EXHIBIT 10.10
LINEO, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of this __
day of April, 2000, by and between Lineo, Inc., a Delaware corporation (together
with any predecessors or successors thereto, the "Company"), and
_____________________ (together with its successors and assigns, the
"Investor").
RECITALS
A. The Company has authorized the issuance and sale to the Investor of
_______ shares of Series C Convertible Preferred Stock, $.001 par value per
share (the "Series C Preferred Stock"), having the rights and preferences set
forth in the Certificate of Designation in the form attached as EXHIBIT A hereto
(the "Certificate of Designation"), which the Company shall adopt and file with
the Secretary of State of the State of Delaware on or before the Closing (as
defined below in Section 1.3), for an aggregate purchase price of $__________.
AGREEMENT
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.
1.1 DESCRIPTION OF SECURITIES.
The Company's authorized capital stock consists of 100,000,000 shares
of Common Stock and 30,000,000 shares of Preferred Stock, par value $.001 per
share. Of such shares of Preferred Stock, 3,000,000 shares are designated as
Series C Preferred Stock. The Company has authorized and has reserved, and
covenants to continue to reserve, free and clear of preemptive and other
preferential rights, a sufficient number of shares of its Common Stock to
satisfy the rights of conversion of the holders of the Series C Preferred Stock.
For purposes of this Agreement, (a) the shares of Series C Preferred Stock to be
acquired by the Investor from the Company hereunder are referred to as the
"Series C Preferred Shares," (b) the shares of Common Stock issuable upon
conversion of the Series C Preferred Shares are referred to as the "Conversion
Shares" and (c) the Series C Preferred Shares and the Conversion Shares are
sometimes referred to collectively as the "Securities."
1.2 SALE AND PURCHASE.
Upon the terms and subject to the conditions herein, and in reliance on
the representations and warranties set forth in Section 2, the Investor hereby
agrees to purchase from the Company, and the Company hereby agrees to issue and
sell to the Investor, at the Closing, ______ Series C Preferred Shares for the
purchase price of $6.00 per share for an aggregate of $_________, and the
Company hereby grants the Investor the rights set forth herein. The proceeds of
this sale are intended to be used for the expansion of the Company's business,
working capital and other general corporate purposes.
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1.3 CLOSING.
The closing of the purchase and sale of the Series C Preferred Shares
(the "Closing") shall take place at the offices of the Company at 10:00 a.m. on
April __, 2000, or at such other time and place as the parties hereto may agree
(the "Closing Date"). At the Closing, the Company shall deliver to the Investor
a stock certificate, registered in the name of the Investor, representing the
number of shares of Series C Preferred Stock purchased by such Investor
hereunder.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants the following, except as set forth
in the schedule of exceptions attached hereto as EXHIBIT B (the "Disclosure
Schedule"), which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 ORGANIZATION AND CORPORATE POWER.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, 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
authority to carry on its business as presently conducted, to enter into and
perform this Agreement and all other agreements contemplated hereby to which it
is a party and to carry out the transactions contemplated hereby and thereby,
including the issuance (or reservation for issuance), sale, delivery and
conversion of Series C Preferred Shares and the issuance of the Conversion
Shares. The Company is not in violation of any term of the Certificate of
Incorporation and Bylaws of the Company, as amended to date (the "Certificate of
Incorporation" and the "Bylaws," respectively.)
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement and all other agreements, documents and instruments to be executed and
delivered by the Company as contemplated hereby (including, without limitation,
the Certificate of Designation) and the issuance and delivery of (i) the Series
C Preferred Shares and (ii) upon the conversion of the Series C Preferred
Shares, the Conversion Shares, have been duly authorized by all necessary
corporate and other action of the Company. This Agreement and each such other
agreement, document and instrument (including, without limitation, the
Certificate of Designation) constitute valid and binding obligations of the
Company, enforceable in accordance with their respective terms. 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 Certificate of
Designation) and the performance by the Company of the transactions contemplated
hereby and thereby, including, without limitation, the issuance and delivery of
(i) the Series C Preferred Shares and (ii) upon the conversion of the Series C
Preferred Shares, the Conversion Shares, do not and will not (whether after the
giving of notice, lapse of time or both): (a) violate, conflict with or result
in a default under any instrument, judgment, order, writ, decree, contract,
statute, rule, regulation or obligation to which the Company is subject to or by
which it or its assets are bound, or any provision of the Certificate of
Incorporation or Bylaws of the Company, and a violation of which would have a
material adverse effect on the business, condition, financial or otherwise, or
operations of the Company, or (b) result in any such
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violation, or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture or nonrenewal of
any material permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.3 CAPITALIZATION.
