XIOX CORPORATION
STOCK PURCHASE AND INVESTOR RIGHTS AGREEMENT
This Stock Purchase and Investor Rights Agreement (this "Agreement") is
made and entered into as of September 21, 1998, by and between Xiox Corporation,
a Delaware corporation (the "Company"), and each of the persons listed on
Exhibit A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company desires to sell to each Investor, and each
Investor desires to purchase from the Company, shares of Series A Preferred
Stock, par value $.01 per share, of the Company (the "Series A Preferred
Stock"), on the terms and conditions set forth in this Agreement;
WHEREAS, such Series A Preferred Stock will be convertible into shares
of the Common Stock, par value $.01 per share, of the Company (the "Common
Stock");
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
(a) Authorization. As of the Closing (as defined below), the
Company's Board of Directors (the "Board") will have authorized the issuance,
pursuant to the terms and conditions of this Agreement, of 1,907,989 shares of
Series A Preferred Stock, having the rights, preferences, privileges and
restrictions set forth in the Certificate of Designations, Preferences and Other
Rights of Series A Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designations") and 1,907,989 shares of Common Stock for issuance
upon conversion of the Series A Preferred Stock.
(b) Agreement to Purchase and Sell Securities. The Company
hereby agrees to issue to each Investor at each of the Closings (as defined
below), and each Investor hereby agrees to acquire from the Company at each of
the Closings, the number of shares of Series A Preferred Stock specified for
such Closing opposite each Investor's name on Exhibit A hereto (collectively,
the "Purchased Shares") at a price per share in cash equal to the Per Share
Purchase Price (as defined below), for an aggregate cash consideration equal to
such number of shares of Series A Preferred Stock, multiplied by the Per Share
Purchase Price. As used in this Agreement, the "Per Share Purchase Price" shall
be equal to Five Dollars ($5.00). Immediately prior to the First Closing each
Investor will deliver the full amount of cash consideration for both Closings to
an escrow agent, who will transfer such funds to the Company at each of the
Closings according to the schedule set forth in Exhibit A hereto.
(c) Use of Proceeds. The Company intends to, and will (subject
to modification by Board approval) apply the net proceeds from the sale of the
Purchased Shares for corporate purposes disclosed to the Investors by the
Company prior to the date hereof.
2. CLOSINGS.
(a) The purchase and sale of the Purchased Shares shall take
place in two separate closings (each, a "Closing"). At each Closing, the Company
will deliver to each Investor certificates representing the Purchased Shares
against delivery to the Company by each Investor of the consideration set forth
in Section 1(b) paid by wire transfer of funds to the Company. Closing documents
may be delivered by facsimile with original signature pages sent by overnight
courier.
(b) The purchase and sale of the first tranche shall occur at
the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California at 2:00 p.m. Pacific Daylight Time, within three (3) business days
after the conditions set forth in Sections 5 and 6 have been satisfied, or at
such other time and place as the Company and each Investor mutually agree upon
(which time and place are referred to in this Agreement as the "First Closing").
(c) The purchase and sale of the second tranche shall occur at
the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California at 2:00 p.m. Pacific Daylight Time, within three (3) days after the
satisfaction of the conditions of the Second Closing, or at such other time and
place as the Company and each Investor mutually agree upon (which time and place
are referred to in this Agreement as the "Second Closing"). If the Second
Closing does not occur within sixty (60) days of the First Closing, then the
obligation of each Investor to purchase the shares of Series A Preferred Stock
that such Investor would otherwise be obligated to purchase at the time of the
Second Closing shall terminate.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Investor
that the statements in this Section 3 are true and correct, except as set forth
in the Disclosure Letter from the Company of even date herewith (the "Disclosure
Letter") or disclosed in the SEC Documents (as defined below):
(a) Organization Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority required
to (a) carry on its business as presently conducted, and (b) enter into this
Agreement and the other agreements, instruments and documents contemplated
hereby, and to consummate the transactions contemplated hereby and thereby. The
Company is qualified to do business and is in good standing in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect. As used
in this Agreement, "Material Adverse Effect" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the business, operations, financial condition, results of operations, prospects,
assets or liabilities of the applicable party and its subsidiaries, taken as a
whole.
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(b) Capitalization. The capitalization of the Company, without
giving effect to the transactions contemplated by this Agreement, is as follows.
The authorized stock of the Company consists of 10,000,000 shares of Common
Stock, of which 3,147,231 shares were issued and outstanding as of the date
hereof, and 1,907,989 shares of Series A Preferred Stock, $.01 par value
("Preferred Stock"), none of which is issued or outstanding on the date hereof
(other than the Purchase Shares). All such shares of Common Stock have been duly
authorized, and all such issued and outstanding shares of Common Stock have been
validly issued, are fully paid and nonassessable and are free and clear of all
liens, claims and encumbrances, other than any liens, claims or encumbrances
created by or imposed upon the holders thereof. As of June 30, 1998, the Company
has also reserved 684,150 shares of Common Stock for issuance upon exercise of
options granted to officers, directors, employees or independent contractors or
affiliates of the Company under the Company's Restated 1984 Stock Option Plan
and the Company's 1994 Stock Plan. As of June 30, 1998, of the 684,150 shares of
Common Stock reserved for issuance upon exercise of options, 498,200 shares
remained subject to outstanding options with a weighted average exercise price
of approximately $4.41 per share, and 185,950 shares were reserved for future
grant. All shares of Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no other equity securities, options, warrants, calls,
rights, commitments or agreements of any character to which the Company is a
party or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend or enter into any such equity security, option,
warrant, call, right, commitment or agreement. The Company does not have any
subsidiaries, nor does the Company own any capital stock, assets comprising the
business of, obligations of, or any other interest (including, without
limitation, any equity or partnership interest) in, or any outstanding loan or
advance to or from, any person or entity.
(c) Due Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under this Agreement, and the authorization, issuance, reservation
for issuance and delivery of all of the Purchased Shares being sold under this
Agreement, has been taken, and this Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except (a) as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies and (b) as rights
to indemnity or contribution may be limited under federal or state securities
laws or by principles of public policy thereunder.
(d) Valid Issuance of Stock.
(i) Valid Issuance. The shares of Series A Preferred
Stock to be issued pursuant to this Agreement, and the shares of Common Stock
issuable upon conversion thereof, will be, upon payment therefor by each
Investor in accordance with this Agreement, or conversion in accordance with the
Certificate of Designations, duly authorized, validly issued, fully paid and
non-assessable.
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(ii) Compliance with Securities Laws. Assuming the
correctness of the representations made by each Investor in Section 4 hereof,
the Purchased Shares will be issued to each Investor in compliance with
applicable exemptions from (i) the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and (ii) the registration and qualification requirements of all applicable
securities laws of the states of the United States.
(e) Governmental Consents. No consent, approval, order or
authorization of, or registration qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for: (i) compliance with the HSR
Requirements (as defined below) that may be required for the voluntary
conversion of the Series A Preferred Stock; (ii) the filing of a Form 8-K with
the Securities and Exchange Commission ("SEC") following the Closing; (iii) the
filing of such qualifications or filings under the Securities Act and the
regulations thereunder and all applicable state securities laws as may be
required in connection with the transactions contemplated by this Agreement;
(iv) the listing of the Common Stock issuable upon conversion of the Series A
Preferred Stock on the Nasdaq SmallCap Market and (v) the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law. As used herein, the term "HSR
Requirements" means compliance with the filing and other requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act").
(f) Non-Contravention. The execution, delivery and performance
of this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby, do not and will not (i) contravene or conflict
with the Certificate of Incorporation or Bylaws of the Company; (ii) constitute
a violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Company; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Company is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Company under, any contract to which the Company is a party
or any permit, license or similar right relating to the Company or by which the
Company may be bound or affected in such a manner as, together with all other
such matters, would have Material Adverse Effect.
(g) Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending or, to the best of the Company's
knowledge, threatened: (i) against the Company, its activities, properties or
assets, or any officer, director or employee of the Company in connection with
such officer's, director's or employee's relationship with, or actions taken on
behalf of, the Company, that is reasonably likely to have a Material Adverse
Effect, or (ii) that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. No Action by the Company is currently
pending nor does the Company intend to initiate any Action that is reasonably
likely to have a Material Adverse Effect.
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(h) Compliance with Law and Charter Documents. The Company is
not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended. The Company has complied and is in
compliance with all applicable statutes, laws, rules, regulations and orders of
the United States of America and all states thereof, foreign countries and other
governmental bodies and agencies having jurisdiction over the Company's business
or properties, except for any violations that would not, either individually or
in the aggregate, have a Material Adverse Effect.
(i) SEC Documents.
(i) Reports. The Company has furnished to each
Investor prior to the date hereof copies of its Annual Report on Form 10-K SB
for the fiscal year ended December 31, 1997 ("Form 10-K"), its Quarterly Reports
on Form 10-Q SB for the fiscal quarters ended March 31 and June 30, 1998 (the
"Form 10-Q's"), and all other registration statements, reports and proxy
statements filed by the Company with the SEC on or after December 31, 1997 (the
Form 10-K, the Form 10-Q's and such registration statements, reports and proxy
statements are collectively referred to herein as the "SEC Documents"). Each of
the SEC Documents, as of the respective date thereof (or if amended or
superseded by a filing prior to the closing date of this Agreement, then on the
date of such filing), did not, and each of the registration statements, reports
and proxy statements filed by the Company with the SEC after the date hereof and
prior to the Closing will not, as of the date thereof (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Company is
not a party to any material contract, agreement or other arrangement that was
required to have been filed as an exhibit to the SEC Documents that was not so
filed.
(ii) Financial Statements. The Company has provided
each Investor with copies of its audited financial statements (the "Audited
Financial Statements") for the fiscal year ended December 31, 1997, and its
unaudited financial statements for the six-month period ended June 30, 1998 (the
"Balance Sheet Date"). Since the Balance Sheet Date, the Company has duly filed
with the SEC all registration statements, reports and proxy statements required
to be filed by it under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Securities Act. The audited and unaudited consolidated
financial statements of the Company included in the SEC Documents filed prior to
the date hereof fairly present, in conformity with generally accepted accounting
principles ("GAAP") (except, in the case of the Form 10-Q's, as may otherwise be
permitted by Form 10-Q) applied on a consistent basis (except as otherwise may
be stated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject to normal year-end audit adjustments in the case of unaudited
interim financial statements).
(j) Absence of Certain Changes Since Balance Sheet Date. Since
the Balance Sheet Date, the business and operations of the Company have been
conducted in the ordinary course consistent with past practice, and there has
not been:
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(i) any declaration, setting aside or payment of any
dividend or other distribution of the assets of the Company with respect to any
shares of capital stock of the Company or any repurchase, redemption or other
acquisition by the Company or any subsidiary of the Company of any outstanding
shares of the Company's capital stock;
(ii) any damage, destruction or loss, whether or not
covered by insurance, except for such occurrences, individually and
collectively, that have not resulted, and are not expected to result, in a
Material Adverse Effect;
(iii) any waiver by the Company of a valuable right
or of a material debt owed to it, except for such waivers, individually and
collectively, that have not resulted and are not expected to result, in a
Material Adverse Effect;
(iv) any material change or amendment to, or any
waiver of any material right under a material contract or arrangement by which
the Company or any of its assets or properties is bound or subject, except for
changes, amendments or waivers, individually and collectively, that are
expressly provided for or disclosed in this Agreement or that have not resulted,
and are not expected to result, in a Material Adverse Effect;
(v) any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its accounting books
and records, except any such change required by a change in GAAP; or
(vi) any other event or condition of any character,
except for such events and conditions that have not resulted, and are not
expected to result, either individually or collectively, in a Material Adverse
Effect.
(k) Invention Assignment and Confidentiality Agreement. Each
employee and consultant or independent contractor of the Company whose duties
include the development of products or Intellectual Property (as defined below),
and each former employee and consultant or independent contractor whose duties
included the development of products or Intellectual Property, has entered into
and executed an invention assignment and confidentiality agreement in customary
form or an employment or consulting agreement containing substantially similar
terms.
(l) Intellectual Property.
(i) Ownership or Right to Use. To the best of the
Company's knowledge, the Company has sole title to and owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents or patent
applications, software, know-how, registered or unregistered trademarks and
service marks and any applications therefor, registered or unregistered
copyrights, trade names, and any applications therefor, trade secrets or other
confidential or proprietary information ("Intellectual Property") necessary to
enable the Company to carry on its business as currently conducted, except where
any deficiency, or group of deficiencies, would not have a Material Adverse
Effect.
