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EXHIBIT 10.14
BSQUARE CORPORATION
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
As of January 30, 1998
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BSQUARE CORPORATION
Stock Purchase
and Shareholders Agreement
As of January 30, 1998
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SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION ......................... 1
1.1 Description of Securities ....................................... 1
1.2 Sale and Purchase; Redemption ................................... 2
1.3 Closing ......................................................... 2
SECTION 2. REPRESENTATIONS AND WARRANTIES .................................. 2
2.1 Organization and Corporate Power ................................ 2
2.2 Authorization and Non-Contravention. ............................ 3
2.3 Capitalization .................................................. 4
2.4 Subsidiaries; Investments ....................................... 5
2.5 Financial Statements and Matters ................................ 5
2.6 Absence of Undisclosed Liabilities .............................. 6
2.7 Absence of Certain Developments ................................. 6
2.8 Ordinary Course ................................................. 6
2.9 Accounts Receivable ............................................. 6
2.10 Title to Properties ............................................. 7
2.11 Tax Matters ..................................................... 7
2.12 Certain Contracts and Arrangements .............................. 8
2.13 Intellectual Property Rights; Employee Restrictions ............. 9
2.14 Litigation ......................................................10
2.15 Employee Benefit Plans ..........................................10
2.16 Labor Laws ......................................................11
2.17 Employees and Suppliers .........................................11
2.18 Hazardous Waste, Etc ............................................11
2.19 Business; Compliance with Laws ..................................12
2.20 Investment Banking; Brokerage ...................................12
2.21 Insurance .......................................................12
2.22 Transactions with Affiliates ....................................12
2.23 Customers .......................................................12
2.24 Relationship with Microsoft .....................................13
2.25 Certain Events ..................................................13
2.26 Disclosure ......................................................13
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS .................14
SECTION 3. CONDITIONS OF PURCHASE ..........................................15
3.1 Satisfaction of Conditions ......................................15
(i)
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3.2 Director Election................................................15
3.3 Compensation and Audit Committees................................15
3.4 Opinion of Counsel...............................................15
3.5 Consent of Spouse................................................15
3.6 Authorization....................................................15
3.7 All Proceedings Satisfactory.....................................16
3.8 Investors' Fees..................................................16
3.9 No Violation or Injunction.......................................16
3.10 Consents and Waivers.............................................16
3.11 Compensation of Shareholders.....................................16
3.12 Payment of Broker Fee............................................16
3.13 Termination of Existing Redemption Agreement.....................16
3.14 Key Person Insurance.............................................17
3.15 Director Indemnification Agreements..............................17
3.16 Certificate of Designation.......................................17
SECTION 4. COVENANTS........................................................17
4.1 Financial Statements and Budgetary Information; Inspection.......17
4.2 Indemnification; Insurance.......................................17
4.3 Board of Directors...............................................18
4.4 Composition of Board Committees..................................18
4.5 Restrictive Covenants............................................18
4.6 Redemption.......................................................19
4.7 Cancellation of Shareholder Notes................................19
4.8 Reissuance of Stock Certificates.................................19
4.9 Key Person Insurance.............................................20
4.10 Compensation of Shareholders.....................................20
4.11 Stock Awards.....................................................20
4.12 Assignment of Rights.............................................20
4.13 Compliance with Laws.............................................20
4.14 Use of Proceeds..................................................20
4.15 Audited Financial Statements.....................................20
SECTION 5. TRANSFER RESTRICTIONS............................................21
5.1 General Restriction..............................................21
5.2 Right of First Refusal...........................................21
5.3 Right of Co-Sale.................................................23
5.4 Assignment of Rights.............................................24
5.5 Sales to Strategic Purchasers....................................25
SECTION 6. RIGHTS TO PURCHASE...............................................25
6.1 Right to Participate in Certain Sales of Additional Securities.. 25
6.2 Assignment of Rights............................................ 26
(ii)
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SECTION 7. REGISTRATION RIGHTS..............................................26
7.1 Optional Registrations...........................................26
7.2 Required Registrations...........................................27
7.3 Registrable Securities...........................................29
7.4 Further Obligations of the Company...............................29
7.5 Indemnification; Contribution....................................31
7.6 Rule 144 and Rule 144A Requirements..............................33
7.7 Assignment of Rights.............................................33
7.8 "Market Stand-off" Agreement.....................................33
SECTION 8. ELECTION OF DIRECTORS............................................34
8.1 Election of Directors............................................34
8.2 Committees.......................................................34
8.3 Vacancies and Removal............................................34
SECTION 9. GENERAL..........................................................35
9.1 Amendments, Waivers and Consents.................................35
9.2 Indemnification from the Company.................................35
9.3 Survival of Representations, Warranties and Covenants;
Assignability of Rights..........................................37
9.4 Legend on Securities.............................................37
9.5 Governing Law....................................................38
9.6 Section Headings and Gender......................................38
9.7 Counterparts.....................................................39
9.8 Notices and Demands..............................................39
9.9 Dispute Resolution...............................................39
9.10 Remedies; Severability...........................................40
9.11 Integration......................................................40
(iii)
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(iv)
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EXHIBITS
A. Schedule of Investors
B. Preferred Stock Terms
C. Schedule of Common Stock Redemptions
D. Form of Redemption Agreement
E. Disclosure Schedule
F. Form of Opinion of Counsel
G. Form of Consent of Spouse
H. Form of Director Indemnification Agreement
(v)
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STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT made as of this 30th day of
January, 1998, by and among BSQUARE Corporation, a Washington corporation
(together with any predecessors or successors thereto, the "Company"), Xxxxxxx
X. Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxx, and Xxxxxx Xxxxxxxxxxx
(collectively the "Shareholders" and individually a "Shareholder"), and the
investors named in Exhibit A hereto (together with their successors and assigns,
collectively the "Investors," and each individually an "Investor").
WHEREAS, all of the outstanding shares of the Company's capital stock prior
to the date hereof are owned by the Shareholders; and
WHEREAS, the Company has authorized the issuance and sale to the Investors
of a total of 8,333,333 shares of Series A Convertible Preferred Stock, no par
value, having the rights and preferences set forth in Exhibit B hereto
("Convertible Preferred Stock"), for an aggregate purchase price of
$14,999,999.40;
WHEREAS, the Company has agreed to redeem and Xxxxxxx X. Xxxxxx, Xxxxxx X.
Xxxxxx, and Xxxxx X. Xxxxxxx (the "Redeeming Shareholders") have agreed to sell
to the Company an aggregate of 3,333,333 shares of the Company's Common Stock,
no par value ("Common Stock"), for an aggregate purchase price of $5,999,999.40;
and
WHEREAS, the parties hereto desire to set forth the terms of their ongoing
relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES, REDEMPTION
1.1 Description of Securities. The Company's authorized capital stock
consists of 50,000,000 shares of Common Stock and 10,000,000 shares of preferred
stock, no par value ("Preferred Stock"), of which 8,333,333 shares have been
designated Convertible Preferred Stock. The Company has authorized and has
reserved, and covenants to continue to reserve, a sufficient number of shares of
its Common Stock to satisfy the rights of conversion of the holders of the
Convertible Preferred Stock. For purposes of this Agreement, (a) the shares of
Convertible Preferred Stock to be acquired by the Investors from the Company
hereunder are referred to as the "Convertible Preferred Shares," (b) the shares
of Common Stock issuable upon conversion of the Convertible Preferred Shares are
referred to as the "Conversion Shares," (c) the Convertible Preferred Shares and
the Conversion Shares are sometimes referred to as the "Securities", and (d) the
shares of Common Stock to be redeemed by the Company from the Redeeming
Shareholders are referred to as the "Redemption Shares."
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1.2 Sale and Purchase: Redemption. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, (a) each Investor hereby purchases from the Company, and the
Company hereby issues and sells to each of the Investors, at the Closing (as
defined in Section 1.3), the number of Convertible Preferred Shares set forth
opposite the name of such Investor in Exhibit A hereto for the purchase price of
$1.80 per Convertible Preferred Share (or 8,333,333 Convertible Preferred Shares
for an aggregate purchase price of $14,999,999.40), and the Company hereby
grants the Investors the rights set forth herein. Immediately following the
Closing, the Company shall acquire from the Redeeming Shareholders, and each
such Redeeming Shareholder shall sell to the Company, the respective number of
Redemption Shares set forth on Exhibit C hereto for a price of $1.80 per
Redemption Share (or 3,333,333 Redemption Shares for an aggregate redemption
price of $5,999,999.40), pursuant to a redemption agreements (each, a
"Redemption Agreement" and, collectively, the "Redemption Agreements") in the
form attached hereto as Exhibit D. All purchase and redemption payments
hereunder shall be made by wire transfer of next day available funds.
1.3 Closing. The closing of the purchases and sales of the Convertible
Preferred Shares and the redemption of the Redemption Shares contemplated by
Section 1.2 (the "Closing") shall take place at 10:00 a.m. on the date hereof
(the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investors to enter into this Agreement, the Company
and the Shareholders jointly and severally represent and warrant to each of the
Investors the following, except as set forth in the schedule of exceptions
attached hereto as Exhibit E (the "Disclosure Schedule").
2.1 Organization and Corporate Power. The Company is a corporation duly
organized and validly existing under the laws of the State of Washington, and is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on its
assets, liabilities, condition (financial or other), business, results of
operations or prospects (a "Material Adverse Effect"). The Company has all
required corporate power and corporate authority to carry on its business as
presently conducted, to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby, including the issuance of the Securities and
the redemption of the Redemption Shares. The copies of the Articles of
Incorporation and the By-laws of the Company, as amended to date (the "Articles
of Incorporation" and the "Bylaws," respectively), and of the minute book of the
Company, which have been furnished to the Investors by the Company, are complete
at the date hereof. The Company is not in material violation of any term of its
Articles of Incorporation or By-laws.
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2.2 Authorization and Non-Contravention.
(a) The execution, delivery and performance by the Company of this
Agreement and each other agreement, document and instrument to be executed and
delivered by the Company pursuant to or as contemplated by this Agreement
(including, without limitation, the Redemption Agreements) and the issuance and
delivery of (i) the Convertible Preferred Shares, and (ii) upon the conversion
of the Convertible Preferred Shares, the Conversion Shares, have been duly
authorized by all necessary corporate action of the Company. This Agreement and
each such other agreement, document, and instrument (including, without
limitation, the Redemption Agreements) constitute valid and binding obligations
of the Company, enforceable in accordance with their respective terms, except as
rights to indemnity and contribution may be limited by applicable law and public
policy and subject to (i) applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) general principles of equity, whether such
enforceability is considered in a proceeding in equity or at law. The execution
and delivery by the Company of this Agreement and each other agreement, document
and instrument to be executed and delivered by the Company pursuant hereto or as
contemplated hereby (including, without limitation, the Redemption Agreements)
and the performance by the Company of the transactions contemplated hereby and
thereby, including, without limitation, the issuance and delivery of (i) the
Convertible Preferred Shares and (ii) upon the conversion of the Convertible
Preferred Shares, the Conversion Shares, do not and will not: (A) except as set
forth in Section 2.2 of the Disclosure Schedule, violate, conflict with or
result in a default (whether after the giving of notice, lapse of time or both)
under any material contract or obligation to which the Company is a party or by
which it or its assets are bound, or any provision of the Articles of
Incorporation or By-laws of the Company, or cause the creation of any material
encumbrance upon any of the assets of the Company; (13) to the Company's
knowledge, violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any order of, or any
restriction imposed by, any court or governmental agency applicable to the
Company; (C) except as set forth in Section 2.2 of the Disclosure Schedule,
require from the Company any notice to, declaration or filing with, or consent
or approval of any governmental authority or third party other than as may be
required to secure an exemption from qualification of the offer and sale of the
Securities under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities and blue sky laws; or D) accelerate any
obligation under, or give rise to a right of termination of, any material
agreement, permit, license or authorization to which the Company is a party or
by which the Company is bound.
(b) Each Shareholder has full right, authority, power and (if
applicable) capacity to enter into this Agreement and each other agreement,
document and instrument to be executed and delivered by or on behalf of such
Shareholder pursuant to or as contemplated by this Agreement (including, if
applicable, a Redemption Agreement) and to carry out the transactions
contemplated hereby and thereby. This Agreement and each other agreement,
document and instrument executed and delivered by each Shareholder pursuant to
or as contemplated by this Agreement (including, if applicable, a Redemption
Agreement) constitute, or when executed and delivered will constitute, valid and
binding obligations of such Shareholder enforceable in
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accordance with their respective terms, except as rights to indemnity and
contribution may be limited by applicable law and public policy and subject to
(i) applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally and
(ii) general principles of equity, whether such enforceability is considered in
a proceeding in equity or at law. The execution and delivery by each Shareholder
of this Agreement and each other agreement, document and instrument to be
executed and delivered by each Shareholder pursuant hereto or as contemplated
hereby (including, if applicable, a Redemption Agreement), and the performance
by such Shareholder of the transactions contemplated hereby and thereby do not
and will not: (A) violate, conflict with or result in a default (whether after
the giving of notice, lapse of time or both) under any material contract or
obligation to which such Shareholder is a party or by which such Shareholder's
assets are bound, or any provision of the Articles of Incorporation or By-laws
of the Company, or cause the creation of any material encumbrance upon any of
the assets of such Shareholder or the Company; (B) to the Shareholder's
knowledge, violate or result in a violation of, or constitute a default under,
any provision of any material law, regulation or rule, or any order of, or any
restriction imposed by, any court or other governmental agency applicable to the
Company or such Shareholder; (C) require from such Shareholder or the Company
any notice to, declaration or filing with, or consent or approval of any
governmental authority or other material third party other than as may be
required to secure an exemption from qualification of the offer and sale of the
Securities under the Securities Act and applicable state securities and blue sky
laws; or (D) accelerate any obligation under, or give rise to a right of
termination of, any material agreement, permit, license or authorization to
which such Shareholder or the Company is a party or by which such Shareholder or
the Company is bound.
2.3 Capitalization. Immediately prior to the Closing, each of the
Shareholders owns beneficially and of record the shares of Common Stock set
forth opposite such Shareholder's name on Section 2.3 of the Disclosure Schedule
free and clear of any liens, restrictions or encumbrances, and, except as set
forth in Section 2.3 of the Disclosure Schedule, such shares of capital stock
represent all of the outstanding shares of the Company's capital stock prior to
the date hereof. As of the Closing and after giving effect to the transactions
contemplated hereby, the authorized capital stock of the Company will consist of
50,000,000 shares of Common Stock, of which 18,041,667 shares will be issued and
outstanding, and 8,333,333 shares of Convertible Preferred Stock, of which
8,333,333 shares will be issued and outstanding. In addition, the Company has
authorized and reserved for issuance upon conversion of the Convertible
Preferred Shares up to 8,333,333 Conversion Shares (subject to adjustment for
stock splits, stock dividends and the like) and has reserved for issuance upon
exercise of options under the BSQUARE Corporation Amended and Restated Stock
Option Plan (the "Plan") 3,625,000 shares of Common Stock (subject in each case
to adjustments for stock splits, stock dividends and the like). A copy of the
Plan, as amended to date, is included in Section 2.3 of the Disclosure Schedule.
Except for the 3,625,000 shares of Common Stock issuable upon the exercise of
options granted under the Plan and the Conversion Shares, the Company has not
issued or agreed to issue and is not obligated to issue any warrants, options or
other rights to purchase or acquire any shares of its capital stock, or any
securities convertible into or exercisable or exchangeable for such shares or
any warrants. options or other rights to acquire any such convertible
securities. As of the Closing,
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and after giving effect to the transactions contemplated hereby, all of the
outstanding shares of capital stock of the Company (including, without
limitation, the Convertible Preferred Shares) will have been duly and validly
authorized and issued, fully paid and nonassessable and, except as set forth
herein, not subject to any preemptive rights and will have been offered, issued,
sold and delivered in compliance with applicable federal and state securities
laws. The Conversion Shares will, upon issuance, be duly and validly authorized
and issued, fully paid and nonassessable and not subject to any preemptive
rights and will he issued in compliance with applicable federal and state
securities laws. The relative rights, preferences and other provisions relating
to the Convertible Preferred Shares are as set forth in Exhibit B attached
hereto. There are no preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the issuance, sale
or redemption of the Company's capital stock, other than as described in Section
2.3 of the Disclosure Schedule and rights to which the Investors and
Shareholders are entitled as set forth in this Agreement or the Certificate of
Designation (as defined herein), and except as described in the Redemption
Agreements. Except as set forth herein, there are no rights to have the
Company's capital stock registered for sale to the public under the laws of any
jurisdiction, no agreements relating to the voting of the Company's voting
securities, and no restrictions on the transfer of the Company's capital stock,
except as set forth in Section 2.3 of the Disclosure Schedule. After giving
effect to the transactions contemplated hereby, the outstanding shares of the
Company's capital stock are held beneficially and of record by the persons
identified in Section 2.3 of the Disclosure Schedule in the amounts indicated
thereon.
2.4 Subsidiaries; Investments. The Company has no subsidiaries or
interests in any corporation, joint venture, partnership or other entity.
2.5 Financial Statements and Matters.
(a) The Company has previously furnished to the Investors copies of
its unaudited financial statements for the fiscal years ended December 31, 1996
and December 31, 1997. Such financial statements referred to in this Section
2.5(a) were prepared in conformity with generally accepted accounting principles
applied on a consistent basis, are complete, correct and consistent in all
material respects with the books and records of the Company and fairly and
accurately present the financial position of the Company as of the dates thereof
and the results of operations and cash flows of the Company for the periods
shown therein.
(b) The Company has at least $2,000,000 of working capital at the
date hereof.
(c) The projections given to the Investors represent good faith
estimates of the Company's performance for 1998 and future years and are based
upon assumptions which are set forth therein and which were in good faith
believed to be reasonable when made and continue to be reasonable as of the date
hereof; provided, however, that projections as to future events are not to be
viewed as fact and that actual results likely will differ from the projected
results and that the differences may be material; provided, further, that the
Investors acknowledge that such projections contain certain forward-looking
statements which involve known and unknown risks,
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uncertainties and other factors which may cause actual results, performance or
achievements of the Company to differ materially from those expressed or implied
by such forward-looking statements.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the balance sheet of the Company at December
31, 1997 contained in the financial statements referred to in Section 2.5(a)
(the "Base Balance Sheet") or as set forth in Section 2.6 of the Disclosure
Schedule, the Company does not have and is not subject to any material liability
or obligation of any nature, whether accrued, absolute, contingent or otherwise.
2.7 Absence of Certain Developments. Since the date of the Base Balance
Sheet, except as set forth in Section 2.7 of the Disclosure Schedule, there has
not been any: (i) material adverse change in the financial condition of the
Company or in the assets, liabilities, condition (financial or other), business
or results of operations of the Company, (ii) declaration, setting aside or
payment of any dividend or other distribution with respect to, or any direct or
indirect redemption or acquisition of, any of the capital stock of the Company,
(iii) waiver of any valuable right of the Company or cancellation of any debt or
claim held by the Company, (iv) loss, destruction or damage to any property
which is material to the assets, liabilities, condition (financial or other),
properties, business, results of operations or prospects of the Company, whether
or not insured, (v) acquisition or disposition of any material assets or other
transaction by the Company other than in the ordinary course of business, (vi)
transaction or agreement involving the Company and any officer, director,
employee or shareholder of the Company, (vii) increase, direct or indirect, in
the compensation paid or payable to any officer, director, employee or agent of
the Company or any establishment or creation of any employment or severance
agreement or employee benefit plan, (viii) material loss of personnel of the
Company, material change in the terms and conditions of the employment of the
Company's key personnel or any labor trouble involving the Company, (ix)
arrangements relating to any royalty, dividend or similar payment to employees,
customers, or independent contractors based on the sales volume of the Company.
whether as part of the terms of the Company's capital stock or by any separate
agreement, (x) customer contract or other arrangement pursuant to which the
Company has agreed to provide products or services at a below-market rate, (xi)
loss or any development that could result in a loss of any significant customer,
account or employee of the Company, (xii) incurrence of indebtedness or any
lien, (xiii) transaction not occurring in the ordinary course of business, or
(xiv) any agreement with respect to any of the foregoing actions.
2.8 Ordinary Course. Since the date of the Base Balance Sheet, the Company
has conducted its business only in the ordinary course and consistent with its
prior practices.
2.9 Accounts Receivable. All of the accounts receivable of the Company,
whether shown or reflected on the Base Balance Sheet or otherwise, represent
bona fide completed sales of products or services made in the ordinary course of
business, are valid and enforceable claims, are subject to no known set-offs or
counterclaims, and are, in the best judgment of the Company, fully collectible
in the normal course of business after deducting the reserve set forth in the
Base
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Balance Sheet and adjusted since that date, which reserve is a reasonable
estimate of the Company's uncollectible accounts.
2.10 Title to Properties. Section 2.10 of the Disclosure Schedule sets
forth the addresses and uses of all real property that the Company owns, leases
or subleases. The Company has good, valid and (if applicable) marketable title
to all of its owned assets, including, without limitation, those assets
reflected on the Base Balance Sheet or acquired by it after the date thereof
(except for properties disposed of since that date in the ordinary course of
business), free and clear of all liens, claims or encumbrances of any nature,
other than (i) the lien of current taxes not yet due and payable, and (ii)
possible liens and encumbrances which do not in any case materially detract from
the value of the property subject thereto or materially impair the operations of
the Company, and which have not arisen otherwise than in the ordinary course of
business. All equipment included in such properties which is necessary to the
business of the Company is in good condition and repair (ordinary wear and tear
excepted) and all leases of real or personal property to which the Company is a
party are fully effective and afford the Company peaceful and undisturbed
possession of the subject matter of the lease. The property and assets of the
Company are sufficient for the conduct of its business as presently conducted.
To its knowledge, the Company is not in violation of any zoning, building or
safety ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties, the violation of
which would have a Material Adverse Effect, nor has it received any notice of
any such violation. There are no defaults by the Company or, to the knowledge of
the Company, by any other party, which might curtail in any material respect the
present use of the Company's property. The performance by the Company of this
Agreement or any other agreement, document, or instrument contemplated hereby
will not result in the termination of, or in any increase of any amounts payable
under, any of its leases.
2.11 Tax Matters. The Company has filed all federal, state, local and
foreign income, excise and franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by it where the failure to file such returns would have a Material
Adverse Effect and has paid all taxes owing by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5(a) above or
which will not have a Material Adverse Effect. The provision for taxes on the
Base Balance Sheet is sufficient as of its date for the payment of all accrued
and unpaid federal, state, county and local taxes of any nature of the Company,
and any applicable taxes owing to any foreign jurisdiction, whether or not
assessed or disputed. All taxes and other assessments and levies which the
Company is required to withhold or collect have been withheld and collected and
have been paid over to the proper governmental authorities except where the
failure to withhold or collect and pay over would not have a Material Adverse
Effect. With regard to the federal income tax returns of the Company, the
Company has never received notice of any audit or of any proposed deficiencies
from the Internal Revenue Service. There are in effect no waivers of applicable
statutes of limitations with respect to any taxes owed by the Company for any
year. Neither the Internal Revenue Service nor any other taxing authority is now
asserting or, to the knowledge of the Company, threatening to assert against the
Company any deficiency or claim for additional taxes or interest thereon or
penalties
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in connection therewith. The Company (and any predecessor of the Company) was a
validly electing "S-corporation" within the meaning of Section 1361 and Section
1362 of the Internal Revenue Code of 1986, as amended, at all times through the
end of the Company's taxable year ending October 15, 1997.
2.12 Certain Contracts and Arrangements. Except as set forth in Section
2.12 of the Disclosure Schedule (with true and correct copies delivered to the
Investors), the Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of the
Company to pay to any third party $50,000 or more with respect to any single
such contract or agreement;
(c) any contract or agreement for the sale, license, lease or
disposition of products or services in excess of $200,000;
(d) any contract containing covenants directly or explicitly limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
(e) any license agreement (as licensor or licensee), other than such
licenses or agreements arising solely from the purchase of "off the shelf" or
standard products, involving payments by or to the Company in excess of
$200,000;
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $50,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $50,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any endorsement or any other advertising, promotional or
marketing agreement;
(j) any employment contracts, or agreements with officers, directors,
employees or shareholders of the Company or persons or organizations related to
or affiliated with any such persons;
(k) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including, without
limitation, any agreement with
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any shareholder of the Company which includes, without limitation, anti-dilution
rights, registration rights, voting arrangements, operating covenants or similar
provisions;
(l) any pension, profit sharing, retirement, stock option, phantom
stock or other equity incentive, bonus or commission plans;
(m) any arrangement relating to any royalty, dividend or similar
payments to employees, customers or independent contractors based on the sales
volume of the Company;
(n) any acquisition, merger or similar agreement;
(o) any contract with a governmental body under which the Company may
have an obligation for renegotiation;
(p) any agreement with any shareholder of the Company or any
affiliate of any shareholder; or
(q) any other material contract not executed in the ordinary course
of business.
All of the Company's contracts, agreements, understandings and commitments
are in full force and effect and neither the Company nor, to the knowledge of
the Company, any other party is in default thereunder (nor, to the knowledge of
the Company, has any event occurred which with notice, lapse of time or both
would constitute a default thereunder), except to the extent that any such
default would not have a Material Adverse Effect, and the Company has not
received notice of any alleged default under any such contract, agreement,
understanding or commitment.
2.13 Intellectual Property Rights; Employee Restrictions. Except as set
forth in Section 2.13 of the Disclosure Schedule:
(a) The Company has exclusive ownership of, or sufficient right to
use, sell, license, dispose of, and bring actions for infringement of, all
Intellectual Property Rights (as hereinafter defined) material to the conduct of
its business as presently conducted, including, without limitation, the
Company's name and the trademarks and product names listed in Section 2.13 of
the Disclosure Schedule (the "Company Rights").
(b) The business of the Company as presently conducted and the
provision of the services provided by the Company do not violate any agreements
that the Company has with any third party or, to the knowledge of the Company,
infringe any patent, trademark, service xxxx, copyright, trade secret or any
other Intellectual Property Rights of any third party.
(c) No claim is pending or, to the knowledge of the Company,
threatened against the Company nor has the Company received any notice of any
claim from any third party asserting that any of the Company's present or
contemplated activities infringe or may infringe any
16
Intellectual Property Rights of such third party, and the Company is not aware
of any infringement by any other third party of any Intellectual Property Rights
of the Company.
(d) The Company has taken all commercially reasonable steps required
to establish and preserve its ownership of all of the Company Rights; each
current and former employee of the Company, and each of the Company's
consultants and independent contractors involved in development of any of the
Company Rights, has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions and copyrights to the Company, and, to
the best knowledge of the Company, none of such employees, consultants or
independent contractors is in violation of any agreement or in breach of any
agreement or arrangement with former or present employers relating to
proprietary information or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth in Section 2.13 of the Disclosure Schedule and all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service xxxx applications, copyrights, copyright
applications, computer programs and other computer software, inventions,
designs, samples, specifications, schematics, know-how, trade secrets,
proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records. Section 2.13 of
the Disclosure Schedule contains a list and brief description of all
Intellectual Property Rights owned by or registered in the name of the Company
or of which the Company is the licensor or a licensee of a material right or in
which the Company has any material right and, in each case, a brief description
of the nature of the right.
2.14 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or affecting any of its properties or assets or against any officer,
director or key employee of the Company in his or her capacity as an officer,
director or employee of the Company, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into question the validity or hinder the enforceability of this
Agreement or any other agreements or transactions contemplated hereby; nor, to
the knowledge of the Company, has there occurred any event, nor does there exist
any condition, on the basis of which any such litigation, proceeding or
investigation might be properly instituted or commenced.
2.15 Employee Benefit Plans. The Company does not maintain or contribute to
any employee benefit, stock option, bonus or incentive plan, severance pay
policy or agreement, deferred compensation agreement, or any similar plan or
agreement (an "Employee Benefit Plan") other than the Employee Benefit Plans
identified and described in Section 2.15 of the Disclosure Schedule. The terms
and operation of each Employee Benefit Plan comply in all material respects with
all applicable laws and regulations relating to such Employee Benefit Plans.
There are no unfunded obligations of the Company under any retirement, pension,
profit-sharing, or deferred
17
compensation plan or similar program. The Company is not required to make any
payments or contributions to any Employee Benefit Plan pursuant to any
collective bargaining agreement or, to the knowledge of the Company, any
applicable labor relations law, and all Employee Benefit Plans are terminable at
the discretion of the Company without liability to the Company upon or following
such termination. The Company has never maintained or contributed to any
Employee Benefit Plan providing or promising any health or other non-pension
benefits to terminated employees.
2.16 Labor Laws. The Company generally enjoys good employer-employee
relationships. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it as of the date hereof or amounts required to be
reimbursed to such employees. The Company is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, terms and conditions of employment, and wages and
hours. There are no charges of employment discrimination or unfair labor
practices or strikes, slowdowns, stoppages of work or any other concerted
interference with normal operations existing, pending or, to the knowledge of
the Company, threatened against or involving the Company.
2.17 Employees and Suppliers.
(a) Section 2.17 of the Disclosure Schedule contains a list of all
managers, employees and consultants of the Company who, individually, have
received compensation from the Company for the fiscal year of the Company ended
December 31, 1997 in excess of $100,000. In each case, Section 2.17 of the
Disclosure Schedule includes the current job title, years of service with the
Company and aggregate annual compensation and benefits of each such individual.
To the knowledge of the Company and the Shareholders, no key employee of the
Company has any plan or intention to terminate his or her employment with the
Company. The Company has complied in all material respects with the immigration
laws of the United States with respect to the hiring, employment and engagement
of all of its employees and consultants who are not United States citizens, and,
to the knowledge of the Company, the immigration or residency status. of each of
such employees and consultants is sufficient to allow such employees and
consultants to remain lawfully employed or engaged by the Company.
(b) Section 2.17 of the Disclosure Schedule sets forth a list of all
suppliers of the Company to whom during the twelve months ended December 31,
1997 the Company made payments aggregating $100,000 or more (the "Suppliers"),
showing, with respect to each, the name, address and dollar volume involved. To
the knowledge of the Company, no Supplier has any plan or intention to terminate
or reduce its business with the Company or to materially and adversely modify
its relationship with the Company.
2.18 Hazardous Waste, Etc. No hazardous wastes, substances or materials or
oil or petroleum products have been generated, transported, used, disposed of,
stored or treated by the Company and no hazardous wastes. substances or
materials, or oil or petroleum products have
18
been released, discharged, disposed of, transported, placed or otherwise caused
to enter the soil or water in, under or upon any real property owned, leased or
operated by the Company while the Company occupied such property.
2.19 Business; Compliance with Laws. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently, or
is contemplated to be, conducted, except where the failure to have such
franchise, permit, license or other right would not have a Material Adverse
Effect. The Company is currently, and has heretofore been, in compliance in all
material respects with all federal, state, local and foreign laws and
regulations.
2.20 Investment Banking; Brokerage. Except as set forth in Section 2.20 of
the Disclosure Schedule, there are no claims for investment banking fees,
brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees to lawyers and accountants) in connection with the
transactions contemplated by this Agreement payable by the Company or based on
any arrangement or agreement made by or on behalf of the Company or any of the
Shareholders.
2.21 Insurance. The Company has fire, casualty, product liability and
business interruption and other insurance policies, with extended coverage,
sufficient in amount to allow it to replace any of its material properties which
might be damaged or destroyed or to cover liabilities to which the Company may
reasonably become subject, and such types and amounts of other insurance with
respect to its business and properties, on both a per occurrence and an
aggregate basis, as are customarily carried by entities engaged in the same or
similar business as the Company. There is no default or event which could give
rise to a default under any such policy. Section 2.21 of the Disclosure Schedule
constitutes a full and complete list of all insurance policies and any
underlying risk financing and claims adjustment agreements maintained by the
Company.
2.22 Transactions with Affiliates. There are no loans, leases, contracts or
other transactions in existence between the Company and any officer, director or
five percent (5%) shareholder of the Company or any family member or affiliate
of the foregoing persons and there have been no such transactions within the
past five (5) years except as set forth in Section 2.22 of the Disclosure
Schedule.
2.23 Customers. Section 2.23 of the Disclosure Schedule sets forth each
customer of the Company who accounted for more than 5% of the sales of the
Company for the twelve months ended December 31, 1997 (collectively, the
"Customers"). The relationships of the Company with its Customers are generally
good commercial working relationships. No Customer of the Company has canceled
or otherwise terminated its relationship with the Company, or has during the
last twelve months decreased materially its services, supplies or materials to
the Company or its usage or purchases of the services or products of the
Company. No Customer has, to the knowledge of the Company, any plan or intention
to terminate, cancel or otherwise materially and adversely modify its
relationship with the Company or to decrease materially or limit its services,
19
supplies or materials to the Company or its usage, purchase or distribution of
the services or products of the Company.
2.24 Relationship with Microsoft. The Company expects to sign a contract
with Microsoft Corporation for a term of at least two years on terms and
conditions no less favorable to the Company than the Development and License
Agreement, dated June 12, 1997, by and between Microsoft Corporation and the
Company, as amended by Amendment No. 1 to Development and License Agreement,
dated December 17, 1997 (the "Microsoft Agreement"); provided, however, that
there can be no assurance that such a contract will be entered into by the
parties for such duration, on such terms and conditions, or at all. The
Microsoft Agreement is attached as Section 2.24 of the Disclosure Schedule.
2.25 Certain Events.
(a) During the past ten years, neither the Company nor any of the
Shareholders, officers or directors of the Company has had a petition under the
Bankruptcy Reform Act of 1978, as amended, or any state insolvency law, filed by
or against any of them, or has had a receiver, fiscal agent or similar officer
appointed by a court for any of their business or property or any partnership in
which any of them was a general partner at or within two years before the time
of such filing, or any corporation or business association of which any of them
was an officer, director or stockholder at or within two years before the time
of such filing.
(b) During the past ten years, neither the Company nor any of the
Shareholders, officers and directors of the Company has been convicted in a
criminal proceeding or is a named subject of a criminal proceeding which is
presently pending (excluding traffic violations and other minor offenses).
(c) During the past ten years, neither the Company nor any of the
Shareholders, officers and directors of the Company has been, or is, the subject
of any order, judgment or decree, whether or not subsequently reversed,
suspended or vacated, of any court or any administrative agency, requiring the
payment of money damages in excess of $50,000 or permanently or temporarily
enjoining any of them from, or otherwise limiting any of their abilities to
engage in, any type of business practice.
