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EXHIBIT 10.27
AUDIOLOGIC, INC.
SERIES C CONVERTIBLE PREFERRED
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STOCK AND COMMON STOCK PURCHASE AGREEMENT
Dated as of September 30, 1996
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EXHIBITS LIST
Exhibit Title
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A Articles of Amendment
B Registration Rights Agreement
C Schedule of Exceptions
D Stock Option Plan and Agreement
E Non-Disclosure Agreement
F Non-Competition Agreement
G Founder Stock Restriction Agreement
H Shareholders Agreement
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SERIES C CONVERTIBLE PREFERRED
STOCK AND COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of September, 1996,
by and among AUDIOLOGIC, INC. a Colorado corporation (the "Company"), GN DANAVOX
AS, a Danish corporation ("Danavox"), and ReSound Corporation, a California
corporation ("ReSound"), and for purposes of Article 7 and Article 8, each of
James E. Forrest, Robert K. Anderson, The Hill Partnership III, Morgan, Holland
Fund II, L.P., and Gilde Investment Fund B.V. (the "Series A Holders"). Danavox
and ReSound are sometimes referred to herein as "Purchaser" or "Purchasers."
RECITALS
WHEREAS, the Company, Danavox, ReSound, certain management members, and
a newly-formed Delaware corporation are on this date entering into a joint
venture structured as a Delaware limited partnership, AudioLogic Hearing
Systems, L.P. ("AHS"), pursuant to which the partners will each undertake
certain development tasks, and license among themselves certain DSP
technologies, all as described in the AudioLogic Hearing Systems, L.P. Amended
and Restated Agreement of Limited Partnership dated as of September 30, 1996
(the "Partnership Agreement");
WHEREAS, while AHS pursues such DSP technologies, the Company will
continue to develop and pursue its technologies for non-hearing aid markets;
WHEREAS, the Company wishes to sell to Purchasers, and subject to the
terms and conditions set forth herein, the Purchasers wish to subscribe to
purchase up to 440,528 shares of the Company's Series C Convertible Preferred
Stock, $.01 par value (the "Series C Preferred") and 441,610 shares of the
Company's Common Stock, $.01 par value ("Common Stock"), the Series C Preferred
being purchased by ReSound and the 441,610 shares of Common Stock being
purchased by Danavox.
AGREEMENT
In consideration of the mutual promises, covenants and conditions set
forth below, the parties mutually agree as follows:
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1. PURCHASE AND SALE OF SECURITIES.
S1 The Company has authorized the issuance and sale (i) to ReSound of up to
440,528 shares of its Series C Preferred at a price of $2.27 per share (the
"Original Purchase Price"), and (ii) to Danavox of up to 441,610 shares of its
Common Stock at a price of $.085 per share. The Series C Preferred shall have
the rights, preferences and privileges set forth in the Articles of Amendment to
the Articles of Incorporation attached hereto as Exhibit A (the "Articles of
Amendment"). The Series C Preferred and the Common Stock actually purchased by
the Purchasers hereunder shall be referred to as the "Purchased Securities."
2. CLOSINGS OF PURCHASES AND SALES.
S1 Initial Closing. Subject to the conditions to closing set forth below, the
Company will sell (i) to ReSound, and ReSound will purchase from the Company,
220,264 shares of Series C Preferred at a price per share equal to the Original
Purchase Price, and (ii) to Danavox and Danavox will purchase from the Company
441,610 shares of Common Stock at $.085 per share. Closing of the sale and
purchase of such 220,264 shares of the Series C Preferred and 441,610 shares of
Common Stock shall take place (the "Initial Closing") at the offices of Ireland,
Stapleton, Pryor & Pascoe, P.C., at 10:00 a.m. on September 30, 1996, or such
other place, date and time as may be mutually agreed to by the Company and the
Purchasers (the "Initial Closing Date"). At the Initial Closing, the Company
will deliver to ReSound, in cancellation of indebtedness, stock certificates
representing the 220,264 shares of Series C Preferred so purchased, it being
acknowledged that the $500,000 purchase price was advanced to the Company prior
to May 1, 1996. The purchase price of the Common Stock will be paid by check or
wire transfer by Danavox at the Initial Closing.
S2 Subsequent Closing. ReSound is hereby granted the option to purchase an
additional 220,264 shares of Series C Preferred at the Original Purchase Price
on January 1, 1997 (the "Subsequent Closing Date"). If such additional shares of
Series C Preferred are not purchased by ReSound, Danavox shall purchase such
shares from the Company at the Subsequent Closing. The "Initial Closing" and the
"Subsequent Closing" shall be collectively referred to as the "Closings," and
the "Initial Closing Date" and the "Subsequent Closing Dates" shall be
collectively referred to herein as the "Closing Date."
S3 Danavox Option on ReSound Series C Preferred if Termination. If the joint
venture for AHS is terminated pursuant to Paragraph 7 of the Agreement in
Principle between ReSound, the Company, and Danavox, dated April 19, 1996,
Danavox shall have the right to purchase from ReSound at the Original Purchase
Price the 220,264 shares of Series C Preferred purchased by ReSound at the
Initial Closing, as well as the additional 220,264 shares of Series C Preferred
if purchased by ReSound at the Subsequent Closing, such purchases by Danavox
from ReSound to take place promptly after the date of such termination. The
Company and Danavox
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agree that, in the event of such termination of the AHS joint venture, such
purchases by Danavox from ReSound, as well as any purchase by Danavox of Series
C Preferred at the Subsequent Closing, shall be deemed purchases of Series B
Preferred Stock pursuant to Section 2.2 of the Series B Convertible Preferred
Stock and Warrant Purchase Agreement dated October 17, 1995 (the "Series B
Purchase Agreement") between the Company and Danavox. To the extent such
purchases of Series C Preferred by Danavox from ReSound and from the Company at
the Subsequent Closing (as converted to Series B Preferred purchases by Danavox
at the Series B Original Purchase Price, as defined in the Series B Purchase
Agreement) results in Danavox purchasing more than 1,000,000 shares of Series B
Preferred Stock pursuant to Section 2.2 of the Series B Purchase Agreement, such
excess number of shares of Series B Preferred Stock shall immediately be
converted into an equal number of warrants in the form of Exhibit A to the
Series B Purchase Agreement, and the purchase of such excess number of shares of
Series B Preferred Stock shall be deemed a purchase of such warrants pursuant to
Section 2.2 of the Series B Purchase Agreement. Appropriate adjustment will also
be made with respect to the Common Stock purchase by Danavox at the Initial
Closing, if any, so that such investment is also converted to be as if made
pursuant to the Series B Purchase Agreement.
3. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Act" shall mean the Securities Act of 1933, as amended.
"Blue Sky Laws" shall have the same definition as provided in
the Registration Rights Agreement.
"Company" shall mean AudioLogic, Inc.
"Conversion Stock" shall mean only the common stock of the
Company, $.01 par value, into which the Series C Preferred is convertible, and
any stock into which such common stock may thereafter have been changed or which
may have been received as a stock dividend on such common stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Good Accounting Practice" shall mean, as to a particular
corporation, such accounting practice as, in the opinion of the independent
certified public accountants regularly retained by such corporation, conforms at
the time to generally accepted accounting principles applied on a consistent
basis (except for changes in application in which such accountants concur). Any
accounting terms not defined in this Agreement shall have the respective
meanings given to them under Good Accounting Practice consistent with those
applied in the preparation of the Company's consolidated financial statements as
(or as if) audited.
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"Key Employee" shall mean John L. Melanson and Jason Carlson
and any employee hereafter designated as a "Key Employee" by the Company's Board
of Directors.
"Material Adverse Event" shall mean an occurrence having a
consequence which in fact is or may be materially adverse, either individually
or when viewed in the aggregate with all occurrences, as to the business,
operations, assets, or financial condition of the Company.
"On a Fully Diluted Basis" shall refer to the number of shares
of common stock of the Company which would be outstanding and issued assuming
that all the shares of common stock issuable (1) upon the conversion or
exchange of the Company's convertible or exchangeable securities, including
debentures, and (2) upon the exercise of the Company's outstanding options for
the purchase of common stock and rights to subscribe for or purchase common
stock, were in fact issued.
