MATRIDIGM CORPORATION
PREFERRED STOCK PURCHASE AND PUT OPTION AGREEMENT
INTRODUCTION
This Preferred Stock Purchase and Put Option Agreement (this "Agreement")
is made as of December 2, 1996 (the "Effective Date") by and among MatriDigm
Corporation, a California corporation ("MatriDigm" or the "Company"), Zitel
Corporation, a California corporation ("Zitel"), and BRC Holdings, Inc., a
Delaware corporation ("BRC"). Zitel and BRC are referred to herein as the
"Purchasers."
RECITALS
A. The Company has authorized the sale of 1,000,000 shares of its Series
D Preferred Stock (the "Shares") to the Purchasers on the terms and conditions
set forth herein, including the commitment of the Purchasers to purchase
additional authorized shares of Series D, E and/or F Preferred Stock of the
Company, at the option of the Company, on terms and conditions set forth herein.
B. The Purchasers desire to purchase the Shares in the amounts and on the
terms and conditions set forth herein, and the Company desires to issue and sell
the Shares to the Purchasers on the terms and conditions set forth herein.
AGREEMENT
Based upon the facts and premises set forth above and the representations,
warranties, and covenants set forth below, the parties hereby agree as follows:
1. PURCHASE AND SALE OF THE SHARES.
(a) SALE AND PURCHASE. Subject to the terms and conditions hereof, the
Company agrees to issue and sell to each of the Purchasers, and each Purchaser
hereby agrees to purchase from the Company, five hundred thousand (500,000)
Shares (for aggregate purchases of one million (1,000,000) Shares), at a
purchase price of $2.00 per Share (the "Purchase Price"), for an aggregate
Purchase Price of two million dollars ($2,000,000).
(b) AUTHORIZATION OF SHARES. On or prior to the Closing (as defined
below), the Company shall have authorized the sale and issuance of the Series D,
E and F Preferred Stock having the rights, preferences, privileges and
restrictions set forth in the Amended and Restated Articles of Incorporation in
the form attached hereto as EXHIBIT A (the "Restated Articles") and adopted and
filed the Restated Articles with the Secretary of State of the State of
California.
(c) CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at such time or place as the
Company and a majority in interest of the Purchasers mutually agree. At the
Closing, subject to the terms and conditions
hereof, the Company will deliver to each Purchaser a certificate representing
the Shares purchased by that Purchaser, against payment of the Purchase Price
for the Shares by or on behalf of the Purchaser by wire transfer or check made
payable to the order of the Company, cancellation of indebtedness or by such
other means as shall be mutually agreeable to the Purchaser and the Company.
2. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
(a) BY PURCHASER TO THE COMPANY. Each Purchaser hereby severally
represents, warrants, and covenants to the Company as of the Effective Date and
as of the Closing that:
(i) Purchaser has total assets in excess of $5,000,000. Purchaser
is a sophisticated investor in start-up stage companies in the Company's
industry and has received all necessary information on the basis of which
Purchaser can make an informed decision to make the investment hereunder prior
to the execution of this Agreement. In the case of BRC, the Chairman and Chief
Executive Officer of BRC is the Chairman of the Board of Directors of the
Company. In the case of Zitel, the Chief Executive Officer and Chief Financial
Officer of Zitel are directors of the Company. In each case, the Purchaser is
fully informed as to the business affairs and prospects of the Company as a
result of such relationship.
(ii) Purchaser understands that, in reliance upon applicable
exemptions, the Company has not registered or qualified the Shares and the
Common Stock issuable upon conversion thereof (the "Underlying Shares") under
the Federal Securities Act of 1933 (the "1933 Act") or the California Corporate
Securities Law of 1968 (the "California Law") or the securities laws of any
other state. Purchaser understands that in order to fulfill the requirements of
these exemptions, the Company has satisfied certain investment suitability
requirements set by the Company, as indicated by Purchaser's representations
made herein.
(iii) Purchaser is acquiring the Shares and Underlying Shares for
Purchaser's own account, for investment only, and not with a view to or for sale
in connection with any distribution thereof or as a stand-in, proxy or nominee
for anyone else.
(iv) Purchaser recognizes that the Company has a limited history
of operations and earnings, and that there is a high risk of loss of Purchaser's
entire investment. Purchaser would have adequate means of providing for
Purchaser's anticipated needs and contingencies if Purchaser's entire investment
were lost. Purchaser recognizes that there is presently no public market for the
Shares and Underlying Shares, and that it is unlikely that any market will exist
in the future. Purchaser has no need for liquidity for Purchaser's investment in
the Shares and Underlying Shares. In the case of BRC, Purchaser is domiciled in
the State of Texas. In the case of Zitel, Purchaser is domiciled in the State of
California.
(v) Purchaser has made such independent investigations as
Purchaser has deemed necessary for the purpose of making the decision to invest
in the Shares. Purchaser has had the opportunity to ask questions of and receive
answers from authorized officers of the Company concerning the operations,
affairs, and financial condition of the Company. Purchaser is relying solely
upon such review, investigations, and answers in making its decision to invest
in the
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Company, and has thereby acquired all of the information Purchaser considers
needed to make an informed decision to so invest.