2.26 Disclosure. The representations and warranties made or contained in
this Agreement, the Disclosure Schedule, the Exhibits hereto and the
certificates and statements executed or delivered in connection herewith, and
written information concerning the business of the Company delivered by officers
of the Company to the Investors in connection with or pursuant to this
Agreement, when taken together, do not and shall not contain any untrue
statement of a material fact and do not and shall not omit to state a material
fact required to be stated therein or necessary in order to make such
representations, warranties or other material not misleading in light of the
circumstances in which they were made or delivered. There have been no events or
transactions, or information which has come to the attention of the management
of the Company, having a direct impact on the Company or its assets,
liabilities, financial condition, business,
20
results of operations or prospects which, in the reasonable judgment of such
management, could reasonably be expected to have a Material Adverse Effect.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(a) Each Investor represents to the Company that (i) it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and making an informed investment decision with respect thereto, (ii) it is able
to bear the economic risk of an investment in the Securities and can afford to
sustain a substantial loss on such investment, (iii) it has had, during the
course of this transaction, the opportunity to ask questions and receive answers
from the Company concerning the Company and this Agreement, (iv) it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act, and (v) it is purchasing the Convertible Preferred Shares for its own
account, for investment only and not with a view to, or any present intention
of, effecting a distribution of such securities or any part thereof except
pursuant to a registration or an available exemption under applicable law. Such
Investor acknowledges that its respective Convertible Preferred Shares have not
been registered under the Securities Act or the securities laws of any state or
other jurisdiction and cannot be disposed of unless they are subsequently
registered under the Securities Act and any applicable state laws or an
exemption from such registration is available.
(b) Each Investor understands that the Securities have not been
registered under the Securities Act, that there is no public market for the
Securities and that it must bear the economic risk of investment in the Company
for an indefinite period of time.
(c) Each Investor has full right, authority and power under its
governing partnership agreement to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's governing partnership agreement. This Agreement and each
agreement, document and instrument executed and delivered by each Investor
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of each such
Investor enforceable in accordance with their respective terms. The execution,
delivery and performance by each Investor of this Agreement and each such other
agreement, document and instrument, and the performance of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any contract or obligation to which any such Investor is a party or
by which it or its assets are bound, or cause the creation of any encumbrance
upon any of the assets of such Investor; (B) violate or result in a violation
of, or constitute a default under. any provision of any law, regulation or rule,
or any order of, or any restriction imposed by, any court or other governmental
agency applicable to such Investor; (C) require from such Investor any notice
to, declaration or filing with, or consent or approval of any governmental
21
authority or other third party; or (D) accelerate any obligation under, or give
rise to a right of termination of, any agreement, permit, license or
authorization to which any such Investor is a party or by which such Investor is
bound.
(c) Each Investor represents that there are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such Investor.
SECTION 3. CONDITIONS OF PURCHASE
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to the compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before and at the
Closing Date of the following conditions:
3.1 Satisfaction of Conditions. The representations and warranties of the
Company and the Shareholders contained in this Agreement shall be true and
correct on and as of the Closing Date; each of the conditions specified in this
Section 3 shall have been fulfilled to the Investors' satisfaction or waived in
writing by the Investors; and, on the Closing Date, certificates to such effect
executed by the President and Chief Operating Officer of the Company shall have
been delivered to the Investors.
3.2 Director Election. Each of Xxxxxxx X. Xxxxxxxx and Xxxx X. Land, as
the nominees of the Investors (together with any subsequent nominees of the
Investors, the "Investors' Nominees"), shall have been elected as a director of
the Company.
3.3 Compensation and Audit Committees. The Company shall have established
a Compensation Committee (the "Compensation Committee") and an Audit Committee
(the "Audit Committee") of its Board of Directors, each of which shall be
comprised of three members in accordance with Section 4.4 hereof.
3.4 Opinion of Counsel. The Investors shall have received from the Summit
Law Group an opinion, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit F.
3.5 Consent of Spouse. The spouse of each Shareholder shall have executed
a Consent of Spouse in the form attached hereto as Exhibit G.
3.6 Authorization. The Board of Directors of the Company shall have duly
adopted resolutions in a form reasonably satisfactory to the Investors and shall
have taken all action necessary for the purpose of authorizing the Company to
execute and deliver this Agreement, and the other agreements, documents, and
instruments contemplated hereby and to consummate the transactions contemplated
hereby and thereby in accordance with the terms hereof or thereof and
22
to cause the Certificate of Designation establishing the Convertible Preferred
Shares in accordance with the terms set forth in Exhibit B hereto (the
"Certificate of Designation") to become effective; and the Investors shall have
received a certificate of the Secretary of the Company setting forth a copy of
the resolution and the Articles of Incorporation, the Bylaws, and the
Certificate of Designation of the Company and such other matters as may be
reasonably requested by the Investors.
3.7 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors.
3.8 Investors' Fees. The Company shall have paid on behalf of the
Investors all legal fees and related expenses incurred by Xxxxxxx, Procter &
Xxxx LLP on behalf of the Investors in connection with the transactions
contemplated by this Agreement.
3.9 No Violation or Injunction. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
3.10 Consents and Waivers. The Company and the Shareholders shall have
obtained all consents or waivers necessary to execute this Agreement and the
other agreements, documents, and instruments contemplated herein, to issue and
sell the Securities to be sold to the Investors hereunder, to redeem the
Redemption Shares as contemplated herein pursuant to the Redemption Agreements
and to carry out the transactions contemplated hereby and thereby and shall have
delivered evidence thereof to the Investors. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and the
other agreements, documents and instruments executed and delivered by the
Company in connection herewith shall have been made or taken.
3.11 Compensation of Shareholders. The terms of the compensation payable to
each of Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, and Xxxxx X. Xxxxxxx, in his
capacity as an employee of the Company, shall be as set forth in Section 3.11 of
the Disclosure Schedule.
3.12 Payment of Broker Fee. The broker fee set forth in Section 2.20 of the
Disclosure Schedule shall be paid by the Company.
3.13 Termination of Existing Redemption Agreement. The Company and the
Shareholders shall have terminated that certain Redemption Agreement, dated as
of January 1, 1996, and any other existing shareholder or redemption agreement.
The Company's standard form of agreement, as approved by the Board of Directors,
to be executed by officers, employees and consultants of the Company upon the
grant to such officers, employees and consultants of options under the Plan or
upon the exercise of such options (the "Non-Founder Shareholder Agreement") is
attached as Section 3.13 of the Disclosure Schedule.
23
3.14 Key Person Insurance. The Company shall have in place "key person"
term life insurance policies of at least $1.5 million each on the lives of
Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx, each of which shall
name the Company as beneficiary.
3.15 Director Indemnification Agreements. The Company shall have entered
into indemnification agreements with each director, including the Investors'
Nominees, in the form attached hereto as Exhibit H.
3.16 Certificate of Designation. The Certificate of Designation, attached
as Section 3.16 of the Disclosure Schedule, shall have been filed with the
Secretary of State of the State of Washington and shall be in full force and
effect.
SECTION 4. COVENANTS
The Company agrees for the benefit of the Investors that it shall comply
with the following covenants, provided that the covenants set forth in Section
4.1 shall not be in effect during any period in which the Company is subject to
the periodic reporting obligations set forth in Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
that all of the covenants set forth in this Section 4 shall terminate as of the
closing of the Company's first Qualified Public Offering. A "Qualified Public
Offering" shall have the meaning provided in the Certificate of Designation.
4.1 Financial Statements and Budgetary Information; Inspection. So long as
the Investors hold at least 833,333.3 Convertible Preferred Shares or shares of
Common Stock (subject to adjustments for stock splits, stock dividends and the
like), the Investors shall have the rights, and the Company shall have the
obligations, set forth in this Section 4. 1. The Company will deliver to the
Investors internally prepared unaudited monthly and quarterly financial
statements and audited annual financial statements, as well as annual budgets
and operating plans. The monthly and quarterly financial information will be
provided within 30 days after the end of each month and quarter. The annual
budget and operating plan will be presented at a Board of Directors' meeting by
January 31 of the fiscal year of the Company covered. An annual audit by an
accounting firm of national recognition selected by the Board of Directors will
be provided within 90 days after each fiscal year-end of the Company.
The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Investors to visit and inspect any of the
properties of the Company, including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with its officers, administrative employees and independent
accountants, all at such reasonable times and as often as may be reasonably
requested.
4.2 Indemnification, Insurance. For so long as any of the Securities
remain outstanding, the Articles of Incorporation or By-laws of the Company will
at all times during which any nominee of any of the Investors serves as director
of the Company provide for
24
indemnification of the Company's directors and limitations on the liability of
the Company's directors to the fullest extent permitted under applicable state
law. Prior to any initial public offering, the Company will purchase a directors
and officers insurance policy in the amount of at least $3 million and on other
terms reasonably acceptable to two-thirds in interest of the Investors (with the
Investors' Nominees to be third party beneficiaries of this Agreement) covering,
among other things, violations of federal or state securities laws.
4.3 Board of Directors. The Board of Directors of the Company shall
consist of up to seven (7) members including the two (2) Investors' Nominees and
at least one (1) independent director mutually acceptable to the Shareholders
and the Investors (an "Independent Director"), which Independent Director shall
be nominated and elected to the Board of Directors as soon as reasonably
practicable on or following the Closing Date. The Company shall cause meetings
of its Board of Directors to be held at least four (4) times each year at
intervals of not more than four (4) months and shall pay all reasonable
out-of-pocket expenses incurred by the Investors' Nominees in connection with
attending meetings or other functions of the Company's Board of Directors or any
committees thereof and shall pay each of the Investors' Nominees and Independent
Directors fees in an amount equal to any fees that are paid to the other
non-management directors of the Company, if any.
4.4 Composition of Board Committees. Each of the Compensation Committee
and the Audit Committee shall be comprised of one member of management who is
also a director, one of the Investors' Nominees, and one Independent Director.
4.5 Restrictive Covenants. The Company will not, without the consent of
two thirds-in-interest of the Investors:
(a) sell, lease or otherwise dispose of (whether in one transaction
or a series of related transactions) all or substantially all of its assets or
business,
(b) merge with or into or consolidate with another entity or enter
into or engage in any other transaction or series of related transactions, in
any such case in connection with or as a result of which the Company is not the
surviving entity or the owners of the Company's outstanding equity securities
immediately prior to the transaction or series of related transactions do not
own at least a majority of the outstanding equity securities of the surviving,
resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise acquire for
consideration any shares of its Common Stock or any other class of its capital
stock except (i) for the redemption of Convertible Preferred Shares pursuant to
and as provided in the Certificate of Designation, (ii) as contemplated by
Sections 1.2, 4.6, and 5.2 hereof, or (iii) as contemplated by the Non-Founder
Shareholder Agreement,
25
(e) adopt any amendment to the Certificate of Designation, or any
amendment to its Articles of Incorporation or By-Laws, that eliminates, amends,
restricts or otherwise adversely affects the rights and preferences of the
Convertible Preferred Stock, or that increases the authorized shares of
Convertible Preferred Stock,
(f) declare or make dividend payments on any shares of its Common
Stock or any other class of its capital stock,
(g) create, or obligate itself to create, any class or series of
shares that has a preference over, or is on a parity with, the Convertible
Preferred Stock,
(h) increase the size of the Board of Directors to more than seven
(7) members,
(i) enter into any agreement or arrangement or take any other action
that eliminates, amends, restricts or otherwise adversely affects the rights of
the Investors hereunder or as holders of Securities of the relevant class or its
ability to perform its obligations hereunder, or
(j) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company, with or for
the benefit of any person or entity which is a shareholder, officer or director
of the Company, or which is a relative by blood or marriage of, a trust or
estate for the benefit of, or a person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such person or
entity, except (i) for normal compensation paid to employees of the Company in
the ordinary course of business and (ii) transactions expressly disclosed in or
contemplated by this Agreement and the Exhibits hereto.
4.6 Redemption. Immediately upon the sale of the Convertible Preferred
Shares, the Company shall complete the redemption of 1,111,111 Redemption Shares
from each of the Shareholders for a cash payment of $2,000,000 (or an aggregate
of 3,333,333 Redemption Shares for an aggregate cash payment of $6 million)
pursuant to a Redemption Agreement, in each case on terms reasonably
satisfactory to the Investors.
4.7 Cancellation of Shareholder Notes. The promissory notes of the Company
evidencing the loans to the Shareholders to be paid off with the proceeds from
the issuance of the Convertible Preferred Shares, as set forth in Section 4.12
of the Disclosure Schedule, shall have been delivered to the Company by the
Shareholders and marked as "CANCELED," and the Company and each of the
Shareholders shall have executed an acknowledgment as to payment in full
thereof.
4.8 Reissuance of Stock Certificates. In connection with the redemption
described in Section 4.6, all certificates representing shares of Common Stock
issued to the Shareholders on or prior to the date hereof shall be reissued with
the legends set forth in Section 9.4 of this Agreement typed on each of such
reissued certificates.
26
4.9 Key Person Insurance. The Company will maintain "key person" term life
insurance policies of at least $1.5 million each on the lives of Xxxxxxx X.
Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx, each of which shall name the
Company as beneficiary. The Company hereby agrees that such policies shall not
be assigned, borrowed against or pledged.
4.10 Compensation of Shareholders. The annual compensation paid by the
Company to Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx shall be as
set forth in Section 3.11 of the Disclosure Schedule and shall be adjusted from
time to time only by the Compensation Committee.
4.11 Stock Awards. Except for stock option awards with respect to up to
3,625,000 shares of Common Stock pursuant to the Plan as in effect on the date
hereof, the Company will not grant or award options, or stock or other
equity-based or quasi-equity rights, to officers, employees, advisers,
consultants or directors without the consent of two-thirds in interest of the
Investors. The Plan and any awards granted thereunder may not be amended,
revised or waived after the date hereof without the consent of two-thirds in
interest of the Investors.
4.12 Assignment of Rights. Each Investor may assign its rights under this
Section 4 in connection with any transaction or series of related transactions
involving the Transfer (as defined in Section 5.1) to one or more transferees of
at least 833,333.3 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any fund managed by
or associated with TA Associates, Inc. ("TA Funds") or Encompass Ventures
("Encompass Funds"). Upon any such Transfer, such transferee or TA Fund or
Encompass Fund thereupon shall be deemed an "Investor" for purposes of this
Section 4 with the rights set forth in this Section.
4.13 Compliance with Laws. The Company will comply in all respects with all
applicable statutes, rules and regulations of the United States and of all other
jurisdictions applicable to it, and of the states thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction applicable
to it, except where compliance therewith shall at the time be contested in good
faith by appropriate proceedings or where noncompliance therewith could not have
a Material Adverse Effect.
4.14 Use of Proceeds. Unless otherwise approved by two-thirds in interest
of the Investors, the Company shall use the proceeds of the issuance of the
Convertible Preferred Shares only in the manner described in Section 4.14 of
the Disclosure Schedule.
4.15 Audited Financial Statements. The Company shall deliver to the
Investors audited financial statements for the fiscal years ending December 31,
1996 and December 31, 1997, as soon as reasonably practicable after the Closing.
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SECTION 5. TRANSFER RESTRICTIONS
The following provisions of this Section 5 shall terminate immediately
prior to the closing of a Qualified Public Offering and shall not apply with
respect to any Qualified Public Offering.
5.1 General Restriction.
(a) Each Shareholder agrees that neither such Shareholder nor any of
such Shareholder's permitted transferees as contemplated below will directly or
indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or
otherwise dispose of (any such action a "Transfer") all or any portion of the
shares of capital stock of the Company now owned or hereafter acquired by such
Shareholder or any of them, except (i) to permitted transferees as permitted by
Section 5.1(b) and (ii) in bona fide sales to third parties for value following
compliance with Section 5.
(b) Permitted Transfers by a Shareholder shall include (i) any pledge
made pursuant to a bona fide loan transaction that creates a mere security
interest but shall not include any Transfer upon the exercise of any rights in
respect of any such security interest, (ii) Transfers to the Shareholder's
grandparents, parents, spouse, children (including adopted children), or
grandchildren, to a trust of which such Shareholder is the settlor or a trustee
for the benefit of such Shareholder's grandparents, parents, spouse, children
(including adopted children) or grandchildren or to charitable institutions,
(iii) Transfers in connection with any bona fide gift, and (iv) Transfers upon a
Shareholder's death to such Shareholder's heirs, executors or administrators or
to a trust under such Shareholder's will or to his or her guardian or
conservator; provided that in any such case the transferee shall have entered
into an enforceable written agreement providing that all shares so Transferred
shall continue to be subject to all provisions of this Agreement as if such
shares were still held by the Shareholder, and provided further that such
permitted transferee shall not be permitted to make any further Transfers
without complying with the provisions of this Section 5. Anything to the
contrary in this Agreement notwithstanding, Transfers under this Section 5.1(b)
shall not be subject to Section 5.2 or Section 5.3 and transferees permitted by
this Section 5.1(b) shall take any shares so Transferred subject to all
obligations under this Agreement as if such shares were still held by the
Shareholder whether or not they so expressly agree.
5.2 Right of First Refusal. If at any time on or after the date hereof a
Shareholder (such term to include for all purposes of this Section 5.2 any
permitted transferees of such Shareholder's shares pursuant to Section 5.1(b))
receives a bona fide offer to purchase any or all of such Shareholder's shares
(an "Offer") from an unaffiliated third party (an "Offeror") which such
Shareholder wishes to accept, such Shareholder may Transfer such shares pursuant
to and in accordance with this Section 5.2 and Section 5.4 below:
(a) Such Shareholder (for purposes of this Section 5.2, a "Selling
Shareholder") shall cause the Offer to be reduced to writing and shall notify
the Company, the Investors, and the other Shareholders (the "Other
Shareholders") in writing of the Offer and of such Selling
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Shareholder's desire to accept the Offer and shall otherwise comply with the
provisions of this Section 5. The Selling Shareholder's notice shall constitute
an irrevocable offer to sell such shares to the Company, the Investors, and the
Other Shareholders at a purchase price equal to the price contained in, and on
the same terms and conditions of, the Offer. The notice shall be accompanied by
a true copy of the Offer (which shall identify the Offeror).
(b) The Company shall have the right to purchase all or a portion of
the shares covered by the Offer. To exercise such right, the Company shall,
within 10 days of receipt of such written notice, communicate in writing such
election (which writing shall specify the number of shares to which such
election relates) to the Selling Shareholder (with copies to the Investors and
the Other Shareholders). Subject to Section 5.2(d) below, the Company's written
election to purchase shares covered by the Offer shall constitute a valid,
legally binding and enforceable agreement between the Selling Shareholder and
the Company for the sale and purchase of the number of shares so elected to be
purchased.
(c) In the event that the Company does not exercise its rights
pursuant to Section 5.2(b) to purchase all of the shares covered by the Offer,
the Selling Shareholder shall notify the Investors and the Other Shareholders in
writing of such fact (the "Purchase Notice"). At any time within 10 days after
receipt by the Investors and the Other Shareholders of the Purchase Notice (the
"Purchase Notice Period"), one or more of the Investors and Other Shareholders
may, subject to the terms hereof, choose to accept the Offer with respect to
all, but not less than all, of the remaining shares covered thereby by giving
written notice to the Selling Shareholder to such effect; provided, that if two
or more of the Investors and Other Shareholders choose, in the aggregate, to
accept such Offer with respect to an aggregate number of shares which exceeds
the number of shares subject to such Offer and available for purchase, the
number of shares for which the Offer may be accepted by each such Investor and
Other Shareholders shall, in each case, be reduced by the smallest number of
shares as shall be necessary to reduce the aggregate number of shares for which
the Offer may be accepted by the electing Investors and Other Shareholders as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; provided further, that the number of
shares for which any Investor or Other Shareholder may accept such Offer as
contemplated herein shall in no event be reduced to less than the number of
shares which bears the same proportion to the total number of shares which are
available for purchase as the number of shares of Common Stock held on the date
of the Purchase Notice by such Investor (on an as converted basis as
contemplated by the Certificate of Designation) or such Other Shareholder, as
the case may be, bears to the total number of shares of Common Stock held on the
date of the Purchase Notice by all Investors (on an as converted basis as
contemplated by the Certificate of Designation) and all Other Shareholders
accepting such Offer.
(d) All of the shares covered by the Offer must be purchased pursuant
to the terms of Section 5.2(b) and Section 5.2(c) or none of such shares may be
purchased. If all shares covered by any Offer are purchased pursuant to Section
5.2(b) and Section 5.2(c), such purchase shall be (i) at the same price and on
the same terms and conditions as the Offer if the Offer is for cash and/or notes
or (ii) if the Offer includes any consideration other than cash and notes, then
at
29
the equivalent all cash price for such other consideration. The closing of the
purchase of the shares subject to an Offer pursuant to this Section 5.2 shall
take place within 15 days after the expiration of the Purchase Notice Period, or
upon satisfaction of any governmental approval requirements, if later, by
delivery by the respective purchasers of the purchase price for shares being
purchased as provided above to the Selling Shareholder against delivery of the
certificates representing the shares so purchased, appropriately endorsed for
Transfer by such Selling Shareholder.
5.3 Right of Co-Sale.
(a) If at any time on or after the date hereof a Shareholder (such
term to include for all purposes of this Section 5.3 any permitted transferees
of such Shareholder's shares pursuant to Section 5.1(b)) proposes to sell any
shares or receives an Offer and such shares are not purchased pursuant to
Section 5.2, such Shareholder may Transfer such shares pursuant to and in
accordance with this Section 5.3 and Section 5.4 below:
(i) In such event, immediately following the last day of the
Purchase Notice Period, such Shareholder (for purposes of this Section 5.3,
a "Selling Shareholder") shall give an additional notice of the proposed
sale to the Investors and the Other Shareholders, once again enclosing a
copy of the Offer, if applicable, which shall identify the Offeror and the
number of shares proposed to be sold (the "Co-Sale Notice").
(ii) Upon the election of one or more Investors holding at least
twenty percent (20%) of the Securities, each of the Investors and Other
Shareholders shall have the right, exercisable upon written notice to such
Selling Shareholder within 10 days after delivery to it of the Co-Sale
Notice (the "Co-Sale Notice Period"), to participate in the sale on the
terms and conditions stated in the Co-Sale Notice, except that any Investor
who holds Convertible Preferred Shares shall be permitted to sell to the
relevant purchaser the Conversion Shares or, if the acquiror does not
object, the Convertible Preferred Shares. Each of the Investors and the
Other Shareholders shall have the right to sell all or any portion of its
shares on the terms and conditions in the Co-Sale Notice (subject to the
foregoing), with the maximum number of shares which may be sold by each
Investor and each Other Shareholder to be equal to the product obtained by
multiplying the number of shares proposed to be sold by the Selling
Shareholder as described in the Co-Sale Notice by a fraction, the numerator
of which is the number of shares of Common Stock held on the date of the
Co-Sale Notice by such Investor (on an as converted basis) or such Other
Shareholder, as the case may be, and the denominator of which is the sum of
the number of shares of Common Stock held on the date of the Co-Sale Notice
by all of the Investors and any assignees thereof (on an as converted
basis) and all of the Other Shareholders and their permitted transferees.
(iii) Within five days after the expiration of the Co-Sale Notice
Period, the Selling Shareholder shall notify each participating Investor
and Other Shareholder of the number of shares held by such Investor or
Other Shareholder that will be included in
30
the sale and the date on which the sale will be consummated, which shall be
no later than the later of (A) 30 days after the delivery of the Co-Sale
Notice and (B) the satisfaction of all governmental approval requirements,
if any.
(iv) Each of the Investors and the Other Shareholders may effect
its participation in any sale hereunder by delivery to the purchaser, or to
the Selling Shareholder for transfer to the purchaser, of one or more
instruments or certificates, properly endorsed for transfer, representing
the shares it elects to sell therein, provided that no Investor or Other
Shareholder shall be required to make any representations or warranties or
to provide any indemnities in connection therewith other than with respect
to title to the stock being conveyed. At the time of consummation of the
sale, the purchaser shall remit directly to each Investor or Other
Shareholder that portion of the sale proceeds to which each Investor or
Other Shareholder is entitled by reason of its participation therein. No
shares may be purchased by a purchaser from the Selling Shareholder unless
the purchaser simultaneously purchases from the Investors and the Other
Shareholders all of the shares that they have elected to sell pursuant to
this Section 5.3(a).
(b) Any shares held by a Selling Shareholder that such Selling
Shareholder desires to sell following compliance with Section 5.3(a) may be sold
to the purchaser only during the 90-day period after the expiration of the
Co-Sale Notice Period and only on terms no more favorable to such Selling
Shareholder than those contained in the Co-Sale Notice. Promptly after such
sale, such Selling Shareholder shall notify the Investors and the Other
Shareholders of the consummation thereof and shall furnish such evidence of the
completion and time of completion of such sale and of the terms thereof as may
reasonably be requested by the Investors and the Other Shareholders. So long as
the purchaser is neither a party, nor an affiliate or relative of a party, to
this Agreement, such purchaser shall take the shares so Transferred free and
clear of any further restrictions of this Section 5. If, at the end of such
90-day period, such Selling Shareholder has not completed the sale of such
shares as aforesaid, all the restrictions on Transfer contained in this Section
5 shall again be in effect with respect to such shares.
5.4 Assignment of Rights. If two or more Shareholders (and their permitted
transferees, if any) propose concurrent Transfers which are subject to Section
5.2 or Section 5.3, then the provisions of Sections 5.2 and Section 5.3 shall
apply to each such proposed Transfer independently. Each Investor or Shareholder
may assign its rights under this Section 5 in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
of at least 833,333.3 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any TA Fund or
Encompass Fund, or permitted transferees of a Shareholder pursuant to Section
5.1(b). Upon any such Transfer, such transferee or TA Fund or Encompass Fund
thereupon shall be deemed an "Investor" or a "Shareholder," as the case may be,
for purposes of this Section 5 with the rights set forth in this Section.
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5.5 Sales to Strategic Purchasers. Notwithstanding anything contained in
this Agreement to the contrary, no Investor may Transfer Securities held by such
Investor to a Strategic Purchaser (as hereinafter defined) without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. For purposes of this Agreement, the term "Strategic Purchaser" shall
mean an entity actively engaged in the sale of products or services within the
imbedded systems or software industries, which entity proposes to purchase for
value Securities held by an Investor.
SECTION 6. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following
provisions of this Section 6 shall terminate immediately prior to the closing of
a Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
6.1 Right to Participate in Certain Sales of Additional Securities. The
Company agrees that it will not sell or issue any shares of capital stock of the
Company, or other securities convertible into or exercisable or exchangeable for
capital stock of the Company, or options, warrants or rights carrying any rights
to purchase capital stock of the Company unless the Company first submits a
written offer to the Investors and the Shareholders (including for all purposes
of this Section 6 each permitted transferee of a Shareholder pursuant to Section
5.1(b)) identifying the terms of the proposed sale (including price, number or
aggregate principal amount of securities and all other material terms), and
offers to each Investor and Shareholder the opportunity to purchase its Pro Rata
Share (as hereinafter defined) of the securities (subject to increase for
over-allotment if some Investors or Shareholders do not fully exercise their
rights) on terms and conditions, including price, not less favorable to the
Investors and Shareholders than those on which the Company proposes to sell such
securities to a third party or parties. Each Investor's or Shareholder's "Pro
Rata Share" of such securities shall be based on the ratio which the shares of
Common Stock held by he, she or it bears to all the issued and outstanding
shares of Common Stock calculated on a fully-diluted basis giving effect to the
conversion of convertible securities as of the date of such written offer. The
Company's offer to the Investors and Shareholders shall remain open and
irrevocable for a period of 20 days, and Investors and Shareholders who elect to
purchase shall have the first right to take up and purchase any shares or other
securities which other Investors or Shareholders do not elect to purchase, based
on the relative holdings of the electing purchasers. Any securities so offered
which are not purchased pursuant to such offer may be sold by the Company but
only on the terms and conditions set forth in the initial offer to the Investors
and Shareholders, at any time within 90 days following the termination of the
above-referenced 20-day period but may not be sold to any other person or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such 90-day period without renewed
compliance with this Section 6.1.
Notwithstanding the foregoing, the Company may (i) issue options to its
officers and employees with respect to up to 3,625,000 shares of its Common
Stock pursuant to the Plan (subject to adjustments for stock splits, stock
dividends and the like) and issue shares of its Common Stock upon the exercise
of any such stock options, (ii) issue the Conversion Shares,
32
(iii) issue shares of capital stock in connection with the merger or
consolidation of the Company or a subsidiary of the Company with any other
operating company, or the exchange of the capital stock of the Company for the
capital stock of another operating company, (iv) issue shares in connection with
the acquisition of any assets, stock or other interest in any partnership,
corporation or other entity, and (v) issue shares in connection with the
formation of any research and development partnerships, licensing or
collaborative agreements or other similar ventures, and this Section 6 shall not
apply with respect to such issuances.
6.2 Assignment of Rights. Each Investor or Shareholder may assign its
rights under this Section 6 in connection with any transaction or series of
related transactions involving the Transfer to one or more transferees of at
least 833,333.3 shares of capital stock of the Company (subject to adjustments
for stock splits, stock dividends and the like and aggregating all
contemporaneous transfers by Investors), or to any TA Fund, Encompass Fund or
permitted transferee of a Shareholder. Upon any such Transfer, such transferee
or TA Fund or Encompass Fund shall be deemed an "Investor" or "Shareholder," as
the case may be, for purposes of this Section 6 with the rights set forth in
this Section.
SECTION 7. REGISTRATION RIGHTS
33
7.1 Optional Registrations. If at any time or times after the date
hereof, the Company shall seek to register any shares of its capital stock or
securities convertible into or exercisable or exchangeable for capital stock
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering of
securities by shareholders of the Company (a "secondary offering"), or both),
the Company will promptly give written notice thereof to each Investor (the
"Holders," subject to Section 7.7 below) holding Registrable Securities as
hereinafter defined in Section 7.3 below. If within 30 days after their receipt
of such notice one or more Holders request in a writing delivered to the Company
the inclusion of some or all of the Registrable Securities owned by them in such
registration, the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities requested to be so
included. In the case of the registration of shares of capital stock by the
Company in connection with any underwritten public offering, if the
underwriter(s) determines that marketing factors require a limitation on the
number of Registrable Securities to be offered, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, if any, of shares of the capital stock which the principal underwriter
of such underwritten offering shall reasonably and in good faith agree to
include in such offering in excess of any amount to be registered for the
Company; provided, however, that the number of shares of Registrable Securities
of the Holders included in any such offering subsequent to the Company's first
Qualified Public Offering shall in no event be less than twenty percent (20%) of
the aggregate number of shares of capital stock to be registered, unless the
aggregate number of shares of Registrable Securities the Holders requested in
writing to be included in such offering is less than twenty percent (20%) of the
aggregate number of shares of capital stock to be registered. If any limitation
of the number of shares of Registrable Securities to be registered by the
Holders is required pursuant to this Section 7.1, the number of Registrable
Securities that may be included in the registration on behalf of the Holders
shall be allocated among the Holders or the holders of any other registration
rights in proportion, as nearly as practicable, to the respective holdings of
Registrable Securities of all Holders requesting registration. The provisions of
this Section 7.1 will not apply to a registration effected solely to implement
(i) an Employee Benefit Plan, or (ii) a transaction to which Rule 145 or any
other similar rule of the Securities and Exchange Commission (the "SEC" or the
"Commission") under the Securities Act is applicable.
34
7.2 Required Registrations.
(a) Demand Registration. On one or more occasions at any time after the
earlier of the fifth anniversary of the Closing Date or the first anniversary of
the effective date of the Company's first registration statement under the
Securities Act, an Investor or Investors holding at least 50% of the Registrable
Securities held by the Investors may request that the Company register under the
Securities Act all or a portion of the Registrable Securities held by such
requesting Investors; provided, however, that if a registration under this
Section 7.2(a) is the Company's first public offering of securities registered
under the Securities Act, then the minimum price to the public of the shares
being registered must be no less than $4.50 per share, the gross proceeds with
respect to the shares being registered must exceed $7,500,000, and the shares
included in such registration must be underwritten by an underwriter selected by
the Company and reasonably acceptable to the Investors.
(b) Form S-3. After the first public offering of its securities
registered under the Securities Act, the Company shall use its best efforts to
qualify and remain qualified to register securities on Form S-3 (or any
successor form) under the Securities Act. Any Investor or Investors shall have
the right to request any number of registrations on Form S-3 (or any successor
form) for the Registrable Securities held by such Investor, including
registrations for the sale of such Registrable Securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act. Such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
shares by such Investor or Investors. The Company shall not be required to
effect a registration under this Section 7.2(b) if (i) the aggregate price to
the public with respect to the shares being registered is less than $ 1,000,000,
or (ii) the Company has completed a registration under this Section 7.2(b)
within the past 12 months.
(c) Registration Requirements. Following a request pursuant to Section
7.2(a) or Section 7.2(b) above, the Company will notify all of the Holders who
would be entitled to notice of a proposed registration under Section 7.1 above
and any other holder of piggyback registration rights of its receipt of such
notification from such Investor or Investors. Upon the written request of any
such Holder or other holder of the Company's securities delivered to the Company
within 20 days after receipt from the Company of such notification, the Company
will either (i) elect to make a primary offering, in which case the rights of
such Holders shall be as set forth in Section 7.1 above (in which case the
registration shall not count as one of the Investors' permitted demand
registrations under this Section 7.2), or (ii) use its best efforts to cause
such of the Registrable Securities as may be requested by any Holders and any
other holders of piggyback registration rights to be registered under the
Securities Act in accordance with the terms of this Section 7.2; provided,
however, that the number of shares of Registrable Securities of the Holders
included in any such offering shall in no event be less than twenty percent
(20%) of the aggregate number of shares of capital stock to be registered,
unless the aggregate number of shares of Registrable Securities the Holders
requested in writing to be in such offering is less than twenty percent (20%) of
the aggregate number of shares of capital stock to be registered.
35
(d) Number of Required Registrations. The Company will not be obligated
pursuant to this Section 7.2 to effect more than two registration statements on
Form S-1 or S-2, but shall be obligated to file an unlimited number of
registration statements on Form S-3.
(e) Postponement. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 120 days in the aggregate during any twelve-month period, if the
Company has been advised by legal counsel that such filing would require a
special audit or the disclosure of a material impending transaction or other
matter and the Company's Board of Directors determines reasonably and in good
faith that such disclosure would have a Material Adverse Effect. The Company
shall not be required to cause a registration statement requested pursuant to
this Section 7.2 to become effective prior to 90 days following the effective
date of a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors that the
Company is commencing to prepare a Company-initiated registration statement
(other than a registration effected solely to implement an Employee Benefit Plan
or a transaction to which Rule 145 or any other similar rule of the SEC under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly.