"Person" shall mean an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a limited liability
company, a joint venture, an unincorporated organization or a governmental
entity or any department, agency or political subdivision thereof.
"Preferred Stock" shall refer to the Company's Series A
Convertible Preferred Stock, $.01 par value per share, the Company's Series B
Convertible Preferred Stock, $.01 par value per share (including warrant shares
issuable pursuant to the Series B Purchase Agreement), and the Company's Series
C Convertible Preferred Stock, $.01 par value per share.
"Proprietary Rights" shall mean all computer software,
software programs, patents, patent applications, trademarks, trademark
applications, trade secrets, service marks, trade names, copyrights, inventions,
drawings, designs, customer lists, proprietary know-how or information, other
rights with respect thereto, or any other intangible property rights.
"Registration Rights Agreement" shall mean that certain
Amended and Restated Registration Rights Agreement dated September 30, 1996, in
the form attached hereto as Exhibit B, as it may be amended from time to time in
the future, among the Company, the Purchasers and certain other parties.
"Shareholders Agreement" shall mean that certain Amended and
Restated Shareholders Agreement dated September 30, 1996, in the form attached
as Exhibit H hereto, as it may be amended from time to time in the future, among
the holders of Preferred Stock.
"Stock Purchase Agreement" or "Agreement" shall mean this
Stock Purchase Agreement dated as of the date hereof, and as it may be amended
from time to time, and entered into among the Company and the Purchasers.
"Subsidiary" shall mean any corporation or partnership in
which the Company
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owns more than fifty percent (50%) of the stock having voting power to elect a
majority of the Board of Directors of that corporation or partnership.
"Subsidiary" also includes any partnership in which the Company or one of its
subsidiaries owns more than fifty percent (50%) of the units of general
partnership.
1. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser represents and warrants as follows:
S1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Registration Rights Agreement and to carry out the provisions
hereof and thereof. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Registration Rights Agreement
has been or will be effectively taken prior to the Closing Date. Upon their
execution and delivery, each of this Agreement and the Registration Rights
Agreement will be a valid and binding obligation of Purchaser, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, (ii) as limited by the application
of general principles of equity, and (iii) to the extent that the enforceability
of the indemnification provisions of Section 1.7 of the Registration Rights
Agreement may be limited by applicable laws.
S2 Consents. All consents, approvals, orders, authorizations or registration,
qualification, designation, declaration or filing with any governmental or
banking authority on the part of Purchaser required in connection with the
consummation of the transactions contemplated in this Agreement have been or
shall have been obtained prior to and be effective as of the Closing.
S3 Investment Representations. Purchaser understands that neither the Purchased
Securities nor any Conversion Stock issuable upon conversion, if any, of the
Purchased Securities, have been registered under the Act. Purchaser also
understands that the Purchased Securities are being offered and sold pursuant to
an exemption from registration contained in the Act based in part upon
Purchaser's representations contained in this Agreement. Each Purchaser hereby
represents and warrants as follows:
(A) Restricted Stock. Purchaser understands that neither the
Purchased Securities nor the Conversion Stock has been registered under the Act,
and the Company has no present intention of registering the Purchased Securities
or the Conversion Stock. Purchaser understands that it has no registration
rights with respect to the Purchased Securities or the Conversion Stock except
as provided in the Registration Rights Agreement.
(B) Purchaser Bears Economic Risk. Purchaser is in a position
to bear the economic risk of this investment indefinitely unless the Purchased
Securities or the Conversion
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Stock is registered pursuant to the Act, or an exemption from registration is
available. Purchaser also understands that, even if available, such exemption
may not allow Purchaser to transfer all or any portion of the Purchased
Securities or the Conversion Stock, if any, under the circumstances, in the
amount or at the times Purchaser might propose.
(C) Acquisition for Own Account. Purchaser is acquiring the
Purchased Securities for its own account for investment and not with a view
toward their distribution.
(D) Purchaser Can Protect Its Own Interests. Purchaser
represents that by reason of its, or of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement. Purchaser is
not a corporation or partnership specifically formed for the purpose
of consummating such transactions.
(E) Accredited Investor. Purchaser qualifies as an "Accredited
Investor," as such term is defined in Regulation D under the Act.
(F) Access to Information. Purchaser has been given access to
all Company documents, records, and other information, has received physical
delivery of all those which it has requested, and has had adequate opportunity
to ask questions of, and receive answers from, the Company's officers,
employees, agents, accountants and representatives concerning the Company's
business, operations, financial condition, assets, liabilities and all other
matters relevant to its investment in the Purchased Securities. Such access to
information and any investigation undertaken by Purchaser shall not constitute a
waiver of any representations and warranties of the Company hereunder.
S4 Restrictive Legends.
(A) Each certificate representing Purchased Securities and
Conversion Stock shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with legends substantially in the
forms of the legends set forth in Section 1.2(D) of the Registration Rights
Agreement and Section 4 of the Shareholders Agreement (in addition to any legend
required under applicable state and corporate securities laws).
(B) Each Purchaser hereby consents to the restrictions
contained above and to the notation of "stop-transfer" restrictions in the
Company's stock transfer books relative to its holdings and to assist in the
enforcement of the limitations set forth herein.
(C) The Company shall be obligated to reissue promptly
unlegended certificates for Registrable Securities (as that term is defined in
Section 1.1 of the Registration Rights Agreement) in accordance with the
provisions of Section 1.2(D) of the Registration Rights Agreement.
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1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as provided in the Schedule of Exceptions attached hereto as
Exhibit C or as otherwise disclosed in this Agreement or any of the Exhibits
attached hereto, the Company represents and warrants to the Purchasers as
follows:
S1 Corporate Organization. The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado, with
perpetual corporate existence; and has full power and authority and legal right
to conduct its business as presently conducted. The Company is not required to
be licensed or qualified to transact business in any jurisdiction other than the
State of Colorado.
S2 Authorization; No Breach. The Company has full power, authority, and legal
right to execute and deliver, and to perform and observe the provisions of, this
Agreement and all other documents provided for in this Agreement to which the
Company is a party (the "Documents"), including the Registration Rights
Agreement. The Documents have each been duly authorized, executed, and delivered
by the Company and constitute valid and binding obligations of the Company
enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, (ii) as limited
by the application of general principles of equity, and (iii) to the extent that
the enforceability of the indemnification provisions of Section 1.7 of the
Registration Rights Agreement may be limited by applicable laws.
S3 Consents. All consents, approvals, orders, authorizations or registration,
qualification, designation, declaration or filing with any governmental or
banking authority on the part of the Company required in connection with the
consummation of the transactions contemplated in this Agreement have been or
shall have been obtained prior to and be effective as of the Closing.
S4 Capitalization.
(A) Authorized and Issued. As of the Initial Closing Date, the
authorized and issued capitalization of the Company will consist of:
(1) Preferred Stock. 5,034,559 shares of Preferred
Stock with par value of $0.01 per share; of these, 2,829,326 are designated
Series A Convertible Preferred Stock, all of which is outstanding, 1,764,705 are
designated Series B Convertible Preferred Stock, 880,000 of which are
outstanding, and 440,528 are designated Series C Convertible
Preferred Stock, none of which is outstanding prior to the Initial Closing.
(2) Common Stock. 15,000,000 shares of common stock,
$.01 par
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value, of which 370,875 shares are outstanding, duly and validly issued, fully
paid, and nonassessable.
(B) No Other Rights Outstanding. Except as disclosed in or
contemplated by this Agreement or Exhibit C attached hereto, there are no other
outstanding warrants, options, conversion privileges, rights of first refusal,
or other rights or agreements (whether or not presently exercisable by their
respective terms) to purchase or otherwise to acquire or issue any shares of
capital stock of the Company or any preemptive or contractual rights with
respect to issuance of such capital stock except for 856,230 shares of Common
Stock which are reserved for issuance pursuant to options already granted under
the Company's 1992 Stock Option Plan (the "Option Plan") attached as Exhibit D
hereto, 5,250 shares of Common Stock which have been issued upon exercise of
previously granted options, and 55,246 shares of Common Stock which are reserved
for future grant under the Option Plan. The Company has reserved a sufficient
number of shares of Conversion Stock for issuance upon conversion or exercise,
as applicable, of the Purchased Securities. Exhibit C includes a complete list
of the Company's shareholders, warrant holders and option holders immediately
prior to the Closing.