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(ii) Licenses; Other Agreements. The Company is not
currently the licensee of any material portion of the Intellectual Property of
the Company. There are not outstanding any licenses or agreements of any kind
relating to any Intellectual Property owned by the Company, except for
agreements with customers of the Company entered into in the ordinary course of
the Company's business and other licenses and agreements that, collectively, are
not material. The Company is not obligated to pay any royalties or other
payments to third parties with respect to the marketing, sale, distribution,
manufacture, license or use of any Intellectual Property, except as the Company
may be so obligated in the ordinary course of its business, as disclosed in the
Company's SEC Documents (as defined below) or where the aggregate amount of such
payments could not reasonably be expected to be material.
(iii) No Infringement. To the best of the Company's
knowledge, the Company has not violated or infringed and is not currently
violating or infringing, and the Company has not received any communications
alleging that the Company (or any of its employees or consultants) has violated
or infringed, any Intellectual Property of any other person or entity, to the
extent that any such violation or infringement, either individually or together
with all other such violations and infringements, would have a Material Adverse
Effect.
(iv) Employees and Consultants. To the best of the
Company's knowledge, no employee of or consultant to the Company is in default
under any term of any employment contract, agreement or arrangement relating to
Intellectual Property of the Company or any non-competition arrangement, other
contract or any restrictive covenant relating to the Intellectual Property of
the Company, where such default, together with all other such defaults, would
have a Material Adverse Effect. The Intellectual Property of the Company (other
than any Intellectual Property duly acquired or licensed from third parties) was
developed entirely by the employees of or consultants to the Company during the
time they were employed or retained by the Company, and to the best knowledge of
the Company, at no time during conception or reduction to practice of such
Intellectual Property of the Company were any such employees or consultants
operating under any grant from a government entity or agency or subject to any
employment agreement or invention assignment or non-disclosure agreement or any
other obligation with a third party that would materially and adversely affect
the Company's rights in the Intellectual Property of the Company. Such
Intellectual Property of the Company does not, to the best knowledge of the
Company, include any invention or other intellectual property of such employees
or consultants made prior to the time such employees or consultants were
employed or retained by the Company nor any intellectual property of any
previous employer of such employees or consultants nor the intellectual property
of any other person or entity.
(m) Registration Rights. Except with respect to that certain
Investor Rights Agreement, dated June 30, 1997, between the Company and Flanders
Language Valley and as provided in this Agreement, effective upon the Closing,
the Company is not currently subject to any grant or agreement to grant to any
person or entity any rights (including piggyback registration rights) to have
any securities of the Company registered with the SEC or registered or qualified
with any other governmental authority.
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(n) Title to Property and Assets. The properties and assets of
the Company are owned by the Company free and clear of all mortgages, deeds of
trust, liens, charges, encumbrances and security interests except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests that arise in the ordinary course of
business and do not in any material respect affect the properties and assets of
the Company. With respect to the property and assets it leases, the Company is
in compliance with such leases in all material respects.
(o) Tax Matters. The Company has filed all material tax
returns required to be filed, which returns are true and correct in all material
respects, and the Company is not in default in the payment of such taxes,
including penalties and interest, assessments, fees and other charges, other
than those being contested in good faith and for which adequate reserves have
been provided or those currently payable without interest that were payable
pursuant to said returns or any assessments with respect thereto.
(p) Full Disclosure. The information contained in this
Agreement, the Disclosure Letter and the SEC Documents with respect to the
business, operations, assets, results of operations and financial condition of
the Company, and the transactions contemplated by this Agreement , are true and
complete in all material respects and do not omit to state any material fact or
facts necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(q) Finder's Fee. The Company neither is nor will be obligated
for any finder's or broker's fee or commission in connection with this
transaction.
(r) Year 2000 Compliance. All of the Company's products
(including products currently under development) are Year 2000 Compliant. For
purposes of this Agreement, "Year 2000 Compliant" means, to the extent products
are designed to (i) record, store, process and calculate and present calendar
dates falling on and after January 1, 2000, and (ii) calculate any information
dependent on or relating to such dates, they will do so in the same manner and
with the same functionality, data integrity, and performance as those products
record, store, process and calculate and present calendar dates falling on and
before December 31, 1999, and calculate any information dependent on or related
to such dates. None of the Company's material products will lose any
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000. All of the Company's internal computer
systems, including without limitation, its accounting systems, are Year 2000
Compliant.
(s) Small Business Concern. The Company is a "small business
concern" within the meaning of the federal Small Business Investment Act of
1958, as amended, and the regulations thereunder, and Part 121 of the United
States Code of Federal Regulations. The information set forth on SBA Forms 480,
652D and 1031 furnished by the Company to the Investors that are Small Business
Investment Companies (each, an "SBIC") is complete and correct in all material
respects. Furthermore, as long as any SBIC is an investor in the Company, the
Company will provide the SBIC any information that is reasonably requested by
the Small Business Administration ("SBA"). The Company will provide SBA
examiners access to its books and records for SBA audit purposes in accordance
with ordinary SBA procedures.
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(t) Real Property Holding Corporation. The Company is not a
real property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF EACH
INVESTOR.
Each Investor hereby severally, and not jointly, represents
and warrants to the Company, and agrees that:
(a) Organization Good Standing and Qualification. The Investor
is either
(i) a corporation duly organized, validly existing
and in good standing under the laws of the state or nation indicated on Exhibit
A and has all corporate power and authority required to (A) carry on its
business as presently conducted, and (B) enter into this Agreement and the other
agreements, instruments and documents contemplated hereby, and to consummate the
transactions contemplated hereby and thereby, or
(ii) a partnership duly organized, validly existing
and in good standing under the laws of the state indicated on Exhibit A and has
all power and authority required to (A) carry on its business as presently
conducted, and (B) enter into this Agreement and the other agreements,
instruments and documents contemplated hereby, and to consummate the
transactions contemplated hereby and thereby.
The Investor is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
(b) Authorization. This Agreement has been duly authorized by
all necessary corporate or partnership action, as applicable, on the part of the
Investor. This Agreement constitutes the Investor's legal, valid and binding
obligation, enforceable in accordance with its terms, except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies. Each Investor has, as applicable, full corporate or
partnership power and authority to enter into this Agreement.
(c) Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Investor is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing of such qualifications or
filings under the Securities Act or the Exchange Act and the regulations
thereunder and all applicable state securities laws as may be required in
connection with the transactions contemplated by this Agreement. All such
qualifications and filings will, in the case of qualifications, be effective on
the Closing and will, in the case of filings, be made within the time prescribed
by law.
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(d) Non-Contravention. The execution, delivery and performance
of this Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby, do not and will not (i) contravene or conflict
with the Certificate of Incorporation, Bylaws, or the Partnership Agreement or
comparable governing document, as applicable, of the Investor; (ii) constitute a
violation of any provision of any federal, state, local or foreign law binding
upon or applicable to the Investor; or (iii) constitute a default or require any
consent under, give rise to any right of termination, cancellation or
acceleration of, or to a loss of any benefit to which the Investor is entitled
under, or result in the creation or imposition of any lien, claim or encumbrance
on any assets of the Investor under, any contract to which the Investor is a
party or any permit, license or similar right relating to the Investor or by
which the Investor may be bound or affected in such a manner as, together with
all other such matters, would have a Material Adverse Effect.
(e) Litigation. There is no Action pending against the
Investor that seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
(f) Purchase for Own Account. The Purchased Shares to be
purchased by the Investor are being acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the Securities Act, and the
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. The Investor also represents that it has not
been formed for the specific purpose of acquiring its Purchased Shares.
(g) Investment Experience. The Investor understands that its
purchase of the Purchased Shares to be purchased by the Investor involves
substantial risk. The Investor has experience as an investor in securities of
companies and acknowledges that it is able to fend for itself, can bear the
economic risk of its investment in the Purchased Shares and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of this investment in the Purchased Shares and protecting
its own interests in connection with this investment.
(h) Accredited Investor Status. The Investor is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
(i) Restricted Securities. The Investor understands that the
Purchased Shares are characterized as "restricted securities" under the
Securities Act, inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. The
Investor is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
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(j) Legends. The Investor agrees that the certificates for the
Purchased Shares shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or with any state
securities commission, and may not be transferred or disposed
of by the holder in the absence of a registration statement
which is effective under the Securities Act of 1933 and
applicable state laws and rules, or, unless, immediately prior
to the time set for transfer, such transfer may be effected
without violation of the Securities Act of 1933 and other
applicable state laws and rules."
In addition, the Investor agrees that the Company may place stop transfer orders
with its transfer agents with respect to such certificates. The appropriate
portion of the legend and the stop transfer orders will be removed promptly upon
delivery to the Company of such satisfactory evidence as reasonably may be
required by the Company that such legend or stop orders are not required to
ensure compliance with the Securities Act.
(k) Finder's Fee. The Investor neither is nor will be
obligated for any finder's or broker's fee or commission in connection with this
transaction.
5. CONDITIONS TO EACH INVESTOR'S OBLIGATIONS AT CLOSING.
(a) The obligations of each Investor under Sections l and 2 of
this Agreement are subject to the fulfillment or waiver, on or before the First
Closing, of each of the following conditions:
(i) Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 will be
true and correct in all material respects on and as of the date hereof and on
and as of the date of the First Closing, except as set forth in the Disclosure
Letter or the SEC Documents, with the same effect as though such representations
and warranties had been made as of the First Closing.
(ii) Performance. The Company will have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the First Closing, and will have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(iii) Securities Exemptions. The offer and sale of
the Purchased Shares to each Investor pursuant to this Agreement will be exempt
from the registration requirements of the Securities Act and the registration
and/or qualification requirements of all applicable state securities laws.
(iv) Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated at the First
Closing and all documents incident thereto will be reasonably satisfactory in
form and substance to each Investor, and each Investor will have
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received all such counterpart originals and certified or other copies of such
documents as it may reasonably request. Such documents shall include but not be
limited to the following:
(A) Certified Charter Documents. A copy of
(1) the Certificate of Incorporation certified as of a recent date by the
Secretary of State of Delaware as a complete and correct copy thereof, (2) the
Certificate of Designations certified as of a recent date by the Secretary of
State of Delaware and (3) the Bylaws of the Company (as amended through the date
of the First Closing) certified by the Secretary of the Company as a true and
correct copy thereof as of the First Closing.
(B) Board Resolutions. A copy, certified by
the Secretary of the Company, of the resolutions of the Board of Directors of
the Company providing for the approval of this Agreement and the issuance of the
Purchased Shares and the other matters contemplated hereby.
(v) Opinion of Company Counsel. Each Investor will
have received an opinion on behalf of the Company, dated as of the date of the
First Closing, from Wilson Sonsini Goodrich & Rosati, counsel to the Company, in
the form attached as Exhibit C.
(vi) No Material Adverse Effect. Between the date
hereof and the First Closing, there shall not have occurred any Material Adverse
Effect.
(vii) Nasdaq Requirements. The Company shall have
satisfied all requirements of the Nasdaq Stock Market Marketplace Rules with
respect to the issuance of the Purchased Shares.
(viii) Other Actions. The Company shall have executed
such certificates, agreements, instruments and other documents, and taken such
other actions as shall be customary or reasonably requested by each Investor in
connection with the transactions contemplated hereby.
(b) The obligations of each Investor under Sections l and 2 of
this Agreement are subject, if the Second Closing occurs within twenty (20) days
of the First Closing, to the fulfillment or waiver, on or before the Second
Closing, of each of the conditions set forth below:
(i) Representations and Warranties True. Each of the
representations and warranties of the Company contained in Sections 3(a), 3(c),
3(d), 3(e), 3(f), 3(g)(ii), and 3(h) hereof will be true and correct in all
material respects on and as of the date hereof and on and as of the date of the
Second Closing, except as set forth in the Disclosure Letter or the SEC
Documents filed with the SEC on or before the date hereof, with the same effect
as though such representations and warranties had been made as of the Second
Closing, and at the Second Closing, each Investor shall receive a certificate of
an authorized officer of the Company certifying to the foregoing.
(ii) Notice Given. The Company shall have satisfied
all requirements of the Nasdaq Stock Market Marketplace Rules with respect to
the issuance of the Purchased Shares.
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(c) If the Second Closing does not occur within twenty (20)
days of the First Closing, the obligations of each Investor under Sections l and
2 of this Agreement are subject to the fulfillment or waiver, on or before the
Second Closing, of each of the following additional conditions:
(i) Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 will be
true and correct in all material respects on and as of the date hereof and on
and as of the date of the Second Closing, except as set forth in the Disclosure
Letter or the SEC Documents filed with the SEC on or before the date hereof,
with the same effect as though such representations and warranties had been made
as of the Second Closing, and at the Second Closing each Investor shall receive
a certificate of an authorized officer of the Company certify to the foregoing.
(ii) Performance. The Company will have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Second Closing, and will have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(iii) Securities Exemptions. The offer and sale of
the Purchased Shares to each Investor pursuant to this Agreement will be exempt
from the registration requirements of the Securities Act and the registration
and/or qualification requirements of all applicable state securities laws.
