EXHIBIT 4 (a)
KNOWLEDGE FOUNDATIONS, INC.
STOCK REPURCHASE AGREEMENT
This STOCK REPURCHASE AGREEMENT (this "Agreement") made as of this 18th
day of September, 2000 by and among Knowledge Foundations, Inc., a Delaware
corporation, formerly Calipso, Inc. (the "Corporation"), Wright & Bleers, a
California corporation ("W&B") and Ocean Way Investments, Ltd., a Canadian BC
corporation ("Ocean Way").
1. ISSUANCE OF SHARES
1.1 Issuance. Subject to the terms and conditions of this Agreement, the
Corporation hereby issues: (i) to W&B one million twelve thousand five
hundred (1,012,500) shares, par value $.001 per share, of the Corporation's
Common Stock, for services rendered by W&B in connection with the Merger
Agreement (the "W&B Shares"); and (ii) to Ocean Way nine hundred eighty seven
thousand five hundred shares (987,500) shares, par value $.001 per share, of
the Corporation's Common Stock for services rendered by Ocean Way in
connection with the Merger (the "Ocean Way Shares") (the foregoing
collectively referred to as the "Shares").
1.2 Delivery of Certificates. A certificate representing Four Hundred
Eighty Seven Thousand Five Hundred (487,500) of the W&B Shares and a
certificate representing Twenty Five Thousand (25,000) of the W&B Shares
shall be delivered to W&B at the closing of the Merger (the "Closing"). A
certificate representing Four Hundred Eighty Seven Thousand Five Hundred
(487,500) of the Ocean Way Shares shall be delivered to Ocean Way at the
Closing. The certificates representing the remaining Five Hundred Thousand
(500,000) shares of the W&B Shares (the "Escrowed W&B Shares") and the
certificates representing the remaining Five Hundred Thousand (500,000)
shares of the Ocean Way Shares (the "Escrowed Ocean Way Shares") shall be
held in escrow as provided in Section 4 hereof.
1.3 Lock-Up Agreement and Investment Representation Letters. Concurrent
with or prior to the execution of this Agreement, each of W&B and Ocean Way
shall deliver to the Secretary of the Corporation: (a) a duly executed Lock-
Up Agreement (substantially in the form attached hereto as Exhibit A); and
(b) a duly executed Investment Representation Letter (substantially in the
form attached hereto as Exhibit B).
2. SECURITIES LAW COMPLIANCE
2.1 Restricted Securities. The Shares issued pursuant to Section 1.1 have
not been registered under the Securities Act of 1933, as amended, (the "1933
Act"). Each of W&B and Ocean Way hereby confirms that it has been informed
that the Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless they are first registered under the federal
securities laws or unless an exemption from such registration is available.
Accordingly, W&B and Ocean Way each hereby acknowledge that they are prepared
to hold the W&B Shares and the Ocean Way Shares, respectively, for an
indefinite period and that each of W&B and Ocean Way is aware that the
Securities and Exchange Commission Rule 144 issued under the 1933 Act which
exempts certain resales of unrestricted securities is not presently available
to exempt the resale of their respective shares from the registration
requirements of the 1933 Act.
2.2 Restrictive Legends. All of the stock certificates representing the
Shares shall be endorsed with the restrictive legend substantially in the
following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE RESTRICTED SECURITIES AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT, AND REQUIRES WRITTEN RELEASE FROM
EITHER ISSUING COMPANY OR THEIR ATTORNEY PRIOR TO LEGEND REMOVAL."
