partnership, franchise or corporation
other than payments to employees working on a temporary basis with the Company
or contractors performing services for the Company on an out-placement basis;
provided however that the Principal Shareholders shall have no obligations under
this Section 7.13 unless and until the aggregate amounts of liability for
Damages exceed three hundred thousand ($300,000) dollars and then only in the
amount by which $300,000 exceeded those items covered by insurance. These
indemnification obligations shall be satisfied in their entirety (both to the
Company and the Investors) by delivering to the Investors ratably in proportion
to the number of shares of Series A Preferred Stock currently held shares of
Common Stock held by the Principal Shareholders. For purposes of the
indemnification set forth in this Section 7.13, the formulated value of one
share of Common Stock shall be $6.25 (subject to adjustments in the event of a
stock split, consummation, recapitalization, reorganization or similar event).
The Principal Shareholders' liability under this Section 7.13 shall be several
and not joint with Xxxxxx Xxxx being liable for 60% hereunder and Xxxx Xxxxxx
being liable for 40%
14
hereunder. If no claims for indemnification for damages under this Section 7.13
are brought by January 26, 2000, this Section 7.13 shall terminate and be of no
further force and effect.
15
IN WITNESS WHEREOF, the parties have executed this Series A Preferred
Stock And Warrant Purchase Agreement as of the date first above written.
XXXX, XXXXXX & ASSOCIATES, INC.
By: /s/ XXXXXX X. XXXX
------------------------------------
Xxxxxx X. Xxxx, President
Address: 0000 Xxxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
/s/ XXXXXX X. XXXX
---------------------------------------
Xxxxxx X. Xxxx
/s/ XXXX X. XXXXXX
---------------------------------------
Xxxx X. Xxxxxx
DLJ CAPITAL CORPORATION
By /s/ XXXX X. XXXXXXXX
-------------------------------------
Xxxx X. Xxxxxxxx
Attorney in Fact
SPROUT GROWTH II, L.P.
By /s/ XXXX X. XXXXXXXX
-------------------------------------
Xxxx X. Xxxxxxxx
Attorney in Fact
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ XXXX X. XXXXXXXX
-----------------------------
Xxxx X. Xxxxxxxx
Attorney in Fact
SCHEDULE A
----------
Investor Series A Preferred Stock Purchase Price
-------- ------------------------ --------------
SPROUT GROWTH II, L.P. 1,433,628 $ 8,960,175.00
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
DLJ CAPITAL CORPORATION 145,998 912,487.50
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
SPROUT CEO FUND, L.P. 20,374 127,337.50
0000 Xxxx Xxxx Xxxx ----------- -------------
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
1,600,000 $10,000,000.00
SCHEDULE A
----------
First Purchase Anti-Dilution Purchase
Investor Warrant Price Warrant Price
-------- ------- -------- ------------- --------
SPROUT GROWTH II, L.P. 244,000 $0 217,025 $10
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
DLJ CAPITAL CORPORATION 22,750 $0 22,041 $10
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
SPROUT CEO FUND, L.P. 3,250 $0 3,149 $10
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000