(iv) Opinion of Company Counsel. Each Investor will
have received an opinion on behalf of the Company, dated as of the date of the
Second Closing, from Wilson Sonsini Goodrich & Rosati, counsel to the Company,
in the form attached as Exhibit C.
(v) Nasdaq Requirements. The Company shall have
satisfied all requirements of the Nasdaq Stock Market Marketplace Rules with
respect to the issuance of the Purchased Shares.
(vi) Other Actions. The Company shall have executed
such certificates, agreements, instruments and other documents, and taken such
other actions as shall be customary or reasonably requested by each Investor in
connection with the transactions contemplated hereby.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to each Investor under this
Agreement are subject to the fulfillment or waiver, on or before the First
Closing or the Second Closing, as the case may be, of each of the following
conditions:
(a) Representations and Warranties True. The representations
and warranties of each Investor contained in Section 4 will be true and correct
in all material respects on and as of the date hereof and on and as of the date
of the First Closing with the same effect as though such representations and
warranties had been made as of the First Closing.
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(b) Performance. Each Investor will have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the First Closing and will have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
(c) Payment of Purchase Price. Each Investor will have
delivered to the Company, in the case of the Purchased Shares to be purchased
and sold at the First Closing, and to the escrow agent, in the case of the
Purchased Shares to be purchased and sold at the Second Closing, the full
purchase price of the Purchased Shares as specified in Section 1(b).
(d) Securities Exemptions. The offer and sale of the Purchased
Shares to each Investor pursuant to this Agreement will be exempt from the
registration requirements of the Securities Act and the registration and/or
qualification requirements of all applicable state securities laws.
(e) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
will have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
(f) Nasdaq Requirements. If required by the Nasdaq Stock
Market Marketplace Rules, the Company shall have obtained the approval of its
shareholders to the issuance of the Purchased Shares.
(g) Other Actions. Each Investor shall have executed such
certificates, agreements, instruments and other documents, and taken such other
actions as shall be customary or reasonably requested by the Company in
connection with the transactions contemplated hereby.
7. COVENANTS OF THE PARTIES.
(a) Information Rights.
(i) Financial Information. The Company covenants and
agrees that, commencing on the Closing and continuing for so long as each
Investor holds any Purchased Shares, the Company shall:
(A) Annual Reports. Furnish to each Investor
promptly following the filing of such report with the SEC a copy of the
Company's Annual Report on Form 10-K SB for each fiscal year, which shall
include a consolidated balance sheet as of the end of such fiscal year, a
consolidated statement of income and a consolidated statement of cash flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year, all
prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants. In the event the Company shall no longer be required to file Annual
Reports on Form 10-K SB, the Company shall,
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within ninety (90) days following the end of each respective fiscal year,
deliver to each Investor a copy of such balance sheets, statements of income and
statements of cash flows, or such form that replaces Form 10-K SB.
(B) Quarterly Reports. Furnish to each
Investor promptly following the filing of such report with the SEC, a copy of
each of the Company's Quarterly Reports on Form 10-Q SB, which shall include a
consolidated balance sheet as of the end of the respective fiscal quarter,
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries for the respective fiscal quarter and for the
year to-date, setting forth in each case in comparative form the figures from
the comparable periods in the Company's immediately preceding fiscal year, all
prepared in accordance with generally accepted accounting principles and
practices (except, in the case of any Form 10-Q SB, as may otherwise be
permitted by Form 10-Q SB), but all of which may be unaudited. In the event the
Company shall no longer be required to file Quarterly Reports on Form 10-Q SB,
the Company shall, within forty-five (45) days following the end of each of the
first three (3) fiscal quarters of each fiscal year, deliver to each Investor a
copy of such balance sheets, statements of income and statements of cash flows.
(ii) SEC Filings. The Company shall deliver to each
Investor copies of each other document filed with the SEC on a non-confidential
basis promptly following the filing of such document with the SEC.
(b) Registration Rights.
(i) Definitions. For purposes of this Section 7(b):
(A) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act of
1933, as amended, (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement
(B) Registrable Securities. The term
"Registrable Securities" means: (x) the Purchased Shares and any shares of
Common Stock of the Company issued or issuable upon conversion of the Purchased
Shares, (y) any shares of Common Stock of the Company or other securities of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, any of the securities
described in the immediately preceding Clause (x), and (z) the Common Stock
purchased on or before the date hereof by Flanders Language Valley.
Notwithstanding the foregoing, "Registrable Securities" shall exclude any
Registrable Securities sold by a person in a transaction in which rights under
this Section 7(b) are not assigned in accordance with this Agreement or any
Registrable Securities sold in a public offering, whether sold pursuant to Rule
144 promulgated under the Securities Act, or in a registered offering, or
otherwise.
(C) Registrable Securities Then Outstanding.
The number of shares of "Registrable Securities then outstanding" shall mean the
number of shares of Purchased Shares, shares
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of Common Stock and other securities that are Registrable Securities and are
then issued and outstanding.
(D) Holder. For purposes of this Section 7,
the term "Holder" means any person owning of record Registrable Securities that
have not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any permitted assignee of record of such Registrable
Securities to whom rights under this Section 7(b) have been duly assigned in
accordance with this Agreement.
(E) Form S-3. The term "Form S-3" means such
form under the Securities Act as is in effect on the date hereof or any
successor registration form under the Securities Act subsequently adopted by the
SEC that permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(ii) Demand Registration.
(A) Request by Holders. If (i) the Company
shall at any time after the one hundred and twentieth (120th) day after the
Closing receive a written request from the Holders of at least fifty percent
(50%) of the Series A Preferred issued as of the Closing, that the Company file
a registration statement under the Securities Act (including, without
limitation, a "shelf" registration statement, if requested by such Holders,
during any period of time that Rule 144 is not available as an exemption for the
sale in a single 90-day period of all of the Registrable Securities that any
such Holder desires to sell, in which case the Company would maintain the
effectiveness of such "shelf" registration statement until the earlier of the
first anniversary of the effectiveness thereof or the date on which all such
Registrable Securities could be sold under Rule 144 in a single 90-day period)
covering the registration of Registrable Securities, and (ii) the expected gross
proceeds of the sale of Registrable Securities under such registration statement
would equal or exceed $2,000,000, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and use commercially reasonable
efforts to effect, as soon as practicable, the registration under the Securities
Act of all Registrable Securities that Holders request to be registered and
included in such registration by written notice given such Holders to the
Company within twenty (20) days after receipt of the Request Notice, subject
only to the limitations of this Section 7(b); provided that the Company shall
not be obligated to effect any such registration if the Company has, within the
six (6) month period preceding the date of such request, already effected a
registration under the Securities Act pursuant to Section 7(b)(iii), other than
a registration from which the Registrable Securities of Holders have been
excluded with respect to all or any portion of the Registrable Securities the
Holders requested be included in such registration. If requested by such Holders
upon the advice of the underwriter, the Company shall register such Registrable
Securities on Form S-1 or any successor registration form.
(B) Underwriting. If the Holders initiating
the registration request under this Section 7(b)(ii) ("Initiating Holders")
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, then they shall so advise the Company as a part of
their request, and the Company shall include such information in the written
notice referred to in
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Section 7(b)(ii)(A). In such event, the right of any Holder to include his or
her Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the initiating Holders and such Holder determined
based on the number of Registrable Securities held by such Holders being
registered). All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting by the
Holders of a majority of the Registrable Securities being registered and
reasonably acceptable to the Company (including a market stand-off agreement of
up to 180 days if required by such underwriters). Notwithstanding any other
provision of this Section 7(b)(ii), if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company and any selling security holder other than the Holders
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(C) Maximum Number of Demand Registrations.
The Company shall be obligated to effect only one (1) such registration pursuant
to this Section 7(b)(ii).
(D) Deferral. Notwithstanding the foregoing,
if the Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 7(b)(ii) a certificate signed by the
President or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board, it would be materially detrimental to the Company
and its stockholders for such registration statement to be filed, then the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period.
(E) Expenses. All expenses incurred in
connection with any registration pursuant to this Section 7(b)(ii), including
without limitation all federal and "blue sky" registration, filing and
qualification fees, printer's and accounting fees, and fees and disbursements of
counsel for the Company (but excluding underwriters' discounts and commissions
relating to shares sold by the Holders), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 7(b)(ii) shall
bear such Holder's proportionate share (based on the total number of shares sold
in such registration other than for the account of the Company) of all
discounts, commissions or other amounts payable to underwriters or brokers in
connection with such offering by the Holders. Notwithstanding the foregoing, the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to this Section 7(b)(ii) if the registration request
is subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered,
-17-
unless the Holders of such majority agree that such registration constitutes the
use by the Holders of one (1) demand registration pursuant to this Section
7(b)(ii) (in which case such registration shall also constitute the use by all
Holders of Registrable Securities of one (l) such demand registration); provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a Material Adverse Effect not known to the Holders at the time of
their request for such registration and have withdrawn their request for
registration after learning of such material adverse change, then the Holders
shall not be required to pay any of such expenses and such registration shall
not constitute the use of a demand registration pursuant to this Section
7(b)(ii).
(iii) Piggyback Registrations. The Company shall
notify all Holders of Registrable Securities in writing at least thirty (30)
days prior to filing any registration statement under the Securities Act for
purposes of effecting a public offering of securities of the Company (including,
but not limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to any
employee benefit plan or any merger or other corporate reorganization) and will
afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(A) Underwriting. If a registration
statement under which the Company gives notice under this Section 7(b)(iii) is
for an underwritten offering, then the Company shall so advise the Holders of
Registrable Securities. In such event, the right of any such Holder's
Registrable Securities to be included in such a registration pursuant shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriters selected for
such underwriting (including a market stand-off agreement of up to 180 days if
required by such underwriters); provided, however, that it shall not be
considered customary to require any of the Holders to provide representations
and warranties regarding the Company or indemnification of the underwriters for
material misstatements or omissions in the registration statement or prospectus
for such offering. Notwithstanding any other provision of this Agreement, if the
managing underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares from the registration and the underwriting;
provided; however, that the securities to be included in the registration and
the underwriting shall be allocated, (1) first to the Company (provided,
however, that a minimum of twenty percent (20%) of the number of Registrable
Securities that each holder of ten percent (10%) or more of the then outstanding
Common Stock (where any Registrable Securities that
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are not shares of Common Stock but are exercisable or exchangeable for, or
convertible into, shares of Common Stock, shall be deemed to have been so
exercised, exchanged or converted for such purpose) must also in any event be
included), (2) second, to the extent the managing underwriter determines
additional securities can be included after compliance with Clause (1), to each
of the Holders and other holders of registration rights on a parity with the
Holders requesting inclusion of their Registrable Securities in such
registration statement on a pro rata basis based on the total number of
Registrable Securities and other securities entitled to registration then held
by each such Holder or other holder, and (3) third, to the extent the managing
underwriter determines additional securities can be included after compliance
with Clauses (1) and (2), any shares or other securities held by any person who
is an employee, officer or director of the Company (or any subsidiary of the
Company) or any other person. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder that is a partnership, the Holder and the partners and retired
partners of such Holder, or the estates and family members of any such partners
and retired partners and any trusts for the benefit of any of the foregoing
persons, and for any Holder that is a corporation, the Holder and all
corporations that are affiliates of such Holder, shall be deemed to be a single
"Holder," and any pro rata reduction with respect to such "Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "Holder," as defined in this
sentence.
(B) Expenses. All expenses incurred in
connection with a registration pursuant to this Section 7(b)(iii) (excluding
underwriters' and brokers' discounts and commissions relating to shares sold by
the Holders), including, without limitation all federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel for the Company, shall be borne by the
Company.
(C) Not Demand Registration. Registration
pursuant to this Section 7(b)(iii) shall not be deemed to be a demand
registration as described in Section 7(b)(ii) above. Except as otherwise
provided herein, there shall be no limit on the number of times the Holders may
request registration of Registrable Securities under this Section 7(b)(iii).
(iv) Form S-3 Registration. The Company shall use all
reasonable commercial efforts, on or prior to the one hundred and twentieth
(120th) day after the date of Closing, cause to be filed and become effective
with the SEC a Registration Statement on Form S-3 relating to all of the
Registrable Securities and up to 50,000 shares of Common Stock held by Brian
Swift (in the event such registration statement is not effective at the
expiration of such 120-day period, the Company shall continue to use all
reasonable commercial efforts to cause it to become effective until it becomes
effective); provided; however, that in the event Form S-3 is not available to
the Company, the Company shall file such other form as may be available if
Holders who hold Registrable Securities with a market value of at least One
Million Dollars ($1,000,000) deliver a written request to the Company that the
Company do so, where such market value is determined as of the date of such
written request. The Company shall use its best efforts to cause any such
Registration Statement to become effective as promptly as possible after such
filing and shall also use its best efforts to obtain any related
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qualifications, registrations or other compliances that may be necessary under
any applicable "blue sky" laws. In connection with such registration, the
Company will:
(A) Notice. Promptly give written notice to
the Holders of the proposed registration and any related qualification or
compliance; and
(B) Registration. Prior to the one hundred
and twentieth (120th) day after the day of Closing, effect such registration and
all such qualifications and compliances and as would permit or facilitate the
sale and distribution of all or such portion of such Holders or Holders'
Registrable Securities; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 7(b)(iv) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(C) Expenses. The Company shall pay all
expenses incurred in connection with each registration requested pursuant to
this Section 7(b)(iv), excluding underwriters' or brokers' discounts and
commissions relating to shares sold by the Holders, including without limitation
federal and "blue sky" registration, filing and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel.
