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EXHIBIT 10.7
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
NEON SOFTWARE, INC.
AND
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
DATED AS OF SEPTEMBER 20, 1995
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TABLE OF CONTENTS
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ARTICLE I - THE PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . 2
SECTION 2.1 Organization, Qualifications and Corporate Power . . . . . 2
SECTION 2.2 Authorization of Agreements, Etc . . . . . . . . . . . . . 2
SECTION 2.3 Validity . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.4 Authorized Capital Stock . . . . . . . . . . . . . . . . . 3
SECTION 2.5 Financial Statements . . . . . . . . . . . . . . . . . . . 4
SECTION 2.6 Events Subsequent to the Date of the Balance Sheet . . . . 4
SECTION 2.7 Litigation; Compliance with Law . . . . . . . . . . . . . . 5
SECTION 2.8 Third Party Approvals . . . . . . . . . . . . . . . . . . . 5
SECTION 2.9 Proprietary Information of Third Parties . . . . . . . . . 6
SECTION 2.10 Patents, Trademarks, Etc . . . . . . . . . . . . . . . . . 6
SECTION 2.11 Title to Properties . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.12 Leasehold Interests . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.15 Offering of the Preferred Shares . . . . . . . . . . . . . 7
SECTION 2.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.17 Transactions with Affiliates . . . . . . . . . . . . . . . 8
SECTION 2.18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.19 Non-Competition Agreement . . . . . . . . . . . . . . . . . 8
SECTION 2.20 Material Contracts and Obligations . . . . . . . . . . . . 8
SECTION 2.21 Compliance . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.22 Books and Records . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.23 U.S. Real Property Holding Corporation . . . . . . . . . . 9
SECTION 2.24 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.25 Qualified Small Business Stock . . . . . . . . . . . . . . 9
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . . . . . . . . 9
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS . . . . . . . . . . . 10
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ARTICLE V - COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.1 Financial Statements, Reports, Etc. . . . . . . . . . . . . 12
SECTION 5.2 Right of Participation . . . . . . . . . . . . . . . . . . 14
SECTION 5.3 Reserve for Conversion Shares . . . . . . . . . . . . . . . 15
SECTION 5.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.5 Properties, Business, Insurance . . . . . . . . . . . . . . 15
SECTION 5.6 Inspection, Consultation and Advice . . . . . . . . . . . . 16
SECTION 5.7 Restrictive Agreements Prohibited . . . . . . . . . . . . . 16
SECTION 5.8 Transactions with Affiliates . . . . . . . . . . . . . . . 16
SECTION 5.9 Expenses of Directors . . . . . . . . . . . . . . . . . . . 16
SECTION 5.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11 Board of Directors Meetings . . . . . . . . . . . . . . . . 16
SECTION 5.12 Reincorporation in Delaware . . . . . . . . . . . . . . . . 17
SECTION 5.13 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.14 Performance of Contracts . . . . . . . . . . . . . . . . . 17
SECTION 5.15 Vesting of Reserved Employee Shares . . . . . . . . . . . . 17
SECTION 5.16 Employee Nondisclosure and Developments Agreements . . . . 17
SECTION 5.17 Activities of Subsidiaries . . . . . . . . . . . . . . . . 17
SECTION 5.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . 18
SECTION 5.19 Keeping of Records and Books of Account . . . . . . . . . . 18
SECTION 5.20 Change in Nature of Business . . . . . . . . . . . . . . . 18
SECTION 5.21 U.S. Real Property Interest Statement . . . . . . . . . . . 18
SECTION 5.22 Rule 144A Information . . . . . . . . . . . . . . . . . . . 18
SECTION 5.23 Committees . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.24 Xxxxxxx Option . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.25 Further Assurances . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.26 Termination of Covenants . . . . . . . . . . . . . . . . . 19
SECTION 5.27 Qualified Small Business Stock . . . . . . . . . . . . . . 19
ARTICLE VI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.2 Survival of Agreements . . . . . . . . . . . . . . . . . . 20
SECTION 6.3 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.4 Parties in Interest . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 21
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SECTION 6.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.11 Titles and Subtitles . . . . . . . . . . . . . . . . . . . 21
SECTION 6.12 Waiver and Termination of Certain Provisions of Series A
Convertible Preferred Stock Purchase Agreement . . . 21
SECTION 6.13 Certain Defined Terms . . . . . . . . . . . . . . . . . . . 21
SECTION 6.14 Xxxxxxx'x Shares . . . . . . . . . . . . . . . . . . . . . 22
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Security Holders
INDEX TO EXHIBITS
EXHIBIT A Form of Amendment No. 1 to the Registration Rights Agreement
EXHIBIT B Form of Amended and Restated Stock Restriction Agreement
EXHIBIT C Charter and All Amendments Thereto
EXHIBIT D Form of Employee Nondisclosure and Developments Agreement
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Piskiel Noncompetition, Nondisclosure and Developments Agreement
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SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of
September 20, 1995 between Neon Software, Inc., an Illinois corporation (the
"Company"), and the several purchasers named in the attached Schedule I
(individually, a "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 6,183,339 shares (the "Preferred Shares") of the authorized but
unissued Series B Convertible Preferred Stock, no par value, of the Company
(the "Series B Preferred Stock"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Shares on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.1 Issuance, Sale and Delivery of the Preferred Shares. The
Company agrees to issue and sell to each Purchaser, and each Purchaser hereby
agrees to purchase from the Company, the number of Preferred Shares set forth
opposite the name of such Purchaser under the heading "Number of Preferred
Shares to be Purchased" on Schedule I, at the aggregate purchase price set
forth opposite the name of such Purchaser under the heading "Aggregate Purchase
Price for Preferred Shares" on Schedule I.