(vi) Purchaser is aware that Purchaser's rights to transfer the
Shares and Underlying Shares are restricted by the 1933 Act, the California Law,
the Cancellation Right referred to in Sections 4 and 5 of this Agreement, the
Market Stand-Off and Right of Refusal referred to in Sections 8(b) and 9 of this
Agreement, and the absence of a market for the Shares and Underlying Shares.
Purchaser understands that the Shares and Underlying Shares are considered to be
restricted securities by the Securities and Exchange Commission under the 1933
Act and by the California Corporations Department under the California Law, and
may be so considered under the laws of the state of Purchaser's domicile, and
therefore may not be sold without registration under the 1933 Act and
qualification under the California Law and/or registration or qualification
under the law of the state of Purchaser's domicile, or an opinion of counsel
satisfactory to the Company that the sale or transfer is exempt from such
registration and qualification.
(vii) Purchaser has read the legends set forth below and
understands and agrees that the certificates representing the Shares and
Underlying Shares will bear restrictive legends in the forms set forth below
(except for legends not applicable to the Underlying Shares) in addition to any
other legends required by applicable law until such legends are no longer
applicable; and that the Company has made a notation in its records concerning
the restrictions indicated therein, and will not allow any transfer or sale in
violation thereof.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED ("ACT") IN
RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 506, OR QUALIFIED
UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED (THE
"CALIFORNIA LAW"), OR QUALIFIED OR REGISTERED UNDER THE SECURITIES LAW
OF ANY OTHER STATE (THE "LAWS"). THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR PURPOSES OF RULE
144. NEITHER SAID SHARES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED,
SOLD, OR OFFERED FOR SALE IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT AND QUALIFICATION
AND/OR REGISTRATION UNDER THE CALIFORNIA LAW AND ANY OTHER APPLICABLE
LAWS, OR (2) OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT
REQUIRED AS TO SAID TRANSFER, SALE, OR OFFER AS A RESULT OF RULE 144
OR OTHERWISE.
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE REDEEMABLE AT THE
OPTION OF THE CORPORATION AND ARE CONVERTIBLE INTO SHARES OF COMMON
STOCK BOTH AT THE
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OPTION OF THE HOLDER AT ANY TIME PRIOR TO ANY REDEMPTION AND
AUTOMATICALLY UPON THE EARLIER TO OCCUR OF CONSUMMATION OF THE SALE OF
THE CORPORATION'S COMMON STOCK IN A FIRM COMMITMENT UNDERWRITTEN PUBLIC
OFFERING, THE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF
SERIES D PREFERRED STOCK, OR SUCH TIME AS LESS THAN 500,000 SHARES OF
SERIES D PREFERRED STOCK REMAIN OUTSTANDING.
"A STATEMENT OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
GRANTED TO OR IMPOSED UPON EACH CLASS OR SERIES AND THE NUMBER OF
SHARES IN AND DESIGNATION OF EACH CLASS OR SERIES OF SHARES WILL BE
FURNISHED TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE FROM THE
OFFICE OF THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE
OFFICE OF THE CORPORATION, WHICH AT THE DATE OF ISSUANCE OF THIS
CERTIFICATE WAS LOCATED AT 00000 XXXXXXX XXXXXXX, XXXXXXX, XXXXXXXXXX
00000.
"THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER'S AGENTS AND
ATTORNEYS, MAY BE REQUIRED TO EXECUTE NON-DISCLOSURE STATEMENTS PRIOR
TO BEING PERMITTED TO INSPECT CERTAIN RECORDS OF THE CORPORATION AS
DESCRIBED BY ARTICLE 8 OF THE CORPORATION'S BY-LAWS.
"THE SALE OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE,
AS WELL AS THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF, IS SUBJECT TO THE TERMS AND CONDITIONS OF A PREFERRED STOCK
PURCHASE AND PUT OPTION AGREEMENT BY AND BETWEEN THE REGISTERED HOLDER
(OR ITS PREDECESSOR IN INTEREST) AND THE CORPORATION (THE
"AGREEMENT"), INCLUDING A REPURCHASE OPTION, A MARKET STAND-OFF
AGREEMENT AND A RIGHT OF FIRST REFUSAL. A COPY OF THE AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. IN ADDITION, THE SHARES
AND/OR SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF ARE
SUBJECT TO FORFEITURE IN THE EVENT OF FAILURE OF THE REGISTERED HOLDER
(OR ITS PREDECESSOR IN INTEREST) TO COMPLY WITH THE TERMS OF A PUT
OPTION RIGHT IN FAVOR OF THE CORPORATION AS SET FORTH IN THE
AGREEMENT."
(viii) Purchaser has reviewed the federal, state and local tax
aspects and consequences of this investment to Purchaser's satisfaction with
purchaser's own tax advisors, and is not relying upon any statements,
representations or advice of the Company or any of its agents as to such
matters.
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(b) BY THE COMPANY TO PURCHASER. The Company hereby represents and
warrants to Purchaser, as of the date of the Company's acceptance hereof, that:
(i) The Company is a corporation duly incorporated, validly
existing, and in good legal standing under the laws of the State of California,
and has the corporate power and authority to enter into this Agreement and to
issue and deliver the Shares and to carry out the transactions herein
contemplated.