(D) Deferral. Notwithstanding the foregoing,
if the Company shall furnish to Holders requesting the filing of a registration
statement pursuant to this Section 7(b)(iv), a certificate signed by the
President or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board, it would be materially detrimental to the Company
and its stockholders for such registration statement to be filed, then the
Company shall have the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period, and the period of time that the Company is
obligated to maintain the effectiveness of any registration statement under
Clause (F) below shall be extended for the length of any such period of
deferral.
(E) Not Demand Registration. Form S-3
registrations shall not be deemed to be demand registrations as described in
Section 7(b)(ii) above.
(F) Maintenance. The Company shall use all
commercially reasonable efforts to maintain the effectiveness of any Form S-3
registration statement filed under this Section 7(b)(iv) until the earlier of:
(a) the date on which all of the Registrable Securities have been sold; and (b)
the second anniversary of the Closing; provided, however, that unless all of the
Registrable Securities held by each Investor as of such second anniversary could
then be sold in a single transaction in accordance with Rule 144 under the
Securities Act without exceeding the volume limitations thereof, if the Company
receives written notice from each Investor that each Investor may be deemed to
be an "affiliate" of the Company for purposes of the Securities Act, the date in
this Clause (b) shall be extended until each Investor advises the Company that
it no longer has any reasonable basis to believe it is such an "affiliate."
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(v) Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities under this Agreement the
Company shall, as expeditiously as reasonably possible:
(A) Registration Statement. Prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use commercially reasonable efforts to cause such registration
statement to become effective; provided, however, that, except as otherwise
required by in this Section 7(b), the Company shall not be required to keep any
such registration statement effective for more than ninety (90) days.
(B) Amendments and Supplements. Prepare and
file with the SEC such amendments and supplements to such registration statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(C) Prospectuses. Furnish to the Holders
such number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by them that are included in such registration.
(D) Blue Sky. Use commercially reasonable
efforts to register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably requested by the Holders, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions.
(E) Underwriting. In the event of any
underwritten public offering, enter into and perform its obligations under an
underwriting agreement in usual and customary form (including, without
limitation, customary indemnification of the underwriters by the Company), with
the managing underwriter(s) of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement; provided, however, that it shall not be considered customary to
require any of the Holders to provide representations and warranties regarding
the Company or indemnification of the underwriters for material misstatements or
omissions in the registration statement or prospectus for such offering.
(F) Notification. Notify each Holder of
Registrable Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(G) Opinion and Comfort Letter. Furnish, at
the request of any Holder requesting registration of Registrable Securities, on
the date that such Registrable Securities are
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delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) in the event
that such securities are being sold through underwriters, a "comfort" letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities.
(vi) Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Sections 7(b)(ii), (iii) or (iv) that the selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to timely effect the registration of their Registrable Securities.
(vii) Indemnification. In the event any Registrable
Securities are included in a registration statement under Sections 7(b)(ii),
(iii) or (iv):
(A) By the Company. To the extent permitted
by law, the Company will indemnify and hold harmless each Holder, the partners,
officers, shareholders, employees, representatives and directors of each Holder,
any underwriter (as determined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, against
any losses, claims, damages, or Liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(x) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(y) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or
(z) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any federal or
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any federal or state securities law in connection with
the offering covered by such registration statement;
-22-
and the Company will reimburse each such Holder, partner, officer, shareholder,
employee, representative, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, shareholder, employee, representative, director,
underwriter or controlling person of such Holder.
(B) By Selling Holders. To the extent
permitted by law, each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, officers, shareholders, employees, representatives and directors and
any person who controls such Holder within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such officer or director, controlling
person, underwriter or other such Holder, partner, officer, shareholder,
employee, representative, director or controlling person of such other Holder
may become subject under the Securities Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such officer or director, controlling person, underwriter or other Holder,
partner, officer, shareholder, employee, representative, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action: provided, however, that the
indemnity agreement contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
payable in indemnity by a Holder under this subsection or otherwise in respect
of any Violation shall not exceed the net proceeds received by such Holder in
the registered offering out of which such Violation arises.
(C) Notice. Promptly after receipt by an
indemnified party under of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this section, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its
-23-
own counsel, with the fees and expenses to be paid by the indemnifying party, to
the extent that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
conflict of interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of liability except to
the extent the indemnifying party is prejudiced as a result thereof.
(D) Defect Eliminated in Final Prospectus.
The foregoing indemnity agreements of the Company and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was timely furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(E) Contribution. In order to provide for
just and equitable contribution to joint liability under the Securities Act in
any case in which either (i) any Holder exercising rights under this Agreement,
or any controlling person of any such Holder, makes a claim for indemnification
pursuant to this section, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this section provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this section; then, and in each such case, the Company and such
Holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such Holder is responsible for the portion represented by the percentage
that the public offering price of its Registrable Securities offered by and sold
under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
provided, however, that, in any such case: (A) no such Holder will be required
to contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(F) Survival. The obligations of the Company
and Holders under this Section 7(b)(vii) shall survive until the fifth
anniversary of the completion of any offering of Registrable Securities in a
registration statement, regardless of the expiration of any statutes of
limitation or extensions of such statutes.
-24-
(viii) Termination of the Company's Obligations. The
Company shall have no obligations pursuant to this Section 7(b) with respect to
any Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Section 7(b)(ii), (iii) or (iv) more than four (4) years after the
date of this Agreement, or, if earlier, the date on which each Holder receives a
written opinion of counsel to the Company, reasonably acceptable to counsel for
the Holder, all such Registrable Securities proposed to be sold by a Holder may
then be sold under Rule 144 in one transaction without exceeding the volume
limitations thereunder. The Company and Flanders Language Valley hereby agree
that Section 2 of that certain Investor Rights Agreement, dated June 30, 1997,
between the Company and Flanders Language Valley is hereby terminated and is no
longer in any force or effect.
(ix) No Registration Rights to Third Parties. Without
the prior written consent of the Holders of sixty-six and two-thirds percent (66
2/3%) of the Series A Preferred Stock then outstanding, the Company covenants
and agrees that it shall not grant, or cause or permit to be created, for the
benefit of any person or entity any registration rights of any kind (whether
similar to the demand, "piggyback" or Form S-3 registration rights described in
this Section 7, or otherwise) relating to shares of the Company's Common Stock
or any other securities of the Company.
(x) Suspension Provisions. Notwithstanding the
foregoing subsections of this Section 7 (b), the Company shall not be required
to take any action with respect to the registration or the declaration of
effectiveness of the registration statement following written notice to the
Holders from the Company (a "Suspension Notice") of the existence of any state
of facts or the happening of any event (including without limitation pending
negotiations relating to, or the consummation of, a transaction, or the
occurrence of any event that the Company believes, in good faith, requires
additional disclosure of material, non-public information by the Company in the
registration statement that the Company believes it has a bona fide business
purpose for preserving confidentiality or that renders the Company unable to
comply with the published rules and regulations of the SEC promulgated under the
Securities Act or the Securities Exchange Act, as in effect at any relevant time
(the "Rules and Regulations")) that would result in (1) the registration
statement, any amendment or post-effective amendment thereto, or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (2) the prospectus
issued under the registration statement, any prospectus supplement, or any
document incorporated therein by reference including an untrue statement of
material fact or omitting to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, provided that the Company (1) shall not issue a Suspension
Notice more than once in any 12 month period, (2) shall use its best efforts to
remedy, as promptly as practicable, but in any event within 60 days of the date
on which the Suspension Notice was delivered, the circumstances that gave rise
to the Suspension Notice and deliver to the Holders notification that the
Suspension Notice is no longer in effect and (3) shall not issue a Suspension
Notice for any period during which the Company's executive officers are not
similarly restrained from disposing of shares of the Company's Common Stock.
Upon receipt of a Suspension Notice from the Company, all time limits applicable
to the Holders under this Section 7(b) shall automatically be extended by an
amount of time equal to the amount of time the Suspension Notice is in effect,
the Holders will forthwith discontinue disposition of all such shares pursuant
to the registration statement
-25-
until receipt from the Company of copies of prospectus supplements or amendments
prepared by or on behalf of the Company (which the Company shall prepare
promptly), together with a notification that the Suspension Notice is no longer
in effect, and if so directed by the Company, the Holders will deliver to the
Company all copies in their possession of the prospectus covering such shares
current at the time of receipt of any Suspension Notice.
(c) Obligations Regarding Confidential Information.
Confidential Information (as defined below) shall not be disclosed by any party
hereto to any third party except in accordance with the provisions set forth
below. For purposes of this Agreement, the term "Confidential Information"
refers to the following items: (i) the existence of this Agreement and the Right
of First Refusal and Co-Sale Agreement, of even date herewith, among Intel
Corporation ("Intel" or the "Lead Investor"), William Welling, Flanders Language
Valley and Edmund Shea (collectively, the "Transaction Agreements"), and (ii)
the terms and provisions of the Transaction Agreements, provided, however, that
Confidential Information shall not include any information that was (i) publicly
known and generally available in the public domain prior to its disclosure by
the Company, (ii) becomes publicly known and generally available in the public
domain through no action or inaction on the part of the Company or (iii) becomes
publicly known by consent or action of the Lead Investor.
(i) Press Releases, Etc. No announcement regarding
the Confidential Information in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without the prior written consent of
the Company and the Lead Investor.
(ii) Permitted Disclosures. Notwithstanding the
foregoing, (i) any party may disclose any of the Confidential Information to its
current or bona fide prospective investors, employees, investment bankers,
lenders, accountants and attorneys, in each case only where such persons or
entities are under appropriate nondisclosure obligations; and (ii) the Lead
Investor may disclose its investment in the Company and other Confidential
Information to third parties or to the public at its sole discretion and, if it
does so, the other parties hereto shall have the right to disclose to third
parties any such information disclosed in a press release or other public
announcement by each Investor.
(iii) Legally Compelled Disclosure. Except to the
extent required by law or judicial or administrative order or except as provided
herein, the Company shall not disclose any Confidential Information without the
Lead Investor's prior written approval; provided, however, that the Company may
disclose any Confidential Information, to the extent required by law or judicial
or administrative order, provided that if such disclosure is pursuant to
judicial or administrative order, the Company will notify the Lead Investor
promptly before such disclosure and will cooperate with the Lead Investor to
seek confidential treatment with respect to the disclosure if requested by the
Lead Investor; and provided further that if such disclosure is required pursuant
to law or the rules and regulations of any federal, state or local governmental
authority or any regulatory body, the parties will cooperate to seek
confidential treatment to the maximum extent, in the reasonable judgment of
counsel of the Company, possible under law. Notwithstanding the foregoing
provisions or any other provision to the contrary, the Company agrees that,
except to the extent required by judicial or administrative order, which the
Company shall resist to the maximum extent possible under law, the Company will
not
-26-
disclose the identity of the Lead Investor or describe the Lead Investor other
than as a "corporate investor" in any public filing, advertisement, news release
or professional or trade publication or in any other manner without the Lead
Investor's prior written consent (which consent generally will not be granted)
and will not file any of the Transaction Agreements (the "Exhibit Filing") with
any governmental authority or any regulatory body; provided, however, that to
the extent required under the Rules and Regulations, the Company may (A) file
this Agreement as an exhibit to any filing required to be made by the Company
under the Exchange Act, (B) identify the Lead Investor as "Intel Corporation"
and (C) describe the material terms of the Lead Investor's investment. The
Company agrees that it will provide the Lead Investor with drafts of any
documents, press releases or other filings (including, without limitation, the
filing permitted by the proviso of the immediately preceding sentence) in which
the Company desires to disclose any Transaction Agreement, the transactions
contemplated thereby or any other Confidential Information is disclosed at least
three (3) business days prior to the filing or disclosure thereof, and that it
will make any changes to such materials as requested by the Lead Investor unless
advised by counsel that the Rules and Regulations require otherwise. Unless
permitted by the terms of this Section, the Company will not disclose any
Confidential Information or file any Transaction Agreements if the Lead Investor
has objected to such disclosure or filing. The Company will not, except as
permitted above, file any of the Transaction Agreements with any governmental
authority or any regulatory body, or disclose the identity of the Lead Investor
or any other Confidential Information in any filing.