(f) Suspension. In the case of a registration for the sale of
Registrable Securities, upon receipt of any notice (a "Suspension Notice") from
the Company of the happening of any event which makes any statement made in the
registration statement or related prospectus untrue or which requires the making
of any changes in such registration statement or prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
each Holder of Registrable Securities registered under such registration
statement shall forthwith discontinue disposition of such Registrable Securities
pursuant to such registration statement until such Holder's receipt of the
copies of the supplemented or amended prospectus or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus; provided, however, that the
Company shall not give a Suspension Notice until after the registration
statement has been declared effective and shall not give more than one
Suspension Notice to the Holders in respect to all Registrable Securities and
pursuant to this Section 7 during any period of twelve consecutive months and in
no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice or
copies of the supplemented or amended prospectus (the "Suspension Period")
exceed 90 days. In the event that the Company shall give any Suspension Notice,
the Company shall use its best efforts and take such actions as are reasonably
necessary to render the Advice and end the Suspension Period as promptly as
practicable.
7.3 Registrable Securities. For the purposes of this Section 7, the term
"Registrable Securities" shall mean any shares of Common Stock held by a Holder
or subject to acquisition by a Holder upon conversion of Convertible Preferred
Shares, as applicable, including any shares
36
issued by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; provided, however, that if an Investor owns Convertible
Preferred Shares, the Investor may exercise its registration rights hereunder by
converting the shares to be sold publicly into Common Stock as of the closing of
the relevant offering and shall not be required to cause such Convertible
Preferred Shares to be converted to Common Stock until and unless such Closing
occurs, and provided, further, that any Common Stock that is sold in a
registered sale pursuant to an effective registration statement under the
Securities Act or pursuant to Rule 144 thereunder, or that may be sold without
restriction as to volume or otherwise pursuant to Rule 144 under the Securities
Act (as confirmed by an unqualified opinion of counsel to the Company), shall
not be deemed Registrable Securities.
7.4 Further Obligations of the Company. Whenever the Company is required
hereunder to register any Registrable Securities, it agrees that it shall also
do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of
underwriting discounts and commissions) and the reasonable fees and expenses of
not more than one independent counsel for the Holders satisfactory to two-thirds
in interest of the Investors in connection with any registrations pursuant to
Section 7.1, up to one registration on Form S-1 or S-2 designated by two-thirds
in interest of the Investors and up to three registrations on Form S-3
designated by two-thirds in interest of the Investors, provided that the
Investors shall pay all such expenses in connection with any other demand
registrations;
(b) Use its best efforts (with due regard to management of the ongoing
business of the Company and the allocation of managerial resources) diligently
to prepare and file with the SEC a registration statement and such amendments to
said registration statement and supplements to the prospectus used in connection
therewith as may be necessary to keep said registration statement effective for
at least 180 days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, and to comply with the provisions of the Securities Act with respect to
the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering;
(c) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter (which underwriter, in connection with any registration
requested pursuant to Section 7.2, shall be selected by the Company and shall be
reasonably acceptable to the Investors), if any, in such form and containing
such terms as are customary; provided, however, that no Holder shall be required
to make any representations or warranties other than with respect to its title
to the Registrable Securities and any written information provided by the Holder
to the Company, and if the underwriter requires that representations or
warranties be made and that indemnification be provided, the Company shall make
all such representations and warranties and provide all such indemnities,
including, without limitation, in respect of the Company's business, operations
and
37
financial information and the disclosures relating thereto in the prospectus;
provided further that the right of any Holder to include such Holder's
Registrable Securities in an underwritten public offering pursuant to Section
7.1 shall be conditioned on such Holder's agreement to be included in such
underwriting arrangements;
(e) Use its best efforts (with due regard to management of the ongoing
business of the Company and the allocation of managerial resources) to register
or qualify the securities covered by said registration statement under the
securities or "blue sky" laws of such jurisdictions as any selling Holder may
reasonably request, provided that the Company shall not be required to register
or qualify the securities in any jurisdictions which require it to qualify to do
business therein;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to such Holder's Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such registration statement or such prospectus contains an untrue
statement of a material fact or omits any material fact necessary to make the
statements therein not misleading, and, at the request of any such selling
Holder, prepare an amendment to such registration statement or supplement to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws of
the United States and other applicable jurisdictions and all applicable rules
and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i) Obtain and furnish to each selling Holder, immediately prior to the
effectiveness of the registration statement (and, in the case of an underwritten
offering, at the time of delivery of any Registrable Securities sold pursuant
thereto), a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the Holders of a majority of the Registrable
Securities being sold may reasonably request; and
(j) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Section 7.
38
7.5 Indemnification; Contribution.
(a) Incident to any registration statement referred to in this Section
7, the Company will indemnify and hold harmless each underwriter, each Holder
who offers or sells any such Registrable Securities in connection with such
registration statement (including its partners (including partners of partners
and shareholders of any such partners), and directors, officers, employees and
agents of any of them (a "Selling Holder"), and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (a "Controlling Person")), from and against any and all losses,
claims, damages, expenses and liabilities, joint or several (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same are incurred), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement or
prospectus), (ii) any omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any violation by the Company of the Securities Act,
any state securities or "blue sky" laws or any rule or regulation thereunder in
connection with such registration: provided, however, that the Company will not
be liable to the extent that such loss, claim, damage, expense or liability
arises from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Holder or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to the Company by such Selling
Holder expressly for use in such registration statement, such Selling Holder
will indemnify and hold harmless each underwriter, the Company (including its
directors, officers, employees and agents), each other Holder (including its
partners (including partners of partners and shareholders of such partners) and
directors, officers, employees and agents of any of them, and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise to the
same extent provided in the immediately preceding sentence. In no event,
however, shall a Selling Holder be liable for indemnification under this Section
7.5(a) for an amount in excess of the lesser of (i) the proceeds (net of the
applicable underwriting discount) received by such Selling Holder from its sale
of Registrable Securities under such registration statement, or (ii) such
Selling Holder's pro rata share of the total of such losses, claims, damages or
liabilities indemnified against, based upon the number of Registrable Securities
sold by such Selling Holder under such registration statement as a percentage of
the total number of securities sold under such registration statement.
39
(b) If the indemnification provided for in Section 7.5(a) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
7.5, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other Selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the Selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7.5(b)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a Selling
Holder be required to contribute any amount under this Section 7.5(b) in excess
of the lesser of (i) the proceeds (net of the applicable underwriting discount)
received by such Selling Holder from its sale of Registrable Securities under
such registration statement, or (ii) such Selling Holder's pro rata share of the
total of such losses, claims, damages or liabilities indemnified against, based
upon the number of Registrable Securities sold by such Selling Holder under such
registration statement as a percentage of the total number of securities sold
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not found guilty of
such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 7.5 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 7.5 will remain in full force and
effect regardless of any investigation
40
made by or on behalf of the indemnified parties or any officer, director,
employee, agent or controlling person of the indemnified parties.
(d) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions of such underwriting agreement shall
control.
7.6 Rule 144 and Rule 144A Requirements. In the event that the Company
becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 or Rule 144A under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company shall
furnish to any Holder, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirements of Rule 144 or Rule 144A or such successor
rules.
7.7 Assignment of Rights. The registration rights and related
obligations under this Section 7 of the Holders with respect to their
Registrable Securities may be assigned in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
of at least 833,333.3 shares of capital stock of the Company, other than
pursuant to an effective registration statement under the Securities Act or
pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock
dividends and the like and aggregating all contemporaneous transfers by
Holders), or to any TA Funds or Encompass Funds. Upon any such transfer, such
transferee or TA Fund or Encompass Fund shall be deemed to be included within
the definition of a "Holder" for purposes of this Section 7 with the rights set
forth in this Section.
7.8 "Market Stand-off" Agreement. In connection with any underwritten
public offering by the Company, the Holders, if requested in good faith by the
Company and the managing underwriter of the Company's securities, shall agree
not to sell or otherwise transfer or dispose of any securities of the Company
held by them (except for any securities sold pursuant to such registration
statement) for a period following the effective date of the applicable
registration statement that in no event shall exceed 180 days. Notwithstanding
the foregoing, unless otherwise consented to by two-thirds in interest of the
Investors, such an agreement shall not be required unless all officers and
directors and three percent (3%) or greater shareholders of the Company and all
other persons with registration rights enter into similar agreements. In order
to enforce the foregoing, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of each Holder (and the securities of
every other person subject to the foregoing restriction) until the end of such
period.
41
SECTION 8. ELECTION OF DIRECTORS
The following provisions of this Section 8 shall terminate on the
earliest to occur of (i) the closing of a Qualified Public Offering, or (ii) the
date which is 10 years after the date hereof.
8.1 Election of Directors. At any time at which shareholders of the
Company will have the right to or will vote shares of capital stock of the
Company in an election of directors, the Investors and the Shareholders shall
vote all shares of capital stock of the Company presently owned or hereafter
acquired by them in favor of the following action:
(a) to cause and maintain the election to the Board of Directors of one
Investor Nominee designated by a majority in interest of the Convertible
Preferred Shares held by the TA Funds (the "TA Nominee"), who shall initially be
Xxxxxxx X. Xxxxxxxx, and one Investor Nominee designated by a majority in
interest of the Convertible Preferred Shares held by Encompass Ventures (the
"Encompass Nominee"), who shall initially be Xxxx X. Land;
(b) to cause and maintain the election to the Board of Directors of
three members of the Company's management, designated by a majority in interest
of the Common Stock held by the Shareholders (the "Shareholders' Nominees"), who
shall initially be Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, and Xxxxx X. Xxxxxxx;
and
(c) to cause and maintain the election to the Board of Directors of at
least one Independent Director, designated by agreement between the Investors'
Nominees and the Shareholders' Nominees, which Independent Director shall be
nominated and elected to the Board of Directors as soon as reasonably
practicable on or following the Closing Date.
The Investors and the Shareholders shall cause the nomination for
election to the Board of Directors of the individuals set forth above.
8.2 Committees. The Company and the Shareholders shall cause the Board
of Directors to nominate and appoint at least one Investor Nominee, one
Shareholder Nominee and one Independent Director to each of the Compensation
Committee and the Audit Committee.
8.3 Vacancies and Removal.
(a) The TA Nominee may be removed during his term of office, without
cause, by and only by the affirmative vote or written consent of a majority in
interest of the Convertible Preferred Shares held by the TA Funds. The Encompass
Nominee may be removed during his term of office, without cause, by and only by
the affirmative vote or written consent of a majority in interest of the
Convertible Preferred Shares held by the Encompass Funds. A Shareholder Nominee
may be removed during his term of office, without cause, by and only by the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Common Stock (other than Conversion Shares).
42
(b) Any vacancy in the office of (i) a TA Nominee may be filled only by
the vote or written consent of a majority in interest of the Convertible
Preferred Shares held by the TA Funds, (ii) an Encompass Nominee may be filled
only by the vote or written consent of a majority in interest of the Convertible
Preferred Shares held by the Encompass Funds, or (iii) a Shareholder Nominee may
filled only by the vote or written consent of a majority of the outstanding
shares of Common Stock of the Company (other than Conversion Shares), all in
accordance with the Articles of Incorporation and Bylaws and the corporate law
of the State of Washington.
SECTION 9. GENERAL
9.1 Amendments, Waivers and Consents. For the purposes of this Agreement
and all agreements executed pursuant hereto, no course of dealing between or
among any of the parties hereto and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof may he waived
otherwise than by a written instrument signed by the party or parties so waiving
such covenant or other provision. No amendment to this Agreement may be made
without the written consent of the Company and the Investors; provided that the
written consent of the Shareholders shall be required for any amendment of
Sections 5, 6, 7, 8 or 9 hereof. Any actions required to be taken or consents,
approvals, votes or waivers required or contemplated to be given by the
Investors or the Shareholders shall require a vote of a two-thirds in interest
of the Investors or two-thirds in interest of the Shareholders, as applicable,
based on the relative holdings of capital stock of the Company of the Investors
as a group or of the Shareholders as a group, as applicable, at the relevant
time, and any such action by such Investors or Shareholders, as applicable,
shall bind all of the Investors, or Shareholders, as applicable.
9.2 Indemnification from the Company.
43
(a) Without limitation of any other provision of this Agreement, the
Company agrees to defend, indemnify and hold the Investors and their affiliates
and their respective direct and indirect partners, members, shareholders,
directors, officers, employees and agents and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (parties receiving the benefit of the indemnification agreement
herein shall be referred to collectively as "Indemnified Parties" and
individually as an "Indemnified Party") harmless from and against any and all
losses, claims, damages, obligations, liens, assessments, judgments, fines,
liabilities, and other costs and expenses (including without limitation
interest, penalties and any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, as the same are incurred, and including any
diminution in the value of the Investors' shares) of any kind or nature
whatsoever which may be sustained or suffered by any such Indemnified Party,
without regard to any investigation by any of the Indemnified Parties, based
upon, arising out of, by reason of or otherwise in respect of or in connection
with any third party or governmental action relating to any action taken or
omitted to be taken or alleged to have been taken or omitted to have been taken
by any Indemnified Party as shareholder, director, agent, representative or
controlling person of the Company, including, without limitation, any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same may be incurred) arising or alleged to arise under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, including without limitation any such
claim alleging so-called control person liability or securities law liability;
provided, however, that the Company will not be liable to the extent that such
loss, claim, damage, expense or liability arises from and is based on (i) an
untrue statement or omission or alleged untrue statement or omission in a
registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company in an instrument
duly executed by or on behalf of such Indemnified Party specifically stating
that it is for use in the preparation thereof or (ii) a knowing and willful
violation of the federal securities laws by an Indemnified Party, as finally
determined by a court of competent jurisdiction; provided further, however, that
no such indemnity shall indemnify any Indemnified Party from or on account of
(x) acts or omissions of the Indemnified Party finally adjudged to be
intentional misconduct or a knowing violation of law; (y) conduct of an
Indemnified Party finally adjudged to be in violation of RCW.23B 08.310; or (z)
any transaction with respect to which it was finally adjudged that such
Indemnified Party personally received a benefit in money, property, or services
to which the Indemnified Party was not legally entitled.
(b) If the indemnification provided for in Section 9.2(a) above for any
reason is held by a court of competent jurisdiction to be unavailable to a
Indemnified Party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then the Company, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in
44
clause (i) above but also the relative fault of the Company and the Investors in
connection with the action or inaction which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In connection with any registration of the Company's securities,
the relative benefits received by the Company and the Investors shall be deemed
to be in the same respective proportions that the net proceeds from the offering
(before deducting expenses) received by the Company and the Investors, in each
case as set forth in the table on the cover page of the applicable prospectus,
bear to the aggregate public offering price of the securities so offered. The
relative fault of the Company and the Investors shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Investors and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 9.2(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Investor be required to contribute any amount
under this Section 9.2(b) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal
to the proportion of the total securities sold under such registration statement
which is being sold by such Investor or (ii) the proceeds received by such
Investor from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(c) The indemnification and contribution provided for in this Section
9.2 will remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Parties or any officer, director, partner,
employee, agent or controlling person of the Indemnified Parties.
(d) The provisions of this Section 9.2 are in addition to and shall
supplement those set forth in Section 7.5 which shall apply in the case of the
registration and sale of Registrable Securities held by any of the Investors
pursuant to Section 7 hereof.
(e) From and after the Closing, the Company agrees to pay and hold the
Investors harmless against liability for payment of all reasonable out-of-pocket
costs and expenses incurred by them in connection with their ongoing investment
in the Company, including the fees and disbursements of counsel and other
professionals. In addition, the Company agrees to pay any and all stamp,
transfer and other similar taxes, if any, payable or determined to be payable in
connection with the execution and delivery of this Agreement and the issuance of
securities hereunder.
45
9.3 Survival of Representations, Warranties and Covenants; Assignability
of Rights. All covenants, agreements, representations and warranties of the
Company, the Shareholders and the Investors made herein, in the Disclosure
Schedule and in the certificates, lists, exhibits, schedules or other written
information delivered or furnished to any Investor in connection herewith (a)
are material, shall be deemed to have been relied upon by the party or parties
to whom they are made and shall survive the Closing regardless of any
investigation or knowledge on the part of such party or its representatives and
(b) shall bind the parties' successors and assigns (including without limitation
any successor to the Company by way of acquisition, merger or otherwise),
whether so expressed or not, and, except as otherwise provided in this
Agreement, all such covenants, agreements, representations and warranties shall
inure to the benefit of the Investors' successors and assigns and to their
transferees of Securities, whether so expressed or not, subject to the
provisions of Sections 4.12, 5.4, 6.2 and 7.7, and any such transferee shall be
deemed an "Investor" for purposes hereof.
9.4 Legend on Securities. The Company, the Investors and the
Shareholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by an Investor or Shareholder (except that the legend set forth in Section
9.4(c) below shall only be typed on certificates evidencing Convertible
Preferred Shares):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES
AND BLUE SKY LAWS RELATING TO THE DISPOSITION OF SECURITIES, PROVIDED THAT AN
OPINION OF COUNSEL TO SUCH EFFECT IS PROVIDED TO THE COMPANY IN CONNECTION
THEREWITH.
(b) THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 30, 1998,
INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY
OF THE AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
(c) THE COMPANY HAS COMMON STOCK AND PREFERRED STOCK AUTHORIZED. THE
FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF (THE "STATEMENT OF RIGHTS AND PREFERENCES")
OF THE SHARES OF EACH SUCH SERIES OR CLASS OF STOCK IS SET FORTH IN THE ARTICLES
OF
46
INCORPORATION, AS AMENDED, AND CERTIFICATE OF DESIGNATION OF THE COMPANY, AND
ANY EFFECTIVE STATEMENT OF RELATIVE RIGHTS AND PREFERENCES OF PREFERRED STOCK,
ON FILE IN THE XXXXXX XX XXX XXXXXXXXX XX XXXXX XX XXX XXXXX XX XXXXXXXXXX. THE
COMPANY WILL FURNISH COPIES OF THE STATEMENT OF RIGHTS AND PREFERENCES TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
9.5 Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of
Washington, without giving effect to conflict of laws principles thereof.
9.6 Section Headings and Gender. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
9.7 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but
one and the same document.
9.8 Notices and Demands. Any notice or demand which is required or
provided to he given under this Agreement or the Certificate of Designation
shall be deemed to have been sufficiently given and received for all purposes
when delivered by hand, telecopy, telex or other method of facsimile, or five
days after being sent by certified or registered mail, postage and charges
prepaid, return receipt requested, or two days after being sent by overnight
delivery providing receipt of delivery, to the following addresses:
if to the Company: BSQUARE Corporation
0000 000xx Xxxxx XX, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: President
Fax: (000) 000-0000
copy to: Summit Law Group, P.L.L.C.
0000 Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
if to the Shareholders: x/x XXXXXXX Xxxxxxxxxxx
0000 000xx Xxxxx XX, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
47
if to an Investor, c/o TA Associates, Inc. or Encompass Ventures, at their
respective mailing addresses shown on Exhibit A hereto, or at any other address
designated by the Investors to the Company and the Shareholders in writing.
9.9 Dispute Resolution. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Seattle, Washington. Such
proceedings shall be guided by the following agreed upon procedures:
(a) mandatory exchange of all documents discoverable pursuant to the
Rules of Civil Procedure to be accomplished within forty-five (45) days of the
submission of the claim to Endispute;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of a summary
presentation by each side of not more than three hours; such hearings to take
place on one or two days at a maximum; and
(d) parties agree to request that a decision be rendered not more than
ten (10) days following such hearings.
9.10 Remedies, Severability. Notwithstanding Section 9.9, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
9.11 Integration. This Agreement, including the exhibits, documents and
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the parties hereto
48
in respect of the transactions contemplated herein, which letter of intent shall
be completely superseded by the representations, warranties and covenants of the
Company contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
49
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COMPANY:
BSQUARE CORPORATION
By: /s/ XXXXXXX X. XXXXXX
------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Pres. & CEO
SHAREHOLDERS:
/s/ XXXXXXX X. XXXXXX
---------------------------
Xxxxxxx X. Xxxxxx
/s/ XXXXXX X. XXXXXX
---------------------------
Xxxxxx X. Xxxxxx
/s/ XXXXX X. XXXXXXX
---------------------------
Xxxxx X. Xxxxxxx
/s/ XXXXXX XXXXXXXXXXX
---------------------------
Xxxxxx Xxxxxxxxxxx
50
INVESTORS:
TA/ADVENT VIII L.P.
By: TA Associates VIII LLC
Its: General Partner
By: TA Associates, Inc.
Its: General Manager
By: /s/ XXXXXXX X. XXXXXXXXX
--------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Principal
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners L.P.
Its: General Partner
By: TA Associates, Inc.
Its: General Partner
By: /s/ XXXXXXX X. XXXXXXXXX
--------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Principal
TA INVESTORS LLC
By: TA Associates, Inc.
Its: Manager
By: /s/ XXXXXXX X. XXXXXXXXX
-------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Principal
TA EXECUTIVES FUND LLC
By: TA Associates, Inc.
Its: Manager
By: /s/ XXXXXXX X. XXXXXXXXX
-------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Principal
42
51
ENCOMPASS GROUP INFORMATION
TECHNOLOGY PARTNERS 1 LP
By:
-------------------------------
Name: Xxxx X. Land
Title: Managing Director
/s/ XXXXXX X. XXXXXX
----------------------------------
Xxxxxx X. Xxxxxx
/s/ XXXXXXX X. XXXXXX
----------------------------------
Xxxxxxx X. Xxxxxx
/s/ XXXX X. XXXX, III
----------------------------------
Xxxx X. Xxxx, III
/s/ XXXXXX X. XXXXX
----------------------------------
Xxxxxx X. Xxxxx
/s/ XXXXXXX X. XXXX
----------------------------------
Xxxxxxx X. Xxxx
/s/ XXXX X. XxXXXXXX
----------------------------------
Xxxx X. XxXxxxxx
43
52
ENCOMPASS GROUP INFORMATION
TECHNOLOGY PARTNERS 1 LP
By: EGI Fund Management Company, LLC
Its: General Partner
By: /s/ XXXXX XxXXXXXX
--------------------------
Name: Xxxxx XxXxxxxx
Its: Managing Director
44
53
EXHIBIT A
54
EXHIBIT A
SCHEDULE OF INVESTORS
Number of Shares Aggregate
Name and Address Purchased Payment
---------------- ---------------- -------------
TA/Advent VIII L.P. 5,414,733 $9,746,519.40
Advent Atlantic and
Pacific III L.P. 1,016,278 $1,829,300.40
TA Investors LLC 108,294 $ 194,929.20
TA Executives Fund LLC 99,583 $ 179,249.40
EnCompass Group US
Information Technology
Partners 1 LP 1,666,666 $2,999,998.80
Xxxxxx X. Xxxxxx 8,333 $14,999.40
Xxxxxxx X. Xxxxxx 5,556 $10,000.80
Xxxx X. Xxxx, M 5,556 $10,000.80
Xxxxxx X. Xxxxx 2,778 $5,000.40
Xxxxxxx X. Xxxx 2,778 $5,000.40
Xxxx X. XxXxxxxx 2,778 $5,000.40
--------- --------------
Total 8,333,333 $14,999,999.40
========= ==============
Address of and Notices to all TA
Investors and Individual
Investors:
TA Associates, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx
TA Associates, Inc.
000 Xxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Address of and Notices to Encompass Ventures:
Encompass Ventures
0000 Xxxx Xxxxxxxxxx Xxxx., X.X., Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Land
Copy to:
Xxxxxxx, Procter & Xxxx XXX
Xxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
55
EXHIBIT B
56
EXHIBIT B
PREFERRED STOCK TERMS
The designations and the powers, preferences and rights of the Series A
Convertible Preferred Stock are as follows:
Section 1. Designation and Dividends. The Corporation hereby designates
8,333,333 shares of the Preferred Stock as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), which shall have the rights, preferences and
terms set forth herein. The holders of the Series A Preferred Stock shall be
entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends").
Section 2. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of outstanding shares
of Series A Preferred Stock shall be entitled to be paid, out of the assets of
the Corporation available for distribution to stockholders, whether such assets
are capital, surplus, or earnings and before any amount shall be paid or
distributed to the holders of any class of Common Stock or of any other stock
ranking on liquidation junior to the Series A Preferred Stock, the greater of:
(i) an amount in cash equal to $1.80 per share (adjusted appropriately for stock
splits, stock dividends and the like) together with declared but unpaid
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section 1 hereof (the "Minimum Liquidation Amount");
provided, however, that if, upon any liquidation, dissolution or winding up of
the Corporation, the amounts payable with respect to the Series A Preferred
Stock and any other stock ranking as to any such distribution on a parity with
the Series A Preferred Stock are not paid in full, the holders of the Series A
Preferred Stock and such other stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled; or (ii) cash in an amount equal to the portion of the assets of
the Corporation remaining for distribution to shareholders which such holder
would have received if each share of Series A Preferred Stock held by such
holder had been converted into the number of shares of Common Stock issuable
upon the conversion of a share of Series A Preferred Stock immediately prior to
any such liquidation, dissolution or winding up of the Corporation after taking
into account the rights of holders of any other class or series of capital stock
of the Corporation (including the Common Stock) entitled to share in such
distribution in either case, plus any declared but unpaid
57
dividends to which the holders of outstanding shares of Series A Preferred Stock
are entitled pursuant to Section I hereof (the "Aggregate Liquidation Amount").
(b) A consolidation, merger or capital reorganization of the Corporation
(except (i) into or with a wholly-owned subsidiary of the Corporation with
requisite shareholder approval or (ii) a merger in which the beneficial owners
of the Corporation's outstanding capital stock immediately prior to such
transaction hold no less than fifty-one percent (51%) of the voting power in the
resulting entity) or a sale of all or substantially all of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 2; provided,
however, that each holder of the Series A Preferred Stock shall have the right
to elect the benefits of the provisions of Section 4(i) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to this Section 2.
Section 3. Voting, Power.
Except as otherwise expressly provided herein or as required by law, the
holder of each share of Series A Preferred Stock shall be entitled to vote on
all matters. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together as a single class on all matters.
Section 4. Conversion. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) Voluntary Conversion. Holders of a majority of the outstanding
shares of Series A Preferred Stock shall be entitled, at any time and from time
to time after the date hereof, to cause any or all of such shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.80 by the conversion price applicable to
such shares, determined as hereafter provided in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $1.80 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series A Preferred Stock elects to convert
his or her Series A Preferred Stock at a time when there are any accrued and
unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock
outstanding shall automatically, and without the requirement of any consent of
any holder, be converted into the number of shares of Common Stock into which
such shares
58
are convertible at the then effective Conversion Price upon the closing of a
Qualified Public Offering. For purposes hereof, the term "Qualified Public
Offering" shall mean an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the offer and sale of Common Stock of the
Corporation to the public at a minimum price of $4.50 per share and pursuant to
which (i) the gross proceeds received by the Corporation equal or exceed
$30,000,000 and (ii) the shares of Common Stock sold under such registration
statement are approved for listing on the New York Stock Exchange or approved
for quotation on The Nasdaq Stock Market, Inc.'s National Market.
(c) Conversion Procedures. Any holder of Series A Preferred Stock
converting such shares into shares of Common Stock pursuant to Section 4(a), or
whose shares are automatically converted pursuant to Section 4(b), shall
surrender the certificate or certificates representing the Series A Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Stock by the
Corporation, accompanied by written notice of conversion. Such notice of
conversion shall (i) specify the number of shares of Series A Preferred Stock to
be converted, (ii) specify the name or names in which such holder wishes the
certificate or certificates for Common Stock and for any Series A Preferred
Stock not to be so converted to be issued, (iii) include payment of any
applicable transfer tax and (iv) specify the address to which such holder wishes
delivery to be made of such new certificates to be issued upon such conversion.
Upon surrender of a certificate representing Series A Preferred Stock for
conversion, the Corporation shall issue and send by hand delivery, by courier or
by first class mail (postage prepaid) to the holder thereof or to such holder's
designee, at the address designated by such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled upon conversion. In the event that there shall have been surrendered
a certificate or certificates representing Series A Preferred Stock, only part
of which are to be converted, the Corporation shall issue and send to such
holder or such holder's designee, in the manner set forth in the preceding
sentence, a new certificate or certificates representing the number of shares of
Series A Preferred Stock which shall not have been converted.
(d) Effective Date of Conversion. The issuance by the Corporation of
shares of Common Stock upon a conversion of Series A Preferred Stock into shares
of Common Stock made at the option of the holder thereof pursuant to Section
4(a) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock pursuant
to Section 4(b) hereof shall be deemed to be effective immediately prior to the
closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock
59
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock.
(e) Fractional Shares. The Corporation shall not be obligated to deliver
to holders of Series A Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series A Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of the Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding provided that
the shares of Common Stock so reserved shall not be reduced or affected in any
manner whatsoever so long as any Series A Preferred Stock is outstanding, except
in the case of a reverse stock split or stock combination. The Corporation shall
prepare and shall use its reasonable business efforts to obtain and keep in
force such governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all requirements as to registration,
qualification or listing of the Common Stock, in order to enable the Corporation
lawfully to issue and deliver to each holder of record of Series A Preferred
Stock such number of shares of its Common Stock as shall from time to time be
sufficient to effect the conversion of all shares of Series A Preferred Stock
then outstanding and convertible into shares of Common Stock.
(g) Adjustments to Conversion Price. The Conversion Price in effect from
time to time shall be subject to adjustment as follows:
(i) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
combination be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and, in the case of a subdivision or combination,
immediately as of the effective date thereof.
(ii) Sale of Common Stock. In the event the Corporation shall at
any time or from time to time while the Series A Preferred Stock is
outstanding, issue,
60
sell or exchange any shares of Common Stock (including shares held in
the Corporation's treasury, but excluding: (i) any Common Stock which
may be issued upon conversion of the Series A Preferred Stock; and (ii)
up to 3,625,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's Stock Option Plan (the "Plan") or upon the exercise of
options issued pursuant to such Plan, or such greater number of shares
as may be issuable pursuant to the adjustment provisions of such Plan as
in effect on the date hereof (collectively, the "Excluded Shares")), for
a consideration per share less than the Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares (any
such issuance, sale or exchange hereinafter referred to as a "Dilutive
Transaction"), then, and thereafter successively upon the consummation
of any Dilutive Transaction, the Conversion Price in effect immediately
prior to the Dilutive Transaction shall forthwith be reduced to an
amount (calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Series A Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number
of shares of Common Stock which the net aggregate consideration
received by the Corporation for the total number of such
additional shares of Common Stock so issued in the Dilutive
Transaction would purchase at the Conversion Price (prior to
adjustment), and
(B) the denominator of which shall be (1) the number of
shares of Common Stock of all classes outstanding immediately
prior to the Dilutive Transaction (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Series A Preferred Stock, options,
warrants, rights or convertible securities), plus (2) the number
of such additional shares of Common Stock so issued in the
Dilutive Transaction.
(iii) Sale of Options, Fights or Convertible Securities. In the
event the Corporation shall at any time or from time to time while the
Series A Preferred Stock is outstanding, issue options, warrants or
rights to subscribe for shares of Common Stock (other than any options
for Excluded Shares), or issue any securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a
consideration per share (determined by dividing the Net Aggregate
Consideration (as determined below) by the aggregate number of shares of
Common Stock that would be issued if all such options, warrants, rights
or convertible securities were exercised or converted to the fullest
extent permitted by their terms) less than the Conversion Price in
effect immediately prior to the issuance of such options or rights or
convertible or exchangeable securities, the
61
Conversion Price in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock,
options, warrants, rights or convertible securities), plus (2) the
number of shares of Common Stock which the total amount of consideration
received by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the
exercise or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible securities),
plus (2) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted.
(iv) Expiration or Change in Price. If the consideration per share
provided for in any options or rights to subscribe for shares of Common Stock or
any securities exercisable or exchangeable for or convertible into shares of
Common Stock, changes at any time, the Conversion Price in effect at the time of
such change shall be readjusted to the Conversion Price which would have been in
effect at such time had such options or convertible securities provided for such
changed consideration per share (determined as provided in Section 4(g)(iii)
hereof) at the time initially granted, issued or sold; provided, that such
adjustment of the Conversion Price will be made only as and to the extent that
the Conversion Price effective upon such adjustment remains less than or equal
to the Conversion Price that would be in effect if such options, rights or
securities had not been issued. No adjustment of the Conversion Price shall be
made under this Section 4 upon the issuance of any additional shares of Common
Stock which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an adjustment
shall previously have been made upon the issuance of such warrants, options or
other rights. Any adjustment of the Conversion Price shall be disregarded if,
as, and when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or
62
convertible securities which gave rise to such adjustment expire or are
canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be
equal to the Conversion Price in effect at the time of the issuance of
the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to
that Conversion Price had the expired or canceled warrants, options,
rights or convertible securities not been issued.
(h) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or different number of shares of any class
or classes of stock, whether by reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section 4), then and in each such event the holder of each share of
Series A Preferred Stock shall have the right thereafter to convert each such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(i) Mergers and Other Reorganizations. If at any time or from time
to time there shall be a capital reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock
63
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including, without limitation,
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(i), shall have the option of
electing treatment of his or her shares of Series A Preferred Stock under either
this Section 4(i) or Section 2(b) hereof, notice of which election shall be
submitted in writing to the Corporation at its principal offices no later than
ten (10) days before the effective date of such event, provided that any such
notice shall be effective if given not later than fifteen (15) days after the
date of the Corporation's notice, pursuant to Section 8, with respect to such
event.
(j) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
Section 5. Redemption.
(a) Any holder of shares of Series A Preferred Stock may request
that up to 50% of the Series A Preferred Stock then held by such holder be
redeemed by the Corporation at any time on or after January 30, 2003 (the "First
Redemption Date"), or that up to 100% of the Series A Preferred Stock then held
by such holder be redeemed by the Corporation at any time on or after January
30, 2004 (the "Second Redemption Date," and, collectively with the First
Redemption Date, the "Redemption Date"), by giving 90 days written notice to the
Corporation, stating in such notice the number of shares to be redeemed and
delivering the certificates for the shares of Series A Preferred Stock to be so
redeemed to the Corporation by the Redemption Date. The Corporation shall redeem
all shares as to which it has received requests for redemption from the holders
thereof in accordance with the foregoing. Any redemption hereunder shall be at a
per share redemption price equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like), plus any accrued but unpaid
dividends (including any Participating Dividends) to which the holders of
outstanding shares of Series A Preferred Stock are entitled pursuant to Section
1 hereof (the "Redemption Price").
(b) If the Corporation does not have sufficient funds legally
available to redeem all shares for which redemption is requested hereunder, then
it shall redeem
64
such shares on a pro-rata basis among the holders of the Series A Preferred
Stock in proportion to the shares of Series A Preferred Stock then held by them
to the extent possible and shall redeem the remaining shares to be redeemed as
soon as sufficient funds are legally available. In the event that the
Corporation fails to timely redeem shares for which redemption is requested
pursuant to Section 5(a) for any reason whatsoever, then during the period from
the Redemption Date through the date on which such shares are redeemed, the
Redemption Price of such shares shall bear interest at a per annum rate equal to
the Prime Rate (as reported in The Wall Street Journal from time to time) plus
two percent, which interest rate shall increase by an additional 1% at the end
of each three (3) month period thereafter until the Redemption Price (and any
interest thereon) is paid in full, subject to a maximum interest rate of the
greater of 15% or such Prime Rate plus ten percent, but in no event greater than
18%.
