Exhibit 10(e)
TRACER DESIGN, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
TRACER DESIGN, INC.,
WASATCH VENTURE CORPORATION
and
NEWTEK VENTURES II, L.P.
FEBRUARY 13, 1996
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock.................................................1
1.2 Closing..................................................1
2. Representations and Warranties of the Company .............................1
2.1 Organization, Good Standing and Qualification............1
2.2 Capitalization...........................................2
2.3 Subsidiaries.............................................2
2.4 Authorization............................................2
2.5 Valid Issuance of Preferred and Common Stock.............3
2.6 Governmental Consents....................................3
2.7 Litigation...............................................3
2.8 Employees; Employee Compensation.........................3
2.9 Patents and Trademarks...................................4
2.10 Compliance with Other Instruments........................4
2.11 Compliance with SBA/SBIC Requirements....................5
2.12 Permits..................................................5
2.13 Environmental and Safety Laws............................5
2.14 Disclosure...............................................6
2.15 Registration Rights......................................6
2.16 Title to Property and Assets.............................6
2.17 Financial Statements.....................................6
2.18 Agreements: Action.......................................7
2.19 Tax Returns and Audits...................................8
2.20 Insurance................................................8
2.21 Shareholder Agreements...................................8
2.22 Brokers or Finders.......................................8
2.23 Corporate Documents......................................8
2.24 Qualified Small Business.................................8
3. Representations and Warranties of the Investors............................8
3.1 Experience...............................................8
3.2 Investment...............................................9
3.3 Rule 144.................................................9
3.4 No Public Market.........................................9
3.5 Access to Data...........................................9
3.6 Authorization............................................9
3.7 Accredited Investor.....................................10
4. Conditions of Investors' Obligations at Closing...........................10
4.1 Representations and Warranties..........................10
4.2 Performance.............................................10
4.3 Compliance Certificate..................................10
4.4 Bylaws..................................................10
4.5 Blue Sky................................................10
4.6 Investor Rights Agreement...............................10
4.7 Co-Sale Agreement.......................................10
5. Conditions of the Company's Obligations at Closing........................11
5.1 Representations and Warranties..........................11
5.2 Payment of Purchase Price...............................11
5.3 Securities Law Compliance...............................11
5.4 Investor Rights Agreement...............................11
5.5 Proceedings and Documents...............................11
6. Miscellaneous.............................................................11
6.1 Governing Law...........................................11
6.2 Survival................................................11
6.3 Successors and Assigns..................................11
6.4 Entire Agreement; Amendment.............................12
6.5 Notices, Etc............................................12
6.6 Delays or Omissions.....................................12
6.7 Expenses................................................12
6.8 Finder's Fee............................................12
6.9 Counterparts............................................13
6.10 Severability............................................13
6.11 Arbitration.............................................13
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Investors Schedule
Exhibit C Schedule of Exceptions
Exhibit D Investor Rights Agreement
Exhibit E Co-Sale Agreement
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made as of the 13th day of February,
1996, by and among TRACER DESIGN, INC., an Arizona corporation (the "Company"),
with its principal office at 0000 Xxxx Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx,
Xxxxxxx 00000, and WASATCH VENTURE CORPORATION and NEWTEK VENTURES II, L.P.
(each of which is referred to herein as an "Investor" and collectively, the
"Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company has adopted and filed with the
Arizona Corporation Commission (the "Commission") the Amended and Restated
Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
(b) Subject to the terms and conditions of this
Agreement, each Investor agrees to purchase at the Closing or pursuant to
Section 1.2 and the Company agrees to sell and issue to each Investor at the
Closing or pursuant to Section 1.2, the number of shares of the Company's Series
A Preferred Stock (the "Series A Preferred") set forth opposite such Investor's
name on Exhibit B attached hereto for the purchase price set forth thereon. The
shares of Series A Preferred to be sold pursuant to this Agreement are
collectively referred to herein as the "Shares."
1.2 Closing. The purchase and sale of the Shares shall take
place at the offices of the Company at 5:00 p.m., on February 13, 1996, or at
such other time and place as the Company and the Investors mutually agree upon
orally or in writing (which time and place are designated as the "Closing"). At
the Closing the Company shall deliver to each Investor a certificate
representing the Series A Preferred Stock that such Investor is purchasing
against payment of the purchase price therefor by check or wire transfer.