3. REPURCHASE RIGHT.
3.1 Grant. The Corporation is hereby granted the right to repurchase all of
the Escrowed W&B Shares and all of the Escrowed Ocean Way Shares (the
"Repurchase Right") at the conclusion of the Second 90-Day Period (as such
term is defined below), except as follows:
(a) If, within the ninety (90)-day period following the Closing (the "First
90-Day Period"), the Corporation has received any equity financing resulting
from an Introduction (as such term is defined below) to such equity financing
source by W&B and/or Ocean Way, subject to Section 3.2, the Corporation shall
have no Repurchase Rights to, and shall release from escrow in accordance
with Section 4 hereof: (i) the amount of Escrowed W&B Shares equal to the
following:
(the dollar amount of equity financing received by the Corporation)x500,000x50%
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1,500,000
and (ii) the amount of Escrowed Ocean Way Shares equal to the following:
(the dollar amount of equity financing received by the Corporation)x500,000x50%
- ------------------------------------------------------------------
1,500,000
If within the First 90-Day Period, the Corporation has received by or before
the last day of the First 90-Day Period, One Million Five Hundred Thousand
Dollars ($1,500,000) in equity financing resulting from an Introduction to
such equity financing source by W&B and/or Ocean Way, subject to Section 3.2,
at such time that such equity financing is received by the Corporation, the
Corporation shall have no Repurchase Rights to, and shall release from escrow
in accordance with Section 4 hereof: (i) Two Hundred Fifty Thousand (250,000)
shares of the Escrowed W&B Shares; and (ii) Two Hundred Fifty Thousand
(250,000) shares of the Escrowed Ocean Way Shares.
(b) If within the ninety (90)-day period following the First 90-Day Period
(the "Second 90-Day Period"), the Corporation has received by the last day of
the First 90-Day Period, less than One Million Five Hundred Thousand Dollars
($1,500,000) in equity financing resulting from an Introduction to such
equity financing source by W&B and/or Ocean Way, subject to Section 3.2, at
the conclusion of the Second 90-Day Period, the Corporation shall have no
Repurchase Rights to, and shall release from escrow in accordance with
Section 4 hereof: (i) the amount of Escrowed W&B Shares equal to the
following:
(the dollar amount of equity financing received by the Corporation)x500,000x50%
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1,500,000
and (ii) the amount of Escrowed Ocean Way Shares equal to the following:
(the dollar amount of equity financing received by the Corporation)x500,000x50%
- ------------------------------------------------------------------
1,500,000
If within the Second 90-Day Period, the Corporation has received by or before
the last day of the Second 90-Day Period an additional One Million Five
Hundred Thousand Dollars ($1,500,000) in equity financing resulting from an
Introduction to such equity funding source by W&B and/or Ocean Way, subject
to Section 3.2, at such time that such equity financing is received by the
Corporation, the Corporation shall have no Repurchase Right to, and shall
release from escrow in accordance with Section 4 hereof: (i) Two Hundred
Fifty Thousand (250,000) shares of the Escrowed W&B Shares; and (ii) Two
Hundred Fifty Thousand (250,000) shares of the Escrowed Ocean Way Shares.
(c) Notwithstanding Paragraphs (a) and (b) above to the contrary, if by the
last day of the Second 90-Day Period, the Corporation has received Three
Million Dollars ($3,000,000) in equity financing resulting from an
Introduction to such equity financing source by W&B and/or Ocean Way, subject
to Section 3.2, at the conclusion of the Second 90-Day Period, the
Corporation shall have no Repurchase Rights to, and shall release from escrow
in accordance with Section 4 hereof: (i) all of the Escrowed W&B Shares; and
(ii) all of the Escrowed W&B Shares.
For purposes of this Agreement the term "Introduction" or "Introduced" shall
mean the establishment of discussions between an equity funding source and
the Corporation by W&B and/or Ocean Way wherein said discussions shall have
been initiated for the specific purpose of consummating a financing involving
the Corporation, such equity financing to be on such terms and conditions as
approved by the Corporation in its sole discretion. Specifically excluded
from this definition is the establishment of any and all discussions between
the Corporation and any financing candidate not Introduced by either W&B
and/or Ocean Way to the Corporation
3.2 Fractional Shares; Reduction of Number of Shares Issued. No fractional
shares shall be repurchased by the Corporation. Accordingly, should the
Repurchase Right extend to a fractional share, then such fractional share
shall be rounded to the nearest whole number. If any fees are charged by any
third party, i.e., finders' fees, in connection with obtaining the equity
financing, the Corporation shall have no liability or responsibility to pay
any such fees to such third party, and if any shares of the Corporation are
to be issued to any third party in connection with the financing (other than
to investors in the equity financing), the number of shares issued and
released to W&B and Ocean Way pursuant to this Agreement shall be reduced by
the amount of any such shares issuable to such third party.