SECTION 1.2 Closing. The closing shall take place at the offices of
Xxxxxx & Xxxxxxxx, P.C., 000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, XX
00000-0000, at 11:00 a.m., Chicago time, on September 20, 1995, or at such
other location, date and time as may be agreed upon between the Purchasers and
the Company (such closing being called the "Closing" and such date and time
being called the "Closing Date"). At the Closing, the Company shall issue and
deliver to each Purchaser a stock certificate or certificates in definitive
form, registered in the name of such Purchaser, representing the Preferred
Shares being purchased by it at the Closing. As payment in full for the
Preferred Shares being purchased by it under this Agreement, and against
delivery of the stock certificate or certificates therefor as aforesaid, on the
Closing Date each Purchaser shall transfer to the account of the Company by
wire transfer the amount set forth opposite the name of such Purchaser under
the heading "Aggregate Purchase Price for Preferred Shares" on Schedule I.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached hereto as Schedule II:
SECTION 2.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Illinois
and is duly licensed or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such licensing or qualification, except where failure to so qualify
would not have a material adverse effect on the business, affairs or prospects
of the Company. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform this Agreement,
Amendment No. 1 to the Registration Rights Agreement with the Purchasers in the
form attached as Exhibit A (the "Registration Rights Amendment") and the
Amended and Restated Stock Restriction Agreement with the Purchasers and the
other parties thereto named in paragraph (g) of Article V of this Agreement, in
the form attached as Exhibit B (the "Restated Stock Restriction Agreement"), to
issue, sell and deliver the Preferred Shares and to issue and deliver the
shares of Common Stock, no par value, of the Company ("Common Stock") issuable
upon conversion of the Preferred Shares (the "Conversion Shares").
(b) The Company has no subsidiaries. The Company does
not (i) own of record or beneficially, directly or indirectly, (A) any shares
of capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity.
SECTION 2.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement, the Registration Rights Amendment and the Restated Stock Restriction
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Preferred Shares and the
issuance and delivery of the Conversion Shares have been duly authorized by all
requisite corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Articles of Incorporation of
the Company, as amended (the "Charter") or the By-laws of the Company, as
amended, or any provision of any indenture, agreement or other instrument to
which the Company, any of its subsidiaries or any of their respective
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries. To the best of the Company's knowledge, no provision of the
Restated Stock
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Restriction Agreement violates, conflicts with, results in a breach of or
constitutes (with due notice or lapse of time or both) a default by any other
party under any other indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable shares of Series B Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Registration Rights Amendment and the
Restated Stock Restriction Agreement. The Conversion Shares have been duly
reserved for issuance upon conversion of the Preferred Shares and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Amendment and the Restated Stock Restriction Agreement.
Neither the issuance, sale or delivery of the Preferred Shares nor the issuance
or delivery of the Conversion Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other similar
right in favor of any person, other than the preemptive rights of certain
holders of the outstanding shares of Series A Convertible Preferred Stock, no
par value, of the Company (the "Series A Preferred Stock") which preemptive
rights have been either exercised or waived by such holders with respect to
such issuance, sale and delivery.
SECTION 2.3 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
Registration Rights Amendment and, the Restated Stock Restriction Agreement,
when executed and delivered in accordance with this Agreement, will constitute
the legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject in each case, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
SECTION 2.4 Authorized Capital Stock. The authorized capital stock
of the Company consists of (a) 15,352,367 shares of Preferred Stock, no par
value (the "Preferred Stock"), of which (i) 9,169,028 shares have been
designated Series A Convertible Preferred Stock ("Series A Preferred Stock"),
and (ii) 6,183,339 shares have been designated Series B Preferred, and (b)
26,000,000 shares of Common Stock. Immediately prior to the Closing, 6,015,486
shares of Common Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof;
9,169,028 shares of Series A Preferred Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and no shares of Series B Preferred Stock shall have
been issued. The stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in
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accordance with all applicable laws. Except as set forth in the attached
Schedule III, (i) no person owns of record or is known to the Company to own
beneficially any share of Common Stock or Preferred Stock, (ii) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding and (iii) there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or
other such rights or to distribute to holders of any of its equity securities
any evidence of indebtedness or asset. Except as provided for in the Charter
or as set forth in the attached Schedule III, the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Except for the Series A Preferred Stock
Purchase Agreement dated as of May 9, 1995 by and among the Company and the
Purchasers named therein (the "Series A Purchase Agreement"), the Restated
Stock Restriction Agreement and the Voting Agreement by and among the Company,
ARCH Venture Fund II, L.P. and Xxxxxx X. Xxxx, Xx., dated as of May 9, 1995, to
the best of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and state
securities laws.
SECTION 2.5 Financial Statements. The Company has furnished to the
Purchasers the unaudited consolidated balance sheet of the Company as of July
31, 1995 (the "Balance Sheet") and the related unaudited consolidated
statements of income, stockholders' equity and cash flows of the Company for
the seven months ended July 31, 1995. All such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes) and fairly present the consolidated
financial position of the Company as of July 31, 1995 and the consolidated
results of their operations and cash flows for the seven months ended July 31,
1995, respectively. Since the date of the Balance Sheet, (i) there has been no
change in the assets, liabilities or financial condition of the Company (on a
consolidated basis) from that reflected in the Balance Sheet except for changes
in the ordinary course of business which in the aggregate have not been
materially adverse and (ii) none of the business, prospects, financial
condition, operations, property or affairs of the Company (on a consolidated
basis) has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 2.6 Events Subsequent to the Date of the Balance Sheet.
Since the date of the Balance Sheet, the Company has not (i) issued any stock,
bond or other corporate security, (ii) borrowed an amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the
ordinary course of business, (iv) declared or made any payment or distribution
to stockholders or purchased or redeemed any share of its capital stock or
other security, (v) mortgaged, pledged, encumbered or subjected to lien any of
its assets, tangible or intangible, other than liens of current real property
taxes not yet due and payable, (vi) sold, assigned or
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transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service xxxx, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.7 Litigation; Compliance with Law. Except as set forth in
Schedule II, there is no (i) action, suit, claim, proceeding or investigation
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, (ii) arbitration proceeding relating
to the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (including without limitation any
inquiry as to the qualification of the Company to hold or receive any license
or permit), and to the Company's actual knowledge there is no basis for any of
the foregoing. The Company has not received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, property or affairs. The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign. There is no action or suit by the
Company pending or threatened against others. To its knowledge, the Company
has complied with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, the Company
has all necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted, and the
Company has been operating its business pursuant to and in compliance with the
terms of all such permits, licenses and other authorizations. To the Company's
actual knowledge, there is no existing law, rule, regulation or order, and the
Company after due inquiry is not aware of any proposed law, rule, regulation or
order, whether Federal, state, county or local, which would prohibit or
restrict the Company from, or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it is now conducting
business.