(ii) The execution, delivery and performance by the Company of
this Agreement and all related transactions have been duly authorized by all
necessary corporate action and this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as may be limited by bankruptcy, insolvency or other laws affecting
enforcement of creditor's rights, or by the application of customary principles
of equity when equitable remedies are sought.
(iii) The capitalization of the Company is as follows:
(A) AUTHORIZED AND DESIGNATED STOCK. The Company's
authorized capital stock consists of 100,000,000 shares of Common Stock and
30,000,000 shares of Preferred Stock. Of the Preferred Stock, 9,600,000 are
designated Series A Preferred Stock; 2,000,000 shares are designated Series B
Preferred Stock; 1,500,000 are designated Series C Preferred Stock; 5,000,000
are designated Series D Preferred Stock; 666,666 are designated Series E
Preferred Stock; 500,000 are designated Series F Preferred Stock; and
10,733,334 shares remain as yet undesignated by the Board of Directors. The
Board of Directors is authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to increase or decrease (but
not below the number of shares then outstanding) the number of shares of any
such series subsequent to the issuance of share in the series.
(B) OUTSTANDING AND RESERVED STOCK. As of the date of this
Agreement, there are outstanding 18,150,000 shares of Common Stock; 9,600,000
shares of Series A Preferred Stock; and 2,000,000 shares of Series B Preferred
Stock. 6,400,000 shares of Common Stock are reserved for issuance upon exercise
of options granted or available for grant pursuant to the Company's 1996 Stock
Option Plan (the "Stock Option Plan"); 350,000 shares of Common Stock are
reserved for issuance upon exercise of an option held by Xxx Xxxxx, the
President of the Company, which is not subject to the Stock Option Plan; and
1,500,000 Shares of Series C Preferred Stock are reserved for issuance upon
exercise of an outstanding warrant to purchase Series C Preferred Stock.
(iv) The Shares, the Option Shares issued upon payment of the
applicable Put Exercise Price pursuant to exercise of the Put Option under
Section 4 hereof, if any, and the Underlying Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued and will be fully
paid and nonassessable, in that there is no provision of the Company's Articles
of Incorporation or Bylaws or applicable statute authorizing the Company to
require further payments from the Purchasers as a consequence of their mere
ownership thereof; provided, however, that the Shares, the Option Shares and the
Underlying Shares (as defined
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herein) are subject to forfeiture pursuant to Section 5 in the event of
failure of the Purchaser to comply with the Company's Put Option provided in
Section 4 of this Agreement.
(v) The execution, delivery and performance of and compliance
with this Agreement and the issuance of the Shares, the Option Shares and the
Underlying Shares, have not resulted and will not result in any material
violation of, or conflict with, or constitute a material default under, the
Restated Articles or the Bylaws of the Company.
(c) SURVIVAL. All representations and warranties made by the Company
and Purchaser hereunder shall survive the execution of this Agreement, and any
investigation at any time made by or on behalf of either party shall not
diminish the party's right to rely upon the other's representations and
warranties.
3. CONFIDENTIALITY OF CORPORATE RECORDS.
Purchaser agrees to abide by the provisions of Article 8 of the
Bylaws of the Company pertaining to confidentiality of corporate records of
the Company to which Purchaser may obtain access as a shareholder of the
Company. The Secretary of the Company will provide Purchaser a copy of the
Company's Bylaws upon request.
4. PUT OPTION.
(a) GRANT OF OPTION. In consideration for the right to purchase the
Shares hereunder, each Purchaser hereby grants the Company the right (the "Put
Option"), subject to the terms and conditions set forth in this Section 4, to
require each Purchaser to purchase from the Company up to a number, determined
pursuant to Section 4(d) below, of shares of: (x) Series F Preferred Stock of
the Company at the Put Exercise Price of $4.00 per share; and (y) Series E
Preferred Stock of the Company, at the Put Exercise Price of $3.00 per share;
and (z) Series D Preferred Stock of the Company at the Put Exercise Price of
$2.00 per share (in each case, the "Option Shares").
(b) MANNER OF EXERCISING PUT OPTION. The Put Option shall be
exercisable by the Company by delivery to the Purchasers of a Put Option
Exercise Form, in the form attached hereto as EXHIBIT B, completed and duly
executed by the Chief Executive Officer and Chief Financial Officer of the
Company, certifying that the Company has satisfied the conditions set forth in
Section 4(c), and indicating the number of Option Shares of the applicable
series of Preferred Stock which the Company intends to sell to the Purchasers.
Within forth five (45) days after a proper exercise of this Put Option, each
Purchaser shall pay the Company the applicable Put Exercise Price (as specified
in 4(a) above). At the closing of each such exercise of the Put Option, the
Company shall cause to be issued and delivered to the respective Purchasers the
stock certificate or certificates for the applicable number of Option Shares of
the applicable series of Preferred Stock.
(c) EXERCISE CONDITIONS. The Company's exercise of the Put Option is
subject to the following conditions:
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(i) The Put Option shall in each case be exercised by the Company
with respect to each of the purchasers simultaneously, in equal proportions, in
increments of not less than $100,000 total Put Exercise Price of Option Shares
per each Put Option exercise.