2. Representations and Warranties of the Company . Except as set forth
in the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby
represents and warrants as follows:
2.1 Organization, Good Standing and Qualification. The company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Arizona and has all requisite corporate power and authority
to carry on its business as currently conducted. The Company is duly qualified
to transact business and is in good standing in each
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jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties. True and accurate copies of the Company's
Articles of Incorporation and Bylaws, each as amended and in effect at the
Closing, have been delivered to the Investors.
2.2 Capitalization. The authorized capital stock of the
Company consists of Five Million (5,000,000) shares of Class A Common Stock
("Common Stock"), of which Five Hundred Twenty One Thousand Three Hundred
Sixteen (521,316) shares are issued and outstanding on the date of this
Agreement and Two Million (2,000,000) shares of Preferred Stock ("Preferred
Stock"), all of which are designated as Series A Preferred Stock, and none of
which are issued and outstanding (prior to the Closing). All such issued and
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable. The Company has reserved 90,000 shares of Series A
Preferred for issuance hereunder. The Company has reserved 90,000 shares of
Common Stock for issuance upon conversion of the Series A Preferred. The Company
has committed to issue or reserved for future grants stock options or stock
purchase rights in the aggregate amount of 107,482 shares of Common Stock to
employees, officers, directors and consultants of the Company, none of which
shares are presently outstanding. In addition, the Company has issued warrants
to purchase Common Stock, and reserved underlying shares of Common Stock against
exercise of such warrants, as described in the Schedule of Exceptions and,
subject to consummation of the Closing hereunder, the Company will issue
additional shares of Common Stock as described in the Schedule of Exceptions.
There are no other outstanding rights, options, warrants, preemptive rights,
rights of first refusal or similar rights for the purchase or acquisition from
the Company of any securities of the Company. All outstanding shares have been
issued in compliance with state and federal securities laws. The Company
covenants that, without the consent of the holders of a majority of the Shares,
from and after the date hereof it will not grant options or sell stock with
vesting provisions that allow Common Stock to be acquired by employees more
rapidly than 40% at the end of two years of employment, and after the third
year, an additional 20% per year until fully vested.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Investor Rights
Agreement, the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance), sale
and delivery of the Shares being sold hereunder and the Common Stock issuable
upon conversion of the Shares has been taken or will be taken prior to the
Closing, and this Agreement and the Investor Rights Agreement constitute valid
and legally binding obligations of the Company, enforceable in accordance with
their respective terms, subject to: (i) judicial principles limiting the
availability of specific performance, injunctive relief, and other equitable
remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect generally
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relating to or affecting creditors' fights; and (iii) limitations on the
enforceability of the contribution and indemnification provisions of the
Investor Rights Agreement.
2.5 Valid Issuance of Preferred and Common Stock. The shares
of Series A Preferred that are being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investor Rights Agreement
and under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series A Preferred purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Articles, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investor Rights Agreement and under applicable state and federal securities
laws.
2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares (and the Common Stock issuable upon conversion of the Shares) or the
consummation of any other on contemplated hereby, except the filing of the
Restated Articles in the office of the Commission, which shall be filed by the
Company on or prior to the Closing. Based in part on the representations of the
Investors set forth in Section 3 below, the offer, sale and issuance of the
Shares in conformity with the terms of this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act and from the
qualification requirements of the Arizona Securities Law and applicable Arizona
securities laws.
2.7 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge, currently
threatened before any court, administrative agency or other governmental body
against the Company which questions the validity of this Agreement or the
Investor Rights Agreement or the right of the Company to enter into either of
them, or to consummate the transactions contemplated hereby or thereby, or which
could result, either individually or in the aggregate, in any material adverse
change in the condition (financial or otherwise), business, property, assets or
liabilities of the Company. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to, and none of its assets is bound by, the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
2.8 Employees; Employee Compensation. Each founder of the
Company and each employee of the Company who has access to the Company's
confidential or proprietary
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information has executed a confidentiality and proprietary rights agreement, in
substantially the form previously delivered to the Investors. To the best
knowledge of the Company, no officer or key employee is in violation of any
prior employee contract or proprietary information agreement. The Company is not
a party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation agreement or arrangement
with any collective bargaining agent other than as described in Section 2.2
above. No employees of the Company are represented by any labor union or covered
by any collective bargaining agreement. There is no pending or, to the best of
the Company's knowledge, threatened labor dispute involving the Company and any
group of its employees. The Company covenants that, without the unanimous
consent of the Board of Directors of the Company it will not pay to any employee
hired after the date hereof total compensation in excess of $50,000 annually.