SECTION 2.8 Third Party Approvals. No registration or filing with,
or consent or approval of or other action by any third party, is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Amendment, the Stock Restriction
Agreement and the Voting Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws
(all of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with
respect to the Registration Rights Agreement, the registration of the shares
covered thereby with the Commission and filings pursuant to state securities
laws.
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SECTION 2.9 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may
be violating any of the terms or conditions of his employment, non-competition
or non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the
best of the Company's knowledge, no person employed by or affiliated with the
Company has employed or proposes to employ any trade secret or any information
or documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any such person is obligated.
SECTION 2.10 Patents, Trademarks, Etc. Set forth in Schedule II is
a list and brief description of all domestic and foreign patents, patent
rights, patent applications, trademarks, trademark applications, service marks,
service xxxx applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or registered in the
name of the Company, or of which the Company is a licensor or licensee or in
which the Company has any right, and in each case a brief description of the
nature of such right. The Company owns or possesses adequate licenses or other
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service xxxx applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets, customer lists
and know how (collectively, "Intellectual Property") necessary or desirable to
the conduct of its business as conducted and as proposed to be conducted, and
no claim is pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with
the asserted rights of any other person under any Intellectual Property, and to
the Company's knowledge there is no basis for any such claim (whether or not
pending or threatened). To the Company's knowledge, no claim is pending or
threatened to the effect that any such Intellectual Property owned or licensed
by the Company, or which the Company otherwise has the right to use, is invalid
or unenforceable by the Company, and there is no basis for any such claim
(whether or not pending or threatened). To the best of the Company's
knowledge, all technical information developed by and belonging to the Company
which has not been patented has been kept confidential.
SECTION 2.11 Title to Properties. The Company has good and
marketable title to the properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security
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interests, liens, charges and other encumbrances, except for liens for current
taxes not yet due and payable and minor imperfections of title, if any, not
material in nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the operations
or proposed operations of the Company.
SECTION 2.12 Leasehold Interests. Each lease or agreement to which
the Company is a party under which it is a lessee of any property, real or
personal, is a valid subsisting agreement, without any material default of the
Company thereunder and, to the knowledge of the Company, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default under any such lease or agreement. The Company's possession
of such property has not been disturbed nor has any claim been asserted against
the Company adverse to its rights in such leasehold interests.
SECTION 2.13 Insurance. The Company has policies of casualty and
comprehensive general liability insurance in respect of (i) the plants,
equipment and inventory of the Company with extended coverage against such
casualties and contingencies, in such amounts and of such types as is customary
for companies similarly situated and are deemed by the Company to be sufficient
and (ii) its products and services against such casualties and contingencies,
in such amounts and of such types as is customary for companies similarly
situated and are deemed by the Company to be sufficient. Valid policies in
such amounts will be outstanding and duly in force at the Closing Date.
SECTION 2.14 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made in accordance with generally accepted practice by the Company
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. Except for taxes for the payment of which an
adequate reserve has been established on the Balance Sheet, there is no tax
lien, whether imposed by the Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company.
SECTION 2.15 Offering of the Preferred Shares. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer
or otherwise in connection with the offering or sale of the Preferred Shares or
any such similar security of the Company has offered the Preferred Shares or
any such similar security for sale to, or solicited any offer to buy the
Preferred Shares or any similar security of the Company from, or otherwise
approached or negotiated with respect thereto with, any person or persons, and
neither the Company nor any person acting on its behalf has taken or will take
any action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Preferred Shares under the Securities Act of 1933, as
amended (the "Securities Act"), or the rules and regulations of the Commission
thereunder), that might subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
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SECTION 2.16 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.17 Transactions with Affiliates. Except as set forth in
the Schedule II, no officer of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with
the Company, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.18 Employees. Xxxxxx X. Xxxx, Xx. has executed a
Non-disclosure and Developments Agreement on May 9, 1995 and such agreement is
in full force and effect. Each other key employee of the Company has executed
an Employee Nondisclosure and Developments Agreement (the "Employee Agreement")
substantially in the form of Exhibit D attached hereto, and such agreements are
in full force and effect. To the Company's actual knowledge, the Company has
compiled in all material respects with all applicable laws relating to the
employment of labor, including provisions relating to waves, hours, equal
opportunity, collective bargaining and the payment of Social Securities and
other taxes, and with the Employee Retirement Income Security Act of 1974, as
amended.
SECTION 2.19 Non-Competition Agreement. Xxxxxx X. Xxxx, Xx., has
entered into a Non-Competition Agreement with the Company substantially in the
form attached as Exhibit E (the "Non-Competition Agreement") and such agreement
is in full force and effect.
SECTION 2.20 Material Contracts and Obligations. Schedule II
includes a list of all material agreements of any nature to which the Company
is a party or by which it is bound, including without limitation (i) each
agreement which requires future expenditures by the Company in excess of
$10,000, (ii) all employment and consulting agreements, employee benefit,
bonus, pensions, profit sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements, and
(iii) any agreement to which the Company and any stockholder, officer,
consultant, independent contractor or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), is presently a
party, including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity.
All of such agreements and contracts are valid and binding obligations of the
Company, enforceable in accordance with their respective terms, and in full
force and effect, and the Company is not in material breach or default under
any such agreement or contract.
SECTION 2.21 Compliance. There is no term or provision of any
material mortgage, indenture, contract, agreement or instrument to which the
Company is a party or by which it is bound, or, to the best of the Company's
knowledge, of any provision of any state or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon the Company, which
materially adversely affects or, so far as the Company may now foresee, in the
future is reasonably likely to materially adversely affect, the business,
prospects, condition, affairs or operations of the Company or any of its
properties or assets.
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SECTION 2.22 Books and Records. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its board of directors and committees thereof.
The stock ledger of the Company is complete and accurate in all respects and
reflects all issuances, transfers, repurchases and cancellations of shares of
capital stock of the Company.