(ii) The Company shall be entitled to require the Purchasers to
purchase shares of Series F Preferred Stock at the Put Exercise Price of $4.00
per Series F Option Share if, and only if, at the time of the exercise of the
Put Option:
(A) The Company has satisfied the Performance Criteria
specified in Section 4(e) (the "Performance Criteria");
and
(B) The Company has already exercised the Put Option to the
extent of an aggregate investment of $2,000,000,
whether in the form of (x) Series D Preferred Stock at
the Put Exercise Price of $2.00 per Series D Option
Share, or (y) Series E Preferred Stock at the Put
Exercise Price of $3.00 per Option Share; and
(C) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $4,000,000.
(iii) The Company shall be entitled to require the Purchasers to
purchase shares of Series E Preferred Stock at the Put Exercise Price of $3.00
per Series E Option Share if, and only if, at the time of an exercise of the Put
Option:
(A) The Company has satisfied the Performance Criteria; and
(B) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $2,000,000.
(iv) The Company shall be entitled to require the Purchasers to
purchase shares of Series D Preferred Stock at the Put Exercise Price of $2.00
per Series D Option Share if, and only if, at the time of an exercise of the Put
Option, either:
(A) The aggregate Put Exercise Price theretofore received
by the Company in previous exercises of the Put Option,
combined with the Put Exercise Price to be received by
the Company upon the instant exercise of the Put
Option, shall not exceed $4,000,000; or
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(B) If the Company has already exercised the Put Option to
the extent of more than an aggregate investment of
$4,000,000, whether in the form of Series D, E or F,
Preferred Stock, the Company has satisfied the
Performance Criteria.
(v) The representations and warranties of the Company set
forth in Section 2(b) above shall be true and correct as of the date of each
exercise of the Put Option, except as certified in writing furnished to each
Purchaser by an officer of the Company.
(d) NUMBER OF SHARES SUBJECT TO PUT OPTION. Each of the Purchasers
shall purchase one-half of the total number of Option Shares being sold in each
Put Option exercise.
(i) Subject to adjustment pursuant to clause (iii) below, the
aggregate dollar value of the Option Shares sold upon exercise of the Put
Option, at the respective Put Exercise Prices set forth in Section 4(a), shall
not exceed $8,000,000, and the aggregate dollar value of the Option Shares so
sold to either Purchaser shall not exceed $4,000,000.
(ii) Subject to adjustment pursuant to clause (iii) below, the
aggregate number of Series F Option Shares sold pursuant to exercise of the Put
Option shall not exceed 500,000; the aggregate number of series E Option Shares
sold pursuant to exercise of the Put Option shall not exceed 666,666; the
aggregate number of Series D Option Shares sold pursuant to exercise of the Put
Option under Section 4(c)(iv)(A) shall not exceed 2,000,000; and the aggregate
number of Series D Option Shares sold pursuant to exercise of the Put Option
under Section 4(c)(iv)(B) shall not exceed 2,000,000.
(iii) In the event the Company shall sell any equity securities
pursuant to Section 7(d) below, the Company shall thereupon determine the
maximum remaining number of Option Shares of each series that would remain
available for issuance upon exercise of the Put Option under Sections 4(c) and
4(d), but for the operation of this clause 4(d)(iii), but taking into account
all previous exercises of the Put Option and any other changes in circumstance
which would preclude satisfaction of a condition for exercise of the Put Option
under Section 4(c) (the "Pre-Adjustment Maximum Number" for each series). The
maximum remaining number of Option Shares of each series that remain available
for issuance upon exercise of the Put Option shall then be determined by
multiplying the Pre-Adjustment Maximum Number for that series by a fraction
equal to (x) the aggregate purchase price paid for all equity securities sold
pursuant to Section 7(d) (including all previous such sales, but not exceeding
750,000), divided by (y) 8,000,000.
(e) PERFORMANCE CRITERIA. The conditions of subsections (ii)(A),
(iii)(A) and (iv)(B) of Section 4(c) shall be satisfied if the Company shall
have the ability to perform Year 2000 conversions commercially at the rate of at
least 44 Million Lines of Code ("MLOC") per month, with production cost, scan
efficiency and fix rate meeting the specifications applicable to the month of
exercise of the Put Option as set forth in the following table:
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PRODUCTION COST PER SCAN EFFICIENCY FIX RATE
MONTH OF EXERCISE LOC LESS THAN: GREATER THAN: GREATER THAN:
----------------- ------------------- --------------- -------------
January 1997 (or before) $0.025 0.99900 0.9980
February 1997 $0.023 0.99930 0.9985
March 1997 $0.020 0.99960 0.9990
April 1997 $0.018 0.99990 0.9993
May 1997 (or later) $0.016 0.99993 0.9996
For purposes of this Section 4(e):
(i) "Scan Efficiency" is the conversion rate calculated as 1.00
minus the average number of "Errors" per line of code.
(ii) Missing of one date field and misconverting a code fragment
each are computed as a single "Error."
(iii) "Fix Rate" is the number of code fragments actually fixed,
divided by the number of code fragments identified as needing a fix.