3.3 Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to W&B and/or Ocean Way, as the case
may be, within ten (10) business days of the conclusion of the Second 90-Day
Period. The notice shall indicate the number of Shares to be repurchased and
the date on which the repurchase is to be effected, such date to be not more
than thirty (30) days after the date of such notice. Concurrently with the
release of such stock certificates to the Corporation from escrow, the
Corporation shall pay to W&B and/or Ocean Way, as the case may be, in cash or
cash equivalents, an amount equal to $.001 per share.
3.4 Recapitalization. Any new, substituted or additional securities or
other property (including cash paid other than as a regular cash dividend)
which is by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration (collectively, "Recapitalization") distributed with respect to
the Shares shall be immediately subject to the Repurchase Right, but only to
the extent the Shares are at the time covered by such right. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Shares subject to this Agreement and to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect
of any such Recapitalization upon the Corporation's capital structure.
4. ESCROW.
4.1 Deposit. Upon issuance, the certificates representing the Escrowed W&B
Shares and the certificates representing the Escrowed Ocean Way Shares shall
be deposited in escrow with the Secretary of the Corporation to be held in
accordance with the provisions of this Section 4. Each deposited certificate
shall be accompanied by a duly-executed Assignment Separate from Certificate
in the form of Exhibit C. The deposited certificates, together with any
other assets or securities from time to time deposited with the Secretary of
the Corporation pursuant to the requirements of this Agreement, shall remain
in escrow until such time or times as the certificates (or other assets and
securities) are to be released or otherwise surrendered for cancellation in
accordance with Section 4.3. Upon deposit of the certificates (or other
assets and securities) in escrow by the Secretary of the Corporation, each of
W&B and Ocean Way shall be issued a receipt acknowledging the number of
Escrowed W&B Shares and Escrowed Ocean Way Shares (or other assets and
securities) delivered in escrow.
4.2 Recapitalization/Reorganization. Any new, substituted or additional
securities or other property which is by reason of any Recapitalization or
reorganization distributed with respect to the Escrowed W&B Shares and/or the
Escrowed Ocean Way Shares shall be immediately delivered to the Corporation
to be held in escrow under this Section 4, but only to the extent the
Escrowed W&B Shares and/or the Escrowed Ocean Way Shares, as the case may be,
are at the time subject to the escrow requirements hereunder. However, all
regular cash dividends on the Escrowed W&B Shares and Escrowed Ocean Way
Shares (or other securities at the time held in escrow) shall be paid
directly to W&B and Ocean Way, respectively, and shall not be held in escrow.
4.3 Release/Surrender. The Escrowed W&B Shares and Escrowed Ocean Way
Shares, together with any other assets or securities held in escrow
hereunder, shall be subject to the following terms relating to their release
from escrow or their surrender to the Corporation for repurchase and
cancellation:
(a) Should the Corporation elect to exercise the Repurchase Right with
respect to any of the Escrowed W&B Shares and/or the Escrowed Ocean Way
Shares, then the escrowed certificates representing the Escrowed W&B Shares
and/or Escrowed Ocean Way Shares, as the case may be, (together with any
other assets or securities attributable thereto) shall be surrendered to the
Corporation concurrently with the payment to W&B and/or Ocean Way, as the
case may be, of an amount equal to $0.001 per share, and W&B and/or Ocean
Way, as the case may be, shall cease to have any further rights or claims
with respect to such shares (or other assets or securities attributable
thereto).