Section 6. Restrictions and Limitations.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not without the affirmative vote or written
consent of the holders of two-thirds in interest of the Series A Preferred
Stock:
(i) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or substantially
all of its assets or business,
(ii) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Company is not the surviving entity or the owners of the
Company's outstanding equity securities immediately prior to the
transaction or series of related transactions do not own at least a
majority of the outstanding equity securities of the surviving,
resulting or consolidated entity,
(iii) dissolve, liquidate or wind up its operations,
(iv) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other
class of its capital stock except (A) for the redemption of Convertible
Preferred Shares pursuant to and as provided in Sections 2, 4 and 5
hereof, (B) as contemplated by Sections 1.2, 4.6, and 5.2 of that
certain Stock Purchase and Shareholders Agreement, dated as of January
30, 1998 or (C) as contemplated by the Corporation's standard form of
agreement, as approved by the Board of Directors, to be executed by
employees, officers, and consultants of the Corporation upon the grant
to such employees, officers, and consultants of options under the Plan.
or upon exercise of such options,
(v) adopt any amendment to this Certificate of Designation, or
any amendment to its Articles of Incorporation or By-Laws, that
eliminates,
65
amends, restricts or otherwise adversely affects the rights and
preferences of the Convertible Preferred Stock, or that increases the
authorized shares of Convertible Preferred Stock,
(vi) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(vii) create, or obligate itself to create, any class or
series of shares that has a preference over, or is on a parity with, the
Convertible Preferred Stock,
(viii) increase the size of the Board of Directors to more
than seven (7) members,
(ix) enter into any agreement or arrangement or take any other
action that eliminates,amends, restricts or otherwise adversely affects
the rights of the holders of Convertible Preferred Stock or its ability
to perform its obligations hereunder; or
(x) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase
agreement providing for loans or extensions of credit by or to the
Company, with or for the benefit of any person or entity which is a
shareholder, officer or director of the Company, or which is a relative
by blood or marriage of, a trust or estate for the benefit of, or a
person or entity which directly or indirectly controls, is controlled
by, or is under common control with, any such person or entity, except
for normal compensation paid to employees of the Company in the ordinary
course of business.
Section 7. No Reissuance of Series A Preferred Stock. No share or shares
of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
Section 8. Other Rights. Except as otherwise provided in this Certificate
of Designation, each share of Series A Preferred Stock and each share of Common
Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share.
66
EXHIBIT C
67
EXHIBIT C
SCHEDULE OF COMMON STOCK REDEMPTIONS
Name of Shareholder Number of Shares of Common Stock to be Redeemed
Xxxxxxx X. Xxxxxx 1,111,111
Xxxxxx X. Xxxxxx 1,111,111
Xxxxx X. Xxxxxxx 1,111,111
68
EXHIBIT D
69
EXHIBIT D
FORM OF REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of January
30, 1998, by and between BSQUARE CORPORATION, a Washington corporation (the
"Corporation"), and ("Transferor").
RECITALS
WHEREAS, Transferor owns beneficially and of record 7,000,000 common
shares, no par value, of the Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA
Associates, Inc. or Encompass Ventures (collectively, the "Investors") whereby
the Investors propose to invest an aggregate of $15,000,000 in the Corporation
in exchange for issuance by the Corporation to the Investors of shares of the
Corporation's Series A Convertible Preferred Stock, par value (the "Investment
Transaction");
WHEREAS, as a condition to the closing of the Investment Transaction,
the Board of Directors has agreed to repurchase an aggregate of $6,000,000 of
the Common Stock from certain existing shareholders of the Corporation; and
WHEREAS, the Corporation desires to purchase 1,111,111 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate
purchase price of $2,000,000.
NOW, THEREFORE, IT IS AGREED THAT:
1. Transfer. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$2,000,000 (the "Stock Payment"). Payment shall be made by check, wire
transfer or such other form as shall be mutually agreed upon by the parties.
2. Delivery and Payment. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, and (ii) a
stock certificate representing the Transferred Stock, duly endorsed for
transfer in accordance with the terms hereof, together with all such other
documents as may be required to effect a valid transfer of the Transferred
Stock, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest.
3. Consent of Spouse. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective on
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the date hereof Such consent shall not be deemed to confer or convey to the
spouse any rights in the Transferred Stock that do not otherwise exist by
operation of law or the agreement of the parties. If the Transferor should marry
or remarry subsequent to the date of this Agreement, the Transferor shall within
thirty (30) days thereafter obtain his new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Agreement by signing an additional Consent of Spouse in the form of Exhibit
A.
4. Transferor's Representations and Warranties. Transferor represents and
warrants to the Corporation as follows:
(a) Valid Title. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor
has full right, power and authority to sell, assign, transfer and
deliver such Transferred Stock.
(b) Requisite Power and Authority. Transferor has all necessary
power, competence and authority under all applicable provisions of law
to execute and deliver this Agreement and to carry out its provisions.
All action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement will
be a valid and binding obligation of Transferor, enforceable in
accordance with its terms.
(c) No Conflicts. The execution and delivery of this Agreement do
not, and the performance of this Agreement and the consummation of the
transactions herein contemplated will not, conflict with, result in a
breach of or default under, or give rise to a right to terminate, amend,
modify, abandon or accelerate any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. Successors and Assigns. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. Entire Agreement; Amendments. This Agreement, together with Exhibit A
hereto, constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral agreements, and no amendment or
addition hereto shall be deemed effective unless agreed to in writing by the
parties hereto.
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8. Governing Law. This Agreement shall be governed by Washington State
laws without giving effect to conflicts of law principles. Any action arising
out of this Agreement must be brought in either the Superior Court of the State
of Washington or the United States District Court for the District of
Washington, as permitted by law, which together shall have exclusive
jurisdiction over disputes arising out of this Agreement.
9. Dispute Resolution. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Bellevue, Washington. Such
proceedings shall be guided by the following agreed upon procedures:
i. mandatory exchange of all documents, discoverable pursuant to
the Rules of Civil Procedure to be accomplished within forty-five (45) days of
the submission of the claim to Endispute;
ii. no other discovery;
iii. hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place on one or two days at a maximum; and
iv. parties agree to request that decision be rendered not more
than ten (10) days following such hearings.
10. Separability. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Corporation: Transferor:
BSQUARE CORPORATION
---------------------------- ----------------------------
Xxxxxxx X. Xxxxxx, President ----------------------------
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EXHIBIT 3
73
EXHIBIT E
DISCLOSURE SCHEDULES
Section 2.2
Pursuant to Section 8.5 of the Windows NT Source Code License Agreement
dated February 27, 1997 between the Company and Microsoft Corporation, the
Company is required to obtain the consent of Microsoft in the event there is a
change in the ownership of beneficial interest of greater than 20% of the
Company's shares. The Company has not received written consent from Microsoft,
but is currently negotiating an agreement with Microsoft regarding this source
code.
74
Section 2.3
1. LIST OF SHAREHOLDERS PRIOR TO CLOSING.
- Xxxxxxx X. Xxxxxx 7,000,000 shares
- Xxxxxx X. Xxxxxx 7,000,000 shares
- Xxxxx X. Xxxxxxx 7,000,000 shares
- Xxxxxx Xxxxxxxxxxx 375,000 shares
2. LIST OF SHAREHOLDERS FOLLOWING CLOSING.
- Xxxxxxx X. Xxxxxx 5,888,889 shares of Common Stock
- Xxxxxx X. Xxxxxx 5,888,889 shares of Common Stock
- Xxxxx X. Xxxxxxx 5,888,889 shares of Common Stock
- Xxxxxx Xxxxxxxxxxx 375,000 shares of Common Stock
- TA/Advent VIII L.P. 5,414,733 shares of Convertible Preferred Stock
- Advent Atlantic and 1,016,278 shares of Convertible Preferred Stock
Pacific III L.P.
- TA Investors LLC 108,294 shares of Convertible Preferred Stock
- TA Executives Fund LLC 99,583 shares of Convertible Preferred Stock
- EnCompass Group US 1,666,666 shares of Convertible Preferred Stock
Information Technology
Partners 1 LP
- Xxxxxx X. Xxxxxx 8,333 shares of Convertible Preferred Stock
- Xxxxxxx X. Xxxxxx 5,556 shares of Convertible Preferred Stock
- Xxxx. X. Xxxx, III 5,556 shares of Convertible Preferred Stock
- Xxxxxx X. Xxxxx 2,778 shares of Convertible Preferred Stock
- Xxxxxxx X. Xxxx 2,778 shares of Convertible Preferred Stock
- Xxxx X. XxXxxxxx 2,778 shares of Convertible Preferred Stock
3. STOCK OPTION PLAN.
A copy of the Company's Amended and Restated Stock Option Plan has been
attached to this Section 2.3 of the Disclosure Schedule.
4. REDEMPTION AGREEMENT.
All of the Company's current shareholders are subject to a Redemption Agreement
dated January 1, 1996, whereby in the event that any shareholder wishes to sell
his stock, such shareholder must first offer his or her shares to the Company
and to the non-selling shareholders. In addition, there are certain provisions
regarding what happens to a shareholder's stock upon termination of employment
with the Company and upon death. The Company and Shareholders have terminated
this Redemption Agreement contingent upon the closing of the transactions
contemplated by this Agreement.
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SECTION 2.3 TO DISCLOSURE SCHEDULE
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
76
1. DEFINITIONS ............................................................. 1
2. PURPOSES ................................................................ 4
3. ADMINISTRATION .......................................................... 4
(A) COMMITTEE ......................................................... 4
(B) APPOINTMENT OF COMMITTEE .......................................... 4
(C) POWERS; REGULATIONS ............................................... 4
(D) DELEGATION To EXECUTIVE OFFICER ................................... 5
4. ELIGIBILITY ............................................................. 5
5. STOCK .................................................................... 5
6. TERMS AND CONDITIONS OF OPTIONS ......................................... 5
(A) NUMBER OF SHARES AND TYPE OF OPTION ............................... 5
(B) DATE OF GRANT ..................................................... 6
(C) OPTION PRICE ...................................................... 6
(D) DURATION OF OPTIONS ............................................... 6
(E) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS .................... 7
(F) ACCELERATION OF VESTING AND EXERCISABILITY ........................ 7
(G) TERM OF OPTION .................................................... 8
(H) EXERCISE OF OPTIONS ............................................... 8
(I) PAYMENT UPON EXERCISE OF OPTION ................................... 9
(J) RIGHTS AS A SHAREHOLDER ........................................... 10
(K) TRANSFER OF OPTION ................................................ 10
(L) SECURITIES REGULATION AND TAX WITHHOLDING ......................... 11
(M) STOCK DIVIDEND, REORGANIZATION OR LIQUIDATION ..................... 12
(N) APPROVED TRANSACTIONS; CONTROL PURCHASE............................ 13
7. EFFECTIVE DATE; TERM..................................................... 14
8. NO OBLIGATIONS TO EXERCISE OPTION........................................ 14
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT..................................... 14
10. APPLICATION OF FUNDS..................................................... 14
11. INDEMNIFICATION OF COMMITTEE............................................. 14
12. SHAREHOLDERS AGREEMENT................................................... 15
13. SEPARABILITY............................................................. 15
14. NON-EXCLUSIVITY OF THE PLAN.............................................. 15
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.................... 15
16. AMENDMENT OF PLAN........................................................ 15
77
BSQUARE CORPORATION
AMENDED AND RESTATED
STOCK OPTION PLAN
1. DEFINITIONS.
Capitalized terms not defined elsewhere in the Plan shall have the following
meanings (whether used in the singular or plural).
(a) "AGREEMENT" means a written agreement approved by the Committee
evidencing Options granted under the Plan.
(b) "APPROVED TRANSACTION" means
(i) a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act
covering the offer and sale of Common Stock for the account of
the Company to the public with aggregate proceeds paid to the
Company of not less than $1 0,000,000 (after the deduction of
underwriting commissions and offering expenses);
(ii) the acquisition of the Company by another entity by means of
merger, consolidation or other transaction or series of
related transactions resulting in the exchange of the
outstanding shares of the Company for securities of, or
consideration issued, or caused to be issued by, the acquiring
entity or any of its affiliates, Provided, that after such
event the shareholders of the Company immediately prior to the
event own less than a majority of the outstanding voting
equity securities of the surviving entity immediately
following the event;
(iii) any liquidation or dissolution of the Company; and
(iv) any sale, lease, exchange or other transfer not in the
ordinary course of business (in one transaction or a series of
related transactions) of all, or substantially all, of the
assets of the Company.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute or statutes thereto. Reference to
any specific section of the Code shall include any successor
section.
(e) "COMMITTEE" shall mean the Board, or the committee appointed by the
Board pursuant to Section 3(b) of the Plan, if it is administering
the Plan.
(f) "COMMON STOCK" means the Common Stock, no par value, of the Company.
(g) "COMPANY" means BSQUARE CORPORATION, a Washington corporation.
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(h) "CONTROL PURCHASE" means any transaction (or series of related
transactions) in which any person, corporation or other entity
(including any "person" as defined in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act, but excluding the Company and any employee
benefit plan sponsored by the Company):
(i) purchases any Common Stock (or securities convertible into
Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer unless by the
terms of such offer the offeror, upon consummation thereof,
would be the "beneficial owner" (as that term is defined in
Rule l3d-3 under the Exchange Act) of less than 30% of the
shares of Common Stock then outstanding; or
(ii) becomes the "beneficial owner", directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
in the election of directors (calculated as provided in Rule
13d-3(d) under the Exchange Act in the case of rights to
acquire the Company's securities);
provided, however, that the foregoing shall not constitute a Control
Purchase if the transactions or related transactions received the
prior approval of a majority of all of the directors of the Company,
excluding for such purpose the votes of directors who are directors
or officers of, or have a material financial interest in any Person
(other than the Company) who is a party to the event specified in
either clauses (i) or (ii).
(i) "COVERED EMPLOYEE" has the meaning given to it by Section 162(m)(3)
of the Code.
(j) "DATE OF GRANT" means that date the Committee has deemed to be the
effective date of the Option for purposes of the Plan.
(k) "DISABILITY" means any medically determinable physical or mental
impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not
less than twelve (12) months that renders the Optionee unable to
engage in any substantial gainful activity.
(l) "EFFECTIVE DATE" means at the time specified in the resolutions of
the Board adopting the Plan.
(m) "EMPLOYEES" means individuals employed by the Company or a Related
Corporation.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto.
Reference to any specific section of the Exchange Act shall include
any successor section.
(o) "EXECUTIVE OFFICER" shall be defined in Section 3(d).
(p) "FAIR MARKET VALUE" means, if the Common Stock is publicly traded,
the last sales price (or, if no last sales price is reported, the
average of the high bid and low asked prices) for a share of Common
Stock on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on
which the Common Stock
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is listed, or, if the Common Stock is publicly traded but not listed on an
exchange, as reported by The Nasdaq Stock Market, or if such prices or
quotations are not reported by The Nasdaq Stock Market, as reported by any
other available source of prices or quotations selected by the Committee.
If the Common Stock is not publicly traded or if the Fair Market Value is
not determinable by any of the foregoing means, the Fair Market Value on
any day shall be determined in good faith by the Committee on the basis of
such considerations as the Committee deems important.
(q) "IMMEDIATE FAMILY MEMBER" means a spouse, children or grandchildren
of the Optionee.
(r) "INCENTIVE STOCK OPTION" means an Option that is an incentive stock
option within the meaning of Section 422 of the Code.
(s) "NON-EMPLOYEE DIRECTOR" has the meaning given to it by Rule 16b-3
promulgated under the Exchange Act of 1934.
(t) "NON-INSIDERS" has the meaning given to by Section 162(m)(3) of the
Code.
(u) "NON-QUALIFIED STOCK OPTION" means an Option that is not an
Incentive Stock Option.
(v) "OPTION" means an option with respect to shares of Common Stock
awarded pursuant to Section 6.
(w) "OPTIONEE" means any person to whom an Option is granted under the
Plan (as well as any permitted transferee of an Option).
(x) "OUTSIDE DIRECTOR" has the meaning given to it by the regulations
promulgated under Section 162(m) of the Code.
(y) "PLAN" means the BSQUARE CORPORATION stock option plan.
(z) "QUALIFIED PERFORMANCE-BASED COMPENSATION" has the meaning given to
it by the regulations promulgated under Section 162(m) of the Code.
(aa) "RELATED Corporation" means any corporation (other than the Company)
that is a "parent corporation" of the Company or "subsidiary
corporation" of the Company, as defined in Sections 424(e) and
424(f), respectively, of the Code.
(bb) "SECTION 16 INSIDERS" means individuals who are subject to Section
16(b) of the Exchange Act with respect to the Common Stock.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any successor statute or statutes thereto.
References to any specific section of the Securities Act shall
include any successor section.
(dd) "TEN PERCENT SHAREHOLDER" means a person who owns more than ten
percent of the total combined voting power of the Company or any
related corporation as determined with reference to Section 424(d)
of the Code.
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2. PURPOSES.
The purposes of the Plan are to retain the services of directors, valued
key employees and consultants of the Company and such other persons as the
Committee shall select in accordance with Section 4, to encourage such persons
to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
the Company, and to serve as an aid and inducement in hiring new employees and
to provide an equity incentive to directors, consultants and other persons
selected by the Committee.
3. ADMINISTRATION.
(a) COMMITTEE.
The Plan shall be administered by the Board unless the Board appoints a
separate committee of the board to administer the Plan pursuant to Section
3(b) below. A majority of the members of the Committee shall constitute a
quorum, and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by all
of the members of the Committee and any action so taken shall be fully
effective as if it had been taken at a meeting.
(b) APPOINTMENT OF COMMITTEE.
The Board may appoint a committee consisting of two or more of its
members to administer the Plan. The Board shall consider whether a director is
(i) an Outside Director and (ii) a Non-Employee Director when appointing any
such Committee and shall appoint solely two or more individuals who qualify as
Outside Directors if the Board intends for compensation attributable to
Options to be Qualified Performance-Based Compensation. The Committee shall
have the powers and authority vested in the Board hereunder (including the
power and authority to interpret any provision of the Plan or of any Option).
The members of any such Committee shall serve at the pleasure of the Board.
(c) POWERS; REGULATIONS.
Subject to the provisions of the Plan, and with a view to effecting its
purpose, the Committee shall have sole authority, in its absolute discretion,
to:
(i) construe and interpret the Plan;
(ii) define the terms used in the Plan;
(iii) prescribe, amend and rescind rules and regulations relating to
the Plan;
(iv) correct any defect, supply any omission or reconcile any
inconsistency in the Plan;
(v) grant Options under the Plan;
(vi) determine the individuals to whom Options shall be granted
under the Plan and whether the Option is an Incentive Stock
Option or a Non-Qualified Stock Option;
(vii) determine the time or times at which Options shall be granted
under the Plan;
(viii) determine the number of shares of Common Stock subject to
each Option, the exercise price of each Option, the duration
of each Option and the times at which each Option shall become
exercisable; (ix) determine all other terms and conditions of
Options; and
(x) make all other determinations necessary or advisable for the
administration of the Plan.
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81
All decisions, determinations and interpretations made by the Committee
shall be binding and conclusive on all participants in the Plan and on their
legal representatives, heirs and beneficiaries.
(d) DELEGATION TO EXECUTIVE OFFICER.
The Committee may by resolution delegate to one or more executive officers
(the "Executive Officer") of the Company the authority to grant Options under
the Plan to employees of the Company who, at the time of grant, are not Section
16 Insiders nor Covered Employees; provided, however, that the authority
delegated to the Executive Officer under this Section 3 shall not exceed that of
the Committee under the provisions of the Plan and shall be subject to such
limitations, in addition to those specified in this Section 3, as may be
specified by the Committee at the time of delegation.
4. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the time
such Options are granted, is an Employee, including Employees who are also
directors of the Company. Non-Qualified Stock Options may be granted to
Employees and to such other persons as the Committee shall select. Options may
be granted in substitution for outstanding options of another corporation in
connection with the merger, consolidation, acquisition of property or stock or
other reorganization between such other corporation and the Company or any
subsidiary of the Company. At such point as the Company first becomes subject to
the periodic reporting requirements of Section 12 of the Exchange Act no person
shall be eligible to receive in any fiscal year Options to purchase more than
500,000 shares of Common Stock (subject to adjustment as set forth in Section
6(m) hereof).
5. STOCK.
The Company is authorized to grant Options to acquire up to a total of
3,625,000 shares of the Company's authorized but unissued, or reacquired, Common
Stock. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 6(m). In the event
that any outstanding Option expires or is terminated for any reason, the shares
of Common Stock allocable to the unexercised portion of such Option may again be
subject to an Option granted to the same Optionee or to a different person
eligible under Section 4; provided, however, that any expired or terminated
Options will be counted against the maximum number of shares with respect to
which Options may be granted to any particular person as set forth in Section 4.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an Agreement.
Agreements may contain such provisions, not inconsistent with the Plan, as the
Committee or Executive Officer, in its discretion, may deem advisable. All
Options also shall comply with the following requirements:
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option. In the absence of action to the contrary by the
Committee or Executive Officer in connection with the grant of an Option, all
Options shall be Non-Qualified Stock Options. The aggregate Fair Market Value
(determined at the Date of Grant) of the Common Stock with respect to which the
Incentive Stock Options granted to the Optionee and any incentive stock options
granted to the Optionee under any other stock option plan of the
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Optionee during any calendar year shall not exceed $100,000, or such other limit
as may be prescribed by the Code. If
(i) an Optionee holds one or more Incentive Stock Options under
the Plan (and/or any incentive stock options under any
other stock option plan of the Company, any Related
Corporation or any predecessor corporation), and
(ii) the aggregate Fair Market Value of the shares of Common
Stock with respect to which, during any calendar year, such
Options become exercisable for the first time exceeds
$100,000 (said value to be determined as provided above),
then such Option or Options are intended to qualify under Section 422 of the
Code with respect to the maximum number of such shares as can, in light of the
foregoing limitation, be so qualified, with the shares so qualified to be the
shares subject to the Option or Options earliest granted to the Optionee. If an
Option that would otherwise qualify as an Incentive Stock Option becomes
exercisable for the first time in any calendar year for shares of Common Stock
that would cause such aggregate Fair Market Value to exceed
$100,000, then the portion of the Option in respect of such shares shall be
deemed to be a Non-Qualified Stock Option.
(b) DATE OF GRANT.
Each Agreement shall state the Date of Grant.
(c) OPTION PRICE.
Each Agreement shall state the price per share of Common Stock at which it
is exercisable. The exercise price shall be fixed by the Committee or Executive
Officer at whatever price the Committee or Executive Officer may determine in
the exercise of its sole discretion; provided, however, that the per share
exercise price for an Incentive Stock Option shall not be less than the Fair
Market Value at the Date of Grant; provided further, that with respect to
Incentive Stock Options granted to Ten Percent Shareholders of the Company, the
per share exercise price shall not be less than 110 percent (11O%) of the Fair
Market Value at the Date of Grant; and, provided further, that Options granted
in substitution for outstanding options of another corporation in connection
with the merger, consolidation, acquisition of property or stock or other
reorganization involving such other corporation and the Company or any
subsidiary of the Company may be granted with an exercise price equal to the
exercise price for the substituted option of the other corporation, subject to
any adjustment consistent with the terms of the transaction pursuant to which
the substitution is to occur.
(d) DURATION OF OPTIONS.
On the Date of Grant, the Committee or Executive Officer shall designate,
subject to Section 6(g), the expiration date of the Option, which date shall not
be later than ten (10) years from the Date of Grant in the case of Incentive
Stock Options; provided, however, that the expiration date of any Incentive
Stock Option granted to a Ten Percent Shareholder shall not be later than five
(5) years from the Date of Grant. In the absence of action to the contrary by
the Committee in connection with the grant of an Option, and except in the case
of Incentive Stock Options granted to Ten Percent Shareholders, all Options
granted under this Section 6 shall expire ten (10) years from the Date of Grant.
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(e) VESTING SCHEDULE AND EXERCISABILITY OF OPTIONS.
No Option shall be exercisable until it has vested. The vesting schedule
for each Option shall be specified by the Committee or Executive Officer at the
time of grant of the Option; provided, however, that if no vesting schedule is
specified at the time of grant, the Option shall be vested according to the
following schedule:
Number of Years of
Continuous Employment Portion of Total
With the Company Following Option Which Will Become
Grant Date Vested
-------------------------- ------------------------
1 25%
2 50%
3 75%
4 100%
The Committee or Executive Officer may specify a vesting schedule for all
or any portion of an Option based on the achievement of performance objectives
established in advance of the commencement by the Optionee of services related
to the achievement of the performance objectives. Performance objectives shall
be expressed in terms of one or more of the following: return on equity, return
on assets, share price, market share, sales, earnings per share, costs, net
earnings, net worth, inventories, cash and cash equivalents, gross margin or the
Company's performance relative to its internal business plan. Performance
objectives may be in respect of the performance of the Company as a whole
(whether on a consolidated or unconsolidated basis), a Related Corporation, or a
subdivision, operating unit product or product line of the foregoing.
Performance objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An Option which is exercisable (in whole or in
part) upon the achievement of one or more performance objectives may be
exercised only upon completion of the following process: (a) the Optionee must
deliver written notice to the Company that the performance objective has been
achieved and demonstrating, if necessary, how the objective has been satisfied,
(b) within 45 days after receipt of such notice, the Committee will make a good
faith determination whether such performance objective has been achieved and
deliver written notice to the Optionee detailing the results of such
determination; if the Company fails to respond with such 45-day period, then the
performance objective shall be presumed to have been achieved and (c) upon
receipt of written notice from the Company that the performance objective has
been achieved (or upon expiration of such 45-day period without a determination
by the Company), the Optionee may exercise the Option; upon receipt of written
notice from the Company that the performance objective has not been achieved,
the Optionee shall have 15 days to appeal the Company's determination and the
Company shall have 15 days after the receipt of such appeal to consider the
issues presented by the Optionee and make a determination on the appeal, which
determination shall be conclusive and binding on the Optionee.
(f) ACCELERATION OF VESTING.
Except to the extent that such acceleration would render unavailable
"pooling of interests" accounting treatment for any reorganization, merger or
consolidation of the Company, the vesting of one or more outstanding Options may
be accelerated by the Board at such times and in such amounts as it shall
determine in its sole discretion.
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(g) TERM OF OPTION.
Any vested Option granted to an Optionee shall terminate, to the extent
not previously exercised, upon the occurrence of the first of the following
events:
(i) as designated by (x) the Board in accordance with Section
6(n) hereof or (y) the Committee or the Executive Officer
in accordance with Section 6(d) hereof,
(ii) the date of the Optionee's termination of employment or
contractual relationship with the Company or any Related
Corporation for cause (as determined in the sole discretion
of the Committee);
(iii) the expiration of ninety (90) days from the date of the
Optionee's termination of employment or contractual
relationship with the Company or any Related Corporation
for any reason whatsoever other than cause, death or
Disability unless the exercise period is extended by the
Committee a date not later than the expiration date of the
Option;
(iv) the expiration of one year from (A) the date of death of
the Optionee or (B) cessation of the Optionee's employment
or contractual relationship by reason of Disability unless
the exercise period is extended by the Committee until a
date not later than the expiration date of the Option; or
(v) any other event specified by the Committee at the time of
grant of the Option.
If an Optionee's employment or contractual relationship is terminated by
death, any Option granted to the Optionee shall be exercisable only by the
person or persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the state or
county of the Optionee's domicile at the time of death. The Committee shall
determine whether an Optionee has incurred a Disability on the basis of medical
evidence reasonably acceptable to the Committee. Upon making a determination of
Disability, the Committee shall, for purposes of the Plan, determine the date of
an Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 6(f), any unvested Option
granted to an Optionee shall terminate immediately upon termination of
employment of the Optionee by the Company for any reason whatsoever, including
death or Disability. For purposes of the Plan, transfer of employment between or
among the Company and/or any Related Corporation shall not be deemed to
constitute a termination of employment with the Company or any Related
Corporation. For purposes of this subsection with respect to Incentive Stock
Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Committee). The foregoing notwithstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
(h) EXERCISE OF OPTIONS.
If less than all of the shares included in an Option are purchased, the
remainder may be purchased at any subsequent time prior to the expiration date
with respect to, or the termination of, the Option. No portion of any Option may
be exercised for less than one hundred (100) shares (as adjusted pursuant to
Section 6(m)); provided, however, that if the Option is less than one hundred
(100) shares, it may be
8
85
exercised with respect to all shares for which it is vested. Only whole shares
may be issued upon exercise of an Option, and to the extent that an Option
covers less than one (1) share, it is unexercisable.
An Option or any portion thereof may be exercised by giving written notice
to the Company upon such terms and conditions as the Agreement evidencing the
Option may provide and in accordance with such other procedures for the exercise
of an Option as the Committee may establish from time to time. Such notice shall
be accompanied by payment in the amount of the aggregate exercise price for such
shares, which payment shall be in the form specified in Section 6(i). The
Company shall not be obligated to issue, transfer or deliver a certificate of
Common Stock to the holder of any Option until provision has been made by the
holder, to the satisfaction of the Company, for the payment of the aggregate
exercise price for all shares for which the Option shall have been exercised and
for satisfaction of any tax withholding obligations associated with such
exercise. Options granted to an Optionee are, during the Optionee's lifetime,
exercisable only by the Optionee or a transferee who takes title to the Option
in the manner permitted by Section 6(k).
(i) PAYMENT UPON EXERCISE OF OPTION.
Upon the exercise of an Option, the Optionee shall pay to the Company the
aggregate exercise price therefor in cash, by certified or cashier's check. In
addition, such Optionee may pay for all or any portion of the aggregate exercise
price by complying with one or more of the following alternatives:
(1) by delivering to the Company whole shares of Common Stock then
owned by such Optionee, or, subject to the prior approval of the
Committee, by the Company withholding whole shares of Common Stock
otherwise issuable to the Optionee upon exercise of the Option, which
shares of Common Stock received or withheld shall be valued for such
purpose at their Fair Market Value on the date of exercise.
(2) by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price;
(3) by any combination of the foregoing methods of payment; or
(4) by complying with any other payment mechanism, including through
the execution of a promissory note, as may be permitted for the issuance
of equity securities under applicable securities and other laws and
approved by the Committee at the time of exercise.
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86
(j) RIGHTS AS A SHAREHOLDER.
An Optionee shall have no rights as A shareholder with respect to any
shares of Common Stock issuable upon exercise of the Option until such holder
becomes a record holder of such shares. Subject to the provisions of Sections
6(m), no rights shall accrue to an Optionee and no adjustments shall be made on
account of dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights declared on, or created in, the
Common Stock for which the record date is prior to the date such Optionee
becomes a record holder of the shares of Common Stock issuable upon exercise of
such Option.
(k) TRANSFER OF OPTION.
Options granted under the Plan and the rights and privileges conferred by
the Plan may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will, by applicable
laws of descent and distribution or pursuant to A domestic relations order (as
defined in the Code or Title I of the Employment Retirement Income Security Act
of 1974 or the rules or regulations thereunder), and shall not be subject to
execution, attachment or similar process; provided, however, that solely with
respect to Non-Qualified Stock Options, the Committee may, in its discretion,
authorize all or a portion of the Options to be granted to an Optionee to be on
terms which permit transfer by such Optionee to:
(i) Immediate Family Members,
(ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or
(iii) a partnership in which such Immediate Family Members are the
only partners, provided that:
(x) there may be no consideration for any such transfer,
(y) the Agreement evidencing such Options must be approved
by Committee, and must expressly provide for
transferability in a manner consistent with this
Section, and
(z) subsequent transfers of transferred Options shall be
prohibited other than by will, by applicable laws of
descent and distribution or pursuant to a domestic
relations order (as defined in the Code or Title I of
the Employment Retirement Income Security Act of 1974
or the rules or regulations thereunder).
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Section 6(l)(2), the term "Optionee" shall be deemed to
refer to the initial transferor. The events of termination of employment of
Section 6(g) shall continue to be applied with respect to the original Optionee,
following which the options shall be exercisable by the transferee only to the
extent, and for the periods, specified in Section 6(g). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any Option or of
any right or privilege conferred by the Plan contrary to the provisions hereof,
or upon the sale, levy or any attachment or similar process upon the rights and
privileges conferred by the Plan, such Option shall thereupon terminate and
become null and void.
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87
(l) SECURITIES REGULATION AND TAX WITHHOLDING.
(1) No shares of Common Stock shall be issued upon exercise of an
Option unless the exercise of such Option and the issuance and delivery of
such shares shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act,
the Exchange Act, the rules and regulations thereunder and the requirements of
any stock exchange upon which such shares may then be listed, and such
issuance shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption
from registration for the issuance and sale of such shares. The inability of
the Company to obtain from any regulatory body the authority deemed by the
Company to be necessary for the lawful issuance and sale of any shares under
the Plan, or the unavailability of an exemption from registration for the
issuance and sale of any shares under the Plan, shall relieve the Company of
any liability with respect to the non-issuance or sale of such shares.
As long as the Common Stock is not registered under the Exchange Act,
the Company intends that all offers and sales of Options and shares of Common
Stock issuable upon exercise of Options shall be exempt from registration
under the provisions of Section 5 of the Securities Act, and the Plan shall be
administered in a manner so as to preserve such exemption. The Company also
intends that the Plan shall constitute a written compensatory benefit plan,
within the meaning of Rule 701(b) promulgated under the Securities Act, and
that each Option granted pursuant to the Plan at a time when the Common Stock
is not registered under the Exchange Act shall, unless otherwise specified by
the Committee at the time the Option is granted or at any time thereafter, be
granted in reliance on the exemption from the registration requirements of
Section 5 of the Securities Act provided by Rule 701.
As a condition to the exercise of an Option, the Committee may require
the Optionee to represent and warrant in writing at the time of such exercise
that the shares of Common Stock issuable upon exercise of the Option are being
purchased only for investment and without any then-present intention to sell
or distribute such shares. At the option of the Committee, a stop-transfer
order against such shares may be placed on the stock books and records of the
Company, and a legend indicating that such shares may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided stating that
such transfer is not in violation of any applicable law or regulation, may be
stamped on the certificates representing such shares in order to assure an
exemption from registration. The Committee also may require such other
documentation as it shall, in its discretion, deem necessary from time to time
to comply with federal and state securities laws. THE COMPANY HAS NO
OBLIGATION TO UNDERTAKE REGISTRATION OF ANY OPTION OR ANY SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE OF ANY OPTION.