(F) TERMINATION OF PUT OPTION. The Put Option shall terminate on the
earlier to occur of:
(i) December 31, 1997, or
(ii) Merger of the Company with or into any other corporation or
corporations (other than a wholly owned subsidiary of the Company) or a sale of
all or substantially all of the assets or business of the Company in one or more
related transactions (other than a public offering of the Company's securities)
as a result of which shareholders of the Company immediately before the
transaction own less than a majority of the voting securities of the successor
or surviving corporation immediately thereafter; or
(iii) Consummation of a firm commitment or best efforts
underwritten public offering of the Company's equity registered with the
Securities and Exchange Commission with gross proceeds to the Company of ten
million dollars ($10,000,000) or more; or
(iv) The sale by the Company of any shares of equity securities
or securities convertible into or exercisable for any equity securities
(excluding shares of Common Stock sold upon exercise of options granted under
the Company's 1996 Stock Option Plan and up to 350,000 additional shares of
Common Stock issuable to Xxxxxxx X. Xxxxx upon exercise of outstanding stock
options) at a price per share in excess of $4.00 (appropriately adjusted to take
account of any stock split, stock dividend, combination of shares or the like).
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5. FAILURE TO COMPLY WITH PUT OPTION; ESCROW OF SHARES.
(a) FORFEITURE OF SHARES AND OPTION SHARES FOR NON-COMPLIANCE. In the
event any Purchaser fails to comply with the Put Option duly exercised by the
Company pursuant to Section 4, the non-complying Purchaser shall immediately
forfeit, and the Company shall have the right to immediately cancel (but not to
transfer), without further consideration to the Purchaser, the Shares purchased
by the non-complying Purchaser and any Option Shares theretofore purchased by
that Purchaser, and any Underlying Shares issued upon the conversion thereof
(collectively, the "Escrowed Shares"). Upon such event:
(i) All right of the non-complying Purchaser under this Agreement
shall cease and terminate, and such Purchasers shall no longer be counted for
the purpose of obtaining the consent or approval of the Purchasers for any
matter under this Agreement.
(ii) The shares and Option Shares, if any, so canceled shall not
resume the status of authorized, but unissued shares of Preferred Stock. Any
Underlying Shares so canceled shall resume the status of authorized but unissued
shares of Common Stock.
(iii) The non-complying Purchaser's Proportion shall not be
reallocated to the other purchasers, but the Company's Put Option with respect
to that Proportion shall be nullified.
(b) ESCROW. In order to facilitate efficient enforcement by the
Company of its right pursuant to Section 5(a) (the "Cancellation Right") to
cancel Escrowed Shares of a non-complying shareholder, the stock
certificate(s) representing the Escrowed Shares (the "Certificate(s)") shall
be deposited with an escrow holder designated by the Company (the "Escrow
Holder"). The Escrowed Shares may not be sold, pledged, or otherwise
transferred as long as they remain subject to the Cancellation Right, and any
transfer or purported transfer in violation thereof shall be null and void,
except that Purchaser may transfer the Shares to any purchaser of all or
substantially all of the assets of Purchaser or any Company controlled by or
under common control with Purchaser (collectively, "Permitted
Transferee(s)"), provided the Permitted Transferee(s) agree in writing to be
bound by the Company's Cancellation Right, as well as all other restrictions
against transfer of the Escrowed Shares as set forth in this Agreement,
including, without limitation, those contained in the Market Stand-Off and
Right of First Refusal (as defined in Sections 8(b) and 9 below). The
Purchaser and any Permitted Transferees, as applicable, are referred to
collectively as the "Shareholder."
(c) TERMINATION OF ESCROW. Upon exercise by the Company of the
Cancellation Right, the Escrow shall automatically terminate, and the
Certificate(s) shall be returned to the Company by the Escrow Holder. In
addition, the Company, by written resolution adopted by its Board of Directors,
may terminate the escrow and direct the Escrow Holder to deliver the
Certificate(s) to the Shareholder. Shares so delivered free of escrow shall
nevertheless remain subject to the Cancellation Right and all other restrictions
against transfer of the Shares as set forth in this Agreement, including,
without limitation, those contained in the Market Stand-Off and Right of First
Refusal.
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(d) TERMINATION OF CANCELLATION RIGHT. The Cancellation Right shall
terminate automatically upon termination of the Put Option, at which time the
Escrow Holder shall deliver the Certificate(s) for the formerly Escrowed Shares
free of escrow to the Shareholder. The formerly Escrowed Shares so delivered
free of escrow shall remain subject to all other restrictions against transfer
of the Shares as set forth in this Agreement, including, without limitation,
those contained in the market Stand-Off and Right of First Refusal.
(e) SUCCESSION OF ESCROW HOLDER. The Escrow Holder may resign at any
time, provided that (i) its duties are undertaken by a successor escrow holder,
or (ii) the Certificate(s) are deposited with any court of competent
jurisdiction. Any bank doing business in California under due legal authority is
deemed to be a suitable successor. There shall be applied such additional terms
of escrow as any such successor Escrow Holder may at its discretion require as a
condition to its assuming the duties of Escrow Holder. The original Escrow
Holder is authorized to execute as agent for each party an escrow agreement or
instructions containing such additional terms.
(f) INDEMNITY OF ESCROW HOLDER. The Escrow Holder shall in no event be
liable for damages to any party resulting from the exercise of its duties
hereunder, or for any other reason, except gross negligence or willful
misconduct. The Company shall pay all fees and expenses of the Escrow Holder and
shall hold the Escrow Holder harmless against all claims arising out of its
performance hereunder.