2.9 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted and as proposed to be conducted.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company is violating or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. None of the Company's
employees are obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement or the Investor Rights
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will conflict
with or result in a material breach of the terms, conditions or provisions of,
or constitute a material default under, any contract, covenant or instrument
known to the Company under which any of such employees is now obligated. The
Company covenants that it will not, at any time, conduct its business in such a
way as to conflict with or result in a material breach of the terms, conditions
or provisions of, or constitute a material default under, any contract, covenant
or instrument under which any of such employees is known to be obligated as of
the date hereof. The Company does not believe it is or that it will be necessary
to utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to their employment by the Company.
2.10 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, each as amended and in effect on and as of the Closing. The Company is
not in violation or default of any material provision of any instrument,
mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or
4
obligation to which it is a party or by which it or any of its properties or
assets are bound which would materially adversely affect the condition
(financial or otherwise), business, property, assets or liabilities of the
Company or, to the best of its knowledge, of any provision of any federal, state
or local statute, rule or governmental regulation which would materially
adversely affect the condition (financial or otherwise), business, property,
assets or liabilities of the Company. The execution, delivery and performance of
and compliance with this Agreement and the Investor Rights Agreement, and the
issuance and sale of the Shares, will not result in any such violation, be in
conflict with or constitute, with or without the passage of time or giving of
notice, a default under any such provision, require any consent or waiver under
any such provision (other than any consents or waivers that have been obtained),
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company pursuant to any such
provision.
2.11 Compliance with SBA/SBIC Requirements. The Company shall
cooperate with the Investors to make timely filing of any reports required by
the U.S. Small Business Administration (the "SBA"), including such financial
statements, plans of operation (including intended use of financing proceeds),
cash flow analyses and projections as are necessary to support the Investors'
investment decisions, considering the size and type of the Company's business
and the amount of the financing; provided that the Investors shall take all
commercially reasonable actions as shall be permissible or available to maintain
the confidentiality of such information. The Company shall accommodate the
Investors in conducting a reasonable post Closing review to confirm the
Company's use of the proceeds of the transaction contemplated hereby within
ninety (90) days of the Closing. The Company covenants that the proceeds of the
transaction contemplated hereby will not be diverted from their reported uses in
any material way without the prior written consent of the Investors and that any
material diversion shall constitute a violation of a covenant under this
Agreement giving the Investors the right to demand immediate rescission of the
investment made hereby. The Company will deliver to the Investors, reasonably
promptly after the Closing, completed (as to information to be provided by the
Company) forms required by the SBA, including (a) a Portfolio Financing Report,
(b) a Size Status Declaration and (c) Assurance of Compliance for
Nondiscrimination.
2.12 Permits. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
2.13 Environmental and Safety Laws. To the best of its
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
the best of its knowledge, no material
5
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
2.14 Disclosure. No representation, warranty or statement by
the Company in this Agreement, or in any written statement or certificate
furnished to the Investors pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. However, as to any projections furnished to the Investors,
such projections were prepared in good faith by the Company, but the Company
makes no representation that it will be able to achieve such projections.
2.15 Registration Rights. Except as provided in the Investor
Rights Agreement attached hereto as Exhibit D, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity.
2.16 Title to Property and Assets. The Company has good and
marketable title to all of its properties and assets free and clear of all
mortgages, liens and encumbrances, except liens for current taxes and
assessments not yet due and possible minor liens and encumbrances which do not,
in any case, in the aggregate, materially detract from the value of the property
subject thereto or materially impair the operations of the Company. With respect
to the property and assets it leases, the Company is in compliance with such
leases in all material respects and, to the best of its knowledge, holds a valid
leasehold interest free of all liens, claims or encumbrances. The Company's
properties and assets are in good condition and repair in all material respects.
2.17 Financial Statements. The Company has previously provided
to the Investors copies of its unaudited financial statements for the fiscal
years ended December 31, 1995, 1994, 1993, and 1992 (the "Financial
Statements"). A copy of the internally prepared Financial Statements for the
fiscal year ended December 31, 1995, is attached to the Schedule of Exceptions.
