TERMINATION AND BUY-OUT AGREEMENT
THIS AGREEMENT, dated as of June 29, 2001 (this "Agreement"), is made by
and between Microware Systems Corporation, an Iowa corporation (the "Company"),
Elder Court, LLC, a Cayman Islands limited liability company ("Elder Court"),
Xxxx Capital Partners, Inc., a California corporation ("Xxxx"), Carbon Mesa
Partners, LLC, a Nevada limited liability company ("Carbon Mesa"), and Xxxxxxx
Xxxxx, an individual ("Xxxxx", and together with Elder Court, Xxxx, and Carbon
Mesa, each an "Investor" and collectively, the "Investors").
R E C I T A L S:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of November 28, 2000, between Elder Court and the
Company (the "Securities Purchase Agreement"), the Company issued and sold to
Elder Court an 8% Convertible Debenture, in the principal amount of $2,000,000
(the "Debenture") and entered into a registration rights agreement, dated
November 28, 2000 (the "November Registration Rights Agreement") relating
thereto.
WHEREAS, in connection with the issuance of the Debenture, the Company also
issued (a) a warrant to Elder Court, dated November 28, 2000, to purchase
500,000 shares of common stock (the "Elder Court November Warrant"), (b) a
warrant to Xxxx Capital Partners, Inc., dated November 28, 2000, to purchase
45,000 shares of common stock (the "Xxxx November Warrant"), and (c) a warrant
to Carbon Mesa, dated November 28, 2000, to purchase 5,000 shares of common
stock (the "Carbon Mesa November Warrant").
WHEREAS, upon the terms and subject to the conditions of the private equity
credit agreement, dated December 15, 2000, between the Company and Elder Court
(the "Credit Agreement"), the Company has the obligation to issue and sell to
Elder Court that number of shares of its common stock representing a minimum
$1.5 million draw down under the Credit Agreement, all as set forth therein.
WHEREAS, in connection with the execution of the Credit Agreement, the
Company also issued (a) a warrant to Elder Court, dated December 15, 2000, to
purchase 1,400,000 shares of common stock (the "Elder Court December Warrant"),
(b) a warrant to Xxxx Capital Partners, Inc., dated December 15, 2000, to
purchase 126,000 shares of common stock (the "Xxxx December Warrant"), (c) a
warrant to Xxxxx, dated December 15, 2000, to purchase 54,000 shares of common
stock (the "Xxxxx December Warrant"), and (d) a warrant to Carbon Mesa, dated
November 28, 2000, to purchase 20,000 shares of common stock (the "Carbon Mesa
December Warrant").
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WHEREAS, on April 30, 2000, the Company entered into a second registration
rights agreement with Elder Court (the "April Registration Rights Agreement")
relating to the funding of the second tranche of the Debenture.
WHEREAS, the Company now desires to enter into a transaction with a third
party which the Board of Directors of the Company deems to be in the best
interest of its shareholders (the "Transaction").
WHEREAS, as a condition precedent to entering into definitive agreements
regarding the Transaction, the third party acquirer has required that the
Company enter into this Agreement with the Investors and terminate each of the
Securities Purchase Agreement, the Debenture, the November Registration Rights
Agreement, the Elder Court November Warrant, the Xxxx November Warrant, the
Carbon Mesa November Warrant, the Credit Agreement, the Elder Court December
Warrant, the Xxxx December Warrant, the Xxxxx December Warrant, the Carbon Mesa
December Warrant and the April Registration Rights Agreement, all on the terms
and as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Elder Court hereby
agree as follows:
1. Incorporation of Recitals. The Recitals to this Agreement are hereby
incorporated by reference and made a part hereof.
2. Agreement to Terminate. Subject to the terms and conditions set forth
herein, the parties agree as follows:
(a) Agreement to Terminate. Upon the Company's making the payment
described in Section 2(b) below, then immediately and without any further
action of the Company or any Investor, each "Investor Agreement" (as
defined below) shall be terminated and neither the Company nor any Investor
will have any further obligations to, or rights or claims against, the
other under any Investor Agreement. In connection with such termination,
each of the Company and each Investor hereby waive any notice required to
be given pursuant to any applicable Investor Agreement. For purposes
hereof, the term "Investor Agreement" shall mean each of:
(i) the Securities Purchase Agreement;
(ii) the Debenture;
(iii) the November Registration Rights Agreement;
(iv) the Elder Court November Warrant;
(v) the Xxxx November Warrant;
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(vi) the Carbon Mesa November Warrant;
(vii) the Credit Agreement;
(viii) the Elder Court December Warrant;
(ix) the Xxxx December Warrant;
(x) the Xxxxx December Warrant;
(xi) the Carbon Mesa December Warrant; and
(xii) the April Registration Rights Agreement
Each Investor hereby represents and warrants that there are no other
derivative instruments, securities, agreements, arrangements or understandings
regarding the issuance of securities between such Investor and the Company.