(b) Should the Corporation elect not to exercise the Repurchase Right or
should the Corporation's Repurchase Right terminate pursuant to Paragraphs
(a), (b) and (c) of Section 3.1, with respect to any Escrowed W&B Shares
and/or the Escrowed Ocean Way Shares held at the time in escrow hereunder,
then the escrowed certificates for those shares (together with any other
assets or securities attributable thereto) shall be immediately released to
W&B and/or Ocean Way, as the case may be.
(c) All of the Escrowed W&B Shares and/or the Escrowed Ocean Way Shares (or
other assets or securities) released from escrow shall nevertheless remain
subject to the Lock-Up Agreement, until such restriction terminates.
5. SPECIAL TAX ELECTION.
5.1 Section 83(b) Election. Under Code Section 83, the excess of the fair
market value of the Shares on the date any forfeiture restrictions applicable
to such shares lapse over the price paid or value of services rendered for
such shares will be reportable as ordinary income on the lapse date. For
this purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Shares pursuant to the Repurchase Right. Each
of W&B and Ocean Way may elect under Code Section 83(b) to be taxed at the
time the Shares are acquired, rather than when and as such Shares cease to be
subject to such forfeiture restrictions. Such election must be filed with
the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the fair market value of the Shares on the date of this
Agreement equals the price paid or value of services rendered (and thus no
tax is payable), the election must be made to avoid adverse tax consequences
in the future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT D
HERETO. EACH OF W&B AND OCEAN WAY UNDERSTANDS THAT FAILURE TO MAKE THIS
FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.
5.2 FILING RESPONSIBILITY. EACH OF W&B AND OCEAN WAY ACKNOWLEDGES THAT IT IS
ITS SOLE RESPONSIBILITY, AND NOT THE RESPONSIBILITY OF THE CORPORATION TO
FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF W&B AND/OR OCEAN WAY
REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS RULING ON ITS
BEHALF.
6. GENERAL PROVISIONS
6.1 Assignment. The Corporation may assign the Repurchase Right to any
person or entity selected by the Corporation's Board of Directors, including
without limitation, one or more shareholder of the Corporation.
6.2 Notices. Any notice required to be given under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and
properly addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days' advance written
notice under this section to all other parties to this Agreement.
6.3 No Waiver. The failure of the Corporation in any instance to exercise
the Repurchase Right shall not constitute a waiver of any other repurchase
rights that may subsequently arise under the provisions of this Agreement or
any other agreement between the Corporation, W&B and/or Ocean Way. No waiver
of any breach or condition of this Agreement shall be deemed to be a waiver
of any other or subsequent breach or condition, whether of like or different
nature.
6.4 Cancellation of Shares. If the Corporation shall make available, at the
time and place and in the amount and form provided in this Agreement, the
consideration for the Shares to be purchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be purchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or
not the certificate or certificates therefor have been delivered as required
by this Agreement.
6.5 W&B and Ocean Way Undertaking. Each of W&B and Ocean Way hereby agrees
to take whatever additional action and execute whatever additional documents
the Corporation may deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on W&B, Ocean
Way or the Shares pursuant to the provisions of this Agreement.
6.6 Governing Law. This Agreement shall be governed by, construed under and
enforced in accordance with, the laws of the State of California, as such
laws are applied to contracts entered into and performed in such State
without resort to that State's conflict-of-laws provisions.
6.7 Successors and Assigns. The provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and W&B and/or Ocean Way, as the case may be, and W&B's and/or Ocean
Way's legal representatives, heirs, legatees, distributees, assigns and
transferees by operation of law, whether or not any such person shall have
become a party to this Agreement and have agreed in writing to join herein
and be bound by the terms and conditions hereof.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts. Each such counterpart shall be deemed to be an original and
all such counterparts shall together constitute one and the same instrument.
6.9 Captions. The captions and headings of the sections included in this
Agreement are inserted for convenience only and are not intended to affect
the meaning or interpretation of this Agreement.