The Financial Statements for the fiscal year ended December 31, 1994 were
compiled by Xxxxxxxx, Blumenthal, Greene, Freeds & Strassels, P.C., certified
public accountants. The Financial Statements are complete and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that the Financial Statements do not
contain all footnotes required by generally accepted accounting principles. The
Financial Statements accurately set out and describe the financial condition and
operating results of the Company as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Financial Statements, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1995, and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. The
Company
6
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.18 Agreements: Action.
(a) Except for agreements explicitly contemplated
hereby and by the Investor Rights Agreement, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) obligations (contingent or otherwise) of, or payments to the Company in
excess of, $10,000, or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company, or (iii) provisions
restricting or adversely affecting the development, manufacture or distribution
of the Company's products or services or (iv) indemnification by the Company
with respect to infringements of proprietary rights.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $5,000 or, in the
case of indebtedness or liabilities individually less than $5,000, in excess of
$25,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(e) The Company is not a party to and is not bound by
any contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that adversely affects its business as now conducted
or as proposed to be conducted.
(f) The Company has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company with or into
any such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Company.
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2.19 Tax Returns and Audits. To the best of its knowledge, the
Company has accurately prepared and filed all United States income tax returns
and all state and municipal tax returns required to be filed by it, has paid all
taxes, assessments, fees and charges when and as due under such returns and has
made adequate provision for the payment of all other taxes, assessments, fees
and charges shown on such returns or on assessments received by the Company. To
the best of the Company's knowledge, no deficiency assessment or proposed
adjustment of the Company's United States income tax or state or municipal taxes
is pending.
2.20 Insurance. The Company has in full force and effect
insurance policies as set forth on Exhibit C to this Agreement.
2.21 Shareholder Agreements. Except as contemplated by this
Agreement and the Investor Rights Agreement, there are no agreements between the
Company and any of the Company's shareholders, or to the best knowledge of the
Company, among any of the Company's shareholders, which in any way affect any
shareholder's ability or right freely to alienate or vote such shares (except
restrictions designed to provide compliance with securities laws).
2.22 Brokers or Finders. The Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
2.23 Corporate Documents. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investors), the Restated Articles
and Bylaws of the Company are in the form previously provided to the Investors.
2.24 Qualified Small Business. To its knowledge, the Company
currently is a "Qualified Small Business" as defined in Section 1202(d) of the
Internal Revenue Code of 1986, as amended.
2.25 Use of Proceeds. The Company plans to use the proceeds
from the sale of the Shares as described in the Schedule of Exceptions.
3. Representations and Warranties of the Investors. Each Investor
hereby represents and warrants that:
3.1 Experience. The Investor is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of Investor's prospective investment in the Company, and has the
ability to bear the economic risks of the investment.
8
3.2 Investment. The Investor is acquiring the Shares (and the
Common Stock issuable upon conversion of the Shares) for investment for the
Investor's own account and not with the view to, or for resale in connection
with, any distribution thereof. The Investor under stands that the Shares (and
the Common Stock issuable upon conversion of the Shares) have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. The
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Common Stock acquired upon conversion thereof). The Investor understands and
acknowledges that the offering of the Shares pursuant to this Agreement will
not, and any issuance of Common Stock on conversion may not, be registered under
the Securities Act on the ground that the sale provided for in this Agreement
and the issuance of securities hereunder is exempt from the registration
requirements of the Securities Act.
3.3 Rule 144. The Investor acknowledges that the Shares (and
the Common Stock issuable upon conversion of the Shares) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. The Investor covenants that, in the absence of an effective
registration statement covering the stock in question, the Investor will sell,
transfer, or otherwise dispose of the Shares (and any Common Stock issued on
conversion thereof) only in a manner consistent with the Investor's
representations and covenants set forth in this Section 3. In connection
therewith, the Investor acknowledges that the Company will make a notation on
its stock books regarding the restrictions on transfers set forth in this
Section 3 and will transfer securities on the books of the Company only to the
extent not inconsistent therewith.
3.4 No Public Market. The Investor understands that no public
market now exists for any of the securities issued by the Company, and that no
public market may ever exist for the Shares (or the Common Stock issuable upon
conversion of the Shares).
3.5 Access to Data. The Investor has received and reviewed
information about the Company and has had an opportunity to review and discuss
the Company's business, management and financial affairs with its management and
to tour the Company's facilities. The Investor understands that such
discussions, as well as any written information issued by the Company, were
intended to describe the aspects of the Company's business and prospects which
the Company believes to be material, but were not necessarily a thorough or
exhaustive description.