(2) The Optionee shall pay to the Company by certified or cashier's
check, promptly upon exercise of the Option or, if later, the date that the
amount of such obligations becomes determinable, all applicable federal,
state, local and foreign withholding taxes that the Committee, in accordance
with the applicable rules and regulations, determines to result from the
exercise of the Option or from a transfer or other disposition of shares of
Common Stock acquired upon exercise of the Option or otherwise related to the
Option or shares of Common Stock acquired upon exercise of the Option, which
determination by the Committee of the amount due shall be binding upon the
Optionee. Upon approval of the Committee, such Optionee may satisfy such
obligation by complying with one or more of the following alternatives
selected by the Committee:
(A) by delivering to the Company whole shares of Common Stock
then owned by such Optionee, or by the Company withholding whole
shares of Common Stock otherwise issuable to the Optionee upon
exercise of the Option, which shares of Common
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88
Stock received or withheld shall have a Fair Market Value on the
date of exercise (as determined by the Committee in good faith)
equal to the tax obligation to be paid by such Optionee upon such
exercise;
(B) by executing appropriate loan documents approved by the
Committee by which such Optionee borrows funds from the Company to
pay the withholding taxes due under this Section 6(l)(2), with such
repayment terms as the Committee shall select;
(C) by any combination of the foregoing methods of payment;
or
(D) by complying with any other payment mechanism as may be
permitted for the issuance of equity securities under applicable
securities and other laws and approved by the Committee from time to
time.
(3) The issuance, transfer or delivery of certificates of Common
Stock pursuant to the exercise of an Option may be delayed, at the discretion of
the Committee, until the Committee is satisfied that the applicable requirements
of the federal and state securities laws and the withholding provisions of the
Code have been met.
(m) STOCK SPLIT, REORGANIZATION OR LIQUIDATION.
(1) Upon the occurrence of any of the following events, the
Committee shall, with respect to each outstanding Option, proportionately adjust
the number of shares of Common Stock issuable upon exercise of such Option, the
per share exercise price or both so as to preserve the rights of the Optionee
substantially proportionate to the rights of such Optionee prior to such event,
and to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock issuable upon exercise of outstanding Options,
the number of shares available under Section 5 shall automatically be increased
or decreased, as the case may be, proportionately, without further action on the
part of the Committee, the Company, the Company's shareholders, or any Optionee:
(i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or
any successor provision) or any "corporate transaction"
described in the regulations promulgated thereunder;
(ii) the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock
(by stock dividend, stock split, reclassification or
otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares of Common Stock
(by reverse stock split, reclassification or otherwise);
or
(iii) any other event with substantially the same effect shall
occur.
(2) If the Company shall at any time declare an extraordinary
dividend with respect to the Common Stock, whether payable in cash or other
property, or is involved in any recapitalization, spinoff, combination, exchange
of shares, warrants or rights offering to purchase Common Stock, or other
similar event (including a merger or consolidation other than one that
constitutes an Approved Transaction), the Committee may, in the exercise of its
sole discretion and with respect to each outstanding Option, proportionately
adjust the number of shares of Common Stock issuable upon exercise of such
Option, the per share exercise price or both so as to preserve the rights of the
Optionee substantially proportionate to the
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89
rights of such Optionee prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common Stock
issuable upon exercise of outstanding Options, the number of shares available
under Section 5 of the Plan shall automatically be increased or decreased, as
the case may be, proportionately, without further action on the part of the
Committee, the Company, the Company's shareholders, or any Optionee.
(3) The foregoing adjustments shall be made by the Committee or by
the applicable terms of any assumption or substitution document.
(4) With respect to the foregoing adjustments, the number of shares
subject to an Option shall always be a whole number. The Committee may, if
deemed appropriate, provide for a cash payment to any Optionee in connection
with any adjustment made pursuant to this Section 6(m).
(5) The grant of an Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure, to merge, consolidate or
dissolve, to liquidate or to sell or transfer all or any part of its business
or assets.
(n) APPROVED TRANSACTIONS; CONTROL PURCHASE.
In the event of any Approved Transaction or Control Purchase, if so
provided for in the Agreement representing such Option, an Option may become
exercisable in full in respect of the aggregate number of shares thereunder
effective upon the Control Purchase or immediately prior to consummation of the
Approved Transaction. In the case of an Approved Transaction, the Company shall
provide notice of the pendency of the Approved Transaction at least fifteen
(15) days prior to the expected date of consummation thereof to each Optionee
entitled to acceleration. Each such Optionee shall thereupon be entitled to
exercise the vested portion of the Option at any time prior to consummation of
the Approved Transaction or immediately following the Control Purchase. Any such
exercise shall be contingent on such consummation.
Following consummation of the Approved Transaction or Control Purchase,
and until such Option is terminated pursuant to Section 6(g) hereof, any vested
portion of Options that are not exercised shall remain exercisable, and any
unvested portions of any Options shall remain in effect and continue to vest in
accordance with the vesting schedule specified at the time of grant, and upon
such vesting shall become exercisable. Notwithstanding the foregoing, in its
reasonable discretion, the Board may determine that any or all outstanding
Options that are unvested at the time of, or are not exercised upon consummation
of, the Approved Transaction or Control Purchase shall thereafter terminate,
provided that, in making such determination, the Board shall consider the best
interests of the Optionees, the Company and its shareholders, and will make such
determination only if the action to be taken, in the opinion of the Board, is
appropriate in light of the circumstances under which such determination is
made.
Moreover, except to the extent that such determination would render
unavailable "pooling of interests" accounting treatment for any reorganization,
merger or consolidation of the Company, the Board may take, or make effective
provision for the taking of, such action as in the opinion of the Board is
equitable and appropriate in order to substitute new stock options for any or
all outstanding Options that do not become exercisable on an accelerated basis,
or to assume such Options (which assumption may be effected by any means
determined by the Board, in its discretion, including, but not limited to, by a
cash payment to each Optionee, in cancellation of the Options held by him or
her, of such amount as the Board determines, in its sole discretion, represents
the then value of the Options) and in order to make such new stock options or
assumed Options, as nearly as practicable, equivalent to the old Options, taking
into
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90
account to the extent applicable, the kind and amount of securities, cash or
other assets into or for which the Common Stock may be changed, converted or
exchanged in connection with the Approved Transaction.
7. EFFECTIVE DATE; TERM.
The Plan shall be effective at the time specified in the resolutions of
the Board adopting the Plan (the "Effective Date"). Options may be granted by
the Committee or Executive Officer from time to time thereafter until the tenth
anniversary of the Effective Date. Termination of the Plan shall not terminate
any Option granted prior to such termination. Issuance of Non-Qualified Stock
Options under the Plan shall be subject to the requirement of RCW 21.20.310(10)
that the Administrator of Securities of the Department of Financial Institutions
of the State of Washington be provided with notification of the adoption of the
Plan. No Non-Qualified Stock Option shall be granted hereunder until this
notification requirement has been satisfied. Issuance of Incentive Stock Options
under the Plan within twelve (12) months after the Effective Date shall be
subject to the approval of the Plan by the shareholders of the Company at a duly
held meeting of shareholders at which a majority of all outstanding voting stock
of the Company is represented in person or by proxy. The approval required shall
be a majority of the votes cast on the proposal to approve the Plan. Such
approval may also be provided pursuant to a written consent in lieu of such
meeting. No Incentive Stock Option granted hereunder shall be exercisable until
this approval requirement has been satisfied. If this requirement is not
satisfied within twelve (12) months after the Effective Date, then,
notwithstanding any contrary provision in the Plan (a) no Incentive Stock
Options may thereafter be granted under the Plan, and (b) each Incentive Stock
Option granted under the Plan prior thereto shall automatically be deemed to be
a Non-Qualified Stock Option (except to the extent the Agreement evidencing the
Option expressly provides otherwise).
8. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Whether or not any Options are to be granted under the Plan shall be
exclusively within the discretion of the Committee, and nothing contained in the
Plan shall be construed as giving any person any right to participate under the
Plan. The grant of an Option to any Optionee shall in no way constitute any form
of agreement or understanding binding on the Company or any Related Corporation,
express or implied, that the Company or such Related Corporation will employ or
contract with such Optionee for any length of time, nor shall it interfere in
any way with the Company's or, where applicable, a Related Corporation's right
to terminate such Optionee's employment at any time, which right is hereby
reserved.
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
11. INDEMNIFICATION OF COMMITTEE.
In addition to all other rights of indemnification they may have by
virtue of being a member of the Board or an executive officer of the Company,
members of the Committee and the Executive Officer shall be indemnified by the
Company for all reasonable expenses and liabilities of any type or nature,
including attorneys' fees, incurred in connection with any action, suit or
proceeding to which they or any of them are a
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91
party by reason of, or in connection with, the Plan or any Option granted under
the Plan, and against all amounts paid by them in settlement thereof (provided
that such settlement is approved by independent legal counsel selected by the
Company), except to the extent that such expenses relate to matters for which it
is adjudged that such Committee member or Executive Officer is liable for
willful misconduct; provided, however, that within fifteen (15) days after the
institution of any such action, suit or proceeding, the Committee member or
Executive Officer involved therein shall, in writing, notify the Company of such
action, suit or proceeding, so that the Company may have the opportunity to make
appropriate arrangements to prosecute or defend the same.
12. SHAREHOLDERS AGREEMENT.
Unless the Agreement evidencing an Option expressly provides otherwise,
each Optionee may be required, as a condition to the issuance of any shares of
Common Stock that such Optionee acquires upon the exercise of the Option, to
execute and deliver to the Company a shareholders agreement in such form as may
be required by the Company at the time of such exercise, or a counterpart
thereof, together with, unless the Optionee is unmarried, a spousal consent in
the form required thereby, unless the Optionee has previously executed and
delivered such documents and they are in effect at the time of exercise and
apply by their terms to the shares to be issued.
13. SEPARABILITY.
With respect to Incentive Stock Options, if the Plan does not contain
any provision required to be included herein under Section 422 of the Code, such
provision shall be deemed to be incorporated herein with the same force and
effect as if such provision had been set out in full herein; provided, however,
that to the extent any Option that is intended to qualify as an Incentive Stock
Option cannot so qualify, the Option, to that extent, shall be deemed to be a
Non-Qualified Stock Option for all purposes of the Plan.
14. NON-EXCLUSIVITY OF THE PLAN.
Neither the adoption of the Plan by the Board nor the submission of the
Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
pursuant to the Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
15. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION.
By acceptance of an Option, unless otherwise provided in the Agreement
evidencing the Option, the Optionee with respect to such Option shall be deemed
to have agreed that the Option is special incentive compensation that will not
be taken into account, in any manner, as salary, compensation or bonus in
determining the amount of any payment or other benefit under any pension,
retirement or other employee benefit plan, program or policy of the Company or
any of its affiliates.
16. AMENDMENT OF PLAN.
The Board may, at any time, modify, amend or terminate the Plan or
modify or amend any Option granted pursuant to the Plan, including, without
limitation, such modifications or amendments as are necessary to maintain
compliance with applicable statutes, rules or regulations; provided, however,
that no amendment with respect to an outstanding Option which has the effect of
reducing the benefits afforded to
15
92
amendment with respect to an outstanding Option which has the effect of reducing
the benefits afforded to the Optionee shall be made over the objection of such
Optionee; further provided, that the events triggering acceleration of vesting
of an outstanding Option may be modified, expanded or eliminated without the
consent of the Optionee. The Board may condition the effectiveness of any such
amendment on the receipt of shareholder approval at such time and in such manner
as the Committee may consider necessary for the Company to comply with or to
avail the Company, the Optionees or both of the benefits of any securities, tax,
market listing or other administrative or regulatory requirement which the Board
determines to be desirable. Without limiting the generality of the foregoing,
the Board may modify grants to persons who are eligible to receive Options under
the Plan who are foreign nationals or employed outside the United States to
recognize differences in local law, tax policy or custom.
Date Amended and Restated Plan was Approved by Board of Directors of Company:
January 29, 1998
Date Amended and Restated Plan was Approved by Shareholders of Company: January
29, 1998
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93
SECTION 2.6
None.
94
SECTION 2.7
1. TERMINATION OF REDEMPTION AGREEMENT.
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the termination of the Redemption Agreement between the Company and the
current shareholders.
2. IMPERIAL BANK.
The Company is in the process of negotiating a line of credit and term
loan with Imperial Bank. The material terms of the facility are as follows:
A. A $2,000,000 Revolving Line of Credit to support working capital and for
issuance of trade related commercial and standby letters of credit.
B. A $500,000 Term Loan to finance the purchase of equipment, software,
furniture and acquisitions.
The interest rate is the bank's prime rate for the line of credit and
the bank's prime rate plus 0.25% for the term loan. The facility fee is 0.50%
per annum, or $10,000, for the line of credit and the bank's prime rate plus
0.25% per annum, or $2,500 for the term loan. Covenants include, but are not
limited to 1) maintaining a minimum quick ratio of 1.0,2) maintaining minimum
tangible net worth of $2,500,000 and 3) maintaining a minimum debt service ratio
of 1.5.
95
Section 2.10
Address of Leased Property Use of Property
--------------------------------------------------------------------------------
00000 X.X. 00xx Xxxxxx, Xxxxx X, Xxxxxxxx, Xxxxxxxxxx 00000 Office Space
0000--000xx Xxxxx X.X., Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 Office Space
0000--000xx Xxxxx X.X., Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 Office Space
0000--000xx Xxxxx X.X., Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 Office Space
(after February 28, 1998)
0000--000xx Xxxxx X.X., Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000 Office Space
The Company is currently negotiating a lease for approximately 7,600 of
additional office space in Bellevue, Washington. The lease provides for monthly
payments of $30,210 in years one through three, and for $32,098 in years four
through five. The Company will provide a security deposit of $60,420 in the form
of a standby letter of credit.
96
SECTION 2.12(a)
None.
SECTION 2.12(b)
The following is a list of arrangements where the Company is obligated
to pay $50,000 or more per year:
Name of Creditor Approximate Obligation
---------------- ----------------------
Seattle Office Associates LLC -- Suite 100 $225,792
Seattle Office Associates LLC -- Suite 200 $114,497
Seattle Office Associates LLC -- Suite 310 $204,307
Seattle Office Associates LLC -- Suite 110 $119,989
CB Commercial $ 62,662
Section 2.12(c)
The following is a list of arrangements pursuant to which the Company
will receive $200,000 or more:
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
and BSQUARE Corporation, dated August 26, 1997
o Development and License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Porting Agreement between BSQUARE Corporation and IBM, dated August 7, 1997
Section 2.12(d)
A number of the license and development agreements to which the Company
is a party contain confidentiality provisions. These confidentiality provisions
often include a limitation on the use of the information gained from such
relationship, and in that way place a restriction on the type of work to be
performed by the Company. In addition, the following is a list of specific
restrictions contained in certain of the Company's contracts:
97
SECTION 2.12(a)
None.
SECTION 2.12(b)
The following is a list of arrangements where the Company is obligated
to pay $50,000 or more per year:
Name of Creditor Approximate Obligation
---------------- ----------------------
Seattle Office Associates LLC -- Suite 100 $225,792
Seattle Office Associates LLC -- Suite 200 $114,497
Seattle Office Associates LLC -- Suite 310 $204,307
Seattle Office Associates LLC -- Suite 110 $119,989
CB Commercial $ 62,662
SECTION 2.12(c)
The following is a list of arrangements pursuant to which the Company
will receive $200,000 or more:
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
and BSQUARE Corporation, dated August 26, 1997
o Development and License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Porting Agreement between BSQUARE Corporation and IBM, dated August 7, 1997
SECTION 2.12(d)
A number of the license and development agreements to which the Company
is a party contain confidentiality provisions. These confidentiality provisions
often include a limitation on the use of the information gained from such
relationship, and in that way place a restriction on the type of work to be
performed by the Company. In addition, the following is a list of specific
restrictions contained in certain of the Company's contracts:
98
o Total Control/Stellcom agreement restricts the Company from licensing the
Anybus driver to a list of competitors.
o The Microsoft Development and Test Agreement (DTA) for the Windows CE OAK
restricts the Company from working on a competing operating system with the
same resources at the same time.
SECTION 2.12(e)
o Development and License Agreement Between BSQUARE Corporation and Microsoft
Corporation, dated June 12, 1997, as amended by Amendment No. 1 dated December
17, 1997
o Development Agreement Between BSQUARE Corporation and Microsoft Corporation,
dated September 12, 1997, as amended by Amendment No. 1 dated January 19, 1998
o Development and License Agreement by and between Advanced RISC Machines, Ltd.
And BSQUARE Corporation, dated August 26, 1997
o Development & License Agreement by and between NEC Electronics Inc. and
BSQUARE Consulting Inc., dated June 11, 1997
o License Agreement by and between BSQUARE Inc. and Hitachi, Ltd., dated April
7, 1997
o Software Licensing and Bundle Agreement between BSQUARE CORPORATION and
Philips Mobile Computing Group dated June 25, 1997
o Philips Semiconductors Terms and Conditions for Contracted Services dated
March 13, 1997
o Porting Agreement between International Business Machines Corporation and
BSQUARE CORPORATION dated August 7, 1997
o Software Development Agreement by and between BSQUARE CORPORATION and
Motorola, Inc. dated December 31, 1996, as amended by Amendment to Software
Development Agreement dated October 3, 1997
SECTION 2.12(f)
None.
SECTION 2.12(e)
See Item 2 to Section 2.7 of the Disclosure Schedule for a description
of the Company's relationship with Imperial Bank.
SECTION 2.12(h)
See Sections 2.12(c) and 2.12(e) of the Disclosure Schedule for a list
of the Company's material license agreements. The Company enters into
development agreements with the
99
majority of its customers. Other than these development agreements, the Company
has no joint venture, partnerships or supply agreements.
SECTION 2.12(i)
The Company utilizes the marketing and design services of Team Design.
During fiscal 1997, the Company spent over $150,000 with Team Design.
SECTION 2.12(j)
Each of the Company's employees is given a standard employment offer
letter and is required to sign a Proprietary Rights Agreement upon commencement
of employment.
SECTION 2.12(k)
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the Redemption Agreement between the Company and the current shareholders.
SECTION 2.12(l)
o BSQUARE Corporation 401(k) Plan
o BSQUARE Corporation Amended and Restated Stock Option Plan
o Profit-sharing plan. Pursuant to an e-mail from Xxxx Xxxxxx to all of the
Company's employees, the Company implemented a Profit-sharing plan for
1997 and 1998. Specifically, the e-mail stated:
"It is our intention to set aside 5% of our pre-tax earnings for
the 1997 plan and at least 5% for the 1998 plan. After the year
end numbers are final (December 31st), we will announce the
final earnings. We will move as expeditiously as possible to
disperse these profits to employees as taxable income (thank you
Uncle Xxx).
The profits of the Corporation and your share of the profits
will depend on many factors. Because of your contributions,
BSQUARE is a profitable Corporation and we really appreciate all
you have done to make this possible. In the future, your
contributions to BSQUARE will continue to contribute to the
overall success of our Corporation. If, for business reasons,
the Board deems this plan is not advisable, we reserve to right
to withdraw this plan. The Board will have final approval over
such transactions and you should judge the Board's performance
on how well it achieves the above stated intentions. In order to
be eligible for the plan, you most have started work before
December 15th of the respective year."
SECTION 2.12(m)
None.
100
SECTION 2.12(n)
None.
SECTION 2.12(o)
None.
SECTION 2.12(p)
None.
SECTION 2.12(q)
None.
101
SECTION 2.13
The Company is divided into three general divisions: BSQUARE Consulting,
BSQUARE Integration and BSQUARE Development. BSQUARE Consulting generally enters
into time and material agreements with the Company's semi-conductor partners or
with Microsoft. All intellectual property developed by this division is
work-for-hire and is owned by Microsoft (or in some instances, by the Company's
semi-conductor partners). BSQUARE Integration ports Windows CE to various OEM
products. In most cases, the Company retains ownership or joint ownership of
intellectual property developed by the BSQUARE Integration division and then the
Company licenses this intellectual property back to the OEM customer. In one
case (see Section 2.12(d) of the Disclosure Schedule), the customer acquired
ownership of the intellectual property developed by the BSQUARE Integration
division. BSQUARE Development develops shrink-wrap and off-the-shelf popular
applications for OEM devices (generally, the "bProduct line"). The Company
retains ownership of the intellectual products developed by the BSQUARE
Development division and licenses the products for royalty-based distribution.
In the course of its relationships with its customers, the Company is
often granted a license to use and modify the customer's intellectual property
to the extent necessary to perform the Company's development services. In
addition, the Company has entered into a number of license agreements with a
variety of software providers to acquire use of software necessary for the
Company to perform its development services. The Company is also subject to
those licenses or agreements arising from the purchase of "off-the-shelf" or
standard products.
The Company received a notice from one of its customers regarding a
patent (U.S. Patent No. 4,918,723) covering a "keyboard to facsimile
transmission device" held by a third party. The Company does not believe that
the Company's Intellectual Property Rights conflict with this patent, but there
can be no assurance that an action would not be brought in the future regarding
this patent.
TRADEMARKS:
o BSQUARE: Registered in US Class 422,105,093 Class 9 application 75/57,07,
application in Canada #827,659
o BSQUARE VIEW: application in US #75/157,019, application in Canada #826,625
o bVIEW: Registered in Canada #TMA485,548, application in US #75/157,018
o bFAX: application in US #75/157,020, application in Canada #826,626
o bFIND, bMOBILE, bTRACK, xXXXXX, bPRINT: applications pending in US
o CE Xpress: application pending in US
BSQUARE DEVELOPMENT COPYRIGHTS:
o BSQUARE Fax Express (a.k.a., bFAX Express), 1996, 1997 and 1998: Send/only
fax application for Windows CE. Support faxing and previewing bitmaps, text
and Microsoft Pocket Word documents. This application has been adapted to the
H/PC and the P/PC. This application is sold through reseller channels. The
P/PC version is due for release in the first quarter of 1998.
o BSQUARE Fax Pro (a.k.a., bFAX Pro): Send and receive fax application for
Windows CE. Supports faxing and previewing of faxes containing multiple
documents to multiple
102
recipients. This product is bundled with certain H/PCs. This application is
sold through reseller channels.
o BSQUARE Fax Lite (a.k.a., bFAX Lite), 1996, 1997 and 1998: A version of bFAX
Pro that has certain features disabled. This product was developed to provide
a free evaluation of bFAX to customers. This product is distributed free of
charge on the Web and by certain H/PC OEMs.
o BSQUARE Fax Enhanced (a.k.a., bFAX Enhanced): A version of bFAX Pro that has
certain features disabled. This product was developed to bundle with the Casio
Casseopiea A-1O and A-11. This product is no longer in production.
o BSQUARE Mobile (a.k.a., bMOBILE, bMOBILE Wireless Internet): This is a driver
and control panel application that allows Windows CE to communicate with a
Motorola Personal Messenger 100C CDPD (cellular digital packet data) modem.
The control panel interface allows for modem control and monitoring.
o BSQUARE Net (a.k.a., bNET): This is a driver and control panel application
which is very similar to bMOBILE, but extends this capability to the 3COM
Etherlink III (3C589) and the NE2000 ethernet adapters.
o BSQUARE Print (a.k.a., bPRINT): This product enables Windows CE Version 1 to
print the same file formats bFAX supports while faxing.
o BSQUARE Print Pro (a.k.a., bPRINT Pro): This product enables printing as does
bPRINT, but extends print spooling to any application which supports printing.
It supports printing to lRdA-compliant devices, and supports printing to
various printers not already supported by Windows CE. It also provides for a
print-to-fax capability so that any application can print to bFAX Pro. It is
due for release in the first quarter of 1998.
o BSQUARE Find (a.k.a., bFIND): This is a global search utility for Windows CE
that allow search of all data sources and controls the execution of
application to continue the search. This application is sold through reseller
channels and is also bundled with all Hewlett-Packard H/PCs.
o BSQUARE Track (a.k.a., bTRACK): This is a time, expense and car mileage
tracking application for Windows CE. It provides a set of desktop APIs that
enable third parties to integrate the expense information into customer
applications and corporate information systems. It has been adapted to both
the H/PC and the P/PC. It is due for release in the second quarter of 1998.
o BSQUARE Ready (a.k.a., xXXXXX): This is an information management, online book
authoring and reader application. It has two components. The desktop component
sits on the desktop which allows for the authoring of electronic books. The
authoring application contains Wizards that assist the user to acquire content
from the Internet and produce an electronic book. The client-side application
allows users to read electronic books produced with the desktop application.
The reader has an Auto-scrolling feature which is used for reading books and
speeches. The reader application supports bookmarks, annotations, searching,
and indexing. It is due for release in the second quarter of 1998.
o BSQUARE Mobile News (a.k.a., bMOBILE News, bNEWS): This is a USENET Newsreader
application for Windows CE. It was acquired from AdageUS. All rights, title
and interest are owned by BSQUARE. This application is sold through reseller
channels.
o BSQUARE Mobile Chat (a.k.a., bMOBILE Chat, bCHAT). This is an Internet Relay
Chat program for Windows CE. It was acquired from AdageUS. All rights, title
and interest are owned by BSQUARE. This application is sold through reseller
channels.
o BSQUARE Fax APIs (a.k.a., bFAX APIs): These are a set of low-level application
programming interfaces that provide the capability of integrating faxing
capabilities into other software applications. The purpose of these APIs is to
allow third party independent
103
software vendors to integrate faxing capabilities into their applications.
They require that the end-user license a copy of bFAX Pro to utilize the
functionality. These APIs are currently being used by Odyssey Computing and
Communications Intelligence Corporation.
o BSQUARE IMAGING APIS: These are a set of low-level application programming
interfaces that provide the capability of extending the imaging capabilities
of bFAX, bVIEW and bPRINT. Only BSQUARE uses these capabilities.
o MIMIC: This a graphical user interface testing framework used by BSQUARE
Development to test applications.
o PACKET DRIVER TECHNOLOGY: This is the basis for bMOBILE and bNET which enable
those drivers to translate PPP (point to point protocol) into serial-line
internet protocol (SLIP) and ethernet, respectively. This technology could,
conceivably, be adapted to various other protocols.
BSQUARE INTEGRATION COPYRIGHTS:
o CE XPRESS KITS FOR SC400 (a.k.a., BSQUARE OAK for SC400, BSQUARE Value Added
OAK for SC400): An adaptation of Windows CE to the AMD Elan SC400
Microcontroller. It has been adapted to various board-level devices using the
SC400.
o CE XPRESS KITS FOR VR4300 (a.k.a., BSQUARE OAK for VR4300, BSQUARE Value Added
OAK for VR4300): An adaptation of Windows CE to the NEC VR4300 MIPS Processor.
It has been adapted to NEC Nile 3 Chipset.
o CE XPRESS KITS FOR MEDIAGX (a.k.a., BSQUARE OAK for MediaGX, BSQUARE Value
Added OAK for MediaGX): An adaptation of Windows CE to the Cyrix MediaGX
Processor. It has been adapted to various reference devices using the MediaGX.
o BSQUARE FIRMWARE: A set of firmware utilities and tools which facilitate the
adaptation of Windows CE to various microprocessors. This includes a
client-side firmware stub called the "brainstem" and a Windows
NT-hosted-application capable of interacting with the brainstem. This firmware
provides mechanisms for flashing Windows CE images into a device, debugging
the device, and application programming interfaces which enable the
development of testing software which is source-code compatible across all
devices running the brainstem.
o Decompressing Boot LOADER: An OS loader capable of loading a compressed
Windows CE image (using BSQUARE proprietary FILE format) into volatile storage
which maps the image so that it can execute in place in the volatile storage.
BSQUARE COPYRIGHTS:
o BSQUARE INTRANET (a.k.a., bWEB): This is BSQUARE Corporation's Intranet Web
Site which contains content necessary for disseminating information to BSQUARE
Employees. This information includes, but is not limited to, Newsletters,
organization structure, procedures, policies and forms, as well as help desk
software.
o BSQUARE HELP (a.k.a., bHELP): A component of bWEB which provides employees a
network administration help desk which allows them to interact with BSQUARE
Network Administrators. o BSQUARE OPS (a.k.a., bOPS): A component of bWEB,
similar to bHELP, which provides a facilities/operations help desk to
operations and facilities management.
o BSQUARE WORLD Wide Web Site (a.k.a., xxx.xxxxxxx.xxx): BSQUARE's Corporate
Homepage.
o BSQUARE Marketing Collateral: This includes all brochures and the like for
marketing BSQUARE Corporation's business divisions.
104
SECTION 2.15
1. EMPLOYEE BENEFIT PLANS.
See Section 2.12(l) of the Disclosure Schedule for a description of the
Company's employee benefit plans.
2. XXXXX XXXXXX.
On July 17, 1997, the Company entered into a Separation Agreement with
Xxxxx Xxxxxx, who was a former employee, officer and shareholder of the Company.
In connection with this Separation Agreement, the Company made A payment to Xx.
Xxxxxx in the amount of $7,083.33 in severance benefits.
3. COBRA BENEFITS.
The Company offers standard post-employment COBRA benefits to its
employees.
4. XXXXXXX XXXXXXX
On October 16, 1997, the Company entered into a Separation Agreement
with Xxxxxxx XxXxxxx, who was a former employee of the Company. In connection
with this Separation Agreement, the Company made a payment to Xx. XxXxxxx in the
amount of $2,856.55 in severance benefits.
105
SECTION 2.17(a)
YEARS OF
NAME TITLE SALARY SERVICE
---- ----- ------ -------
Xxxxxxx Xxxxxx President and Chief $250,000 plus $460 per 3.5
Executive Officer month car payment
Xxxxxx Xxxxxx Senior Vice President $150,000 3.5
Xxxxx Xxxxxxx Senior Vice President $150,000 3.5
Xxxxxx Xxxxxxxxxxx Vice President, $100,000 1.25
Engineering
Xxxxxxxxxxx XxxXxxxxx Xx. Software Engineer $104,100 3
Xxxx Xxxx Consulting Engineer $109,200 2.25
SECTION 2.17(b)
Team Design $150,548.68
0000 - 0xx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Ducky's Office Furniture $209,742.61
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Nationwide Insurance $283,222.85
Xxxxx X Xxxxxx & Assoc. Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Seattle Office Associates $657,349.02
3633 -- 000xx Xxxxx XX, Xxxxx 000
Xxxxxxxx, XX 00000
Hard Drives Northwest $952,393.00
00000 XX 00xx Xxxxxx
Xxxxxxxx, XX 00000
106
SECTION 2.20
The Company entered into a letter agreement with Xxxx Xxxxxxxx
Incorporated ("Dain") dated December 3, 1997 pursuant to which Dain has been
engaged as the Company's exclusive agent on a "best efforts" basis in connection
with the offering by private placement of A series of preferred stock of the
Company. In connection with this engagement, Dain is to be paid a selling
commission of four percent (4%) on all sales of stock made by the Company. In
addition, the Company is required to reimburse Dain for all of its accountable
legal fees, travel and other reasonable out-of-pocket expenses not to exceed
$25,000.00 without the prior approval of the Company.
107
SECTION 2.21
The following is a list of all insurance policies maintained by the
Company:
o PROPERTY INSURANCE $650,000 Blanket tenant Improvements & Betterments and
Business Personal Property and $1,000,000 Extra Expense (as defined in the
policy)
o DATA PROCESSING INSURANCE $750,000 Equipment, $150,000 Media/Software,
$25,000 Transit and $100,000 Extra Expense (as defined in the policy)
o CRIME INSURANCE $500,000 Employee Dishonesty, $500,000 Forgery or Alteration,
$500,000 Computer Fraud and $500,000 Fiduciary Responsibility
o GENERAL LIABILITY INSURANCE PROPOSAL $2,000,000 Products/Completed Operations
Aggregate, $2,000,000 General Aggregate, $1,000,000 Per Occurrence, $1,000,000
personal & Advertising Injury, $500,000 Fire Legal Damage per fire, $1,000,000
Employers Liability (Stop Gap), $1,000,000 Employee Benefits Liability Per
Occurrence, $3,000,000 Employee Benefits Liability Aggregate
o ERRORS & OMISSIONS $ 1,000,000 Per Occurrence, $ 1,000,000 Aggregate
o AUTOMOBILE INSURANCE $1,000,000 Bodily Injury and Property Damage Liability,
$5,000,000 Medial, $100 Comprehensive Deductible, $500 Collision Deductible,
$1,000,000 Hired and Non-Owned Auto Liability, $40,000 Hired Auto Physical
Damage, $100 Hired Auto Comprehensive Deductible, $500 Hired Auto Collision
Deductible
o UMBRELLA LIABILITY INSURANCE $3,000,000 Per Occurrence, $3,000,000 Aggregate
The Company has no outstanding claims under the above policies that
exceed $5,000.
108
SECTION 2.22
1. PROMISSORY NOTES TO SHAREHOLDERS.
In connection with the revocation of its S-Corporation status, the
Company executed promissory notes in the amount of $654,970.76 to each of
Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx and a note in the
amount of $35,087 to Xxxxxx Xxxxxxxxxxx, which amounts represented the Company's
accumulated adjustments account as of October 14, 1997 and included an amount
sufficient to cover any federal taxes owing on the Company's income for fiscal
year 1997 prior to revocation of the S-Corporation status. Such notes are due
and payable on or prior to April 1, 1998.
2. REDEMPTION AGREEMENT.
See Item 4 to Section 2.3 of the Disclosure Schedule for a description
of the Redemption Agreement between the Company and the current shareholders.
3. AUTOMOBILE LEASE.
The Company currently pays approximately $460 per month to cover an
automobile lease for an automobile used by Xxxxxxx X. Xxxxxx.
109
SECTION 2.23
During the year ended December 31, 1997, the Company earned
approximately $14.4 million. The following is a list of the customers who
accounted for more than 5% of the sales:
o Hitachi 18%
o NEC 17%
o Microsoft 39%
o Motorola 8%
o ARM 11%
Although none of the Company's customers has completely terminated its
relationship with the Company, a number of contracts have terminated as a result
of the Company's completion of a project or service provision. In addition, a
number of the Company's customers and suppliers operate on a purchase order to
purchase order basis. Therefore, the Company cannot guarantee that it will be
able to maintain a relationship with any of these current customers or
suppliers.
110
SECTION 2.24
A copy of the Development and License Agreement, dated June 12, 1997, by
and between Microsoft Corporation and the Company, as amended by Amendment No. 1
to Development and License Agreement, dated December 17, 1997 is attached as
Section 2.24 of the Disclosure Schedule.