SECTION 2.23 U.S. Real Property Holding Corporation. The Company is
not now and has never been a "United States real property holding corporation",
as defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended (the "Code") and Section 1.897-2(b) of the regulations promulgated
thereunder.
SECTION 2.24 Disclosures. Neither this Agreement, the Registration
Rights Amendment, the Restated Stock Restriction Agreement nor any Schedule or
Exhibit hereto or thereto, nor any report, certificate or instrument furnished
to any of the Purchasers or their special counsel in connection with the
transactions contemplated by this Agreement, the Registration Rights Amendment,
the Restated Stock Restriction Agreement or the Charter, contains or will
contain any material misstatement of fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact which has or would have a material
adverse effect on the financial condition, business or prospects of the Company
which has not been disclosed to the Purchasers or to their special counsel.
SECTION 2.25 Qualified Small Business Stock. The Preferred Shares
constitute "qualified small business stock" as defined in Section 1202(c) of
the Code (assuming that the exchange of 4,584,514 shares of Common Stock for
4,584,514 shares of the Series A Convertible Preferred Stock, no par value, of
the Company effected on May 9, 1995 effected by Xxxxxx X. Xxxx, Xx. does not
disqualify the Preferred Shares from such treatment).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks
and merits of its investment in the Company and it is able financially
to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management;
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(d) the Preferred Shares being purchased by it are being
acquired for its own account for the purpose of investment and not
with a view to or for sale in connection with any distribution
thereof;
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or
Rule 505 or 506 promulgated under the Securities Act, (ii) the
Preferred Shares and, upon conversion thereof, the Conversion Shares
must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such
registration, (iii) the Preferred Shares and the Conversion Shares
will bear a legend to such effect and (iv) the Company will make a
notation on its transfer books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule
144A promulgated under the Securities Act, it will take all necessary
steps in order to perfect the exemption from registration provided
thereby, including (i) obtaining on behalf of the Company information
to enable the Company to establish a reasonable belief that the
purchaser is a qualified institutional buyer and (ii) advising such
purchaser that Rule 144A is being relied upon with respect to such
resale.
(g) it is an "institutional investor" within the meaning
of Section 4C of the Illinois Securities Law of 1953, as amended.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the
Preferred Shares being purchased by it on the Closing Date is, at its
option, subject to the satisfaction, on or before the Closing Date, of
the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall
have received from Xxxxxx & Xxxxxxxx, P.C., counsel for the Company,
an opinion dated the Closing Date, in form and scope reasonably
satisfactory to the Purchasers and their counsel.
(b) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article II
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as of such date, and the President of the Company shall
have certified to such effect to the Purchasers in writing, provided,
that if this agreement is executed on the Closing Date, execution of
this Agreement by such persons shall suffice.
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(c) Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date, and the
President of the Company shall have certified to the Purchasers in
writing to such effect and to the further effect that all of the
conditions set forth in this Article IV have been satisfied, provided,
that if this agreement is executed on the Closing Date, execution of
this Agreement by such persons shall suffice.
(d) All Proceedings to be Satisfactory. All corporate
and other proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers
and their counsel, and the Purchasers and their counsel shall have
received all such counterpart originals or certified or other copies
of such documents as they reasonably may request.
(e) Supporting Documents. The Purchasers and their
counsel shall have received copies of the following documents:
(i) (A) the Charter, certified as of a recent
date by the Secretary of State of the State of Illinois, and
(B) a certificate of said Secretary dated as of a recent date
as to the due incorporation and good standing of the Company,
the payment of all franchise taxes by the Company and listing
all documents of the Company on file with said Secretary.
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that attached thereto is a true and complete
copy of the By-laws of the Company as in effect on the date of
such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the
Registration Rights Amendment and the Restated Stock
Restriction Agreement, the issuance, sale and delivery of the
Preferred Shares and the reservation, issuance and delivery of
the Conversion Shares, and that all such resolutions are in
full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this
Agreement, the Registration Rights Amendment and the Restated
Stock Restriction Agreement; (C) that the Charter has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(B) above; and
(D) to the incumbency and specimen signature of each officer
of the Company executing this Agreement, the Registration
Rights Amendment or the Restated Stock Restriction Agreement,
the stock certificates representing the Preferred Shares and
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchasers or their counsel reasonably
may request.
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(f) Registration Rights Amendment. The Company shall
have executed and delivered the Registration Rights Amendment.
(g) Restated Stock Restriction Agreement. The Restated
Stock Restriction Agreement shall have been executed and delivered by
the Company and Xxxxxx X. Xxxx.
(h) Piskiel Agreement. Xxxxxx Xxxxxxx shall have
executed and delivered an Employee Noncompetition, Nondisclosure and
Developments Agreement in the form of Exhibit F hereto.
(i) Charter. The Charter shall read in its entirety as
set forth in Exhibit C. The Charter shall provide the number of
shares of authorized Common Stock of the Company may be increased or
decreased (but not below the number then outstanding) by the
affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote thereon,
voting together as a single class.
(j) By-Laws. The Company's By-laws shall have been
amended, if necessary, to provide that unless otherwise required by
the laws of the State of Illinois, (A) any director or (B) any holder
or holders of at least 25% of the outstanding shares of Preferred
Stock, shall have the right to call a meeting of the Board of
Directors or stockholders.
(k) Preemptive Rights. All stockholders of the Company
having any preemptive, first refusal or other rights with respect to
the issuance of the Preferred Shares or the Conversion Shares shall
have irrevocably waived the same in writing.