S5 Outstanding Indebtedness. The Company does not have any material liabilities
or obligations, absolute or contingent. The Company has performed in all
material respects all obligations heretofore required to be performed by it and
is not in default under, or in breach of, or in receipt of any claim of default
under or breach of, any material agreement. The Company has no present
expectation or intention of not performing in all material respects all such
obligations and it has no knowledge of any breach or anticipated breach by other
parties. The Company is not a party to any contract or commitment which, if
properly performed by all parties thereto in accordance with the terms thereof,
could constitute a Material Adverse Event affecting the Company.
S6 Compliance. The Company is not in violation of any term of its Articles of
Incorporation, as amended to date, any directors or shareholders resolutions, or
Bylaws, or in violation in any material respect, either in any case or in the
aggregate, of any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation applicable to the Company.
The execution, delivery and performance of and compliance with this Agreement
and the Registration Rights Agreement and the issuance and sale of the Purchased
Securities pursuant to this Agreement, will not result in any such violation,
nor will they conflict with, or constitute a default under, any such term, 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 terms.
S7 Title to Property. The Company has good and marketable title to the real
properties, tangible personal properties, Proprietary Rights, and other assets
necessary to the operation of its business, other than certain required capital
equipment (which required capital equipment will be purchased through use of the
proceeds of this offering). Such properties and
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assets are not subject to any material liens, mortgages, pledges, encumbrances
or charges of any kind except liens for current taxes and assessments not
delinquent. All leases by which the Company leases real or personal property are
in good standing, are valid and effective in accordance with their respective
terms, and the Company enjoys quiet enjoyment under all such leases. All
property owned or used by the Company is in good condition and repair. The
Company has complied with all material environmental laws and regulations.
S8 Material Contracts and Commitments. The Company has no material contracts
(including without limitation, any employee benefit plans), mortgages,
agreements, and instruments, other than this Agreement, the Registration Rights
Agreement, the Option Plan, the Founders' Stock Restriction Agreements, dated as
of August 10, 1992, and those agreements reflected in Exhibit C attached hereto.
S9 No Pending Material Litigation or Proceedings. There are no actions, suits,
investigations or proceedings (whether or not purportedly on behalf of the
Company) pending, affecting or, to the best of the Company's knowledge,
threatened against the Company, before or by any governmental instrumentality,
domestic or foreign, or any court, arbitrator or grand jury, that constitutes or
might constitute a Material Adverse Event. The Company is not in default with
respect to any judgment, order, demand, or regulation of any court, arbitrator,
grand jury or of any governmental agency, default under which might have
consequences which would or may constitute a Material Adverse Event. No event
has occurred nor does any condition exist on the basis of which any litigation,
proceeding or investigation might properly be instituted. Neither the Company
nor, to the best knowledge of the Company, any officer or Key Employee of the
Company, is in default with respect to any order, writ, injunction, decree,
ruling or decision of any court, commission, board or other government agency
which default or defaults might constitute, either in any case or in the
aggregate, a Material Adverse Event as to the business, operations, affairs, or
conditions of the Company or any of its properties or assets. The foregoing
sentences include, without limiting their generality, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's officers or employees or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers.
S10 No Brokers and Finders. The Company has not retained and is under no
obligation to pay any investment banker, broker, or finder in connection with
the transactions contemplated by this Agreement.
S11 No Registration Rights Outstanding. Except as provided in the Registration
Rights Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities which may be issued in
the future.
S12 Representations True and Correct. This Agreement and the Exhibits attached
hereto do not contain any untrue statement of a material fact or omit any
material fact necessary
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in order to make the statements contained herein or therein not misleading.
There exists no fact which will likely have a material adverse effect on the
Company's financial condition, its operations, or its prospects which has not
been disclosed to the Purchasers in this Agreement or the Exhibits. Except for
general economic or industry conditions, there is no information known to the
Company which has not been disclosed herein, in writing or orally, by the
Company to the Purchasers which materially and adversely affects, or in the
future in its opinion may materially and adversely affect, the business,
properties, assets or condition, financial or other, of the Company.
S13 Related Parties. Except with respect to AHS, to the knowledge of the
Company, no officer, director or Key Employee of the Company, or of any related
party of any such person, has, either directly or indirectly, (i) an interest in
any corporation, partnership, firm, or other person or entity which furnishes or
sells services or products which are similar to or compete with those furnished
or sold by the Company, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound. For
purposes of this Section there shall be disregarded any interest which arises
solely from the ownership of less than a two percent (2%) equity interest in a
corporation whose stock is regularly traded on any national securities exchange
or in the over-the-counter market.
S14 Employees. No employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement, or any other contract or
agreement due to the relationship of any such employee with the Company and the
nature of the business now conducted or to be conducted by the Company. Each
employee of the Company has executed a Non-Disclosure Agreement acceptable to
the Company in substantially the form of Exhibit E attached hereto. Each Key
Employee has executed a Non-Competition Agreement in substantially the form of
Exhibit F attached hereto. No officer or Key Employee of the Company is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment of any such person, which either in any case or in the
aggregate materially and adversely affects, or in the future may (so far as the
Company can reasonably foresee) materially and adversely affect, the business or
operations of the Company or the right of any such person to participate in the
affairs of the Company. To the best knowledge of the Company, no officer or Key
Employee has any present intention of terminating his or her employment with the
Company, and the Company has no present intention of terminating any such
employment.
S15 Proprietary Rights.
(A) The Company owns or possesses or will obtain prior to the
Initial Closing for no material additional consideration adequate licenses for
all Proprietary Rights used in its business, and the same are or will be
sufficient to conduct said business as it has been and is contemplated as being
conducted.
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(B) The current and proposed operations of the Company do not
conflict with nor infringe upon, and no one has asserted to the Company that
such operations conflict with or infringe upon, any intangible property rights
owned, possessed, or used by any third party which are of the same kind as the
Proprietary Rights and, to the knowledge of the Company, none has been
threatened.
(C) There are no facts which would result in any claim which
would have a material adverse effect on the respective condition (financial or
otherwise) of the business, net worth, assets, properties, or operations of the
Company based on an assertion that it does not have the unrestricted rights to
use, free of any rights or claims of others, all Proprietary Rights in the
development, manufacture, use, sale, or other disposition of any or all products
or services presently being or contemplated to be used, furnished, or sold in
the conduct of the Company's business.
(D) There are no outstanding licenses or agreements of any
kind relating to Proprietary Rights, nor is the Company bound by or a party to
any licenses or agreements of any kind relating to Proprietary Rights, nor is
the Company bound by or a party to any licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and proprietary rights of any person or
entity.
(E) Except with respect to commitments to AHS, the Company is
not aware that any of its employees is 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
Registration Rights Agreement, nor the carrying on of the Company's business by
the employees of the Company, or the conduct of the Company's business as
presently proposed to be conducted, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made while such employee was an employee of another company or entity.
S16 Transactions with Affiliates. There are no loans, leases or other continuing
transactions between the Company and any officer or director of the Company or
any person owning 5% or more of the common stock of the Company or any member of
such officer's, director's or stockholder's immediate family or any corporation
or other entity controlled by such officer, director or stockholder or by a
member of such stockholder's immediate family.
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S17 Subsidiaries. The Company does not own any shares of stock or any other
security or interest in any other Person, except for AHS.
S18 Financial Statements. The Company has delivered to the Purchasers its
balance sheet, income statement and statement of cash flow at and for the year
ended December 31, 1995, each of which has been reviewed by Arthur Andersen, and
its unaudited balance sheet, income statement and statement of cash flow at and
for the eight-month period ended August 31, 1996 (the "Financial Statements").