3.6 Authorization. This Agreement when executed and delivered
by the Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or
9
limiting the availability of specific performance, injunctive relief, and other
equitable remedies; (ii) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect generally relating to or affecting
creditors' rights; and (iii) limitations on the enforceability of the
indemnification and contribution provisions of the Investor Rights Agreement.
3.7 Accredited Investor. The Investor acknowledges that it is
an "accredited investor" as defined in Rule 501 of Regulation D as promulgated
by the Securities and Exchange Commission under the Securities Act and shall
submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal addresses of the Investors are: Wasatch Venture Corporation, c/o Zions
First National Bank, Investment Division, Venture Capital Department, 0 Xxxxx
Xxxx Xxxxxx, Xxxxx 0000, Xxxx Xxxx Xxxx, Xxxx 00000, Attn: Xxxx Xxxxxxx; and
Newtek Ventures II, L.P., 000 Xxxxxxxxxx Xxxxxx, Xxxxx 000, Xxx Xxxxxxxxx,
Xxxxxxxxxx 00000, Attn: Xxxx Xxxx.
4. Conditions of Investors' Obligations at Closing. The obligations of
each Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, any of
which may be waived in writing by the Investor:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to the Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Bylaws. The Bylaws of the Company shall provide that the
number of authorized directors at the time of the Closing will be seven (7).
4.5 Blue Sky. The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Shares.
4.6 Investor Rights Agreement. The Company and the Investor
shall have entered into the Investor Rights Agreement in the form attached
hereto as Exhibit D..
4.7 Co-Sale Agreement. The Company, the Investor and Xxxx X.
Xxxxxx, Xxxxxx X. Xxxxxxxxxxx and Xxxxx X. Xxxxx shall have entered into a
Co-Sale Agreement in the form attached hereto as Exhibit E.
10
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the Investors under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
5.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
delivered the purchase price specified in Section 1 against delivery of the
Shares by the Company to the Investor.
5.3 Securities Law Compliance. The Company shall have obtained
all necessary permits and qualifications, if any, or secured an exemption
therefrom, required by any state or country for the offer and sale of the
Shares.
5.4 Investor Rights Agreement. The Investor shall have
executed the Investor Rights Agreement on or prior to the date of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby, and all documents and instruments incident to these transactions, shall
be reasonably satisfactory in substance to the Company and its counsel.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Arizona as applied to agreements entered
into and performed entirely in the State of Arizona by residents thereof.
6.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investors and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of the date of such certificate or
exhibit.
6.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of the Investors to purchase
Shares shall not be assignable without the consent of the Company.
11
6.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that the Investors may waive or amend any provisions hereof
benefitting the Investors.
6.5 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to the Investors,
at the Investors' addresses set forth in Section 3.7, or at such other addresses
as the Investors shall have furnished to the Company in writing, or (b) if to
any other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the Company,
at its address set forth on the first page of this Agreement addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investors. If notice is provided by U.S. mail,
notice shall be deemed to be given four (4) days after proper deposit in a U.S.
mailbox, postage prepaid.
6.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Investors upon any breach or default of
the Company under this Agree ment shall impair any such right, power or remedy
of the Investors, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Investors of any breach or default under this Agreement, or any
waiver on the part of the Investors of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing or as provided in this Agreement. All
remedies, either under this Agreement or by law or otherwise afforded to the
Investors shall be cumulative and not alternative.
6.7 Expenses. The Company and the Investors shall bear their
own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby. The total legal fees and
expenses incurred by the Company with respect to this Agreement and the
transactions contemplated hereby shall not exceed $5,000.
6.8 Finder's Fee. The Company and the Investors shall each
indemnify and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee (including the costs, expenses and
legal fees of defending against such liability) for which the Company or the
Investors, or any of their respective partners, employees, or representatives,
as the case may be, is responsible.
12
6.9 Counterparts. This Agreement may be executed in
counterparts, each of which shall be enforceable against the party actually
executing the counterpart, and both of which together shall constitute one
instrument.
6.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
6.11 Arbitration. Any dispute or controversy arising out of or
relating to any interpretation, construction, performance or breach of this
Agreement shall be resolved exclusively by binding arbitration in Phoenix,
Arizona, in accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and the Investors shall each pay one-half of the costs and expenses of
such arbitration, and each of them shall separately pay their counsel fees and
expenses.