(g) VOTING RIGHTS. The Shareholder shall have full voting rights and
shall be entitled to dividends, if any, with respect to the Escrowed Shares
while they remain in escrow.
(h) CUMULATIVE REMEDIES. The Company's remedies under this Section
shall not be exclusive but shall be cumulative with other remedies provided at
law or equity.
6. RESERVATION OF UNDERLYING SHARES.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of the Series D, E and F Preferred
Stock, the number of shares of Common Stock issuable from time to time upon such
conversion.
7. RESTRICTION OF SALE OF NEW SECURITIES.
The Company covenants and agrees that as long as the Company's Put
Option remains in effect, the Company shall not sell any shares of equity
securities or securities convertible into or exercisable for any equity
securities at a price per share less than $4.00 per share (appropriately
adjusted to take account of any stock split, stock dividend, combination of
shares or the like), other than the following:
(a) Options, and shares of Common Stock issued or issuable upon
exercise of options, granted under the Company's 1996 Stock Option Plan; and up
to 350,000 additional
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shares of Common Stock issuable to Xxxxxxx X. Xxxxx upon exercise of an
outstanding non-statutory stock option.
(b) Option Shares issued pursuant to an exercise of the Put Option.
(c) Option Shares that the Company would have had the right to require
a Purchaser to purchase upon exercise of the Put Option but for the failure of a
Purchaser to comply with the Put Option obligation. Such Option Shares shall be
sold at the applicable Put Exercise Price. In addition, prior to offering the
Option Shares to any third party, the Company shall first provide the remaining
Purchaser ten (10) days written notice, offering that Purchaser the opportunity
to purchase such Option Shares.
(d) Additional equity securities up to an aggregate purchase price of
$750,000; provided that upon any sale of equity securities pursuant to this
subsection 7(d), the number of Option Shares that the Company shall have the
right to require the Purchasers to purchase under the Put Option shall be
adjusted as provided in Section 4(d)(iii).
8. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION RIGHTS.
(i) NOTICE OF REGISTRATION. If (but without any obligation to do
so) the Company proposes to register any of its stock or other securities under
the federal Securities Act of 1993 ("Act") in connection with the public
offering of such securities solely for cash (other than (x) a registration
relating solely to the sale of securities to employees, consultants and
directors of the Company pursuant to a stock option, stock purchase or similar
plan, (y) a registration on any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of the Underlying Shares, or (z) a registration relating
solely to Securities and Exchange Commission Rule 145), the Company shall, each
such time,
(A) promptly give each Purchaser written notice of the
registration; and
(B) include in the registration and in any underwriting
involved therein any of the Underlying Shares specified in a
written request or requests of a Purchaser made within thirty
(30) days after the written notice was given by the Company to
the Purchaser.
(ii) UNDERWRITING REQUIREMENTS. If the registration of which the
Company gives notice pursuant to Section 8(a)(i) above is for a registered
public offering involving an underwriting, the Company shall so advise each
Purchaser as part of the written notice. In connection with any offering
involving an underwriting of shares initiated by the Company or by other
shareholders of the Company having registration rights, the Company shall not be
required under Section 8(a)(i) to include any of the Purchasers' Underlying
Shares in the underwriting unless the Purchaser accepts the terms of the
underwriting as agreed upon between
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the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company or the Company's shareholders
demanding such registration, subject to apportionment among selling
shareholders as provided in the final sentence of this Section 8(a)(ii). If
the total amount of securities that all shareholders of the Company request
to be included in such offering (when combined with the securities being
offered by the Company or its shareholders demanding such registration)
exceeds the amount of securities that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of securities pursuant
to piggyback registration rights which the underwriters believe will not
jeopardize the success of the offering. The securities so included pursuant
to piggyback registration rights shall be apportioned among the selling
shareholders, including the Purchasers, according to the total number of
securities which each selling shareholder shall have elected to include in
the registration or in such other proportions as shall mutually be agreed to
by the selling shareholders.
(b) "MARKET STAND-OFF" AGREEMENT. Each Purchaser shall not, to the
extent requested by the Company, sell or otherwise transfer or dispose of any
Subject Shares during the period of one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the Act;
PROVIDED, HOWEVER, that this covenant shall apply only to the Company's initial
registration statement (the "First Registration Statement") and registration
statements (excluding registration statements relating solely to the sale of
securities to employees, consultants and directors of the Company pursuant to a
stock option, stock purchase or similar plan) filed within three (3) years after
the effective date of the First Registration Statement, and provided that all
officers and directors of the Company and other holders of registration rights
enter into similar agreements. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Subject Shares
until the end of the one hundred eighty (180) day period.
(c) TRANSFER. The rights granted under Section 8(a)(i) may be
transferred to a transferee of not less than 100,000 Subject Shares who agrees
to be bound by the restrictions in Section 8(b) or to a third party approved by
the Company in its sole discretion who likewise agrees.
9. RIGHT OF FIRST REFUSAL.
(a) INITIATION OF RIGHT OF FIRST REFUSAL.