The Financial Statements, including (with respect to Subsequent Closings) all
financial statements to be provided pursuant to Section 7.9(A) hereof, are and
will be, as the case may be, complete and correct in all material respects and
have been and will be, as the case may be, prepared in accordance with Good
Accounting Practice applied on a consistent basis throughout the periods
indicated, except that the unaudited Financial Statements may not contain all
notes and year-end adjustments required by Good Accounting Practice. The
Financial Statements fairly present, and will fairly present, as the case may
be, the financial condition and operating results of the Company as of the
dates, and during the periods, indicated.
S19 No Material Adverse Change. Since August 31, 1996, there has been no
material adverse change in the Company's financial condition, operating results,
business prospects, employee relations, customer relations or otherwise.
S20 Agreements Between Stockholders. There exist no agreements between any
stockholder and the Company, or to the best knowledge of the Company, between
any of the stockholders of the Company, relating to the Company or its capital
stock, except for the Founders' Stock Restriction Agreements, the Stock Option
Plan and related Stock Option Agreements, this Agreement, the Series A Preferred
Stock Purchase Agreement dated August 10, 1992 and amended as of July 27, 1993,
the Series B Preferred Stock Purchase Agreements dated August 16, 1993 and
October 17, 1995, the Registration Rights Agreement, and the Shareholders
Agreement.
S21 Governmental Consent. No permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the other agreements contemplated hereby, or the consummation by
the Company of any other transactions contemplated hereby or thereby, except for
the filing of a Form D with the Securities and Exchange Commission and which
filing, if necessary, shall be made promptly following the Closing.
1. CONDITIONS TO PARTIES' OBLIGATIONS.
S1 Conditions to Purchasers' Obligations. The Purchasers' obligation to purchase
the Purchased Securities and to otherwise consummate the transactions
contemplated in this Agree-
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15
ment is subject to satisfaction of the following conditions at each Closing
hereunder (except as otherwise provided below).
(A) Accuracy of Representations and Warranties. The Company's
representations and warranties in this Agreement and in any certificate or
document delivered pursuant to this Agreement shall be true and correct in all
material respects on and as of each Closing Date.
(B) Officer's Certificate. Purchasers shall have received a
certificate in form acceptable to the Purchasers dated as of each Closing Date
and signed by the President or any Vice-President and by the Secretary or the
Treasurer of the Company to the effect that the conditions of Subsections
6.1(A), (C), (F), (G) and (I) have been satisfied, and a certificate in form
acceptable to the Purchasers dated as of the Initial Closing Date and signed by
the President or any Vice-President and by the Secretary or the Treasurer of the
Company to the effect that the conditions of Subsections 6.1(A), (C), (F), (G),
(I), (H), (J) (K), (L) and (M) have been satisfied.
(C) Good Standing Certificates. The Company shall have
delivered to counsel for the Purchasers a good standing certificate for the
Company for the State of Colorado.
(D) Opinion of Company Counsel. At each Closing, the
Purchasers shall have received an opinion dated as of the Closing Date of
Ireland, Stapleton, Pryor & Pascoe, P.C., counsel for the Company, satisfactory
to the Purchasers and their counsel, to the effect that (as modified in the case
of any Subsequent Closing to reflect the occurrence of the Initial Closing):
(1) The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Colorado,
with perpetual corporate existence; and has full power and authority and legal
right to conduct its business as presently conducted.
(2) The Company has full power, authority, and legal
right to execute and deliver, and to perform and observe the provisions of, this
Agreement and all other documents provided for in this Agreement to which the
Company is a party (the "Documents"), including the Registration Rights
Agreement.
(3) The Documents have each been duly authorized,
executed, and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, (ii) as limited by the application of general principles of
equity, (iii) to the extent that the enforceability of the indemnification
provisions of Section 1.7 of the Registration Rights Agreement may be limited by
applicable laws, and (iv) as the enforceability of any Non-Competition Agreement
may be limited by applicable laws.
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(4) The execution, delivery, and performance of the
Documents by the Company, the offering, sale and issuance of the Purchased
Securities and the issuance of Conversion Stock upon the conversion of the
Series C Preferred do not and will not violate the terms of its Articles of
Incorporation, as amended by the Articles of Amendment, directors' or
shareholders' resolutions, or Bylaws. The execution, delivery, performance of,
and compliance with, the Documents by the Company, the offering, sale and
issuance of the Purchased Securities and the issuance of Conversion Stock upon
the conversion of the Series C Preferred will not violate or result in the
breach of any of the terms, conditions, or provisions of, or constitute a
default under, or result in the creation of any lien, charge, or encumbrance on
any property or assets of the Company, contrary or pursuant to the terms of any
of the agreements listed on Exhibit C of this Agreement.
(5) Immediately following consummation of all
transactions contemplated in the Agreement to be consummated at the Closing, the
authorized capital stock of the Company consists of 5,034,559 shares of
Preferred Stock with par value of one cent ($0.01) per share, of which Preferred
Stock, 2,829,326 are designated as Series A Convertible Preferred Stock, all of
which is outstanding, duly and validly issued, fully paid and nonassessable;
1,764,705 are designated as Series B Convertible Preferred Stock, 880,000 of
which are outstanding, duly and validly issued, fully paid and nonassessable;
and 440,528 are designated Series C Convertible Preferred Stock, none of which
is outstanding; and 15,000,000 shares of one class of common stock of $.01 par
value per share, of which 370,875 shares are outstanding, duly and validly
issued, fully paid and nonassessable. The shares of Series C Preferred of the
Company issued to the Purchasers pursuant to this Agreement have been duly
authorized for issuance and are validly issued, fully paid, and nonassessable
shares of the Preferred Stock of the Company, will be duly registered in the
name of the Purchasers on the books of the Company, and have the rights,
restrictions, privileges, and preferences as set forth in the Articles of
Incorporation, as amended to date, and such rights, restrictions, privileges,
and preferences are binding, valid and enforceable against the Company according
to the terms of the Articles of Incorporation. The shares of Conversion Stock
issuable upon conversion of the Series C Preferred have been duly and validly
reserved and are not subject to any preemptive rights or rights of first refusal
and, upon proper conversion according to the terms of the Articles of
Incorporation, will be validly issued, fully paid, and nonassessable. The form
of stock certificate for the Series C Preferred has been duly adopted by the
Company and conforms to all applicable legal requirements. To Counsel's
knowledge, except as disclosed in the Agreement and Exhibit C attached thereto,
there are no outstanding options, warrants, rights of first refusal, or other
rights to purchase or acquire any capital stock of the Company.
(6) The offer, sale, and issuance of the Purchased
Securities in conformity with the terms of the Agreement and the issuance of
Common Stock upon conversion of the Series C Preferred constitute transactions
exempt from the registration requirements of the Act.
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(7) Except as set forth in this Agreement and the
Exhibits attached to this Agreement, there are no actions, proceedings, or
investigations pending or, to the best of counsel's knowledge, threatened
against the Company or its properties which, either in any case or in the
aggregate, might result in any material adverse change in the business or
financial condition of the Company or any of its properties or assets or in any
material impairment of the right or ability of the Company to carry on its
business as now conducted or as proposed to be conducted, or in any material
liability on the part of the Company, and none which questions the validity of
the Documents or any action taken or to be taken in connection therewith.
(8) Without investigation for this purpose other than
reasonable inquiry of the Company's officers and directors, Counsel has become
aware of no facts which would lead it to believe that any employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement, or any other contract or agreement due to the relationship
of any such employee with the Company and the nature of the business now
conducted or to be conducted by the Company.
Such Counsel may base that portion of its opinion
pertaining to factual matters upon certificates or letters signed by the Company
or corporate officers of the Company, and may base that portion of its opinion
pertaining to the laws of any jurisdiction other than the United States and the
State of Colorado upon the opinion of counsel in such other jurisdiction,
provided copies of such certificates, letters, and opinions are furnished to the
Purchasers with said opinion, and that the Purchasers may rely on such
certificates, letters, and opinions.
(A) Terms of Series C Preferred. At the Initial Closing, the
Company shall have filed with the Secretary of State of Colorado the proposed
Articles of Amendment, substantially in the form of Exhibit A, setting forth the
terms, rights, and preferences of the Series C Preferred, and such Articles of
Amendment shall be effective.