[Remainder of Page Intentionally Left Blank]
13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TRACER DESIGN, INC. WASATCH VENTURE CORPORATION
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxxxx
--------------------------- ------------------------------
Title: President Title: Secretary and Treasurer
------------------------ ---------------------------
NEWTEK VENTURES II, L.P.
By: /s/ Xxxx Xxxx
--------------------------------
Title: General Partner
-----------------------------
14
EXHIBIT B
INVESTORS SCHEDULE
Series A Preferred
Investors Shares Purchased Purchase Price (Aggregate)
Wasatch Venture Corporation 70,000 $350,000
Newtek Ventures II, L.P. 20,000 $100,000
------ --------
Total 90,000 $450,000
EXHIBIT C
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2
of the Series A Preferred Stock Purchase Agreement dated as of February 13, 1996
(the "Agreement"), by and among Tracer Design, Inc. (the "Company") and the
Investor named therein. Unless the context otherwise requires, all capitalized
terms are used herein as defined in the Agreement. The numbers below correspond
to the section numbers of representations and warranties in the Agreement that
are most directly modified by the disclosures, but all disclosures are intended
to modify all of the Company's representations and warranties.
2.2 After giving effect to a two-for-one stock split prior to the Closing,
the outstanding shares of Common Stock prior to the Closing will be as
follows:
Little 255,000
Xxxxx 122,500
Xxxxxxxxxxx 122,500
Xxxxx 10,204
Kailey 11,112
In addition, the Company has granted 69,574 stock options (post-split)
under its 1995 Equity Incentive Plan to current employees (engineers)
for the purchase of Common Stock at a nominal exercise price. The
Company also has issued an aggregate of 23,800 warrants (post-split) to
purchase Common Stock (the "Warrants") each with an exercise price of
$18.00 per share (post-split).
Upon consummation of the Closing, the Company will issue additional
shares, for no additional consideration, to Xxxxx and Kailey as set
forth below in order to adjust for the dilutive effects of the issuance
of the Shares, and the number of Shares subject to the Warrants will
also be adjusted as set forth below for the same reason.
Total Common Shares
Current Shares After Dilution Adjustment
-------------- -------------------------
Xxxxx 10,204 36,734
Kailey 11,112 20,002
Warrant holders 23,800 @ $18.00/sh. 85,680 @ $5.00/sh.
1
The Company has reserved a total of 107,482 shares of Common Stock for
awards under the Company's 1995 Equity Incentive Plan, including the
69,574 existing stock options. The Company is party to a "Retainer /
Non - Circumvention Agreement dated May 16, 1995 with Xx. Xxxxx Xxxxxxx
(the "Agreement") pursuant to which Xx. Xxxxxxx has provided certain
services to the Company. The term of the Agreement has been orally
extended by the parties, and the Company has agreed that the
compensation terms of such Agreement shall apply to the issuance of the
Shares to the Investor and to any transactions with Xxxx Xxxx/Newtek
Ventures, Xxx Xxxxxx/Xxxxxx/Wasatch, and any other transactions that
are part of the Company's current effort to raise a total round of
$1,000,000 in new financing (including the investments by Kailey and
the Investors) and with respect to which he is entitled to compensation
under the Agreement because of his role in the transactions.
Immediately after the Closing of the transaction with the Investors,
the Company will issue to Xx. Xxxxxxx warrants to purchase up to 26,307
shares of Common Stock of the Company at an exercise price of $0.01 per
share pursuant to the Agreement, and pay to him $15,750 (3.5% of the
proceeds of this transaction) in commission payments due him. The
Company intends to grant to Mr. Xxxx Xxxx or assigns a stock option,
exercisable at $.10 per share, to purchase up to 26,307 shares of
Common Stock of the Company, in consideration of consulting services to
be performed and subject to a three year vesting condition. The Company
is also party to a certain Engagement Letter dated October 10, 1995,
between the Company and Messrs. Helstab and Xxxxxxxx pursuant to which
they were entitled, under certain conditions, to receive warrants to
purchase Common Stock of the Company. The conditions were not met, and
the Company does not believe it has any obligations to issue any
warrants to Messrs. Helstab or Xxxxxxxx under that Agreement.
Messrs. Little, Layne and Xxxxxxxxxxx have certain agreements amongst
themselves pursuant to which the number of shares of Common Stock held
by them relative to each other may be adjusted and also providing
certain proxies for voting shares held by them. The agreements do not
include receiving any new shares of the Company.