(l) Fees of Purchasers' Counsel. The Company shall have
paid in accordance with Section 6.1 the fees and disbursements of
Purchasers' counsel invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the
Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that for
so long as any Preferred Stock is outstanding:
SECTION 5.1 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser holding either (i) together with its affiliates,
500,000 Preferred Shares (as adjusted for stock splits, stock dividends and the
like) or (ii) all of the Preferred Shares purchased by it on the date hereof
(in either case a "Qualified Purchaser"):
(a) within fifteen (15) days after the end of each fiscal
year, but in no case later than one hundred twenty (120) days after
the end of each fiscal year of the Company, an audited
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consolidated balance sheet of the Company and its subsidiaries as of
the end of such fiscal year and the related audited consolidated
statements of income, stockholders' equity and cash flows for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company;
(b) within fifteen (15) days after the end of each month,
but in no case later than ninety (90) days after the end of each month
in each fiscal year (other than the last month in each fiscal year) a
consolidated balance sheet of the Company and its subsidiaries and the
related consolidated statements of income, stockholders' equity and
cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial
Officer of the Company but with no requirement to provide the
customary footnotes, such consolidated balance sheet to be as of the
end of such month and such consolidated statements of income,
stockholders' equity and cash flows to be for such month and for the
period from the beginning of the fiscal year to the end of such month,
in each case with comparative statements for the prior fiscal year,
provided that the Company's obligations under this Section 5.1(b)
shall terminate upon the completion of a firm commitment underwritten
public offering of the Company's securities;
(c) at the time of delivery of each annual financial
statement pursuant to Section 5.1(a), a certificate executed by the
Chief Executive Officer of the Company stating that such officer has
caused this Agreement and the Preferred Stock to be reviewed and has
no knowledge of any default by the Company in the performance or
observance of any of the provisions of this Agreement or the Preferred
Stock or, if such officer has such knowledge, specifying such default
and the nature thereof;
(d) at the time of delivery of each monthly statement
pursuant to Section 5.1(b), a management narrative report explaining
all significant variances from forecasts and all significant current
developments in staffing, marketing, sales and operations;
(e) no later than sixty (60) days prior to the start of
each fiscal year, consolidated capital and operating expense budgets,
cash flow projections and income and loss projections for the Company
and its subsidiaries in respect of such fiscal year, all itemized in
reasonable detail and prepared on a monthly basis, and, promptly after
preparation, any revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written
report submitted to the Company by its independent public accountants
in connection with an annual or interim audit of the books of the
Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of
all actions, suits, claims, proceedings, investigations and inquiries
of the type described in Section 2.7 that could materially adversely
affect the Company or any of its subsidiaries;
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(h) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that the
Company sends or makes available to its stockholders or directors or
files with the Commission; and
(i) promptly, from to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company and its subsidiaries as such
Purchaser reasonably may request.
(j) notwithstanding the foregoing, each Purchaser may
request certain financial statements in less time in order to prepare
partnership quarterly reports or annual audits. The Company will make
a good faith effort to comply with these requests.
SECTION 5.2 Right of Participation. The Company shall, prior to any
proposed issuance by the Company of any of its securities (other than debt
securities with no equity feature), offer to each Purchaser by written notice
the right, for a period of thirty (30) days, to purchase for cash at an amount
equal to the price or other consideration for which such securities are to be
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Common Stock of all such securities that are
so convertible, exercisable or exchangeable), such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice (treating each Purchaser, for the purpose of such computation,
as the holder of the number of shares of Common Stock which would be issuable
to such Purchaser upon conversion, exercise and exchange of all securities
(including but not limited to the Preferred Shares) held by such Purchaser on
the date such offer is made, that are convertible, exercisable or exchangeable
into or for (whether directly or indirectly) shares of Common Stock and
assuming the like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the participation
rights of the Purchasers pursuant to this Section 5.2 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of Common Stock, provided that
the securities issued pursuant to such stock dividend or subdivision are
limited to additional shares of Common Stock, (C) pursuant to subscriptions,
warrants, options, convertible securities, or other rights which are listed in
Schedule III as being outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment public offering,
(F) pursuant to the exercise of options to purchase Common Stock granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company, or to suppliers or other parties as payment for
goods or services rendered to the Company, not to exceed in the aggregate
3,927,629 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common
Stock) less the number of shares (as so adjusted) issued pursuant to
subscriptions, warrants, options, convertible securities, or other rights
outstanding on the date of this Agreement and listed in Schedule III pursuant
to clause (C) above (the shares exempted by this clause (F) being hereinafter
referred to as the "Reserved Employee Shares"), and (G) upon the exercise of
any right which was not itself in violation of the terms of this Section 5.2.
The Company's written notice to the Purchasers shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. Each Purchaser may accept the Company's offer as to the full number of
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securities offered to it or any lesser number, by written notice thereof given
by it to the Company prior to the expiration of the aforesaid thirty (30) day
period, in which event the Company shall promptly sell and such Purchaser shall
buy, upon the terms specified, the number of securities agreed to be purchased
by such Purchaser. The Company shall be free at any time prior to ninety (90)
days after the date of its notice of offer to the Purchasers, to offer and sell
to any third party or parties the remainder of such securities proposed to be
issued by the Company (including but not limited to the securities not agreed
by the Purchasers to be purchased by them), at a price and on payment terms no
less favorable to the Company than those specified in such notice of offer to
the Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying
with this Section 5.2.
SECTION 5.3 Reserve for Conversion Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise
to comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Preferred Shares or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such corporate action
as may be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required
under applicable state securities laws in connection with the issuance of
shares of Common Stock upon conversion of the Preferred Shares.
SECTION 5.4 Corporate Existence. The Company shall maintain and,
except as otherwise permitted by Section 5.17 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.5 Properties, Business, Insurance. The Company shall
maintain and cause each of its subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types and in
such amounts as is customary for companies similarly situated, which insurance
shall be deemed by the Company to be sufficient. The Company shall also
maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of Xxxxxx X. Xxxx, Xx., (so long as he remains an employee
of the Company), in the amount of $1,000,000 with the proceeds thereof payable
to the Company. The Company shall not cause or permit any assignment or change
in beneficiary and shall not borrow against any such policy. If requested by
Purchasers holding at least a majority of the outstanding Preferred Shares, the
Company will add one designee of such Purchasers as a notice party for each
such policy and shall request that the issuer of each policy provide such
designee with ten (10) days' notice before such policy is terminated (for
failure to pay premiums or otherwise) or assigned or before any chance is made
in the beneficiary thereof.
