EXHIBIT 10.19
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
JETFAX, INC.
Dated as of August 18, 1991
JetFax, Inc., a Delaware corporation (the "Company"), and Ailicec
California Corporation, a California corporation (the "Purchaser") have entered
into this Agreement for the purposes, among other things, of providing for (i)
the purchase by the Purchaser, and the issuance by the Company, on the terms and
subject to the conditions described herein, of certain shares of a new Series E
of the Company's preferred stock and (ii) the issuance of certain stock purchase
warrants by the Company to the Purchaser.
1. Creation of Series E Preferred Stock. The Company agrees to promptly
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take all necessary corporate action to authorize and create a new series of its
preferred stock out of its authorized but unissued preferred stock. Such stock
shall be known as Series E Preferred Stock, par value $.01 per share (the
"Preferred"). The Preferred shall have substantially the designations, powers,
preferences and relative and other special rights and the qualifications,
limitations and restrictions set forth in the Certificate of Designation (the
"Certificate of Designation") of the Company attached hereto as Exhibit A. The
Preferred shall, upon the terms and conditions set forth in the Certificate of
Designation, be convertible into shares of Common Stock of the Company, par
value $.01 per share (the "Common Stock") at an initial conversion rate of one
share of Preferred for one share of Common Stock, subject to adjustment as
provided in the Certificate of Designation.
2. Purchase and Sale of the Shares; Conversion of $300,000 Note. Subject
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to the terms and conditions set forth herein, the Company will issue and sell
(including converting the Company's certain indebtedness to shares), in a number
of closings, to the Purchaser, and the Purchaser will buy (including accepting
the conversion of certain indebtedness to shares) from the Company, a total
number of 930,232 shares, for an aggregate price of $2 million.
(a) Upon the approval, execution and delivery of this Agreement and the
fulfillment (or waiver by the Purchaser, in writing and in its sole discretion)
of all the conditions precedent set forth in paragraph 4 of this Agreement, the
indebtedness (including principal and accrued and unpaid interest) evidenced by
that certain promissory note of the Company dated June 11, 1991 in the principal
amount of $300,000 (the "$300,000 Note") shall be automatically converted into
the right to receive 139,535 shares of Preferred, and such indebtedness shall no
longer be considered outstanding for any purpose (except to the extent that it
represents the right to receive such shares of Preferred) nor shall such
indebtedness continue to accrue interest. The Company shall cause such shares of
Preferred to be issued to Purchaser upon the surrender to the Company
1.
of the $300,000 Note, whereupon the Company shall issue a stock certificate to
Purchaser evidencing such shares of Preferred.
(b) Upon the approval, execution and delivery of this Agreement and the
fulfillment (or waiver by the Purchaser, in writing and in its sole discretion)
of all the conditions precedent set forth in paragraph 4 of this Agreement, the
indebtedness (including principal and accrued and unpaid interest) evidenced by
that certain promissory note of the Company dated July 16, 1991 in the principal
amount of $100,000 (the "$100,000 Note") shall be automatically converted into
the right to receive 46,512 shares of Preferred, and such indebtedness shall no
longer be considered outstanding for any purpose (except to the extent that it
represents the right to receive such shares of Preferred) nor shall such
indebtedness continue to accrue interest. The Company shall cause such shares of
Preferred to be issued to Purchaser upon the surrender to the Company of the
$100,000 Note, whereupon the Company shall issue a stock certificate to
Purchaser evidencing such shares of Preferred.
(c) Subject to the other terms and conditions set forth in this Agreement
(including without limitation paragraph 4), Purchaser hereby subscribes for and
agrees to purchase, and the Company agrees to issue, at a price of $2.15 per
share, the following numbers of additional shares of Preferred on the respective
dates and for the corresponding cash purchase prices specified below:
No. of Shares of Aggregate Cash
Date Preferred to be Purchased Purchase Price
---- ------------------------- --------------
Date of the Agreement 69,767 $ 150,000
September 18, 1991 93,023 $ 200,000
October 18, 1991 116,279 $ 250,000
November 18, 1991 116,279 $ 250,000
December 18, 1991 116,279 $ 250,000
January 18, 1992 116,279 $ 250,000
February 18, 1992 116,279 $ 250,000
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Total 744,185 $1,600,000
provided that $103,125 of the cash purchase price due and owing on October 15,
1991 shall be payable by the surrender by the Purchaser to the Company of that
certain promissory note of the Company dated May 15, 1991 in the original
principal amount of $100,000 (the "$100,000 Note"). The Purchaser shall pay the
aggregate cash purchase price on the indicated dates (or next business day if
such date is not a business day) by delivering a bank check to the order of the
Company for such amount or wire transferring immediately available funds on such
indicated dates to a bank account designated by the Company. The dates set forth
in this Section 2(b) for the purchase of shares of Preferred by the Purchaser
are herein referred to as "Purchase Dates."
2.
(d) All shares of Preferred to be issued to Purchaser under this Section 2
are herein referred to as "Purchaser Shares." The Purchaser Shares shall be
evidenced by Preferred stock certificates. Such certificates shall be duly and
validly issued and registered in the name of the Purchaser, and shall be in
proper form. The Company shall deliver such certificates for the proper number
of shares (together with Warrants as required by this Agreement) on the
applicable Purchase Date. The closing of each purchase of shares (and Warrants)
under this Agreement shall occur at the offices of the Purchaser (located at
0000 Xxxxx Xxxxxxxxx, Xxxxxxxx 00, Xxxxx #0, Xxxxx Xxxxx, Xxxxxxxxxx) during
normal business hours, on the applicable Purchase Date (or if not a business
day, on the next following business day), or at such other place and time as may
be mutually agreeable to the parties.
(e) Upon the conversion or cancellation of the two Promissory Notes of the
Company dated June 11, 1991, and July 16, 1991 for the amounts of $100,000 and
$300,000, respectively, as hereinbefore stated in paragraph 2(a) and 2(b), the
Company shall pay to the Purchaser promptly, in cash, no later than one week
from the date of such conversion or cancellation, the entire accrued and unpaid
interest amount due and outstanding on such promissory notes.
(f) Notwithstanding any of the foregoing, the Purchaser shall have no further
obligation to purchase any Preferred shares in the event the Company fails to
meet any of the development milestones within 30 days of the applicable dates on
which such milestone should have been met as stipulated in Section 3(a) of the
Development Agreement executed by the parties on August ___, 1991. This
subparagraph (f) however shall not apply if the Company fails to meet the
development milestone set forth in section 3(a)(2) of the Development Agreement.
3. Issuance of Warrants.
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(a) Upon its purchase of at least $500,000 worth of Preferred shares under
2(b) above, the Purchaser will receive one warrant (each a "Warrant") for every
three shares of Preferred purchased. Thereafter, concurrent with each subsequent
purchase of shares under 2(b) above, the Purchaser will receive warrants on the
same pro rata basis for each $50,000 of Preferred purchased, until the Purchaser
has received a minimum aggregate of 310,077 Warrants. Each Warrant will be
exercisable for one share of Preferred at any time on or before February 15,
1994, for a purchase price of $2.75 per share, and shall otherwise be
substantially equivalent in terms of those Warrants issued to purchase Series A
Preferred Stock under that certain Warrant Agreement dated January 15, 1991.
Each Warrant shall be registered in the name of Purchaser, duly and validly
issued, and in the form of Exhibit B.