111
SECTION 2.24 OF
DISCLOSURE SCHEDULE
DEVELOPMENT & LICENSE AGREEMENT
This Development Agreement (the "Agreement") is entered into and effective as of
June 12, 1997 (the "Effective Date") by and between Microsoft Corporation, a
Washington corporation located at Xxx Xxxxxxxxx Xxx, Xxxxxxx, XX 00000
("Microsoft") and bsquare consulting, inc., a Washington corporation located at
0000 - 000xx Xxxxx XX, Xxxxx 000, Xxxxxxxx, XX 00000 ("bsquare").
RECITALS
Microsoft has developed a computer software platform known as Microsoft(R)
Windows(R) CE ("Windows CE").
Microsoft desires to have bsquare assist with the development, testing and
program management of certain "Visual" development tools for Windows CE, and,
bsquare desires to provide such software development and consulting services to
Microsoft.
The parties agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Work Product" shall mean the result of performance of the work tasks
contained in the Work Plan.
1.2 "Services" shall mean the design and development of the Work Product,
delivery of the Deliverables and performance of the program management
services described in the Work Plan.
1.3 "Work Plan" shall mean the specifications for the Services, attached to
this Agreement as Exhibit B.
1.4 "Schedule" shall mean the schedule for completion of the Services and
delivery of the Deliverables, attached to this agreement as Exhibit C.
1.5 "Deliverables" shall mean the various alpha, beta and final versions of the
Work Product, in source and object code forms, to be delivered by bsquare
to Microsoft, as more fully described in the Work Plan.
1.6 "Source Code" shall mean Microsoft's Windows CE operating system product
source code provided to bsquare for the limited purpose of designing,
testing and development of the Work Product pursuant to this Agreement.
1.7 "Test Hardware" shall mean all of the hardware provided to bsquare by
Microsoft for the limited purpose of testing and development of the Work
Product pursuant to this Agreement.
1.8 "Derivative Technology" shall mean: (i) for copyrightable or copyrighted
material, any translation (including translation into other computer
languages), portation, modification, correction, addition, extension,
upgrade, improvement, compilation, abridgment or other form in which an
existing work may be recast, transformed or adapted; (ii) for patentable or
patented material, any improvement thereon; and (iii) for material which is
protected by trade secret, any new material derived from such existing
trade secret material, including new material which may be protected by
copyright, patent and/or trade secret.
112
1.9 "Confidential Information" shall mean: (i) any trade secrets relating to
either party's product plans, designs, costs, prices and names, finances,
marketing plans, business opportunities, personnel, research development
or know-how; (ii) any information designated by the disclosing party as
confidential in writing or, if disclosed orally, identified at the time of
disclosure as being confidential; and (iii) the terms, conditions and
existence of this Agreement. "Confidential Information" shall not include
information that: (i) is or becomes generally known or available by
publication, commercial use or otherwise through no fault of the receiving
party; (ii) is known and has been reduced to tangible form by the receiving
party at the time of disclosure and is not subject to restriction; (iii) is
independently developed or learned by the receiving party; (iv) is lawfully
obtained from a third party that has the right to make such disclosure; or
(v) is made generally available by the disclosing party without restriction
on disclosure.
2. DEVELOPMENT
2.1 Services. bsquare shall perform the Services in accordance with the
Schedule and pursuant to the Work Plan. The parties agree to discuss in
good faith, issues that may arise in performance of the work tasks,
including any issues regarding compliance with the schedule set forth in
the Work Plan, although the Work Plan may be amended only by mutual
agreement of the parties.
2.2 Acceptance.
2.2.1 For software code Deliverables, Microsoft shall evaluate the alpha,
beta and final version of each Deliverable and shall submit a
written acceptance or rejection to bsquare within ten (10) business
days after Microsoft's receipt of the alpha and beta versions and
thirty (30) days after receipt of the final version of the
Deliverable. Acceptance shall be in writing, and Microsoft shall not
unreasonably withhold its acceptance. If Microsoft identifies Errors
in each Deliverable prior to acceptance, then bsquare shall correct
such Errors within fourteen (14) days following receipt of notice
thereof during acceptance testing for the alpha and beta versions of
each Deliverable and within the time specified in the Work Plan with
respect to Errors discovered during acceptance testing for the final
version of each Deliverable. If Microsoft fails to provide written
acceptance or rejection within the time periods specified above, the
Deliverables shall be deemed accepted on the last day of each such
acceptance period.
2.2.2 For documentation or report Deliverables, Microsoft shall evaluate
each version of such Deliverable. In the event that it requires
corrections, Microsoft shall specify the corrections needed and
bsquare shall deliver an amended version of such documentation
within five (5) working days.
2.2.3 bsquare shall use all reasonable commercial efforts to complete and
deliver the Deliverables set forth in the Work Plan to Microsoft,
according to the schedule set forth in the Work Plan. Additional
information, reports, documentation and the like regarding the
Services according to the Work Plan, shall be provided by bsquare to
Microsoft upon the reasonable request of Microsoft. bsquare shall
promptly raise with Microsoft any issues that arise (or which
bsquare reasonably foresees arising) regarding the quality or
performance of the Deliverables set forth in the Work Plan, as well
as any deviation from the Schedule set forth in Work Plan for such
deliverables. The parties shall use all reasonable efforts to
promptly address any such issues that may arise, including the
establishment of an appropriate recovery plan to the extent
required.
2.2.4 If bsquare fails to deliver any Deliverable within the dates
specified in the Schedule and if any Errors discovered before
acceptance cannot be eliminated in the correction period specified
in the Work Plan then Microsoft may, at its option: (i) retain the
Deliverable (including any applicable documentation) with rights as
set forth in Section 4, and pay bsquare for all
Page 2 of 15
113
outstanding payment milestones for which Microsoft has accepted
corresponding Deliverables, with no further development and license fee to
be paid to bsquare thereafter; (ii) extend the correction period; or (iii)
suspend its performance and/or terminate this Agreement for cause pursuant
to Section 9.3, provided, however, that Microsoft need not provide bsquare
the cure period specified in Section 9.3.
2.3 Design Review & Specifications Changes. bsquare understands that there may
be additions, deletions or other changes which may affect the Work Plan at
any time during the term of this Agreement. Upon notice of any such changes
by Microsoft, bsquare and Microsoft shall work together to make any
necessary changes to the Services, including, if necessary, the
compensation owed to bsquare and bsquare shall alter the Work Plan in order
to accommodate any such changes as mutually agreed to by bsquare and
Microsoft.
2.4 Services Performed on Microsoft Property. In the event it is necessary for
bsquare to perform the Services, or portion thereof, at Microsoft's
Redmond, Washington campus, bsquare shall abide by all Microsoft rules,
regulations, and security measures, including any restrictions on access to
Confidential Information.
3. PAYMENT FOR SERVICES
3.1 Payment. Microsoft agrees to pay bsquare for work performed in accordance
with the Work Plan based upon the hourly rates and incurred expenses set
forth in Exhibit A provided that bsquare has completed and delivered any
corresponding Deliverables; and (ii) Microsoft has accepted such
Deliverables.
3.2 Invoices. bsquare shall submit monthly invoices with respect to Services
performed by bsquare pursuant to the Work Plan. The procedure for
invoicing is set forth in Exhibit A. Invoices shall include reasonable
supporting materials (not including any source code-type information,
which is to be delivered as part of the Deliverables set forth in the Work
Plan) documenting the Services performed by bsquare.
4. RIGHTS
4.1 Work Made For Hire. The Work Product has been specially ordered and
commissioned by Microsoft. bsquare agrees that the Work Product is a "work
made for hire" for copyright purposes, with all copyrights in the Work
Product owned by Microsoft.
4.2 Assignment. To the extent that the Work Product does not qualify as a work
made for hire under applicable law, and to the extent that the Work
Product includes material subject to copyright, patent, trade secret, or
other proprietary right protection, bsquare hereby assigns to Microsoft,
its successors and assigns, all right, title and interest in and to the
Work Product, including, but not limited to the following:
4.2.1 Any copyrights that bsquare may possess or acquire in the Work
Product and all copyrights and equivalent rights in the Work
Product throughout the world, including all renewals and extensions
of such rights that may be secured under the laws now or hereafter
in force and effect in the United States of America or in any other
country or countries;
4.2.2 All rights in and to any inventions, ideas, designs, concepts,
techniques, discoveries, or improvements, whether or not
patentable, embodied in the Work Product or developed in the course
of bsquare's creation of the Work Product, including but not
limited to all trade secrets, utility and design patent rights and
equivalent rights in and to such inventions and designs
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throughout the world regardless of whether or not legal
protection for the Work Product is sought;
4.2.3 The right to prepare Derivative Technology with exclusive rights
to authorize others to do the same;
4.2.4 Copies of any documents, magnetically or optically encoded
media, or other materials created by bsquare under this
Agreement; and
4.2.5 The right to xxx for infringements of the Work Product which may
occur before the date of this Agreement, and to collect and
retain damages from any such infringements.
4.3 Assistance. At Microsoft's expense, bsquare shall execute and deliver
such instruments and take such other action as may be requested by
Microsoft to perfect or protect Microsoft's rights in the Work Product and
to carry out the assignments set forth in this Section 4.
4.4 Assignment/Waiver of Moral Rights. bsquare hereby irrevocably transfers
and assigns to Microsoft any and all "moral rights" that bsquare may have
in the Work Product and any Derivative Technology thereof. bsquare also
hereby forever waivers and agrees never to assert any and all "moral
rights" it may have in the Work Product and Derivative Technology, even
after termination of the Services.
4.5 Source Code License Grant. Microsoft hereby grants to bsquare a
non-exclusive, personal, non-transferable, non-assignable license to use
and modify the Source Code solely for bsquare's internal use on bsquare's
premises in designing, testing and development of the Work Product on
behalf of Microsoft. The Source Code provided hereunder shall be
considered Confidential Information and, therefore, shall be subject to
the terms and conditions of Section 6 of this Agreement. bsquare may
disclose the Source Code only to bsquare's employees on a need-to-know
basis. bsquare shall execute appropriate written agreements with its
employees sufficient to enable it to comply with all the provisions of
this Agreement, including non-disclosure and assignment of rights.
4.6 Test Hardware License Grant. Microsoft hereby grants to bsquare a
non-exclusive, personal, non-transferable, non-assignable license to use
the Test Hardware solely for bsquare's internal use in testing and
development of the Work Product. bsquare shall not reproduce, duplicate,
copy or otherwise disclose, distribute, or disseminate the Test Hardware
in any media, except as reasonably necessary for the Work Product. The
Test Hardware provided hereunder shall be considered Confidential
Information and, therefore, shall be subject to the terms and conditions
of Section 6 of this Agreement.
4.7 Return of Materials. Upon the earlier of either completion of the
Services or termination of this Agreement as provided in Section 9,
bsquare shall return all copies of the Source Code, Test Hardware and
confidential information in bsquare's possession or under its control
within ten (10) days following the termination date or acceptance date of
the Deliverable by Microsoft. bsquare shall provide a declaration signed
by an officer of bsquare attesting that all copies of the Source Code,
Test Hardware and related materials have been returned to Microsoft.
4.8 No Other Rights. bsquare agrees that this Agreement does not grant to it
any rights other than what is granted in this Section 4 and for the
limited purposes set forth therein. Under no circumstances will the
license grants set forth in Section 4 be construed as granting, by
implication, estoppel or otherwise, a license to any Microsoft technology
other than the Source Code and Test Hardware,
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solely for the purposes designated herein. All rights not expressly
granted herein are expressly reserved by Microsoft.
5. NO OBLIGATION/INDEPENDENT DEVELOPMENT
Notwithstanding any other provision of this Agreement, Microsoft shall have no
obligation to market, sell or otherwise distribute the Work Product, either
alone or in any Microsoft product. Except as provided in Section 6, nothing in
this Agreement will be construed as restricting Microsoft's ability to acquire,
license, develop, manufacture or distribute for itself, or have others acquire,
license, develop, manufacture or distribute for Microsoft, similar technology
performing the same or similar functions as the technology contemplated by this
Agreement, or to market and distribute such similar technology in addition to,
or in lieu of, the technology contemplated by this Agreement.
6. CONFIDENTIALITY
6.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use
the other's Confidential Information for purposes other than those
necessary to directly further the purposes of this Agreement. Neither
party will disclose to third parties the other's Confidential Information
without the prior written consent of the other party. Except as expressly
provided in this Agreement, no ownership or license rights is granted in
any Confidential Information.
6.2 The parties' obligations of confidentiality under this Agreement shall
not be construed to limit either party's right to independently develop
or acquire products without use of the other party's Confidential
Information.
7. WARRANTIES
7.1 bsquare. bsquare warrants and represents that:
7.1.1 It has the full power to enter into this Agreement and make the
assignments and license rights set forth herein;
7.1.2 It has not previously and will not grant any rights in the
Deliverables to any third party that are inconsistent with the
rights granted to Microsoft herein;
7.1.3 The Deliverables and Work Product are original to bsquare and do
not infringe any copyright, patent, trade secret, or other
proprietary right held by any third party;
7.1.4 The Deliverables and Work Product will be created by employees
of bsquare within the scope of their employment and under
obligation to assign inventions to bsquare, or by independent
contractors under written obligations to assign all rights in
the Deliverables and Work Product to bsquare; and
7.1.5 The Services shall be performed in a professional manner and
shall be of a high grade, nature, and quality.
7.2 Microsoft. Microsoft warrants and represents that it has the full power
to enter into this Agreement and make the assignments and license rights
set forth herein;
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8. INDEMNITY
8.1 Indemnity.
8.1.1 bsquare shall, at its expense and Microsoft's request, defend
any claim or action brought against Microsoft, and Microsoft's
subsidiaries, affiliates, directors, officers, employees,
agents and independent contractors, to the extent it is based
upon a claim that the Work Product and/or the Deliverables
infringes or violates any patent, copyright, trademark, trade
secret or other proprietary right of a third party, and bsquare
will indemnify and hold Microsoft harmless from and against any
costs, damages and fees reasonably incurred by Microsoft,
including but not limited to fees of attorneys and other
professionals, that are attributable to such claim; provided,
that: (i) Microsoft provides bsquare reasonably prompt notice
in writing of any such claim or action and permits bsquare,
through counsel mutually acceptable to Microsoft and bsquare,
to answer and defend such claim or action; (ii) Microsoft
provides bsquare information, assistance and authority, at
bsquare's expense, to help bsquare to defend such claim or
action; and (iii) bsquare will not be responsible for any
settlement made by Microsoft without bsquare's written
permission, which permission will not be unreasonably withheld.
8.1.2 Microsoft shall have the right to employ separate counsel and
participate in the defense of any claim or action. bsquare
shall reimburse Microsoft upon demand for any payments made or
loss suffered by it at any time after the date hereof, based
upon the judgment of any court of competent jurisdiction or
pursuant to a bona fide compromise or settlement of claims,
demands, or actions, in respect to any damages related to any
claim or action under this Section 8.
8.1.3 bsquare may not settle any claim or action under this Section 8
on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably
withheld. In the event Microsoft and bsquare agree to settle a
claim or action, bsquare agrees not to publicize the settlement
without first obtaining Microsoft's written permission, which
permission will not be unreasonably withheld.
8.2 Duty to Correct. Notwithstanding Section 8.1, should the Work Product,
Deliverables or portion thereof be held to constitute an infringement
and use as contemplated by this Agreement be enjoined or be threatened
to be enjoined, bsquare shall notify Microsoft and immediately, at
bsquare's expense: (i) procure for Microsoft the right to continue use,
sale, and marketing of the Work Product, Deliverables or portion
thereof, as applicable; or (ii) replace or modify the Work Product,
Deliverables or portion thereof with a version that is non-infringing,
provided that the replacement or modified version meets the
Specifications to Microsoft's satisfaction. If (i) or (ii) are not
available to bsquare, in addition to any damages or expenses reimbursed
under Section 8.1, bsquare shall refund to Microsoft all amounts paid
to bsquare by Microsoft under this Agreement.
9. TERMINATION
9.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall continue until terminated as provided in this Section 9.
9.2 Termination by Microsoft. Microsoft may terminate this Agreement with
or without cause by providing bsquare thirty (30) days prior written
notice of such cancellation. Upon receipt of such notice, bsquare will
discontinue all work thereunder. Except in cases of termination for
cause as specified in Section 2.2 of this Agreement, Microsoft will pay
for all work performed by bsquare up until the date of receipt of the
cancellation notice. In the event of cancellation, upon request by
Microsoft, bsquare agrees to turn over to Microsoft all work in
progress within ten (10) days.
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9.3 Termination By Either Party For Cause. Either party may suspend performance
and/or terminate this Agreement immediately upon written notice at any time
if:
9.3.1 The other party is in material breach of any material warranty,
term, condition or covenant of this Agreement, other than those
contained in Section 6, and fails to cure that breach within thirty
(30) days after written notice thereof; or
9.3.2 The other party is in material breach of Section 6.
9.4 Effect of Termination. In the event of termination or expiration of this
Agreement for any reason, Sections 4.1 - 4.4, 4.7 - 4.8, 5, 6, 7, 8, and 10
shall survive termination. Any licenses or sublicenses already granted by
Microsoft under this Agreement shall not be affected by any termination of
this Agreement and shall remain in full force and effect.
10. LIMITATION OF LIABILITIES
WITH THE EXCEPTION OF ANY BREACH OF SECTIONS 4.5, 6 AND 8, NEITHER PARTY SHALL
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR SPECIAL
DAMAGES, EVENT IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
EXCEPT AS SET FORTH IN SECTION 7, BSQUARE SPECIFICALLY DISCLAIMS ANY WARRANTY
OF FITNESS, FUNCTIONALITY OR MERCHANTABILITY, WHETHER EXPRESS OR IMPLIED.
11. GENERAL
11.1 Notices. All notices and requests in connection with this Agreement shall
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, and addressed
as follows:
To bsquare: To Microsoft:
bsquare consulting, inc. Microsoft Corporation
0000 000xx Xx. XX, Xxxxx 000 One Microsoft Way
Bellevue, WA 98006 Xxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxx Attention:_____________________
Phone: 000-000-0000 Phone: _____________________
Fax: 000-000-0000 Fax: _____________________
Copy to: Law & Corporate Affairs
Fax: (000) 000-0000
or to such other address as a party may designate pursuant to this notice
provision.
11.2 Independent Contractors. bsquare is an independent contractor for
Microsoft, and nothing in this Agreement shall be construed as creating an
employer-employee relationship, a partnership, or a joint venture between
the parties.
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11.3 Taxes. In the event taxes are required to be withheld on payments made
under this Agreement by any U.S. (state or federal) or foreign government,
Microsoft may deduct such taxes from the amount owed bsquare and pay them
to the appropriate taxing authority. Microsoft shall in turn promptly
secure and deliver to bsquare an official receipt for any taxes withheld.
Microsoft will use reasonable efforts to minimize such taxes to the extent
permissible under applicable law.
11.4 Governing Law. This Agreement shall be governed by the laws of the State of
Washington as though entered into between Washington residents and to be
performed entirely within the State of Washington, and bsquare consents to
jurisdiction and venue in the state and federal courts sitting in the State
of Washington. In any action or suit to enforce any right or remedy under
this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable attorneys' fees.
11.5 Assignment. This Agreement shall be binding upon and inure to the benefit
of each party's respective successors and lawful assigns; provided,
however, that bsquare may not assign this Agreement, in whole or in part,
without the prior written approval of Microsoft.
11.6 Construction. Except for Sections 3, 6, 9, and 10 herein above, should a
court of competent jurisdiction find any provision of this Agreement, or
portion hereof, to be unenforceable, that provision of the Agreement will
be enforced to the maximum extent permissible so as to effect the intent of
the parties, and the remainder of this Agreement will continue in full
force and effect. Should Sections 3, 6, 9 or 10 herein, or any portion
thereof, be held unenforceable, then in that event either party shall have
a right to immediately terminate this Agreement by written notice to the
other party. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any
other provision. This Agreement has been negotiated by the parties and
their respective counsel and will be interpreted fairly in accordance with
its terms and without any strict construction if favor or against either
party.
11.7 Force Majeure. This Agreement and the parties' performances hereunder are
subject to all contingencies beyond the reasonable control of the parties
(whether or not now in the contemplation of either of the parties),
including, but not limited to, force majeure; strikes; labor disputes;
floods; civil commotion; war; riot; acts of God; rules, laws, orders,
restrictions, embargoes, quotas or actions of any government, foreign or
domestic, or any agency or subdivision thereof; casualties; fires;
earthquakes; accidents; shortages of transportation facilities; detention
of goods and merchandise by customs authorities; loss of goods and
merchandise in public or private warehouses; or other casualty or
contingency beyond the reasonable control of the parties or otherwise
unavoidable.
11.8 Entire Agreement. This Agreement does not constitute an offer by Microsoft
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
Services and all other subject matter hereof and merges all prior and
contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and signed
on behalf of bsquare and Microsoft by their respective duly authorized
representatives.
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION BSQUARE CONSULTING, INC.
/s/ XXXXX XXXXXX /s/ XXXXXXX XXXXXX
------------------------------ ------------------------------
By (Sign) By (Sign)
Xxxxx Xxxxxx Xxxxxxx Xxxxxx
------------------------------ ------------------------------
Name (Print) Name (Print)
Sr. V.P. CPO President
------------------------------ ------------------------------
Title Title
June 12, 1997 6/17/97
------------------------------ ------------------------------
Date Date
00-0000000
------------------------------
bsquare's Federal Employee ID Number
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EXHIBIT A
Payment and Invoicing:
bsquare will charge Microsoft a flat rate of Seventy-nine Dollars (US$79.00)
per hour for services rendered under this Agreement. Notwithstanding the
provisions of Section 2.3, the total amount payable to bsquare for services
performed under this Agreement shall not exceed Three Million Three Hundred
Sixty-eight Thousand Five Hundred Sixty Dollars (US$3,368,560.00).
bsquare will invoice Microsoft for Four Hundred Twenty-one Thousand Seventy
Dollars (US$421,070.00) ("Advance Payment") upon execution of this Agreement.
Subsequently, bsquare will invoice Microsoft at the end of each month for the
services rendered during that month. Each invoice will be discounted by one
sixth of the Advance Payment, or Seventy Thousand One Hundred Seventy-eight
33/100 Dollars (US$70,178.33), until the entire Advance Payment has been
accounted for. As set forth in Section 3.2 of this agreement, invoices will be
accompanied with reasonable supporting materials and Microsoft will make
payment to bsquare within thirty (30) days of receiving the invoice(s).
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EXHIBIT B
Work Plan
OVERVIEW
bsquare consulting will develop certain components of the Visual development
tools for Windows CE (WCE), the program management of the Japanese versions of
the Visual development tools for WCE, the testing of the majority of the Visual
tools for WCE and the testing of the WCE Java Virtual Machine (VM).
Specific work includes the following areas:
DESCRIPTION HEADCOUNT
----------- ---------
testing of several components of the WCE development tools 22
Japanese WCE Visual Tools Program Manager 1
Development of MFC 2.0 for WCE 2
x86 tools development for WCE 1
Development of Active X Template Library 1
Development of the Visual Java product for WCE 2
testing of the WCE Java Virtual Machine 2
Development of the DDK for WCE 4
Development of the CKD for WCE 1
Development of V2 Emulation 5
----
TOTAL 41
====
RESPONSIBILITIES
BUILDING OF WCE VISUAL DEVELOPMENT TOOLS
bsquare will assume the primary role as the "builder" of the WCE Visual
development tools and will cooperate with Microsoft to establish mutually
acceptable terms and conditions for these procedures. bsquare will conduct
daily builds of all the WCE Visual Development Tools. The build results will be
published on a common share. bsquare will fix build problems by contacting the
developers and working with them to check in the fixes. The build will drop all
components to a common share. VCCE and VJCE will be dropped as fully functional
kits. The build teams will manage all release versions. The build team will
work with developer in adding new sources and products to the build. The build
team will work with the localization team in running espresso to produce the
Japanese versions.
BUILD COMPONENTS
- Windbg
- DevStudio
- CRT
- Emulation
- Remote Tools
- MFC
- Japanese build and kits
TESTING OF WCE VISUAL DEVELOPMENT TOOLS
bsquare will assume primary role for all testing of the WCE Visual development
tools. Testings will occur on a regular schedule. The test team will run the
tests against the daily builds. Test suites will be maintained for each
product. The test harness will be modified to run the appropriate tests against
the
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component and it will log all results. These results will be analyzed and
published. All failures will be logged in a Raid database. Automated tests will
be developed for each component. Manual testing will be used until the
automated tests are up and running. Tests cases will be collected from users
and developers and will be added to the test suites as regression tests.
PRODUCTS TO BE TESTED
o Debugger
o Resource Editor
o Setup
o Remote Tools
o Shell
o MFC
o Emulation
o Compiler
o Linker
o Samples
JAPANESE PM
bsquare will assume primary responsibility for Program Management of the
Japanese versions of the WCE Visual tools products. The responsibilities will
include development of the Product Specifications, establishing the schedule,
coordination of the different development groups. It will also include owning
the licensing, marketing, and support issues. The PM will be responsible for
all releases the Japanese versions of the WCE Visual Tools.
PRODUCTS
o VCCE
o VJCE
o SDK
o OAK
MFC
bsquare will continue to assume primary responsibility for the WCE version of
MFC. bsquare will adapt MFC to the different versions of the Alder OS. Each MFC
version will match the functionality of the target platform. The MFC library
work will involve building MFC in the WCE environment, removing unsupported
classes or changing them to match the WCE V2 API set, and add new classes to
capture WCE V2 specific features. The DevStudio work will involve adapting the
WCE AppWizard to will generate applications for the different target platforms.
The DevStudio work will also involve modifications to the Class Wizard to match
the WCE V2 message set.
TARGET PLATFORMS
o Xxxxxxx
x Gryphon
o APC
DELIVERABLES
o MFCWCE.DLL, MFCWCE.LIB, UAFXWCE.LIB, MFCS42.LIB
o WCE MFC Headers
o WCE MFC Sources
o MSVCRT.DLL, MSVCRT.LIB
o App Wizard
o Class Wizard
o Documentation
o Samples
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NEW FEATURES FOR V2
o OLE
o Win Sockets
o HTML
INTEGRATION OF X86 INTO WCE VISUAL DEVELOPMENT TOOLS (CEPC)
bsquare will assume primary responsibility for the integration of x86 support
into the WCE Visual development tools. bsquare will develop a WCE x86 platform
package for DevStudio. This package will target enable users to target WCE x86
devices. bsquare will adapt the DevStudio remote debugger to the WCE x86
platform. All current WCE DevStudio features will be modified to work with a WCE
x86 target. bsquare will also produce a WCE x86 runtime library.
ATL (ACTIVEX TEMPLATE LIBRARY) DEVELOPMENT FOR WCE
bsquare will assume primary responsibility for the ATL development for WCE.
bsquare will adapt ATL to the WCE V2 API set. bsquare will test all ATL
function against the Alder OS and work with Microsoft in resolving all issues
involving ActiveX support in WCE. bsquare will develop a verification test
suite for ATL on WCE. The WCE ATL will be integrated into the VCCE product.
WCE VISUAL JAVA
bsquare will assume primary responsibility for the WCE Visual Java product.
bsquare will work with the Microsoft Program Managers to further refine the
specifications for VJCE. bsquare will produce a WCE Java package for the
DevStudio. The package will define the WCE Java platform features. These
features will include WCE Java projects, build settings, automatic downloads,
and remote Java debug support. bsquare will modify the DevStudio shell to meet
the requirements of developing for WCE Java. Modification will include new menu
options, dialogs and any other features that ease WCE Java development.
The Java debugger will be adapted to work with the WCE pJVM on target device.
The WCE Java projects will also be able to target the Emulation environment.
bsquare will produce a WCE Visual Java product that will be independent of the
VCCE product. bsquare will generate automated tests to test the new WCE Java
features. These test will exercise all UI features and all debugger features.
WCE JAVA VM TESTING
bsquare will assume primary responsibility for the WCE Java VM testing, with
Microsoft assuming primary responsibility for Java VM testing tools
development. bsquare will adapt the automatic distributed complier test
harmless to run tests against the pJVM. bsquare will develop a series of test
suites to exercise all of the pJVM features. bsquare will add samples, existing
tests, and real world code to the test suites. The tests will be run on a
schedule basis with all results being published to a common location. The test
results will be analyzed and all the failures will be logged to a Raid
database. The failures will also be used to generate a regression test suite
that will be added to the main tests. bsquare will work with the Microsoft
developers in refining the pJVM test tools and in developing new tools.
DEVELOPMENT OF CDK (COMPONENT DEVELOPMENT KIT) FOR WCE
bsquare will work with Microsoft PMs to define and deliver a CDK for Windows CE.
DEVELOPMENT OF DDK (DEVICE DRIVER KIT) FOR WCE
bsquare will work with Microsoft PMs to define and deliver a DDK for Windows CE
2.0.
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EMULATION FOR WCE
bsquare will assume the primary development responsibility for the WCE
Emulation Environment. bsquare will develop Emulation for the three main Alder
platforms, Mercury, Gryphon, and APC. Emulation will be expanded to pickup the
new Alder APIs and features such as OLE. bsquare will also integrate the DDK
and the CDK into Emulation. The Emulation work will involve adapting the
current emulated object store to each of the three platforms. The object store
will be converted to be a true NT device which greatly improve all emulated
file transactions. The Alder shell functionality will also be complete
emulated. The DevStudio shell will be modified to match the features of the V2
Emulation. An option dialog will be added to allow a developer to select a
particular Emulation platform. This dialog will configure the WCE shell and
object store model used by Emulation so that it can the target the different
platform. All the new Emulation components will be added to the VCCE product.
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EXHIBIT C
Schedule
Project begins 4/15/97
All projects build 5/23/97
All projects, weekly product test reports 5/30/97
May status report 5/30/97
M1 - ALPHA EMULATION RTM 6/6/97
M1 - letter of acceptance 6/20/97
All project BVTs operational 6/13/97
All project detailed test suites begin 6/20/97
June status report 6/30/97
M2 - BETA I ALL PROJECTS 7/15/97
M2 - letter of acceptance 7/29/97
Feature complete all projects 7/25/97
July status report 7/31/97
M3 - BETA II DESKTOP PROJECTS 8/29/97
M3 - RTM ROM COMPONENTS 8/29/97
M3 - letter of acceptance 9/12/97
August status report 8/29/97
M4 - RTM OEM SKUs 9/12/97
M4 - letter of acceptance 9/26/97
September status report 9/30/97
M5 - RTM DESKTOP PROJECTS 10/15/97
M5 - letter of acceptance 10/19/97
Final project status 10/15/97
Project postmortem 10/16/97
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[MICROSOFT LETTERHEAD]
AMENDMENT NO. 1 TO THE
DEVELOPMENT & LICENSE AGREEMENT
BETWEEN
BSQUARE CORPORATION AND MICROSOFT CORPORATION [MICROSOFT LOGO]
This Amendment is made and entered into by and between MICROSOFT
CORPORATION ("Microsoft") and "BSQUARE CORPORATION ("BSQUARE") to be effective
as of the 17th day of December, 1997. Capitalized terms used in this Amendment
No. 1 that are not otherwise described herein shall have the meaning ascribed to
such terms in the Agreement.
RECITALS
The parties have entered into that certain Development & License Agreement,
dated June 12, 1997 (the "Agreement"); and
Microsoft desires to have BSQUARE assist with the development, testing and
program management of certain projects in connection with Windows CE operating
system support for certain microprocessors in addition to other Services being
provided by BSQUARE under the Agreement, and,
The parties are currently negotiating a new master agreement to govern the
provision of development services by BSQUARE to Microsoft (the "Master
Agreement") over the next several years; and
Until such time as the Master Agreement is executed and in effect, the
parties desire to amend the Agreement on the terms and conditions provided
herein to describe additional Services to be provided by BSQUARE;
The parties hereby agree as follows:
AMENDMENT
1. Definitions.
Section 1.3, Definitions, is amended to restated to provide as follows:
1.3 "Work Plan" shall mean the specifications for the Services,
attached to this Agreement in sequential Exhibits B.
2. Amended Exhibit A-1.
Exhibit A-1 is hereby added to the Agreement and the prices and payments
terms specified in Exhibit A-1 shall apply to all Services and Work Plans other
than the original Work Plan in existence upon the execution of the Agreement.
3. Master Agreement.
Although a variety of terms remain to be negotiated and no final agreement
has been reached, the parties currently intend to include the following terms
in the Master Agreement:
a. Microsoft will agree to fund an agreed upon number of engineering
personnel dedicated to Microsoft projects and Services during the term of
the Master Agreement;
127
[MICROSOFT LOGO]
[MICROSOFT LETTERHEAD]
b. BSQUARE will agree to provide an agreed upon number of engineering
personnel dedicated to Microsoft projects at the levels and rates specified
in Exhibit A-1 to this Agreement;
c. BSQUARE will agree not to provide products and services which compete
with Windows CE and Windows CE tools.
d. BSQUARE will xxxx Microsoft on monthly intervals by project. Billing
will be recorded in hourly increments by project sufficient for Microsoft
to determine the number of hours each engineer worked on a Microsoft
project on each day.
e. Work shall be performed on a work for hire basis with all
intellectual property rights, including copyrights, trade secrets and
patents assigned to Microsoft.
f. All work performed by BSQUARE will be fully warranted against
intellectual property infringement.
g. BSQUARE will be a preferred Microsoft vendor for Microsoft Visual
Tools for Windows CE projects.
h. Upon execution of the Master Agreement, Microsoft and BSQUARE will
work together on a joint press release to announce their relationship under
the Master Agreement as agreed upon by the parties.
i. The parties will work in good faith to complete the Master Agreement
by March 1, 1998.
4. Additional Work Plans and Services.
An additional Work Plan summary is hereby added to the Agreement by Exhibit B-2
and incorporated herein by this reference. The Work Plan will be supplemented
upon execution of the Master Agreement as described in Section 5 below. Until
execution of the Master Agreement, MS and BSQUARE will agree on the number of
people assigned to the projects summarized in the Work Plan and the appropriate
job level category for such personnel. Further it is agreed that additional
details for each project will be developed and attached as exhibits in the
Master Agreement prior to completion of each project specified in the Work Plan.
5. Term
Section 9.1 (Term) of the Agreement is amended and restated to provided as
follows:
9.1 Term. The term of this Agreement shall commence as of the
Effective Date and shall continue until the earlier of March 1, 1998 or
the date the Agreement is terminated as provided in this Section 9.
6. This Amendment shall amend, modify and supersede to the extent of any
inconsistencies, the provisions of the Agreement. Except as expressly
amended by this Amendment, the Agreement shall remain in full force and
effect. Capitalized terms used in this Amendment No. 1 that are not
otherwise described herein shall have the meaning ascribed to such terms in
the Agreement.