(B) Proceedings and Documents Satisfactory. At each Closing,
all documents and proceedings incident to the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the Purchasers and
their counsel. The Purchasers shall have received all documents or other
evidence which the Purchasers and their counsel may have requested in connection
with such transactions, including copies of records of all corporate proceedings
in connection with such transaction and in compliance with the conditions set
forth in this Section 6.1 in form and substance satisfactory to the
Purchasers.
(C) Execution of Non-Disclosure and Non-Competition
Agreements. Each employee of the Company other than Christopher Schweitzer shall
have executed a Non-Disclosure Agreement, in the form of Exhibit E attached to
this Agreement. Each Key Employee shall have executed a NonCompetition Agreement
in the form of Exhibit F attached to this Agreement.
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(D) Execution of Founders' Stock Restriction Agreement. The
Company and John L. Melanson, Leonard J. Koch and Jeff M. Dinapoli shall have
executed the Founders' Stock Restriction Agreements in the form of Exhibit G
hereto.
(E) Certified Articles and Bylaws. The Company shall have
delivered to counsel for the Purchasers a copy of the Company's Articles of
Incorporation and Bylaws, which copy shall be certified by the Secretary of the
Company to be true and correct as of the Closing Date.
(F) Registration Rights Agreement. At the Initial Closing, the
Company, the Purchasers and certain other parties shall have executed the
Registration Rights Agreement substantially in the form of Exhibit B attached
hereto.
(G) Election of Directors. As of the Initial Closing Date, the
Board of Directors of the Company shall consist of John L. Melanson, Carl D.
Carman, Robert B. Louthan, Edwin M. Kania, Jr., Ole Lund and Nikolai Bisgaard.
(H) Partnership Agreement. The Company and the Purchasers and
certain other parties shall have executed the Partnership Agreement for the AHS
joint venture, as well as the agreements contemplated thereby.
(I) Shareholders Agreement. As of the Initial Closing, the
Purchasers and the other holders of Preferred Stock of the Company shall have
executed the Shareholders Agreement substantially in the form of Exhibit H
hereto.
S1 Conditions to the Company's Obligations. The Company's obligation to
consummate the transactions contemplated in this Agreement is subject to the
satisfaction of the following conditions at each Closing hereunder:
(A) Accuracy of Representations and Warranties. The
Purchasers' representations and warranties herein or in any document delivered
pursuant to this Agreement shall be true and correct on and as of each Closing
Date.
(B) Proceedings Satisfactory. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents incident to it shall be satisfactory in form and substance to
the Company and its counsel, and the Company and its counsel shall have received
all such originals or other copies of such documents as they may reasonably
request.
S2 Failure of Conditions. In the event any of the conditions set forth in
Sections 6.1 or 6.2 are not satisfied and are not waived by the appropriate
party, this Agreement shall terminate and the parties shall be free of any
rights or obligations hereunder.
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1. COVENANTS OF THE COMPANY.
The Company and each holder of Series A and Series B Convertible
Preferred Stock (the "Series A and B Holders") hereby agree that Article 7 of
the Series A Preferred Stock Agreement dated August 12, 1992, as amended as of
July 26, 1993, and Article 7 of the Series B Convertible Preferred Stock
Agreements dated August 16, 1993 and October 17, 1995, are superseded and
replaced in their entirety by this Article 7. The Company's covenants and
obligations as set forth in this Article 7 shall continue in full force and
effect so long as any Preferred Stock and Conversion Stock is outstanding until
the first to occur of: (i) the date on which the Company is required to file a
report with the Securities and Exchange Commission pursuant to Section 13(a) or
(15) of the Exchange Act, by reason of the Company's having registered any of
its common stock pursuant to Section 12(g) of the Exchange Act; (ii) the date on
which the Company consummates the sale of all, or substantially all, of its
assets; or (iii) the effective date of a merger, reorganization or consolidation
of the Company (a "Merger") in which the holders of the outstanding voting
securities of the Company immediately prior to such Merger do not hold a
majority of the voting securities of the entity surviving immediately after such
Merger:
S1 Office or Agency Maintained. The Company will maintain an office in Colorado
where Preferred Stock and warrants to purchase Preferred Stock may be presented
for exchange, registration, or transfer.
S2 Corporate Existence and Reserved Shares. The Company will at all times
maintain, preserve, and renew its corporate existence and its rights, and comply
with all related laws applicable to the Company, but nothing contained in this
Section shall require the Company to maintain, preserve, or renew any right
which, in the opinion of the Board of Directors, is not necessary or desirable
in the conduct of the business of the Company. The Company will at all times
reserve sufficient shares of Series B Preferred Stock to permit exercise of any
warrants and sufficient shares of common stock to permit the conversion of the
Preferred Stock.
S3 Properties Maintained. The Company will, insofar as it is not prevented by
causes beyond its control, at all times maintain, preserve, protect, and keep
its property in good repair, working order, and condition. From time to time,
the Company will make all repairs, renewals, replacements, extensions,
additions, betterments, and improvements to its property as are necessary and
proper, so that the Company's business may be conducted properly and efficiently
at all times, but nothing in this Section shall prevent the Company from
selling, abandoning, or otherwise disposing of any material asset or property,
if, in the opinion of the Board of Directors, such property is no longer of use
in the business of the Company, and such disposition is in the interest of the
Company and not disadvantageous to the holders of the Preferred Stock.
S4 Insurance. The Company will provide for itself insurance against loss or
damage of the kinds customarily insured against by corporations similarly
situated, with reputable insurers
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or with the United States Government, in such amounts, with such deductibles as
shall be necessary for the Company not to become a coinsurer, and by such
methods as shall be adequate for companies of a similar size and character. The
Company will at all times similarly maintain, in full force and effect,
comprehensive general liability insurance against loss or damage to it for
bodily injury or death in or about any premises occupied by it, and liability
insurance against loss or damage to it, for bodily injury or death or injury to
property occurring by reason of its operation of any motor vehicle.
S5 Taxes, Assessments and Other Charges Paid. The Company will duly pay and
discharge, as they become due and payable, all taxes, assessments and
governmental and other charges, levies, or claims levied or imposed, which if
unpaid might become a lien or charge upon the franchises, properties, assets,
earnings, or business of the Company, but nothing contained in this Section
shall require the Company to pay and discharge any such tax, assessment, charge,
levy, or claim so long as the Company in good faith shall contest its validity
and shall set aside on its books adequate reserves for it.
S6 Indebtedness Paid. The Company will pay punctually when due and payable any
indebtedness incurred or assumed by it. The Company will also perform and
observe the associated covenants, provisions, and conditions to be performed and
observed by the Company, in connection with any mortgage, pledge, security
interest, or other lien existing at any time upon any of the assets of the
Company, but nothing contained in this Section shall require the Company to pay
any such indebtedness or to perform or observe any such covenants, provisions,
and conditions so long as the Company in good faith shall contest any claim
which may be asserted against it in respect of any such indebtedness or of any
such covenants, provisions, and conditions and shall set aside on its books
adequate reserves for it.
S7 Good Accounting and Corporate Practice. The Company will at all times
maintain appropriate corporate records, including records of all directors or
shareholders meetings, minutes and all share transactions, and keep proper books
of record and account (including ledgers and order books) in which full, true,
and correct entries will be made of its transactions in accordance with Good
Accounting Practice.
S8 Compliance with Laws. The Company will comply with all applicable statutes,
rules, regulations, orders, and restrictions of the United States of America,
foreign countries, states, and municipalities, and of any governmental agency
and instrumentality of the foregoing, and of any court, arbitrator, or grand
jury, applicable to the Company's business and assets.
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S9 Information Rights.
(A) Financial Statements. The Company will furnish to a
Purchaser certain financial statements (as set forth below) for so long as a
Purchaser owns at least 100,000 shares of the Preferred Stock (or shares of
Common Stock issued upon conversion thereof):
(1) As soon as practicable after the end of each
fiscal year, and in any event within 90 days thereafter;
(2) As soon as practicable after the end of each
fiscal quarter of each fiscal year, and in any event within 45 days thereafter;
and
(3) As soon as practicable after the end of each of
the first eleven (11) months of each fiscal year, and in any event within 30
days thereafter.