(b) The Purchaser acknowledges that the Company may offer and issue 61,728
shares of Series D Preferred Stock of the Company having substantially such
rights as set forth in that certain Certificate of Designation for Series D
Preferred Stock attached hereto as Exhibit C. Such shares may be issued at a
price of $1.62 per share to Xxxxxx Associates ("Xxxxxx") in connection with the
conversion of a $100,000 promissory note of the Company held by Xxxxxx, plus
warrants to purchase an additional 46,512 shares of Preferred at a price of
$2.15 per share exercisable on
3.
or before February 15, 1992 and warrants to purchase 36,030 shares at a price
of $2.75 per share on or before February 15, 1994. Series A Holders will also be
offered a small number of Series D (not to exceed 10,000) shares and similar
warrants pursuant to their contractual rights of first purchase, as described in
2(d).
(c) Prior to March 1, 1992, the Company will not issue any shares of
Preferred to any person or entity other than the Purchaser, except that the
Company may issue up to 370,334 shares of Preferred plus warrants to purchase up
to 121,518 shares of Preferred to registered holders of Series A Preferred Stock
of the Company as of the date first written above ("Series A Holders") who wish
to participate in this transaction, pursuant to their existing rights of first
purchase under certain Preferred Stock Purchase Agreements with the Company.
However, the Company does not anticipate more than 30,000 shares of Preferred
being acquired by existing Series A Holders. The prices offered to Series A
Holders for purchase of Preferred and the terms of the warrants will be
identical to the prices and terms offered to the Purchaser in this Agreement,
although the payment schedule and terms may vary from the terms of this
Agreement as mutually agreed between the Company and the Purchaser.
4. Conditions Precedent to Purchase. The obligations of the Purchaser to
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make purchases of Purchaser Shares and Warrants as set forth in 2(c) and 3 above
shall be subject to the prior satisfaction of each of the conditions precedent
set forth in 4(b) below (the "Conditions Precedent"), or the waiver of the
Conditions Precedent by the Purchaser, by written notice to the Company and in
the Purchaser's sole discretion.
(a) The following provisions shall also apply with respect to the purchase of
such shares and Warrants, notwithstanding anything to the contrary in this
Agreement:
(i) Until and unless the Conditions Precedent have been and remain
satisfied as described above, the Purchaser shall have no obligations to
purchase such shares or Warrants.
(ii) Notwithstanding (i) above, the Purchaser shall have the option to
waive any and all Conditions Precedent set forth in paragraph 4(b), in its sole
discretion, and to purchase any or all shares of Preferred listed in 2(c) above
(and corresponding Warrants as described in 3 above), at any time or times on or
after the applicable Purchase Dates, respectively, at the price of $2.15 per
share. The Purchaser may exercise such option to waive by written notice to the
Company, and the closing of such purchase shall occur within ten (10) days
thereafter. The Purchaser's option rights to waive any Condition Precedent and
to purchase shares notwithstanding under this subparagraph (ii) shall expire
within 120 calendar days from the applicable Purchase Date, but in no event
shall such option rights be exercised later than March 1, 1992.
(iii) If the Conditions Precedent become and remain satisfied (or are
waived by the Purchaser as described above) at any time after one or more
applicable Purchase Dates, then on the next occurring Purchase Date (the "New
Purchase Date"), the Purchaser shall also be
4.
obligated to purchase the shares (and Warrants) to have been purchased on such
prior Purchase Dates, on the same terms that would otherwise have applied and
the Company shall be obligated to sell all such shares (and Warrants) to the
Purchaser on such New Purchase Date, and the closing of such purchase and sale
shall occur on such date, provided, however, that the Company shall be subject
to no further obligation to offer or sell any remaining shares of Preferred (or
Warrants) to the Purchaser under this Agreement if all of the shares of
Preferred listed in 2(c) above have not been purchased by Purchaser on or prior
to March 1, 1992.
(iv) If the Conditions Precedent have not become or do not remain
satisfied (and have not been waived by the Purchaser as described above) on
March 1, 1992, then at any time thereafter the Purchaser may terminate all of
its obligations under this Agreement by written notice to the Company.
(v) The three Promissory Notes referred to in paragraph 2 shall remain
in effect, and all payments thereunder shall be due and payable as required by
the terms thereof, until each of them is converted in connection with the
Purchaser's purchase of Purchaser Shares pursuant to paragraph 2.
(b) The Conditions Precedent are as follows:
(i) The Company will have filed a Certificate of Designation for the
Preferred in the form attached hereto as Exhibit A with the Delaware Secretary
of State, authorizing a number of Preferred shares sufficient to issue 1,240,309
Preferred Shares to the Purchaser pursuant to the stock purchase under this
Agreement and through the Purchaser's exercise of all Warrants, plus such
additional shares (and shares issuable upon exercise or warrants) as may be
purchased by Series A Holders;
(ii) The board of directors of the Company shall have approved this
Agreement and all Associated Agreements (hereinafter defined in paragraph
4(6)(xi)), and the Purchaser shall have received adequate documentation of such
approval;
(iii) The shareholders of the Company shall have provided all necessary
consents or approvals under applicable law to permit the Company to execute,
deliver and perform fully this Agreement and all Associated Agreements, and the
Purchaser shall have received adequate documentation of such approval;
(iv) Key employees and officers of the Company including Xxx Xxxxx, Xxxx
Xxxxxx and others designated by the Purchaser shall have entered into employment
agreements with the Company containing appropriate noncompetition,
confidentiality and other customary provisions, and shall have irrevocably
assigned all key inventions, software and other technology created by them to
the Company, in form and substance reasonably satisfactory to the Purchaser;
5.
(v) The Purchaser shall have approved, in writing, the terms of all of
the Company's compensation arrangements with its officers, directors and other
key personnel;
(vi) All governmental and regulatory approvals in the United States
necessary to consummate the transactions between the Company and the Purchaser
shall have been obtained;
(vii) The Purchaser shall have received a legal opinion of the Company's
counsel with respect to the Company's corporate existence, authorized capital
stock, the rights of holders of the Preferred, and the enforceability of all
agreements between the Purchaser and the Company, in form and substance
satisfactory to the Purchaser and its legal counsel;
(viii) The Company shall not have taken any of the actions described in
paragraph 8 below without the approvals required by that paragraph, or such
action(s) shall have been cured or abrogated to the Purchaser's reasonable
satisfaction;
(ix) The Company shall have performed and complied in all material
respects with all of its obligations under any agreements or contracts with the
Purchaser (including without limitation this Agreement and the Associated
Agreements), or such breach(es) shall have been remedied to the Purchaser's
satisfaction;
(x) The Purchaser shall not have reasonably concluded, based on
documented evidence, that material irregularities have occurred in the
disbursement, handling or transmission of funds, or maintenance of books or
records, by the Company or any officer or director or employee thereof;
(xi) The Company and the Purchaser (or its designated affiliate) shall
have entered into a mutually acceptable Manufacturing Agreement, Product
Development Agreement and Product Marketing Agreement (collectively referred to
as the "Associated Agreements");
(xii) The Purchaser shall have entered into a mutually acceptable Tagalong
Agreement with Xxx Xxxxx and Xxxx Xxxxxx. Such agreement shall entitle the
Purchaser to participate, on a pro rata basis, in any sales of securities of the
Company by Xxx Xxxxx or Xxxx Xxxxxx which constitute, either individually or in
the aggregate, sales of more than five percent (5%) of the voting power of the
Company, calculated on a fully diluted basis (i.e., assuming exercise of all
options and conversion of all convertible securities); and
(xiii) All representations and warranties and other statements of the
Company herein and in any Associated Agreements shall be, on the applicable
Purchase Date and after giving effect to the transactions contemplated by this
Agreement and any such Associated Agreement, true and correct in all material
respects.