As of the Closing and after giving effect to the transactions
contemplated hereby, the authorized capital stock of the Company will consist of
100,000,000 shares of Common Stock, par value $.001 per share, of which
20,148,724 shares are issued and outstanding, and 30,000,000 shares of Preferred
Stock, par value $.001 per share, of which (a) 7,500,000 shares are designated
as Series A Preferred Stock, of which (i) 5,000,000 shares are designated as
Series A Class 1 Preferred Stock, all of which are issued and outstanding, and
(ii) 2,500,000 shares are designated as Series A Class 2 Preferred Stock, all of
which are issued and outstanding, (b) 4,850,000 shares are designated as Series
B Preferred Stock, of which 4,833,331 shares are issued and outstanding, and (c)
3,000,000 shares are designated as Series C Preferred Stock. In addition, the
Company has authorized and reserved for issuance upon conversion of the Series A
Preferred Stock up to 7,500,000 shares of Common Stock (subject to adjustment
for stock splits, stock dividends and the like), has authorized and reserved for
issuance upon conversion of the Series B Preferred Stock up to 4,850,000 shares
of Common Stock (subject to adjustment for stock splits, stock dividends and the
like), has authorized and reserved for issuance upon conversion of the Series C
Preferred Stock up to 3,000,000 shares of Common Stock (subject to adjustment
for stock splits, stock dividends and the like) and has reserved for issuance
upon exercise of options under the Company's stock option plan (the "Plan")
5,000,000 shares of Common Stock (subject to adjustment for stock splits, stock
dividends and the like). Other than as described above, 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, and after giving effect to the transactions
contemplated hereby, all of the outstanding shares of capital stock of the
Company (including, without limitation, the Series C Preferred Shares) are duly
and validly authorized and issued, fully paid and nonassessable and, except as
set forth herein, not subject to any preemptive rights to purchase or otherwise
acquire shares of capital stock of the Company, are 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, 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, 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, and will not be subject to any
preemptive rights, and will be offered, issued, sold and delivered in compliance
with applicable federal and state securities laws. The relative rights,
preferences and other provisions relating to the Series C Preferred Shares are
as set forth in the Certificate of Designation.
2.4 SUBSIDIARIES; INVESTMENTS.
Except as set forth in Section 2.4 of the Disclosure Schedule and other
than 1,250,000 shares of Common Stock of Caldera Systems, Inc., a representative
office located in Taiwan and a wholly owned subsidiary located in the United
Kingdom, the Company does not currently own any capital stock or
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interest or participate in any corporation, joint venture, partnership, trust,
limited liability company or other entity.
2.5 FINANCIAL STATEMENTS.
The Company has previously furnished to the Investor copies of its
draft audited financial statements (balance sheet, statement of operations,
statement of cash flows and statement of stockholders equity, including notes
thereto) for the fiscal year at and ended October 31, 1999 (the "Financial
Statements"). Such financial statements were prepared in conformity with
generally accepted United States 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. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted United States
accounting principles.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES.
Except as and to the extent reflected or reserved against in the
financial statements referred to in Section 2.5 above, 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 CHANGES.