The financial statements so provided shall include consolidated balance sheets
of the Company as at the end of such period, consolidated statements of income
and surplus for that period, and consolidated statements of cash flow for the
Company for that period. The statements shall be prepared in accordance with
Good Accounting Practice and, in case of the fiscal year end statements, shall
be approved by the Company's Board of Directors and audited by the Company's
independent certified public accountants.
(A) Additional Documents Furnished by Company. The Company
shall also furnish to a Purchaser for so long as it owns at least 100,000 shares
of Preferred Stock (or Common Stock issued upon conversion thereof), an Annual
Plan and Compliance Certificate, as the case may be, provided that the plan or
certificate is described by any of the following:
(1) Annual Plan. On or before December 15 of each
year, a preliminary Proposed Annual Plan and Operations Budget as approved by
the Board of Directors, which shall then be finalized within sixty (60) days
after the end of the fiscal year utilizing the final audited results from the
previous year. The Annual Plan and Operations Budget shall be a working
document, and shall be in any form chosen by the management of the Company and
acceptable to its Board of Directors.
(2) Compliance Certificate. Not later than the time
of delivery of the financial statements required by Section 7.9(A)(1) above, a
certificate signed by the President or one of the Vice Presidents and the
Treasurer of the Company, stating that a review of the activities of the Company
during that fiscal year has been made under their supervision with a view to
determining whether the Company had performed and observed all its respective
obligations under this Agreement. This certificate shall either (i) state that
to the best of its knowledge the Company had, during that fiscal year, performed
and observed each covenant and
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condition of this Agreement or (ii) if the Company had not performed and
observed those covenants and conditions, specify all such defaults, their nature
and status, and what action the Company proposes to take with respect to each of
them.
(B) Visitation Rights. Subject to nondisclosure obligations
with respect to the Company's confidential information, a Purchaser, the Series
A and B Holders, or any of their employees, agents, or representatives, may from
time to time reasonably request the right to visit and inspect any of the
properties of the Company, to examine and make extracts from the books and
records of the Company, and to discuss its affairs, finances and accounts with
its officers, directors, and independent accountants, all at reasonable times
and as often as may be reasonably requested, and the Company shall comply with
such requests. Subject to the same obligations, the Purchasers and the Series A
and B Holders shall receive timely notice of, shall receive all material
distributed in connection with, and shall have the right to attend as an
observer, all meetings of the Board of Directors of the Company except that
ReSound shall have such visitation rights only if it exercises its option to
purchase Series C Preferred at the Subsequent Closing. This right shall apply to
the Purchasers or Series A and B Holders only so long as he, she or it owns at
least 100,000 shares of Preferred Stock (or Common Stock issued upon conversion
thereof) except that if Resound has such visitation rights as set forth above,
it shall maintain them until it sells any of its equity interest in the
Company.
S1 Expenses, Taxes and Interest Paid by the Company.
(A) Expenses. Each party will pay its own legal fees and other
expenses.
(B) Taxes. The Company shall also pay, and save the Purchasers
and Series A and B Holders harmless against, all liability with respect to
amounts payable as a result of any documentary, stamp, use, or similar taxes
which may be determined to be payable in connection with the issuance and
delivery of any of the Preferred Stock or the Common Stock issuable upon
conversion of the Preferred Stock, or the execution, delivery and performance of
this Agreement, or any modification, amendment, or alteration of the terms of
any of the Preferred Stock, Common Stock issuable upon conversion of the
Preferred Stock, or this Agreement.
(C) Interest. Provided that the Purchasers or a Series A or B
Holder promptly notifies the Company of all claims made against it, the Company
will pay any interest or penalties resulting from nonpayment or delay in payment
of any expense or tax to be paid under section 7.10(B) hereof, and any income
taxes in respect of any reimbursement by the Company for any of such expenses,
taxes, interest or penalties. The obligations of the Company under this Section
7.10 shall survive the conversion of all or a portion of the Preferred Stock
into Common Stock, if any.
S2 Approval of Company Transactions with Officers and Directors Required. Except
as disclosed on Exhibit C or with the written consent of the holders of
Preferred Stock (or
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Common Stock issued upon conversion thereof) constituting 66% of the total
number of shares of Preferred Stock on an as-if-converted to Common Stock basis:
(A) The Company will not become indebted, either directly or
indirectly, to any of its officers or directors, or to any member of their
immediate families in any amount whatsoever, other than for payment of salary
for services rendered and reasonable expenses.
(B) None of its officers, directors, or members of their
immediate families will become indebted to the Company, except to the extent
approved by the Board of Directors in connection with the sale or transfer of
shares of the capital stock of the Company to such officers and directors.
(C) None of its officers, directors, or members of their
immediate families will become holders of any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated, which
competes with the Company, or with which the Company has a material business
relationship, except with respect to any aggregate interest in less than two
percent (2%) of the stock of any corporation whose stock is publicly traded.
(D) None of its officers, directors or members of their
immediate families will become directly or indirectly interested in any material
contract with the Company.
(E) The Company will not act as a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation.
S3 Amendment of Articles and Bylaws. The Company shall take no action to amend,
repeal, or add any provision to the Articles of Incorporation or the Bylaws of
the Company if such amendment would adversely affect the rights, preferences or
privileges of the Preferred Stock, without first obtaining approval of the
record holders of Preferred Stock in the manner provided by the Articles of
Incorporation.
S4 Material Contracts. The Company will perform and observe all material
covenants and provisions of all material contracts to which it is party. Nothing
in this Section shall require the Company to perform or observe any such
covenant or provision so long as the Company shall in good faith contest the
validity, enforceability, or application to it of any such covenant or
provision.
S5 Employee Sales and Securities Laws. From and after the Closing Date, the
Company will effect all offers or sales of, and grants of options to purchase,
shares of capital stock of the Company to its employees in transactions
registered or exempt from registration under the Act and in full compliance with
all applicable Blue Sky Laws.
S6 Compensation. The Company shall provide to the Board of Directors information
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regarding proposed compensation and fringe benefits, both direct and indirect,
including salary, bonus and all other forms of compensation, of all officers and
key employees of the Company for advance approval by the Board of Directors
prior to so informing those officers and key employees of such proposed
compensation and fringe benefits.
S7 New Developments. The Company shall cause all technological developments,
inventions, discoveries or improvements by the Company's employees to be fully
documented in accordance with the best prevailing appropriate industrial
professional standards, cause all key employees and consultants of the Company
to execute appropriate patent assignment agreements to the Company and, where
possible and appropriate, to file and prosecute United States and foreign patent
applications relating to and protecting such developments on behalf of the
Company.
S8 Non-Disclosure Agreements. The Company shall cause each employee or
consultant now or hereafter employed or retained by the Company to promptly
execute a Non-Disclosure Agreement in the form of Exhibit E hereto or in a form
approved by the Board of Directors.
S9 Non-Competition Agreements. The Company shall cause each Key Employee now or
hereafter employed by the Company to promptly execute a Non-Competition
Agreement in the form of Exhibit F hereto or in a form approved by the Board of
Directors.
S10 Financings. The Company shall promptly, fully and in detail, inform the
Board of Directors of any discussions, offers or contracts relating to possible
financings of any nature for the Company of which the Company has knowledge,
whether initiated by the Company or by any other person, except for financings
accomplished in the ordinary course of business and approved by a majority of
the Board of Directors which do not include as a feature thereof any right to
acquire any of the equity securities of the Company or debt securities
convertible into or exchangeable for equity securities of the Company.
S11 Material Adverse Events. The Company shall promptly (but in any event within
fifteen (15) days) after the Company's discovery of any Material Adverse Event
affecting the Company, deliver a detailed statement to the Purchasers and Series
A and B Holders specifying the nature and period of existence of such Material
Adverse Event and what actions (if any) the Company has taken and/or proposes to
take with respect thereto. For purposes of this Section 7.20, a Material Adverse
Event shall include, without limitation: (i) the filing of any litigation which,
if determined adversely, would have a material effect on the business, financial
condition or prospects of the Company; (ii) the discovery that the Company is
not in compliance with any material provision of this Agreement or its Articles
of Incorporation, (iii) any notices of material default received by the Company
arising out of any of the Company's banking relationships or arrangements; (iv)
the existence of any dispute between the Company and its accountants concerning
any material item relating to the Company's financial statements; and (v) the
cancel-
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lation of a material order or the loss of a material customer.