6.
5. Conditions to Sale. The obligation of the Company to issue and sell
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any or all of the Purchaser Shares to the Purchaser under Section 2(b) hereof
shall be subject to the fulfillment, or the waiver by the Company, prior to or
at the applicable Purchase Date, of the following conditions:
(a) All representations and warranties and other statements of the Purchaser
herein and in any Associated Agreements entered into between the Company and
Purchaser shall be, on the Purchaser Date and after giving effect to the
transactions contemplated by this Agreement and any such Associated Agreement,
true and correct in all material respects; and
(b) The Purchaser shall have performed and complied in all material respects
with all of its obligations hereunder and under any Associated Agreement entered
into between the Company and the Purchaser, required to be performed on or prior
to such Purchase Date.
6. Representations and Warranties of the Company. As of the date first
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written above and each Purchase Date, the Company hereby represents and warrants
to the Purchaser as follows:
(a) The Company has been duly incorporated and organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own its
properties and conduct its business as currently conducted. The Company has been
duly qualified as a foreign corporation for the transaction of business and is
in good standing, under the laws of each other jurisdiction in which the Company
owns or leases properties, or conducts any business so as to require such
qualification, other than where the failure to be so qualified or in good
standing would not have a material adverse effect on the Company.
(b) All of the common stock and preferred stock of the Company outstanding as
of the date hereof has been duly and validly authorized and issued, fully paid
and non-assessable. As of the date of this Agreement, the authorized capital
stock of the Company consists of: (i) 5,000,000 shares of common stock, par
value $.01 per share, of which 835,000 shares are issued and outstanding and
(ii) 3,000,000 shares of preferred stock, par value of $.01 per share, of which
1,000,000 shares have been authorized to be issued as Series A Preferred Stock
and 750,996 shares of which are issued and outstanding, 1,000,000 shares have
been authorized to be issued as Series B Preferred Stock and 546,474 shares of
which are issued and outstanding and 600,000 shares have been authorized to be
issued as Series C Preferred Stock and 504,834 shares of which are issued and
outstanding. Upon the filing of the Certificate of Designation as contemplated
in paragraph 1 hereof, there will be 1,500,000 shares of Preferred duly and
validly authorized for issuance. As of the date of this Agreement except (1) for
up to 300,000 shares of common stock reserved or available for sale pursuant to
options granted to certain employees, former employees, officers, consultants
and directors of the Company, (2) warrants to purchase a maximum of 82,592
shares of Preferred to be issued to Xxxxxx Associates, (3) Warrants issued
pursuant to that
7.
certain Warrant Agreement dated January 15, 1991 among the Company and certain
investors (the "Warrant Agreement") to purchase an aggregate of 30,001 shares of
the Company's Series A Preferred Stock (4) a subscription obligation to issue an
additional 60,000 shares of Series C Preferred Stock to Adlar Turnkey
Manufacturing Co. for a price of $1.25 per share, (5) certain contractual rights
of first purchase granted to certain holders of the Company's Series A Preferred
Stock, (which may entitle such holders to purchase up to a theoretical maximum
of 370,334 shares of Preferred, plus Warrants to purchase up to 121,518 shares
of Preferred, and a small number of shares of Series D Preferred Stock plus
Warrants in connection with the transactions contemplated by or described in
this Agreement) (6) obligations to issue Series D Preferred Stock in the amount
of 61,728 and related warrants to Xxxxxx, as described above and (7) the
conversion and other rights set forth in the certificates of designation related
to the outstanding shares of the Company's three series of its preferred stock,
as described above (a) there are no outstanding subscriptions, warrants,
options, calls, rights or commitments of any character relating to or entitling
any person to purchase or otherwise acquire from the Company any capital stock
of the Company, (b) there are no obligations or securities convertible into or
exchangeable for any shares of capital stock of the Company or any commitments
of any character relating to or entitling any person to purchase or otherwise
acquire any such obligations or securities, and (c) there are no preemptive or
similar rights to subscribe for or to purchase any capital stock of the Company;
(c) The execution, delivery and performance by the Company of this Agreement
and the consummation by the Company of the transactions contemplated thereby
have been or, prior to the applicable Purchase Dates will be, duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
(d) The execution and delivery of this Agreement and the issue and sale of
the Preferred and the grant of Warrants hereunder to the Purchaser, and the
compliance by the Company with all of the provisions of this Agreement and, when
filed by the Company with the Secretary of State of the State of Delaware, the
Certificate of Designation, and the consummation of the transactions herein and
therein contemplated will not result in a breach or violation of any of the
terms or provisions of or constitute a default under, or result in the creation
of any lien in respect to any property or assets of the Company under, the
Certificate of Incorporation or By-Laws of the Company, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which the
Company is a party or by which the Company is bound, or any statute or law to
which the Company or any of its properties is subject or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its properties; and, no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental
agency or body is required for the execution and delivery of, or for the
performance by, the Company of this Agreement, the issue and sale of the
Preferred constituting the Purchaser Shares and the Warrants, the placement of
the Purchaser Shares and the Warrants, or the consummation by the Company of the
other transactions
8.
contemplated by this Agreement except such as may be required under state
securities or Blue Sky laws and under the Securities Act of 1933, as amended
(the Securities Act") in connection with the placement of the Purchaser Shares
and the grant of the Warrants, and in connection with subsequent resales by the
Purchaser in such placement;
(e) There are no legal or governmental proceedings pending to which the
Company is a party or of which any of its properties is the subject, or which
challenge the validity or legality of this Agreement, the Associated Agreements
or the transactions contemplated hereby or thereby; and, to the best of the
Company's knowledge, no such proceedings are overtly threatened by governmental
authorities or by any other persons; and
(f) The Company is not to its knowledge in violation of any statutes, laws,
ordinances, governmental rules or regulations or any judgment, order or decree
(federal, state, local or foreign) to which it is subject nor has it failed to
obtain any licenses, permits, franchises or other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business (including, without limitation, matters relating to environmental laws
or regulations,) except for such violations and failures to obtain such
licenses, permits, franchises or other governmental authorizations that would
not, individually or in the aggregate, have a material adverse effect on the
business, results of operations or financial condition of the Company (whether
because such license, permit, franchise or other governmental authorization will
be obtained within a reasonable time after the date hereof or otherwise);
(g) The Company has not committed a material breach of, and is not in default
(or capable of being called in default) under, any loan agreement, promissory
note, guarantee, security agreement, including without limitation any existing
agreements between the Company and Silicon Valley Bank concerning the Company's
borrowings or credit;
(h) Upon issuance, each of the shares of Preferred and the Warrants will have
been duly authorized by all necessary corporate action on the part of the
Company; will be duly and validly issued, validly outstanding, fully paid and
nonassessable; and will not be subject to any liens or encumbrances. Such shares
will rank equally with all outstanding shares of Series A, B and D Preferred
Stock of the Company with respect to priority in payment of dividends and the
distribution of assets upon any liquidation of the Company, and no securities of
the Company will have priority over the Preferred with respect to such dividend
and liquidation matters;
(i) The Company has filed or caused to be filed all federal and state income
tax returns which are or were required to be filed, and has paid or caused to be
paid all taxes as shown on said returns. There are no disputes between the
Company and any governmental authority concerning taxes;
(j) The Company is not presently in default with respect to any judgment,
order, writ, injunction, or decree of any federal, state, local or foreign
court, department, agency or instrumentality;
9.