(i) Until the consummation of a firm commitment or best efforts
underwritten public offering of the Company's equity registered with the
Securities and Exchange Commission with gross proceeds to the Company of five
million dollars ($5,000,000) or more, each Purchaser and its respective
successors and assigns (each a "Shareholder"), shall not sell, pledge, assign or
otherwise transfer any of the Shareholder's interest in any of the Subject
Shares to any person without first offering to the Company or its designees the
right and option to purchase said shares as provided hereinafter in this Section
9 (the "Right of First Refusal").
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(ii) Notwithstanding Section 9(a)(i), but subject to Sections 4, 5
and 8(b) above, Purchaser may sell or transfer any interest in any of the
Subject Shares to any Permitted Transferee without first offering said shares to
the Company or its designees, provided any the transferee agrees in writing to
be bound by the restrictions set forth in this Section 9 and those of Sections
4, 5 and 8(b) above.
(iii) In the event of a pledge, hypothecation of, or the granting
of an option or other right to purchase the Subject Shares, then the Right of
First Refusal shall come into existence at the time of any sale or transfer of
ownership of the shares pursuant to foreclosure under such pledge or
hypothecation or exercise of such option or right, as the case may be; provided,
however, that the Shareholder may not pledge or hypothecate or grant an option
or right to purchase the Subject Shares unless the pledge holder or option or
right holder, as the case may be, agrees in writing at the time of the pledge or
grant of the option or right to be bound by the Right of First Refusal as
contained in this Section 9, and to cause any proposed assignee or transferee of
such pledge or right of option to execute and deliver to the Company a similar
writing prior to such assignment or transfer.
(b) MECHANICS.
(i) Any Shareholder desiring to sell any or all of the Subject
Shares during the term of the Right of First Refusal shall give written notice
to the Secretary of the Company of the Shareholder's bona fide intention to sell
the shares pursuant to a bona fide written offer of a third party other than the
Company (the "Proposed Purchaser"). The notice shall include a photocopy of the
written offer which shall specify the identity of the Proposed Purchaser, the
number of shares proposed to be sold (the "Offered Shares"), and the price and
payment terms of the proposed offer to buy the Offered Shares. The payment terms
of the contemplated sale to the Proposed Purchaser from the Shareholder (and of
the Shareholder to the Company) must be expressed in terms of cash, cash
equivalents (such as certificates of deposit, shares of stock in publicly traded
companies, and the like) or a promissory note of the Proposed Purchaser payable
on date(s) specified or ascertained by passage of time. The Company or its
designees shall have the right and option to purchase all of the offered Shares,
at the price and on the payment terms specified in the Shareholder's notice, for
a period of sixty (60) days from receipt of said notice from the Shareholder;
that is, the Shareholder's notice shall constitute an irrevocable offer by the
Shareholder to sell all of the Offered Shares to the Company or its designee(s)
at the price and on the payment terms specified in the notice for sixty (60)
days from the date of the Company's receipt of notice.
(ii) The Company shall exercise its option by giving written
notice of its election to do so (the "Exercise Notice") to the Shareholder. The
Company may exercise its option as to any or all of the Offered Shares.
(iii) The Shareholder shall deliver to the Company a share
certificate representing those Offered Shares being repurchased by the Company
within sixty (60) days of the Exercise Notice against payment by the Company for
the account of Shareholder of the purchase price specified in the Exercise
Notice.
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(iv) Any Offered Shares for which the Company and its designees
fail to exercise their option as provided in this section may be sold by the
Shareholder to the Proposed Purchaser within a period of ninety (90) days
following the end of the Company's sixty (60)-day option period, provided that:
(A) the sale is made at the price and on the payment terms specified in the
original notice from the Shareholder to the Company or not more favorable to the
Proposed Purchaser; (B) the Proposed Purchaser delivers a written undertaking to
the Secretary of the Company to be bound by the restrictions on Offered Shares
set forth in this Section 9; and (C) the Company receives an opinion of counsel
reasonably satisfactory to it that the sale of the Offered Shares to the
Proposed Purchaser complies with applicable federal and state corporate
securities laws.
(v) Upon receipt of the appropriate undertaking from Shareholder
and Proposed Purchaser as specified in the previous paragraph, the Company shall
transfer the ownership of record of the Offered Shares to the Proposed Purchaser
(and reissue the applicable certificate).
(vi) If within the ninety (90)-day period the Shareholder does not
enter into an agreement for such a sale of Offered Shares to the Proposed
Purchaser, which sale is consummated within thirty (30) days of the execution of
the agreement, the Right of First Refusal shall be revived as to the Offered
Shares, which thereupon shall not be sold or transferred unless the Shareholder
first offers the Company the right and option to repurchase any and all such
Offered Shares in accordance with this Section 9.
(vii) Any transfer or proposed transfer of the Subject Shares or
any interest therein shall be null and void unless the terms and conditions of
this Section 9 are observed or are waived by action of the Company's Board of
Directors.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable
to contracts between California residents entered into and to be performed
entirely within the State of California.
(b) SUCCESSORS AND ASSIGNS. Except as provided above, the rights of
Purchaser under this Agreement may not be assigned without the prior express
written consent of the Company and any attempted assignment without such consent
shall be void. Except as otherwise 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.