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SECTION 5.6 Inspection, Consultation and Advice. The Company shall
permit and cause each of its subsidiaries to permit each Qualified Purchaser
and such persons as it may designate, at such Qualified Purchaser's expense, to
visit and inspect any of the properties of the Company and its subsidiaries,
examine their books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company and its subsidiaries with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Qualified Purchaser and such designees
such affairs, finances and accounts), and consult with and advise the
management of the Company and its subsidiaries as to their affairs, finances
and accounts, all at reasonable times and upon reasonable notice.
SECTION 5.7 Restrictive Agreements Prohibited. Neither the Company
nor any of its subsidiaries shall become a party to any agreement which by its
terms restricts the Company's performance of this Agreement, the Registration
Rights Amendment, the Restated Stock Restriction Agreement or the Charter.
SECTION 5.8 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person,
or member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.9 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected as a director solely or in part by the holders of
Series A Preferred Stock or Series B Preferred Stock (each a "Preferred
Director"), for all of his reasonable out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of the Company or any
Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds
from the sale of the Preferred Shares solely for working capital, sales and
marketing development, software applications technology and administration of
the business as outlined in the Company's business plan.
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at
least four times each year and at least once each quarter. The Company shall
permit each Qualified Purchaser to have one representative reasonably
acceptable to the Company attend each meeting of the Board of Directors of the
Company and each meeting of any Committee thereof and to participate in all
discussions during each such meeting. The Company shall send to each Qualified
Purchaser and such designee the notice of the time and place of such meeting in
the same manner and at the same time as it shall send such notice to its
directors or committee members, as the case may be. The Company shall also
provide to each Qualified Purchaser and such designee copies of all notices,
reports, minutes and consents at the time and in the manner as they are
provided to the Board of Directors or committee, except for information
reasonably designated
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as proprietary information by the Board of Directors. The Company may require
each such representative, prior to attendance at his or her first meeting of
the Company's Board of Directors, to execute a confidentiality agreement
reasonably acceptable to the Company. Notwithstanding the foregoing, the
Company may require that all affiliated Qualified Purchasers designate a single
representative to attend meetings of the Company's Board of Directors as long
as such Qualified Purchasers remain affiliated with each other.
SECTION 5.12 Reincorporation in Delaware. The Company shall take all
necessary actions as soon as practical but in no event later than January 1,
1996 to cause the Company to be reincorporated under the laws of the state of
Delaware.
SECTION 5.13 By-Laws. The Company shall at all times cause its
By-Laws to contain the provisions set forth in paragraph IV(i) of this
Agreement. The Company shall at all times maintain provisions in its By-laws
and/or Charter indemnifying all directors against liability and absolving all
directors from liability to the Company and its stockholders to the maximum
extent permitted under the laws of the State of Illinois.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employee Nondisclosure and Developments Agreements or the Non-Competition
Agreements without the unanimous written consent of the Preferred Directors.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company shall
not grant to any of its employees options to purchase Reserved Employee Shares
which will become exercisable at a rate in excess of 33-1/3% per annum from the
date of such grant without the unanimous written consent of the Preferred
Directors; provided, however, that options granted under the Company's
Management Stock Option Plan will vest one-sixth in year one, two-sixths in
year two and three-sixths in year three.
SECTION 5.16 Employee Nondisclosure and Developments Agreements. The
Company shall obtain, and shall cause its subsidiaries to obtain, an Employee
Nondisclosure and Developments Agreement in substantially the form of Exhibit E
from all future officers, key employees and other employees who will have
access to confidential information of the Company or any of its subsidiaries,
upon their employment by the Company or any of its subsidiaries.
SECTION 5.17 Activities of Subsidiaries. The Company shall not
permit any subsidiary to consolidate or merge into or with or sell or transfer
all or substantially all its assets, except that any subsidiary may (i)
consolidate or merge into or with or sell or transfer assets to any other
subsidiary, or (ii) merge into or sell or transfer assets to the Company. The
Company shall not sell or otherwise transfer any shares of capital stock of any
subsidiary, except to the Company or another subsidiary, or permit any
subsidiary to issue, sell or otherwise transfer any shares of its capital stock
or the capital stock of any subsidiary, except to the Company or another
subsidiary. The Company shall not permit any subsidiary to purchase or set
aside any sums for the purchase of, or pay any dividend or make any
distribution on, any shares of its stock, except for dividends or other
distributions payable to the Company or another subsidiary.
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SECTION 5.18 Compliance with Laws. The Company shall comply, and
cause each subsidiary to comply, with all applicable laws, rules, regulations
and orders, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise.
SECTION 5.19 Keeping of Records and Books of Account. The Company
shall keep, and cause each subsidiary to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.20 Change in Nature of Business. The Company shall remain
in the business of software development and consulting.
SECTION 5.21 U.S. Real Property Interest Statement. The Company
shall provide prompt written notice to each Purchaser following any
"determination date" (as defined in Treasury Regulation Section 1.897-2(c)(i))
on which the Company becomes a United States real property holding corporation.
In addition, upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.22 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.22 Rule 144A Information. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of any Purchaser or a
prospective buyer of Preferred Shares or Conversion Shares from any Purchaser,
all information required by Rule 144A(d)(4)(i) of the General Regulations
promulgated by the Commission under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of any
Purchaser, cooperate with and assist such Purchaser or any member of the
National Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Preferred Shares or
Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.24 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Preferred
Shares or Conversion Shares a written agreement to take all reasonable
precautions to safeguard the Rule 144A Information from disclosure to anyone
other than a person who will assist such buyer in evaluating the purchase of
any Preferred Shares or Conversion Shares.
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SECTION 5.23 Committees. The Company shall, by amending its By-Laws
or otherwise, establish and maintain a Compensation Committee of the Board of
Directors, which shall consist of two (2) directors, one of whom shall be a
Preferred Director. No compensation or other remuneration at an annual rate in
excess of $120,000 shall be paid to, and no capital stock of the Company shall
be issued or granted to, any director, officer or employee of, or any
consultant or adviser to, the Company or any of its subsidiaries, without the
approval of the Compensation Committee. No employee stock option plan,
employee stock purchase plan, employee restricted stock plan or other employee
stock plan shall be established without the approval of the Compensation
Committee. The Company shall, in conjunction with the first Board of Directors
meeting following the Closing, establish and thereafter maintain an Audit
Committees which shall have as its functions the selection of independent
auditors and the oversight of the Company's internal accounting procedures.