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[MICROSOFT LETTERHEAD]
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date set forth above. All signed copies of this Amendment
to the Agreement shall be deemed originals. This Amendment does not constitute
an offer by MS. This Amendment shall be effective upon execution on behalf of
BSQUARE and MS by their duly authorized representatives.
[MICROSOFT LOGO]
MICROSOFT CORPORATION BSQUARE CORPORATION
/s/ XXXXX XXXXXX /s/ XXXXXXX XXXXXX
--------------------------------- ----------------------------------
By By
Xxxxx Xxxxxx Xxxxxxx Xxxxxx
--------------------------------- ----------------------------------
Name (Print) Name (Print)
Sr. V.P. CPO CEO
--------------------------------- ----------------------------------
Title Title
Jan. 19, 1998 12-17-97
--------------------------------- ----------------------------------
Date Date
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[MICROSOFT LOGO]
[MICROSOFT LETTERHEAD]
EXHIBIT A-1
PAYMENT AND INVOICING
BSQUARE will charge Microsoft at the applicable rate specified below for
each hour of services rendered under the Work Plan on a project by project
basis using the Microsoft Internal Reference Numbers described below. The total
maximum amount payable to BSQUARE for services performed under each project in
a Work Plan shall be specified as well as a total of all projects summarized in
the Work Plan.
BSQUARE shall invoice MS by the tenth day of each month for the amounts due for
work performed under the Work Plan in the prior month. Billing will be recorded
in hourly increments by project and Microsoft Internal Reference Number
sufficient for Microsoft to determine the number of hours each engineer worked
on any given Microsoft project on each day. In the event that MS provides a
form to detail BSQUARE xxxxxxxx, BSQUARE agrees to utilize such forms as MS may
supply. MS shall pay each invoice within thirty (30) days of receiving each
invoice, provided that MS has accepted the work described in the invoice. MS
shall be entitled to conditionally accept Services billed each month, subject
to final approval of the Services upon completion of the Project. If MS rejects
any Services pursuant to the Agreement, then MS shall be entitled, in addition
to any other remedies available, to deduct an amount from any subsequent
invoice equal to the amount MS previously paid for the rejected Services or
portion thereof. As set forth in Section 3.2 of this agreement, invoices will
be accompanied with reasonable supporting materials and Microsoft will make
payment to BSQUARE within 30 days of receiving the invoice(s).
Job Title Category Rate Basis
---------------------------------------------------------------- -------- ------ --------
XXX Xxxxx 0 (Architect - compiler or kernel/OS) SDE1 125.00 per hour
XXX Xxxxx 0 (System Engineer - compiler, debugger and OS) SDE2 105.00 per hour
XXX Xxxxx 0 (Application Engineer - visual tools, IDE, MFC, etc.) SDE3 95.00 per hour
STE Level 1 (Test lead) STE1 95.00 per hour
STE Level 2 (System Test Engineer) STE2 85.00 per hour
STE Level 3 (Application Test Engineer) STE3 70.00 per hour
Group Manager (Top Level Project Mgr) PM1 100.00 per hour
Project Manager (Multi-project PM for Compiler) PM2 75.00 per hour
User Education Level 1 (Editor) UE1 75.00 per hour
User Education Level 2 (Writer) UE2 65.00 per hour
Page 4
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[MICROSOFT LETTERHEAD]
EXHIBIT B-2
WORK PLAN SUMMARY [MICROSOFT LOGO]
The table below identifies all known projects by name and associates a unique MS
Internal Reference Number which shall be used to record hours worked by each
employee assigned to a project. Work plans will be developed for each project
and attached as exhibits to the Master Agreement. In the interim, this Work
Plan summary identifies the projects, number of personnel expected to be
assigned to the projects, the pay rate for each engineer assigned, a maximum
amount payable for each project under the Work Plan and a maximum amount for
all projects under the Work Plan.
Total Maximum Payable Amount for All Projects $6,637,100
PROJECT MS INTERNAL REFERENCE #
------- -----------------------
ARM 720T 1036724
ARM Thumb compiler/kernel support 1036726
NIPS NEC 4300 floating point 1036727
Maintenance ARM Architecture 1036741
Maintenance MIPS Architecture 1036742
Maintenance Power PC Architecture 1036744
Maintenance Super-H Architecture 1036745
Toolkit for Visual Basic 1036923
Toolkit for Visual C++ 1036924
Toolkit for Visual J++ 1036925
Embedded Toolkit for Visual C++ 1036926
Windows CE SDK/Emulation/Remote Tools 1036927
Windows CE Internal Tools 1036928
Windows CE Tools Localization 1036929
Page 5
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[MICROSOFT LETTERHEAD]
INDIVIDUAL PROJECT DESCRIPTIONS [MICROSOFT LOGO]
Project Name ARM 720T
Internal Reference Number #1036724
Total Payment Amount $111,500
Project Description: ARM compiler back-end and OS adaptation work.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
SDE1 1 125.00 11/1/97 12/12/97 30 240 $ 30,000.00
SDE2 1 105.00 11/1/97 12/12/97 30 240 $ 25,200.00
SDE1 2 125.00 1/1/98 1/15/98 10 160 $ 20,000.00
SDE2 3 105.00 1/1/98 1/15/98 10 240 $ 25,200.00
SDE3 95.00
STE1 95.00
STE2 2 85.00 1/1/98 1/15/98 10 160 $ 13,600.00
STE3 70.00
PM1 0.25 100.00 1/1/98 1/15/98 10 20 $ 2,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $114,000.00
Page 6
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name ARM Thumb compiler/kernel support
Internal Reference Number #1036726
Total Payment Amount $196,800
Project Description: ARM Thumb 16-bit code generator compiler back-end work and
OS support.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 2 125.00 1/15/98 3/1/98 30 480 $ 60,000.00
SDE2 3 105.00 1/15/98 3/1/98 30 720 $ 75,600.00
SDE3 95.00
STE1 95.00
STE2 3 85.00 1/15/98 3/1/98 30 720 $ 61,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $196,800.00
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[MICROSOFT LETTERHEAD]
Project Name MIPS NEC 4300 floating point
Internal Reference Number #1036727
Total Payment Amount $98,800
[MICROSOFT LOGO]
Project Description: MIPS VR4300 hardware floating support in MIPS compiler
back-end.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
--- -------- -------- ------ ------- ------ ---- ----- -------------
SDE1 125.00
SDE2 1 105.00 12/1/97 3/1/98 65 520 $54,600.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 12/1/97 3/1/98 65 520 $44,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $98,800.00
Page 8
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance ARM Architecture
Internal Reference Number #1036741
Total Payment Amount $168,300
Project Description: Maintain and support ARM specific architecture instances in
the Windows CE operating system and visual tools source bases.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 1 125.00 11/1/97 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance MIPS Architecture
Internal Reference Number #1036742
Total Payment Amount $168,300
Project Description: Maintain and support MIPS specific architecture instances
in the Windows CE operating system and visual tools source bases.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 1 125.00 11/1/97 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
Page 10
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance Power PC Architecture
Internal Reference Number #1036744
Total Payment Amount $168,300
Project Description: Maintain and support PowerPC specific architecture
instances in the Windows CE operating system and visual tools source bases.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 1 125.00 11/1/98 3/1/98 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Maintenance Super-H Architecture
Internal Reference Number #1036745
Total Payment Amount $168,300
Project Description: Maintain and support Super-H specific architecture
instances in the Windows CE operating system and visual tools source bases.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
SDE1 1 125.00 11/1/97 3/1/97 85 680 $ 85,000.00
SDE2 105.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 11/1/97 3/1/98 85 680 $ 57,800.00
STE3 70.00
PM1 100.00
PM2 0.5 75.00 11/1/97 3/1/98 85 340 $ 25,500.00
UE1 75.00
UE2 65.00
Total $168,300.00
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[MICROSOFT LETTERHEAD]
Project Name Toolkit for Visual Basic
Internal Reference Number #1036923
Total Payment Amount $606,900
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Toolkit for Visual
Basic and the accompanying Visual Basic runtime for Windows CE.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 125.00
SDE2 105.00
SDE3 95.00
STE1 2 95.00 11/1/97 3/1/97 85 1360 $129,200.00
STE2 2.5 85.00 11/1/97 3/1/97 85 1700 $144,500.00
STE3 7 70.00 11/1/97 3/1/97 85 4760 $333,200.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $606,900.00
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[MICROSOFT LETTERHEAD]
Project Name Toolkit for Visual C++
Internal Reference Number #1036924
Total Payment Amount $2,186,200
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Toolkit for Visual
Basic and the accompanying Visual Basic runtime for Windows CE.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 7 125.00
SDE2 13 105.00 11/1/97 3/1/98 85 4760 $ 499,800.00
SDE3 2 95.00 11/1/97 3/1/98 85 8840 $ 839,800.00
STE1 3 95.00 11/1/97 3/1/98 85 1360 $ 129,200.00
STE2 10 85.00 11/1/97 3/1/98 85 2040 $ 173,400.00
STE3 1 70.00 11/1/97 3/1/98 85 6800 $ 476,000.00
PM1 100.00 11/1/97 3/1/98 85 680 $ 68,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $2,186,200.00
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Toolkit for Visual J++
Internal Reference Number #1036925
Total Payment Amount $354,900
Project Description: Build, test and develop the Windows CE Toolkit for Visual
J++ and associated components including the remote Java debugger and Java VM
emulation capability.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 125.00
SDE2 1 105.00 12/1/97 3/1/98 65 520 $ 54,600.00
SDE3 2 95.00 12/1/97 3/1/98 65 1040 $ 98,800.00
STE1 95.00
STE2 1.5 85.00 12/1/97 3/1/98 65 780 $ 66,300.00
STE3 3 70.00 12/1/97 3/1/98 65 1560 $109,200.00
PM1 0.5 100.00 12/1/97 3/1/98 65 260 $ 26,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $354,900.00
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[MICROSOFT LETTERHEAD]
Project Name Embedded Toolkit for Visual C++
Internal Reference Number #1036926
Total Payment Amount $926,500
[MICROSOFT LOGO]
Project Description: Build, test and develop the Windows CE Embedded Toolkit
for Visual C++ including the complete Windows CE component OS in binary form on
all supported CPUs, the CESYSGEN build environment and supporting technical
tools, sample OS configurations and miscellaneous supporting materials referred
to as the OAK tools.
JOB TOTAL
CATEGORY QUANTITY RATE START END DAYS HOURS PAYMENT
-------- -------- ---- ----- --- ---- ----- -------
SDE1 125.00
SDE2 3 105.00 11/1/97 12/23/97 37 888 $ 93,240.00
SDE2 1 105.00 1/5/98 3/1/98 40 320 $ 33,600.00
SDE3 5 95.00 11/1/97 12/23/97 37 1480 $140,600.00
SDE3 5 95.00 1/5/98 3/1/98 40 1600 $152,000.00
STE1 95.00
STE2 2.5 85.00 11/1/97 12/23/97 37 740 $ 62,900.00
STE2 2 85.00 1/5/98 3/1/98 40 640 $ 54,400.00
STE3 10.5 70.00 11/1/97 12/23/97 37 3108 $217,560.00
STE3 7 70.00 1/5/98 3/1/98 40 2240 $156,800.00
PM2 75.00
PM1 0.25 100.00 11/1/97 12/23/97 37 74 $ 7,400.00
PM1 0.25 100.00 1/5/98 3/1/98 40 80 $ 8,000.00
UE1 75.00
UE2 65.00
Total $926,500.00
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MICROSOFT LETTERHEAD
[MICROSOFT LOGO]
Project Name Windows CE SDK, Emulation and Remote Tools
Internal Reference Number #1036927
Total Payment Amount $991,100
Project Description: Build, test and develop the Windows CE SDK for all MEPU
platforms including full support for the desktop emulation environment in
Windows NT, the remote tools and all headers, libraries and samples distributed
in the Windows CE SDK.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 125.00
SDE2 1 105.00 11/1/98 3/1/98 85 680 $ 71,400.00
SDE3 6 95.00 11/1/98 3/1/98 85 4080 $387,600.00
STE1 1 95.00 11/1/98 3/1/98 85 680 $ 64,600.00
STE2 7.5 85.00 11/1/97 3/1/98 85 5100 $433,500.00
STE3 70.00
PM1 0.5 100.00 11/1/97 3/1/98 85 340 $ 34,000.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $991,100.00
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[MICROSOFT LETTERHEAD]
Project Name Windows CE Internal Tools [MICROSOFT LOGO]
Internal Reference Number #1036928
Total Payment Amount $89,400
Project Description: Build, develop and test internal tools used in support of
Windows CE development including profiling tools, work for the instrumented
kernel and others.
Job Category Quantity Rate Start End Days Hours Total Payment
SDE1 125.00
SDE2 2 105.00 1/5/98 3/1/98 40 640 $67,200.00
SDE3 95.00
STE1 95.00
STE2 1 85.00 1/5/98 3/1/98 40 320 $27,200.00
STE3 70.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $94,400.00
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[MICROSOFT LETTERHEAD]
[MICROSOFT LOGO]
Project Name Windows CE Tools Localization
Internal Reference Number #1036729
Total Payment Amount $528,500
Project Description: Build, develop and test localized versions of all the
Windows CE tools including the Emulation environment, the host environment for
the toolkits and the VB and MFC runtimes.
JOB CATEGORY QUANTITY RATE START END DAYS HOURS TOTAL PAYMENT
------------ -------- ------ ------- ------ ---- ----- -------------
SDE1 125.00
SDE2 105.00
SDE3 2 95.00 11/1/97 3/1/98 85 1360 $129,200.00
STE1 1 95.00 11/1/97 3/1/98 85 680 $ 64,600.00
STE2 0.5 85.00 11/1/97 3/1/98 85 340 $ 28,900.00
STE3 6 70.00 11/1/97 3/1/98 85 4080 $285,600.00
PM1 100.00
PM2 75.00
UE1 75.00
UE2 65.00
Total $508,300.00
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SECTION 3.11
See Section 2.17(a) of the Disclosure Schedule for the compensation of
certain shareholders.
146
SECTION 3.13
A copy of the Non-Founder Shareholder Agreement is attached as Section 3.13
of the Disclosure Schedule.
147
SECTION 3.13 TO DISCLOSURE SCHEDULE
SHAREHOLDER AGREEMENT
This SHAREHOLDERS AGREEMENT dated as of ___________, 199__, is by and
among BSQUARE CORPORATION, a Washington corporation (the "Company"), and the
individuals listed on Schedule A, attached hereto (hereinafter sometimes
referred to individually as a "Shareholder" and collectively as the
"Shareholders").
RECITALS
A. The Shareholders own the number of shares of issued and outstanding
stock of the Company listed on Schedule A.
B. The Company and the Shareholders desire to make provision with respect
to certain affairs of the Company and to restrict the sale of the stock of the
Company owned by the Shareholders.
AGREEMENTS
In consideration of the mutual covenants and promises herein contained, the
Company and the Shareholders hereby agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 Shareholders. The term "Shareholders" shall mean the individuals
listed on Schedule A, attached hereto, and any other person or entity who shall
become parties hereto as provided in Section 10 or 17 herein, and the term
"Shareholder" shall mean any one of them.
1.2 Shares. The term "Shares" shall mean all shares of capital stock in
the Company owned by the Shareholders, including without limitation all options,
warrants, convertible stock and similar rights, and shall include all shares of
capital stock which may be owned by the Shareholders upon exercise of
outstanding warrants or options. If at any time during the term of this
Agreement there is any capital reorganization of the Company or if any shares of
stock in the Company shall be reclassified, split, exchanged or changed in any
manner, or if any additional shares of the Company are issued or transferred to
the Shareholders, then all such new, substituted or additional shares of the
Company owned by the Shareholders shall be immediately deemed to be "Shares" for
the purposes of this Agreement.
2. Restriction on Transfer. No Shareholder shall directly or indirectly
sell, assign, transfer, mortgage, pledge, hypothecate, or encumber in any other
manner whatsoever, or give away, bequeath, or in any other manner dispose of,
any Shares, except in accordance with the terms and provisions of this
Agreement. Any attempt to transfer any Shares in violation hereof shall be null
and void.
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148
3. Right of First Refusal.
3.1 Offer. If during the term of this Agreement a Shareholder (the
"Selling Shareholder") receives and intends to accept an offer to purchase all
or any number of Shares held by the Selling Shareholder (the "Offered Shares"),
the Selling Shareholder shall request an unconditional, bona fide, written offer
from the prospective purchaser (the "Offer") and shall first offer the Offered
Shares for sale to the Company at the same price and on the same terms and
conditions as set forth in the Offer. Immediately upon receiving the Offer, the
Selling Shareholder shall transmit a copy of the Offer, setting forth in
reasonable detail all material terms for the contemplated sale, to the Secretary
of the Company.
3.2 Option of the Company. The Company shall have fifteen (15) calendar
days following receipt of the Offer by the Secretary of the Company in which to
give notice to the Selling Shareholder of its election to purchase some or all
of the Offered Shares on the terms and conditions stated in the Offer. In the
event the Company elects to purchase some or all of the Offered Shares, such
purchase shall occur within 15 days after the date on which notice of such
election is given, or on such later date as is stated in the Offer.
3.3 No Election Made. In the event any Offered Shares are not purchased
pursuant to this Section 3, then the Selling Shareholder may sell such Shares to
the purchaser identified in the Offer upon the terms and conditions stated in
the Offer, but not otherwise provided, however, that if the Selling Shareholder
does not sell such Shares in accordance with the Offer within 60 days
immediately following the last date on which the Company may purchase the
Offered Shares pursuant to Section 3.2 above, or such later date as is specified
in the Offer, then any sale of all or any portion of the Offered Shares shall
again be subject to the right of first refusal described in this Section 3.
4. Mandatory Offer to Sell.
4.1 Purchase Event. For purposes of this Agreement, any one of the
following events shall constitutes a "Purchase Event":
4.1.1 The death of an individual Shareholder, provided that the date
of the Purchase Event for purposes of this Agreement shall be deemed to be the
date the Company receives notice of the appointment and qualification of the
deceased Shareholder's personal representative. The personal representative of
the deceased Shareholder shall be obligated to give such notice as soon as
practicable.
4.1.2 The permanent disability of an individual Shareholder, where
permanent disability" is defined as the Shareholder's inability, through
physical or mental illness or other cause, to perform the majority of his or her
usual duties for the Company for a period of six consecutive months.
4.1.3 Any decree of divorce, dissolution or separate maintenance, or
any
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149
property settlement or separation agreement (a "Property Settlement") wherein
Shares are awarded to a Shareholder's former or separated spouse or partner who
is not also a Shareholder (a "Former Spouse").
4.1.4 The insolvency of a Shareholder or the making of an assignment
for the benefit of creditors by a Shareholder or the filing of a petition in
bankruptcy by or against a Shareholder.
4.1.5 The voluntary or involuntary termination of a Shareholder as
an employee and/or director of the Company.
4.2 Offer;, Optional Purchase. Upon the occurrence of any Purchase Event
with respect to a Shareholder (except the Purchase Event described in Section
4.1.3), the Company shall have the right to purchase such Shareholder's Shares
(the "Proffered Shares") on the same terms and conditions as if such Shareholder
or its trustee in bankruptcy, personal representative, guardian, executor or
administrator, as appropriate (the "Seller"), had made an offer to sell such
Shares pursuant to Section 3 at a price per Share equal to the determined price
established pursuant to Section 4.3 below. Upon the occurrence of the Purchase
Event specified in Section 4.1.3, first that Shareholder whose Former Spouse was
awarded Shares, and then the Company, shall have the right to purchase any or
all Shares owned, in whole or in part by that Shareholder's Former Spouse on the
same terms and conditions as if such Shareholder's Former Spouse had made an
offer to sell such Shares pursuant to Section 3 at a price per Share equal to
the price per share at which the Shares were valued for purposes of the Former
Spouse's Property Settlement or, if no value was ascribed to the Shares for
purposes of the Property Settlement, the price determined in accordance with
Section 4.3 below. In such event, the Shareholder shall have 15 days to either
(a) purchase such Shares or (b) provide notice to the Company that he or she
declined to purchase such Shares. The Company shall have 15 days after the date
of the determination of the purchase price for the Proffered Shares in
accordance with Section 4.3 (or, in the event of the Purchase Event described IN
Section 4.1.3, 15 days after receiving notice from the Shareholder that he or
she declined to purchase his or her Former Spouse's Shares) within which to
accept or reject such offer by giving written notice of its acceptance or
rejection to the Seller.
4.3 Purchase Price.
4.3.1 The price at which the Proffered Share shall be purchased and
sold pursuant to Section 4.2 hereof shall be the "fair market value" of such
shares as determined by the Company's Board of Directors within 30 days after
the date of the Purchase Event.
4.3.2 If the Board of Directors has not determined a price within
such 30day period, then the price at which the Proffered Shares shall be
purchased and sold pursuant to Section 4.2 hereof shall be the "fair market
value" of such shares as determined by appraisal by an independent professional
appraiser experienced in the valuation of businesses such as the Company. Such
appraiser shall be selected in good faith by the Board of Directors within 15
days after the end of such 30-day period and shall render his or her opinion of
the fair market value of
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150
the Proffered Shares within 30 days thereafter. In determining the fair market
value, the appraiser shall consider all appropriate factors, including but not
limited to minority discounts and discounts for lack of marketability. The
determination of the appraiser shall be final and binding upon the parties and
no party shall have the right of appeal from the determination. The appraiser
shall be paid a fixed fee per day (or part of a day) for his or her services,
such fee to be agreed upon at the outset of the appraisal, as distinguished from
percentage compensation based on the value of the Proffered Shares. All fees and
expenses of such appraisal shall be paid by the Company.
5. Method and Time of Payment. The purchase price determined in
accordance with Section 4.3 hereof shall be paid to Seller (i) as the parties
agree within 30 days after giving notice of her, his or its election to purchase
the Shares or (ii) if they can't agree, then by payment of at least twenty-five
percent (25%) of the purchase price within such time period and execution and
delivery of a promissory note payable in three equal annual installments
including annual interest at the then Applicable Federal Rate, which note shall
be secured by the Shares to be purchased (the "Collateral"). In connection with
such security interest, the Collateral shall be subject to a stock pledge
agreement in a form reasonably satisfactory to the purchaser(s) (the "Pledgor")
and the Seller (the "Pledgee"); provided, however, that any such stock pledge
agreement shall provide, at a minimum, for the following shareholder rights: (a)
the Pledgor shall deliver all dividends paid in cash or property on the
Collateral to the Pledgee and the Pledgee shall hold, as additional collateral,
any stock or securities received as dividends and shall apply the proceeds of
all other distributions to paying off the purchase price and (b) as long as the
Pledgor is not in default under the promissory note, the Pledgor may vote the
Collateral for all purposes, other than in a way which undermines the value of
the Collateral.
The maker of the note shall have the right to prepay such note at any time
without premium or penalty. Such note shall provide that, in the case of any
default, at the election of the holder, the entire sum of principal and interest
shall immediately be due and payable. Notwithstanding the foregoing, in the
event of the death of an insured Shareholder, the proceeds of such insurance
that are to be applied to the payment of the purchase price owed by the Company
for the Shares held by the insured Shareholder shall be paid in cash within 120
days following the Appointment Date.
6. Inter Vivos Gifts to Family Members. Subject to the provisions of
Section 10 hereof, any Shareholder who is a natural person may transfer any or
all of such Shareholder's Shares by gift to such Shareholder's spouse, child or
grandchild (or any trust or other entity in which the only owners or
beneficiaries are such Shareholder, spouse, child or grandchild) provided that
the initial transferee shall retain all voting rights with respect to any Shares
so transferred.
7. Payment by Company. If, as a result of the Company making any payment
on the purchase price for any Shares under this Agreement, the Company would not
be able to pay its debts as they become due in the usual course of business or
the Company's total assets would be less than its total liabilities or for any
other reason the Company would be prohibited from making such payment under
applicable law, then the remaining Shareholders shall contribute additional
capital to the Company and take such additional steps as are necessary, such
that the Company may
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lawfully pay the entire amount due.
8. Insurance.
8.1 Insurance for Purchase of Shares. Insurance may be carried from
time to time on the lives of any of the Shareholders by the Company for the
purpose of funding the potential liability to acquire the stock of an insured
Shareholder. All such insurance shall be owned by and be payable to the Company.
8.2 Proceeds upon Death of Insured Shareholder. In the event of the
death of an insured Shareholder, the proceeds of such insurance shall be applied
forthwith to the payment of the purchase price owed by the Company up to the
full amount of such proceeds.
8.2.1 In the event such proceeds are less than the full
purchase price for such Shares, it is understood and agreed that the net amount
of such proceeds shall (at least) constitute a down payment against the purchase
price.
8.2.2 In the event such proceeds exceed the purchase price,
such excess shall belong to the Company and not to the estate of the insured
Shareholder.
8.3 Cash Surrender Value. In the event any Shareholder sells his
Shares to the Company to the terms of this Agreement other than in the case of
his or her death, it is understood and agreed that the then cash surrender value
of any insurance held on the life of such Shareholder for the purpose of
providing funds for the purchase of his or her Shares may constitute the down
payment of the purchase obligation of the Company. The selling Shareholder shall
have the option of requesting either that the policy be cashed and the proceeds
thereof applied against such purchase obligation or that the policy be assigned
to him or her and the purchase price be reduced by an amount equivalent to the
cash surrender value of the policy.
8.4 Valuation of Stock. Insurance proceeds from any policies on the
life of the selling Shareholder purchased pursuant to this Section 8 shall not
be taken into account in determining the value of the stock of the Company under
Section 4.3. hereof.
9. Copy of Agreement. A copy of this Agreement shall at all times be kept
in the office of the Secretary of the Company.
10. Transferees. Marring of Shareholder. In the event of the issuance of
any new Shares, or the transfer in any manner of any Shares by a Shareholder in
accordance with the provisions of this Agreement, to any person who is not a
party to this Agreement, the issuing or transferring party shall obtain, as a
condition to and upon such issuance or transfer, the written consent of the new
Shareholder or the transferee to become a party to and be bound by the terms of
this Agreement and to the placing of the legend as required hereby upon the
certificate representing such Shares, and the consent of the spouse of the new
Shareholder or transferee, if married, to the terms of this Agreement. Without
limiting the foregoing, in the event that any Shareholder gets
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married during the term of this Agreement, then such Shareholder agrees to
obtain the written consent of his or her new spouse to the terms of this
Agreement.
11. Legends.
11.1 Securities Law Legend. All certificates of stock of the
Company issued to any of the parties hereto shall bear a legend upon the face
thereof, in form and substance as follows:
These securities are not registered under state or federal
securities laws and may not be offered, sold, pledged (except a
pledge pursuant to the terms of which any offer or sale upon
foreclosure would be made in a manner that would not violate the
registration provisions of federal or state securities laws) or
otherwise distributed for value, nor may these securities be
transferred on the books of the company, unless such transfer has
been registered or is exempt from such registration under said laws
and the rules and regulations thereunder.
11.2 Shareholders Agreement Legend. All certificates of stock of
the Company issued to any of the parties hereto shall also bear a legend upon
the face thereof, in form and substance as follows:
The sale, pledge, hypothecation or other transfer of this
certificate and the shares evidenced by this certificate is subject to an
Agreement dated , 199_, among the Company, the
holder of this certificate and other shareholders of the Company. A
copy of the Agreement is on file in the office of the Secretary of
the Company. By accepting the shares evidenced by this certificate,
the holder agrees to be bound by such Agreement.
12. Termination of Agreement. This Agreement shall terminate and be of no
further force or effect upon the earlier of
12.1 the written agreement of all of the parties hereto;
12.2 the event that one person shall become the beneficial owner of
all of the Shares which are subject to this Agreement;
12.3 the dissolution of the Company, or in the event proceedings in
bankruptcy, receivership or insolvency are instituted by the Company or against
the Company other than by a Shareholder, or in the event the Company becomes
insolvent or makes an assignment for the benefit of creditors;,
12.4 the closing date of a primary, firm commitment underwritten
public offering by this Company of shares of Common Stock, registered under the
Securities Act of 1933, as
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amended, in which the aggregate offering proceeds paid to the Company are at
least Ten Million Dollars ($10,000,000) and the per share price at which such
shares of Common Stock are offered to the public is at least six Dollars
($6.00), subject to equitable adjustments for divisions and combinations of
Common Stock; or
12.5 when the Company first becomes subject to the periodic
reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934.
13. Notices. Any notice required or permitted hereunder shall be given in
writing by personal delivery, by mail, postage prepaid, certified or
registered, return receipt requested, or via facsimile machine to the intended
recipient at the address indicated for such party on the signature page hereof
or on Schedule A hereto, or at such other address as such party may designate by
ten days' advance written notice to the other parties given in the foregoing
manner. The date on which any such notice is so personally delivered, or if such
notice is given by mail, the second business day after its deposit in the U.S.
mail, or if by facsimile machine during normal business hours upon transmission
with confirmation of receipt by the receiving party's facsimile terminal and if
not sent during normal business hours, then on the next business day, shall be
deemed to be the effective date of such notice.
14. Specific Performance. The Shares cannot be readily purchased or sold
in the open market, and for that reason, among others, the Shareholders and the
Company will be irreparably damaged in the event that this Agreement is not
specifically enforced. If any Shareholder so required under this Agreement fails
to give a notice, make an offer, sell Shares, or obtain written consent or if
any Shareholder fails to accurately disclose the terms and conditions of an
Offer or the identity of the offeror as required hereby, then, in any such
event, any of the Shareholders or the Company may institute and maintain a
proceeding to compel the specific performance of this Agreement, and each
Shareholder specifically submits himself or herself to the jurisdiction and
venue of the courts of the State of Washington for purposes of any such action.
Each Shareholder further agrees that service of process against such Shareholder
in any such action or proceeding may be made by United States mail, certified or
registered, return receipt requested, postage prepaid. Such remedy shall,
however, be cumulative and not exclusive, and shall be in addition to any other
remedy at law or in equity which the Shareholders or the Company may have.
15. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the successors, assigns and personal
representatives of the parties hereto.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Modifications. This Agreement contains the entire agreement between
the parties hereto relating to the subject matter hereof and may be modified or
amended only by written agreement among the Company and all of the Shareholders,
provided, however, that additional Shareholders may be added to this Agreement
simply by having such Shareholders execute an
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additional signature page for this Agreement and adding the Shareholders to
Schedule A, and such revision shall not require the consent or agreement of the
other parties.
18. Severability. Invalidation of any one of the provisions of this
Agreement for any reason shall in no way affect any other provision hereof, and
all such other provisions shall remain in full force and effect.
19. Further Acts. Each party agrees to perform any further acts and to
execute and deliver any documents which may be reasonably necessary to carry out
the provisions of this Agreement.
20. Applicable Law. This Agreement and its validity, construction, and
performance shall be governed by the laws of the State of Washington.
EXECUTED on the day and year first above written.
Company: BSQUARE CORPORATION
By:
----------------------------
Its:
----------------------------
Address: 0000 000xx Xxxxx X.X.
Xxxxx 0000
Shareholders:
---------------------------------
---------------------------------
---------------------------------
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CONSENT OF SPOUSE
The undersigned is the wife/husband of , one of the parties
to the foregoing Shareholders Agreement, and she/he acknowledges that she/he has
read such Agreement and knows of its contents; that she/he is aware that by its
provisions her/his husband/wife agrees to sell all of his/her shares of ,
including her/his community property interest therein, if any, upon the
happening of certain events; she/he hereby consents to such a sale and approves
the provisions of such Agreement; she/he hereby agrees, on behalf of
herself/himself and all persons who may claim on her/his behalf, that upon
her/his legal separation from or the dissolution of her/his marriage to her/his
present husband/wife, or upon her/his or her/his husband/wife's death, neither
she/he nor anyone claiming on her/his behalf will seek to partition her/his or
her/his husband/wife's community property interest in such shares and that in
any such event she/he shall comply with the terms of this Agreement and shall be
entitled only to the value of her/his interest in such shares, if any
(determined in light of the existence of such Agreement), and that she/he shall
have no claim or right to the shares themselves.
EXECUTED this _ day of______________________________ , 19__.
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SCHEDULE A
LIST OF SHAREHOLDERS
(INCLUDING NUMBER OF SHARES AND ADDRESS)
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SECTION 3.16
A copy of the Certificate of Designation is attached as Section 3.16 of
the Disclosure Schedule.
158
SECTION 3.16 OF
DISCLOSURE SCHEDULE
CERTIFICATE OF DESIGNATION STATE OF WASHINGTON
FILED
OF THE STATE OF WASHINGTON
JANUARY 29, 1998
RELATIVE RIGHTS AND PREFERENCES
XXXXX XXXXX
OF THE SECRETARY OF STATE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
BSQUARE CORPORATION
The undersigned Senior Vice President of BSQUARE CORPORATION, a Washington
corporation (the "Corporation"), in accordance with the provisions of RCW
23B.06.020, does hereby certify that, pursuant to the authority conferred upon
the Board of Directors by the Articles of Incorporation of the Corporation, the
following resolution creating a series of Series A Convertible Preferred Stock
was duly adopted by the Board of Directors of the Corporation as of January 29,
1998:
RESOLVED, that, pursuant to the authority conferred an the Board of
Directors of the Corporation by the Articles of Incorporation of the
Corporation, the Board of Directors does hereby provide for the designation of a
series of preferred stork to be named "Series A Convertible Preferred Stock,"
initially consisting of 8,333,333 shares, and that to the extent that the
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock are not stated and expressed in the Articles of Incorporation,
the Board of Directors does hereby fix and herein state and express such
designation, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of the Series A Convertible
Preferred Stock as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
The designations and the powers, preferences and rights of the Series A
Convertible Preferred Stock arc as follows:
Section l. Designation and Dividends. The Corporation hereby designates
8,333,333 shares of the Preferred Stock as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), which shall have the rights, preferences and
terms set forth herein. The holders of the Series A Preferred Stock shall be
entitled to receive dividends at the same rate as dividends (other than
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Series A Preferred Stock as being equal
to the number of shares of Common Stock into which each such share of Series A
Preferred Stock could be converted pursuant to the provisions of Section 4
hereof with such number determined as of the record date for the determination
of holders of Common Stock entitled to receive such dividend) (the
"Participating Dividends").