The Company, and Messrs, Little, Layne, Whittington, Xxxxx and Kailey
are parties to a certain Stockholders' Agreement, as amended, which
among other things requires stock issued by the Company (with certain
exceptions) to be subject to such Stockholders' Agreement, restricts
transfer of shares of Common Stock held by the parties thereto and
grants certain rights of first refusal. Xx. Xxxxxxx has agreed to
become a party to such agreement. In addition, Messrs. Little, Layne
and Xxxxxxxxxxx are parties to a Cross Purchase Agreement amongst
themselves providing for the purchase of shares of Common Stock of a
party upon their death by the surviving parties to the agreement.
2
The Company is also issuing, in connection with the closing of the
transactions contemplated by the Stock Purchase Agreement a warrant to
each of the Investors to purchase an aggregate of 22,500 shares of
Series A Preferred Stock, at an exercise price of $.01 per share, and
has reserved 22,5000 shares of Series A Preferred Stock and 22,500
shares of Common Stock in connection therewith.
2.3 Messrs. Little, Layne and Xxxxxxxxxxx are the sole shareholders of
Tracer 2 Design, Inc., an Arizona corporation, that has never conducted
business and does not own any material assets. Messers. Little, Layne
and Xxxxxxxxxxx have agreed to assign their stock in Tracer 2 Design,
Inc. to the Company for nominal consideration, after which it will be a
wholly owned subsidiary of the Company.
2.6 The Corporation intends to file Form D with the SEC and with the
Securities Division of the Arizona Corporation Commission in order to
perfect exemptions under Regulation D and the applicable Arizona
counterpart.
2.8 The Company has adopted its 1995 Equity Incentive Plan and has granted
nonqualified stock options to Messrs. Fairall, Wodarz, Turico and Hall
(the engineers) thereunder pursuant to written award agreements. The
confidentiality and proprietary rights agreements signed by the
engineers are contained in their employment agreements with the
Company. Those signed by Messrs. Little, Layne and Xxxxxxxxxxx are
separate agreements. Copies of all of the foregoing have been provided
to the Investor.
2.9 The Company holds certain software under license from Motorola, and has
a variety of licenses for off-the-shelf software used in its business.
2.10 Payables are generally running from 15 to 90 days.
2.15 Certain registration rights are set forth in the Warrants held by the
Warrant holders.
2.17 Internally prepared financial statements for 1995 are attached hereto.
2.18 For Section 2.18, the Company discloses the following agreements as
exceptions or potential exceptions (copies of all have been provided to
Investor):
Employment Agreements with the Engineers
Confidentiality and Proprietary Rights Agreements with the Founders
Engagement Letter with Xxxxxxxx and Helstab dated October 10, 1995
Retainer / Non - Circumvention Agreement dated May 16, 1995 with Xx.
Xxxxx Xxxxxxx, as orally amended
Lease for current space
Letter Agreement dated January 5, 1996 with Xxxx Media for media sales
representation
License Agreement with Motorola
3
Warrant Purchase Agreement and Warrant for Pickwick Group, LLC
Promissory Notes, Loan and Warrant Purchase Agreements, and Warrants
for Bridge Loans
Amended and Restated Stockholders Agreement, as amended
Subscription Agreements for Kailey and Xxxxx
Promissory Note in favor of Xxxxx Xxxxx
2.20 See attached memorandum describing insurance.
2.21 See paragraph 2.2 above.
2.22 See paragraph 2.2 above.
2.25 From the gross proceeds of this round of financing, the Company will
pay a finders fee to Xxxxx Xxxxxxx as described above. The Company will
also use the first $5,000 of the net proceeds to pay for legal expenses
for the Offering, and will also pay other expenses related to the
offering (e.g., accounting). Management estimates that the net proceeds
to the Company from this round of financing (Series A Preferred), after
the foregoing deductions, will be approximately $433,000. The Company
intends to use the proceeds as set forth in the following table:
Purpose Estimated Total
Working capital (includes equipment,
additional rent, salaries, telecommunications,
payables, travel) $353,000
Advertising and Marketing $80,000
It should be noted that due to sponsorship, Sandbox should be able to
put more of the dollars to work in production of products as opposed to
advertising and marketing because sponsors will be paying for the
majority of those expenses.