S12 Use of Proceeds. The proceeds received from the issuance of Purchased
Securities will be used for working capital and general corporate purposes.
1. PURCHASE RIGHTS.
Subject to the terms of this Article 8 and the Articles of
Incorporation, the Company may from time to time after the Closing offer to
grant, issue, or sell any securities, warrants, options, or rights to purchase
securities of the Company ("Securities"). With respect to any Company offer to
grant, issue, or sell any such Securities prior to the closing of a firmly
underwritten public offering of the Company's common stock at a price of at
least $11.04 (as adjusted for stock splits, stock dividends, reorganizations and
the like) and with aggregate offering proceeds to the Company of at least
$7,500,000, (i) the Purchasers and the Series A, B and C Holders, and (ii) each
subsequent holder of at least 100,000 shares of Preferred Stock (or Common Stock
issuable upon conversion thereof) (the "Preferred Holders") shall be entitled to
acquire (on a pro rata basis determined by their relative ownership of Preferred
Stock (and Common Stock issued upon conversion thereof on an as-if-converted to
Common Stock basis) all, or any portion of, such Securities so offered on terms
no more favorable to the Company than those offered to third parties.
(A) Within five (5) days after approval of the offer by the
Company's Board of Directors, the Company shall give to Preferred Holders
written notice of (i) those terms which are of the type typically detailed in
term sheets drafted with respect to proposed investments by institutional
venture capital firms and (ii) the proposed recipients of the offer.
(B) Within twenty (20) days of receipt of the Company's
notice, Preferred Holders must give the Company written notice of their intent
to exercise their right under this Article 8 (subject to review and approval of
final documentation), specifying the number of Securities to be acquired.
Failure to give such timely notice waives those rights.
(C) To the extent that any Preferred Holder fails to exercise
all of its purchase rights under this Section, or notifies the Company that it
intends not to exercise all of such rights, the Company will so notify the other
Preferred Holders within five (5) business days, whereupon the purchase rights
of said other Preferred Holders shall apply to the shares which could otherwise
have been purchased by the non-participating (or less than fully-participating)
Preferred Holders, again in proportion to the participating Preferred Holders'
relative ownership of Preferred Stock; such purchase rights shall be exercised
within the period specified in paragraph (B) above, provided that each
participating Preferred Holder shall have five (5) business days to exercise
such rights after notice from the Company.
(D) Any subsequent material change in the terms of the offer
(as provided in
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the notice pursuant to Subparagraph (A), above) as approved by the Board of
Directors shall constitute a new offer subject to the provisions of this Article
8. The failure of the Company to consummate the transaction contemplated by the
offer within sixty (60) days after the date by which Preferred Holders must give
written notice to the Company under Paragraph (B) above, will constitute a
material change in the offer.
(E) The following shall not constitute an offer under this
Article 8: (i) any registered public offering of the Company's Securities; (ii)
any grant of options or warrants to purchase, or any sale or issuance of,
Securities to the Company's Founders, as defined in the Series A Purchase
Agreement, officers, directors, employees, and consultants under any equity
incentive plan or agreement approved by the Board of Directors, so long as the
total number of such shares granted or issued (whether before or after Closing)
does not exceed 1,284,351 shares of common stock (determined On a Fully Diluted
Basis) or such greater number of shares as may be approved by the holders of at
least 66% of the Preferred Stock (and Common Stock issued upon conversion
thereof), voting on an as-if-converted to Common Stock basis; (iii) the
issuances of any Securities in connection with a merger or consolidation of the
Company with another company or an acquisition of substantially all of the
assets of another company; (iv) the conversion of any shares of the Company's
Preferred Stock; or (v) the exercise of any warrants to purchase Series B
Preferred Stock.
(F) Each Series A and B Holder, by executing this Agreement,
hereby agrees that the provisions of Article 8 of the Series B Preferred Stock
Purchase Agreement dated October 17, 1995, are terminated and superseded by the
provisions of this Article 8.
1. MISCELLANEOUS.
S1 Survival of Covenants; Successors and Assigns. All covenants, agreements,
representations and warranties made by the Company in this Agreement and in
certificates or other documents delivered pursuant to it shall survive the
making of the investments and the carrying out of the transactions contemplated
by this Agreement and the sale, issuance, and delivery of the Purchased
Securities to the Purchasers. All such covenants, agreements, representations
and warranties shall be binding upon any successors and assigns of the
Company.
S2 Assignability of Rights. The Company may not assign any of its rights under
this Agreement without the Purchasers' written consent. Subject to compliance
with Section 4.4 hereof, the provisions of this Agreement which are for the
Purchasers' benefit as a Purchasers or holder of Series C Preferred or
Conversion Stock shall also for be the benefit of, and enforceable by, any
subsequent holder of such Series C Preferred or Conversion Stock who is not a
competitor of the Company.
S3 Communications and Notices. Except as otherwise provided for in this
Agreement, all communications and notices provided for in this Agreement shall
be in writing.
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They shall become effective when mailed (postage paid, certified mail, return
receipt requested), sent by overnight courier, hand delivered (including
telecopy or courier service) receipted by the addressee, to the address as
indicated on the signature pages hereto, or to such other address and for such
attention, as any party may from time to time designate by notice duly given in
accordance with the provisions of this Section 9.3.
S4 Law Governing. This Agreement shall be construed in accordance with and
governed by the laws of the State of Colorado.
S5 Subsequent Instruments and Acts. The parties agree that they will execute any
further instruments and perform any acts that may become necessary to carry out
this Agreement.
S6 Severability. If any term, provision, covenant, or condition of this
Agreement, or its application to any person or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable, or void, the
remainder of this Agreement and such term, provision, covenant, or condition as
applied to other persons or circumstances shall remain in full force and
effect.
S7 Entire Agreement; Amendments.
(A) This Agreement and the other documents and agreements
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with respect to the subjects hereof and thereof.
(B) This Agreement may not be amended orally. An amendment to
this Agreement, or of any supplement hereto, (but not the exhibits hereto), and
of the rights and obligations of the holders of the Purchased Securities, may be
made with the written consent of the Company and of the Purchasers, except that
amendments to, or waivers of, the provisions of Article 7 or Article 8 of this
Agreement shall be made only with the written consent of the Company and the
holders of not less than 66% of the outstanding shares of Preferred Stock (and
Common Stock issued upon conversion thereof), voting together on an
as-if-converted to Common Stock basis; provided, further, that the provisions of
Article 8 may not be waived as to a Purchaser without such Purchaser's consent
and provided further that no amendment or waiver of the provisions of Article 7
shall be made that adversely affects any Purchaser in a manner different from
the other holders of outstanding Preferred Stock.
S8 Authorization. Each of the undersigned representatives of the parties
warrants and represents that he is duly authorized to execute this Agreement on
behalf of the respective party for which he or she signs.
S9 Gender, Number, and Tense. Throughout this Agreement, as the context may
require, the masculine gender includes the feminine and neuter, and the neuter
gender includes the
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masculine and feminine.
S10 Headings. The headings of the Articles, Sections and Subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
S11 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
S12 Consents to Adequate Reservation of Shares. The Purchasers hereby agree to
execute all shareholder consents as may be necessary from time to time to effect
the purposes of the Articles of Incorporation relating to the reservation of
adequate shares of common stock of the Company.