(k) Except as disclosed in writing to the Purchaser in the Disclosure
Statement attached hereto as Exhibit D, to the Company's best knowledge, the
Company's design, assembly, manufacture, distribution, marketing and sale of
its products (collectively "Company Activities") do not infringe any rights of
any third party or parties, including without limitation patent rights,
copyrights, trade secret rights, and/or other intellectual property rights; and
no material claims have been made or are intended to be made that the Company
Activities infringe any such rights;
(1) To the Company's best knowledge, the Company has not committed a material
breach of, and is not in default (or capable of being called in default) under,
any material license or technology transfer agreement with any third party or
parties.
(m) Holders of shares of Series A Preferred Stock and Series D Preferred
Stock do not have the right, by virtue of rights of first purchase, options,
warrants or otherwise, to purchase more than 80,000 shares of Preferred.
7. Representations and Warrants of the Purchaser. As of the date first
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written above and each Purchase Date, the Purchaser represents the following to
the Company:
(a) The Purchaser has full power and authority to enter into this Agreement,
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement, and the transactions contemplated hereby
have been duly authorized by all necessary action on the part of the Purchaser,
and this Agreement is a legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
(b) The Purchaser and its representatives have been furnished, prior to the
date hereof, with all information that it deems necessary to make an informed
business decision regarding an investment in the Company. The Purchaser
acknowledges that the Company has made available to the Purchaser and its
representatives the opportunity to ask questions of, receive answers and to
obtain information necessary to verify the accuracy of disclosed information.
The Purchaser, together with its representatives, have such knowledge and
experience in financial and business matters necessary to be able to analyze the
merits and risks of this investment. (c) The Purchaser is a wholly-owned
subsidiary of Ailicec International Enterprises, Ltd., a Hong Kong corporation.
The Purchaser further represents that it is an accredited investor as defined in
Regulation D promulgated under the Securities Act, is experienced in investing
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Preferred.
(d) The Purchaser hereby confirms that the Preferred to be received by the
Purchaser and the Common Stock issuable upon conversion thereof will be acquired
for investment for Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same
10.
(e) The Purchaser has received no representations or warranties (other than
as contained in this Agreement) from the Company or its employees or agents, or
any other person, in making its investment decision, and the Purchaser is
relying on the investigations made by the Purchaser and its representatives.
(f) The Purchaser acknowledges that there will be substantial restrictions on
the transferability of the Preferred (and the Common Stock issuable upon the
conversion thereof) acquired hereunder. Since the Preferred (and the Common
Stock issuable upon conversion thereof) will not be, and (except as set forth in
this Agreement) the Purchaser has no right to require that they be, registered
under the Securities Act or qualified pursuant to applicable state securities
laws, the Preferred (and the Common Stock issuable upon conversion thereof) may
not be, and each Purchaser agrees that they shall not be, sold unless such sale
is permitted under, or exempt from such registration under, the Securities Act
and any other applicable state blue sky law or regulation. The Purchaser further
acknowledges that except as expressly provided in this Agreement, the Company is
under no obligation to aid it in obtaining any exemption from the registration
requirements. The Purchaser acknowledges that the Purchaser shall be responsible
for compliance with all conditions on transfer imposed by any securities
administrator of any state.
8. Covenants for the Benefit of the Purchaser.
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(a) The Company agrees that for so long as any Preferred shares are
outstanding and held by the Purchaser; (i) a majority of the issued and
outstanding Preferred shall be entitled to elect two (2) of the members of the
Company's board of directors; (ii) the total number or members of the Company's
Board of Directors shall not exceed seven (7) without approval of a majority of
the holders of the issued and outstanding Preferred; (iii) the Company shall not
issue shares at any time to any third parties, including to any of the Company's
existing shareholders, which would cause the Purchaser to lose its majority
ownership of the issued and outstanding Preferred, or issue warrants, options or
convertible securities which, upon exercise or conversion, would cause the
Purchaser to lose such majority ownership; and (iv) the Company will not take,
and will not permit its officers, directors, employees, agents or
representatives to take, any of the following actions without the prior written
approval of a majority of the issued and outstanding Preferred:
(i) enter into any material transaction, make any significant loans or
payments to, guarantee (directly or indirectly) any obligations or indebtedness
of, or transfer any assets or property to, any officer, director, or employee of
the company or any affiliate thereof, any holder of more than five percent (5%)
of the voting power of the Company, or any Close Relative (as defined below) of
any of the foregoing;
(ii) enter or engage in any business other than the development,
manufacture and sale of facsimile machines, facsimile peripherals, and related
software and devices (including all current products of the Company);
11.
(iii) engage in any merger, reorganization, or sale of all or a
substantial portion of its assets prior to March 1, 1992;
(iv) prior to March 1, 1992, issue any equity securities of the Company,
other than pursuant to this Agreement, the Xxxxxx $100,000 Note conversion,
exercise of options issued under any employee stock option plan not exceeding
300,000 shares in the aggregate, or the exercise of outstanding (as of the date
first written above) options and warrants and rights of first purchase of Series
A Holders as described elsewhere in this Agreement;
(v) redeem or repurchase any equity securities of the Company in excess
of a cumulative total of 100,000 shares of Common Stock (or equivalent preferred
shares), other than shares of the Preferred;
(vi) during any twelve (12) month period, engage in any of the following
with a value either individually or in the aggregate in excess of $250,000: (1)
capital investments, (2) purchase or disposition of assets, or (3) lending funds
of any kind, or sales on credit to any single customer beyond the normal 60 day
credit terms;
(vii) select or change independent accountants or auditors;
(viii) enter into any agreements where payment, made by the Company can be
reasonably expected to be in excess of $1,000,000 in the aggregate;
(ix) make any material amendment in or to the Certificate of
Incorporation and/or Bylaws of the Company that could (or does) materially and
adversely affects the rights of the Purchaser;
(x) declare or pay any dividends on any equity securities of the
Company; or
(xi) initiate, defend, adjust, settle or compromise any claim, action,
suit or judgment by or against the Company involving an amount in excess of
$250,000 or any claim for equitable relief of like value.
"Close Relative" means any ancestor, lineal descendant, brother or sister or
lineal descendants of either, spouse, aunt, uncle, father-in-law, mother-in-law,
son-in-law, brother-in-law, daughter-in-law or sister-in-law.
(b) The Company further agrees as follows:
(i) Promptly upon the execution of this Agreement, the Company shall
cause its Board of Directors to amend the Bylaws of the Corporation so that (A)
Section 3.4 shall reflect the voting rights of the Preferred to elect two (2)
directors, as described in paragraph 8(a)(i); and (B) Section 3.10 shall provide
that notice of special meetings of the Board of
12.
Directors shall be mailed or otherwise given to each director at least ten (10)
days prior to the date of the meeting.
(ii) Upon the written request or the Purchaser, the Company shall provide
the Purchaser with reasonable assistance (A) in complying with any accounting,
tax or securities laws or regulations requiring the Purchaser (or its parent
corporation) to report on the Purchaser's investment in the Company; and (B) in
complying with any federal or state securities or "blue sky" laws applicable to
the purchase or subsequent resale (if any) of the Preferred. The Purchaser shall
reimburse the Company for any out-of-pocket costs reasonably incurred by the
Company in providing such requested assistance.
(c) As long as Purchaser holds not less than 3% of the shares of Preferred
and/or Common Stock issued upon conversion of the Preferred, as adjusted for
Recapitalizations, the Company shall permit the Purchaser, at the Purchaser's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers and other employees, all at such reasonable times as may be
requested by the Purchaser, provided, however, that the Company shall not be
obligated pursuant to this paragraph (c) to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information.