Except as set forth in Section 2.7 of the Disclosure Schedule, since
October 31, 1999 there has not been (a) any material adverse change in the
financial condition, results of operations, assets, liabilities, or business of
the Company, (b) any material asset or property of the Company made subject to a
lien of any kind, (c) any waiver of any material right of the Company, or the
cancellation of any material debt or claim held by the Company, (d) any payment
of dividends on, or other distribution with respect to, or any direct or
indirect redemption or acquisition of, any shares of the capital stock of the
Company, or any agreement or commitment therefore, (e) any mortgage, pledge or
hypothecation of any tangible or intangible asset of the Company, except in the
ordinary course of business, (f) any sale or assignment of any tangible asset of
the Company having a book value in excess of $5,000, except in the ordinary
course of business, or of any Intellectual Property Rights (as hereafter
defined) or other intangible assets, (g) any loan by the Company to, or any loan
to the Company from, any officer, director, employee or stockholder of the
Company, or any agreement or commitment therefore (other than travel and other
advances in the ordinary course of business), (h) any damage, destruction or
loss (whether or not covered by insurance) materially and adversely affecting
the assets, property or business of the Company, (i) any repayment of any loan
owed by the Company (including, without limitation, any loan owed to any
stockholder of the Company), (j) any single capital expenditure in excess of
$50,000 or any capital expenditures aggregating more than $250,000, (k) any
material change in the accounting methods or practices followed by the Company,
(l) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company, except in the ordinary course of business and
that is not material to the business, properties, prospects or financial
condition of the Company, (m) any material change to a material contract or
agreement by which the Company or any of its assets is bound or subject, (n) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company, (o) to the Company's knowledge,
any other event or condition of any character that might materially and
adversely affect the business, properties, prospects or financial condition of
the Company , (p) any resignation or termination of employment of any officer or
key
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employee of the Company, or (q) any arrangement or commitment by the Company to
do any of the things described in this Section 2.7.
2.8 TITLE; CONDITION OF PROPERTY.
(a) Except as set forth in Section 2.8 of the Disclosure Schedule, the
Company has good title to all of its property and assets, real, personal or
mixed, tangible or intangible, free and clear of all liens, security interests,
charges and other encumbrances of any kind.
(b) Without material exception, all assets used in the Company business
are in good operating condition and repair and suitable for use in the operation
of such business, and none of such assets that (singly or when aggregated with
other assets) is material to the business of the Company is obsolete.
2.9 CERTAIN CONTRACTS AND ARRANGEMENTS.
Except as set forth in Section 2.9 of the Disclosure Schedule (with
true and correct copies delivered to the Investor), 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 (contingent or otherwise) to pay to any third party $100,000 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 $100,000;
(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);
(f) any contract or agreement for the purchase of any
leasehold improvements, equipment or fixed assets for a price in excess of
$100,000;
(g) any indenture, mortgage, promissory note, loan
agreement, guaranty or other agreement or commitment for borrowing in excess of
$100,000 or any pledge or security arrangement;
(h) any material joint venture, partnership, or
manufacturing agreement;
(i) any endorsement or any other advertising, promotional or
marketing agreement;
(j) any employment contracts, or agreements with officers,
directors, employees or stockholders of the Company or persons or organizations
related to or affiliated with any such persons;
(k) any pension, profit sharing, retirement (other than the
Company's 401(k) plan), stock option, phantom stock or other equity incentive
plans;
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(l) any arrangement relating to any royalty payments to
employees, customers or independent contractors based on the sales volume of the
Company;
(m) any acquisition, merger or similar agreement; or
(n) any contract with a governmental body under which the
Company may have an obligation for renegotiation.
Except as set forth in Section 2.9 of the Disclosure
Schedule, (i) each of the Company's contracts and commitments is in full force
and effect and is valid, binding and enforceable in accordance with its terms as
to the Company and, to the knowledge of the Company, as to each other party
thereto; (ii) there exists no material breach or material default (or event that
with notice or lapse of time would constitute a material breach or material
default) on the part of the Company or, to the knowledge of the Company, on the
part of any other party under any of the Company's contracts or commitments,
except to the extent that any such breach or default would not have a Material
Adverse Effect; (iii) the Company has not received a written notice of
termination or default under any of the Company's contracts or commitments; and
(iv) as of the date of this Agreement, no party to an agreement under which the
Company acquired a substantial portion of its assets has asserted any claim for
indemnification under such agreement.
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 merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.10 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS.
Except as set forth in Section 2.10 of the Disclosure Schedule:
(a) The Company has the right to use, sell, and license the
Intellectual Property Rights (as defined below) material to the conduct of its
business as presently conducted, including without limitation all rights to the
Company name "Lineo" and to the trademarks and the product name "Embedix" (the
"Company Rights"), free and clear of the rights of all others.
(b) The business of the Company as presently conducted, the
products as marketed or sold and the provision of services by the Company do not
violate and will not violate any agreements that the Company has with any third
party or infringe any patent, trademark, service xxxx, copyright or trade secret
or any other Intellectual Property Rights of any third party.