(iv) Prior to the execution of this Agreement, the
Company and the Lead Investor will agree on the content of a joint press release
announcing the existence of this Agreement, which press release will be issued
as mutually agreed by the Company and the Lead Investor.
(v) No party will be required to disclose to any
other party any confidential information of any third party without having first
obtained such third party's prior written consent.
(vi) Other Information. The provisions of this
Section 7(c) shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by any of the
parties hereto with respect to the transactions contemplated hereby. Additional
disclosures and exchange of confidential information between the Company and the
Lead Investor (including, without limitation, any exchanges of information with
any the Lead Investor board observer) shall be governed by the terms of the
Corporate Non-Disclosure Agreement No. 120110, dated July 30, 1998, executed by
the Company and the Lead Investor, and any Confidential Information Transmittal
Records provided in connection therewith.
(d) Board and Committee Observer.
(i) So long as the Lead Investor, together with its
subsidiaries of which the Lead Investor beneficially owns, either directly or
indirectly, at least fifty percent (50%) of the voting securities (each a
"Majority Owned Subsidiary" and collectively, the "Majority Owned
Subsidiaries"), hold the equivalent, on an as-converted basis, of at least five
percent (5%) of the then outstanding Common Stock of the Company, such number to
be proportionately adjusted for stock splits, stock dividends and similar
events, the Company will permit a representative of such Investor, reasonably
-27-
acceptable to the Company (a "Representative"), to attend all meetings of the
Board and all committees of the Board, whether in person, telephonic or other,
in a non-voting, observer capacity and shall provide to the Lead Investor,
concurrently with the members of the Board or such Board committee, notice of
such meeting and a copy of all materials provided to such members. Subject to
the termination provisions set forth immediately below, the Company will also
permit a Representative of Zero Stage Capital VI, LLP, a Massachusetts
partnership ("ZSC") to attend all meetings of the Board and all committees of
the Board, whether in person, telephonic or other, in a non-voting, observer
capacity, shall provide to ZSC, concurrently with the members of the Board or
such Board committee, notice of such meeting and a copy of all materials
provided to such members, and shall reimburse such Representative for his or her
reasonable travel expenses incurred in connection with attending such Board
meetings in person. The rights of ZSC set forth in the preceding sentence shall
begin at the Second Closing and shall terminate without further action by the
Company upon the earlier to occur of (1) September 17, 2001 or (2) such time as
ZSC is the beneficial owner of the equivalent of less than 100,000 shares of
Series A Preferred Stock of the Company (whether or not such shares have been
converted to shares of Common Stock), such number to be proportionately adjusted
for stock splits, stock dividends and similar events. A majority of the
disinterested members of the Board shall be entitled to recuse each
Representative from portions of any Board or Board committee meeting and to
redact portions of Board or Board committee materials delivered to the
Representative where and to the extent that such majority determines by
resolution, in good faith, that: (a) such refusal is reasonably necessary, in
the opinion of counsel to the Company, to preserve attorney-client privilege
with respect to a material matter; or (b) the presence of the Representative
would materially inhibit deliberations by the Board or would otherwise be
materially injurious to the Company in such circumstances.
(ii) Exchanges of confidential and proprietary
information between the Company and the Lead Investor's Representative shall be
governed by the terms of the Corporate Non-Disclosure Agreement No. 120110,
dated July 30, 1998, executed by the Company and the Lead Investor, and any
Confidential Information Transmittal Records provided in connection therewith.
Exchanges of confidential and proprietary information between the Company and
the ZSC's Representative shall be governed by the terms of the Non-Disclosure
Agreement between such parties of even date hereof. The Company acknowledges
that each Representative may, from time to time, have information that may be of
interest to the Company ("Information") regarding a wide variety of matters
including, by way of example only, (a) the Lead Investor's technologies, plans
and services, and plans and strategies relating thereto, (b) current and future
investments the Lead Investor has made, may make, may consider or may become
aware of with respect to other companies and other technologies, products and
services, including, without limitation, companies, technologies, products and
services that may be competitive with the Company's, and (c) developments with
respect to the technologies, products and services, and plans and strategies
relating thereto, of other companies, including, without limitation, companies
that may be competitive with the Company. The Company recognizes that a portion
of such Information may be of interest to the Company. Such Information may or
may not be known by the Representative. The Company, as a material part of the
consideration for this Agreement, agrees that the Lead Investor and its
Representative shall have no duty to disclose any Information to the Company or
permit the Company to participate in any projects or investments based on any
Information, or to otherwise take advantage of any opportunity that may be of
interest to the Company if it were aware of
-28-
such Information, and hereby waives, to the extent permitted by law, any claim
based on the corporate opportunity doctrine or otherwise that could limit the
Lead Investor's ability to pursue opportunities based on such Information or
that would require the Lead Investor or Representative to disclose any such
Information to the Company or offer any opportunity relating thereto to the
Company.
(e) Rights of Participation.
(i) General. Until the expiration of the first
anniversary of the Closing (such period from the date hereof through such first
anniversary being referred to herein as the "Initial Rights Period"), each
Investor and each other person or entity to whom rights under this Section 7(e)
have been duly assigned (each of such Investor and each such assignee, a
"Participation Rights Holder") shall have a right of first refusal to purchase
all New Securities (as defined below) that the Company may from time to time
issue during such period (such New Securities would be allocated among the
Participation Rights Holders who elect to exercise their right to purchase such
New Securities on a pro rata basis according to the number of Purchased Shares
held by each such Participation Rights Holder (where any shares of Common Stock
held as a result of conversion of Purchased Shares shall be deemed for these
purposes to still be Purchased Shares)). From the date of expiration of the
Initial Rights Period through the date ten (10) days prior to the consummation
by the Company of a registered public offering of shares of the Common Stock in
which the gross proceeds to the Company exceed Fifteen Million Dollars
($15,000,000), each Investor and each other Participation Rights Holder shall
have a right of first refusal to purchase such Participation Rights Holder's Pro
Rata Share (as defined below) of all New Securities that the Company may from
time to time issue after the Closing Date. The rights described in the preceding
two sentences, as further described in this Clause (e), are referred to as the
"Right of Participation". Notwithstanding the foregoing, a Participation Rights
Holder shall not have the Right of Participation with respect to any issuance of
New Securities that would result in less than a ten percent (10%) reduction in
such Participation Rights Holder's Pro Rata Share (where prior issuances of New
Securities in which the such Participation Rights Holder was not entitled to
participate are aggregated with the issuance in question for purposes of such
ten percent (10%) calculation).
(ii) Pro Rata Share. "Pro Rata Share" means, with
respect to each Participation Rights Holder, the ratio of the following numbers
calculated immediately prior to the issuance of the New Securities giving rise
to the Right of Participation: (A) the Participant Share Number (as defined
below) for such Participation Rights Holder, to (B) the difference between (1)
the sum of (a) the total number of shares of Common Stock, Series A Preferred
Stock and other voting capital stock of the Company then outstanding, plus (b)
the number of shares of voting capital stock issuable upon the exercise,
conversion or exchange of any other security of the Company then outstanding and
(2) the number of Dilutive Securities issued since the last Notice Date (as
defined below in Section 7(f)(vii), excluding any Maintenance Securities issued
pursuant to the last Maintenance Notice.
(iii) New Securities. "New Securities" means any
Common Stock, Preferred Stock or other voting capital stock or security of the
Company, whether now authorized or not, and rights, options or warrants to
purchase such Common Stock or Preferred Stock or other voting capital stock or
security, and securities of any type whatsoever that are, or may become,
convertible into or
-29-
exchangeable or exercisable for Common Stock, Preferred Stock or other voting
capital stock or security; provided, however, that the term "New Securities"
shall not include:
(A) any shares of Common Stock (or options
or warrants therefor) issued to employees, officers, directors or consultants of
the Company pursuant to any finder's fee agreements or stock purchase or stock
option incentive plans approved by the Board;
(B) the Purchased Shares issued under this
Agreement;
(C) shares of Common Stock issued upon
conversion of any Purchased Shares;
(D) any securities issued in connection with
any stock split stock, dividend or other similar event in which all
Participation Rights Holders are entitled to participate on a pro rata basis;
(E) any securities issued upon the exercise,
conversion or exchange of any outstanding security if such outstanding security
constituted a New Security; or
(F) any securities issued pursuant to the
acquisition of another Person by the Company by consolidation, merger, purchase
of assets, or other reorganization.
(iv) Participant Share Number. "Participant Share
Number", with respect to a Participant Rights Holder, means the sum of (1) the
number of Series A Preferred Stock held by such Participant, (2) the number of
shares of Common Stock converted from Series A Preferred Stock held by such
Participant, (3) the number of shares of other voting capital stock or security
of the Company held by such Participant, and (4) the number of shares of Series
A Preferred Stock, Common Stock or other voting capital stock or security
issuable upon the exercise, conversion or exchange of any other security of the
Company held by such Participant.
(v) Procedures. If the Company proposes to undertake
an issuance of New Securities (in a single transaction or a series of related
transactions) in circumstances that entitled a Participation Rights Holder to
participate therein in accordance this Clause (e), the Company shall give to
each Participation Rights Holder written notice of its intention to issue New
Securities (the "Participation Notice"), describing the amount and the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Participation Rights Holder shall
have fifteen (15) business days from the date of receipt of any such
Participation Notice to agree in writing to purchase up to the maximum number of
such New Securities that such Participation Rights Holder is entitled to
purchase for the price and upon the terms and conditions specified in the
Participation Notice by giving written notice to the Company and stating therein
the quantity of New Securities to be purchased (not to exceed such maximum). If
any Participation Rights Holder fails to so agree in writing within such 15
business day period, then such Participation Rights Holder shall forfeit the
right hereunder to participate in such sale of New Securities; provided,
however, that until the first anniversary of the date hereof, any Participation
Rights Holders that have elected to
-30-
exercise their Right of Participation shall be entitled to exercise such right
with respect to any New Securities where such right has been forfeited by such
other Participation Rights Holder(s), and the Company shall follow repeat the
procedures set forth in this Clause (e)(v) to ascertain whether the electing
Participation Rights Holders desire to purchase such other New Securities. All
sales hereunder that occur before the first anniversary of the date hereof shall
be consummated concurrently with the closing of the transaction triggering the
Right of Participation.
(vi) Failure to Exercise. Upon the expiration of such
fifteen (15) business day period, the Company shall have one hundred twenty
(120) days thereafter, subject to extensions for regulatory compliance, to sell
the New Securities described in the Participation Notice (with respect to which
the Participation Rights Holders' rights of first refusal hereunder were not
exercised), or enter into an agreement to do so within sixty (60) days
thereafter (which agreement must be consummated within one hundred twenty (120)
days after its execution, subject to extensions for regulatory compliance), at
the price (or a higher price) and upon non-price terms not materially more
favorable to the purchasers thereof than specified in the Participation Notice.
If the Company has not issued and sold such New Securities within such 120-day
period, or entered into an agreement to do so within sixty (60) days thereafter
(and consummated such agreement within such 120-day period), then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Participation Rights Holders pursuant to
this Section 7(e).
(f) Right of Maintenance.
(i) General. Each Participation Rights Holder shall,
pursuant to the terms and conditions of this Section 7(f), have the right to
purchase from the Company Dilutive Securities (as defined below) ("Maintenance
Securities"), as a result of issuances by the Company of Dilutive Securities
that from time to time are issued after the Closing Date and before the
expiration of the Initial Rights Period, solely in order to maintain such
Participation Rights Holder's Prior Percentage Interest (as defined below) in
the Company (the "Right of Maintenance"). Each right to purchase Maintenance
Securities pursuant to this Section 7(f) shall be on the same terms (other than
price to the extent provided otherwise below) as the issuance of the Dilutive
Securities that gave rise to the right to purchase such Maintenance Securities.
(ii) Dilutive Securities. "Dilutive Securities" means
any Common Stock, Preferred Stock or other voting capital stock or security
(including, without limitation, any Common Stock, voting Preferred Stock or
other voting capital stock or security issued upon the exercise, conversion or
exchange of any other securities) of the Company, whether now authorized or not;
provided, however, that the term "Dilutive Securities" shall not include:
(A) the Purchased Shares issued under this
Agreement;
(B) shares of Common Stock issued upon
conversion of any Purchased Shares;
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(C) any securities issued in connection with
any stock split, stock dividend or similar event in which all Participation
Rights Holders are entitled to participate on a pro rata basis;
(D) any securities for which the issuance
gave rise to a Right of Participation (regardless of whether any such right was
exercised) or to a Corporate Event;
(E) any securities issuable upon the
exercise, conversion or exchange of any securities described in (C) or (D)
above; or
(F) shares of Common Stock issued as awards,
including pursuant to exercise of options granted, to employees, officers and
directors under any plans approved by the Board.