9. Registration Rights.
-------------------
9.1 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from Holders (as
------------------------
defined below) of fifty percent (50%) of the issued or issuable Registrable
Securities (as defined below) (the "Initiating Holders"), a written request that
the Company effect a registration under the Securities Act with respect to not
less than a number of shares (as adjusted for recapitalizations) of Registrable
Securities, sufficient (when aggregated with the offering of other holders who
have similar registration rights who have so requested registration) so that the
net proceeds of a proposed offering of such shares would be reasonably estimated
to exceed $3,000,000, the Company will (i) promptly give written notice of the
proposed registration to all other Holders and (ii) as soon as practicable, use
its best efforts to effect such registration (including, without limitation,
appropriate qualification under blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within Twenty (20) days after actual receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 9.1:
13.
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) Prior to the earlier of (i) December 31, 1992, or (ii) six (6)
months after the effective date of the Company's first registered public
offering of its stock;
(C) If the Company receives an opinion of counsel, reasonably
satisfactory to a majority of the requesting Holders, to the effect that the
Holders can make open market sales of the outstanding Common Stock held by them
without registration, subject to the volume and manner of sale limitations or
such similar exemption from registration requirements of the Securities Act;
(D) During the period starting with the date sixty (60) days prior to
the Company's estimated date of filing of, and ending on the date six (6) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective;
(E) After the Company has effected one such registration pursuant to
this paragraph 9.1(a), and such registration has been declared or ordered
effective; or
(F) If the Company shall furnish to such Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company it would be seriously detrimental to the
Company or its shareholders for a registration statement to be filed in the near
future, in which case the Company's obligation to use its best efforts to
register, qualify or comply under this paragraph 9.1(a) shall be deferred for a
period not to exceed 120 days from the date of receipt of the written request
from the Initiating Holders.
Subject to the foregoing clause (A) through (F), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to this Section
------------
9.1 is for a registered public offering involving an underwriting, the Company
shall so advise the Holders as part of the notice given pursuant to paragraph
9.1(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 9.1 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this paragraph 9.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited as provided herein. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter(s) selected for such underwriting by a majority in interest of the
Initiating
14.
Holders, but subject to the Company's reasonable approval. Notwithstanding any
other provision of this paragraph 9.1, if the managing underwriter(s) advise(s)
the Initiating Holders in writing that marketing factors require a limitation of
the number of shares to be underwritten, then the Company shall so advise all
Holders participating and the number of shares of Registrable Securities that
may be included in the registration and underwriting shall be allocated among
all Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriters' marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration, and such Registrable Securities shall
not be transferred in a public distribution prior to 90 days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
9.2 Registration Form S-3.
---------------------
(a) If any Holder or Holder holding in the aggregate not less than fifteen
percent (15%) of the aggregate number of shares of the issued and outstanding
preferred and Common Stock issued upon the conversion of the preferred request
that the Company file a registration statement on Form S-3 (or any successor
form to Form S-3) for a public offering of the Registrable Securities the
reasonable anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is then entitled to use Form S-3 under applicable Commission rules to register
the Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this paragraph 9.2 in any six month period. The
substantive provisions of paragraph 9.5 shall be applicable to each registration
initiated under this paragraph 9.2.
(b) Notwithstanding the foregoing, the Company shall not be obligated to take
any action pursuant to this paragraph 9.2 (i) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act; (ii) if the Company, within ten (10) days of the receipt of the request of
the Initiating Holders, gives notice of its bona fide intention to effect the
filing of a registration statement with the Commission within ninety (90) days
of receipt of such request (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering
15.
solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities); (iii) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date six (6) months immediately following, the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or (iv) if the Company shall furnish to such
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its shareholders for registration statements to be filed in
the near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed 120 days
from the receipt of the request to file such registration by such Holder.
9.3 Optional Registrations. If at any time or times after the date first
----------------------
written above, the Company shall determine to register any of its securities
(for itself or for any other securities holder of the Company) under the
Securities Act or any successor legislation (other than a registration relating
to stock option plans, employee benefit plans or a Rule 145 transaction), and in
connection therewith the Company may lawfully register its Common Stock, the
Company will promptly give written notice thereof to the then Holders of all
issued or issuable Registrable securities and will use its best efforts to
include in such registration and to effect the registration under the Securities
Act of all Registrable Securities which such Holders may request in writing
delivered to the Company within fifteen (15) days after receipt by such Holders
of the notice given by the Company; provided, however, if the managing
-------- -------
underwriter for the Company advises the Company in writing that including all or
part of the Registrable Shares in such offering will adversely affect the
marketing of the proposed offering, then, in connection with any such
underwritten offering by the Company of any of its securities, such registration
of Registrable Securities shall be limited to not less than ten percent (10%) of
the total number of shares to be sold in the case of an initial public offering
of the Company's securities, and twenty percent (20%) of the total number of
shares to be sold in the case of a subsequent offering; further provided,
------- --------
however, that such limited number of shares of Common Stock in such offering
-------
shall be taken from those owned (or obtainable upon the exercise of rights with
respect to other securities) by a group of holders requesting registration
consisting of the Holders and other holders having similar registration rights
to those of the Holders, and such limitation shall be imposed upon the Holders
and such other holders pro rata on the basis of the total number of (i) shares
of Registrable Securities owned by the requesting Holders and (ii) shares of
Common Stock owned, or obtainable by them upon the exercise of rights with
respect to other securities, by such other requesting holders. In the event of
such a limitation, shares of persons not having similar registration rights will
not be included in such registration. The Company shall have the
right to select the managing underwriter or underwriters for any underwritten
public offering made pursuant to a registration under this paragraph 9.3.
9.4 Registrable Securities. For the purposes of paragraph 9:
----------------------
16.
(a) The term "Registrable Securities" shall mean (i) the Common Stock issued
or issuable upon conversion of all outstanding shares of the Company's preferred
stock that are so convertible, including without limitation the Preferred; and
(ii) any Common Stock or other securities of the Company issued or issuable with
respect to the Common Stock described in clause (i) by way of a stock dividend
or stock split, or other distribution, with respect to or in exchange for or
replacement of such Common Stock or other securities.
(b) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement.
(c) The term "Holder" means the Purchaser, so long as the Purchaser holds any
Registrable Securities, and any person to whom the registration rights conferred
by this Agreement have been transferred in compliance with the terms hereof.
9.5 Expenses of Registration.
------------------------
(a) All expenses of the registration and offering incurred in connection with
(i) one registration pursuant to paragraph 9.1, (ii) any registration under
paragraph 9.2, subject to (b) below and (iii) three registrations pursuant to
paragraph 9.3, shall be borne by the Company, except that the Holders shall bear
underwriting commissions and discounts attributable to their Registrable
Securities being registered and the fees and expenses of separate counsel, if
any, for such Holders. All other selling expenses relating to securities
registered on behalf of the Holders and all other registration expenses shall be
borne by the Holders of such securities pro rata. If the Company includes in any
registration any securities to be offered by it, all expenses thereof shall be
borne solely by the Company.
(b) A proportionate share of the expenses of the registration and offering
incurred in connection with (i) a registration pursuant to paragraph 9.2 and
(ii) any registration pursuant to paragraph 9.3 after the third registration
thereunder, shall be borne pro rata by the Holder or Holders requesting the
registration on the basis of the ratio of the number of their shares so
registered to the total number of shares included in such registration;
provided, however, that with respect to registrations under paragraph 9.2, the
-------- -------
Company shall pay fifty percent (50%) of such expenses.