(c) No claim is pending or threatened against the Company
nor has the Company received any notice or claim from any person asserting that
any of the Company's present or contemplated activities infringe or may infringe
any Intellectual Property Rights of such person, and the Company is not aware of
any infringement by any other person of any of the Company Rights.
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(d) 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 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. The Company has taken all
reasonable steps to protect all data, information, ideas, concepts, know-how and
materials that the Company treats as trade secrets, and all other confidential
information and Intellectual Property Rights of the Company, which are not part
of the public domain or knowledge, nor, to the best knowledge of the Company,
have they been used, divulged or appropriated for the benefit of any person
other than the Company or otherwise to the detriment of the Company.
(e) No royalties or other amounts are payable by the Company
to persons by reason of the ownership or use of the Intellectual Property Rights
of the Company.
(f) No third party has claimed or, to the best of the
Company's knowledge, has reason to claim that any person employed by or
affiliated with the Company has (a) violated or may be violating any of the
terms or conditions of his or her employment, non-competition, non-disclosure,
non-solicitation or inventions agreement with such third party, (b) disclosed or
may be disclosing or utilized or may be utilizing any Intellectual Property
Rights, trade secret or proprietary information or documentation of such third
party, or (c) interfered or may be interfering in the employment relationship
between such third party and any of its present or former employees.
As used herein, the term "Intellectual Property Rights" shall mean the
intellectual property rights, including, without limitation, 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.
2.11 LITIGATION.
There is no litigation or governmental proceeding or investigation
pending or 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 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. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its subsidiaries currently pending or which the Company or any
of its subsidiaries intends to initiate.
2.12 TAX MATTERS.
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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 above or which will not have a
Material Adverse Effect. The filed tax returns and reports are true and correct
in all material respects. 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 taxing 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 in connection therewith.
2.13 EMPLOYEE BENEFIT PLANS.
The Company does not maintain or contribute to any employee benefit
plan, 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 Plan and the Employee Benefit Plans identified and
described in Section 2.13 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 Plan. There are no
unfunded obligations of the Company under any retirement, pension,
profit-sharing, deferred 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, and all Employee Benefit Plans
are terminable at the discretion of the Company without material 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 welfare benefits (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) to terminated
employees, except for benefits mandated by applicable law, including, but not
limited to, Section 4980B of the Internal Revenue Code of 1986, as amended, and
Part 6 of Subtitle B of Title I of ERISA.
2.14 LABOR LAWS.
The Company employs approximately 105 employees and 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.
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2.15 EMPLOYEES.
Section 2.15 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
October 31, 1999, in excess of $100,000. In each case, Section 2.15 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, 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. The employment of each officer and
employee of the Company is teminable at the will of the Company. The Company is
not a party to or bound by any currently effective employment contract.
2.16 HAZARDOUS WASTE, ETC.
No hazardous wastes, substances or materials or oil or petroleum
products have been generated, transported, used, disposed, stored or treated by
the Company, and no hazardous wastes, substances or materials or oil or
petroleum products have been released, discharged, disposed, 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.
2.17 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 contemplated to be conducted and is not in
default in any material respect under any of such franchises, permits, licenses
and other similar rights and privileges. The Company is currently and has
heretofore been in compliance in all material respects with all federal, state,
local and foreign laws and regulations.
2.18 INVESTMENT BANKING; BROKERAGE.
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 transaction 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 stockholders.
2.19 INSURANCE.
The Company has fire, casualty, product liability, workers'
compensation 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 sufficient 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
persons 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.
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2.20 TRANSACTIONS WITH AFFILIATES.
There are no loans, leases, contracts or other transactions (directly
or indirectly) between the Company and any officer, director or one percent (1%)
stockholder of the Company or any family member or affiliate of the foregoing
persons, and there have been no such transactions within the past twelve (12)
months except as set forth in Section 2.20 of the Disclosure Schedule. To the
best of the Company's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees, officers or
directors of the Company and members of their families may own stock in publicly
traded companies that may compete with the Company.