(iii) Purchase Price. The per share "Purchase Price"
of the Maintenance Securities shall equal the lower of (1) the sales price of
the Dilutive Securities, (2) the price agreed to in good faith between by the
Board and the Participation Rights Holder and (3) the average Market Price (as
defined below) of such Maintenance Securities over the ten (10) trading days
immediately preceding the date on which the Participation Rights Holder elects
to purchase such Maintenance Securities. If the issuance of any Dilutive
Securities occurs upon the exercise, conversion or exchange of other securities
("Exchangeable Securities"), then the per share price at which such Dilutive
Securities shall be deemed to have been issued shall be the sum of (x) the per
share amount paid upon such exercise, conversion or exchange, plus (y) the per
share amount previously paid for the Exchangeable Securities (adjusted for any
stock splits, stock dividends or other similar events). For purposes of this
Section 7(f)(iii), "Market Price" means, as to any Maintenance Securities on a
given day, the average of the closing prices of such security's sales on the
principal domestic securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on such day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such security is not so listed, the average
of the representative bid and asked prices quoted on the Nasdaq SmallCap Market
as of 4:00 P.M., New York time, on such day, or, if on any day such security is
not quoted on the Nasdaq SmallCap Market, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time the Maintenance Securities are not listed
on any domestic securities exchange or quoted on the Nasdaq SmallCap Market or
the domestic over-the-counter market ("Unlisted Securities"), the "Market Price"
shall be the fair value thereof determined jointly by the Company and the
Holder.
(iv) Alternative Purchase Price. If a Participation
Rights Holder does not elect to purchase its Maintenance Amount at the time of
issuance of any Dilutive Securities specified in a Maintenance Note, and in the
written opinion of the Company's independent auditors, made available to each
Participation Rights Holder upon request, the effect of determining the Purchase
Price after such issuance pursuant to Clause (iii) above would require the
Company to take a charge against earnings in accordance with GAAP, then for
purposes of this Section 7(f) "Purchase Price" shall mean the Market Price on
the date the Participation Rights Holder elects to purchase its Maintenance
Amount.
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(v) Consideration Other than Cash. If Dilutive
Securities or Exchangeable Securities were issued for consideration other than
cash, the per share amounts paid for such Dilutive Securities or Exchangeable
Securities shall be determined jointly in good faith by the Company and the
Participation Rights Holder.
(vi) Appraiser. If the Company and the Participation
Rights Holder are unable to reach agreement within a reasonable period of time
with respect to (1) the Market Price of Unlisted Securities or (2) the per share
amounts paid for Dilutive Securities or Exchangeable Securities issued for
consideration other than cash, such Market Price or per share amounts paid, as
the case may be, shall be determined by an appraiser jointly selected by the
Company and the Participation Rights Holder. The determination of such appraiser
shall be final and binding on the Company and the Participation Rights Holder.
The fees and expenses of such appraiser shall be paid for by the Company.
(vii) Prior Percentage Interest. A Participation
Rights Holder's "Prior Percentage Interest" for purposes of the Right of
Maintenance is the ratio of (A) the Participant Share Number for such
Participation Rights Holder as of the date of such Maintenance Notice (the
"Notice Date"), to (B) the difference between (1) the sum of (a) the total
number of shares of Common Stock, Series A Preferred Stock and other voting
capital stock and securities of the Company outstanding on the Notice Date,
plus, (b) the number of shares of voting capital stock or securities issuable
upon the exercise, conversion or exchange of any other security of the Company
outstanding as of such date (assuming, for purposes of Clauses (a) and (b), the
Common Stock or other securities described in such Maintenance Notice are not
issued), and (2) the total number of Dilutive Securities issued since the later
of the Closing Date and the last Notice Date (but excluding any Maintenance
Securities issued pursuant to the last Maintenance Notice).
(viii) Maintenance Amount. A Participation Rights
Holder's "Maintenance Amount" with respect to any Maintenance Notice shall equal
such number of Maintenance Securities as shall (upon purchase thereof in full by
the Participation Rights Holder) enable such Participation Rights Holder to
maintain its Prior Percentage Interest on a fully-diluted basis. As an example,
assume that the Company had 10,000 shares outstanding and the Participation
Rights Holder holds 20% of such shares (or 2,000 shares). The Company first
issues 400 shares to a third party ("Issuance 1"), an amount insufficient to
trigger a Notice of Issuance pursuant to Section 7(f)(ix). The Company then
proposes to issue 4,600 shares to a third party ("Issuance 2"), an amount that
triggers a Maintenance Notice. The Participation Rights Holder shall have the
right to maintain its 20% interest after considering Issuances 1 and 2 and the
new shares issued to the Participation Rights Holder. In this example, the
Participation Rights Holder shall have the right to purchase an additional 1,250
shares, thereby resulting in the Participation Rights Holder holding 20% of the
securities outstanding (3,250 shares out of 16,250 shares).
(ix) Maintenance Notice. Within fifteen (15) business
days after the first anniversary of the Closing Date, and at least fifteen (15)
business days before each issuance of Dilutive Securities that when cumulated
with all prior issuances of Dilutive Securities since the later of (i) the
Closing Date and (ii) the date of the last Notice Date (which, as a result of
which, the Participation Rights Holder had an opportunity to purchase
Maintenance Securities), would result in a ten percent
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(10%) or greater reduction in a Participation Rights Holders' Prior Percentage
Interest, the Company shall give to each Participation Rights Holder written
notice (the "Maintenance Notice") describing the number of Dilutive Securities
issued since such prior Notice Date and the price and non-price terms upon which
the Company issued such Dilutive Securities, and the Maintenance Amount that
such Participation Rights Holder is entitled to purchase as a result of such
issuances.
(x) Purchase of Maintenance Securities. If a
Participation Rights Holder exercises its right to purchase Dilutive Securities,
such Participation Rights Holder shall have thirty (30) days after the issuance
of the Dilutive Securities specified in the applicable Maintenance Notice to
purchase its Maintenance Amount at the Purchase Price (as determined in
accordance with this Section 7(f)) and upon the other terms and conditions
specified in the Maintenance Notice. The closing of such purchase shall occur
within ten (10) days after such election to purchase. If any Participation
Rights Holder fails to elect to purchase such Participation Rights Holder's full
Maintenance Amount of Maintenance Securities within such 30-day period, then
such Participation Rights Holder shall forfeit the right hereunder to purchase
that part of its Maintenance Amount that it did not so elect to purchase.
(xi) Termination. The Company's obligations under
this Section 7(f) shall terminate upon the expiration of the Initial Rights
Period.
(g) Rights in the Event of a Corporate Event.
(i) Corporate Events. A "Corporate Event" shall mean
any of the following, whether accomplished through one or a series of related
transactions: (A) any transaction, other than an Acquisition Issuance (as
defined below), that results in a greater than twenty percent (20%) change in
the total outstanding number of voting securities (which, for purposes of this
Agreement, shall mean all securities of the Company that presently are, or would
be upon conversion, exchange or exercise, entitled to vote in the election of
directors) of the Company immediately prior to such issuance (other than any
such change solely as a result of a stock split, stock dividend or other
recapitalization affecting holders of Common Stock and other classes of voting
securities of the Company on a pro rata basis); (B) an acquisition of the
Company or any of its "Significant Subsidiaries" (as defined in the SEC's Rule
1-02(w) of Regulation S-X) by consolidation, merger, share purchase or exchange
or other reorganization or transaction in which the holders of the Company's or
such Significant Subsidiary's outstanding voting securities immediately prior to
such transaction own, immediately after such transaction, securities
representing less than fifty percent (50%) of the voting power of the Company,
any such Significant Subsidiary or the Person issuing such securities or
surviving such transaction, as the case may be, provided that this clause (B)
shall not apply to the pro rata distribution by the Company to its shareholders
of all the voting securities of any of its subsidiaries; (C) the acquisition of
all or substantially all the assets of the Company or any Significant
Subsidiary; (D) the grant by the Company or any of its Significant Subsidiaries
of an exclusive license for any material portion of the Company's or such
Significant Subsidiary's Intellectual Property to a Person other than the Lead
Investor or any of its subsidiaries; and (E) any transaction or series of
related transactions that results in the failure of the majority of the members
of the Board immediately prior to the closing of such transaction or series of
related transactions failing to constitute a majority of the Board (or its
successor) immediately following such transaction or series of related
transactions.
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(ii) Notice of Corporate Events and Ten Percent (10%)
Acquisitions. Until expiration of the Initial Rights Period, the Company shall
provide the Lead Investor with detailed written notice of terms of any offer
(written or oral) from any Person: (A) for a proposed Corporate Event or (B) to
acquire ten percent (10%) or more of the Company's outstanding voting
securities. Any notice shall be delivered to the Lead Investor within two (2)
business days after the date the Company first becomes aware of such offer or
proposed Corporate Event or ten percent (10%) acquisition. Without limiting the
generality of the foregoing, such notice shall set forth the identity(ies) of
the Person(s) involved, the consideration to be paid and all other material
terms and conditions. If such offer is in writing (whether in the form of a
letter of intent, term sheet or otherwise), the Company shall deliver a copy
thereof to the Lead Investor.
(iii) Right of First Refusal. During the Initial
Rights Period, the Company shall, prior to effecting or entering into any
agreement for any Corporate Event, present to the Lead Investor in writing a
summary of the expected final terms and conditions of the proposed Corporate
Event, including the name of the other party or parties to the Corporate Event
and a copy of the draft agreements that the Company is prepared to enter into
(such information and agreements, a "Final Notice"). The Lead Investor shall
have fifteen (15) business days after the date of receipt of the Final Notice to
deliver written notice to the Company agreeing to enter into a written agreement
with the Company on substantially the same terms and conditions specified in the
Final Notice, which agreement shall nevertheless provide for consummation of the
transaction within one-hundred twenty (120) days after the date of delivery of
the Final Notice (such 120 day period subject to extensions for regulatory
compliance). During such 15 business day period, the Lead Investor shall be
entitled to conduct due diligence with the reasonable cooperation of the
Company. If the Lead Investor fails to so agree in writing within such 15
business day period, for a period of one hundred twenty (120) days thereafter
(subject to extension for regulatory compliance, the Company shall have the
right to enter into an agreement regarding such Corporate Event with the party
or parties specified in the applicable Final Notice.
(iv) Right of Resale. If the Lead Investor shall fail
to exercise its right of first refusal as to a Corporate Event pursuant to
Section 7(g)(iii), such Investor shall, upon the Company's entering into an
agreement to consummate a Corporate Event, have the right to sell to the Company
any or all Purchased Shares and Conversion Shares. Such sale shall be made on
the following terms and conditions:
(A) The price per share at which such shares
are to be sold to the Company shall be equal to the greater of: (1) the Per
Share Purchase Price and (2) either the highest price per share of capital stock
(or equivalent) paid in connection with the Corporate Event or, if the
transaction involves the sale of a Significant Subsidiary or assets or the
licensing of Intellectual Property, the Lead Investor's pro rata share of the
consideration received, directly or indirectly, by the Company in such
transaction based on its then fully-diluted ownership of the Company's capital
stock.
(B) Immediately prior to the consummation of
the Corporate Event, the Lead Investor shall deliver to the Company the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.
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(C) The Company shall, assuming its receipt
of the certificate or certificates for the shares to be sold by the Lead
Investor, pay the aggregate purchase price therefor in cash immediately upon
consummation of the Corporate Event.
(v) Right of Notification and Negotiation. For the
one year period following the end of the Initial Rights Period, the Company
shall, prior to the Board's approving or disapproving a Corporate Event or the
Company's or any of its subsidiaries' entering into a definitive agreement with
respect to a Corporate Event, notify the Lead Investor of all material terms and
conditions of such Corporate Event and then attempt to negotiate in good faith
with such Investor for a period of not less than fifteen (15) business days for
the Lead Investor to acquire the Company (or Significant Subsidiary, assets or
license, as the case may be) or enter into another Corporate Event with the
Company. During such fifteen (15) business day period, the Lead Investor shall
be entitled to conduct due diligence with the reasonable cooperation of the
Company. During such fifteen (15) business day period, any alternative proposal
made by the Lead Investor shall be submitted by the Company to the Board and the
Board shall, in good faith, either approve or disapprove by resolution such
Investor's alternative proposal. To the extent that the Company and the Lead
Investor do not enter into an agreement with respect to such an acquisition or
other Corporate Event during such fifteen (15) business day period, the Board
shall be free to approve or disapprove such Corporate Event, and the Company
shall be free to enter into a definitive agreement with respect to a Corporate
Event with a third party and subsequently consummate such Corporate Event;
provided, however, that such definitive agreement is entered into within one
hundred twenty (120) days (subject to extensions for regulatory compliance)
following termination of such fifteen (15) business day period; provided
further, that if during such fifteen (15) business day period, the Lead Investor
shall have made a written offer for the acquisition of the Company, the
Corporate Event with such a third party shall be for at least at the price
offered by such Investor and on other terms no less favorable to shareholders of
the Company than the terms of the offer proposed by such Investor with respect
to shareholders other than such Investor.