6.10 Entire Agreement. This instrument contains the entire agreement of the
parties relating to the rights granted and obligations assumed in this
instrument. Any oral representations or modifications concerning this
instrument shall be of no force or effect unless contained in a subsequent
written modification signed by the party to be charged.
6.11 Attorneys' Fees. If any legal action, arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of any alleged
dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
actual attorneys' fees (including fees for paraprofessionals and similar
personnel and disbursements) and other costs it incurs in that action or
proceeding, in addition to any other relief to which it may be entitled. The
parties agree that actual attorneys' fees shall be based on the attorneys'
fees actually incurred (based on the attorneys' customary hourly billing
rates) rather than the court or arbitrator making an independent inquiry
concerning reasonableness.
6.12 Remedies Cumulative. The remedies of each party contained in this
Agreement are cumulative and shall not exclude or diminish any other remedies
to which such party may be lawfully entitled.
6.13 Dispute Resolution. All claims, disputes and other matters in
controversy ("Dispute") arising directly or indirectly out of or related to
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall
be resolved exclusively according to the procedures set forth in this
Section.
(a) Neither party shall commence an arbitration proceeding
pursuant to the provisions of paragraph (b) below unless such party shall
first give a written notice (a "Dispute Notice") to the other party setting
forth the nature of the Dispute. The parties shall attempt in good faith to
resolve the Dispute by mediation under the American Arbitration Association
Commercial Mediation Rules in effect on the date of the Dispute Notice. If
the parties cannot agree on the selection of a mediator within twenty (20)
days after delivery of the Dispute Notice, the mediator shall be selected by
the American Arbitration Association. If the Dispute has not been resolved
by mediation within sixty (60) days after delivery of the Dispute Notice,
then the Dispute shall be determined by arbitration in accordance with the
provisions of paragraph (b) below.
(b) Any Dispute that is not settled by mediation as provided in
paragraph (a) above shall be resolved by arbitration before a single
arbitrator appointed by the American Arbitration Association or its successor
in Orange County. The determination of the arbitrator shall be final and
absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association or its successor then in
effect, and the pertinent provisions of the laws of the State of California
relating to arbitration. The decision of the arbitrator may be entered as a
final judgment in any court of the State of California or elsewhere.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
CORPORATION: Knowledge Foundations, Inc.,
a Delaware corporation
/s/ Michael W. Dochterman
Michael W. Dochterman, President & CEO
Address:
7852 Colgate Avenue
Westminster, California 92683
W&B: Wright & Bleers
Print Name:
Its:
Address:
Ocean Way: Ocean Way Investments, Ltd.
Print Name:
Its:
Address:
EXHIBIT A
LOCK-UP AGREEMENT
EXHIBIT B
INVESTMENT REPRESENTATION LETTERS
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ____________________________ hereby sell(s),
assign(s) and transfer(s) unto Knowledge Foundations, Inc. (the
"Corporation"), _____________________ (___) shares of the Common Stock of the
Corporation standing in __________________________ name on the books of the
Corporation represented by Certificate No. ________ herewith and does hereby
irrevocably constitute and appoint __________________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: , 20____
--------------------------
Signature
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the stockholder.
EXHIBIT D
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of Knowledge Foundations, Inc.
(3) The property was issued on _________________________.
(4) The taxable year in which the election is being made is the calendar
year __________.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the $.001 per share if
certain minimum standards are not met. Such repurchase right will lapse
after a 180 day period beginning on September ____, 2000 and ending on March
___, 2001.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $_________ per share.
(7) The amount paid for such property is ___________ per share.
(8) A copy of this statement was furnished to Knowledge Foundations, Inc.
for whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: _________________________.
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with
which taxpayer files his or her federal income tax returns. The filing must
be made within thirty (30) days after the execution date of the Stock
Issuance Agreement and should be made by registered or certified mail, return
receipt requested. The taxpayer must retain two (2) copies of the completed
form for filing with its federal and state tax returns for the current tax
year and an additional copy for its records.