2.21 SUPPLIERS.
Section 2.21 of the Disclosure Schedule sets forth each supplier of the
Company who supplied more than five percent (5%) of the Company's supplies or
materials for the fiscal year ended October 31, 1999 and each supplier who the
Company believes may supply for more than five percent (5%) of the Company's
supplies or materials for the fiscal year ended October 31, 2000 (each a
"Supplier" and collectively the "Suppliers"). The relationships of the Company
with its Suppliers are good commercial working relationships. No Supplier of the
Company has canceled or otherwise terminated its relationship with the Company,
or has during the last 12 months decreased materially its services, supplies or
materials to the Company. No Supplier 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, supplies or materials to the Company.
2.22 CERTAIN EVENTS.
(a) During the past ten (10) years, neither the Company nor any of the
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 which has not as of the date of this Agreement been dismissed.
(b) During the past ten (10) years, neither the Company nor the
officers or 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 (10) years, neither the Company nor the
officers or 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 $100,000 or permanently or temporarily enjoining any of
them from, or otherwise limiting any of their abilities to engage in, any type
of business practice.
2.23 REGISTRATION RIGHTS.
Except as disclosed in Section 2.23 of the Disclosure Schedule, the
Company has not granted or agreed to grant any registration rights, including
piggyback rights, to any person or entity.
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2.24 DISCLOSURE.
The representations and warranties made or contained in this Agreement,
the exhibits hereto and the certificates and statements executed or delivered in
connection herewith, and the information concerning the business of the Company
delivered to the Investor 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,
results of operations or prospects which, in the reasonable judgment of such
management, could be expected to have a Material Adverse Effect. The Company has
fully provided the Investor with all the information that the Investor has
requested for deciding whether to acquire the Series C Preferred Shares.
2.25 CORPORATE DOCUMENTS.
The Certificate of Incorporation and Bylaws of the Company have been
made available to the Investor. The minute books of the Company containing
minutes of all meetings of directors and stockholders and all actions by written
consent without a meeting by the directors and stockholders since the date of
incorporation have been made available to the Investor and reflect accurately in
all material respects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes. The stock transfer ledgers and other similar records of the Company as
made available to the Investor prior to the execution of this Agreement
accurately reflect all record transfers prior to the execution of this Agreement
in the capital stock of the Company.
2.26 OFFERING.
Subject in part to the truth and accuracy of the Investor's
representations and warranties set forth in this Agreement, the offer, sale and
issuance of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act and any applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
2.27 INVESTMENT COMPANY.
The Company is not and shall not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"). In the event the
Company breaches the foregoing, the Company shall forthwith notify the Investor
and shall take immediate corrective action to remedy such breach.
2.28 SUPPLEMENTAL REMUNERATION.
The Company has not and shall not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise to any investor or other stockholder of the Company
as consideration for or as an inducement to entering into by any investor or
other stockholder of the Company of any waiver or amendment of any of the terms
and provisions of the agreements or the Certificate of Incorporation which
affects any such party's rights as an investor or stockholder, unless such
remuneration is concurrently paid, on the same terms, ratably to
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all investors or stockholders whether or not such investors or stockholders
grant such waiver or agree to such amendment.
2.29 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 consummation of the transactions contemplated by this
Agreement other than as may be required to secure an exemption from
qualification of the offer and sale of the Series C Preferred Shares under the
Securities Act and applicable state securities laws.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor represents and warrants to the Company the following:
3.1 INVESTMENT EXPERIENCE AND INTENT.
The Investor represents to the Company that 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. The Investor represents
that it is an "accredited investor" as such term is defined in Rule 501 under
the Securities Act. The Investor represents and understands that it is
responsible for its own due diligence investigation and satisfying its own due
diligence requirements and shall not be entitled to rely on the due diligence
investigation of any other person or entity. The Investor represents to the
Company that it is purchasing the Series C 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. The Investor
acknowledges that its Series C 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 exemption from such registration
is available.
3.2 AUTHORIZATION AND NON-CONTRAVENTION.
The Investor represents that it has full right, authority and power 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. The Investor represents and
warrants that this Agreement and each agreement, document and instrument
executed and delivered by such Investor pursuant to or as contemplated by this
Agreement constitute, or when executed and delivered will constitute, valid and
binding obligations of such Investor enforceable in accordance with their
respective terms (except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investor Rights Agreement may be limited by applicable federal or state
securities laws) and that the execution, delivery and performance by such
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
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time or both) under any contract or obligation to which 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 the 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 the Investor; (c) require from the Investor any notice to,
declaration or filing with, or consent or approval of any governmental 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 the Investor is a party or by which the Investor is bound.