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Section 2. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, each holder of outstanding
shares of Series A Preferred Stock shall be entitled to be paid, out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus, or earnings and before any amount shall be
paid or distributed to the holders of any class of Common Stock or of any other
stock ranking on liquidation junior to the Series A Preferred Stock, the
greater of: (i) an amount in cash equal to $1.80 per share (adjusted
appropriately for stock splits, stock dividends and the like) together with
declared but unpaid dividends to which the holders of outstanding shares of
Series A Preferred Stock are entitled pursuant to Section 1 hereof (the "Minimum
Liquidation Amount"); provided, however, that if, upon any liquidation,
dissolution or winding up of the Corporation, the amounts payable with respect
to the Series A Preferred Stock and any other stock ranking as to any such
distribution on a parity with the Series A Preferred Stock are not paid in full,
the holders of the Series A Preferred Stock and such other stock shall share
ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled; or (ii) cash in an amount equal
to the portion of the assets of the Corporation remaining for distribution to
shareholders which such holder would have received if each share of Series A
Preferred Stock held by such holder had been converted into the number of shares
of Common Stock issuable upon the conversion of a share of Series A Preferred
Stock immediately prior to any such liquidation, dissolution or winding up of
the Corporation after taking into account the rights of holders of any other
class or series of capital stock of the Corporation (including the Common Stock)
entitled to share in such distribution in either case, plus any declared but
unpaid dividends to which the holders of outstanding shares of Series A
Preferred Stock are entitled pursuant to Section 1 hereof (the "Aggregate
Liquidation Amount").
(b) A consolidation, merger or capital reorganization of the
Corporation (except (i) into or with a wholly-owned subsidiary of the
Corporation with requisite shareholder approval or (ii) a merger in which the
beneficial owners of the Corporation's outstanding capital stock immediately
prior to such transaction hold no less than fifty-one percent (51%) of the
voting power in the resulting entity) or a sale of all or substantially all of
the assets of the Corporation shall be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
2; provided, however, that each holder of the Series A Preferred Stock shall
have the right to elect the benefits of the provisions of Section 4(i) hereof in
lieu of receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section 2.
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Section 3. Voting, Power.
Except as otherwise expressly provided herein or as required by law, the
holder of each share of Series A Preferred Stock shall be entitled to vote on
all matters. Each share of Series A Preferred Stock shall entitle the holder
thereof to such number of votes per share as shall equal the number of shares of
Common Stock into which each share of Series A Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Series A Preferred Stock and the Common Stock shall
vote together as a single class on all matters.
Section 4. Conversion. The holders of the Series A Preferred Stock shall
have the following conversion rights:
(a) Voluntary Conversion. Holders of a majority of the outstanding
shares of Series A Preferred Stock shall be entitled, at any time and from time
to time after the date hereof, to cause any or all of such shares to be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.80 by the conversion price applicable to
such shares, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Initially the conversion price shall
be $1.80 per share of Common Stock, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter sometimes referred to as the
"Conversion Price"). If a holder of Series A Preferred Stock elects to convert
his or her Series A Preferred Stock at a time when there are any accrued and
unpaid dividends or other amounts due on such shares (including any
Participating Dividends), such dividends and other amounts shall, to the extent
permitted by applicable law, be paid in full by the Corporation in connection
with such conversion.
(b) Automatic Conversion. Each share of Series A Preferred Stock
outstanding shall automatically, and without the requirement of any consent of
any holder, be converted into the number of shares of Common Stock into which
such shares are convertible at the then effective Conversion Price upon the
closing of a Qualified Public Offering. For purposes hereof, the term "Qualified
Public Offering" shall mean an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), covering the offer and sale of Common Stock of the
Corporation to the public at a minimum price of $4.50 per share and pursuant to
which (i) the gross proceeds received by the Corporation equal or exceed
$30,000,000 and (ii) the shares of Common Stock sold under such registration
statement are approved for listing on the New York Stock Exchange or approved
for quotation on The Nasdaq Stock Market, Inc.'s National Market.
(c) Conversion Procedures. Any holder of Series A Preferred Stock
converting such shares into shares of Common Stock pursuant to Section 4(a), or
whose shares are automatically converted pursuant to Section 4(b), shall
surrender the certificate or certificates representing the Series A Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal
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executive office of the Corporation or the offices of the transfer agent for the
Series A Preferred Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series A Preferred Stock by the Corporation,
accompanied by written notice of conversion. Such notice of conversion shall (i)
specify the number of shares of Series A Preferred Stock to be converted, (ii)
specify the name or names in which such holder wishes the certificate or
certificates for Common Stock and for any Series A Preferred Stock not to be so
converted to be issued, (iii) include payment of any applicable transfer tax and
(iv) specify the address to which such holder wishes delivery to be made of such
new certificates to be issued upon such conversion. Upon surrender of a
certificate representing Series A Preferred Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Series A Preferred Stock, only part of which are to be
converted, the Corporation shall issue and send to such holder or such holder's
designee, in the manner set forth in the preceding sentence, a new certificate
or certificates representing the number of shares of Series A Preferred Stock
which shall not have been converted.
(d) Effective Date of Conversion. The issuance by the Corporation of
shares of Common Stock upon a conversion of Series A Preferred Stock into shares
of Common Stock made at the option of the holder thereof pursuant to Section
4(a) hereof shall be effective as of the surrender of the certificate or
certificates for the Series A Preferred Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto). The issuance by the Corporation of shares of Common
Stock upon a conversion of Series A Preferred Stock into Common Stock pursuant
to Section 4(b) hereof shall be deemed to be effective immediately prior to the
closing of the Qualified Public Offering. On and after the effective date of
conversion, the person or persons entitled to receive the Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock.
(e) Fractional Shares. The Corporation shall not be obligated to
deliver to holders of Series A Preferred Stock any fractional share of Common
Stock issuable upon any conversion of such Series A Preferred Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(f) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for issuance upon the conversion of Series A Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of the Common Stock as shall from time to time be issuable upon the
conversion of all the Series A Preferred Stock then outstanding provided that
the shares of Common Stock so reserved shall not be reduced or affected in any
manner whatsoever so long as any Series A Preferred Stock is outstanding,
except in the case of a reverse stock split or stock combination. The
Corporation shall prepare and shall use its reasonable business efforts to
obtain
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and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration, qualification or listing of the Common Stock, in order to
enable the Corporation lawfully to issue and deliver to each holder of record of
Series A Preferred Stock such number of shares of its Common Stock as shall from
time to time be sufficient to effect the conversion of all shares of Series A
Preferred Stock then outstanding and convertible into shares of Common Stock.
(g) Adjustments to Conversion Price. The Conversion Price in effect
from time to time shall be subject to adjustment as follows:
(i) Stock Dividends, Subdivisions and Combinations. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding
shares of Common Stock into a greater number of shares of Common Stock,
or the combination of outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the Conversion Price shall,
simultaneously with the happening of such dividend, subdivision or
combination be adjusted by multiplying the then effective Conversion
Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant to
this Section 4(g)(i) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and, in the case of a subdivision or combination,
immediately as of the effective date thereof.
(ii) Sale of Common Stock. In the event the Corporation shall at
any time or from time to time while the Series A Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury, but excluding: (i)
any Common Stock which may be issued upon conversion of the Series A
Preferred Stock; and (ii) up to 3,625,000 shares of Common Stock issued
to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's Stock Option Plan (the "Plan")
or upon the exercise of options issued pursuant to such Plan, or such
greater number of shares as may be issuable pursuant to the adjustment
provisions of such Plan as in effect on the date hereof (collectively,
the "Excluded Shares")), for a consideration per share less than the
Conversion Price in effect immediately prior to the issuance, sale or
exchange of such shares (any such issuance, sale or exchange hereinafter
referred to as a "Dilutive Transaction"), then, and thereafter
successively upon the consummation of any Dilutive Transaction, the
Conversion Price in effect immediately prior to the Dilutive Transaction
shall forthwith be reduced to an amount (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction
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(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible securities),
plus (2) the number of shares of Common Stock which the net aggregate
consideration received by the Corporation for the total number of such
additional shares of Common Stock so issued in the Dilutive Transaction
would purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
Dilutive Transaction (excluding treasury shares but including all shares
of Common Stock issuable upon conversion or exercise of any outstanding
Series A Preferred Stock, options, warrants, rights or convertible
securities), plus (2) the number of such additional shares of Common
Stock so issued in the Dilutive Transaction.
(iii) Sale of Options, Rights or Convertible Securities. In the event
the Corporation shall at any time or from time to time while the Series A
Preferred Stock is outstanding, issue options, warrants or rights to subscribe
for shares of Common Stock (other than any options for Excluded Shares), or
issue any securities convertible into or exercisable or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or exchangeable
securities, the Conversion Price in effect immediately prior to the issuance of
such options, warrants or rights or securities shall be reduced to an amount
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, rights or convertible securities (excluding
treasury shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Series A Preferred Stock,
options, warrants, rights or convertible securities), plus (2) the
number of shares of Common Stock which the total amount of consideration
received by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the
exercise or conversion thereof (the "Net Aggregate Consideration") would
purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (1) the number of shares of
Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Series A
Preferred Stock, options, warrants, rights or convertible
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securities), plus (2) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted.
(iv) Expiration or Change in Price. If the consideration per
share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exercisable or exchangeable for or
convertible into shares of Common Stock, changes at any time, the
Conversion Price in effect at the time of such change shall be readjusted
to the Conversion Price which would have been in effect at such time had
such options or convertible securities provided for such changed
consideration per share (determined as provided in Section 4(g)(iii)
hereof) at the time initially granted, issued or sold; provided, that such
adjustment of the Conversion Price will be made only as and to the extent
that the Conversion Price effective upon such adjustment remains less than
or equal to the Conversion Price that would be in effect if such options,
rights or securities had not been issued. No adjustment of the Conversion
Price shall be made under this Section 4 upon the issuance of any
additional shares of Common Stock which are issued pursuant to the
exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made
upon the issuance of such warrants, options or other rights. Any
adjustment of the Conversion Price shall be disregarded if, as, and when
the rights to acquire shares of Common Stock upon exercise or conversion
of the warrants, options, rights or convertible securities which gave rise
to such adjustment expire or are canceled without having been exercised,
so that the Conversion Price effective immediately upon such cancellation
or expiration shall be equal to the Conversion Price in effect at the time
of the issuance of the expired or canceled warrants, options, rights or
convertible securities, with such additional adjustments as would have
been made to that Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been issued.
(h) Other Adjustments. In the event the Corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series A
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date (calculated in accordance with Section 4(d) hereof), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or different number of shares of any class
or classes of stock, whether by reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend
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provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4), then and in each such event the
holder of each share of Series A Preferred Stock shall have the right thereafter
to convert each such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(i) Mergers and Other Reorganizations. If at any time or from time
to time there shall be a capital reorganization of the Common Stock (other than
a subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
A Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including, without limitation,
provisions for adjustment of the Conversion Price and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable thereafter upon the conversion of the Series A
Preferred Stock.
Each holder of Series A Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(i), shall have the option of
electing treatment of his or her shares of' Series A Preferred Stock under
either this Section 4(i) or Section 2(b) hereof, notice of which election shall
be submitted in writing to the Corporation at its principal offices no later
than ten (10) days before the effective date of such event, provided that any
such notice shall be effective if given not later than fifteen (15) days after
the date of the Corporation's notice, pursuant to Section 8, with respect to
such event.
(j) Notices. In each case of an adjustment or readjustment of the
Conversion Price, the Corporation will furnish each holder of Series A Preferred
Stock with a certificate, prepared by the chief financial officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
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166
Section 5. Redemption.
(a) Any holder of shares of Series A Preferred Stock may request
that up to 50% of the Series A Preferred Stock then held by such holder be
redeemed by the Corporation at any time on or after January 30, 2003 (the "First
Redemption Date"), or that up to 100% of the Series A Preferred Stock then held
by such holder be redeemed by the Corporation at any time on or after January
30, 2004 (the "Second Redemption Date," and, collectively with the First
Redemption Date, the "Redemption Date"), by giving 90 days written notice to the
Corporation, stating in such notice the number of shares to be redeemed and
delivering the certificates for the shares of Series A Preferred Stock to be so
redeemed to the Corporation by the Redemption Date. The Corporation shall redeem
all shares as to which it has received requests for redemption from the holders
thereof in accordance with the foregoing. Any redemption hereunder shall be at a
per share redemption price equal to $1.80 per share (adjusted appropriately for
stock splits, stock dividends and the like), plus any accrued but unpaid
dividends (including any Participating Dividends) to which the holders of
outstanding shares of Series A Preferred Stock are entitled pursuant to Section
1 hereof (the "Redemption Price").
(b) If the Corporation does not have sufficient funds legally
available to redeem all 1 shares for which redemption is requested hereunder,
then it shall redeem such shares on a pro-rata basis among the holders of the
Series A Preferred Stock in proportion to the shares of Series A Preferred Stock
then held by them to the extent possible and shall redeem the remaining shares
to be redeemed as soon as sufficient funds are legally available. In the event
that the Corporation fails to timely redeem shares for which redemption is
requested pursuant to Section 5(a) for any reason whatsoever, then during the
period from the Redemption Date through the date on which such shares are
redeemed, the Redemption Price of such shares shall bear interest at a per annum
rate equal to the Prime Rate (as reported in The Wall Street Journal from time
to time) plus two percent, which interest rate shall increase by an additional
1% at the end of each three (3) month period thereafter until the Redemption
Price (and any interest thereon) is paid in full, subject to a maximum interest
rate of the greater of 15% or such Prime Rate plus ten percent, but in no event
greater than 18%.
Section 6. Restrictions and Limitations.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation shall not without the affirmative vote or written
consent of the holders of two-thirds in interest of the Series A Preferred
Stock:
(i) sell, lease or otherwise dispose of (whether in one transaction
or a series of related transactions) all or substantially all of its
assets or business,
(ii) merge with or into or consolidate with another entity or enter
into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Company is not the surviving entity or the owners of the
Company's outstanding equity securities immediately prior to the
transaction or series
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167
of related transactions do not own at least a majority of the outstanding equity
securities of the surviving, resulting or consolidated entity,
(iii) dissolve, liquidate or wind up its operations,
(iv) directly or indirectly redeem, purchase, or otherwise acquire
for consideration any shares of its Common Stock or any other class of its
capital stock except (A) for the redemption of Convertible Preferred Shares
pursuant to and as provided in Sections 2, 4 and 5 hereof, (B) as contemplated
by Sections 1.2, 4.6, and 5.2 of that certain Stock Purchase and Shareholders
Agreement, dated as of January 30, 1998, (C) as contemplated by that certain
Redemption Agreement, dated as of January 30, 1998, or (D) as contemplated by
the Corporation's standard form of agreement, as approved by the Board of
Directors, to be executed by employees, officers, and consultants of the
Corporation upon the grant to such employees, officers, and consultants of
options under the Plan, or upon exercise of such options,
(v) adopt any amendment to this Certificate of Designation, or any
amendment to its Articles of Incorporation or By-Laws, that eliminates, amends,
restricts or otherwise adversely affects the rights and preferences of the
Convertible Preferred Stock, or that increases the authorized shares of
Convertible Preferred Stock,
(vi) declare or make dividend payments on any shares of its Common
Stock or any other class of its capital stock,
(vii) create, or obligate itself to create, any class or series of
shares that has a preference over, or is on a parity with, the Convertible
Preferred Stock,
(viii) increase the size of the Board of Directors to more than
seven (7) members,
(ix) enter into any agreement or arrangement or take any other
action that eliminates, amends, restricts or otherwise adversely affects the
rights of the holders of Convertible Preferred Stock or its ability to perform
its obligations hereunder; or
(x) enter into or be a party to any transaction or agreement,
including, without limitation, any lease or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company, with or for
the benefit of any person or entity which is a shareholder, officer or director
of the Company, or which is a relative by blood or marriage of, a trust or
estate for the benefit of, or a person or entity which directly or indirectly
controls, is controlled by, or is under common control with, any such person or
entity, except for normal compensation paid to employees of the Company in the
ordinary course of business.
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168
Section 7. No Reissuance of Series A Preferred Stock. No share or shares
of the Series A Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired, and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of the Series A Preferred Stock accordingly.
Section 8. Other Rights. Except as otherwise provided in this Certificate
of Designation, each share of Series A Preferred Stock and each share of Common
Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true as of the 29th day of January,
1998.
BSQUARE CORPORATION
/S/ XXXXXX X. XXXXXX
---------------------------------------
Xxxxxx X. Xxxxxx, Senior Vice President
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169
SECTION 4.14
USE OF PROCEEDS:
1. Repayment of Certain Notes to Shareholders: $1,779,966.39
2. Redemption of Shares from Certain Shareholders: $6,000,000.00
3. Xxxx Xxxxxxxx Fee $ 600,000.00
4. Working Capital $6,620,033.61
170
EXHIBIT F
171
EXHIBIT F
FORM OF OPINION OF COUNSEL
January 30, 1998
Those investors listed on
Exhibit A to the BSQUARE Corporation
Stock Purchase and Shareholders Agreement
Dated as of January 30, 1998
Ladies and Gentlemen:
We have acted as counsel to BSQUARE Corporation, a Washington
corporation (the "Company"), in connection with (i) the issuance and sale of
Series A Convertible Preferred Stock pursuant to the Stock Purchase and
Shareholders Agreement dated as of January 30, 1998 (the "Purchase Agreement"),
by and among the Company, Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxx X. Xxxxxxx,
Xxxxxx Xxxxxxxxxxx (collectively, the "Shareholders") and you, and (ii) the
redemption by the Company of shares of its Common Stock pursuant to certain
redemption agreements dated as of January 30, 1998 (each a "Redemption
Agreement" and collectively, the "Redemption Agreements") by and between the
Company and each of Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx
(the "Redeeming Shareholders"). This opinion is delivered to you pursuant to
Section 3.4 of the Purchase Agreement. Capitalized terms used and not otherwise
defined herein shall have the respective meanings set forth in the Purchase
Agreement.
We have examined the originals or copies of such documents, certificates
and records as we have deemed relevant or necessary as the basis for the
opinions hereinafter expressed. We have assumed the genuineness of all
signatures, the authenticity of all documents, certificates and records
submitted to us as originals and the conformity to originals of such documents,
certificates and records submitted to us as certified, conformed or photostatic
copies. We have also assumed, without verification, the legal capacity of each
individual who has executed such documents, certificates and records, and the
completeness and accuracy as of the date of this opinion letter of the
information contained in such documents, certificates and records.
172
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
This opinion letter is subject to all assumptions, qualifications and
limitations not inconsistent herewith that are described in the Legal Opinion
Accord of the ABA Section of Business Law (1991) at Section 4 ("Reliance by
Opinion Giver on Assumptions"), Section 14 ("Other Common Qualifications"),
Section 16 ("No Violation of Law") and Section 19 ("Specific Legal Issues").
The law covered by opinions expressed herein is limited to the federal
law of the United States and the law of the State of Washington. We express no
opinion with respect to the laws, regulations or ordinances of any county,
municipality or other local government agency.
As used in this opinion letter, the expression "to our knowledge" means
the conscious awareness of facts or other information by the lawyers in our
office representing the Company in connection with the negotiation and
preparation of the Purchase Agreement, Redemption Agreements and Certificate of
Designation. It does not include information that might by revealed if there
were to be undertaken a canvass of all lawyers in our office or a review of all
of our files.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has the requisite corporate power and
authority to carry on its business as presently conducted, to enter into and to
consummate the transactions contemplated by the Purchase Agreement and the
Redemption Agreements and otherwise to carry out its obligations under such
agreements, including the issuance of the Convertible Preferred Stock and the
redemption of the Redemption Shares.
2. The execution and delivery of the Purchase Agreement and the
Redemption Agreements by the Company and the consummation by it of the
transactions contemplated thereby, including the issuance and delivery of (i)
the Convertible Preferred Shares, and (ii) upon the conversion of the
Convertible Preferred Shares, the Conversion Shares, have been duly authorized
by all necessary corporate action on the part of the Company. Each of the
Purchase Agreement and Redemption Agreements will, upon due execution and
delivery by the Company, constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except:
(a) the enforceability thereof may by affected by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights;
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173
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
(b) the courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the Purchase
Agreement and Redemption Agreements to ascertain the intent of the parties in
using the language employed in such Purchase Agreement and Redemption Agreements
regardless of whether or not the language used in such Purchase Agreement and
Redemption Agreements is plain and unambiguous on its face, and may incorporate
additional or supplementary terms into such Purchase Agreement and Redemption
Agreements; and
(c) We express no opinion as to the enforceability of Sections
7.5 and 9.2 of the Purchase Agreement.
3. The execution and delivery of the Purchase Agreement and the
Redemption Agreements by the Company and the consummation by the Company of the
transactions contemplated thereby, including, without limitation, the issuance
and delivery of (i) the Convertible Preferred Shares and (ii) upon the
conversion of the Convertible Preferred Shares, the Conversion Shares, do not
and will not (A) conflict with or violate any provision of the Articles of
Incorporation or Bylaws, (B) to our knowledge, except as disclosed in the
Disclosure Schedule, breach or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party or by which
it or any of its assets are bound and which is listed in the Disclosure
Schedule, or (C) to our knowledge, result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected.
4. The capitalization of the Company immediately prior to the Closing
consists of 50,000,000 shares of Common Stock, of which 21,375,000 shares are
issued and outstanding, and 10,000,000 shares of Preferred Stock, of which
8,333,333 shares are designated as Convertible Preferred Stock, of which no
shares are issued and outstanding. As of the Closing, the respective rights,
preferences and privileges of the Convertible Preferred Stock will be as stated
in the Certificate of Designation. As of the Closing, and after giving effect to
the transactions contemplated by the Purchase Agreement, all of the outstanding
shares of capital stock of the Company (including, without limitation, the
Convertible Preferred Shares) will have been duly and validly authorized and
issued, fully paid and nonassessable and, except as set forth in the Purchase
Agreement, to our knowledge, not subject to any preemptive rights and will have
been offered, issued, sold and delivered in compliance with applicable federal
and state securities and blue sky laws. To our knowledge, there are no
outstanding preemptive or other rights, plans, options, warrants, conversion
rights or agreements for the purchase or acquisition from the Company of any
shares of its capital stock, except for (i) the conversion
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174
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
privileges of the Convertible Preferred Stock and (ii) 1,375,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding options
granted under the Company's Stock Option Plan. Except with respect to the
Purchase Agreement, to our knowledge, the Company is not a party or subject to
any agreement or understanding, and 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 of the Company.
5. To our knowledge, except as set forth in the Disclosure Schedule, the
Company has no subsidiaries or ownership interests in any corporation, joint
venture, partnership or other entity.
6. The Articles of Incorporation of the Company (the "Articles") have
been duly authorized and adopted by the Board of Directors of the Company, have
been approved by all necessary action on the part of the Company's shareholders,
has been duly filed with the Secretary of State of the State of Washington and
has become effective.
7. The certificates representing the Convertible Preferred Shares are in
due and proper form and have been duly and validly executed by the officers of
the Company named thereon. The issuance of the Convertible Preferred Shares is
not subject to any preemptive rights or, to our knowledge, rights of first
refusal created by the Company. The Conversion Shares issuable upon conversion
of the Convertible Preferred Shares are not subject to any preemptive rights or,
to our knowledge, rights of first refusal created by the Company, and, upon
conversion of the Convertible Preferred Shares in accordance with the terms of
the Certificate of Designation, such Conversion Shares will be duly authorized,
validly issued, fully paid and nonassessable.
8. To our knowledge, except as set forth in the Disclosure Schedule, no
suit, action, proceeding or governmental investigation is pending or threatened
against the Company or its properties.
9. Assuming the accuracy of the representations and warranties of the
Company and the Shareholders set forth in Section 2 of the Purchase Agreement
and of the Purchasers set forth in Section 2A of the Purchase Agreement, it is
not necessary, in connection with the offer, and sale of the Shares to the
Purchasers pursuant to the Purchase Agreement, to register the Convertible
Preferred Shares or the Conversion Shares under the 1933 Act or the Securities
Act of the State of Washington.
10. Other than any required filings or approvals of federal and state
regulatory agencies, including the Securities Exchange Commission and state
securities administrators with jurisdiction over the transaction, to our
knowledge, the Company is not required to obtain any
4
175
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other governmental authority
or other person in connection with the execution, delivery and performance by
the Company of the Purchase Agreement.
11. Each of the Redeeming Shareholders is the sole registered owner of
the Redemption Shares. To our knowledge, each Redeeming Shareholder has good and
marketable title to the Redemption Shares, free and clear of all liens,
encumbrances and claims whatsoever.
12. To our knowledge, each Shareholder has full right, authority, power
and capacity to enter into the Purchase Agreement and to carry out the
transactions contemplated thereby. To our knowledge, each Redeeming Shareholder
has full right, authority, power and capacity to enter into their respective
Redemption Agreement and to carry out the transactions contemplated thereby. The
Purchase Agreement and, if applicable, respective Redemption Agreement when
executed and delivered in accordance with their terms will constitute valid and
binding obligations of such Shareholder or Redeeming Shareholder, as the case
may be, enforceable in accordance with their respective terms, except:
(a) the enforceability thereof may by affected by bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
affecting the rights;
(b) the courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the Purchase
Agreement and the respective Redemption Agreement to ascertain the intent of the
parties in using the language employed in such Purchase Agreement and respective
Redemption Agreement, regardless of whether or not the language used in such
Purchase Agreement and respective Redemption Agreement is plain and unambiguous
on its face, and may incorporate additional or supplementary terms into such
Purchase Agreement and respective Redemption Agreement; and
(c) We express no opinion as to the enforceability of Sections
7.5 and 9.2 of the Purchase Agreement.
With respect to our opinion set forth in Paragraphs 1, 2 and 3 above, we
advise you that the Company's Board of Directors relied upon certain information
in making the determinations required by RCW 23B.06.400(2) in order to have the
Company redeem shares of its Common Stock as provided in the Redemption
Agreements. The Board of Directors of the Company believes that it is reasonable
in the circumstances to rely on such information as permitted by RCW
23B.06.400(3). We express no opinion as to the reasonableness of such reliance.
5
176
Those Investors Listed on Exhibit A
to the BSQUARE Corporation Stock Purchase
and Shareholders Agreement dated as of January 30, 1998
This opinion letter is delivered as of its date and we do not undertake
to advise you or anyone else of any changes in the opinions expressed herein
resulting from changes in law, changes in facts or any other matters that
hereafter might occur or be brought to our attention that did not exist on the
date hereof or of which we had no knowledge.
This opinion letter may be relied upon by you only in connection with
the transaction described in the initial paragraph of this opinion letter and
may not be used or relied upon by you for any other purpose or by any other
person for any purpose whatsoever without, in each instance, our prior written
consent.
Yours very truly,
Summit Law Group PLLC
6
177
EXHIBIT G
178
EXHIBIT G
FORM OF CONSENT OF SPOUSE
I, _________________, spouse of _________________, acknowledge that I
have read the Stock Purchase and Shareholders Agreement dated as of January 30,
1998, to which this Consent is attached as Exhibit H (the "Agreement") and that
I know its contents. I am aware that by its provisions, including without
limitation the provisions of Section 5 of the Agreement, certain restrictions
are imposed upon the sale or other disposition of any shares of the Company of
which I may become possessed as a result of a gift from my spouse or a court
decree and/or any property settlement in any domestic litigation.
I hereby agree that my interest, if any, in the shares subject to the
Agreement will be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the shares will be
similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in
the Agreement are complex and that I am free to seek independent professional
guidance or counsel with respect to this Consent. I have either sought such
guidance or counsel or determined after reviewing the Agreement carefully that I
waive such right.
Dated as of the 30th day of January, 1998.
-----------------------------------
179
EXHIBIT H
180
EXHIBIT H
FORM OF DIRECTOR INDEMNIFICATION
This Indemnification Agreement (this "Agreement") dated as of January
30, 1998, is made between BSQUARE CORPORATION, a Washington corporation (the
"Company"), and Xxxxxx X. Xxxxxx ("Indemnitee").
RECITALS
A. Indemnitee is an officer or director of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the general reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting officers and directors to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The shareholders of the Company have adopted articles of
incorporation (the "Articles") and bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Washington Business Corporation Act (the
"Statute").
E. The Articles, Bylaws and the Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its officers
with respect to indemnification of such directors and officers.
F. The Company desires to provide Indemnitee with specific contractual
assurance of Indemnitee's rights to full indemnification against litigation
risks and expenses (regardless, among other things, of any amendment to or
revocation of the Company's Articles or Bylaws or any change in the ownership of
the Company or the composition of its Board of Directors), which indemnification
is intended to be greater than that which is afforded by the Company's Articles,
Bylaws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's director and officers liability insurance policies, but in
no event shall such indemnification be greater than that allowed by law.
G. In order to induce Indemnitee to continue to serve as an officer
and/or director, as the case may be, of the Company, the Company has agreed to
enter into this Agreement with Indemnitee.
AGREEMENT
In consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as an officer
and/or director, as the case may be, of the Company after the date hereof, the
parties to this Agreement agree as follows.
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181
1. INDEMNITY OF INDEMNITEE
1.1 SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by this Agreement, the Articles, the Bylaws, the Statute
or otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Washington
corporation to indemnify a member of its board of directors or an officer, such
changes, to the extent that they would expand Indemnitee's rights hereunder,
shall be within the purview of Indemnitee's rights and the Company's obligations
hereunder, and, to the extent that they would narrow Indemnitee's rights
hereunder, shall be excluded from this Agreement; provided, however, that any
change that is required by applicable laws, statutes or rules to be applied to
this Agreement shall be so applied regardless of whether the effect of such
change is to narrow Indemnitee's rights hereunder.
1.2 NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Articles,
the Bylaws, any agreement, any vote of shareholders or disinterested directors,
the Statute, or otherwise, whether as to action in Indemnitee's official
capacity or otherwise.
1.3 ADDITIONAL INDEMNITY
If Indemnitee was or is made a party, or is threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any Proceeding (as defined below), the Company shall hold harmless and
indemnify Indemnitee from and against any and all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees, judgments, fines,
ERISA excise taxes or penalties, amounts paid in settlement and other expenses
incurred in connection with such Proceeding) (collectively, "Damages").
1.4 DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any actual,
pending or threatened action, suit, arbitration, alternative dispute resolution
process, claim or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, in which Indemnitee is, was or
becomes involved by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company or that, being or having been such a
director, officer, employee or agent, Indemnitee is or was serving at the
request of the Company as a director, officer, employee, trustee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise (collectively a "Related Company"), including service with respect to
an employee benefit plan, whether the basis of such proceeding is alleged action
(or inaction) by Indemnitee in an official capacity as a director, officer,
employee, trustee or agent or in any other capacity while serving as a director,
officer, employee, trustee or agent; provided, however, that, except with
respect to an action to enforce the provisions of this Agreement, "Proceeding"
shall not include any action, suit, claim or proceeding instituted by or at the
direction of Indemnitee unless such action, suit, claim or proceeding is or was
authorized by the Company's Board of Directors.
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182
1.5 DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or any
successor thereto or pursuant to other applicable law, the appropriate
decision-maker shall make such determination; provided, however, that Indemnitee
shall initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) days of the Company's receipt of Indemnitee's
initial written request for indemnification, such determination shall
conclusively be deemed to have been made in favor of the Company's provision of
indemnification and Company hereby agrees not to assert otherwise.
1.6 SURVIVAL
The indemnification provided under this Agreement shall apply to any and
all Proceedings, notwithstanding that Indemnitee has ceased to be a director,
officer, employee, trustee or agent of the Company or a Related Company.
2. EXPENSE ADVANCES
2.1 GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right is referred to hereinafter as an "Expense
Advance").
2.2 CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1 UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or his or her representative shall have executed and delivered to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or on behalf
of Indemnitee to repay all Expense Advances if and to the extent that it shall
ultimately be determined by a final, unappealable decision rendered by a court
having jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise.
2.2.2 COOPERATION
Indemnitee shall give the Company such information and cooperation as it
may reasonably request and as shall be within Indemnitee's power.
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2.2.3 AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required
under applicable law, a written affirmation of Indemnitee's good faith belief
that any applicable standards of conduct have been met by Indemnitee.
3. PROCEDURES FOR ENFORCEMENT
3.1 ENFORCEMENT
In the event that a claim for indemnity, an Expense Advance or otherwise
is made hereunder and is not paid in full within sixty days (twenty days for an
Expense Advance) after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2 PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action the following presumptions (and limitation on
presumptions) shall apply: (a) The Company shall conclusively be presumed to
have entered into this Agreement and assumed the obligations imposed on it
hereunder in order to induce Indemnitee to continue as an officer and/or
director, as the case may be, of the Company; (b) Neither (i) the failure of the
Company (including the Company's Board of Directors, independent or special
legal counsel or the Company's shareholders) to have made a determination prior
to the commencement of the Enforcement Action that indemnification of Indemnitee
is proper in the circumstances nor (ii) an actual determination by the Company,
its Board of Directors, independent or special legal counsel or shareholders
that Indemnitee is not entitled to indemnification shall be a defense to the
Enforcement Action or create a presumption that Indemnitee is not entitled to
indemnification hereunder; and (c) If Indemnitee is or was serving as a
director, officer, employee, trustee or agent of a corporation of which a
majority of the shares entitled to vote in the election of its directors is held
by the Company or in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the Company or a wholly owned
subsidiary of the Company is a general partner or has a majority ownership, then
such corporation, partnership, joint venture, trust or enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the request of the Company.
3.3 ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall indemnify and hold harmless Indemnitee against all of Indemnitee's
fees and expenses in bringing and pursuing the Enforcement Action (including
reasonable attorneys' fees at any stage, including on appeal); provided,
however, that the Company shall not be required to provide such indemnity for
such attorneys' fees or expenses if a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee in such Enforcement
Action was not made in good faith or was frivolous.
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4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGEMENT
4.1 LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the
Company: (a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto; (b) For Damages that have been paid directly to Indemnitee
by an insurance carrier under a policy of officers' and directors' liability
insurance maintained by the Company; (c) On account of Indemnitee's conduct
which is finally adjudged to have been intentional misconduct, a knowing
violation of law or the RCW 23B.08.310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived benefit in money,
property or services to which Indemnitee is not legally entitled; or (d) If a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
4.2 MUTUAL ACKNOWLEDGEMENT
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1 NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of
any Proceeding, Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee under this Agreement unless
and only to the extent that such omission can be shown to have prejudiced the
Company's ability to defend the Proceeding.
5.2 DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof: (a) The Company may participate therein at
its own expense; (b) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict
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of interest between the Company and Indemnitee in the conduct of the defense of
such action, or (iii) the Company shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which Indemnitee shall have made the
conclusion provided for in (ii) above; (c) The Company shall not be liable to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any Proceeding effected without its written consent; (d) The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent; and (e) Neither
the Company nor Indemnitee will unreasonably withhold its, his or her consent to
any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
enter into, and be bound by the terms of, this Agreement, and the execution,
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the
Company in accordance with the provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally.
8. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Washington.
(b) This Agreement shall be binding upon Indemnitee and upon the
Company, its successors and assigns, and shall inure to the benefit of
Indemnitee, Indemnitee's heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY:
BSQUARE CORPORATION
By
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Xxxxxxx X. Xxxxxx, President
INDEMNITEE:
By
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