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S13 Delays, Omission, and Waivers. No delay or omission to exercise any right,
power or remedy accruing to the Company or to a Purchaser upon any breach or
default of any party hereto under this Agreement, will impair any such right,
power or remedy of the Company or a Purchaser nor will it be construed to be a
waiver of any such breach or default, or an acquiescence therein, nor will any
similar breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring; nor will 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 Company or a Purchaser of any breach or default
under this Agreement or any waiver on the part of the Company or a Purchaser of
any provisions or conditions of this Agreement, must be in writing and will be
effective only to the extent specifically set forth in such writing. Except as
otherwise specified in Section 8(E) and Section 9.7(B), no waiver by the
Purchasers (or transferees thereof) of any provision of this Agreement will be
effective without a written consent signed by Purchasers (or transferees
thereof) holding at least 66% of the Series C Preferred or Conversion Stock,
voting together on an as-if-converted to Common Stock basis.
S14 Purchasers' Remedies. No waiver of any breach of this Agreement shall
constitute or be construed as a waiver by the Purchasers of any subsequent
breach by the Company. No remedy herein conferred upon the Purchasers is
intended to be exclusive of any other remedy herein or as provided by law, but
each shall be cumulative and shall be in addition to every other remedy set
forth in this Agreement, the Exhibits, or existing at law, in equity, or by
statute. The parties specifically acknowledge that under certain circumstances
the parties may be entitled to specific performance and/or injunctive relief
where without such remedies the damage to the injured parties may be irreparable
and money damages inadequate. Moreover, in any suit between or among the parties
hereto for such breach of any of the provisions hereof, the prevailing party in
such suit shall be entitled to receive from the breaching party, reasonable
attorneys' fees and disbursements incurred in the prosecution of such suit.
S15 Stock Splits, Recapitalization, etc. Any right, obligation, covenant or
agreement contained in this Agreement which is subject to or conditioned upon a
specific number of Preferred Stock, Purchased Securities, Series C Preferred
and/or Conversion Stock (or any of the above) shall be appropriately adjusted
for any stock splits, stock dividends, or recapitalizations of the capital stock
of the Company occurring after the date hereof.
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Purchase Agreement
signature pages
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
THE COMPANY:
AUDIOLOGIC, INC., a Colorado Corporation
By:
Its:
Address:
6655 Lookout Road, Suite 200
Boulder, CO 80301
PURCHASERS:
GN DANAVOX AS
By:
Its:
Address:
Markaervej 2A
P.O. Box 224, DK-2630
Taastrup, DENMARK
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Purchase Agreement
signature pages
RESOUND CORPORATION
By:
Its:
Address:
220 Saginaw Drive
Seaport Centre
Redwood City, CA 94063
SERIES A HOLDERS:
THE HILL PARTNERSHIP III
By: HILL, CARMAN VENTURES,
A limited partnership,
Its General Partner
By:
Its General Partner
Address:
885 Arapahoe Avenue
Boulder, CO 80302
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Purchase Agreement
signature pages
MORGAN, HOLLAND FUND II, L.P.
By: Morgan, Holland Partners
II, L.P.
By:
Edwin M. Kania, Jr.
General Partner
Address:
One Liberty Square
Boston, Massachusetts 02109
GILDE INVESTMENT FUND B.V.
By: Morgan, Holland Partners II, L.P.
By:
Edwin M. Kania, Jr.,
Its Attorney-in-Fact
Address:
c/o Morgan, Holland Partners II, L.P.
One Liberty Square
Boston, Massachusetts 02109
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Purchase Agreement
signature pages
James E. Forrest
Address:
676 North Michigan Avenue, Suite 3300
Chicago, Illinois 60611
Robert K. Anderson
Address:
7262 Old Post Road
Boulder, Colorado 80301
SERIES B HOLDER:
GN DANAVOX AS
By:
Its:
Address:
Markaervej 2A
P.O. Box 224, DK-2630
Taastrup, DENMARK
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EXHIBIT C
SCHEDULE OF EXCEPTIONS TO
REPRESENTATIONS AND WARRANTIES
Schedule 5.3 (B)
1. List of Shareholders, Warrantholders and Optionholders
pre-Closing:
Name Status Number of Shares Percent(1)
- ---- ------ ---------------- ----------
The Hill Partnership III Series A Shareholder 1,426,339
Morgan, Holland Fund II, L.P. Series A Shareholder 1,344,152
Gilde Investment Fund B.V. Series A Shareholder 4,062
James E. Forrest Series A Shareholder 23,523
Robert K. Anderson Series A Shareholder 31,250
GN Danavox AS Series B Shareholder 880,000
John L. Melanson Common Shareholder 189,583
Leonard J. Koch Common Shareholder 121,875
Jeff M. Dinapoli Common Shareholder 19,803
Junsheng "Charles" Wang Common Shareholder 2,000
Jason Carlson Common Shareholder 15,459
Tim B. Trueblood Common Shareholder 2,250
Richard Kim Common Shareholder 1,000
Christopher Schweitzer Optionholder 27,083
Eric Lindemann Optionholder 67,083
Jodette Reynolds Optionholder 26,251
Linda Hood Optionholder 4,188
Louis Braida Optionholder 4,188
Lloyd Griffiths Optionholder 4,188
Irving Hafter Optionholder 4,188
Robert B. Louthan Optionholder 10,263
John Melanson Optionholder 456,250
Birger Kollmeier Optionholder 4,188
Kitty Adams Optionholder 2,313
James E. Forrest Optionholder 1,359
Jason Carlson Optionholder 142,188
Joel Cooper Optionholder 18,125
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(1) On a Fully Diluted Basis prior to Closing.
35
Vena Margo Optionholder 18,125
Caled Roberts Optionholder 28,125
Mark Terry Optionholder 3,000
Tom Worrall Optionholder 23,125
---------
TOTALS 100.0%
1. The Company has adopted a 1992 Stock Option Plan and Stock Option
Agreement pursuant to which a total of 916,726 shares of common stock
are reserved for issuance.
2. The Company has entered into Founder Stock Restriction Agreements
with each of John L. Melanson, Leonard J. Koch, Ted A. Smith and Jeff
M. Dinapoli in connection with the shares of the Company's common stock
owned by them. The Founder Stock Restriction Agreements provide for a
right of first refusal and a repurchase option on such shares. The
Company has previously exercised its repurchase option to purchase all
shares from Mr. Smith and 7,280 shares from Mr. Dinapoli.
Schedule 5.7
1. The Company has entered into an 18-month building sublease
(effective January 1, 1996) for its office space with BioStar, Inc.
for $3,400 a month.
2. Series A Preferred Stock Purchase Agreement dated August 10, 1992
and amended as of July 23, 1993 and August 16, 1993.
3. Series B Preferred Stock Purchase Agreement dated August 16, 1993.
4. Series B Preferred Stock and Warrant Purchase Agreement dated
October 7, 1995.
5. Technology License and Development Agreement dated August 1994, by
and between the Company and Cochlear Corporation.
6. Development, Licensing and Distribution Agreement dated October 17,
1995, by and between the Company and Danavox.
7. The Company has entered into the following lease agreements for test
equipment:
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1 Hewlett-Packard for an HP8594E Spectrum Analyzer; lease term 36
months; last payment 9/96; monthly payment $634.24.
2 AT&T Capital for a Marconi Signal Generator; lease term 36 months;
last payment 9/96; monthly payments $650.20.
8. Purchase Order for development of analog digital converter chip with
Centre Suisse Electronique et de Microtechnique ("CSEM"). CSEM and the
Company entered a Development Agreement relating to this Purchase Order
dated November 17, 1995.
Schedule 5.13
Christopher Schweitzer has not executed the standard forms of the
Company's Non-Disclosure Agreement and Non-Compete Agreement (Exhibits B and C
hereto), but has instead executed modified versions of such agreements, copies
of which have been provided to the Purchasers.
Schedule 5.15
1. Series A Convertible Preferred Stock Purchase Agreement dated August
10, 1992 and amended as of July 27, 1993 and August 16, 1993.
2. Series B Convertible Preferred Stock Purchase Agreements dated
August 16, 1993 and October 17, 1995.
3. Conversion, Exchange and Warrant Purchase Agreement dated August 18,
1995.
4. Series C Convertible Preferred Stock and Common Stock Purchase
Agreement of even date herewith (this Agreement).
5. Amended and Restated Registration Rights Agreement dated of even
date herewith.
6. Amended and Restated Shareholders Agreement dated of even date
herewith.
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