(b) Redemption Payments by the Company.
(i) In consideration of the agreement of the Investors to enter
into this Agreement and terminate each of the Investor Agreements in
accordance with the terms hereof, at the Closing (as defined below)
the Company shall pay to Elder Court an aggregate amount equal to Two
Million Two Hundred Thousand Dollars ($2,200,000), (the "Redemption
Amount").
(ii) The closing of the transactions contemplated by this
agreement (the "Closing") shall take place immediately prior to the
consummation of the Transaction, which shall occur no later than
September 30, 2001. The Company shall provide the Investors with at
least five (5) days prior written notice of the anticipated closing
date.
3. Closing.
(a) In connection with the closing of the transactions contemplated
hereby, on the date of closing (the "Closing Date"):
(i) The Company shall pay the Redemption Amount to Elder Court by
wire transfer to a single deposit account designated in advance by
Elder Court; and
(ii) The Investors shall deliver to the Company the executed
original copies of each of the Debenture, the Xxxx November Warrant,
the Carbon Mesa November Warrant, the Elder Court December Warrant,
the Xxxx December Warrant, the Xxxxx December Warrant, and the Carbon
Mesa December Warrant.
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4. Term and Termination. This Agreement may be terminated solely as
follows:
(a) This Agreement shall terminate automatically and immediately upon
the mutual written agreement of all the parties hereto.
(b) In the event that the Company, on one hand, or any Investor, on
the other hand, (the "Defaulting Party") commits a material breach of this
Agreement and fails to cure such breach within five (5) calendar days after
receipt of written notice from the other party, such other party shall have
the right to terminate this Agreement immediately upon written notice to
the Defaulting Party.
(c) This Agreement shall automatically terminate in the event the
definitive agreement regarding the Transaction is terminated by written
action of any of the parties thereto.
(d) Subject to the rights of the parties in Section 5 below, this
Agreement will terminate automatically if the Closing has not occurred on
or before September 30, 2001.
(e) This Agreement may be terminated by written notice by the Company,
on one hand, or a majority in interest of the Investors, on the other hand,
if the price per share for the Company's common stock included in the
Transaction exceeds $1.00 per share.
(f) This Agreement shall automatically terminate in the event the
average closing price for the Company's common stock (as quoted on the
Nasdaq National Market) for any period of five (5) consecutive trading days
shall be less than $0.33 per share .
5. Specific Performance. Investors, on one hand, and the Company, on the
other hand, each agree that any violation of the provisions of this Agreement by
the other party would be highly injurious to such party and would cause
irreparable harm to the non-breaching party. By reason of the foregoing, each
party consents and agrees that if it violates any provision of this Agreement,
the non-defaulting party shall be entitled, in addition to any other rights and
remedies that it may have, to apply to any court of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce, or
prevent any continuing violation of, the provisions of such section, without the
necessity of posting bond. In addition, in the event of any such violation the
defaulting party shall reimburse the non-defaulting party for any and all fees,
expenses and costs incurred in connection with such violation (including,
without limitation, attorneys fees).
6. Covenants.
(a) Each of the parties hereto acknowledge and reaffirm that the terms
of the confidentiality letters between the Company and each respective
investor shall remain in full force and effect until the Closing or earlier
termination of this Agreement.
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(b) Each Investor covenants and agrees that at all times this
Agreement is in effect, such Investor shall not buy, sell or otherwise
trade in the securities of the Company, except for the transactions
expressly contemplated by this Agreement and shares owned in excess 250,000
as described in Section 6(c) below which are under no restrictions
hereunder.