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto or referred to herein constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. 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), with
the written consent of the Company and the holders of a majority in interest
of the Subject Shares initially sold pursuant to this Agreement or upon
exercise of the Put Option (or issued upon the
-15-
conversion thereof) that have not been resold to the public. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any such Subject Shares at the time outstanding, each future holder
of all such Subject Shares, and the Company.
(d) NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be effective five (5) days
after mailed by first-class, registered or certified mail, postage prepaid, or
upon delivery if delivered by hand, facsimile, telecopy, messenger or a courier
delivery service, addressed to the respective parties at the addresses set forth
below accompanying the parties' names on the signature page to this Agreement,
or at such other addresses as the parties shall provide one another by notice
pursuant to this section; provided, however, that notices may be sent to any
Shareholder who has acquired Subject Shares from a Purchaser at the address
appearing for that person on the stock records of the Company; and each
Shareholder shall be deemed to have been given notice of any change in the
address of the Company's principal executive office which occurs while
Shareholder is a Shareholder of the Company.
(e) 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.
(f) SEVERABILITY. If the application of any provision or provisions of
this Agreement to any particular facts or circumstances shall be held invalid or
unenforceable by any court of competent jurisdiction, then (i) the validity and
enforceability of such provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of this
Agreement shall not in any way be affected or impaired thereby and (ii) such
provision or provisions shall be reformed without further action by the parties
hereto to and only to the extent necessary to make the same valid and
enforceable when applied to such particular facts and circumstances.
(g) SECTION HEADINGS. The section headings in this Agreement are
solely for convenience and shall not be considered in its interpretation.
(g) VENUE. Any lawsuit is brought to enforce this Agreement shall be
brought in Santa Xxxxx County or Alameda County, California and the parties
hereby irrevocably agree and submit to the personal and subject matter
jurisdiction and venue of such court.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
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(i) REMEDIES. In addition to all other rights it may have under this
Agreement, the Company shall have the right to enjoin any sale or other transfer
of the Shares which would violate or cause a breach of the Cancellation Right,
Right of First Refusal, Market Stand-Off or securities laws of the U.S. or any
state. The prevailing party in any litigation or arbitration proceeding
pertaining to the parties' rights and obligations under this Agreement shall be
entitled to recover reasonable attorneys' fees.
-17-
AUTHORIZED SIGNATURES
For the purpose of binding the parties to the above Consulting Agreement,
the parties or their duly authorized representatives have signed their names on
the dates indicated.
MATRIDIGM CORPORATION Address:
MATRIDIGM CORPORATION
Attention: Chief Executive Officer
By: /s/ Xxxxx X. Xxxxx 00000 Xxxxxxx Xxxxxxx
--------------------------- Xxxxxxx, XX 00000
Xxxxx X. Xxxxx,
Chief Executive Officer
PURCHASERS:
BRC HOLDINGS, INC. Address:
BRC HOLDINGS, INC.
Attention: Chief Executive Officer
By: /s/ X. X. Xxxxxx 0000 X. Xxxxxxxxxxx Xxxx, Xxx. 0000
--------------------------- Xxxxxx, XX 00000
X. X. Xxxxxx,
Chief Executive Officer
ZITEL CORPORATION Address:
ZITEL CORPORATION
Attention: President
By: /s/ Xxxx X. Xxxx 00000 Xxxxxxx Xxxxxxx
--------------------------- Xxxxxxx, XX 00000
Xxxx X. Xxxx,
President
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DESIGNATION OF ESCROW HOLDER
MATRIDIGM CORPORATION hereby designates Xxxxxxxxx, Parish & Xxxxxx, P.C. as
the Escrow Holder pursuant to Section 5 of the above Stock Purchase Agreement;
and Xxxxxxxxx, Parish & Xxxxxx, P.C., hereby accepts such appointment pursuant
to the term and conditions set forth in that section.
XXXXXXXXX, PARISH & XXXXXX, P.C. MATRIDIGM CORPORATION
By: /s/ Signature Illegible By: /s/ Xxxxx X. Xxxxx
--------------------------- ---------------------------
Members of the Firm ---------------------------
Executive Officer
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EXHIBIT A
FORM OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
EXHIBIT B
PUT OPTION EXERCISE FORM
To: ____________________
____________________
____________________
____________________
Reference is made to that certain Preferred Stock and Put Option Agreement
dated ____________, 1996, between MatriDigm Corporation (the "Company") and the
Purchasers named therein (the "Agreement"). Capitalized terms used herein
without definition shall have the meanings assigned to them in the Agreement.
As holder of the Put Option specified in Section 4 of the Agreement, the
Company hereby irrevocably elects to exercise the right thereunder to sell to
___________________ ("Purchaser") _________________________ shares of Series
____ Preferred Stock of the Company at the Put Exercise Price per share of
$________, for an aggregate Put Exercise Price of $________.
Each of the officers of the Company executing this Put Option Exercise Form
hereby attests and certifies that the Company has satisfied all of the
conditions of this exercise of the Put Option described in Section 4(c) of the
Agreement.
The Company hereby covenants to cause certificates representing the Option
Shares to be issued promptly following the Purchaser's tendering or the Put
Exercise Price in full.
Dated: _________________
MATRIDIGM CORPORATION
By:
---------------------------
Chief Executive Officer
By:
---------------------------
Chief Financial Officer