9.6 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Purchaser under paragraphs 9.1, 9.2 and 9.3 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a
Purchaser provided that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws, and (ii) such assignee or transferee
acquires at least 5,000 shares of the Registrable Securities (appropriately
adjusted for recapitalizations).
17.
9.7 Standoff Agreement. The Holders shall, if requested by the managing
------------------
underwriter or underwriters of any proposed firm underwritten public offering of
securities by the Company, agreed not to sell any of their Registrable
Securities or any other securities of the Company owned by such Holders in any
transaction other than pursuant to such underwritten public offering for a
period of up to 90 days beginning on the effective date of the applicable
registration statement, provided that the Company's officers and directors and
each holder of 10% or more of the Company's issued and outstanding Common Stock
also agree to such limitations. The Holders shall upon request execute a
separate written agreement confirming and agreeing as to the foregoing.
9.8 Registration Indemnification. In the event of any registration under
----------------------------
the Securities Act pursuant to paragraph 9 of Registrable Securities of any
Holder, the Company will hold harmless such Holder and each underwriter of such
securities and each other person, if any, who controls such Holder or such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities to which such Holder or such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement, or any
preliminary prospectus or final prospectus or amendment or supplement thereto on
the effective date thereof, or arise out of or are based upon 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; and will reimburse
such Holder and each such underwriter and each such controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, or any preliminary prospectus or
final prospectus or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Holder or such underwriter specifically for use
in the preparation thereof.
It shall be a condition precedent to the obligation of the Company to include
in any registration statement any Registrable Securities then held by a Holder
that the Company shall have received an undertaking reasonably satisfactory to
it and its counsel from each Holder, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in the preceding paragraph) the
Company, each director of the Company, each officer of the Company who shall
sign such registration statement and any person who controls the Company within
the meaning of the Securities Act, with respect to any statement or omission
from such registration statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, if such statement or
omission was made in reliance upon and in conformity with information furnished
to the Company through an instrument duly executed by the Holder specifically
for use in the preparation of such registration statement, preliminary
prospectus or final prospectus or such amendment or supplement thereto.
18.
Promptly after receipt by an indemnified party under this paragraph 9.8 of
notice of the commencement of any action involving a claim referred to in the
preceding provisions of paragraph 9.8, such indemnified party will, if a claim
in respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action. In case any such action
is brought against an indemnified party, the indemnifying party will be entitled
to participate in and or assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses incurred by the latter in connection with the
defense thereof.
9.9 Registration Procedures. Whenever the Company is required by this
-----------------------
Agreement to use its best efforts to effect the registration of any securities,
the Company shall:
(a) prepare and file with the Commission a registration statement with
respect to such securities, and use its best efforts to cause such registration
statement to become and remain effective as provided herein;
(b) prepare and file with the Commission all amendments and supplements to
such registration statement and any prospectus used therewith as may be
necessary to keep such registration statement effective and current and to
comply with the provisions of the Securities Act with respect-to the sale or
other disposition of such securities;
(c) furnish to each Holder of such securities 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 such Holder may
reasonably request in order to facilitate the disposition of its securities; and
(d) use its best efforts to register or qualify the securities under such
other securities or "blue sky" or other applicable laws of such jurisdictions
within the United States as the Holder shall reasonably request, to enable the
Holder to consummate the public sale or other disposition in such jurisdictions
of such securities.
9.10 Rights Granted to Subsequent Investors. After the date first written
--------------------------------------
above, the Company shall not grant any registration rights to any third party or
parties without the written consent of the Purchaser, including subsequent
investors in the Company, except as follows. The Company may grant optional
registration rights with respect to Common Stock, comparable to or more limited
than those set forth in paragraph 9.3, provided that at most such rights shall
--------
be limited to sharing pro rata in the available portion of the registration in
question with all other participating holders of securities.
9.11 Rule 144 Undertakings. At any time and from time to time after the
---------------------
expiration of ninety (90) days following the earlier of the close of business on
such date as (i) a registration
19.
statement filed by the Company under the Securities Act becomes effective or
(ii) the Company registers a class of securities under section 12 of the
Securities Exchange Act of 1934, as amended, the Company shall use its best
efforts to make publicly available and available to the Holders, pursuant to
Rule 144 of the Commission under the Securities Act, such information as is
necessary to enable the Holders to make sales of Registrable Securities pursuant
to that Rule and the Company shall use its best efforts to timely file with the
Commission all documents and reports required of the Company under the
Securities Exchange Act of 1934. The Company shall furnish to any Holder upon
request (after the preceding sentence shall have become applicable), a written
statement executed by the company as to compliance with the current public
information requirements of Rule 144.
10. Right of First Purchase
-----------------------
10.1 Right of First Purchase. The Company hereby grants to Purchaser the
-----------------------
right to first purchase for a number of shares of the same class of New
Securities (as defined in this paragraph 10.1) which the Company may, from time
to time, propose to sell and issue. Purchaser shall be entitled to purchase a
number of shares of the class of New Securities sufficient to maintain its Pro
Rata Ownership in the Company after taking into account the proposed issuance by
the Company "Pro Rata Ownership" at any given time means the following ratio:
(a) the sum of (1) the total number of shares of Common Stock then held by
the Purchaser, plus (2) the total number of shares of Conversion Stock (as
defined below) then held by the Purchaser, plus (3) any additional unissued
Purchaser Shares which are issuable to the Purchaser under this Agreement, if
any;
divided by
----------
(b) the sum of (1) the total number of shares of Common Stock then
outstanding, plus (2) the total number of shares of Conversion Stock at that
time, plus (3) any additional unissued Purchaser Shares which are issuable to
the Purchaser under this Agreement, if any.
"Conversion Stock" means all then outstanding shares of convertible preferred
stock of the Company, other securities of the Company that are convertible into
Common Stock, and options, warrants (including without limitation the Warrants)
and other instruments or rights that are exercisable for or convertible into
Common Stock. As used in this paragraph 10, the number of shares of Conversion
Stock at any given time shall be calculated as the number of shares of Common
Stock into which it is then convertible, assuming conversion of all such
securities and exercise of all such options, warrants and rights.
(c) Except as set forth below, "New Securities" shall mean any shares of
capital stock of the Company including common stock and preferred stock, whether
now authorized or not, and rights, options or warrants to purchase said shares
of
20.
common stock or preferred stock, and securities of any type whatsoever that
are, or may become, convertible into said shares of common stock or preferred
stock. Notwithstanding the foregoing, "New Securities" shall not include (i) the
shares of Preferred or Warrants to be issued pursuant to this Agreement, (ii)
securities offered to the public generally pursuant to a registration statement
or pursuant to Regulation A under the Securities Act, (iii) shares issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or other reorganization whereby the
Company or its shareholders own not less than fifty-one percent (51%) of the
voting power of the surviving or successor corporation, (iv) shares of Common
Stock or related options exercisable for such Common Stock issued to employees,
officers and directors of, and consultants, customers, and vendors to, the
Company, pursuant to any arrangement approved by the Board of Directors of the
Company after the date first written above (provided, however, that the maximum
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number of such shares of Common Stock shall be 200,000, (v) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company or (vi) any shares issued pursuant to the matters described in clauses
(1) through (6) of paragraph 6(b) hereof.