(c) At all times this Agreement is in effect, Elder Court shall
promptly tender at least 250,000 of the shares of common stock of the
Company in any tender offer under the federal securities laws made in
connection with the Transaction. Elder Court agrees not to sell or
otherwise transfer ownership of such shares of common stock (other than as
contemplated by any such tender offer).
(d) The Company covenants and agrees that in the event this Agreement
is terminated under Section 4(a), by Investors pursuant to Section 4(b),
Section 4(c), Section 4(d), the Investors pursuant to Section 4(e) or
Section 4(f), then immediately, and without further action by any party
hereto, the following will occur:
(i) Section 4.A. of the Debenture shall be amended to read in its
entirety as follows:
"The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert all or a
portion of this Debenture into shares of Common Stock of the Company,
no par value per share ("Common Stock") of the Company at any time
until the Maturity Date, at a conversion price for each share of
Common Stock (the "Conversion Rate") equal to the lower of (x) $0.69,
or (y) the Current Market Price (as defined below) multiplied by
seventy-seven percent (77%); provided that the principal amount being
converted is the lower of (x) at least $5,000 (unless if at the time
of such election to convert the aggregate principal amount of all
Debentures registered to the Holder is less than Ten Thousand Dollars
$5,000, then the whole amount thereof) or (y) the maximum amount which
the Holder can then convert pursuant to the terms of Section 4.E.
hereof."
(ii) The definition of the term "Discount" in the Credit
Agreement shall be amended to read in its entirety as follows:
" "DISCOUNT" shall mean seventeen percent (17%)."
The Company will promptly provide Elder Court with a replacement Debenture and
Credit Agreement reflecting the foregoing following the termination of this
Agreement.
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7. Miscellaneous.
(a) For purposes of this Agreement, Elder Court shall be deemed to be
agent for all of the Investors, and communications by the Company to all
the Investors may be made, at the option of the Company, solely to Elder
Court.
(b) Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:
If to Company: Microware Systems Corporation
0000 Xxxxxxxxx 000xx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
ATTN: CFO
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxx Xxx, Xxx.
X'Xxxxxx & Xxxxxx, Xxx.
000 X. Xxxxxx Xxxxx, Xxx. 0000
Xxxxxxx, Xxxxxxxx 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
If to Investors:
c/o Navigator Management (as Investor Agent)
X.X. Xxx 000
Xxxx Xxxx
Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
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(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws
of the State of California for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the
conflict of laws. Any litigation based thereon, or arising out of, under,
or in connection with, this Agreement or any course of conduct, course of
dealing, statements (whether oral or written) or actions of the Company or
any Investor shall be brought and maintained exclusively in the state or
Federal courts of the State of California, sitting in the City of Los
Angeles. The Company hereby expressly and irrevocably submits to the
jurisdiction of the state and federal Courts of the State of California for
the purpose of any such litigation as set forth above and irrevocably
agrees to be bound by any final judgment rendered thereby in connection
with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal
service within or without the State of California. The Company hereby
expressly and irrevocably waives, to the fullest extent permitted by law,
any objection which it may have or hereafter may have to the laying of
venue of any such litigation brought in any such court referred to above
and any claim that any such litigation has been brought in any inconvenient
forum. To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid
of execution or otherwise) with respect to itself or its property, the
Company hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and the related agreements entered into in
connection herewith.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement or the validity or enforceability of this Agreement in any other
jurisdiction.
(f) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone
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line facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
(j) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject
matter hereof. This Agreement may be amended only by an instrument in
writing signed by the parties to be charged with enforcement thereof.
(k) Any default by an individual Investor hereunder shall not be
deemed a default by any other Investor and shall not excuse the Company's
performance hereunder or thereunder with respect to the non-defaulting
Investors.
(l) In the event of any action for breach of or to enforce or declare
rights under any provision of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, to be paid by the losing
party.
(m) The obligations of each of the Investors hereunder shall be
several, not joint, and no Investor shall have any liability hereunder of
any nature whatsoever resulting from a breach or any other action of any
other Investor.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
Microware Systems Corporation
By: /s/
-------------------------------
Name:
Title:
Elder Court, LLC
By: /s/
-------------------------------
Manager
Xxxx Capital Partners, Inc.
By: /s/
-------------------------------
Name:
Title:
Carbon Mesa Partners, LLC
By: /s/
-------------------------------
Manager
/s/
-------------------------------
Xxxxxxx Xxxxx