SECTION 5.24 Xxxxxxx Option. The Company shall use its best efforts
to issue to Xxxxxxx Xxxxxxx, in conjunction with the first meeting of the Board
of Directors of the Company following the Closing, an option to purchase up to
247,334 shares of Common Stock (as adjusted for stock splits, stock dividends
and the like) at a per share purchase of $.3032342. Such option shall vest in
three equal installments.
SECTION 5.25 Further Assurances. The Company shall use its best
efforts to take necessary action, in conjunction with the first meeting of the
Board of Directors of the Company following the Closing, to consider (a)
effecting a reverse stock split, (b) establishing other committees of the board
of Directors as is necessary or appropriate and (c) reviewing Piskiel's
employment agreements and arrangements in order to determine if any amendments
thereto would be necessary or appropriate.
SECTION 5.26 Termination of Covenants. The covenants set forth in
Sections 5.21 and 5.22 shall terminate and be of no further force or effect as
to each of the Purchasers when such Purchaser no longer holds any shares of
capital stock of the Company. All of the other covenants set forth in this
Article V shall terminate and be of no further force or effect as to each of
the Purchasers when such Purchaser is no longer a Qualified Purchaser. Each
Purchaser acknowledges that the covenants terminate with respect to such
Purchaser as set forth in the preceding sentence in the event that such
Purchaser's holdings of Preferred Shares are reduced via conversion of such
holdings into Common Stock, whether voluntarily or involuntarily.
SECTION 5.27 Qualified Small Business Stock. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and any related Treasury Regulations. In addition, within ten (10)
days after any Purchaser has delivered to the Company a written request
therefor, the Company shall deliver to such Purchaser a written statement
informing the Purchaser whether such Purchaser's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code (subject to the assumption set forth in Section 2.25). The Company's
obligation to furnish a written statement pursuant to this Section 5.27 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that assuming a
successful completion of such transactions, the Company shall pay the fees and
disbursements, not to exceed $20,000, of the Purchasers' special counsel,
Xxxxx, Xxxxxxx & Xxxxxxxxx, in connection with such transactions and any
subsequent amendment, waiver, consent or enforcement thereof.
SECTION 6.2 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Amendment, the Restated Stock Restriction Agreement or any certificate or
instrument delivered to the Purchasers pursuant to or in connection with this
Agreement, the Registration Rights Amendment or the Restated Stock Restriction
Agreement, shall survive the execution and delivery of this Agreement, the
Registration Rights Amendment and the Restated Stock Restriction Agreement, the
issuance, sale and delivery of the Preferred Shares, and the issuance and
delivery of the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.3 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.4 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Preferred Shares or Conversion Shares.
SECTION 6.5 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at 0000 X. Xxxxxxx Xxxx, Xxxxx
000, Xxxxxxxxx, Xxxxxxxx 00000, Attention: President, with a copy to
Xxxx X. Xxxxxx, Esq., Xxxxxx & Xxxxxxxx, P.C., 000 Xxxxx Xxxxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, XX 00000-0000; and
(b) if to any Purchaser, at the address of such Purchaser
set forth in Schedule I, with a copy to Xxxxx X. Xxxxxxx, Esq., Xxxxx,
Xxxxxxx & Xxxxxxxxx, High Street Tower, 000 Xxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000;
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or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
SECTION 6.7 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 6.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.9 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent
of the Company and the holders of at least two-thirds of the outstanding shares
of Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 6.10 Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Waiver and Termination of Certain Provisions of Series A
Convertible Preferred Stock Purchase Agreement. The Company and the holders of
a majority of the outstanding Common Stock issuable upon conversion of the
Series A Convertible Preferred stock hereby agree that (i) effective
immediately prior to the consummation of the Closing, the covenants of the
Company in Article V of the Series A Purchase Agreement shall be terminated in
their entirety, shall be of no further force or effect, and shall be replaced
in their entirety by Article V of this Agreement, and (ii) the provisions of
Section 5.2 of the Series A Purchase Agreement are hereby waived with respect
to the transactions contemplated herein. The parties hereto agree that solely
for purposes of Article V of this Agreement, (i) the term "Purchasers" shall be
deemed to mean the Purchasers and the holders of the Series A Convertible
Preferred Stock, (ii) the term "Preferred Shares" shall be deemed to mean the
Preferred Shares and shares of Series A Convertible Preferred Stock, and (iii)
the term "Conversion Shares" shall be deemed to mean the Conversion Shares and
shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock.
SECTION 6.13 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
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(a) "person" shall mean an individual, corporation,
trust, partnership, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or
other entity.
(b) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having
ordinary voting power to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time stock of
any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at
the time directly or indirectly owned by the Company, or by one or
more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
SECTION 6.14 Xxxxxxx'x Shares. The parties hereby acknowledge that
the Company has permitted Xxxxxxx Xxxxxxx to purchase 138,507 shares of the
total 468,285 shares purchased by him hereunder in consideration of his
services to the Company as a director.
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IN WITNESS WHEREOF, the Company, certain officers and employees of the
Company and the Purchasers have executed this Agreement as of the day and year
first above written.
NEON SOFTWARE, INC.
By:
------------------------------------
Xxxxxx X. Xxxx, Xx.
President
[Corporate Seal]
PURCHASERS:
ARCH VENTURE FUND II, L.P.,
a Delaware limited partnership
By: ARCH VENTURE PARTNERS, L.P.,
a Delaware limited partnership,
its General partner
By: ARCH Venture Corporation,
an Illinois corporation,
its General Partner
By:
-----------------------
Managing Director
VENROCK ASSOCIATES
By:
------------------------------------
General Partner
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VENROCK ASSOCIATES II, L.P.
By:
------------------------------------
General Partner
---------------------------------------
Xxxxxxx Xxxxxxx
For purposes of 6.12:
---------------------------------------
Xxxxxx X. Xxxx, Xx.
-00-
00
XXXXXXXX I
PURCHASERS
AGGREGATE
NUMBER OF PURCHASE PRICE
PREFERRED SHARES FOR PREFERRED
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED SHARES
----------------------------- ---------------- --------------
ARCH Venture Fund II, L.P.