(vi) Right to Consent. During the Initial Rights
Period, without the prior written consent of Holders of Sixty-Six and Two-Thirds
Percent (66 2/3%) of the outstanding shares of Series A Preferred Stock, the
Company shall not (and shall not permit any of its subsidiaries to) enter into
or agree to or consummate one or more acquisitions by it of securities or any
business or assets of another Person where the aggregate consideration paid in
connection with all such acquisitions is voting securities of the Company (or
any other securities exercisable or exchangeable for or convertible into such
voting securities) (an "Acquisition Issuance") constituting in the aggregate
more than twenty percent (20%) of the Company's voting securities outstanding
immediately after the consummation of the first such acquisition.
(h) Intellectual Property. For so long as the an Investor
holds the equivalent on an as-converted base of at least five percent (5%) of
the then outstanding Common Stock of the Company, the Company covenants that it
will, where the Company in the exercise of reasonable judgment deems it
appropriate, use reasonable business efforts to seek copyright and patent
registration, and other appropriate intellectual property protection, for
Intellectual Property of the Company.
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(i) Covenant not to Sue. Company agrees that it shall not
assert in any way a patent against Intel, its subsidiaries or affiliates, or
their customers, direct or indirect, agents or contractors, for the manufacture,
use, import, offer for sale, or sale of any of Intel's microprocessors or
chipsets. It is understood and agreed that the foregoing covenant does not apply
to the assertion of a patent for any infringement arising out of any software or
software programming run on any of Intel's microprocessors or chipsets by a user
of any of Intel's microprocessors or chipsets.
(j) Key Person Life Insurance. Within thirty (30) days of the
date hereof, the Company will undertake commercially reasonable efforts to
obtain term life insurance at reasonable rates on the life of William Welling in
the amount of at least $1,000,000, as to which the Company will be the sole
beneficiary.
8. INDEMNIFICATION.
(a) Agreement to Indemnify.
(i) Company Indemnity. Each of the Investors, its
Affiliates and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the "Investor
Indemnitees") shall be indemnified and held harmless to the extent set forth in
this Section 8 by the Company with respect to any and all Damages (as defined
below) incurred by any Investor Indemnitee as a proximate result of any
inaccuracy or misrepresentation in, or breach of, any representation, warranty,
covenant or agreement made by the Company in this Agreement (including any
exhibits and schedules hereto). Indemnification or other claims with respect to
the other Transaction Agreements will be covered by the provisions of those
agreements and not by this section, and indemnification for claims arising from
the registration of Purchased Shares under Federal and state securities laws are
covered by Section 7(b) and not this Section 8.
(ii) Investor Indemnity. The Company, its respective
Affiliates and Associates, and each officer, director, shareholder, employer,
representative and agent of any of the foregoing (collectively, the "Company
Indemnitees") shall each be indemnified and held harmless to the extent set
forth in this Section 8, by the Investor, in respect of any and all Damages
incurred by any Company Indemnitee as a proximate result of any inaccuracy or
misrepresentation in, or breach of, any representation. warranty, covenant or
agreement made by the Investor in this Agreement. Indemnification or other
claims with respect to the other Transaction Agreements will be covered by the
provisions of those agreements and not by this Section 8, and indemnification
for claims arising from the registration of Purchased Shares under Federal and
state securities laws are covered by Section 7(b) and not this Section 8.
(iii) Equitable Relief. Nothing set forth in this
Section 8 shall be deemed to prohibit or limit any Investor Indemnitee's or
Company Indemnitee's right at any time before, on or after the Closing, to seek
injunctive or other equitable relief for the failure of any Indemnifying Party
to perform or comply with any covenant or agreement contained herein.
(b) Survival. All representations and warranties of the
Investor and the Company contained herein and all claims of any Investor
Indemnitee or Company Indemnitee in respect of any
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inaccuracy or misrepresentation in or breach hereof, shall survive the Closing
until the third anniversary of the date of this Agreement, regardless of whether
the applicable statute of limitations, including extensions thereof, may expire.
All covenants and agreements of the Investor and the Company contained in this
Agreement shall survive the Closing in perpetuity (except to the extent any such
covenant or agreement shall expire by its terms). All claims of any Investor
Indemnitee or Company Indemnitee in respect of any breach of such covenants or
agreements shall survive the Closing until the expiration of two years following
the non-breaching party's obtaining actual knowledge of such breach.
(c) Claims for Indemnification. If any Investor Indemnitee or
Company Indemnitee (an "Indemnitee") shall believe that such Indemnitee is
entitled to indemnification pursuant to this Section 8 in respect of any
Damages, such Indemnitee shall give the appropriate Indemnifying Party (which
for purposes hereof, in the case of an Investor Indemnitee, means the Company,
and in the case of a Company Indemnitee, means the Investor) prompt written
notice thereof. Any such notice shall set forth in reasonable detail and to the
extent then known the basis for such claim for indemnification. The failure of
such Indemnitee to give notice of any claim for indemnification promptly shall
not adversely affect such Indemnitee's right to indemnity hereunder except to
the extent that such failure adversely affects the right of the Indemnifying
Party to assert any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall have only the
twenty (20) business day period referred to in the next sentence to dispute or
deny such claim. The Indemnifying Party shall have twenty (20) business days
following its receipt of such notice either (a) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (b) to object to
the claim by giving such Indemnitee written notice of the objection. If the
Indemnifying Party does not object thereto within such twenty (20) business day
period, such Indemnitee shall be entitled to be indemnified for all Damages
reasonably and proximately incurred by such Indemnitee in respect of such claim.
If the Indemnifying Party objects to such claim in a timely manner, the senior
management of the Company and such Indemnitee shall meet to attempt to resolve
such dispute. If the dispute cannot be resolved by the senior management, either
party may make a written demand for formal dispute resolution and specify
therein the scope of the dispute. Within thirty (30) days after such written
notification, the parties agree to meet for one (1) day with an impartial
mediator and consider dispute resolution alternatives other than litigation. If
an alternative method of dispute resolution is not agreed upon within thirty
days after the one day mediation, either party may begin litigation proceedings.
Nothing in this section shall be deemed to require arbitration.
(d) Defense of Claims. In connection with any claim that may
give rise to indemnity under this Section 8 resulting from or arising out of any
claim or Proceeding against an Indemnitee by a person or entity that is not a
party hereto, the Indemnifying Party may (unless such Indemnitee elects not to
seek indemnity hereunder for such claim) but shall not be obligated to, upon
written notice to the relevant Indemnitee, assume the defense of any such claim
or Proceeding if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto to the extent provided herein (as such claim may have been modified
through written agreement of the parties) and provides assurances, reasonably
satisfactory to such Indemnitee, that the Indemnifying Party will be financially
able to satisfy such claim to the extent provided herein if such claim or
Proceeding is decided adversely; provided, however, that nothing set forth
herein shall be
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deemed to require the Indemnifying Party to waive any crossclaims or
counterclaims the Indemnifying Party may have against the Indemnified Party for
damages. The Indemnified Party shall be entitled to retain separate counsel,
reasonably acceptable to the Indemnifying Party, if the Indemnified Party shall
determine, upon the written advice of counsel, that an actual or potential
conflict of interest exists between the Indemnifying Party and the Indemnified
Party in connection with such Proceeding. The Indemnifying Party shall be
obligated to pay the reasonable fees and expenses of such separate counsel to
the extent the Indemnified Party is entitled to indemnification by the
Indemnifying Party with respect to such claim or Proceeding under this Section
8(d). If the Indemnifying Party assumes the defense of any such claim or
Proceeding, the Indemnifying Party shall select counsel reasonably acceptable to
such Indemnitee to conduct the defense of such claim or Proceeding, shall take
all steps necessary in the defense or settlement thereof and shall at all times
diligently and promptly pursue the resolution thereof. If the Indemnifying Party
shall have assumed the defense of any claim or Proceeding in accordance with
this Section 8(d), the Indemnifying Party shall be authorized to consent to a
settlement of, or the entry of any judgment arising from, any such claim or
Proceeding, with the prior written consent of such Indemnitee, not to be
unreasonably withheld; provided, however, that the Indemnifying Party shall pay
or cause to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness thereof; provided further, that the
Indemnifying party shall not be authorized to encumber any of the assets of any
Indemnitee or to agree to any restriction that would apply to any Indemnitee or
to its conduct of business; and provided further, that a condition to any such
settlement shall be a complete release of such Indemnitee and its Affiliates,
directors, officers, employees and agents with respect to such claim, including
any reasonably foreseeable collateral consequences thereof. Such Indemnitee
shall be entitled to participate in (but not control) the defense of any such
action, with its own counsel and at its own expense. Each Indemnitee shall, and
shall cause each of its Affiliates, directors, officers, employees and agents
to, cooperate fully with the Indemnifying Party in the defense of any claim or
Proceeding being defended by the Indemnifying Party pursuant to this Section
8(d). If the Indemnifying Party does not assume the defense of any claim or
Proceeding resulting therefrom in accordance with the terms of this Section
8(d), such Indemnitee may defend against such claim or Proceeding in such manner
as it may deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Party, on such terms as such
Indemnitee may deem appropriate. If any Indemnifying Party seeks to question the
manner in which such Indemnitee defended such claim or Proceeding or the amount
of or nature of any such settlement, such Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that such Indemnitee did not
defend such claim or Proceeding in a reasonably prudent manner.
(e) Certain Definitions. As used in this Section 8, (a)
"Affiliate" means, with respect to any person or entity, any person or entity
directly or indirectly controlling, controlled by or under direct or indirect
common control with such other person or entity; (b) "Associate" means, when
used to indicate a relationship with any person or entity, (1) any other person
or entity of which such first person or entity is an officer, director or
partner or is, directly or indirectly. the beneficial owner of ten percent (10%)
or more of any class of equity securities, membership interests or other
comparable ownership interests issued by such other person or entity, (2) any
trust or other estate in which such first person or entity has a ten percent
(10%) or more beneficial interest or as to which such first person or entity
serves as trustee or in a similar fiduciary capacity, and (3) any relative or
spouse of such first
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person or entity who has the same home as such first person or entity or who is
a director or officer of such first person or entity; (c) "Damages" means all
demands, claims, actions or causes of action, assessments, losses, damages,
costs, expenses, liabilities, judgments, awards, fines, response costs,
sanctions, taxes, penalties, charges and amounts paid in settlement, including
(1) interest on cash disbursements in respect of any of the foregoing at the
prime rate of Bank of America NT&SA, as in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the date the
party incurring such cash disbursement shall have been indemnified in respect
thereof, and (2) reasonable out-of-pocket costs, fees and expenses (including
reasonable costs, fees and expenses of attorneys, accountants and other agents
of, or other parties retained by, such party), and (d) "Proceeding" means any
action, suit, hearing, arbitration, audit, proceeding (public or private) or
investigation that is brought or initiated by or against any federal, state,
local or foreign governmental authority or any other person or entity.
9. ASSIGNMENT. The rights of each Investor under Section 7(a), (b) and
(e) are transferable to any person who acquires the equivalent, on an
as-converted basis, of at least five percent (5%) of the outstanding shares of
the Common Stock (subject to appropriate adjustment for all stock splits,
dividends, combinations, recapitalizations and the like where all holders of the
Common Stock participate on a pro rata basis); provided, however, that no party
may be assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the name
and address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
Section 7(c). The rights of the Lead Investor under Section 7(d) may not be
assigned. The rights of each Investor under Section 7(f) and the rights of the
Lead Investor under Section 7(g) may be assigned (in the case of 7(g), only in
whole, and not in part) only to a Majority Owned Subsidiary; provided, however
that no such assignment of such rights under Sections 7(f) and (g) shall be
effective until the Company is given written notice by the assigning Investor
stating the name and address of the assignee; and provided further that any such
assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement. Notwithstanding anything in the foregoing to the
contrary, this Agreement may not be assigned by any Investor in whole or in part
to any Competitor of the Company. For purposes of this Section 9, a "Competitor"
of the Company shall mean any company, one of whose principal lines of business
is the development and/or marketing of any product similar to the Company's Town
Square product line or any subset thereof, and/or call accounting, traffic
engineering, facilities and alarm management, PBX security, voicemail/auto
attendant or answer detection software and hardware systems that operate on
personal computers, local area networks and stand-alone proprietary hardware and
that are used primarily in the commercial and hospitality markets.
10. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
(b) Governing Law. This Agreement will be governed by and
construed under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
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(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
(e) Notices. Any notice required or permitted under this
Agreement shall be given in writing, shall be effective when received, and shall
in any event be deemed received and effectively given upon personal delivery to
the party to be notified or three (3) business days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid, or
one (1) business day after deposit with a nationally recognized courier service
such as FedEx for next business day delivery under circumstances in which such
service guarantees next business day delivery, or one (1) business day after
facsimile with copy delivered by registered or certified mail, in any case,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof or at such other address
as each Investor or the Company may designate by giving at least ten (10) days
advance written notice pursuant to this Section 9(e).