(d) In the event the Company proposes to undertake an issuance of New
Securities, it shall give the Purchaser written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. The Company shall include with such notice a
brief summary of the then current business plan of the Company. The Purchaser
shall have fifteen (15) days from the date of receipt of any such notice to
agree to purchase up to the Purchaser's share (calculated in accordance with
this paragraph 10.1) of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. The Company shall notify
the Purchaser of any material revision to the price and terms of the issuance of
New Securities and the Purchaser shall be entitled to 15 additional days in
order to respond to the Company.
(e) In the event the Purchaser fails to exercise such right of first purchase
within said 15 day period (as extended, if applicable), the Company shall have
120 days thereafter to sell or enter into an agreement (pursuant to which the
sale of the New Securities covered thereby shall be closed, if at all, within 60
days from the date of said agreement) to sell the New Securities not elected to
be purchased by the Purchaser at a price and upon the terms no more favorable to
the purchasers of such securities than specified in the Company's notice to the
Purchaser. In the event the Company has not sold the New Securities or entered
into an agreement to sell the New Securities within said 120 day period (or sold
and issued New Securities in accordance with the foregoing within 60 days from
the date of said agreement), the Company shall not thereafter issue or sell any
of such New Securities, without again offering the securities to the Purchaser
in the manner provided above.
(f) The right of first purchase granted under this Agreement shall expire
upon the first to occur of the following: (i) the closing of the first public
offering of the Common Stock of the Company to the general public which is
effected pursuant to a registration statement filed with, and declared effective
by, the Commission under the Securities Act, resulting in proceeds to the
21.
Company of at least $2,000,000, or (ii) Purchaser does not then hold at least
100,000 shares of Preferred, Common Stock and/or Conversion Stock (appropriately
adjusted for recapitalizations).
(g) The right of first purchase granted hereunder is not assignable except by
the Purchaser to any wholly-owned subsidiary that acquires at least 100,000
shares (appropriately adjusted for recapitalizations).
(h) Notwithstanding anything to the contrary contained in this paragraph 10,
in the event the New Securities proposed to be issued by the Company are to be
convertible into shares of Common Stock, the right of first purchase granted
pursuant to this paragraph 10 shall, at the Company's option, apply to the
purchase of a pro rata number of shares of Common Stock into which the pro rata
number of shares of New Securities that the Purchaser otherwise would have been
entitled to purchase would be convertible. Substitution of Common Stock in lieu
of an offer of New Securities shall be indicated in the Company's notice to the
Purchaser pursuant to paragraph 10(b) hereof. Failure of the Purchaser to effect
its right of first purchase of such Common Stock shall entitle the Company to
issue such New Securities on any such terms as the Company shall approve,
provided that such securities shall at most be convertible into the maximum
number of shares of Common Stock set forth in the Company's notice to Purchaser.
11. Suspension or Termination of Certain Provisions. If Purchaser breaches
-----------------------------------------------
its obligation to purchase shares of Preferred under paragraph 2(c) hereof, and
such breach is not cured within thirty (30) days of the applicable Purchase Date
(or New Purchase Date, in the event the provisions of paragraph 4(a) (iii)
apply), the provisions of Sections 8, 9 and 10 hereof, and all rights, benefits
and covenants granted to or in favor of Purchaser thereunder, shall cease to
have any force or effect and the obligation of the Company to sell any remaining
shares of Preferred to Purchaser under Section 2(c) shall terminate; such
provisions and all such rights, benefits and covenants, and the obligation of
the Company to sell remaining shares of Preferred to Purchaser under Section
2(c) shall however be fully reinstated (effective as of the dated of such cure)
if Purchaser cures all breaches of Section 2(c) by the purchase of the
appropriate number of shares of Preferred within ninety (90) days from the
expiration of the above referenced thirty (30) day period. Notwithstanding the
foregoing, the Purchaser shall not be treated as having breached its obligation
to purchase shares of Preferred if the Company had failed to reach any of the
development milestones under Section 3(a) of the Development Agreement between
the parties and the provisions of Section 8 (with the exception of Section
8(a)(ii)), 9, and 10 hereof and all rights, benefits and convents granted to or
in favor of Purchaser shall continue in full force and effect.
12. Restrictions on Transfer; Other Agreements.
------------------------------------------
12.1 Restrictive Legend. (a) The Purchaser Shares and shares issued
------------------
pursuant to the exercise of the Warrants and any Conversion Stock issued in
connection therewith, shall (unless their disposition is otherwise permitted by
the provisions of this paragraph 11) be subject to stop
22.
transfer instructions and shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"This security has not been registered under the Securities Act of 1933, as
amended, and may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until registered under such Act, or unless such
offer, sale, transfer, pledge or hypothecation is exempt from registration
or is otherwise in compliance with such Act. The transferability of this
security is also subject to restrictions contained in a Stock Purchase
Agreement, a copy of which the Company will furnish to the holder of this
security upon request."
(b) The Company hereby agrees that it will, upon the Purchaser's request,
eliminate the foregoing legend and stop transfer instructions if, in the written
opinion of counsel (which counsel and opinion (in form, scope and substance)
shall be reasonably satisfactory to the Company), the Purchaser is entitled,
without limitation as to manner or sale to sell the Purchaser Shares without
registration under the Securities Act by reason of Rule 144 thereunder (or any
successor or equivalent provision).
12.2 Restrictions on Transfer. The Purchaser, by acquiring any of the
------------------------
Purchaser Shares and shares issued pursuant to the exercise of the Warrants,
hereby covenants and agrees that, except as provided in this Agreement, it will
not directly or indirectly offer for sale or sell (within the meaning of the
Securities Act) any of the Purchaser Shares or shares issued pursuant to the
exercise of the Warrants or any Conversion Stock issued in connection therewith.
(a) The Purchaser may offer or sell the Purchaser Shares or shares issued
pursuant to the exercise of the Warrants or any Conversion Stock issued in
connection therewith pursuant to:
(i) an effective registration statement under the Securities Act
("Registration Statement") filed by the Company under paragraph 9 hereof,
or
(ii) an exemption from registration under the Securities Act, provided
that prior to any such proposed transfer of the Purchaser Shares, the
Purchaser shall give written notice to the Company of the Purchaser's
intention to effect such transfer, which notice shall be accompanied by
such evidence as may be reasonably satisfactory to the Company that the
proposed transfer of the Purchaser Shares or other shares subject to
these restrictions may be effected without registration under the
Securities Act, whereupon the Purchaser shall be entitled to transfer the
Purchaser Shares or other shares subject to these restrictions in
accordance with the terms of the notice delivered by the Purchaser to the
Company, or
(iii) the provisions of Rule 144 (or any successor provision) under the
Securities Act, if applicable.
23.
(b) Any offer or sale of the Purchaser Shares or shares issued pursuant to
the exercise of the Warrants or any Conversion Stock issued in connection
therewith shall be made in accordance with Federal and state securities laws
(including the prospectus delivery requirements of the Securities Act), if
applicable.
(c) Each of the Purchaser Shares or shares issued pursuant to the exercise of
the Warrants or any Conversion Stock issued in connection therewith transferred
as above provided shall bear the appropriate restrictive legend set forth in
paragraph 11.1 above except as provided in paragraph 9 or if, in the opinion of
the legal counsel referred to above (which counsel and opinion (in form, scope
and substance) shall be reasonably satisfactory to the Company), such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
13. Miscellaneous.
-------------
13.1 Notices; Payments. Except as otherwise provided in this Agreement, all
-----------------
notices, requests, claims, demands, waivers and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered by hand, if delivered personally or by courier, or ten (10) business
days after being deposited in the mail (registered or certified mail postage
prepaid, return receipt requested) properly addressed as set forth below.