3.3 COMMISSIONS AND FEES.
The 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 4. CONDITIONS OF PURCHASE.
The Investor's obligation to purchase and pay for the Series C
Preferred Shares to be purchased by it shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investor's satisfaction, or the waiver by the Investor, on or before and at the
Closing Date, of the following conditions:
4.1 SATISFACTION OF CONDITIONS.
The representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the Closing Date; 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; and, on the Closing Date, a
certificate to such effect executed by the President and Chief Financial Officer
of the Company shall have been delivered to the Investor.
4.2 AUTHORIZATION.
The Board of Directors of the Company shall have duly adopted
resolutions in form and substance reasonably satisfactory to the Investor and
shall have taken all action necessary for the purpose of authorizing the Company
to consummate the transactions contemplated hereby in accordance with the terms
hereof and to cause the Certificate of Designation to become effective; and the
Investor shall have received a certificate of the Secretary of the Company
setting forth a copy of the relevant Board of Directors and/or stockholder
resolutions and the Certificate of Incorporation, the Certificate of Designation
and Bylaws of the Company and such other matters as may be reasonably requested
by the Investor.
4.3 OPINION OF COUNSEL.
The Investor shall have received from Summit Law Group an opinion dated
as of the Closing Date substantially in the form attached hereto as EXHIBIT C.
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4.4 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 Investor.
4.5 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.
4.6 CONSENTS AND WAIVERS.
The Company shall have obtained all consents or waivers necessary to
execute this Agreement and the other agreements and documents contemplated
herein, to issue and sell the Securities to be sold to the Investor hereunder
and to carry out the transactions contemplated hereby and thereby and shall have
delivered evidence thereof to the Investor. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and
other agreements and instruments executed and delivered by the Company in
connection herewith shall have been made or taken.
4.7 AMENDMENT NO. 2 TO INVESTOR RIGHTS AGREEMENT.
The Company, each other Investor and the holders of all of the Series A
and Series B Preferred Stock shall have entered into the Amendment No. 2 to
Investor Rights Agreement.
4.8 FILING OF CERTIFICATE OF DESIGNATION.
The Certificate of Designation shall have been filed with the Secretary
of State of the State of Delaware.
SECTION 5. GENERAL.
5.1 AMENDMENTS, WAIVERS AND CONSENTS.
For the purpose 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 be 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 Investor.
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5.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS.
All covenants, agreements, representations and warranties of the
Company and the Investor made herein, in the Disclosure Schedule and the
Certificate of Designation and in the certificates, lists, exhibits, schedules
or other written information delivered or furnished to the 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 Investor's
successors and assigns and to their transferees of Securities, whether so
expressed or not, and any such transferee shall be deemed the "Investor" for
purposes hereof.
5.3 LEGEND ON SECURITIES.
The Company and the Investor 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 the Investor:
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 RELATING TO THE DISPOSITION OF SECURITIES
AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
5.4 GOVERNING LAW.
This Agreement shall be deemed to be a contract made under, and shall
be construed in accordance with, the laws of Delaware, without giving effect to
conflict of laws principles thereof.
5.5 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.
5.6 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.
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5.7 NOTICES AND DEMANDS.
Any notice or demand which is required or provided to be 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:
Lineo, Inc.
000 X. 000 X.
Xxxxxx, Xxxx 00000
Attn: President
Fax: (000) 000-0000
copy to:
Summit Law Group
0000 Xxxxxxxx Xxxxxx X., Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxxxxxx, Esq.
Fax: (000) 000-0000
if to the Investor:
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5.8 REMEDIES; SEVERABILITY.
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
stockholders for any purpose, including, without limitation, for purposes of
dividend and voting rights, until the relevant party or parties have complied
with all applicable 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.
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5.9 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.
5.10 DELAYS OR OMISSIONS.
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Investor's
part of any breach, default or noncompliance under this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing.
5.11 AGGREGATION OF STOCK.
All shares of the Series C Preferred Stock or Common Stock issued upon
conversion thereof held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
[Signature Page Follows]
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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: INVESTOR:
LINEO, INC.,
a Delaware corporation ------------------------------
By By
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Xxxxx Xxxxxx, President and Chairman Its
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