(f) No Finder's Fees. Each Investor will indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee for which such Investor or any of its
officers, partners, employees or consultants, or representatives is responsible.
The Company will indemnify and hold harmless each Investor from any liability
for any commission or compensation in the nature of a finder's or broker's fee
for which the Company or any of its officers, employees or consultants or
representatives is responsible.
(g) Amendments and Waivers. This Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of Purchased Shares
representing at least two-thirds of the total aggregate number of Purchased
Shares then outstanding (excluding any of such shares that have been sold in a
transaction in which rights under Section 7(b) are not assigned in accordance
with this Agreement or sold to the public pursuant to SEC Rule 144 or
otherwise). Any amendment or waiver effected in accordance with this Section
9(g) will be binding upon each Investor, the Company and their respective
successors and assigns. Notwithstanding the foregoing, the provisions of Clauses
(b), (c), (d), (e), (f) and (g), Section 7 and Section 8 may not be amended
without the written consent of the Company and each Investor, which may be
withheld in either of their sole and absolute discretions.
(h) Severability. If any provision of this Agreement is held
to be unenforceable under applicable law, such provision will be excluded from
this Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
-41-
(i) Entire Agreement. This Agreement, together with the other
Transaction Agreement and all exhibits and schedules hereto and thereto
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof and supersedes any and all prior negotiations,
correspondence, agreements. understandings duties or obligations between the
parties with respect to the subject matter hereof.
(j) Further Assurances. From and after the date of this
Agreement upon the request of the Company or each Investor, the Company and each
Investor will execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
(k) Meaning of Include and Including. Whenever in this
Agreement the word "include" or "including" is used. it shall be deemed to mean
"include, without limitation" or "including. without limitation." as the case
may be. and the language following "include" or "including" shall not be deemed
to set forth an exhaustive list.
(l) Fees, Costs and Expenses. All fees, costs and expenses
(including attorney's' fees and expenses) incurred by either part hereto in
connection with the preparation, negotiation and execution of this Agreement and
the other Transaction Agreements and the consummation of the transactions
contemplated hereby and thereby (including the costs associated with any filings
with, or compliance with any of the requirements of, any governmental
authorities), shall be the sole and exclusive responsibility of such party.
(m) Competition. Nothing set forth herein shall be deemed to
preclude, limit or restrict the Company's or each Investor's ability to compete
with the other.
(n) Cooperation in HSR Act Filings.
(i) In the event of a conversion of the Purchased
Shares (or any other action by an Investor with respect to any Securities of the
Company held by such Investor) that would require a filing by the Investor under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Investor and its respective affiliates (including any "ultimate parent entity",
as defined in the HSR Act), and the Company and its respective affiliates
(including any "ultimate parent entity", as defined in the HSR Act), shall
promptly prepare and make their respective filings and thereafter shall make all
required or requested submissions under the HSR Act or any analogous applicable
law, if required. In taking such actions or making any such filings, the parties
hereto shall furnish information required in connection therewith and seek
timely to obtain any applicable actions, consents, approvals or waivers of
governmental authorities; provided, however, that the parties hereto shall
cooperate with each other in connection with the making of all such filings to
the extent permitted by applicable law. Without limiting the generality of the
foregoing, to the extent permitted by applicable law and so long as the
following will not involve the disclosure of confidential or proprietary
information of one party hereto to another, each party shall cooperate with the
other by (a) providing copies of all documents to be filed to the non-filing
party and its advisors prior to filing and, if requested, accepting reasonable
additions, deletions or changes suggested in connection therewith and (b)
providing to each other party copies of all correspondence from and to any
governmental authority in connection with any such filing.
-42-
(ii) Notwithstanding the foregoing, neither any
Investor nor any of its affiliates shall be under any obligation to comply with
any request or requirement imposed by the Federal Trade Commission (the "FTC"),
the Department of Justice (the "DofJ") or any other governmental authority in
connection with the compliance with the requirements of the HSR Act, or any
other applicable law, if the Investor, in the exercise of its reasonable
discretion, deems such request or requirement unduly burdensome. Without
limiting the generality of the foregoing, no Investor shall be obligated to
comply with any request by, or any requirement of, the FTC, the DofJ or any
other governmental authority: (i) to disclose information such Investor deems it
in its best interests to keep confidential; (ii) to dispose of any assets or
operations; or (iii) to comply with any proposed restriction on the manner in
which it conducts its operations. In the event such Investor shall receive a
second request in respect of its HSR Filing determined by it to be unduly
burdensome and it shall prove unable to negotiate a means satisfactory to the
Investor for complying with such burdensome second request, or the Federal Trade
Commission or Department of Justice shall impose any condition on the Investor
or its affiliates in respect thereof deemed unacceptable by the Investor, the
Company and the Investor shall cooperate in good faith to negotiate an
alternative transaction that provides such Investor with the economic benefits
it would receive if it converted the Purchased Shares (or took any such other
action referenced in the first parenthetical in the first sentence of Clause
(i)).
[The remainder of this page is intentionally blank.]
-43-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
XIOX CORPORATION INTEL CORPORATION
By: /s/ William H. Welling By: /s/ Arvind Sodhani
---------------------------- ---------------------------------
Name: William H. Welling Name: Arvind Sodhani
-------------------------- -------------------------------
Title: Chairman/CEO Title: Vice President and Treasurer
------------------------- ------------------------------
Date Signed: Sept. 21, 1998 Date Signed: Sept. 21, 1998
------------------- ------------------------
Address: 557 Airport Boulevard Address: 2200 Mission College Blvd.
Suite 700 Santa Clara, California 95052
Burlingame, CA 94010
Telephone No.: (408) 765-1240
Facsimile No.: (408) 765-6038
Telephone No: (650) 375-8188
Facsimile No: (650) 375-3988 with a copy to:
with a copy to: Intel Corporation
Attention: General Counsel
Wilson Sonsini Goodrich & Rosati 2200 Mission College Blvd.
Attention: Blair W. Stewart, Jr. Santa Clara, California 95052
650 Page Mill Road
Palo Alto, California 94304
Telephone No.: (650) 493-9300 with a copy to:
Facsimile No.: (650) 493-6811
Gibson, Dunn & Crutcher LLP
Attention: Kenneth R. Lamb
One Montgomery Street
Suite 2600
San Francisco, California 94104
Telephone No.: (415) 393-8382
Facsimile No.: (415) 986-5309
**** Stock Purchase and Investor Rights Agreement ****
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FLANDERS LANGUAGE VALLEY C.V.A. ZERO STAGE CAPITAL VI LIMITED
PARTNERSHIP
By: Flanders Language Valley Management By: Zero Stage Capital Associates
N.V., Its General Manager VI, LLC
By: /s/ Philip Vermeulen By: /s/ Stanley L. Fung
----------------------------- ------------------------------
Name: Philip Vermeulen Name: Stanley L. Fung
Its General Manager ----------------------------
Title: General Partner
Date Signed: Sept. 21, 1998 ---------------------------
--------------------
Date Signed: September 17, 1998
Address: Merghelynckstraat 4 ---------------------
8900 Ieper, Belgium
Address: 101 Main Street, 17th Floor
Kendall Square
Cambridge, MA 02142
Telephone No: 011-32-57-30-30-42
Facsimile No: 011-32-9-372-4594 Telephone No.: (617) 876-5355
Facsimile No.: (617) 876-1248
with a copy to:
with a copy to:
Brobeck, Phleger & Harrison, LLP
Attention: Joel S. Smith Brobeck, Phleger & Harrison,
550 West C Street, Suite 1300 LLP Attention: Joel S. Smith
San Diego, California 92101 550 West C Street, Suite 1300
Telephone No.: (619) 234-1966 San Diego, California 92101
Facsimile No.: (619) 234-3848 Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
**** Stock Purchase and Investor Rights Agreement ****
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GRUBER AND MCBAINE LAGUNITAS PARTNERS
INTERNATIONAL
By: /s/ Jon D. Gruber By: /s/ Jon. D. Gruber
------------------------------ -------------------------------
Name: Jon D. Gruber Name: Jon D. Gruber
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
Date Signed: 9-18-98 Date Signed: 9-18-98
--------------------- ----------------------
Address: 50 Osgood Place, Penthouse Address: 50 Osgood Place, Penthouse
San Francisco, CA 94133 San Francisco, California
94133
Telephone No: (415) 981-2101 Telephone No.: (415) 981-2101
Facsimile No: (415) 956-7858 Facsimile No.: (415) 956-7858
**** Stock Purchase and Investor Rights Agreement ****
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COMPASS TECHNOLOGY PARTNERS, L.P. COMPASS CHICAGO PARTNERS, L.P.
By: /s/ David G. Arscott By: /s/ David G. Arscott
--------------------------------- ---------------------------------
Compass Management Partners, L.P. Compass Management Partners, L.P.
(It's General Partner) (It's General Partner)
---------------------- ----------------------
Name: David G. Arscott Name: David G. Arscott
---------------------------- ----------------------------
Title: General Partner Title: General Partner
--------------------------- ---------------------------
Date Signed: September 21, 1998 Date Signed: September 21, 1998
--------------------- ---------------------
Address: 1550 El Camino Real Address: 1550 El Camino Real
Suite 275 Suite 275
Menlo Park, CA 94025 Menlo Park, CA 94025
Telephone No: (650) 322-7596 Telephone No: (650) 322-7596
Facsimile No: (650) 322-0588 Facsimile No: (650) 322-0588
**** Stock Purchase and Investor Rights Agreement ****
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THE ROGERS FAMILY TRUST ROY AND RUTH ROGERS UNIT TRUST
UTD 9/21/81 UTD 9/28/89
By: /s/ Roy L. Rogers By: /s/ Roy L. Rogers
------------------------------ ------------------------------
Name: Roy L. Rogers Name: Roy L. Rogers
---------------------------- ----------------------------
Title: Trustee Title: Trustee
--------------------------- ---------------------------
Date Signed: Sept. 17, 1998 Date Signed: Sept. 17, 1998
--------------------- ---------------------
Address: 27927 Briones Way Address: 27927 Briones Way
Los Altos, CA 94022 Los Altos, CA 94022
Telephone No: (650) 854-2767 Telephone No: (650) 854-2767
Facsimile No: (650) 854-2276 Facsimile No: (650) 854-2276
**** Stock Purchase and Investor Rights Agreement ****
-48-
ROBERT AND VIRGINIA MCAFEE CHINA FIRST STEEL ROPES
DECLARATION AND AGREEMENT OF MANUFACTURING CO., LTD.
TRUST DATED 2/15/91
By: /s/ Robert K. McAfee By: /s/ Min Fu Chang
------------------------------ ------------------------------
Name: Robert K. McAfee Name: Min Fu Chang
---------------------------- ----------------------------
Title: Trustee Title: Director
--------------------------- ---------------------------
Date Signed: 9/18/98 Date Signed: Sept. 17, 1998
--------------------- ---------------------
Address: 301-1 Min Sheng West Road
Address: 17803 Jayhawk Drive Taipei 103, Taiwan ROC
PennValley, CA 95946
Telephone No.: 886-2-2550-1191
Telephone No: (530) 432-9428 or 9417 Facsimile No.: 886-2-2550-1194
**** Stock Purchase and Investor Rights Agreement ****
-49-
YU HONG CO., LTD HO HONG INVESTMENT CO., LTD.
By: /s/ Bruce Hsiang By: /s/ Casey Chiu
------------------------------ ------------------------------
Name: Bruce Hsiang Name: Casey Chiu
---------------------------- ----------------------------
Title: Vice President Title: Director
--------------------------- ---------------------------
Date Signed: Sept. 17, 1998 Date Signed: Sept. 17, 1998
--------------------- ---------------------
Address: 301-1 Min Sheng West Road Address: 12th Floor
Taipei 103, Taiwan, ROC No. 28 Nanking East Road
Section 3
Telephone No: 886-2-553-8711 Taipei, Taiwan ROC
Facsimile No: 886-2-553-1694
Telephone No.: 886-2-2506-8101
Facsimile No.: 886-2-2506-8930
**** Stock Purchase and Investor Rights Agreement ****
-50-
BAY AREA MICROCAP FUND
By: /s/ Gregory F. Wilbur
------------------------------
Name: Gregory F. Wilbur
----------------------------
Title: General Partner
---------------------------
Date Signed: 17 Sept. 98
---------------------
Address: 1151 Bay Laurel Drive
Menlo Park, CA 94025
Telephone No: (650) 325-7779
Facsimile No: (650) 325-7799
**** Stock Purchase and Investor Rights Agreement ****
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