13.2 Headings; Schedules and Exhibits. The headings herein are for
--------------------------------
convenience of reference only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The
schedules and exhibits attached hereto, and the certificates and other documents
delivered as specified herein, are expressly made a part of this Agreement.
13.3 Effect of Agreement.
-------------------
(a) This Agreement, including the representations and warranties contained
herein and the annexes, schedules, exhibits, certificates, opinions and other
documents referred to herein or delivered pursuant hereto contain the entire
agreement between the Purchaser and the Company with respect to the subject
matter contained herein and supersede all prior agreements and understandings,
oral and written, with respect thereto. No representations and warranties other
than those contained herein or in any such annex, schedule, exhibit,
certificate, opinion or other document shall be deemed to have been made by the
Purchaser or the Company with respect to this Agreement. All of the
representations and warranties contained herein shall survive the execution and
performance of this Agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns but, except
as otherwise expressly provided herein, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be
24.
assigned by either of the parties hereto without the prior written consent of
the other party. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
(c) No right, power or remedy granted under this Agreement is intended to be
exclusive, but each shall be cumulative and in addition to any other rights,
powers or remedies referred to in this Agreement or otherwise available at law
or in equity; and the exercise or beginning of exercise by any party hereto of
any one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by such party of any or all such other rights,
powers or remedies. No waiver by any party hereto, and no failure or delay on
the part of such party in any one or more instances to insist upon strict
performance or observance of one or more covenants or conditions hereof, shall
in any way be, or be construed to be, a waiver thereof or prevent such party's
rights to require at a later time the performance or observance of such
covenants or conditions, or otherwise prejudice such party's rights, powers or
remedies.
13.4 Company Information. For so long as the Purchaser shall own Preferred,
-------------------
the Company shall furnish to the Purchaser (i) for the first three quarters of
each fiscal year reports of its business and operations (including unaudited
quarterly financial statements) and (ii) for each fiscal year, an annual report
of its business and operations (including financial statements which shall be
audited by a certified public accounting firm of established reputation).
13.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO THE CONFLICT OF LAWS RULES THEREOF.
13.6 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument. Execution and
delivery of this Agreement by exchange of facsimile copies bearing the facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Agreement by such party. Such facsimile copies shall constitute
enforceable original documents.
13.7 Lost, Etc., Certificates Evidencing Preferred Certificates; Exchange
--------------------------------------------------------------------
of Certificates. Upon receipt of evidence satisfactory to the Company of the
---------------
loss, theft, destruction or mutilation of any certificate evidencing any shares
of Preferred or Warrants held by the Purchaser, and in case of loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company,
or, in the case of such mutilation, upon surrender and cancellation of such
certificate, the Company will make and deliver in lieu of such certificate one
or more new certificates of the same series and in such denomination or
denominations as the Purchaser may request for the same aggregate number of
shares of Preferred or Warrants evidenced by the certificate so lost, stolen,
destroyed or mutilated, less the number of shares of Preferred, if any,
originally evidenced by such
25.
certificate that have theretofore been redeemed, and registered in such name or
names as the Purchaser may request.
Upon surrender by the Purchaser or its nominee of any certificate evidencing
any shares of Preferred for exchange at the office of the Company, the Company
at its expense (exclusive of applicable transfer taxes if any) will issue in
exchange therefor one or more new certificates of the same series and in such
denomination or denominations as such Purchaser may request for the same
aggregate number of shares of Preferred originally evidenced by the certificate
so surrendered, less the number of shares of Preferred, if any, evidenced by
such surrendered certificate that have theretofore been redeemed, and registered
in such name or names as such Purchaser or the Partnership may request.
13.8 Amendments; Waiver. This Agreement may be amended only by a writing
------------------
executed by or on behalf of both the Company and the Purchaser.
13.9 Severability. In the event that any term of provision of this
------------
Agreement shall, for any reason, be held invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other term of provision hereof, and this Agreement shall be interpreted and
construed as if such term or provision, to the extent the same shall be held to
be invalid, illegal, or unenforceable, had never been included herein.
13.10 Further Assurances. The parties shall each perform such acts, execute
------------------
and deliver such instruments and documents, and do all such other things as may
be reasonably necessary to accomplish the transactions contemplated by this
Agreement.
13.11 Costs. Except as expressly provided herein to the contrary, each party
-----
to this Agreement shall be responsible for its expenses incurred in connection
with the negotiation and performance of this Agreement. Further, each party
shall pay its own costs with respect to the hiring of auditors and attorneys
except as otherwise provided herein.
13.12 Resolution of Disputes.
----------------------
(a) General. In the event of any controversy or claim arising out of or
-------
relating to this Agreement, the breach hereof or the scope of this paragraph
12.12, either party may require by written notice to the other that such
controversy or claim by submitted to arbitration as provided herein.
(b) The parties hereby irrevocably agree to settle any controversy or claim
described in paragraph 12.12 (a) by written notice by either party to the other
pursuant to paragraph 12.12(a). The arbitration proceeding shall be conducted in
accordance with the Commercial Arbitration Rules then obtaining of the American
Arbitration Association. The place of the proceeding shall be San Francisco,
California. The decision of the arbitrators shall be final and binding upon both
26.
parties and their respective successors and assigns. Judgment upon the
award rendered may be entered in any court of competent jurisdiction.
(c) If either party commences any action or arbitration or judicial
proceedings against the other party to enforce any provision of this Agreement
or an award as described above, or to compel the other party to submit to
arbitration, the prevailing party in such action or proceedings shall be
entitled to recover from the other party the reasonable attorneys' fees and
other costs and expenses incurred by that prevailing party in connection with
such action or proceeding and in connection with the enforcement of any judgment
or order thereby obtained.
13.13 Indemnification. Each party shall indemnify, protect, defend, and hold
---------------
harmless the other party and such party's representatives, officers, employees,
and successors from and against any and all losses, claims, damages, expenses
and liabilities (including, without limitation, all out-of-pocket expenses,
expenses incurred with respect to any assessment or judgment, and fees and
disbursements of counsel and accountants) incurred or sustained by the other
party and/or such party's representatives, officers, employees, and/or
successors as a result of any event, occurrence, claims circumstance or other
matter arising from any material breach by the first party of any covenant of
this Agreement, or any failure or untruth of any representation or warranty made
by the first party herein. Each party's obligations under this paragraph 12.13
shall survive the execution and performance of this Agreement.
13.14 Force Majeure. Neither party shall be responsible for any failure to
-------------
perform its obligations hereunder due to any cause or event beyond such party's
reasonable control, including without limitation acts of God, war, civil
commotion, riots, embargoes, domestic or foreign governmental laws or acts,
regulations or orders, fires, floods, earthquakes, accidents, machinery
malfunctions, quarantines, strikes, lockouts or other labor difficulties. The
affected party shall give the other party prompt notice of such cause or event
no later than seven (7) days after such cause or event. The notice shall
describe the nature of the cause or event, including an estimation of its
expected duration and probable impact on the ultimate performance of the
affected party's obligations hereunder. Each party shall exercise all reasonable
efforts to mitigate or limit damages to the other party resulting from the
nonperformance.
EXECUTED on this 18th day of August 1991, but effective as of the date first
above written by the Company and the Purchaser.
JETFAX, INC.
By _____________________________
Title __________________________
By _____________________________
27.
Title __________________________
AILICEC CALIFORNIA CORPORATION
By _____________________________
Title __________________________
By _____________________________
Title __________________________
28.