0000 Xxxx 00xx Xxxxxx
Xxxxxx 000
Xxxxxxx, XX 00000 1,236,668 $ 375,000
Venrock Associates 3,080,714 $ 934,178
Venrock Associates II, L.P. 1,397,672 $ 423,822
Xxxxxxx X. Xxxxxxx 468,285 $ 142,000
--------- -----------
Total 6,183,339 $ 1,875,000
========= ===========
30
SCHEDULE II
DISCLOSURE SCHEDULE
I. LITIGATION
A. The Company is currently in a dispute with MSI concerning an
invoice in the amount of approximately $35,000 owed.
B. There is a possibility that a claim may be made against the
Company by MasterChart, Incorporated, in connection with a
license permitting the Company to use certain computer
software in the development of its products and providing for
the issuance to MasterChart of Neon Common Stock, which
issuance Neon has not made and does not intend to make.
II. INTELLECTUAL PROPERTY
A. The Company has no registered patents, trademarks or
copyrights.
B. In 1993, the Company applied to the U.S. Patent and Trademark
Office for registration of the service xxxx "NEON Systems,
Inc." The registration was refused in October, 1993, and the
application was subsequently abandoned.
III. STOCK OPTIONS
A. The Company maintains a Management Stock Option Plan, the
terms of which have been previously provided to the purchasers
and which will be amended to conform with the terms of this
Agreement. The Plan provides the Company with a right of
first refusal and repurchase rights with respect to certain
transfers of stock by recipients of the Management Stock
Options as well. As of the date of this Agreement, the
Company has granted options to purchase 576,500 shares of
Common Stock pursuant to this Plan.
B. The Company has granted options to purchase a total 34,000
shares of common stock to certain consultants and suppliers.
IV. FINANCING
A. Xxxxxx X. Xxxx currently holds a revolving note from the
Company for an amount up to $500,000. As of August 31, 1995,
the principal amount outstanding under such note is
approximately $321,000 and accrued interest is $9,200.
B. The Company maintains a $150,000 line of credit with Guaranty
Bank.
V. LIST OF MATERIAL AGREEMENTS
A. Master Software License and Distribution Agreements
Strategic Marketing Information, Inc., dated April 14, 1994
Xxxx and Xxxxxx Just, dated December 1, 1994
31
B. United Western Medical Center, Software Development Agreement
dated April 6, 1994
C. Multimedia Systems Integration, Inc., Licensed Software and
Software Maintenance Agreement
D. CONNECT: The Knowledge Network Corp., Master Agreement dated
December 14, 1994
E. Software License Agreements
Bertelsmann Music Group, dated March 9, 1995
Froedtert Memorial Lutheran Hospital, dated July 28, 0000
Xxxxx Xxxxxxxx Xxxxxxx Xxxxxx, dated June 29, 1995
Mercy Hospital, dated August 8, 0000
Xxxxxxxxx Xxxxx Hospital, dated June 18, 1995
Provenant Health Partners, dated February 10, 1995
Rose Healthcare System, dated June 5, 1995
United Western Medical Centers, dated February 10, 1995
X. Xxxxxxx Xxxxx & Co., Consulting Agreement, Middleware
Agreement, Development Agreement, and Technical Agreement
dated March 29, 1995 (Proposed)
G. Northwest Texas Hospital, PRISM License Agreement and
Statement of Work dated March 30, 1995
H. CyData, Inc., Marketing Agreement dated February 23, 1995.
Dr. Xxxxxx X.X. Xxxx, M.D., Processing Agreement with CyData,
Inc. dated February 23, 1995.
I. Dr. Xxxxxx X.X. Xxxx, M.D., Lease Agreement dated December 15,
1994.
J. Lutheran Medical Center, Engagement Letter dated December 23,
1994.
X. Xxxxxxx Health System, Development Contract for Universal
Medical Record Number System, dated June 17, 1995.
32
SCHEDULE III
SECURITY HOLDERS
NO. OF OPTIONS
NAME GRANTED
---- --------------
A. COMMON STOCKHOLDERS
Xxxx, Xxxxxx X. 5,415,486
Xxxxxxx, Xxxxxx 600,000
---------
Total 6,015,486
---------
B. SERIES A CONVERTIBLE PREFERRED STOCKHOLDERS
ARCH Venture Fund II, L.P. 2,292,257
Xxxx, Xxxx X. 6,876,771
---------
Total 9,169,028
---------
C. EMPLOYEE OPTIONS
Xxxxx, Xxxxx X. 6,000
Xxxxxxxx, Xxxxxx X. 1,200
Xxxxxxxxxx, Xxxxxx X. 30,000
Xxxxxx, Xxxx X. 15,000
Xxxxx, Xxxx 30,000
Day-Xxxx, Xxxxxxxx 3,000
Xxxxxxxx, Xxxxxx 21,000
Xxxxxxx, Xxxxxxx 600
Xxxxxxx, Xxxxxxxxx 30,000
Xxxxxx-Xxxxx, Xxxxxxx 7,200
Xxxxxx, Xxxx Just 37,800
Xxxxxxx, Xxxxx X. 15,000
Xxxxxx, Xxxxxx 2,000
Xxxxx, Xxxxxx X. 9,000
Xxx, Xxxxxx 30,000
X'Xxxxx, Xxxxx 27,000
Xxxxxx, Xxxxxxx 21,000
Pelizzoli, Paolo 30,000
Xxxxxxx, Xxxxxx 210,000
Xxxxxxx, Xxxxxxxxxxx X. 30,000
Xxxxxxxx, Xxxx X. 3,000
Xxxxxx, Xxxxxx 3,600
Xxxx, Xxxxx 6,000
Xxxxxx, Xxxx Shy 7,200
33
NO. OF OPTIONS
NAME GRANTED
---- --------------
Xxxxxxx, Xxxxx 900
---------
Total 576,500
---------
D. NON-EMPLOYEE OPTIONS
Xxxxxx, Xxxx X. 9,000
Xxxxx, Xxx 15,000
Xxxxx & Associates 10,000
---------
Total 34,000
---------
